optiontimer

I do not see anything wrong with your entry approach so long as it is done consistently and without second guessing. Whta matters most is that you are adhering to the structure of the system - you are trading with the main trend and against minor reactions against that trend. Your way is working for you, and you seem comfortable and relaxed with it. I urge you to continue as you have. If you find something that works for Ingot, then optiontimer be damned! Yes, losses will happen, and they will sometimes occur in bunches. Your consistent, disciplined application will give you the ptience you need to control and trade through the inevitable draw downs. -optiontimer

Since 20110708, I have been experiencing technical difficulties that have culminated in the need to replace my charting computer. A replacement has been ordered and is on its way. I hope to resume monitoring and posting charts within the week. While it will only take about an hour to download my software and the complete price history database, but it takes hours to rebuild my portfolios, templates, etc., and these hours will be spread over several days at best. Thank you, -optiontimer

Nice trading, Ingot - how do these open profits compare to what you had been accustomed to achieving? As for the stop/exit question, the correct answer here is a question - "What do you want to get out of the markets?" The initial stop for this system should always be above the highest high immediately preceding the entry. If you want small, quick profits, then a trailing stop above the previous day's high, a three day high, or simply an oversold reading on a closing basis could be the signal to get out. If you want somewhat larger profits, albeit with a lower win %, then trail a stop above the 21 EMA. You will see more losses, and what might appear to be good profits will evaporate into small wins (hopefully) smaller losses. If you want to play for Kroll-like profits, then use a stop above the 65 ema, perhaps exiting manually on a close above the 65 ema. Any of these should be accompanied by a plan to re-enter should the trend resume. But you have to decide what you want. As for looking at the weekly chart, I reiterate my prior point - weekly and monthly charts should be used, but they should be used for long-term support and resistance only. Do not apply the system we are using for the daily time frame to the weekly time frame unless you are planning on trading that time frame. That would be a valid strategy. But it is only valid if that is your strategy. As you are using it, you are flirting with disaster. You are right now executing a classic, widespread mistake that accounts for failure than is recognized by the trading community - you are "mixing time frames." Do this at your own peril. Trade your system. By all means use long term support and resistance to locate potential areas where your trend may end. Tighten stops, perhaps take partial profits at those levels. But do not confer any importance on an indicator reading based on any time frame other than you own. Stick to your plan. If you do not yet have a plan, develop one. -optiontimer

I read your post several times trying to figure out what it is you might need to hear, and after a bit of thinking, everything fell away except for what remains above - your dilema is you'd rather avoid the pain of loss than the thrill of the big win. I assume from your "stick to plan" phraseology that you at least think you have a plan. You either do or you don't, and if you do, stick to it unless or until you determine it to be a bad plan, and if you don't, then you need to develop one. As far as taking profits, if your plan is to take two to five day swing trades, then you could use a simple time stop, for example, "I will trail a stop below a three day low, and if still in the trade, I will close the position MOC day eight (or day five or day seven or day three - it is up to you)." Or, you could use a trailing stop, trailing beneath the most recent three day low (or two day or prior day or five day low - again that is up to you). Or, you could exit MOC when it becomes apparent the the stochRSI has moved from one extreme to the opposite. For example, if you enter a short trade with the major trend when overbought stochRSI turns down, then exit MOC when stochRSI looks to close the day at an extreme oversold reading. I see that too. On my Oanda chart, it turned down slightly on 7/4, but my CSI daily chart the stochRSI did not turn down until 7/5. The important thing for you will be to pick a data set to trade from and stick with it - don't start comparing the indicator values across platforms. Use either data from the broker your are using, if you are using a bucket shop, or from a trusted source, such as CSI. When trading foreign currencies and trying to hit for +500, +1000, +3000 pips, those 50-125 pip fluctuations are mere noise. Go back to the top of this response: Your dilemma is that you need a plan. The character of that plan will be reflected by your character as a trader and by what you want to get out of the market. Start there: What do you want to get out of the market, Peter? Once you answer that, assuming you have been honest with yourself, you will be ready to develop a trading plan to get it, whatever "it" is. I would also ask yourself if you'd be happy trailing a down trend such as the GBPCHF has been in for many many months with a series of breakeven trades and nothing to show for your correct analysis? Have you read the Kroll document that MadMarketScientist added to the first post of this thread? Kroll discusses this phenomenon as well - the retail speculator who early in a big move is right on the direction of that next big move who nonetheless ends with a net loss. He also quotes Livermore, I believe, where, if I may paraphrase, he says "the market is full of early bulls and early bears who make little in spite of being right." What do you want to get out of the market, Peter? I hope this helps, -optiontimer

Hi Russell, Commodities in general have been in bull market mode since 1998-2000. This system is defining the major trend based upon the relation of the 21 day EMA to the 65 day EMA. During the course of a multiple year bull market, there may or may not be counter-trend moves that themselves are trend tradable. Oil, for example, has been in bull mode since it bottomed around $10/barrel in the late nineties. It was a very nice short trade after the July 2008 top through December 2008. For this system, weekly and monthly continuation charts should be used for long term support and resistance cues, and not for trading signals. For example, here is my monthly coffee continuation chart: This chart goes back 30 years farther than the one you posted. As you can see, coffee has traded into an area where it has seen selling before. You can also see that all tremendous coffee bull markets end the same way - in a colossal collapse. I am not trying to pick a top here - far from it. Yes, the trend is your friend. But it is at its most friendly, for me, when trading it from the perspective of the daily bar chart. By the time the monthly registers a change from down to up to down again, you may have missed some of the best risk to reward opportunities of the new market trend. My advice would be this: Use Monthly for support and resistance and historical context and perspective. But use either the daily or the weekly as the basis for your trading decisions. I prefer the daily, and this system is designed around the daily bar chart. One other piece of advice - either use your system or don't trade at all. If your system is based on a daily bar chart and it issues a sell signal, then do not go looking for other information outside of your system either to confirm or undermine your system's trading signal. Read the section in Kroll entitled "Speculator's Laments." I am sure he touches upon this very subject there when he talks of various trader's who purchased a computerized trading system, only to disregard the system's rules and signals, or to apply those rules haphazardly. The only reason, for me, not to take a trade signaled by this system is that the risk required by the stop loss at time of entry is too large for the size of the account. Thus far, that has been the case in the trades signaled since last week in Gold, EuroFX, Japanese Yen, Crude Oil, and Coffee. This system will produce signals with more favorable risk to reward ratios. We simply require patience.

Here is Gold working its way higher on its re-entry long. Using our .1ATR10 entry/stop loss parameter, entry would have been approximately 1521, and stop loss would be 1478. The first block identifies last week's losing trade, and the second block identifies the current active long. -optiontimer

QUESTION: ANSWER: That is my choice, anyway. But everyone has to answer to his own hopes and fears. -optiontimer

I am on the road until tonight, so I will not be able to freshen the Gold chart until then, but following this system, Gold is not an active filled long position. Risk parameters prevented me from taking it in this account, but we will watch gold's progress as though we were long. I know paper & demo trades are not the same as real money trades, but that doesn't mean we cannot follow a few paper trades while learning our system. -optiontimer

Good work, PWP! When I trade this type of entry, my stop would be about ten pips above that swing high. I usually go to breakeven in the stop once the open profit is 100% of my initial margin. You have to trade within your own comfort zone. It is times like this where you will find out your capacity for fear. This is an old downtrend, but when I look at the monthly, I can see reason both to think this downtrend may soon bottom but also I see plenty of room to the downside. I cannot advise you as to your own funds and your own account. But if you want my traderly advice, you must be willing to watch your profit run to a loss in the search for the big profits. But once your profit is equal to your margin requirement, I follow Kroll and go to breakeven on my stop loss. Good Luck - please keep us posted no matter how you decide to manage the trade. Win, lose, or draw, you should be proud to have spotted that set -up and doubly so to have acted upon it:applaud: Good luck, buddy! -optiontimer

YM flipped to an uptrend today, and NQ and ES do not seem far behind. Gold, which was a long entry stopped for a loss last week is signaling a re-entry long for tomorrow (per our entry rules, of course). Here is Gold:

Both Crude and Coffee did not trigger short entries. In fact, each rallied to new recovery highs. These show why we do not enter simply because and over bought or oversold condition exists. Price action, not the indicators, will pull us into a trade. I call this chart template "optiontimer's laboratory." It will allow us to compare and contrast various alternatives to the stochRSI (which I am really liking, by the way). For now it shows our 7stochRSI, the 8Momentun, and a 5trix. We'll see what we cook up in the laboratory.

For the forex traders among us, here is the GBPCHF: -OT

As we get experience here, you will probably see that support, resistance, and price action will help to clarify the slightly, almost, and near on a case by case basis. No such thing - yours is an excellent contribution to the project. Absolutely. If we can stick to the basics, we will be fine. And you are right, nearly any oscillator with a fairly short parameter will do. Even RSI, which the original poll selected, would work very well. I am simply looking for the one that offers the highest degree of visual clarity. They will all do the job. They will all be subject to whipsaws and successes. Thank you for taking the time to post your thoughts, -optiontimer

BP, aka GBPUSD, aka GU, is downtrending according to our system, but it is not signaling any action as yet. You are free to use whatever indicators or system you wish in your own trading, but for the purpose of this thread, we will keep it to the indicators we have selected, without need for any additional "filtering." For our purposes her, up-trending/down-trending is determined simply by the relation of the 21 EMA to the 65 EMA. Entries are signaled only by the overbough/oversold readings of our momentum oscillator turning back in favor of the up/down trend. We are currently using the stochasticRSI, but given the difficulties many have had in replicating the settings from my database, we will be selecting another momentum oscillator to replace the stochRSI. But that will be it - 2 MA's and one oscillator. Those are all the "filters" we shall need. One of the goals of this project is to help us overcome the desire to add filters ad infinitum to our trading. I hope you continue to participate in our project, but please check any extraneous indicators and system elements at the door. You can always pick them up on your way out;) Thank you, -optiontimer

The symbols below are the symbols used by my database. You can find the key in post #6 of this thread: Optiontimer's Trading Portfolio According to our system, the status of our markets is as follows: Up Trending: (21 EMA> 65 EMA) AD, CU, FC, GC, JY, OJ, SB, SF, TY, & US Down Trending: BO/ZL, BP, C/ZC, CD, CL, CT, DX, ES, HG, HO, KC, LC, LH, NQ, O, RB, S/ZS, SI, SM/Z,, W/ZW, YM Using our original 7stochasticRSI, we have to sell short signals - August Crude (sell stop 93.16) and September Coffee ( sell stop 257.50). Using an 8 period momentum, crude would be a short sale, but coffee would not. Sell stops based on an entry threshold of .1ATR10: In other words, take the current trailing 10 day Average True Range, then take 10% of that, and subtract it from the prior day's low to determine youe sell stop. It is arbitrary, but it is as good as any other, and probably better than entering on a one tick basis. In each case, the required risk exceeds what we have determined to be acceptable given starting equity. The opportunities will present themselves, we just need to be patient. I am looking at several alternatives to the stochRSI still. We will continue to build our base through the coming days, and soon we shall have our updated system finalized. Thank you, -optiontimer

Here are some charts using an 8 period momentum indicator. If you do not have an indicator named "momentum," you should be able to substitute an 8 period Rate of Change. If we use this indicator, then our system would find oversold readings of <0 relevant only when the 21ema>65ema, and overbought readings>0 relevant only when the 21ema<65ema. I have placed a red line on the "0" line. Here is the perpetual chart of cotton which I had posted earlier in the thread, but this time 8Momentum replaces the 7stochRSI: Here is the GBPCHF which also was posted earlier, again this time the 8 momentum replaces the 7 stochRSI: And here is the EURUSD Futures, aka 6E, aka E6, with both the 8Momentum and the 7stochRSI. Blue circles are profitable entries, red circles are whipsaws, i.e. quick losses. Momentum is somewhat more difficult to read quickly, but it does seem, at lest in this case, to smooth through minor momentum volatility and thus it has only two small quick losses to stochRSI's four quick whipsaws. I'm not at all sure that would always be the case. And we cannot let small losses bother us as there will be numerous small losses to be endured I encourage everyone following along to check to see if they have access to the 8 momentum. Any comments would be appreciated, either here in the thread or through a PM. I am not 100% decided on this indicator as a replacement. For any interested in exploring the use of the stochastic formula, I am also considering an 8 period %K, with a 1 period smoothing and 1 %D stochastic has the virtue of having a fixed 100 point scale. Momentum has the virtue of being a bit smoother through subtle shifts in the volatility of momentum Of main importance is that both fit my criteria for visual clarity and ease of understanding. So, now I want to know if you all can get your charts to look like mine (and we can accept, of course, small variations depending upon session open/close/settlement times). We'll talk more later, -optiontimer

I do not have Ehrlers Indicators and I do not know how they are calculated. What you have posted looks like it could work for you if applied it the same way I am using momentum, and if it works for you, I'd encourage you to use it. I will be choosing between stochastics and momentum/rate of change. Everyone should have access to these, and the calculations should not be as open to developer's interpretation as stochasticRSI apparently is. I like Larry Williams (at least the old time Larry Williams) and his book How I Made a Million.... But Williams%R is a bit counter-intuitive with its inverted scale (even Williams turns it over to illustrate its use in his book). And %R is actually %K turned on its head, so for this project, if I choose to use the stochastics formula, I will stick with the George Lane version rather than the Larry Williams version. Thank you, optiontimer

For a long signal. for example, we will not take a signal that occurs with a close below the 65 EMA. If price closes then closes above the 65 EMA, or if price consolidates in a tight, narrow range at or just below the 65 EMA over a period of 2 or more days, we would buy on a return above the 65 EMA. "slightly above/below" refers to price relative to the EMA's, not the EMA's themselves. Currenty this system is short biased the S&P based upon the relation of the EMA's to one another. A short signal would require first that the stochRSI turn down on a closing basis from its current level of 100, and entry would be triggered if price makes a lower low than the low of the signal day. So no, a break of Friday's low would not be a short entry for this system. Looking st the S&P daily chart, I would expect the next entry based on this system to be a long entry. The 21/65 down cross was shallow. The major trend, visually, appears still to be up. The price action from the May high to the June low appears to be more of a consolidation in an uptrend than a trend reversal to a major down trend. The 21 ema will probably cross up through the 65 ema within 1-3 trading days. That cross, if accompanied by an oversold reading on our oscillator, will likely get us long for the next leg up. As I mentioned in another recent post, I am expecting a long campaign in the YM (Dow Industrials e-mini $5 futures). -optiontimer

yodusolu, Thank you for your suggestion. I have been considering using stochastics, though I would adjust the parameters differently than you. Here's why: I have a very specific criteria in mind with respect to visual clarity of the indicator. 1) I want ob/os to be unambiguous. 2) I want the shift in momentum back in favor of the major trend to unambiguous 3) I want the indicator to be both sensitive enough to pick up on short 2-5 day pullbacks, but discriminating enough to get us through longer, 6-30 day consolidations, with a minimum of whipsaws. A short term momentum indicator comes closer to what I am looking for here. For example, your stochastics, if set to a shorter term period, perhaps 5-8, and with the %D set to 1, would probably fit my criteria (it may not fit yours, and if you have something that works for you, that is great). I am putting together something that I believe is visually compelling, clear, and simple to help people who have not yet found something that works for them. In order for this to work as I hope for it to work, it needs to be easy to see, even for the least experienced "chart watcher." Thank you again for your suggestion. As you can see from Trendup_'s post, I now have five people who have said that they are having difficulties with the stochasticRSI settings. I am working, as time permits, on selecting a replacement oscillator for this project, and I may yet choose a standard stochastic, albeit, for the reasons outlined above, it will be with parameters of my own choosing, rather than the standard "out of the box" settings. -optiontimer

As do I. If you read Kroll, then you know he makes use of the fact that he was "continuously short soybeams" for nearly two years from June of 1984 to November of 1985 for a profit of $10,000 per contract - a $2/bushel move. As an example of the increased volatility and range we are currently seeing, July Beans traded as high as $14.54 1/4 per bushel on 2/8/2011, and by 3/15/2011, they had declined to a low of $12.78/bushel, or almost $2.00 er bushel. During that time, a 14 day ATR of beans went from a low of about $0.24 or $1200/contract to a high of over $0.40, or $2000/contract. Compare this to the soybean market of 1984 - 1985 (see attached chart): When Kroll was short. The rolling 14 day average true range had a brief spik to $0.20, but was also as low as $0.0498 -less than a nickel/day range! If you were to use a 3 ATR stop, that would be $3600 in the current market, but only $1000 in the market as Kroll was operating. Here is how it would have looked using our current system to time your initial entry and then to pyramid additional positions during Kroll's soybean market: For now, I will continue to post charts so that we can become accustomed to using this system and to following these markets. Thank You, -optiontimer

Its not free, but it is accurate - CSI Market Data (Commodity Systems Inc.) You should call them and explain what it is you need before you subscribe to their service to make sure that it is a good fit. -optiontimer

It was not posted, because I remain unsettled as to whether I will trade this account for short term swing trades or to apply a longer term position trade approach. This is, remember, an on-going project in development, and not a turn key black box. If short term swing, my take profit exit could take one of several forms: 1) the exit could be to limit out at a retest of prior support or resistance; or 2) the exit could be time based - for example, a five to eight day exit on close; or 3) trailing stop below a three to five day low. If longer term trend following, then the take profit exit would be a trailing stop below the 65 EMA or a volatility based stop, such as using an average true range multiple. The initial stop loss will be a money loss, tied to nearby support or resistance and the closest important high or low. The money loss for a longer term trend following application of this system, given the size of this account and an approx. 33% win rate, would dictate a max loss per trade of $961, with a preferred level around $653. The money loss for a short term swing trade application of this system with an approx. 55% win rate would dictate a max loss per trade of $1666, with a preferred level around $1133. The difference in Max level to Preferred level is as follows: Max level is based on the consumption of the entire account on the road to ruin, while the preferred level assumes that if account equity falls below $8,000, then trading realistically would need to cease, and a new stake raised to sufficient levels before trading could resume. The difficulty with the longer term application right now is that current volatility in those markets often dictates a stop much larger than the $961 max I would like to use, and far above the $653/trade risk I would prefer. This might make for too few trades. One option I am also considering gaining some position sizing flexibility by trading the currencies as spot rather than futures, and doing so on a short term swing basis, while continuing to trade the other markets on a longer term, trend-following basis. Another option is to await for what I expect to be an upcoming long campaign in the YM with its $5 tick size. -optiontimer

A few years ago I noticed that Gain data was very responsive to market moves, while the data of another bucket shop broker lagged terribly, sometimes by a minute or more. I made quite a bit from that lagging broker. Their data feed was slow, but the quotes were executable. Talk about an edge - I was basically able to use Gain as a Time Machine to travel to the future to see where prices were going to be, and then use the lagging broker to travel back in time to buy or sell accordingly. This lasted for about seven trading days. What a good time that was! -optiontimer

After you upload your file, right click on the hyperlink in the manage attachments window, and click on "copy link address". Then click on the "insert image" ikon above. It looks like this: An address bar will open. Then right click and paste link address into the address bar that opens, and click "ok". That should do it. -optiontimer

I have now had three people tell me that stochasticRSI is either not available in their charting software, or that using a 7 period stochRSI the settings/data are different enough that they are unable to replicate my charts. This is not acceptable to me, as it undermines what I am trying to accomplish - a simple, easy to follow system accessible to all. By "easy," I am referring to the mechanics, of course. The hard part, as always, will be having the discipline to trade it consistently. The stochasticRSI has the virtue of being unambiguous in its overbought (100) and oversold (0) readings. Any other will probably have to have an ob/os threshold. I will work on a suitable alternate and will make a decision this weekend. Thank You, optiontimer