A Successful Trader's Perspective on Price Action I Found to Share.

[namstrader 10]

I am in a time in my life where I am trying to give back so let me try and tell you some things that I have learned over the years so that you may become a better trader. I'll make you a deal, I only ask that you share what I write with your group so that they may have a chance to add to their learning as well.

 

Let's start by talking about what indicators and trading 'systems' are designed to do and what they are not for. Indicators are just a way to choose and filter the best chances to win over other ones - particularly for spotting divergences which as I said is one particular strength in the way Ryan Watts uses the MACD. Ryan will tell you also that the indicators are a guide and not somethng that need be followed blindly - except in teaching yorself the value of discipline and following rules which is obviously very important as is risk management, which we don't need to get into here. The bottom line is that years ago when I developed and traded my own pure indicator models I still won 60% of the time, but now that I have been trading mostly price action WITH the addition to those, my monthly W/L is ALMOST ALWAYS over 80% and has been for many years now.

 

Think of the indicator fallacy in another way, and I'm not trying to discourage you, but do you really believe that the 90% of traders we know are losing are failing because they really can't interpret and execute the thousands of perfectly good 'trading systems' available - including Ryan's that costs $50? Come on. Think about that. There are more smart traders than dumb ones. All decent trading systems have basically the same indicators and to qualify as a good system the combination just needs to be robust enough to take all 'angles' of past information into account so as to give you a most likely scenario for the future. There are basically only five things we can look at and we can twist up in 1000 different ways - the high, low, open, close and volume data of previous price events. These are all really important to know but what they don't do is tell you buyers can't push prices past 1377.50 - RIGHT F'ING NOW. Sorry for the drama but I am trying to impress on you that price action is what really matters. That information is right on the entry chart and as plain as the nose on your face. The bottom line sadly enough is that there wouldn't be much of a trading industry if everyone new the real secret of scalping is just looking at two numbers which constantly change throughout the day. Those dynamic numbers are called support and resistance and those coupled with the interperatation of how participants are acting at and on these levels is the real key to scalp trading. How could it be that easy? It is - and then again it isn't and that is why 90% fail.

 

The best futures traders in the world are trading the pits on a handheld with X-trader. No indicators. No charts. All they have is a DOM and a sense of what and who is moving the market as represented by PRICES and the number and size of participants at those prices and whether there are more sellers or more buyers - that is it. It really is pretty basic and deceptively simple. They make note of intraday support and resistance levels as they change and the floor pivots for the day/month/week which don't change, etc - all centered around you guessed it, the PRICE RIGHT NOW...The spaces BETWEEN these levels are the trading opportunities. Their screen looks like this...

 

 

Could you trade with just this and a pencil and pad to make notes? Maybe not yet, but you will be able to some day if you take to heart what I am telling you. My best friend is one of these guys. He trades the SP in open outcry and consistently makes $750,000 a year from his seat. So do I, in fact I made over $1,000,000 last year. I'm not bragging and I know that is an insane amount of money, but it is true and I am living proof that a guy with average intelligence can get filthy rich trading the S&P. There is more to life than money, but in this game it is how we keep score. There is no other way to evaluate the success of what we do. I grew up in the woods with no running water and used an outhouse until I was 13. Point made.

 

Now I'm really going to get controversial. I think (let me correct that - I KNOW) I actually have an edge over pit traders. That's right I said it - I have an EDGE over pit traders - and so do you if you want to accept that. Why? I get to look at tons of charts - and you guessed it INDICATORS to filter - let me say that again FILTER out the bad trades. That is not practical in the pits. Indicators when used properly give you reasons NOT to trade as opposed to reasons to trade. Spotting divergences or inconsistencies in the cash market - or other times frames - or big sectors not following the move - or metals are selling off early, or, or ,or, etc...whatever you want to use - can help you insure that coupled with intelligent price action analysis, you will have the best possible chance to win. You have way more information than the guys in the pits, plus your moves go undetected even if you are a relatively big trader like me. How cool is that? The best traders all understand gambling theory. Filter down until you have the nuts.

 

I am sick of hearing people say that 90% of traders lose because the market chews them up or the system doesn't work or whatever. That is just BS. The problem is those traders spend all their time playing with indicator values or analyzing timeframes or whatever and they miss the whole point of what they are doing here. This is a MARKET. All markets have buyers and sellers. I don't know why everyone can be experts on value when they look at items in a store or a piece of real estate or whatever but not in the market. If you wanted to sell your house for 500k and you had nobody even look at it in a booming market what would that tell you? The price was too high. Would you then raise the price of the house the next day? Of course not, you drop your offer if you wanted to sell it. You see what I mean? Markets make sense when we are talking about real estate or whatever, but people just blindly look at indicators and follow systems even in the face of obvious current pirce information. Example: in the last 5 minutes price has had a high failure at 1350 three times and is currently trading at 1348. Do you take a long setup here because a momentum indicator is above zero and the 9 day moving average just crossed over and above the 20 day? Why not, don't we always have to stick to our trading plan - blah, blah, blah? That is a great example of how traders follow systems to the letter and then scratch their head because they can't figure out why they are losing. Into the 90% pile they go. This isn't a ridiculous example either. This scenario repeats itself about once every 10 minutes on most days in any market.

 

In closing I would like to give you an exercise. Turn on a simulator of some kind or use a pencil and paper. I want you to put up one chart of any market you like in a timeframe that moves but is not too fast or too slow - say 250 ticks in the ES or 75 in the YM. I want you to use nothing but the one chart and the DOM to trade. Turn off the news too. From 9-9:30 spend exactly 1/2 hour looking over previous and current price action. Find the S/R levels - there won't be two, there will be several on each side. Write them down. Don't forget, resistance becomes new support and vice versa. You should also use the floor pivots as well. How will you set your targets and stops? It is right there in front of you. See how obvious it is? Trade this from 9:30-10:30 EST EXACTLY like you would with Ryan's system, but without the indicators for the moment and tell me how you did. Wait for pullbacks within strong price pressure and don't take any trades against recent S or R zones within a few points. Give it an honest run and let me know how you do. If nothing else it will show you how weak, as once was, you are at really seeing the market for what it is - a mess of chaotic buyers and sellers that actually does have a very measurable pulse. It will just take you a while to find it. When you do, look out world, here you come! Then add Ryan's filters on top of that and you will be deadly accurate.

[BlowFish 10]

Thanks for your post, I am certainly a great proponent of studying price action. Congratulations on your success, :cheers: I wonder if it is fairly newly found? I seem to recall posts of yours not so long ago where it appeared that you still had stuff to deal with. Anyway that's not the point what I wanted to ask was if really concentrating on PA is what you attribute your success too or is it using indicators to filter poorer trades? I am really loath to put squiggly lines back on my chart. It's my contention that if you study price action enough you would pretty much know what an oscillator derived from it would be showing you. It took me long enough to loose the indicators I'm not sure I want to put them back again!!

[namstrader 10]

No I am still developing my system as of these days. This trader's perspective was sent to me as a email because I bought the Watts system a year ago, which I do not follow. I have been loosing the indicators myself lately, as I have been studying VSA, MP, and Price action. Another interesting finding that I find useful is watching a closed line chart with its reactions at certain moving averages like the 8ema, 34ema, and the 200ema. I have learned to have more patience with trade management and having a longer holding period. I have no success to speak of except that I am building a solid trading system with simulation. Skill first, currency will follow. Being undercapitalized will not hold me back from learning from so many here at Traderslaboratory and developing confidence and trust in myself and my system.

[BlowFish 10]

Ahh OK pardon my misunderstanding

[Bearbull 10]

No I am still developing my system as of these days. This trader's perspective was sent to me as a email because I bought the Watts system a year ago, which I do not follow. I have been loosing the indicators myself lately, as I have been studying VSA, MP, and Price action. Another interesting finding that I find useful is watching a closed line chart with its reactions at certain moving averages like the 8ema, 34ema, and the 200ema. I have learned to have more patience with trade management and having a longer holding period. I have no success to speak of except that I am building a solid trading system with simulation. Skill first, currency will follow. Being undercapitalized will not hold me back from learning from so many here at Traderslaboratory and developing confidence and trust in myself and my system.

 

Your input in the VSA thread and also in the proposed Wyckoff thread by Dbphoenix and gassah would be very welcome particularly as you mention that your focus is much more on price action around significant support/resistance levels than indicators now.

[Guest forsearch]

. This trader's perspective was sent to me as a email because I bought the Watts system a year ago, which I do not follow.

 

I think you should make it clear in your first post that you are reprinting someone's word as your own.

 

-fs

[TacTrader 10]

I think you should make it clear in your first post that you are reprinting someone's word as your own.

 

-fs

 

He did...look at the title. At the end "I found to share."

 

I didn't see it right away either.

 

Stephen

[bertg 10]

Wait for pullbacks within strong price pressure and don't take any trades against recent S or R zones within a few points.

 

Ok, call me a retard, but can someone please rephrase or explain the above quote?

 

Thanks,

Bert

[james_gsx 16]

Ok, call me a retard, but can someone please rephrase or explain the above quote?

 

Thanks,

Bert

 

This is actually quite simple, but worded in a somewhat confusing manner. I believe the author means don't buy just in front of resistance for a breakout - instead wait for the breakout then a pullback to the new support (old resistance) and buy that. Here is a picture.

 

Hope it helps.

 

[darthtrader 10]

While I agree completely with this article, I think the biggest reason 90% of traders fail is that 90%+ of the information/tools at the retail level is complete garbage.

I'm even starting to question the value of time series analysis of market prices period. The market price may as well just be viewed as an inference, then if market price is at X at noon, no one is going to buy or sell because the the clock now says 12:15. Now take a smoothed representation of this data over time with a moving average, then take a windowed snapshot of the moving average and package it as an indicator. This indicator then has abstracted so far away from what is actually going on in the double auction that you have lost information instead of gaining any. This doesn't mean though that you can't summerize the tape/DOM in order to cover more markets and gain information. How to do that though I'm not exactly sure of yet but I believe it probly requires taking a step back and rethinking the way that our tools have evolved.

[Blu Bull 10]

Thanks for this info. will try this out

[AgeKay 10]

Hey namstrader, thanks for posting this. Great insight. Could you please post the image that this guy is talking about when he says

 

Their screen looks like this...

 

?

[DbPhoenix 42]

Given that this was posted last April, you may want to send him a PM.

[parkroad 10]

Great article! Thanks for sharing!

[SunTrader 10]

Who is Ryan Watts anyway?

[bakrob99 11]

Who is Ryan Watts anyway?

 

Let me get this straight. You find it too difficult to go into a Google Search and type in:

 

Ryan Watts MACD

 

then be presented with a ton of links to articles:

 

Eg.

 

http://www.thephantomwriters.com/free_content/d/w/divergences-2prevent-bad-trades.shtml or

http://www.wattstrading.com/Scalpingtheeminis.html

[SunTrader 10]

Let me get this straight. You find it too difficult to go into a Google Search and type in:

 

Ryan Watts MACD

 

then be presented with a ton of links to articles:

 

Eg.

 

http://www.thephantomwriters.com/free_content/d/w/divergences-2prevent-bad-trades.shtml or

http://www.wattstrading.com/Scalpingtheeminis.html

 

I didn't say I didn't google him. I said, who is he?

 

Maybe I should have said who is thephantomwriters.com - athough wattstrading.com is self-explanatory. Might there be someplace else unbiased besides a forum thread or another company which might be promoting him ?

[sevensa 10]

I didn't say I didn't google him. I said, who is he?

 

Maybe I should have said who is thephantomwriters.com - athough wattstrading.com is self-explanatory. Might there be someplace else unbiased besides a forum thread or another company which might be promoting him ?

 

 

Not really sure what you are asking here. Ryan Watts is Ryan Watts. If google didn't give you what you want, try the about me page on his website, or e-mail him and ask him.

 

With regards to thephantomwriters.com, if you have spent the same amount of time it took you to make this post here on their homepage, you would know what/who they are.

[tapovan 10]

what is dom? as seen in the above areticle?

[DugDug 10]

(i did not read the article) however DOM usually stands for depth of market.

It is a way a lot of system allow traders to view the market showing a few price levels on both the bid and the offer.

[sicktrader 10]

Bump...so that I can find this later. I usually move on about 20 trades per week, but for more points I would imagine. One smaller trade every 10 minutes seems like something I could add to my current systems. At least you know you are going to see action whenever you turn your platform on. Would be similar to cocaine for an action junkie like myself.

[Uli Schmuli 10]

Regarding Support & Resistance...

 

Several years ago, I paid over $12k for a suite of Fibonacci Confluence support/resistance indicators from Nexgen. A couple years later, I was able to do some backtesting of the trading plan that they teach using these areas as support/resistance. What I found is that the plan works regardless of whether the areas used were the (ridiculously expensive) Fib Confluence areas or some arbitrarily selected lines. I tested the system using 5 point increments on the Russell 2k and achieved results just as good as when the plan was applied to the fib confluence areas.

 

What I learned: Support & Resistance areas can keep you out of good trades, and cause you to exit positions as they approach the perceived resistance area. So how do we know whether these areas are expected to break our hold?: Momentum tells us.

 

Another thing I learned: Our mind plays tricks on us. When we are looking for a support/resistance to hold we can look back at the charts and see all the places where this was true. What is overlooked are the many, many instances where this was not true.

 

I do not even use support/resistance or volume for that matter in my trading. Some of the best trades are breakouts from these areas, which in the past I would have been 'afraid' to take. Try this exercise: Go back through your charts and instead of looking to see where your pivots or whatever 'worked', look to find all the times they apparently didn't mean squat. It's an enlightening exercise.

[SunTrader 10]

Another thing I learned: Our mind plays tricks on us. When we are looking for a support/resistance to hold we can look back at the charts and see all the places where this was true. What is overlooked are the many, many instances where this was not true.

 

I do not even use support/resistance or volume for that matter in my trading. Some of the best trades are breakouts from these areas, which in the past I would have been 'afraid' to take. Try this exercise: Go back through your charts and instead of looking to see where your pivots or whatever 'worked', look to find all the times they apparently didn't mean squat. It's an enlightening exercise.

So true.

 

And some of the best trades are when what is expected doesn't come about, such as a trendline break that doesn't continue to break. Crowd buys a downtrendline break or sells an uptrendline break only to see it reverse back in original direction. Uh oh!

[Nemesis 10]

My experience is different.

 

I very much trust and rely on support and resistance, I just don't trust it when it's countertrend, strong trends know no obstacles.

 

Nemesis

 

 

Regarding Support & Resistance...

 

Several years ago, I paid over $12k for a suite of Fibonacci Confluence support/resistance indicators from Nexgen. A couple years later, I was able to do some backtesting of the trading plan that they teach using these areas as support/resistance. What I found is that the plan works regardless of whether the areas used were the (ridiculously expensive) Fib Confluence areas or some arbitrarily selected lines. I tested the system using 5 point increments on the Russell 2k and achieved results just as good as when the plan was applied to the fib confluence areas.

 

What I learned: Support & Resistance areas can keep you out of good trades, and cause you to exit positions as they approach the perceived resistance area. So how do we know whether these areas are expected to break our hold?: Momentum tells us.

 

Another thing I learned: Our mind plays tricks on us. When we are looking for a support/resistance to hold we can look back at the charts and see all the places where this was true. What is overlooked are the many, many instances where this was not true.

 

I do not even use support/resistance or volume for that matter in my trading. Some of the best trades are breakouts from these areas, which in the past I would have been 'afraid' to take. Try this exercise: Go back through your charts and instead of looking to see where your pivots or whatever 'worked', look to find all the times they apparently didn't mean squat. It's an enlightening exercise.

[SunTrader 10]

My experience is different.

 

I very much trust and rely on support and resistance, I just don't trust it when it's countertrend, strong trends know no obstacles.

 

Nemesis

 

 

I started to put "+ 1" but have to say I completely agree (same thing) but message needs to be at least 20 characters.