thalestrader

Perhaps you'd be more in agreement with me if I were to say that the tendency amongst the mathematically inclined is that they come to elevate the solutions their various equations derive from price, volume, time and sales data as being somehow superior to the data itself. As such, they convince themselves that the only way to succeed is if one has access to the products, sums, quotients and differences generated by their equations (I mean no disrespect to UB when I point out that such conceit is evident from the disdain that he in his posts explicitly expresses for those of us who do not agree with him). As to this assumed superiority the quants have of their methods, it is demonstrably false. Both retail traders and quants are equally susceptible to immense failure. Quant funds quietly blow up everyday, right along countless retail traders. You are of the opinion that the markets are becoming increasingly complex. I would agree that the markets are complex, but I would disagree that they are becoming moreso. No matter what we human creatures develop or derive in order to try to profit from speculation, it all begins with a buyer and a seller. And at that seemingly simple level is contained all the complexity of the whole. What is often (I would say always) lost sight of by the modelers and algo-jockeys is that the word "markets" describes not a "thing" at all but rather it is signifies the collective activity and behavior of a crowd of people involved in a specific type of exctivity - speculative exchange. If the markets are a "thing," it is a thoroughly human thing, through and through. Humans are incredibly complex. Our reality is far too complex to be modeled comprehensively. Whereas the quants seek to understand better by breaking things up and getting farther from the whole, I am of the opinion that truer understanding comes from seeking to keep things whole, and to understand the phenomena as it is, not as I would have it to be. Understanding comes not from reducing the whole to its component parts, but from observing the whole as a it comes to us naturally. I cannot deduce, much less understand a man's loves and hates, fears and hopes, from a microscopic examination of a slice of his cerebral cortex. But let me be the proverbial "fly on the wall," and observe him as he lives his life over a period of time, and I could reproduce his character through words so vividly that you too would come to know him, though you had never met. In the end, no matter how one approaches these markets, the starting point is always the same. It all begins with a buyer and a seller. It is the same today as it was in the 17th century Rice exchanges in Japan. The fact that there are now more products traded, more traders trading those products, and more approaches being applied to the trading of those products has not increased the complexity or the dynamic of buyer and seller motivated largely by fear of loss and desire for gain. So while ub believes the "most important quality for any approach is that it be adaptive to change," I would say that the most important quality of any approach is that it is firmly anchored to those aspects of market action that endure. As to the criticism that I am showing the flaws of the quants and reverting back to the comfortable, I think you view me unfairly. I have no doubt that some quants can use their mathematical skills to derive formulae that derive useful information from the raw stuff of the market. I am equally certain that just as the majority of retail traders never succeed as they had hoped, so too do the majority of would-be quants never achieve their dream. If anything, the difference between my post and those of ub is that while I can recognize the potential for value in a quant approach, he not only fails to see the see the same potential in an approach that uses the raw flow of the market itself, but treats those who differ in opinon from him with contempt, and in fact, he fairly seethes contempt for others using "dated" methods. I have no such contempt for traders of his ilk. I simply am of the opinion their methods, on the whole, are no more or less superior to any other method that uses derivative data t support trading decisions. I also do not think that "quants" represent anything new at all. After all, what is a moving average but a "mathematical" trend line? I have now been trading more than half my life, having started back in 1986. While you are convinced that things have changed irrevocably and that we are dealing with a present and future far different from an irretrievable past, I am firmly convinced, now more than ever, of nothing more than the old saw that the more things change, the more they stay the same. Best Wishes, Thales

I agree wholeheartedly with MidK. Also, as I have been known to be wrong about half the time in the past, I think we'd all be better off if I were to withhold any comments about live trades - whether demo or dollars - until after the trade is dead. I've already seen one "I'd have taken this great trade it it weren't for Thales's post" and I want to keep those to a minimum. Besides, Thales is not always going to be around, so, young Cory, you had better learn to trade what you see, rather than what I see. Best Wishes, Thales

Weekend Reading Hi Folks, After a brief hiatus, weekend reading returns with nothing new under the sun. Attached is a chapter from the old Market Technicians handbook on technical analysis written by Alan Shaw. I think it may give those who eschew the use of indicators a bit more respect for those who do use them, while giving those who do use indicators a better understanding of what it is the indicators are ... indicating ... I am not advocating the use of indicators in general, nor the use of any one indicator in particular. However, nor would I advocate that someone who has found trading success using indicators to remove them. This booklet serves as a reminder to all that we really are trading the same thing - price - no matter how we choose to view and depict price so as to facilitate trading decisions. Best Wishes, Thales Shaw, Alan, Market Timing and Technical Analysis.pdf

I am old enough to have traded the S&P's watching a 10 tic chart back when a 10 tic chart would still fit an entire day's price action on a screen without needing to scroll back to see the open! Now a 10 tick chart will fill right to left in just a matter of minutes. But this turns technical analysis on its head, in effect putting the cart (price) before the horse (the institutions/commercials/large money traders who lead price). Such institutions never used these patterns, i.e. they never made trade decisions based upon those patterns. Quite the contrary, it is only as a result of the large money's activities that those patterns are created. Far from following them, the large money makes them. That is why TA works - highs and lows, lower highs and lower lows, higher highs and higher lows - are the tracks the large money leaves, not footprints that they follow (all a H&S is a an uptrend rolling over to give the first indication that the trend has changed from up to either sideways or down - it is simply tracking, i.e. following the lead of the willingness or lack thereof of the large money to bid higher or offer lower). The horse leads the cart, and we retail traders follow along and try to keep up the best we can, taking care not to get trampled when the horse decides to turn back on us, and careful not to get stampeded in a panic (and yes, the big money is human money and it does panic). All UB is doing is organizing data to track the large money. Does it work? Yes. Does the small retail trader need UB's maths to compete? No. Are the indicators that ub uses that result form the programming services UB sells "technical analysis"? Yes. Do those indicators trump good old fashioned Support and Resistance? No. Like all indicators, they are designed serve to help give the trader who does ot have confidence in price alone, or in his or her ability to derive from price alone the clues necessary to that trader to support a decision to buy, sell, or do nothing. Whether or not any particular indicator succeeds in that is going to be more a function of the trader applying it than the indicator itself. In this respect, an automated system based upon those indicators is able, to some extent, remove the emotional component that frustrates most who seek to succeed as discretionary traders. Let me use one of UB's indicators as an example. Here is a picture from UB's website where presumably you can purchase various indicators, have automated trade strategies coded, etc. This is a screen shot that ub has posted here at TL in the past showing what is called a "net new" indicator: In this example (my notes are in the margins and the in-chart text and annotations are in ub's original screen capture) price has traded in a line or a rectangle consolidation. The net new buying indicator indicates that accumulation is taking place. Accumulation leads to what? Higher prices! But that is nothing new. That ub has programmed an indicator to sort and track large commercial trade from retail trade may be new in the way he has done it, but anyone who has read Baruch or Livermore or Wyckoff know that they did the same thing using nothing other than a ticker tape recording sales and size. I do not mean to take away from ub's work, but all this indicator does is resort and repackage the data in order to provide a different visual presentation of the data. This is no different than using using different sorting and grouping criteria for price, e.g. time, range, constant volume or candlestick, Renko, point & figure. Have things changed? You bet they have! I thank my lucky stars every day for the rapid growth of quants and high frequency traders. I remember the days when a 60 cent rally in oil took a month, and if you caught 30 cents of you were quite happy. Yesterday I had 7 trades in oil and my average profit was nearly 60 cents. I remember when it would be unheard of for a currency to rally over 100 ticks from the Frankfurt open to the New York open only to retrace the rally and decline by half again as much by the NY close - now it happens twice each week in some form or another. So, yes, some things have changed a great deal. What has not changed is support and resistance, supply and demand, buyers and sellers. The problem with those who have been seduced by what ub calls "recent advances in intelligent data mining, data processing, data visualization and higher frequency automated systems" is that they seem to have forgotten just what the source of that data is - it is buyers and sellers exchanging dollars for something that each anticipates is going to change in value, though they disagree as to the direction of the change. Buyers overcomeing sellers we call support. Sellers overcoming buyers we call resistance. If net new buying ovecomes net new selling, we anticipate upside breaks of resistance. If net new selling overcomes net new buying, we anticipate downside breaks of support. After all, in the ub chart example above, where does the entry point come from? where the stop loss? When does one take profits? While ub does not annotate the chart with such details, I would venture to say that such salient points as where to buy and where to sell come from nothing other than price and where it is in relation to S/R and what it does when it gets there. While some might claim that they have discovered more intelligent processing of data prior to visual presentation, but in the end, there is nothing new under the sun. People are people, and buyers are people and sellers are people, and programmers are people too. One reads in Ecclesiastes the simple enduring truth that "[o]ne generation passes away, and another generation comes, but the earth abides forever." For our purposes here, one might say that one generation of traders passes away, and another generation comes, but price action bides forever. And while the sun also rises, there is truly nothing new under the sun - just a lot more of the same dressed up a new fashion. Best Wishes, Thales

Most of the answer as to why I "chopped it down so much" is contained in the very same post of mine that you chose to quote ... The first trade was sized for a 30 tick stop, the second entry was sized for a 10 tick stop. In point of fact, the actual stop on the first trade was 25 ticks from entry, and the actual stop for the second trade was 9 ticks from entry. In each case, my initial stop loss at the moment the trade was filled was 10977. The closer I enter to that level, the lower my risk. Far from being arbitrary, though my entry level changed, I never once changed my stop loss. As far as how I determined my stop loss, I simply looked at past S/R below that descending trend line to find what ought to be the lower limits of a final low. Here is how the expiring March contract looked to me ... Anything beneath that lower red arrow would, in my opinion, bust the ending diagonal scenario and likely have indicated that a full retrace of the previous rally would occur. Here is how the same support area looks on the June contract, which is the contract I am trading ... The actual level of the lower red arrow is 10982. I intended to post that 10982 was a sort of Custer's last stand to keep the reason for the long trade alive, but I mistyped and put in the level of the actual low print of 10984 (I would hope such be judged an honest mistake). As for the stop loss, I simply placed the stop loss 5 ticks below that 10982 level because I wanted a small margin of error on my side because these final lows are often emotional events and a small overshoot to the downside is not unusual. Is that arbitrary? Perhaps. After all, you might ask why not 3 ticks below, or why not 12? Because I have always used five as multiples of 3 and 5 seem to work best for my brain to figure out a position size without resorting to a slide rule or calculator. Here is a screen shot I took of what was then mere potential for a long opportunity the day before, on 3/11... I did not post this here, but I had thought about it, so I placed the orders on the demo chart and took the screen shot (I was actually hoping that Cory would come up with this on his own and post it here, thus I held back on posting it). My entry order on the 11th was 11007. As price action progressed, I lowered my entry order (as you can see, far from chasing entries, in these cases, I make the entry chase me. You can also see that the initial stop was resting at 10977. That was the initial stop on my first entry. That was the initial stop on the second entry. Again, once price rallies above my entry, pulls back, even just a few ticks, while holding above the low print, my stop loss goes moved from 10977 to 1095 in the first case, and 10983 in the second case. The initial entry changes, the initial stop loss does not. The initial stop protects me against an all out panic. Once I am in, and there are no signs of panic, and price is moving away favorably from my entry, I cut the risk to the closest extreme print. Nothing arbitrary about it at all. It is simply that the closer I am able to make entry to that initial stop level, the lower the risk/contract, and thus, the closer to the risk point, the larger the size. Best Wishes, Thales

So far, so good on the 6J trade: Initial entry: -.2R Second entry: 1/3 filled at PT1, which was +50 ticks on a trade sized with an intitial 10 tick stop loss (10084 was a "Custer's last Stand" to keep the reason to be long alive) - which is why the first entry at 11002 was sized with a 30 ticks stop, whereas the second entry at 10086 was sized with a 10 tick stop). That 50 tick profit on 1/3 = 1.66R on the whole trade (do the math folks, and you will se that 50 ticks versus a 10 tick stop yields a profit on that 1/3 alone equal to 1 2/3's times the initial risk). Stop loss is now at +36 for 1/3 remaining, and at -3 ticks on the other 1/3 remaining. Worst case, assuming no slippage or a giant gap down at the Sidney open should be +2.76 R, less the -.2R from the initial entry, yields a worst case scenario of +2.56 on the trade. If I am so fortunate as to see PT2 and PT3 each filLed as I currently have them set, the entire trade would yield +16.5R after commissions, fees, and the initial loss. PT2 and PT3 are not both hit very often. Best Wishes, Thales

With revised profit targets ... Best Wishes, Thales

Long again at 10086 .... Best Wishes, Thales

Here is what I was looking for with respect to the 6J ... I bought as close to the trend line as I could. My original order, which I placed yesterday, was at 11007. As time ticked by, the entry limit order got lower. I had a 30 tick initial stop loss to protect me in case of collapse, but once we rallied back above the trend line, the stop moves to one tick below the 11096 low, so the risk is now 7 ticks, or less than or -.2R. This way, if I am wrong, the damage is minimal, and if I am stopped out, I can justify a re-entry should price indicate that it is going to get in gear to the upside. Best Wishes, Thales

I see it ... how about this version ... Best Wishes, Thales

I had the limit at 44.50 and price came within 2 ticks and sold down a bit. When that happens, I will usually raise my limit 5-10 ticks. In this case I raised it 1.5 points or 6 ticks to 46.00. Best Wishes, Thales

Zoom in on your 240 minute ... you may find you will see more if you look at less, in this case. Also, may I suggest you try your charts without grid lines and session break lines for a few days? You never know what might be geting in the way of a clear view. Best Wishes, Thales

Thanks for the question! I know I'll look pretty simple minded, and perhaps even ridiculous, but all I was looking at was this daily chart of the cash S&P. I suspect that we may soon see an upside breakout, but such BO's are often preceded by a pause before launch, sometimes just slow drift down, sometimes, a double top ... I'm just taking my swings ... What sort of things do you look at, if I may ask? Best Wishes, Thales

PT1 filled, stop is now +1 tick ... Best Wishes, Thales

Fibs? Fibs! Funny you should mention fibs, Kiwi my friend. Why, I make money everyday using fibs, though I try to keep it a secret. Not very good at keeping secrets, am I? Best Wishes, Thales

Current view of the EURUSD/6E - I've had a sell limit at 1.3693 all afternoon and into the evening. Price came within four ticks and sold down a bit. My habit is to raise my limit once price comes close but not close enough to filling me, but I have not decided to do so just yet. If I raise it, it would probably be to 1.3697 or so ... Best Wishes, Thales

Hi MK, I am very happy to hear that things are going well for you. I have been following your nightly contributions with great interest. I am sure that I am not alone in having an interest in learning how you are triggering your entries, managing trades, (stops? limits?) etc. I hope you decide at some point to share a few more details with us. I wish for your continued success! Best Wishes, Thales

Here is how I'm looking at the ES ... Best Wishes, Thales

So I presume this is a discretionary experiment as it must be difficult to quantify "good hourly price action" in code! I was wondering about the size of your stop loss - you seem to be exposing yourself to the same risk as one who took the trade on the initial breakout - Is that so, or am I misinterpeting your charts? I would have thought that one purpose or goal of waiting to enter on the retest rather than the initial BO would be to reduce risk, presumably by reducing the size of the required initial stop loss. I'm not criticizing, just asking. Thank you for sharing this with us. Best Wishes, Thales

Quiet as crickets round here lately ... All out at 68, so +.375R ... I did not get short on the reversal. I'll be looking for a larger 123 sequence here to get short. I would prefer to get short 5-10 ticks above the morning high and then add on a short sequence initiated from those levels, and it would look something like this ... But, you have to trade the market that you have, not the one you want - And I always have the choice to not trade it at all. Best Wishes, Thales

Raised stop loss to 66 - so depending upon slippage, this will be no wrose than a +/- a few dollars ... Best Wishes, Thales

Just bought the BO above 64 with a 65 buy stop - in real life I was filled at 65 on all but one contract, not 64 as here on the demo, so my average entry is just a shaving beow 65. Initial stop loss was 57, and it is now 62, reducing risk to -.375R ... Best Wishes, Thales

Out at 1.3647 for +57 ticks total gross, +56 ticks total net, or +5.7R ... I had a -1.21R Tuesday, and a +1.23R Wednesday, so while I would like to hit for +5R every day, and while it may sometimes seem like I hit every trade for +5R, that is absolutely not the case. I just keep taking my swings, cutting my losses (and sometimes my profits) short, but trying to make certain I win larger, on average, than I lose. Best Wishes, Thales

Added on the new break low after the retest of the high - the entry was the break of 1.3667, the demo platform is showing the average sell price. I have attached both a 1 minute and 15 minute views. Current stop loss on both is 1.3647, (+38 ticks/+19 ticks respectively) ... Best Wishes, Thales

Hi Folks, Sorry for the late post. It took longer to write the above post than I thought it was going to take, and so I did not get a chance to snap a chart or post this before it triggerd. At any rate, I had the order set in the demo account as well, so you can see that it was at least possible to take the trade, whether you believe it or not. Sold at 1.3685, initial stop loss was 10 ticks, price reversed from a 1.3686 high, and my stop was lowered to 1.3697. If I am not stopped out, and price instead gives a 123 short sequence, I will add if the short sequence triggers. If I am stopped out, it will be -.2R. Best Wishes, Thales