The "ABC" Trade

[walterw 10]

I want to start this thread about a technique I also developed somehow together with "flip"... its an old method, nothing new here, just old wisdom being organized in an easy to read method...

 

Also I will open a new thread of a third and last method I am using in futures at this time wich happen to be a new edition of my old M trades... (This threads have nothing to do with what I am researching in forex, this is about my futures trading)..

 

What happened its that I find a lot of good trades going on that could not be taken as they where not with the flip morfology and I noticed they would go with the same "spirit of momentum" we developed on flip...

 

So let me recap on this momentum thing just a minute here so you can understand what I am talking about here...

 

If you look at the first image I attach, you will see that I define momentum as the centrifugal action outside the outerbands... thats what we are looking for ... we want to trade this centrifugal movements that the market sometimes can do with great enthusiasm...

 

Now ABC ( I got inspired in the name since Dogpile mentioned it here on TL, thanks Dogpile, I dont know if it has something to do with what Dogpile its doing) but its an ABC pattern what we will trade here...

 

On the second graph I try to make clear what the "ABC" trade its all about...

 

A : We have a very strong move outside the outerbands

 

B : We make a small Pullback

 

C : We continue the move with mometum

 

Easy stuff here... no brainer, if the market its showing his paws (specially on the first hour) and the wave A its constructed with energy... we can expect after this small pullback to see more action in the same direction...

 

Here we are measuring momentum on the A wave... the stronger the A wave, the more we can expect on this trade...

 

B is the "oportunity" being setup for us to enter this strong market...

 

C is our bussiness... The continuation of the momentum...

 

Now I borrowed from "flip" all the timing methods being used... CCI 100,50, 0 levels crosses, stops and exits aproaches,etc.. all adapted to ABC trades, so for those that are familiar with how we are managing timing in flips, they will find very easy to adapt those timing methods to the ABC trade...

 

For last I attach some examples of ABC trades... I will be posting examples on sessions ahead....

 

Timing criterias at this time : (using cci, same inputs as "flip")

 

For entries, if we have a zlr type entry, I will enter with the turbo 0 line cross... if I have a regular entry I will do it on the 50 levels cross..

 

In terms of exits I am only taking one exit (no runners)on the 50 levels re-cross...

 

Should I make clear nothing its perfect and stops also are expected here, wich I take them 2 ticks above/below entry pivot...

 

Hope you enjoy this very simple method as I am doing... cheers Walter.

[brownsfan019 17]

Walter - I'm beginning to think that you need to get into the business of writing possible trading strategies.

 

The band breakout/pullback is an interesting method. I never had much luck with bands - mainly Bollinger and Keltner - as I felt it was hard to really distinguish when to play the break and when to play the breakout. In other words, as price is approaching a band, do you play that it will bounce off or play that it will break through? With the indicator(s) that you have at the bottom of the chart, maybe that will help.

 

I attached some screenshots of your charts for consideration. I'm wondering if there's a way to filter some of these possible entries out that do not work.

 

Also, in the spirit of the forum, I think it would be good if you highlight trades that failed as well. Please don't misinterrupt this comment, but from some of the charts that you post, it appears that you are developing bullet proof strategies daily. Obviously that's not true, so it would probably be helpful to everyone, incl yourself, to point out areas of failure as well to get a full picture. Just a suggestion. I find that it's easy to look thru rose colored glasses when it's your hard work and ego on the line.

 

 

 

[walterw 10]

Yes Brown posting my trading method helps me a lot, and I know some good people like to clear their ideas watching this posts, thanks for interacting, about stops being posted, you can check on the "flip" thread and you will see all good and bad trades being posted... same will happen on this thread, I will post all trades, good and bad ones...

 

I respond to your questions in the charts .... thanks Walter.

[brownsfan019 17]

Walter - how do you define the 'already had a huge move' and how do you categorize when to keep taking the trades? Obviously on a nice trend day, you'd want to take them all day. Other days not so much.

[walterw 10]

Walter - how do you define the 'already had a huge move' and how do you categorize when to keep taking the trades? Obviously on a nice trend day, you'd want to take them all day. Other days not so much.

 

Well thats where greed control comes into play... that type of days where you had a long travel outside the bands and then make a new super move outside the bands again.. dont happen very regularly... so being controled its a very good way to not get catched on greed thinking that on that second set it will happen again, because statistically we know it want... when it happens, money on the table ? let it happen... its not my bussiness any more...

 

Remeber always this : Momentum is the exception, Cycle its the rule...

 

you can take abc`s on the first break and done... mostly on the second you will have a false abc setup followed by a "lazy" trade... on this second sets of abc`s its where I will be monitoring for Lazy trades, wich normally happen... cheers Walter.

[walterw 10]

Ok, two great abc trades today... momentum was clear at a strong A break... cheers Walter.

[mkp14 10]

Hi Walterw

Here is chart for ABC with T1@ 127.2 OR 100% Entry@ breakout of

38.2 or top of c

mkp14

[walterw 10]

Mkp : you can find lots of ABC on the market, based on fibs, elliot waves, etc etc... now my abc`s are very specific in terms of "area" ... I want to see that happen outside the outerbands, because normally thats the place where momentum shows its face... cheers Walter.

[mkp14 10]

Hi Walterw

What is setting of outer and inner Band ? It is good because we can fillter bad trade set up. I like ABC Setup near all ema and also comformed by 5014 or 5034z

Thx

mkp14

[walterw 10]

Hi Walterw

What is setting of outer and inner Band ? It is good because we can fillter bad trade set up. I like ABC Setup near all ema and also comformed by 5014 or 5034z

Thx

mkp14

 

I am using a 55T chart of YM... with keltner exponential 100 / 1 and 2.5 atr

 

below you have a CCi 14 and 6... very simple chart...

 

Momentum its the key here... cheers Walter.

[Dogpile 10]

Nice thread Walter..

 

here is a different perspective on ABC patterns.

 

ABC is generally considered a corrective pattern. But on lower timeframes, a corrective pattern on a higher timeframe might be a good momentum pattern on a lower timeframe.

 

Look at this chart of the S&P midcap futures with a focus on Thursday (6/21 -- note the times below chart are California time).

 

Note that there is a larger scale ABC up which is corrective relative to the previous day 'trending profile' to the downside. Within that ABC up was actually a little ABC down during the larger B wave down.

 

http://bp1.blogger.com/_5h-SWVGx6Ms/Rn0rRPVSL4I/AAAAAAAAAT0/167MgeH_ZEA/s1600-h/Midcap+Futures+June+21+2007.bmp

[walterw 10]

Hi Dog, I see that this are very diferent abc`s actually...

 

I start my A coming out of the outerbands, that makes it pretty clear and straight forward... I am looking for momentum as C wave is intended to travel in a centrifugal fashion outside the bands...

 

I am a very big fan of keltner, it makes my life so much easier... Dog, I still dont understand what criteria are you using to determine an A... thanks Walter.

[Dogpile 10]

<<I still dont understand what criteria are you using to determine an A>>

 

I am not trying to determine A... I am just trying to determine the end of C... it becomes tradeable if I see ABC and have reason to believe that the C wave will end (ie, pivot resistance). mine is not related to yours really -- I wouldn't have posted anything here except to point out that ABC is a common, completed pattern.

 

your set-up is well-expained. you are playing the momentum continuation, much like a bull flag type of set-up.

 

tell me this about the pattern you are talking about and forget mine... what 'defines' the end of 'B' in your mind? I mean, if you were to mechanically program it, you could easily set up the A leg --- say it moves 3 average true ranges outside the top of the keltner channel to qualify as 'momentum-A', then it needs to retrace a bit for the B leg... so what rule could you have to define the end of the B leg and the start of the C leg? do you just do this visually with a candle-reversal? you can definitely program that if so...

 

I am not saying you have to program it for it to be valid... I am just curious for the general criteria on what defines the end of 'B' and the start of 'C' and its most easily understood if you talk about it as if talking about a mechanical program -- even if its not executed that way -- which of course it often isn't...

[walterw 10]

<<I still dont understand what criteria are you using to determine an A>>

 

I am not trying to determine A... I am just trying to determine the end of C... it becomes tradeable if I see ABC and have reason to believe that the C wave will end (ie, pivot resistance). mine is not related to yours really -- I wouldn't have posted anything here except to point out that ABC is a common, completed pattern.

 

your set-up is well-expained. you are playing the momentum continuation, much like a bull flag type of set-up.

 

tell me this about the pattern you are talking about and forget mine... what 'defines' the end of 'B' in your mind? I mean, if you were to mechanically program it, you could easily set up the A leg --- say it moves 3 average true ranges outside the top of the keltner channel to qualify as 'momentum-A', then it needs to retrace a bit for the B leg... so what rule could you have to define the end of the B leg and the start of the C leg? do you just do this visually with a candle-reversal? you can definitely program that if so...

 

I am not saying you have to program it for it to be valid... I am just curious for the general criteria on what defines the end of 'B' and the start of 'C' and its most easily understood if you talk about it as if talking about a mechanical program -- even if its not executed that way -- which of course it often isn't...

 

 

Nice question Dog... in my case its the timing entry of the C wave that puts an end to the B wave... so that way I dont have to double guess what would end the B wave... we know that the B wave its just a pullback previous to the continuation of the trend on the C wave, so having a clear entry to the C wave it puts an end to the B wave...

 

Visually we expect this B wave not to go so deep ( more than the 50% retracement of the A wave ) because in that case it would suggest momentum its not too healthy... cheers Walter.

[walterw 10]

Ok, now I will share some modifications I am doing lately to my trading...

 

I am having a very nice experience with ABC`s on 22 tick chart, using all indicators from 55 Tick...

 

as you all know, I do very short trades like scalping type... I am not a long term trader, I like to make $300 per week in a 60 buck daily fashion, some weeks I end making more (500)... but I dont bother taking much more...

 

I am using now a very exotic combination of indicators here on 22T to time my entries... with charts from Trademaven (my trading DOM soft charts)...

 

now I combined tomatos with bananas and I got an apple pie :eek:... trading can be fun if you take your creativity to the next level...

 

Now listen to this waco idea ¡¡ : I did put on the same oscillator pane three oscillators wich happen to have a very interesting ploting between them... they are NOT related... but their plotting values are very similar and I got a very fancy signal line for my cci turbo.... watch the pictures, you then tell me how crazy I am... cheers Walter.

[walterw 10]

Ok here I post todays ABC`s trades so far... from my trilogy they are the most easy to find and trade... if I keep this level of success during one month with abc`s I will probably simplify my life and only trade abc`s.... they have intrinsic concepts derived from flip and what I most like its the momentum factor here... cheers Walter.

[Dogpile 10]

YM is just incredibly active right now --- 171 daily average true range (ATR[14]). It spent 6 months under 100 until that February 'non-linear break'....

 

just pointing out that this is unusual --- or else maybe the 6 months was unusual and we have a new Dow --- that would be sweet... but I tend to think that this kind movement is unsustainable...

[haub 10]

walter, are you using fixed stop loss points on the abc trades or purely a cci technical stop loss?

[walterw 10]

walter, are you using fixed stop loss points on the abc trades or purely a cci technical stop loss?

 

Hi Haub.. I normally place stops below/above previous pivot to entry... they normally give a good RRR...

hope helps .. cheers Walter.

[walterw 10]

This is one nice sweet ABC I did today... cheers Walter.

[walterw 10]

Ok here are some more abc`s today as we started heading north...

 

notice in this case I did the timing with the 0 line cross ( more conservative ) as we can expect more noise at this time of the day... cheers Walter.

[feb2865 10]

Ok here are some more abc`s today as we started heading north...

 

notice in this case I did the timing with the 0 line cross ( more conservative ) as we can expect more noise at this time of the day... cheers Walter.

 

Walter

 

Amazing system. Although I am not a huge fan of indicators - Keltner bands definitely have something to value. They're based on price and not in standard deviation of price like Bollinger's. This is just a matter of personal preference nothing wrong with Bollinger Bands.

 

A couple of questions. In one of your post you said something about placing your stops on pivotal points at the bands. How do you calculate Risk/Reward in terms of the trade?? is t fixed or you go along with how loaded you can go on the trade as volatility between the pivotal point and the entry goes??

 

Thanks

 

Raul

[walterw 10]

Yes Raul... normally at this point I am tryng to exit at least with a 1.5:1 RRR... normally my stop is at 5 ym points...(other side of entry pivot) so I try to take at least 8 points profit on this trades, obviously some times I get much more... but they perform pretty nice... glad to interact Raul ¡¡ cheers Walter.

[feb2865 10]

Yes Raul... normally at this point I am tryng to exit at least with a 1.5:1 RRR... normally my stop is at 5 ym points...(other side of entry pivot) so I try to take at least 8 points profit on this trades, obviously some times I get much more... but they perform pretty nice... glad to interact Raul ¡¡ cheers Walter.

 

 

Walter

 

Iam really impressed with your system. I know people that trades off bands (Bollinger's, Percentage bands, MA bands, ect) but I have never tougth about using them as a retracement vehicle. My hats off to you.

 

I will make the following comment with the utmost respect to you as I am not intending to change anything, just a humble observation and suggestion

 

I notice that you're using 55t charts. I notice some sort of undesirable noise that tends to put you in a shaky mode, well at least me.

 

I change the parameters a little using 144 ticks and I added a 89 MA , keltner bands on the same parameters as you stated, and it relaxes the noise. If you have Heikin-Ashi available in your charts, it relaxes the noise even more. I like to smooth my trading enviroment as much as possible. It gives me more clarity for descicion making and let me stay on the trade longer.

 

Pit traders, especially from big houses, uses 89 MA a lot as a line in the sand. Just notice how the market behaves when it reach that MA.

 

I feel at ease using tick/volume bars as opossed to time based bars. I wish I have either Heikn-Ashi or true volume bars on my charts.

 

Just an obsevation

 

Cheers

 

Raul

[walterw 10]

Yes Raul thats fine ¡¡.... the system can be traded in diferent time frames, thought time frame selection will depend on the traders personality...

 

I would love to see some of your charts on this time frames you are looking at .... feel free to post here... I love to interact and see what other traders are able to do with the same concept in diferent instruments and time frames as also see posible optimizations on this concept... cheers Walter.