testing

Anek's Holy Grail v 1.0 or AHG for short. Good working strategy for Day trading, principles can be applied to most time periods and instruments. This strategy works in most trending markets.

STEP 1 - DETERMINE THE TREND - (Up, down, sideways)

Determine if there is a MEANINGFUL TREND present, (There are two types.)
Positive Uptrend = higher highs, higher lows
Downtrend = lower highs, lower lows
The ones you should ignore (for now) because they require greater skill to consistently profit from or simply, the sideway ones:
Congestion/Indecision = higher lows, lower highs (Symmetric Triangle formations)
Consolidation = horizontal lows/highs
(Further explanation in additional patterns section)
As you gain more experience you can profit from;
Consolidation by fading support/resistance
Symmetric triangles (HL LH) because they tend to give birth to POWERFUL new trends
For now stick to the meaningful trends. (Uptrend and Downtrend)

Note: (HH’s and LL’s are defined by CLOSE, not wick for trend determination)

STEP 2 - ONCE A TREND HAS BEEN DETERMINED HOW TO PLAY IT (entry)

If a MEANINGFUL TREND (uptrend or downtrend) has been found we need a logical entry.

UPTREND

BUY on a pullback and be nimble with our target.
Take advantage of minor WEAKNESS in a STRONG TREND to get a good fill.
Target can be whatever you feel comfortable with, it is entirely up to you and only in time will you master this. A few examples as follows:
50% Fib retracement from the recent High to Low swing
Stochastic crossing,
few ticks below previous resistance
Upper Bollinger band.
measured move up
You could trail the stop to ride those breakouts, all very discretionary.
(Stop? Whatever would make it a lower low aka a CHANGE of trend)
Uptrend channel: Two higher lows, two higher highs


DOWNTREND (the evil twin)

SELL (Short) on a pop up and again be nimble with our target.
Take advantage of minor STRENTH in a WEAK TREND to get a good fill.
Target can be whatever you feel comfortable with, it is entirely up to you and only in time will you master this. A few examples as follows:
50% Fib retracement from the recent Low to High swing
Stochastic crosses when a trend has been determined with an opportunity to enter at low risk.
few ticks below above previous support
Lower Bollinger band.
measured move down
You could trail the stop to ride those breakdowns, all very discretionary.
(Stop? Whatever would make it a higher high aka a CHANGE of trend.)
Downtrend channel: Two lower highs and two lower lows

When looking for entry, say a long or even re-entry, you want strength to return in the pullback and when that happens make sure price did not violate the current highs and lows.

Never go against the trend. When the trend is strong buy a pullback. When the trend is weak short a pop up. The market can not be predicted consistently and consistency is what we want, so be smart about this. No exceptions!!!

If STOPPED OUT, meaning, a CHANGE of a trend, stay ON THE SIDELINES until a NEW MEANINGFUL TREND is defined and we take our stop like responsible traders.

REVERSALS are the enemy, they stop us out. Luckily, they are not very common which is exactly why this strategy works. Some days will be filled with them and sadly I don't know how to overcome this. On days like this, you will lose money.

A lower low without a lower high is not the same as a lower low with a lower high.... and a higher low without a higher high is not an uptrend.

CHANGE OF TREND

Trend must go from a downtrend to an uptrend or vice versa. (2 HH's 2 HL's or 2 LL's 2LH's)
The exception is if one of the two swings is a double bottom or a double top but the next swing must be a HH/HL or LL/LH.
If nothing of that kind, then you stay out and let a clear trend develop.
Trend line breaks are usually more aggressive when the last high was not a higher high, especially if it was a LOWER high.

Never call a top, never call a bottom, it is IMPOSSIBLE to predict accurately on a consistent basis therefore the best approach is to examine what is happening NOW, attempt to profit from possible volatility and situate yourself in a strategic place, with patience and conviction.

A bottom is never confirmed until you see higher lows *and* higher highs, with a subsequent low that is also a higher low hinting towards yet another new, higher high.

PIVOTS

Are both subjective and objective, that's where skill and experience comes into place.
The pivots plotted by the software are quick areas of reference but not necessarily written in stone as they have fixed parameters that might work for some scenarios and not for others.



STEP 3 - INDICATORS

UPDATE: Official List of Allowed Indicators for AHG

Support and Resistance visual aids (TRO indicators are excellent) www.kreslik.com
tro dynamic sr.zip
Trend lines, better if hand placed.
Highs and Lows visual aids
Volume based bars, tick based bars
Paintbars to accentuate price action
Candlesticks to find extra confirmations
Market internals, optional (useless to me, maybe I don't how to use them)
Zig Zag indicators to enhance patterns
Fibonacci Retracement percentages
50% is the best kept secret in trading
fib.illustration.1.jpg
fib.illustration.2.jpg Typo on chart, loss = lost
fib.illustration.3.jpg
Horizontal Lines
AHG E-motion (Dynamic Fib retracement) – see appendix
(Catalog of .eld files and paint bar code to be found in appendix)

Anything else unless it's a derivative to enhance any of the above without
adding lag to it is probably a waste of time.

Technical indicators are lagging in nature, as they only indicate past performance.
Price action is all that is needed and when using tick/share charts, volume indicators are unnecessary.

Volume indicators provide little information.
Time and Sales is invaluable and provides all the volume information needed. This is widely known as reading the tape. (screen time)
Don't complicate things, it all comes down to what is big volume doing, buying or selling.


However, there are some useful for strength/weakness references, entries and exits. Examples as follows:
TRENDLINES, as many as you need to determine the current trend. (Hand placed preferred)
FIBONACCI RETRACEMENT LINES, (Anek's favorite) 50% from last swing low/high provides an excellent entry point. Problem is sometimes the trend is so strong it won't even give you your wish and you miss the fill.
Used to predict targets not trends, for the trend you got price.
Trend line pierced with a body that closed (not a wick but body) and nothing but higher lows. Falling knives rarely make higher lows, when they do; it's most possibly a reversal.

Avoid the following technical indicators:

Any indicator that is not 100% based on price action.
Divergence never found to be very reliable so stopped looking for it.
STOCHASTICS: A cross can be a powerful tool when you are looking for an entry in a strong trend. (5,3,3) but not recommended for AHG
BOLLINGER BANDS: (Volatility indicator only, everything else it's not that hot)
With 2.5 Standard Deviation. (2.0 gets hit far too often and distracts with noise)
When price is continuously hitting a band, pay attention. It's trying to tell you which side is stronger. If you are having difficulty identifying the current trend or suspect a reversal, the price hugging a particular band can provide great info as to where momentum is headed, but not recommended for AHG
MACD: (Not recommended)
Extremely slow, late entry by 3-4 bars, leaving profits behind on entries and exits.
Its divergences signals are good approximately 50% of time, random, and useless.
It is nothing but the derivative of two LAGGING indicators (Moving Averages).
You are better off learning CCI, in fact you are better off with price action alone, no stochastic either.

Only TA tools for required for trading

Highs
Lows
Double Tops
Double Bottoms
Time and Sales
Trend lines
Support/Resistance

STEP 4 - MONEY MANAGEMENT

DO NOT AVERAGE DOWN unless attempting to get fills for your intended car size, never surpassing it.
Advanced money management technique, an average up approach is highly recommended.
(More on this later, until then, use the same car size on every play)

STEP 5 - DISCIPLINE

Trading is not for the irresponsible. Break the rules and you will eventually lose big, period. Trading will forgive you if you were wrong on a play even several plays; it will not forgive or tolerate stupidity.

STEP 6 - CHART TYPES

Long bars are evil, highly recommend tick/share charts, provide ability to split the data and examine it with care. For the YM recommend 75 or 89 tick charts. This differs greatly from one instrument to the other, the greater the volume/activity it has, the greater the ticks size you will need. Adjust tick/share volume depending on how current day is developing. If low volume day, may even go down to 150, 100. etc… Adjust for best view and what you are most comfortable with.

 

Tick and volume bars, you need to be able to kill the possible long bars in time based charts that hide what could be important to observe; at least as a scalper.

Volume Bars suggested settings: (adjust for low volume)
ES = 2500/5000
ER2=750/1000 - 610 tick
NQ=1000/1500

Higher time frames / Anchor Charts

Use two charts, one for a clear understanding of the main trend, if any, and one for low risk good reward entry.
Help determine the big picture or major trend. Always trade in the direction of the big picture and to be aware of possible of key levels that can and will produce congestion.
Higher time frames also help alert if the breakout or breakdown was meaningful enough to merit averaging up on retracements.

Example of what is referred to as a Multi Day Chart.
Notice current wick high on last bar , reason decided to take profits around that area.
It has "yet" to break out/down.
Interesting thing is that I think the key to the market (all e-minis) lies on this chart right here.
The 2205 and 2160 areas are extremely important in the next development phase.
Learn to recognize the bearish hemisphere from the bullish one and what's the line in the sand.
Remember, the NASDAQ is leading.
It is extremely important, always, at all times, be aware of the big picture, without it, you would not know how far your good trades can go.
multi.day.jpg

Candlesticks

candlestick quick reference guide - 001.pdf - candlestick.pdf –(reference)
Provide one more confirmation, not a signal.
Important candlestick formations for AHG:
Hammers at the very end of a downtrend with wicks piercing support
Shooting stars at the very top signaling that bulls got trapped.
Both preferably with good volume.
Additional attention given to:
Doji, as they mark indecision, particularly at S/R areas
Engulfing patterns.
(The rest not cared for)

For instance, say a bar pierces through trend line support and closes as a hammer. I personally prefer to see a tick below the lowest area of the bar that closed before shorting.

Heikin Ashi Bars (from Investopedia)

"A type of candlestick chart that shares many characteristics with standard candlestick charts, but differs because of the values used to create each bar. Instead of using the open-high-low-close (OHLC) bars like standard candlestick charts, the Heikin-Ashi technique uses a modified formula:


Close = (Open + High + Low + Close)/4
Open = [Open (previous bar) + Close (previous bar)]/2
High = Max (High, Open, Close)
Low = Min (Low, Open, Close)

The Heikin-Ashi technique is used by technical traders to identify a given trend more easily. Hollow candles with no lower shadows are used to signal a strong uptrend, while filled candles with no higher shadow are used to identify a strong downtrend.

Solid uptrend with superb momentum let the Heikin Ashi bars guide you (for runners not for entries).
Then the exit is second nature. If you stick to that simple strategy you will obtain some monstrous wins whenever the opportunity presents itself if you happen to be in the trade or spot an entry.

Don't use Heiken Ashi (HA) bars for entry, only for exit. HA bars for entries are counter productive. (They go red when you should be going long).

HA bars help for the runners, the best trades always tend to work from the start causing very little heat.

(This technique should be used in combination with standard candlestick charts or other indicators)

Closing Bars

Closing bars (not wicks) are used for confirmation when breaking support or resistance.
For additional confirmation, the closing bar TYPE matters as well.
Breaking of support
Bearish indicators: Big red body or gravestone (not a hammer, long legged doji or dragonfly)
Breaking of resistance
Bullish indicators: strong green body, nothing indecisive (short body, long wicks)
You can apply this to support, resistance, trend lines, symmetric triangles, etc.
Medium to monster size wins
To bring some clarity to price action discussions AHG will refer to the following as:
Bars closing above previous bar high are referenced as Strong Bars
Bars closing below previous bar low are referenced as Weak Bars.
If in a downtrend, you want to find the weak bars in the pop ups.
If in an uptrend, you want to find the strong bars in the retracements.
Strong and Weak bars used as entries for retracement’s and as alerts when scaling out or getting back in. (not to

The Close of the bar (amendment)
Someone posted about why the close of a bar is of no importance when we all use different charts and chart types during intraday trading so in theory it is only relevant to you and not to the next guy.
Discussion with another trader took this further with new concepts and philosophies.
For instance if you have a stop at say 2100 and price hits 2100.25 but closes at 2198.00 the stop does not care where price closed, it got hit.
In the end the highs and lows are the King and the Queen.
There is a lot to be learned from this alone.

Chart Analysis

AHG official color code for chart notation/analysis
Red = Short
Green = Long
White = Exit
Yellow = Point of interest
charting annotation software - http://www.faststone.org/FSCaptureDetail.htm

Filtered Time and Sales

Watching the tape for big orders, feel tape can be better read with less distraction when I only paying attention to the big orders and exclude the little people.

Sample of how clear price action was on the filtered tape today - tape.jpg

To eliminate noise suggested settings

For NQ > 75
For ER2 > 50
For ES > 250
For YM > 40

lesser car sizes in the tape = noise

Note: Anek working on tmf indicator to show divergence from price and money flow (incomplete)

EXIT AND ENTRY SIGNALS

Stops

Price action always dictates the stop goes, then compare to notes and decide if it's something you should take or not.
Stop needs to be strategic for whatever reason but strategic, not some fixed number.
Protect capital with small losses and break even trades while adjusting stops in your favor, never against it. (Never loosen a stop)
Assuming long, when the price runs in your favor, consider placing stop below the low of last 2-3 bars, reverse for short.
Placing at break even is just a common saying, using the lows of previous bars is much more astute.
Once trend line established, move stop to protect capital, use the TL for placement guidance.
Initial stop placed at time of trade for security reasons. ALWAYS
After order fill, adjust stops strategically base on support/resistance and/or complacency levels.
Use Heikin Ashi to adjust trailing stops/targets or otherwise known as riding the winners.
(If using OSO in Trade station, manually move this in the Matrix as price moves in your favor.
Basically auto places stop(s)/target(s) based on predetermined fixed values.
There is no better trailing stop, this is much more precise than a fixed # stop because it's based on recent lows or highs.

If you are having trouble with the runners/stops consider moving stop to low or high of the last 2-3 bars (depending on volatility and/or how fast your chart of choice is) once price has left the initial S/R area, which is usually where your initial stop should be. This will allow you to catch more runners than you can imagine using a mechanical way and prevents your emotions from taking profits too soon. Adjusting stops is more desirable than simply selling or covering. The idea is to be in control of your emotions while maintaining logic in check.

Stops (additional notes)

Stops on intraday swings are usually initial stop and or break even then starts to scale out. Unless averaging up, then simply use pivot highs and lows for strategic points.
Look out for previous pivot high/low areas and place strategic stops and/or lookout for reversal formations.
Small stops, unless playing a pattern, then that's a whole new set of rules because they are not scalps and by definition the car size is obviously smaller at the beginning of the play.
Stops depend on the candle, the smaller the candle the bigger the stop. Not sure if that makes sense but some room must be given.
If trade reverses you, take your small loss and move on.
When your trade premise is correct your stop should be big enough to handle noise but not much else.
Volatility rules the market so some room must be given to your stop.
(However, if your examination is correct, no need to use volatility as insurance)
(This stop management technique lowers your accuracy rate, but increases profits.)

Big Stops (Reason against for day trading)

A big stop by definition indicates you are not sure of your entry signal
A big stop promotes hoping and praying and not trading
A big stop is gambling
A big stop is for those refusing to take a loss, when losses are necessary in successful trading
A big stop creates the illusion of higher accuracy but in the end it only results in a negative P/L
A big stop prevents you from loading up because the drawdown can be monstrous
A big stop is for those who fail to realize they can always get back in a trade
Big stops are for the insecure, they make lazy traders over-trade

Took a long time to learn this, hope it takes you only a fraction.
(....and yes this applies to day trading not swing trading or investing.)

Exit suggestions (not inclusive) - Anek

1.Define profit targets, (HK 3:1 risk vs. reward ratio)
a.For training purposes suggest to trade with a 1:1 risk vs. reward ratio to Force you to trade well, then as you improve you can increase the reward;

 

1.Every single play *MUST* have a target greater than the risk but if price action says otherwise we take what we can.
2.If long before last known resist area
3.If short before last known support area
4.If scaling out and trade happens to break out in your favor then watch the next time it makes a HH or a LL depending if you are short or long.
5.HA bars help determine VISUALLY in a quickly manner if you should trail your stop because momentum is there.
6.Learn to read momentum. Extremely powerful, when price is on fire and not looking back, there is no reason to leave the roller coaster, ride it until you see hesitation. Once again, price action, price has mood swings, behavior, and characteristics, learn to read them. It's very valuable.
7.When price is close to HOD, look for a pullback to sell MOST below the HOD and leave a bit on the table for a possible run. When price is close to a LOD, look for a pop up, to short it back and cover around the LOD with again, a runner for home runs.


Entry signals

Trend line breaks, a tick means nothing, a close below or above the tick is what matters.
Sample for an uptrend line in jeopardy.
1.Was the last high a higher high ?
2.Was the last high a double top ?
3.Was the last high a lower high ?
On top of that you want bars closing below the trend line + 1 tick below the breakdown's bar low, this give you the signal assuming 2 or 3, definitely not 1. - the.one.tick.jpg
If the case is 1, I would not short it, I will simply wait for the higher low to get back in, regardless of the "TL Break" which in this case it's more like noise since TL's are not infallible. If it does break, then so be it, but coming from a higher high you don't want to short that unless a swing low is created first.
Strategic entries, very important. This allows your stops to be smaller AND your targets wider. Unfortunately, be prepared MENTALLY to miss extremely good trades that refuse to give you a good fill because well, they had no plans on stopping for you!
Multiple confirmations on entries are the key to accuracy nevertheless this game is not about being right but about making money.
Reference AHG setups ver 2.2.jpg and numerous Anek charts posted on thread.
(catalog of charts, set-ups and entry signals to be compiled at later date)

Entry on retracement

When looking for a retracement in a clear uptrend you also want some sort of strength confirmation to avoid buying a falling knife or a retracement that is not yet complete. -- (Obviously, reverse for shorts)

In order to facilitate this task, suggest waiting for a bar closing above previous bar high as a sign of strength and a bar closing below previous bar low as a sign of weakness. Again, everything with the trend.
Is there a trend? – “Yes”
What is the trend? – “It's long”
Is it retracing? – “Yes”
Has it printed a bar closing above previous bar high (strength) after retracing considerably without breaking major support or pivot swing? – “Yes”
Stop placement? -- A few ticks below the strong bar should do
(You can always re-enter in case of noise or fake.)
(Remember; small stops, as it is not about being right but about making money
Price action is used to increase the odds when looking for an entry during retracement.

Winners and Losers.

There are only five possible outcomes in trading:
Big Losses (Stay away from the first one and the rest will EMBRACE you.)
Small losses
Big Winners
Small Winners
Break even

AHG attempts to accomplish
Small wins
Small losses
Breakeven trades
Letting winners run (big wins)

When the system fails to produce profits it is probably because the market had no direction and nothing but reversals. When this happens you WILL have a losing day even if following the system, however, it will most likely fall in the small losses category and that is what it is all about.

PRIORITY list - (In order of importance)

1.Discipline (above everything else) - It makes no sense to develop a set of rules if you are not going to follow them. Nothing tops this.
2.Trend/Reversal/Chop Recognition - The substance of the system. Must excel at trend/chop/reversal recognition. If you want to succeed with AHG learn to avoid calling absolute tops and bottoms.
3.Risk management / Prudent and intelligent stops – Know trade can be entered with absolute certainty of success. You are taking a trade that appears that it will work. When wrong, which is a 50% probability, your stop should be prudent.
4.Entry refinement - Strategic entries - very important. Allows stops to be smaller and targets wider. Unfortunately, be prepared MENTALLY to miss extremely good trades that refuse to give you a good fill because well, they had no plans on stopping for you!
5.Exit refinement – Difference between good traders, great trader, and sometimes even master trader.

All of the above are extremely important, once the basics mastered, concentrate on #4 and #5. #5 makes the difference between profitability and abundance but it's last for a reason.. (#5 being the most difficult)
The swing high/low method works, and it works in all markets, as price is always oscillating, and therefore, is always trending.

The hardest part of AHG is identifying the chop and staying on the sidelines, the rest is trading with the trend using small stops and letting the winners run purely on price action.

Mechanics in a concise manner

1.Study highs and lows
2.If a trend forms, examine entry opportunities. (Stochastic no longer used in AHG)
3.Once in a trade gauge S/R for stops/exists
4.Ride the winners with the HA bars if the trade gets solid momentum.
5.Rinse and repeat. (Keep it simple be patient, wait for set-up.)
Find one and only one tool to help you find optimal entries.
It is IMPERATIVE that you keep it simple or you will lose focus.
When trend has been determined search for low risk opportunity to enter.
Use Heikin Ashi to adjust trailing stops/targets (otherwise known as riding the winners.)
Use trend lines to gauge the big picture and Fibonacci for prediction.
(Currently, not much else recommended.)

Pattern trading

With a solid understanding of price action Pattern Trading is an extremely powerful technique.

Learn to spot the following important pattern formations before you place a trade:
Consolidation
Uptrend’s
Downtrends
Double tops
(one of the most powerful, if played correctly are by far the most rewarding and safe patterns)
Double bottoms
(one of the most powerful, if played correctly are by far the most rewarding and safe patterns)
Wedges
Symmetric Triangles
(A favorite trading pattern, and one of the most powerful, they give birth to trends.)
Requires two higher lows and two lower highs. (minimum)
Price gets trapped, when it finds a direction and escapes, you have a breakout and ride it.
A breakout with the trend has greater chances of success than one against it.
Rate of success is above 50% and their targets can be exponentially bigger than the stops.
Most powerful when close to LOD or HOD areas.
When price stalls, it's a sign of loss of momentum which could mean a reversal or congestion. (start looking for options)
The stop should be strategically placed below or above resistance.
If using 50% fib retracement area, watch the 61.8% area as stops, etc.
Wait patiently for formation, two different time frames increase chances of them developing.
One strategy play, place a buy stop and short stop outside of the triangle and wait for breakout.

level 0 (Begin with recognition)
Consolidation - (No Trades in beginning, for advanced trading only)
No 2 lower highs, no 2 lower lows, stay put.
No 2 higher highs, no 2 higher lows, stay put
Sometimes the best trade is no trade
Level 1 (Only on opportunity, no forcing no chasing)
Uptrend’s
Downtrends
Level 2 (Only with confirmation, no guessing, ride them aggressively)
Double tops
Double bottoms
Level 3 (Only with confirmation ride them aggressively, target should be larger than your usual scalp)
Wedges
Symmetric Triangles
Stay out of anything else for now
Use trend lines at all times.

Successful pattern’s in order of preference

1.Double Tops / Double Bottoms
2.Rectangle/Horizontal breakouts
3.Flags
4.Triangles

5.Failed head and shoulders
a.prefer break of right shoulder by a closing bar because they are more reliable.
b.Rarely take a head and shoulder neckline break unless it forms at the very top of the chart as they are only reliable in uptrends.
c.Those that do form at the bottom tend to fail and you may enter in a more aggressive matter in comparison to a failure at the top.
d.The same is true for Inverse Head and Shoulders in downtrends.
e.Be more enthusiastic about the failures than the pattern themselves, especially if they form at the "wrong" places.
f.failed.head.and.shoulders.jpg

Patience is required, wait for patterns to develop, wait for an opportunity, look around you (s/r) aim (think of entry/stop/targets) then fire (execute).

Additional Patterns: (Section incomplete)

M and W patterns form during congestion, especially if scattered around the intraday.

The M-top and W-bottom are common (easy).
Treat an M-top or a W-bottom as a reversal formation once the middle swing is taken by a closing bar
Very similar to double tops and double bottoms but require a bigger stop because the resistance area is not as obvious and the stop actually goes at the other side of the pattern due to their peaks not being identical, otherwise they would just be DT's and DB's.
The 1st target is the first major point of S/ R then price action based on trend lines, etc…
kindergarden.jpg

The M-bottom and W-top are extremely rare and also another reversal signal if found at the extremes

"M" Formation at the bottom (rare)

 

The M is completed after 3-swings, the two outer swings are higher than the middle swing.
You know how a head and shoulder has the middle swing higher than the outer ones ? Well this is exactly the opposite.
"W" Formation at the top
(sometimes known as the Crown pattern)
The W in the middle of a chart is possibly a continuation of the previous trend.


Anek's Solution to the M bottom and W top as posted:

http://www.elitetrader.com/vb/showt...440#post1634440 : (Thread cancelled)

“I'm sure most of you are aware of the M top and W bottom formations. They represent reversals with small risk and decent rewards. Well, the fact that M formations at the very bottom rarely form and W formations at the very top rarely form sparked the following idea.
Search for the rarest patterns in trading and trade logically against them efficiently eliminating one of the possibilities.”

“Why ? Because when we have half of an extremely rare pattern formed we have a pretty good idea of where price will probably not go first when it's about to complete itself.” Consolidation and Congestion

When price reaches the HOD or the LOD congestion, hesitation is to be expected; examine it from the sidelines unless you are already in a trade and just managing your exit. (Unfortunately, easier said than done because there is massive uncertainty at those areas.)
Congestion is when you see a HH and LL or HL and LH. i.e. Consolidation, Symmetric Triangles, etc. Uncertainty if you will.
Learn to spot the chop, it will save you AND make you money. Chop kills and reverses us. No one is forcing you to trade as the market is always there.

Congestion at Extreme Areas vs. Reversals

Make an effort to notice the difference between one and the other.

Usually when price develops a very strong move once it becomes exhausted, it must rest and consolidates. Mostly because traders are hesitant to jump in at such levels, they are potentially painful levels and no one wants to get burned. This is precisely when amateurs start calling reversals or opening positions after the fact, turning trading into hopes and fears. Please avoid this. This is when patience will serve you well.

Even though reversals are very much possible and offer great risk vs. reward this is exactly why we use and require confirmations. Without the confirmation it is simply, a gamble and good traders are not gamblers but predators.

Don't fall prey to congestion, congestion offers no hint except the fact that the previous trend is the strongest but it is also very much tired, at least for now. From a psychological perspective since you probably missed the whole initial move you feel frustrated and probably want to ride it all back down (or up) because the market moves in waves right ? plus you probably feel frustrated that all this happened right in your face. Well, that's understandable but make sure an actual good potential setup is developed before stepping into a train.

This is the time when we examine the surrounding support and resistant areas to see where price might be heading next after we get confirmation(s) so we can determine our logical targets and see if the risk involved in the trade merits opening a position when and if the time comes.

Price turns for different reasons and not every reason is significant. (Please remember that)


MONEY MANAGEMENT

Money management is very personal and many proper methods exist. Search deep within yourself to determine which style fits you best. Trading comfortably is important.
AHG: Scaling out and Averaging up
AHG: Prefer Averaging up Method, as it is hard to beat once you get good at reading the market.

Scaling out

Primarily helps the psychological factor as it may releases the pressure of securing profits, especially when trading multiple positions. Yet, a simple strategic trailing stop accomplishes the same. Remember, you can always get back in a trade.

Primary problem with scaling out is when stopped out before reaching first target, you lose on your full lot. (However, if your first target has a good ratio in comparison to your stop, then by all means, scale out until your heart stops pounding.)

When the play is going your way, scale out before clear "previous" known resistance and support. If there is nothing remotely resembling that, don't do it unless evidence of a possible reversal formation, then scale out and adjust stop accordingly.

Confirm first target is AT THE VERY LEAST as big as stop.
Then quickly move stop to breakeven and let it ride as much as possible until price loses momentum.
Take profits BEFORE the next resistance (going long) and BEFORE the next support (going short.)
You may leave a small portion of the trade ride for the home run.

Averaging up

With an averaging up approach one good day erases multiple losing days and then some.

Averaging up is only pertinent to those with good accuracy and a solid understanding of how the market and day trading works. Now, it is possibly the last step to good fortune as far as phases and stages.

The concept of only adding to a winning position is phenomenal because by definition it ensures that your trades are only about small losses, break evens and small to gigantic wins. Notice this is exactly how I suggest your money management results should be so it's highly compatible with AHG.

Nevertheless, you need to be able to handle, from a psychological perspective, a streak of small losses and break evens, in many cases watching small winners become small losses. This is the negative aspect of averaging up. The positive aspect is the monumental winners it can and will provide if you do it right.

When I average up, add to a winning position on retracements only if the major trend is intact and healthy always keeping a stop for ALL positions, this stop strategically placed at a definite change of a trend. As the trade keeps going in my favor, I keep adding to the position and adjusting the stop, the stop is the same for all brothers and sisters in the trade. As the trend develops the trend pivotal point obviously moves up as well.

When the trend ends, you take a small loss/break even on the last position ONLY or the last two depending on how flexible you were and all the initial add’s collect massive returns, especially the original one.

It is the holy grail of money management systems BUT for seasoned traders not for someone who has just starting to get his/her feet wet with a new system.

Averaging up is probably the most important reason as to why I was attracted to future's leverage. In fact, I've reached 20x with this technique and knowing I had secured profits on 85% of the adds felt like I was the king of the world. In the ES I usually trade between 3-10 cars depending on the stop risk of the trade. I have yet to average up aggressively on ES since I'm fairly new to the contract but when I'm comfortable on a great run this number could go all the way up to 40-50, without giving too much info on my personal total leverage. When averaging up, at least on the YM, I have used full leverage on the account without a single ounce of fear because of secured profits on most of the additions. When you get a nice run the profits are nothing short of a monstrosity.
Obviously, if the trade does not go in your favor you don't even touch leverage or add to your position.

(Very powerful strategy but requires complete dominance of your psychology.)

Averaging up methodology and results:

Initial entry is minimal in size as no real evidence exists on how strong the new trend really is. Naturally this assures that if mistaken in the analysis, losses are very small.

Once strength develops, use retracements to further increase position always using the same stop (a change of a trend, a break of support/resistance) on every single add.

As the trend keeps running, and new areas of S/R are marked, the stop is continually moved as the additions start piling into the play.

When I get lucky to catch a beast of a trend I might go as far as to using full leverage as I add positions on retracements but always securing profits on the vast majority of the additions. This gives me the freedom to trade monstrous contracts responsibly without an ounce of fear.

They say trading should be about small losses, break evens and small to huge winners, this is exactly what averaging up promotes. Needless to say on extremely choppy days you end up with multiple small losses. In the long run though, it's an indisputable winner as far as money management goes.

“When its clear resistance has become support or support became resistance you may consider averaging up. Momentum must be there, no exception. Approximately only 15% of trading days are heavy trending

 

days so keep this into consideration, not every day is optimal for averaging up unless a potent reversal formation after massive exhaustion was spawned.”

Enormous gain on the first, Gigantic gain on the second, Great gain on the third., Small loss on the fourth.

(Only recommended for experienced traders who dominate to perfection these teachings.)


Averaging Up approach for reversal formation at the LOD/HOD. (Non exclusive)

Study reversal formations very carefully.
Double Tops, Double Bottoms, M tops, W bottoms, V bottoms, Triple and Rectangles.
Upon confirmation begin average up approach with a minimal position.
Add on every possible pullback before the next major support or resistance area as soon as a strong/weak bar is evident once the retracement looks exhausted.
Sell/Cover it all around the next significant support or resistance point or partial.
If resistance becomes support or support becomes resistance you can begin all over again with your minimal position or can continue adding to what it is still in play provided that you have a change of a trend trailing stop protecting every add and of course, past profits.
Confirmation is an insurance card, use it accordingly but make it a requirement for every move you make, whether it is entry or exit.
Every trade should be an educated prediction and every add should be an additional confirmation.
The more confirmations the more your car size should increase because at first we never really know where price will go but as we get additional data supporting our original trade theory, the story starts revealing itself.
As you well know this method promotes small losses and all kinds of winners from miniature to gigantic. It is no coincidence that it is chop proof because if you get no additional confirmations you stand on the sidelines with your small position. This method will also help you avoid calling tops and bottoms because in the back of your mind you don't want it to end, this can be a very powerful psychological asset.
The absolute key to mega profitable consistent trading is having the skill to spot the birth of a new trend correctly and playing it responsibly with solid money management.

(Note: not part of AHG) when averaging up, use pyramid technique – never adding more than the original car size. i.e. initial position 3-cars, 2nd position add 2-cars, 3rd position add 1-car
(reverse pyramid can lose all profits with a small loss.) – obtain Anek's comments accordingly

The Best Trades

The best trades work from the start
The best trades got multiple signal confirmations
The best trades offer no heat
The best trades require small stops
The best trades follow your trading plan
The best trades develop momentum and acceleration after your position is in, not before
The best trades are simply when you are quick enough to spot the birth of a new trend without actually being a contrarian

Now, wouldn't you like most of your trades to be like that?
If so, shoot for the best trades and skip the rest.






Tips

Risk management at all times.
Find one and only one tool to help determine optimal entries. It is IMPERATIVE that you keep it simple or you will lose focus.
Use trend lines to gauge the big picture and Fibonacci for prediction.
Develop the skill in analyzing momentum and the S/R surroundings as price is going.
When it stops, why did it stop, should I wait, if so how long?
If it retraces, your stop better be there to secure your profits, not too tight, give it room, use past bars to have a logical exit.
Never attempt to call bottoms or tops, just trade the trend.
Better to miss a good entry than force a bad one
Order Execution, limit orders exclusively except market orders for emergency stops.
MASSIVE moves, uncertainty usually unfold. (powerful tip)
Statistically speaking, trend patterns outnumber reversals
Mornings are superior to the afternoons, and lunch can be a bit tricky.
Globex low and globex high can be an area of congestion, support or resistance. Yet, how is this different from any other congestion, support or resistance so I treat it like any other. Pivots the same.
Screen time is at the thousands of hours.
Do not call tops because no one can do it consistently.
Do not call bottoms because no one can do it consistently.
Do not use big stops, if stopped out you have the luxury of re-entry assuming the trend is still intact and you were stopped out due to noise.
If the trend is up, buy low sell high, do not short if the trend is up.
If the trend is down, short high cover low, do not buy if the trend is down.
If no obvious trend, sit on the sidelines, patience is rewarded in trading. If price is chopping you will only trade for your broker.
Become an expert on price not on indicators, in fact don't use any but bars, trend lines, support or resistance.
You will not beat this game unless you allow the runners to run, price has a much easier time going through previously known areas, new territories should be treated with respect and only for examination.
Try to stay out of breakout areas, the in between is far easier to trade because price will either go to support or resistance and in the middle they are clear and rarely unknown.
Protect your capital at all cost, protect your profits but be very greedy when you are right.

Don't you ever move your stops unless it is to secure profits.
Small losses are inevitable and very much required to succeed, large ones your doom.
Risk management at all times.
Go find your edge and do not fall prey to indicators price is and always will be king. It speaks in highs and lows, listen to him, he owns the market.
Learn about reversal patterns and look for them at major support and resistance areas.





Futures over equities:

Better liquidity
Less games (electronic)
more leverage
Around the clock (kind of)
No research involved
Less slippage
No short up tick rule
Can day trade without 25k
Easier taxation

ES over SPY (ETF):

The major difference between trading the ES and SPY (ETF) is flexibility,
If swing trading and something catastrophic happens at 3AM in the morning. Futures give you the option to bail or solidify your position if you are on the right side. In equities or ETF's you would need to wait until pre-market opens to decide. They even give you the option to hedge if you got investments
As a very aggressive averaging up trader when things go my way, and panic hits the market hard the massive leverage provided by futures allows me to keep averaging up if the trend continues. In SPY I would be limited to 4X, least last time I checked. That is priceless for my particular style of trading.

ES/NQ/ER2 (stopped trading YM due to CBOT issues)

Volume bars: ES=2500/5000 * NQ=1000/1500 * ER2=500/1000 (610 tick)
Volume bars work well, adjust accordingly for low volume “after hours”, etc...
In terms of volume ES>NQ>ER2>YM (Besides no crappy CBOT and occasional liquidity problems)
ES over NQ, due to NQ’s “commission premium”
NQ is like YM with more volume (less slippage) and better moves for my style.
NQ is twice as liquid as the YM. It's no ES, but still the second most liquid e-mini of the four, including ER2.