I only had time this morning for a quick 1 point scalp. I had to travel to another town and from there do a several hour video conference. But this trade shows a nested pattern I talk about above so I am posting it for consideration. First larger context. Gap up open then trading range behavior for about 20 bars or then price heads south from top of the range in a bear trend within the range that led to a BO out of the bottom of the range. That was followed by a PB. That is when the channel can be draw in. Once you have a trend then a PB you can start drawing a channel. Actually on the 10:00 bar down in the bear trend you could start drawing a channel as that bar was a PB. certainly draw the channel in by bar 10:30 In channels the concept is price will meandering back and forth. Usually there will be price patterns nested within the channel. Depending on the broadness of the channel these may be larger patterns or micro patterns. A channel is a tilted range. In bear channels the odds for probability favor selling or shorting near the top as opposed to going long at the bottom. However, a trader can do both is the channel is broad enough to render 1 to 8 points in the ES, I am speaking. In this case we see a nested triangle (blue lines) within the channel (orange lines). Triangles are BO mode. Sooner or later price will BO north or south but BO it will. In this case, the apex is at the top of the channel giving greater odds that the BO of the triangle will be south since it is a bear channel. I missed the trade south on the BO (I forget what I was doing at the time...I think I was getting my carcass awake...as I was up late last night) but I did take the trade up from the bottom of the channel. I saw I could grab a quick 1 point scalp as price usually will go back and test the apex of the triangle. So, I grabbed my point and quit trading as I had to leave for a video conference in another town. But see the patterns. See the context, larger and immediate. See the nested patterns. These are multiple opportunities for 1 to 8 point scalps. Remember, a trader doesn't have to capture lots of points to make good in trading. If a trader can just become consistent reading and trading PA, and can just capture 1 to 3 points of the day he can make a lot of money just by upping the size of the position. Of course that depends on the size of one's account. You don't have to capture the larger move of the day. A trader can capture multiple small moves, with size, and then go fishing or golfing, or whatever, while another trader is getting bored waiting for the larger daily moves to come about. If I didn't need to travel out of town I would have entered right back again long on the very next bar and captured an even bigger move. Small captures can add up. Five ES contracts capturing 3 points, plus 5 contracts capturing 2 points, plus 5 contracts capturing 1 point. That comes to 3 trades for the session. That means 750.00 + 500.00 + 300 = 1550.00. Now translate that into yearly. It isn't that hard to capture 6 points in the ES just in the morning part of the session. NOTE: The triangle is basically a bear flag. It is a PB in the form of a bear flag in a bear trend. To see the bear trend better dial down to a smaller TF. The bear trend on the 5 min chart is from bar 9:45 to bar 10:10. On a smaller time frame like 2 min the bear trend is a two legged bear move. See second my second chart, an excerpt chart with yellow arrows, showing same triangle.... same entry and exit. SO...….. Remember, every bear bar is a bear trend on another TF. Every bull bar is a bull trend on another TF.
Volpri, Inspired by your posts I’m reading Brooks trilogy now and have one principal question. Preamble. When I trade my strategies, I always operate 3 scenarios after entry. Positive: PA is as expected when enter so profit taking plan should be applied. Negative: unexpected happens, and happens too fast, so stop loss limits the risk. Neutral: neither SL nor PT is reached, but Pa does not behave like expected so I must switch from profit taking plan to escape plan – minimize the loss, do not wait SL point and don’t expect to reach PT. In my trading about 50% of trades leads to neutral scenario. By analogy, how do I view the Brooks approach. The critical point is context determination. The phase of market cycle: range-bo-tight channel-broad channel-range. In hind side it’s always clear what phase took place here or there. But not in realtime. It is principally impossible to identify market phase perfectly. Does not mean whether trader uses discretional approach or formalized strategy. So, when trader decides what phase it is happening right now, there are 3 options, not just 2: 1/ phase Х continues 2/ phase X changes 3/ not clear, don’t know. Example: in hind side, for any trading range and any breakout attempt we can see whether the attempt leads to BO or failed BO. In real-time we cannot say it with 100% accuracy. There are options: BO, failed BO, don’t know. Not just BO/failed BO. The third option will always take place and implies no action (no trading). Questions: 1/ is my current understanding correct? 2/ if yes, what is ‘good enough’ (aka realistic expectation) average percentage of ‘don’t know’ option? 30%? 50%? More? Less? Any other comments or tips on topic?
Take your example in a TR. First an established TR is 20 or more bars of sideways PA behavior. Until then the sideways to down (in a bull trend) or sideways to up in a bear could just be a PB. But once I see 20 bars of TR price behavior then PA is likely in a range and not a PB. Now 80% of BO attempts (now since it has become an established trading range I can count all BO attempts top or bottom in that 20 bar sideways move and any more that take place after 20 bars...and see that 80% fail) top or bottom of an established range will fail and price if it has a BO will go back into the range, usually within 5 bars resulting in a failed BO. Another thing I want to keep in mind is once TR behavior reaches 40 bars or more bars then a successful BO of the TR, when it happens, has a 50% chance of breaking out the top or 50% chance of breaking out bottom. That means the prior context has likely lost it influence on the direction of the BO. Prior to 40 bars I look at the general context to assign probability of the BO being south or north out of the range in conjunction with the pressures within the sideways movement. That is, more bear bars or more bull bars. More series of bears bars or more series of bull bars. Range of the bars..large or small. These are all hints WITHIN the range as to which side is stronger: the bulls or the bears. In other words, where is the pressure within the range? To the bear side or to the bull side? Let’s say we had a bear trend that morphed into a sideways move. That sideways move continued for 20 bars. It is now likely a TR where 80% of BO attempts top or bottom fail. That means I can do two things. Fade the top edge and fade the bottom edge of the range when price gets there providing the range is at least three times as broad as a min scalp (1 point) and three times as broad as the average size bar (just a glance) in the prior sideways move since it started. If so, I can scalp. OR I CAN WAIT FOR A BO. Not just any BO but a SUCCESSFUL BO with FT (follow through). Successful means if it is a bull BO I want to see that bull BO close high and be followed by another bull bar closing near its high. AND any PB from that point to stay above the BO point of the range (top of the range) AND I want to see what price does for 5 bars. Does it stay above the top of the range? Is there a gap between the top of the range and the PB? Is the next bar or two (6th or 7th) bar the BO resuming? If these things are so then the BO is likely a successful BO that will have a second leg up after the initial PB to I will enter long to scalp the second leg up. See most successful BO’s of a range will generally have two legs or more. I scalp the second leg as that put higher probability in my favor. So I use the traders equation. Most traders just look at reward and risk without looking at probability. So they get whipsawed. They enter long on a BO of a range BEFORE it has proven to be a successful BO. Best to scalp the second leg after the BO has shown to be a successful BO. You can look in Brooks trilogy to read up on the traders equation. It figures risk..reward..probability and I want to have a positive traders equation to take the trade and have the odds in my favor. I don’t just trade a BO because a BO happened. Why not? Because 80% will fail! PA has to show me it is a successful BO with FT that renders a positive traders equation. In terms of setting the reward I like to look to the left for any possible strong resistance areas as I am calculating the traders equation. NOW look at another scenario. A bull BO of a range..strong BO...big bars and consecutive bars closing near their highs. I am not waiting for 5 bars to see if there is a PB back into the range resulting in a failed BO. I too consider this a successful BO and will enter long immediately betting that since the BO was so strong any PB will be followed by a. Second leg up. I will take the chance and go lo g before any PB occurs.
Per brooks, you should make your decisions as binary as possible. "Is this a BO or a Failed BO?" Based upon that it gives you the third answer of entering or not entering. If it breaks this is what i do, if it doesnt break this is what i do. Binary. Until you can answer one of those 2 questions you shouldnt be in a trade. Dont over-complicate it with these "30% for this decision, 40% for this one, and 30% for that other one" or you will just harm yourself psychologically. A TR has TR PA and markets have inertia. Also, until you get some experience, unless you want to nickel and dime your way with 1 and 2 points, dont scalp. The reason is because as someone less experienced you wont take as many trades - meaning, if you have a decent trend thats 30 bars long and you scalp out on the first bar you wont get back in when you should. So Brooks advocates for newbs to scalp until they get some experience - because it takes decent amount of scalps to keep the traders equation positive.
1) we can never be 100% sure. We can only assign probability that price will likely reach my PT before it reaches my SL. You figure that by plugging in the numbers into the traders equation. 2) what is “good enough”? For me it is when I can structure a trade with a positive traders equation after looking at the context (phase of the cycle) and any immediate context (price pattern..i.e. triangle...flag...wedge...etc) within the present phase of the cycle i.e. if a TR is the present phase then where is the price pattern at top...bottom...middle? In addition, what was the previous phase prior to the present market cycle phase. Was it a bull channel? A bear channel? Tight or broad channels? All this helps me assign probability in the traders equation. So “good enough for me” is when I can take a trade with a positive traders equation. If not then it is likely best to skip the opportunity. 3) your successful BO...failed BO..just don’t know scenario is postulating on what can happen. You can also have a failed BO that fails and price then becomes a successful BO! You can have a successful BO that subsequently fails to have a second leg to trade and there was only one leg up then a trading range with sideways...i.e. two back to back TR’s (looks like stairs). The best we can do is look at the larger context..i.e. the present phase of the market cycle and the prior market cycle. Then look at where price is at in the present market cycle. Then look at any PA patterns..triangle...wedges..micro tops and bottoms...pb’s implied PB’s and actual PB’s...head and shoulders patterns..flags...micro trends...etc and where these patterns are located in the present market cycle ...try to determine what the pressures are in the immediate market cycle..bull or bearish...then assign SL ..PT and PROBABILITY. That is, use the traders equation. And place a bet if I have a positive traders equation. For instance, say price had a strong bull BO of anything...then had a PB followed by the BO continuing. I now realize this is a bull channel. 30 minutes later price is near top of the channel and a small triangle has formed there. Knowing that 70% to 75% of BO out of the top of a channel FAIL, AND knowing that a triangle is a PA BO mode pattern, do I really want to bet that a BO north out of the triangle will be a successful one? Not me. I would be betting the triangle BO will fail. Ok what if it was a bull channel with PA at the bottom. And the same triangle formed and had a BO north out of the triangle. Would I bet the triangle BO would be successful for a scalp? Yes! Why? Because it happened at the bottom of the channel and any BO south out of a bull channel will fail 75% of the time and here I get a bull BO of a small triangle and price is at the bottom of the channel. I am gonna bet that price will head north towards the middle of the channel for at least a decent scalp or at worst a min scalp.
What are you saying is the traders equation? Since you say it takes a decent amount of scalps to keep the equation positive.
Brooks says a scalper needs to be correct 80% of the time for the traders equation to be positive. Most people arent going to be able to do that. So scalping and not getting back in right away, as opposed to holding through the whole trend, is always the downfall of newbs. Only certain types of people should be scalping anyway, whether experienced or not.
You still have not explained how you understand what the traders equation is according to brooks. So I ask what is the traders equation or what is your understanding as to what it is?
what do you mean what is it. pretty basic question. Risk/reward probability. Have good risk reward, have bad probability. Have good probability then you have terrible risk reward. Still doesnt negate what I have said previously. Most traders are better of swinging and not scalping.
And PS: where does Brooks say a scalper needs to be correct 80% of the time for the traders equation to be positive? Where in his books or video course?