Working in the garden bit stopped to eat breakfast and took a few trades. While my favorite trading is with ES and MES, what I am showing in this journal, works with the NQ and micro NQ. So over the next few days I will trade the micro NQ with small size so small account traders can see you don't necessarily have to have a large account to scalp. The NQ tends to be more directional than the ES. I took 4 trades. Two were straight long scalps back to back. Both on the same bar. Two were averaging down long scalps. Back to back. All trades were profitable. Will discuss them later. Have to get back to the garden it is getting hot outside. Here they are.
It started raining so I had to stop in the garden. Took another averaged down trade. 6 mini NQ contracts. Just exited moments ago. Another winner. The rain has stopped so I have to go to the feed store and back to the garden so this is the last trade for the day. I will explain todays trades over the weekend. Have a great weekend. I'm am done for the day Profit was $252.00 before comm. It was a long scalp with entries starting on bar 12:35 (last entry was on bar 13:05) and exiting of the total position (6 contracts) on bar 13:25
I will make a few comments about the micro NQ trades taken Friday. The first chart is the EOD chart showing all trades taken during the session. Five trades were taken. All were long. All were profitable. Two were straight long scalps. Three were averaging down longs. Ended the day $252.00 profit before commissions. The longest trade, timewise, was about 25-30 minutes and was the last trade taken. I first want to look at why I would take all long trades. It was mainly because of the contexts, both the larger and the smaller. And the TE (traders equation) that gives me an edge in setups within both of the contexts. Let's start by looking at the first chart which is an end of day (EOD) 5 minute chart showing all the trades taken that day. By the time I got my lazy carcass in gear it was after 10:00 a.m. By 10:20 I had my first trade. By then we can see that the day had opened with a GAP up open bull bar followed by 4 more bull bars. All closing near their highs. This is buying pressure. It is likely the first PB will fail and the trend up will continue. What kind of trend we don't yet know. However, as the first PB is ending by the 11th bar (bull bar) we can clearly see price had not reached the 20 ema on the PB. The three bars are FT (follow-thru bull bars.) See, sellers couldn't make that opening gap AND the opening BO fail. They could not even make price reach the 20 ema. So, there is a gap between the low of bars and the 20 ema. This is buying pressure. Remember a trader's main task is to determine which side is winning. The bulls or the bears. Where the pressure is. That skill is the most important skill a trader can develop as that is what will put him on the winning side with a high win rate and the ability to end the day profitable. Do I have days I cannot get it right? Yes I do and when that happens it is useful to then just stop trading and go SIM. I have days where my brain just simply doesn't work clearly (probably connected to the diabetes). So, to state again, as traders we need to learn to develop the skill to "see" where the pressures are. Dispense with the notion of the markest being random. It is a myth. There are real pressures being exerted in real markets. By real bulls and bears and 95% of those pressures are from institutions and HFT firms and algos. 5% are from you and I. We are the pip squeaks. They are not worried nor interested in you or I. They are more concerned with taking money from each other. Just set your SL's correctly, don't worry about them running the stops. Price is not going to get there unless an institution wants it to get there. You cannot even buy a single lot unless there is an institution willing to sell you 1 lot. So, your primary task is to detect what the institutions are doing and which side is winning. That is the side you want to be on. Setups are secondary and even entries and exits are secondary. Where the pressures are being exerted is of prime importance and can be detected by observing first the larger and the more immediate contexts. You do this by just simply looking at the path price is drawing out. Institutions cannot hide what they are doing. I mean they can, but they can't. In the end the chart will tell the story. So, is the larger and immediate context up? Is it down? is it sideways? What about the dynamics as it drew out the chart, fast or slow? Where is price in relation to its opening. What does this look like on a 5 min chart? What does it look like on a 15 min chart? What about on a 30 min chart? So try to detect the general context. There is nothing more important than context! CONTEXT, CONTEXT, CONTEXT! The same setups in two different contexts can, and often will, render two different results. You cannot just say "Oh it is a wedge top price is going south I better short." A wedge top in a strong bullish trend is more likely to fail and price continues up and it failing is actually a good sign of an impending MM (measured move) in the direction of the original trend. In strong bull trends wedge tops can fail over and over in sequence. Likewise, in strong bear trends wedge bottoms can fail multiple times. For ANY price pattern CONTEXT is the most important element or factor for determining if the pattern will fail, or succeed. Your setups are going to be based upon probability (at least I hope they are) and probability needs to also take into account CONTEXT otherwise a trade is PROBALLY going to fail. No matter what individual pattern a trader is looking at, or what setup he is looking at taking context has something to say about it succeeding or failing. The failure of patterns to pan out is why most traders give up on them or call them "ole fashion" or out of date. Or that they don't work today. But consider this the same patterns are on today's charts that were on the charts 60 years ago. And 60 years from now they will still be on charts if we are still using the charts in trading and the so-called global warming has not done us all in. So, determine the larger and immediate contexts FIRST, then look at patterns and setups. Then run the traders TE. Then execute entries placing initial SL's along with any initial PT's. Hopefully, the latter two were determined by the TE. Next once "in the trade"monitor the dynamics as the trade unfolds making adjustments in both the SL's and PT's or leave then as is (if the dynamics warrant doing so) until the profit or the loss hits you. So, back to contexts large and immediate, and determining where the pressures are. First, is price going up or down or sideways? If you are confused it is probably going sideways. Even though you may not see that sideways movement on the TF you are looking at. It is probably clearer on another TF. But, try to ascertain it on the TF you are looking at. Now to helped a trader detail in on where the pressures are at, look at, and consider the following: 1) The type of bars (bear/bull), their closes, their range, their relationship to each other and in particular the previous bar and the bars two or three bars back. 2) gaps (are there gaps between the close of a bar and the close of the previous bar or the close 2 or 3 bars back), gaps between open of one bar and the close of the next bar, gaps between the 20 EMA and the low (if bullish) or high (if bearish) of the 20 EMA patterns being formed. Is there an opening gap? Is price closing that opening gap or is the gap via subsequent bars actually getting larger? 3) How many times has the market attempted to resume it's move after a PB? This is known as bar counting. 4) Always look at volume (a quick peek not a studious one LOL) on any larger than average bar as it could be an exhaustion move and price is about to reverse or have a stronger PB. 5) Monitor PB's (pull backs). In trend, bull or bear, what were the previous PB's like, prior to the present PB that is unfolding? If the trend is fairly steep and strong with minor PB's (say 2 to 5 bars) and the trend continues then the present PB will likely be minor also and not a reversal. (this is important if a trader is looking at averaging down as a tactic) 6) FT (follow thru) Are there successive bull bars interrupted with one or two bear bars (the opposites for successive bear bars)? Or is it bull bar, bear bar, bull bars, bear bars (signs of standoff pressures neither side winning) 7) Over the last 30 or 40 bars are there more bull bars than bear bars? Are those bull bars on average bigger than the bear bars? 8) Are there deep PB's (over 50% of previous bar)? 9) Are overlapping bars (even if all successive overlapping bars are bull or bear bars.) When you look at the PA do you feel confused? If so any apparent trend is probably just a bear or bull leg in a trading range. On the other hand after a range has been established as a range, price can, and often will race to the top or bottom, even on big bars looking, thus looking like strong impending BO out of the top or bottom of the range. That is this is what "appears" to going to be happening next, to then only reverse back into the range leaving the inexperienced trader shaking his head in bewilderment as he thought a BO was certain. The KEY here is to realize it is ALREADY an established range 9as opposed to just a PB), price has inertia, and will probably keep doing what it is doing (i.e. sideways) Any chance of a BO, of a range, being successful needs FT. 80% of attempted BO's of ranges fail within 5 bars and price goes back into the range. There are more things on detecting pressures but this will suffice for now. Something to chew on. You may want to look at Brooks works for extensive detailed discussions of the matter. He is way more thorough than what I am being. Will discuss some of the things on subsequent charts of these 5 trades but right now I am wanting to take a few trades for today Monday 6-8-2020. Will try and get back later today with more analysis of these 5 trades above.
Contexts, the larger and the more immediate helps to set the probability figure. It is basically one's best guess that price will reach their initial reward before it will take out their stop. Let's say you have no set reward. How will you figure or assign probability? In this case since you don't have a initial reward I suppose you would have to just consider; what is the probability of this going into a trend in my favor before it would hit may SL. And assign a price in your favor where you would consider a trend to have been started and then use that as a calculation for probability. I would use the price for reward the price you think is where you could say the trend has started. Exits are always contingent on the unfolding dynamics. I don't necessarily exit at my initial target. Once in I will move it for more profit if I think there is a good chance I will get more as the trade unfolds. But to structure a trade that gives a mathematical edge you need some sort of min reward figure. Look at it this way, if price doesn't have at least a min reward possibility with decent probability then it probably won't make it to your trend possibility. So just assign a temporary reward. For you the calculation would be: probability assigned x min reward expected if there is going to be a trend > probability of loss X risk. So plug in some hypothetical numbers: your min reward (the points at where you would consider it to be a trend. Lets say it is 8 points. Your risk is four points. Ok assign probability. What is the probability of price reaching 8 points before it would hit your SL? Lets say you think, after looking a both contexts, that there is a 60% chance of it reaching your 8 points before it would hit your SL Therefore, 60x8=480 40x4=160 480>160 So a positive traders equation. Once your are in the trade reward can be adjusted to whatever. It is just you need a mathematical edge to enter the trade and not just a setup, IMO. There are three variables: probability, risk, reward. I believe all three need to be considered and not just saying I am shooting for a 3:1 reward to risk or an 8:1 reward to risk. It is OK to think in those terms but what is the probability of it actually turning out that way? That question should be asked and answered in my opinion. It would help eliminate bad entries on good setups. See two identical setups. One wins and one loses. Why? the odds favor that taking a good look at the larger and immediate context in which the trade setup was seen will be found to have been a factor. So, probability of a trade being successful is dependent in a great part upon the contexts. Lets look at another example: Say you decide if price reaches 10 points from your setup entry you will consider it is starting a trend. But you believe, based on the present volatility, that you are going to have to use a 8 point stop. But you have some doubts after looking at the context that price will make it to 10 points from your setup entry before it would hit your SL. So you assign 40% 40x10 = 400 60 x 8 =480 400<480 so a negative traders equation. That doesn't mean you can't take the trade it just means there is a bigger chance of it failing and your SL getting hit. Are you then willingly to take that setup or you gonna skip it? I know some traders argue take every setup in your system or you skew the results. But not every setup is equal even if it is the same exact setup. Probability based upon context has something to say about it. See, the argument of probability is directly connected to the contexts, both the bigger and the smaller. Say you trade PB's and enter once the PB has shown it has ended. So, look at two PB's both are basically the same. Entries are the exact same as defined per your rules. But one is found to be a PB in a broad Trading Range. The other is found to be a PB in a strong bull trend. Which PB is LIKELY to render a better trend trade? Context helps with probability. And why would you want to take a setup that has a poor probability of being successful? You can take trades that have a low probability of reaching your reward assigned IF that min reward is BIG and the probability of it failing is high but the risk is little and the trade renders a positive traders equation. For instance: You think there is a strong reversal about to happen just because of the way price is acting. So you figure IF the reversal is successful it will likely render me a big reward. And because price has been in bear trend but has stalled and showing signs of reversing into bull trend the risk is small. So, lets say you figure you will risk 2 points. If the trade goes in your favor you will likely get a 20 point rewards. But is has low probability but you want to take the trade and just see. So you assign 20%. 20% x 20=400 80% x 2= 160 400>160 so a positive traders equation even though the probability of it panning out is very low. But it is still a reasonable trade to take. And if it pans out well...…..great. If it doesn't your out 2 points
I don't believe the market is random. But if by random you mean just taking any ole trade regardless if it is one of your setups or not then the process for such a random trade is exactly the same. You have to look at the contexts and say "if I enter right now" can I structure this trade (by assigning and adjusting reward, risk, probability) to give me a positive traders equation? I will sometimes do this on the fly by the seat of my britches so to speak. I may not see a setup I usually would take but just by how price is dynamically moving around I believe I can make 3 points before I would get stopped out at 6 points SL. So I assign 80% So, 80x3=240 20x6=120 240>120 = positive traders equation Boom I am taking this trade. There is high probability I am going to get 3 points before I would lose 6 points. Doesn't look like a good R:R structure but it probably will end up being a good R:R because it is a high probability trade and that usually means ACR (actual risk) will be small as opposed to the initial risk of 6 points. But it also means if it is high probability I best not count on it being big reward so grab them 3 points when I can. Why? the fact that probability is high can only mean that much of the move has already taken place. There are exceptions like in very strong BO and I happen to hit it just right on my entry. You can get one or two of the variables in your favor but rarely will a trader get all three in their favor like in the perfect trade: high probability, big reward, low risk (the perfect trade) Look, bottom line assigning probability and using the traders equation is a great tool to help render a high win rate. It is a simple exercise that can better a traders results. Who in all honestly just hopes for a low win rate? I know the arguments. win rate means nothing...bla bla...I happen to believe win rate is good for the soul. After all, who wants to lose over and over then once in a while win even if ending up in the long haul, profitable. Why not win ALOT and also end up profitable? That is my take on it and how I see it. Not wanting to lose can be a psychological stronghold and wreck a traders account to be sure but to create losses that you have to battle with psychologically because of poor trades and a lack of considering probability is nonsense to me? Not me Jose. I'll take winning over losing EVERY time. Beside after entry, any PT can easily be adjusted for a bigger reward or a smaller reward, than the initial reward, if the dynamic of situation warrants doing so as the trade unfolds. Just some things to consider...……………..
Love the way you look at this. My question is how does this formula change with you averaging down into pullbacks ?
Thanks Volpri, I completely get your thoughts on expected value and as a former poker player this has always been how I look at trading. Probabilities, risk and reward to make profit in the long run. How I understand trading is hard because one has 3 difficult tasks to clear for every trade: - Defining a target - Defining a risk (stop) - Assigning a probability that the target will be reached before the stop. Each of those 3 subtasks are equally important to achieve positive expected value over time. How does averaging in affect those components? If I understand your posts correctly in general you adjust your target down, keep your stop where it was which means you increase the probability when managing your trade. Is this correct? If so: how do you calculate/assign the probabilities? Is it solely based on experience or do you have a statistical method for that?
There are different ways of doing it. Lets look at an averaging in long trade. How does the process work? I try to keep it simple as it can get complicated. So I assign the three variables initially as if it is a straight long scalp ..to start with. I want the traders equation initially to be in my favor. However, I also have in my mind the context. Are both contexts (larger and immediate) viable for averaging down if this trade goes against me on my straight long scalp? If I can answer yes to that question then I will consider averaging down if it goes against my initial entry. If I cannot say yes to averaging down then it is better to just get out or wait to see if my SL or my PT on my initial entry gets hit. So, basically I am making two assessments. I am first running the traders equation for a straight scalp long or short and taking my entry. But then I am also assessing the viability of averaging down in this trade if my initial scalp based on my traders equation is not working out as I thought, at least for the moment. It is clear every trade is a potential straight short or long scalp and every trade is judged as is a potential averaging down trade IF I can say yes to the context supporting averaging down. Now there is a process I prefer to use if I can say yes to averaging down. I want it to go against me enough that when I add it brings my BE price down at least 2 to 4 ticks in the ES or in MES. That is, I want each successive entry to accomplish that. In the NQ that will be basically the same idea except it will bring BE price down usually more because I let it go against me further in points than the ES before adding because the NQ tends to be more directional in it's moves than the ES. Now as my BE price goes down my PT also goes down on that last entry. So I slide my original entries PT down to my second entrie's PTon the DOM. I also will often slide, if need be, my SL on my first entry down to my SL on my second entry or I may slide my second entry SL up to my first entry SL thus in effect tightening my SL in the latter SL adjustment. It depends on the dynamics as to what I will do on the SL. So in essence, my PT is going down closer to my BE from where it was on my initial entry. And my SL is adjusting too (If needed) because of price continuing down. I know that sounds dangerous on the SL but remember I am looking at the entire context when doing this. In addition once average down, I assign a "give up" point. This is where I will simply exit my averaged down position no questions asked it price continues down and gets there. And I may even slide my SL to that point if the market is moving fast. If moving slow I may keep my adjusted SL where it is at on my averaged down position and only move it to my "give up point" if need be. Why would I do that? Why not just move the SL to my give up point? Because if there is a sudden quick crash like some jackass algo trying to dominate then I had rather take the lessor loss than the larger "give up" loss.That give up is usually based on a swing low PA where I believe my original scalp is wrong and my averaging down is also wrong and I have to get out to protect from further loss. Or in the case of a strong trend the "give up" point may just be on some Profit taking pause in the strong trend. OK once I am averaged down and it is now a waiting game I will figure again the TE but from my averaged down and adjust my PT and SL to render me a positive traders equation. That probably means getting my reward even closer to my BE. An alternative way and I usually use it is just move my PT down to 1 or 2 ticks above my original entry and at least try to get the comm paid on the first entry and make money on the subsequent entries. This is the more pragmatic and fast way. There are other ways to handle this but it can get complicated so I opt usually to do it based on the TE of the averaged down position or on the alternative way I just mentioned. Hope all this makes sense. The most important factor is to ALWAYS have that "give" point and adhere to it. Otherwise, things can get out of hand if you are reading the pressures wrong. I got my carcass out of bed late this morning and got to the computer around 10:05 I took an average down trade with two entries that will illustrate what I speak of above. Here is the chart. You can see my first entry. Then my second. My BE was right in the middle since it was just two entries. I moved my SL down to my second entry SL and I also moved my PT down to my second entry PT. Both were 8 points just to give me a bracketing price to execute and adjust after getting in. So I just moved everything down. I then mentally just figured the TE quickly that because of the context (uptrend since the open with the last 5 bars being bull bars and with gaps...you need to read about gaps two or three posts back) that any reversal here would be minor enough I could make a profit on a quick scalp and I decided price would likely reach reach 9969 before it would reach my 8 point SL from my averaged down position. My give up point was 9930 just below that profit taking pause in those 5 bull bars. So, you will notice that the mental TE was run in my mind and I adjusted my PT down to 9969 from my original PT on my first entry (which was also 8 points.. from that original entry). But it was also a few ticks above my first entry so all things coincided. I quickly got my exit hit and was out. I don't care what the market does afterwards. I can always enter again if PA indicates to do so. Or if it reverses south. But I have locked in my profits on my averaged down position. Like I said there are other ways to do it on averaged down trades but these two are the more pragmatic way in my opinion and experience. Hope this elucidates. I am not saying these two methods of handling it are the most precise but I am saying they are pragmatic.
And here is what happened after I took that averaged down trade. I got out just in time. See that is why I adjust the PT by one of the two methods I explained in my previous post. Price by going against my original position indicates some weakness coming in even though the trend has been up from the open. Price may be going to go into a range so I just need to grab what I can. The probability was high I could make a good straight scalp or even a good averaged down scalp but in the latter I don't shoot for a big reward. Just make my money and exit with another winner. I can always get back in if PA warrants doing so. I made another quick long scalp after that averaged down trade. Also a winner. PA as I type has now entered a range (20 or more bars of sideways move) so If I were to continue trading I would be using range trading tactics. From my last trade till now I was typing and eating breakfast so missed any additional opportunities. I have to go paint then I have to go to town so no more trading for now ...maybe later in the day.