Finding Basic Setups For Discretionary Trading

[timokrates 10]

Hi to all,

 

first I would like to introduce myself. I'm one of the typical traders which really have trouble to make it. After a break I plan to restart trading the YM.

 

I started my 'trading career' with this contract, but switched to the Forex market and tried to find the holy grail testing all kind of indicators, Elliott, Gann etc.

 

Over the time I created lots of trading plans with lots of fixed rules, but without success. I always had the feeling that the approaches I launched were too mechanical.

 

After watching Soultraders videos and threads I believe that also a highly discretionary approach only with price, volume and tape could be successful . My problem at the moment is to find some basic setups without any of the usual indicators.

 

I know that everybody has to find his own style, but I don't know if having a rule only to trade at defined support and resistance areas is a possible way to avoid bad trades even if you only take trades when conditions seem to be ok. Specially to define a scenario for example when TICKS, tape or volume would probably support the trade is hard to find in my opinion.

 

This way you end up with too much as DiNapoli calls it 'judgemental factors', which can be dangerous. To sum it up, I have problems to create a toolbox apart from position sizing that let me get focussed and keeps me away from overtrading and stress in general.

 

I would like to hear some opinions on this topic and maybe how you handle this. Do you discretionary traders just have a few rules on position size and trade management? Is it possible to do it this way?

 

Hope I was able to make clear what I wanted to say as english is not my native language.

 

All the best

[Nick1984 10]

Hey Timokrates welcome to the forum.

 

First question I'd ask you is what itme frame are you looking to trade? You say that you're not fully comfortable waiting for a trade setup to present itself at a pivot etc so maybe you are more of a scalper?

 

Anyhow what I have found through a bit of bad luck on my part on a search for a decent charting program was to not even use things such as TICK, P/C Ratios, TRIN etc. Those market internal tools I think should help to confirm your decision whether to go long or short.

 

Why don't you just paper trade for a long time and get used to the markets. See how they move and start to identify patterns that occur over and over. Maybe you notice that on Mondays after a strong sell off last friday into the close for the first 15-20 minutes prices gap down and keep going down only to turn around quickly for a gap fill etc... Maybe you feel comfortable using fib retracements from swing high to swing low in the intraday cycle or even if you want to scalp a few points by retracing the most recent up or down trend.

 

I started out with stocks myself and am still learning how to find my feet with futures. I saw the videos on this site and I thought to myself "you bloody ripper" and I could just copy Soul's setups and it would be all sweet. After paper trading for a few weeks I realised that I trade differently from Soul.

 

I trade off pivots myself but also off visual support and resistance levels (see Walters "flip trade" thread its fantastic). I've been keeping a journal of my trades and seeing where I went wrong.

 

Use the videos here to learn how to use various techniques but don't addopt them as 100% carbon copies because you'll forever be thinking "what would Soul do?" when you're trading and thats highly self destructive.

 

In terms of actually building your repitoire of set ups just start simple and define maybe 3 setups that you can trade. Start to take these setups on paper when they occur and then keep records on how successful win/loss they are and also how proiftable they are. There's absolutely nothing wrong with having a set up that wins only 40% of the time if it's payoff is many times your risk tollerances. If you can strictly take a loss like a man and suck it up, then your winners will more than offset your losses on those types of trades.

 

As time goes by you'll start to fine tune your setups and you may add in several more setups to cope with different conditions such as trending/momentum conditions, or cyclical conditions etc... You need to structure your system just as if you were building a lego castle. One set up at a time brick by brick.

 

Come back to the forum on a regular basis and see how other people cope with trading. There's a wealth of information here to absorb but be selective what you take in! Not everything will apply to your trading style.

 

Good luck and best of trading.

[timokrates 10]

Thanks for your great response Nick.

 

To answer your question Nick, I try to become a trader which takes a few trades a day. Regarding risk and trade management I find Souls approach also very attractive because it produces 'free trades' and brings down the stress level.

 

Maybe one reason for my question is, that my brain is cluttered with stuff. I always searched for confirmation for entries which is simply not available.

 

Now I'm more searching for some basic setups because as you mentioned you can get confirmation from market internals, volume and tape but this is not always clear and it's hard to define to get a fixed setup on those in combination with price at certain levels, if you don't want to trade like for example TICK hooks.

 

In general I look for a way to have maybe create guidelines instead of rules, but I'm not sure at the moment what have to be included (S/R, price behaviour). The main problem is that tape, maket internal and volume analysis is highly discretional and requires a lot of experience and screen time in general.

[TinGull 10]

http://www.traderslaboratory.com/forums/f34/vsa-volume-spread-analysis-1369.html

 

I would suggest you read through this thread. I was doing the same thing as you trying to find the "next best thing" and then I found this....I've been using VSA principles in my trading now and the market seems so much clearer to me. I only use a 5min chart (I flip between 1,3,5,10,15 and 30 on that chart) and no market internals or anything. I use market cycle terminology to see what phase the market is currently in to decide which direction a hi odds trade should be placed.

 

VSA is awesome. It'll make things clear to you once you begin to understand how the market is structured.

[timokrates 10]

Thanks as well TinGull,

 

I have ordererd Mind over Markets to get a better idea on this.

 

My problem is also that I try to keep it as simple as it can be, which is quite difficult if you try to trade with the stuff I mentioned.

 

Anyway, maybe it's just a matter of experience and screen time - even if I was glued to it over years...

[Soultrader 12]

Hi timokrates,

 

My style of trading at the moment has become more and more discretionary reading purely order flow off tape, level 2, and candlestick spreads relative to volume. By no means is this style something that can be taught 100%. I think each trader needs to really develop a branded style of their own. This is the key to success. In the beginning we end up following another traders style we learned from. I am pretty hard headed when it comes to alot of things in life including trading. This is the reason why I believe personally that price action through volume and tape is the only way to make money when trading discretionary. Obviously this is not the case, but I can not seem to profit when applying any other methodology. Even candlestick patterns are hard for me to apply in trading. I am pretty confident in understanding order flow and betting on future price movements of up to 1-30 minutes. But, I am probably the last person you want to ask for market direction when swing trading. (longer timeframe) I have no clue. No matter what technicals tell me, I understand that fundamentals can throw a counter blow easily. Therefore my edge lies in extremely short term trading.

 

Work hard on finding your style and being extremely good at it. You should start seeing things that most traders do not see or find patterns which you can profit from. Also it is important to act when opportunities come. You might see a profitable pattern over and over again and pat yourself on your back. However, just observing it and recognizing when it occurs is not going to make you a trader. Good luck.

[timokrates 10]

Hi James,

 

great answer.

The thing is after getting completely lost on the search for the holy grail setup the simplicity or the true understanding of market movement you and others presented here for me is a way that I can imagine to go.

 

My problem is to make the first step, but I will get there.

 

I absolutely believe that Tape Reading and Volume Analysis can provide the edge I'm looking for.

 

Thanks for the support and the great stuff in general here.

[timokrates 10]

Thanks as well TinGull,

 

I have ordererd Mind over Markets to get a better idea on this.

 

My problem is also that I try to keep it as simple as it can be, which is quite difficult if you try to trade with the stuff I mentioned.

 

Anyway, maybe it's just a matter of experience and screen time - even if I was glued to it over years...

 

Obviously it was not VSA I was refering to but Market Profile.

 

Whatever I'm absolutely interested in VSA. Read Tom Williams' book once, but found it hard to apply.

[TinGull 10]

Market Profile has been instrumental in my learning and trading, too. As you mentioned, I use more of the thought process of it all and not trading off of value areas and POCs. VSA is really simple at it's core, I believe. What sort of issues were you finding in trying to apply the concepts?

[Nick1984 10]

One other note on market internals is that while I believe they can give off their own signals and should 100% be used as confirmations they shouldn't become a crutch for you to trade off. After all the TICK etc is just a visual confirmation of things that your intuition and research should be telling you.

 

Many markets you may trade won't have all these internal tools to use so don't ever let them become a crutch.

 

In my studies at university Economics was a major for me so I am really into studying many of the fundamental changes to an economy which can in turn effects markets. Some traders expect on a Fed day the classic "1,2,3" move but they don't always understand the reason the markets move in any particular direction on the basis of key economic news. If you can interpret these types of news accurately then that helps you get in front of a large majority of traders so I would definately reocmmend you study books which talk about basic supply and demand macro economics.

[james_gsx 16]

Thanks as well TinGull,

 

My problem is also that I try to keep it as simple as it can be, which is quite difficult if you try to trade with the stuff I mentioned.

 

You should check out my introduction thread, here

 

You traded different stuff, but we sort of went through the same thing. Funny thing is, most people go through the exact same thing. The good thing you've done that has enabled you to move onto the next level is you've identified the problem - yourself.

 

You can keep it simple, trust me. I went from as many indicators that I could fit onto a chart and now I'm down to price, volume, and internals. All three traders I was talking to who have been trading futures, options, currencies, etc all use price, volume, and internals. They keep it as simple as possible. Your trades should be mechanical and you shouldn't think anything of them, they are business decisions and that is it. But, as you know, it's easier said than done.

 

We can all tell you different things to check out, and you should check them out, but you'll eventually figure out what works for your and what fits your personality. If that means you have 10 different indicators then so be it - if it works for you then thats great. Personally I find I'm best at scalping, I don't have the emotional discipline to hold onto a trade longer than a few minutes. I find short term support/resistance and scalp the breakouts. I could show you 20 charts but chances are you won't make any off of them because you aren't me and you don't see things the way I do. But you could figure out your own style and chances are I won't make a dime off of it either because of the same reason.

 

If you're interested in some ideas to get you started that worked out very well for me then I would recommend John Carters Mastering the Trade. It's a good read and not too beginnerish .Then from there figure out what works for you.

[Anonymous 11]

..........VSA is awesome. It'll make things clear to you once you begin to understand how the market is structured.

 

TG, I wish you would post in the thread yourself. We are all interested in how you are using VSA. The intent of the thread is certainly not to define the only way to use VSA, it is to explore the many ways it can be used.

 

Plus, as the thread starter and then no posts it make it seem like you were no longer interested in VSA. I am glad to know you still are and are using it. In the spirit of sharing.....................

[timokrates 10]

Market Profile has been instrumental in my learning and trading, too. As you mentioned, I use more of the thought process of it all and not trading off of value areas and POCs. VSA is really simple at it's core, I believe. What sort of issues were you finding in trying to apply the concepts?

 

I found Tradeguider once and read 'Master the Markets', but for me at the moment volume is more a general concept - I'm reading Neills 'Tape Reading and Market Tactics' at the moment. But I feel that I have to get a bit deeper in VSA to have a better understanding and maybe find some usefull things.

 

On the short timeframe I plan to trade I believe I have to start before all the others do and maybe VSA could be helpful in this case.

[timokrates 10]

You should check out my introduction thread, here

 

You traded different stuff, but we sort of went through the same thing. Funny thing is, most people go through the exact same thing. The good thing you've done that has enabled you to move onto the next level is you've identified the problem - yourself.

 

Absolutely! Changing the market doesn't solve the general problem. That was to obvious for me - at a time:rolleyes:

 

You can keep it simple, trust me. I went from as many indicators that I could fit onto a chart and now I'm down to price, volume, and internals. All three traders I was talking to who have been trading futures, options, currencies, etc all use price, volume, and internals. They keep it as simple as possible. Your trades should be mechanical and you shouldn't think anything of them, they are business decisions and that is it. But, as you know, it's easier said than done.

 

Yes, I plan to use not more than you mentioned, but sometimes I think even the internals are too much.

 

Personally I find I'm best at scalping, I don't have the emotional discipline to hold onto a trade longer than a few minutes. I find short term support/resistance and scalp the breakouts. I could show you 20 charts but chances are you won't make any off of them because you aren't me and you don't see things the way I do. But you could figure out your own style and chances are I won't make a dime off of it either because of the same reason.

 

I hear you, had of course the same problem, holding on to a position. I don't know if scaling out will help me to get more relaxed on that issue. Time will tell.

 

If you're interested in some ideas to get you started that worked out very well for me then I would recommend John Carters Mastering the Trade. It's a good read and not too beginnerish .Then from there figure out what works for you.

 

I saw that Tradestation has an offer at the moment. Open an account and you get Carters book.

[TinGull 10]

Im posting now PP...