Trading NQ via Price Action

Quite the write-up today on Wyckoff in our Canadian Financial Post paper. I haven't read it yet, but it looks quite in depth. Its a bit of a surprise to see this given all the new and fancy stuff most journalists like to write about.

http://business.financialpost.com/2...-hedge-funders-dont-want-you-to-know-about-2/

 

Actually he wrote it a year ago. Don't know why it has a new dateline. But he also includes a link to my forum at TL, which is nice.

 

Wow.. so this must be the same article you were referring to in chat a few weeks ago! I was trying to find it when you guys mentioned the author's name but for the life of me I just couldn't and was trying to keep keep quiet for a while so I didn't want to ask... Well great that I can read it now when I have time.

 

A – Price had been in a tight range the preceding few hours, so I’m looking for trade out of it. At A, we has a DL and one point above here would just barely take us out of it. Seeing as we are close to open as well, I’m of the impression that getting in before the open works out often as the move just continues. If not, its easy to just scratch. Here the DL is broken, so the trade is cancelled and doesn’t trigger.

B – Price shoots up here, had the long trigger been kept, it probably wouldn’t have been filled anyway. In RT, this was quite the move. My broker even said trading in the NQ was halted, but price is clearly moving… hmmmm. It appears now that it was halted for the previous contract.

C – As a result of all the commotion, this would be a good area for a sell stop. We have a SL, a RET here, but this also puts us right back into that mini range from before open. Everyday though I am seeing that its just important to get in when you see a valid setup.

D – So watching this down move, I am eager to get in. Since we broke below 3700, going down looks promising, but there is no way to get in. On the lower time frame chart, there would be a clear RET here. I am very good at watching the right tick and see this setting up. But because it takes a whole minute for the bar to “close”, the low of each bar around D still goes below the previous bar so there is technically no RET on this one minute chart. I wonder if this rule for SLA can be altered, but this would of course require testing. I have talked about this before and have seen that doing this will sometimes put me in a trade for a move that is just about done. the question of course is does getting in early like this lead more often to a winning trade or not.

E – First official RET happens here. Sell stop at 95.25

F – SL is broken here but I’m staying in. I’m aware of the many times price just pauses, only to continue the initial move. Here it turns out to be the case again and the SL is fanned. (or rather, new SL is drawn in from previous swing highs. By fanning the line, I have read Db say that if price is too far away from SL or DL, then it really isn’t following price anymore, and thats its job. So what I mean to say is that its important for the line to follow price. So if fanning it still makes it too far away, I'm inclined to just draw in a new one with the most recent swing points.

G – Looks like another RET, but now we have a micro higher low.

H - SL break, another higher low, so out at 69.50. Total at +25.75. This is a shame though because now of course I got out at the top of this RET, only to see price continue down. In RT though, it certainly appeared that the down move was done.

I – Thinking of how to get back in. I could just fan the SL or draw in a new one, but I am a bit worried about forming a DB with 61.50 just before G. Each of the next few bars seem to show this as a bit of resistance so I’m just going to wait and see.

J – So I see another RET and opportunity to get in, so I take it and get filled most likely at 59.75.

K - Doesn’t take long for price to strongly move up, but I still hesitate to scratch. Price strongly drops on the bar at K, but doesn’t follow through too much so I’m looking to exit. Decide to get out at 61.75. Total now is +23.75.

I don’t have a scratching technique per se. I look to see how strong the break of a SL or DL is, how many bars are broken, and is the break going in the opposite direction of my trade or is it just going sideways. In this example, I held on for too long after my short was filled, and I got out almost even before a solid break of my SL. So in essence I am going against what I would naturally think, but the movement of the right tick caused me to hesitate. It looks to have worked for me this time.

L – Strong break of the SL here. This is the kind of break I like where price just pierces the line cleanly and doesn’t return to touch it.

M – So here is the RET after the break, but the move already looks like its rolling over to be flat sideways action so I hesitate to put in a buystop. I don’t even draw in a DL yet since I don’t have a swing low to connect.

N – I can now draw in my DL. I’m hesitant to take a trade above this N bar. We have a RET the bar before, and my buy stop would be at 3672, but the bar before this RET bar shows a strong rejection of price at 72.

O – By now of course this trade would have been a few points positive… oh well.

P – Slight break of the DL line, but would still be watching and waiting…

Q – Still looking good, price breaks back above the DL.

R – So now the break has gone on for too long. Might as well take a point of two of profit and get out. But none of this was actually taken, so just thinking through it.

So that’s it. Looking at the entire chart now its not as clear because the chart is quite compressed given the strong down move. In RT, as the lines were being drawn in, each move looks a bit more prominent. I leave my SLs and DLs as is just to show what was happening at the time, and even though a line can be fanned, I prefer to just draw in another one to give a sense of what is happening in RT.

 

Chart not showing up... lets try again.

 

Great, you seem to be making progress

 

Hey Niko.. thanks for stopping by! Yes, I am quite happy with the week. The incredible thing is that when I actually look at the point totals, I am very much in the positive. (not accounting for commission, slippage, and perhaps not getting filled of course)

+11
+1.25
+9
+7.25
+23.75

Sure some days its hard to see how I didn't end up making more points given the nice moves, but to think that the SLA method not only gave me decent returns but more importantly kept me out of trouble is I think incredible. Looking forward to more forward testing this week, and then of course to build further on the base knowledge.

But remarkably, if anyone decided to stop learning right here and used only SLA, they would be nicely profitable as long as they stuck to the plan. Incredible... simply incredible!

 

Looking at the overnight action, price was up and had settled into a range. Clearing 52/54 would be nice if going long.

A – A break of the first DL drawn in puts in a possible short that isn’t triggered. (hard to tell in this compressed chart because of the huge down move)

B – A long it setup here given the failure to go short and also a higher low. It triggers in a couple of minutes.

C – The long quickly fails. I don’t have a DL drawn in, but just watching price gave me enough reason to exit. Total at -2.

D – This entire down move just couldn't be entered. When I have seen price drop like this before, the urgency behind the drop is clearly there, but on the chart, there are no RETs using the 1 minute bar interval.

E – Its difficult to draw a SL when the drop is this steep , but given what I have, the SL breaks at E so looking for a possible long at F. This isn’t triggered.

F – Its obvious now that if our SL is fanned just a little, we could have gone short at F as well because E is just a RET. I think this is totally legit because drawing in this SL is a bit of an art, and the preceding down move was strong. No point in trying to buy an obvious weakness in price until we have more confirmation that the sellers are done and buyers are stepping in. So although the long wasn't triggered, going short at one point below the crest at E could have been taken which would have led to at least a few points profit.

G – This low is finally reached, but of course we don’t know that until we have a series of higher lows that makes me draw in a DL. I don’t think much of it though because its drawn in using just successive bars as opposed to swing lows, but I still extend this line to show where it does break.

H – The rally up to H is less than 50% of the down move, showing strength of the down move.

I have a clear lack of focus today as I’m just not feeling too great. Looking at the chart now I do see entries that would result in making decent points but they weren’t taken because I kept thinking we must be at the bottom by now. I know this thought is an obvious sign of not being in the right frame of mind.

Seeing as how the long quickly failed, I should have switched to a short frame of mind, and although I don’t have a traditional RET that I can see until the down move has gone quite a way, there are RETs all the way down in the 1 minute bars that I know I can take and I have seen Db write that can be taken as well.

I like to get in just before the open if price is telling me that it is more likely to go one way than another, but I have to be just as ready to quickly reverse my decision because of days like this. If I have to reverse it a few times then this would point to chop or a trading range, but this would most likely then lead to smaller losses if not small gains.

What I’m getting at is once again the price versus information risk. I have seen time and time again that price risk is quite small if you don’t rely on too much information and can scratch without any emotion. This way, you have a better chance of being in the move at a good price and enjoy the stream of profits. I have to keep telling myself "who cares if I was wrong about the long, it didn't work, so lets look for a short".

As I’m finishing typing this up, price hit 3600 with lots of opportunities for shorts as long as I didn’t keep thinking “we must be close to the bottom soon”, and of course if the focus was more there.

Total for the day: -2

 

A - Hinge looks to be forming prior to open.

B - Buystop is placed outside the hinge, and above a small RET. (Initial DL not drawn in, just the fanned one that is steeper, which is all hard to see since it is compressed as a result of the strong moves later)

C - Price quickly moves up at open, but a few minutes later has trouble going further. The exit as C is based on just watching price. DLs are tricky when the move is straight up like this so waiting for a break of the line just isn't feasible. In this case also, the sideways action happens below the top of the move that is a few points higher, so this also gave me the nudge to make me think this is weak and time to exit. Total +8

D - After the SL break I am now looking for longs again. Buystop entered above the trough and gets filled right away. Price drops a bit on the next bar, but then goes higher, unfortunately comes back to my entry again though. I am a little worried here because it could be forming a double top with the high right after open, but thankfully it clears this area soon after.

E - Here we technically have a DL break, but I am patient.

F - This move down was quite strong indeed. Came out of nowhere and so I just go out right away. Total +11

G - After this, the action seemed a bit choppy. At G, we have a hinge we can draw in, perhaps even a tighter one if we eliminate the extremes, but doesn't matter how you draw it, price falls out the bottom.

H - No way to get into the move here. There are RETs within the bars, but none on the whole bar until we get to I.

I - Sell stop placed, gets triggered, and down we go. Its interesting how the drops happen so quick, yet the retracements up have to crawl.

J - Watching the SL break here and although I don't initially exit, the sideways actions a few minutes later makes me pull the trigger. Shame... it dropped some more, even faster this time. Total +21.25

K - As I am watching this drop, there is so far no RET to get back in. Oh well.

L - This low happens to be where the overnight low was. It might not hold, but in real time, this does appear that it could be the bottom.

M - We now have a higher low and a RET. I notice I don't even have the SL drawn in, but it would have been steep and already broken by now. Buystop entered here above the trough of the RET at M.

N - Here I am just looking for a reason to leave since I'm hungry! LOL We do technically have a break of the DL and although we can retrace 50% up from the big down move like we did yesterday, I plan to walk away so I better get out. Not a bad choice indeed. Total +24

 

A - Premarket action and SL gives reason to place a long that isn't triggered.

B - Break of the SL and a RET gives reason to place a short that also isn't triggered.

C - A few minutes into the open up price went up and then down, yet there is no way to get in on this move around C.

D - Thinking this could be a RET in the down move, we place a stop to go short at D which does trigger, but quickly fails.

E - Exit at E for a loss of 3 points. Total -3

E - This same action makes me also place a stop to go long just above this bar which is filled on the next bar.

F - We get to the high of F, and although there is technically not a reason to get out just yet, seeing a bit of hesitation and seeing as we are at the level of the opening high that failed, this is reason enough for me to exit.

Perhaps the biggest reason to exit is the desire to eliminate that loss from the first trade. We are in the positive now, and this action is looking like this wont be a trending day, hence difficult, so take what I can get and step back to wait for better conditions. Total +5

G - Higher low

H - Lower high - This looks like we can be forming a hinge.

I - We are stuck at this 50% level of the trading range from open, or one big hinge.

J - Sell stop placed but quickly cancelled once price didn't continue down and broke through SL. It was therefore not triggered although it appears it would have been two bars later.


This is very much of a trading range day, so I am looking for some sort of exit from this range before I continue to think about looking for trades.

K - Finally we have a break of the earlier low just after open. Draw in a SL, see a RET and enter a sell that doesn't trigger. This is great of course since price just went sideways before breaking the SL.

So after an hour, this is going nowhere and I am tired. Managed a total of +5 points. It really is interesting to see that although there was a range of at least 20 points today, capturing it is not easy.

Right now I am still just focusing on price and SLA, but I am very closely following the ghost thread with regards to AMT. Will work on adding this into my journal when I'm ready.