Trading NQ via Price Action

"So if I'm going to have any chance of long term success and not end up going crazy, I really need to formalize a solid trade or 2 and just stick with this for at least a week."


KP...

Yep.... define what a trade looks like for 1 or 2 setups and then try that for a week. Given that you are just trading NQ, be aware that you might not get many trades. Of course that depends on the setups that you decide on. After a week, look at all your trades as well as those setups that you didn't trade (there will be some that for some reason and you know what I mean... I wish I woulda took that trade). Evaluate and change your rules and repeat next week.

good luck
toucan

 

Yup... there really is no other way forward other than this. NoDoji said exactly the same thing somewhere as well.

I think what my issue also is is that I understand why you want to take a trade during a RET so that you're swept into it, but what I'm really itching to do is take a trade when it hits a level that I think it will reverse at because this to me provides the clearest view of when it won't be working, and if it is working, then I got in at the best price. So I think I have bit of an internal battle with different strategies, which all relates to price risk vs information risk. What I really want is a very low risk trade at the best possible price which of course doesn't exist. Based on my psychology thus far, since I'm trigger happy, I think getting the better price is better for me, so I have to take a trade before it looks good, before I even know it might break out, but just take a chance knowing that I can get out real quick.

It is true that I may not get many trades, and this is what makes me then try something else in the middle of nowhere and then it leads to me losing money, so I'm trying to follow through with a few different setups, but now its a case of "jack of all trades, master of none". Some trades I can see have to have very tight stops, for other trades you can give price a bit more room, but since these aren't defined well enough yet, I'm mixing it all up.

Anyway.. thanks for reading and the gentle push. I really am close to finally outlining definite setups.

 

KP

one thing you might add to your process of trading reversals.... for example: if price is moving down into a zone where you think there is a reversal about to happen, either wait for X consecutive bars up and enter with a market order.... or enter a stop market long order that will trigger at some spot above the current price where you would say "yep its a reversal".

i've attached a chart to show you what I mean. I use tick charts, but you should see about the same pattern as in this chart. about 9:05 on the chart, price was moving down into an area where I thought price would reverse up. I entered a stop market long when it got close to the blue dotted line. It had hit that area twice earlier in the morning and I figured this was an important reversal point for today. And, if price moved down from my initial stop market order, I would have cancel/replaced the stop market order to keep a long entry a certain distance above the current price where I thought the reversal would happen. Price turned early, but I would have let price move down to about 91.40 before cancelling the order and abandoning the trade.




cheers
toucan

 

Ah, yes, now you're talking my language. This is exactly the type of things I'm looking at now. The only problem with waiting, at least for the NQ, is that waiting for price to show me the direction its going will usually mean giving up a few points. Sometimes as you say in your example, it doesn't even hit the level before turning, so you almost have to get in early. So I'm trying to find out that if I expect a reversal at 50 lets say as price is coming down, I should just take an automatic limit order at 51 to go long, with an exit at 49 if it breaks through. I'm risking 2 points, but as long as I get my levels right, I'm only risking 2 points for what could be easily 10 point moves, so I only need to be right half the time for this to be profitable.

If I wait for it to hit 50, it might not even go that low and I miss the move completely and don't want to have to chase, or I might not get filled since reversals tend to be quick and when they bounce off the level to the exact tick, there just aren't too many contracts traded at that exact price. If I wait for confirmation, I might not be getting in till about 52 or 53, and with a stop still at 49, I'm risking 4 points now, since price could still go back down to 50 and turn back up without invalidating the trade, so I still would have to hold till 49 lets say.

Now I'm thinking if I get stopped out, I watch and wait. Does price turn back up, and hence I should try a long again slightly higher up, at like 53 or 54 if the reversal is still good, or should I now go short if price makes it to 47 or so and hence shows weakness for more of a down move.

I would get killed when price gyrates around this level, which it does, so this scares me, but I think more often than not, it sets up excellent moves.

The trick of course is backtesting this on the charts... but what do you think of the detailed setup?

 

Ok... so going forward with nailed down setups, here is what I see happened today.

A - Right at the open we had a very fast REJ which penetrated the OL. If I had a 2 point stop loss beyond the level, I could have taken a long at the level or even 1 point above and not get stopped out.

I ended up entering about 1 point above the bar. When this trade works, it just works, but the problem is that if price comes down to test this level again, it might bounce off again but no way could I take a 4 point loss to find one given at the entry is so high up.

This is what I do now, I look to see at what point a trade is invalidated, and how far away would that be from my entry.

B - So no idea why price stopped here, but I will not look to see what happens if price reaches here again.

C - Carrying forwrad the previous swing low provides just congestion, hence why these random swing points on a one minute chart just seem too random.

D - This swing point is better because its an ultimate low for the day, and the area of a major previous rejeciton. Here, it seems to go through without trouble.

E - New swing low that is rejected quite well. Notice that 2 point above a ledge forms, and price even comes down to test it again. Looking for this, going long somewhere after that test at "e" should be called for, but this is huge bar that goes up.

F - Hinges are quite easy to spot, but the trouble is, sometimes the lines of the hinge have to be adjusted as price goes sideways. If I take a quick exit out the bottom, the price is good, but it comes back up.

f - Here we seem to test the apex, and price goes down, but could I even see this if I took the first exit out of the hinge and see that price came back up? Furthermore, price does bounce off the ON and goes past the price here at the apex.

So taking these trades has to be a quick in and out.. no wishing and hoping.

G - Random place to stop, except that if we count this as the mean of the previous congestion area around B.

H - Random rejection here.

I - Yes another random rejection, but its interesting we have 2. And yes, price breaks through on the down side.

J - Bringing forward the previous low at E, we have no trobule going lower, but this just leads to sideways action which can really chop you up.

K - No idea why price turned here, not really close enough to that 54 level.

L - This I love and have talked about before. I gave up on it because I saw that price was sometimes bouncing off and not breaking through. But here is the thing. These lines tend to be quite tight, and look at the good move it launches. I do favor the breakthrough with this type of behavior, but if I'm wrong, if intead it reverses, having a tight stop is possible since the horizontal level is usually quite obvious.

M - It happens here again, this wedge.

N - And what's more, it happens at that previous swing high from B. We do get a break through, but we are so close to the end of the day that there is no time for a major move.

P - Here is the first bounce, 2 ticks below the OH. When it stops going lower, I could perhaps exit for a tiny profit or hold to see what happens right at the level.

Q - So here we have a bounce again. Could go short again, or if I'm still holding the short from before its still not invalidated since there is no penetration.

R - But here we have penetration. Once price starts to go in my favor, like at Q, then I think tracking it down with a supply line is called for and when it breaks, exit for a profit. A re-entry on the short can always be made, but on this third try up, we have penetration. So do I make it a rule to only short twice when price comes up from the bottom? Hmmm....

So as you can see, so much to think about, and I really have to just pick something easy, analyze it to death, know exactly where my entry and exit will be, and hope that I last long enough to see a statistical advantage.

Swing points are tricky. If they are the lowest swing point, or the highest swing point, this might set something up, but random swing points are just too random. Hinges can be very good, but I need to really look at all the types to see where its best to get in or out. And as you know, I like my OH and OL. The last thing to look at is a trading range, and trading them by just taking the reversal trade, no confirmation, and a tight stop, but only if the range is pretty with well defined levels.

 

Not sure if you're still following the SLA but a few things that have helped me in understanding price movement is adding in the 50% area and realizing that to catch the bigger trending days you will have to without a doubt sit through waves of price movement that come back towards your entry. Also our entries are meaningless however where a "line" would break, a swing would break, or a 50% area is breached, how it is breached, and where in the bigger picture these things happen has meaning within the market even if it means you're at a loss when these areas are tested. Hold on until based on your plan something meaningful happens in the market to make you exit.

Another is when you do enter into a wave, it is contained by a sl or dl when that line breaks it marks a potential turning point or change in stride. Regardless of how far that move goes even if its one of those 20 point drops contained by one line, to me what it marks is a 20 point wave not necessarily a trend. What happens during the next wave in the opposing direction tells me about the trend. As the waves contained by the lines move up and down it starts creating somewhat of a structure. When we break through a swing and price continues it's progress I always expect that level to be tested from the other end regardless of how far price continues to travel. If the level breaks and is never tested that tells me something also. I am always looking for where price will test as it moves back towards my entry (swings, 50% levels, trendlines etc) This keeps me in.

What I have also been focusing more on is behavior. Looking for "pressure" which if you're watching price move is shown by a bar with a wider range (not to get too caught up on bars) which moves more rapidly than the preceding price movement. After I see pressure I wait for the hesitation (RET). Some of these hesitations will lead to continuations and some may reverse. So for example if I see pressure down then a hesitation then more pressure down in and thru my entry that gives me a boat load of confidence. From there I expect another hesitation, so on an so forth. On the flip side if I see pressure down then hesitation, entry is triggered by a trickle then I see pressure up against my entry depending on context and where that pressure takes me I'd be ok scratching the trade. Some times this pressure is seen as a rejection as well. Thinking or trying to characterize price movement in terms of behavior or action has helped me from freaking out every time price blips against me. Observing changes in pace also helps. Being sensitive and focused with these movements has made a world of difference, especially when these behaviors are observed at contextual levels.

Look back at those days where we trend strongly throughout a majority of the day. Look at where the SLA entry would be that gets the trend started and trace a fib with just the 50% area shown. What I have found is when then trend is strong that 50% area from the first wave that starts the trend rarely gets breached and even after the lines can be fanned and previous swing points are tested this area still does not get breached. I have noticed that you can catch the whole trending move, the ones that last 50 points not the 10 or 15 point "waves" just by adding this in. You obviously can not use these every single day because we don't trend like that everyday but if you study where, when, how etc. these trend days start and patiently wait for what could be the right opportunity I think you'll find everything a lot easier. Demo and let price come against your or back towards your entry. If it comes all the way back well why. Well hmm I was at the bottom of a trading range and that point didnt break so yea it makes sense we reversed all the way back etc. See where action against the direction of your trade takes you. If 50% after the line break holds that's a good thing. I am by no means at the level of others yet but I have improved greatly just by doing a few of these simple things.

Hope this helps. Keep working hard.

 

This doesn't happen everyday but just an example for easier illustrative purposes.

 

Very well put emini... how are you doing? Trading live or in sim if I may ask?

Yes, I am absolutely seeing the 50% moves are being quite important and I do note them on my chart. If I see price retrace back up, higher than 50% of the down move, this shows me the down move is more than likely over.

And as you also say, watching the hesitation and the thrusts really shows things off quite well. I find that when I am in a short and its going against me, I can see the huge thrusts up and I hold on just because of wishing and hoping. This is where most of my big losses have been, knowing I should be out already, but holding on just in case.

In fact, if I could get past so many of my psychological problems it would be so much easier to see things, but the psychology is just a huge component of making trading work.

In a way I am still very much thinking about SLA, but I am only looking for trades now at major levels that I think I am identifying properly. Far too often my SLA trades have been stopped out just before the trend continues. I couldn't make SLA work because of my fears, so I was doing it all wrong, and so now I'm trying to focus on these levels which for me is easier to stop when the trade isn't working since a level is successfully penetrated. It of course doesn't always work, but trading at the extremes should be profitable overall.

 

I am forward testing right now. Seeing nice results. I am just about finished with 2013. 2014 I've simmed already and know what happened those days so I used that to back test. I continue to forward test current days in the morning. Psychologically what I found helped me was not posting online lol. For whatever reason I had almost put added pressure on myself because I knew I had to post to my journal and have everyone review it. Instead of focusing on price movement I was too focused on making money/collecting points so I can post a successful day online. Not having a plan more than just the simple rules DB posted was also an issue. What's an extreme? How much room do I give price? What's a line break? In terms of something like a reversal, at what time of day would we typically see a V reversal versus a reversal that happens after some form of consolidation? How did we approach the level at that particular time and what result did that cause? etc. Just getting as in depth as possible with price movement. These are questions I wanted answers to so I've spent my time formulating answers to them and now testing them. Also I started treating my session as just an up and down numbers game. Lebron James doesn't think about all the money he can make if he averages 30 points a game. He trains, practices, works hard, plays a smart game, constantly seeks improvement and everything else falls into place. If I lose a few points based on my strategy in the scheme of how price is moving so be it it's just a game. I treat this now as if I am a professional athlete. I have my pregame, game time, game film review (current day replayed), and then practice (pick a previous day and demo it). Wash, rinse, repeat, day in and day out. Successful days are treated exactly the same as losing ones. If there are things you feel you need to know or questions you need answered, come up with a reasonable answer and go test it out. I have truly come to realize that no matter what someone will tell you online nothing will come close to physically formulating a hypothesis and go test it out. It's been said over and over by many members but it's so true. Some of my testing I've come right out and observed poor results for what I want to achieve, but in the process so much more was learned and new/better hypothesis were created and everything is starting to click. I'll be back online once I've completed this process of understanding price movement and the "best" way to capitalize on it. If my performance drops off once I'm back than I won't post lol.

 

LOL... quite the funny ending considering how good everything else was. Given how much work you are putting into this, I don't think you could go wrong once you go live, only if you fail to do what you in fact have planned to do based on all the hard work.

When I am trading live I am always saying to myself "geee.. I wish I knew how often this thing right here leads to a break up!" Of course I just have to go find the answer myself since its all in front of me. I have already 3 months of charts printed up in my book, and it took a while because I wanted to make sure to add in the overnight ranges and means, along with the previous day high and low, and major swing points seen on daily charts. So I will be going down this same path since I see what I'm doing isn't working.

I'm impressed, and what you describe, the things you are looking for is what I have come to understand is exactly the right thing to do. I do hope you start posting again when you're ready to go! (but perhaps you have it in your mind that you can only do well if you don't so you're just have to be rich and anonymous!)