SPM Method

[brownsfan019 17]

Every so often you can find a thread over at elitetrader that has some substance. I think this is one.

 

The technique is referred to as the SPM - simple profitable method - and having taken a closer look at it, there is some merit throughout it. I posted the link here for anyone that doesn't visit ET or maybe missed it as most threads there are rubbish.

 

This thread is where a good chunk started before being closed.

 

Take a look and you'll find there are some helpful folks there that will answer questions, post screenshots, etc. Again, something you don't find often at ET. There's a chance it could eventually get closed or deleted since these things have a habit of railroading off into another direction. Stop by now before it's too late.

[steve46 12]

As you know its a simple MACD crossover. So when volatility is up, the moves will last long enough for the trader to make some money. When volatility dries up a bit, you are in the trade too late because of the lag. Even with good vol, you will see problems on the entry because of pullbacks....It needs a filter to work and I haven't seen anyone get THAT part of it right. Notice no one posts a blotter...

 

For futures trading, general rule of thumb is don't trade in the middle (I have cleaned that saying up a bit for the audience). This is why I like MP...you trade from the outside in...you either get on and keep the position for a big winner or you get stopped out. Its pretty clean. Unfortunately not many willing to spend the time to see WHERE the real value is on that system (which is trading off the IB by the way).

 

But hey, maybe one or more of you can give it the old smoke test and trade it (on a sim or paper for instance). For those using Esignal, watch how the MACD oscillates as the signal line touches the zero line....You may THINK you have a signal and then boom it reverses on you and takes you out. Your choices are to A.) anticipate the cross or B.) wait for a close where the signal is "through the zero line". (again you will be late to the party). Ain't no free lunches in this business.

 

Good luck

Steve

[brownsfan019 17]

As you know its a simple MACD crossover. So when volatility is up, the moves will last long enough for the trader to make some money. When volatility dries up a bit, you are in the trade too late because of the lag. Even with good vol, you will see problems on the entry because of pullbacks....It needs a filter to work and I haven't seen anyone get THAT part of it right. Notice no one posts a blotter...

 

That's not true at all. Blotters throughout both threads that I posted Steve. Take a look before commenting.

 

Here's one that was posted today - http://www.elitetrader.com/vb/attachment.php?s=&postid=2148719

 

Speaking of blotters adding to validity of a system, when's the last time you posted one in your thread? Just curious.

 

As for the validity of this, it is NOT MACD crossover only system. Again, you'll have to take the time to read the posts before commenting.

 

For futures trading, general rule of thumb is don't trade in the middle (I have cleaned that saying up a bit for the audience). This is why I like MP...you trade from the outside in...you either get on and keep the position for a big winner or you get stopped out. Its pretty clean. Unfortunately not many willing to spend the time to see WHERE the real value is on that system (which is trading off the IB by the way).

 

But hey, maybe one or more of you can give it the old smoke test and trade it (on a sim or paper for instance). For those using Esignal, watch how the MACD oscillates as the signal line touches the zero line....You may THINK you have a signal and then boom it reverses on you and takes you out. Your choices are to A.) anticipate the cross or B.) wait for a close where the signal is "through the zero line". (again you will be late to the party). Ain't no free lunches in this business.

 

Good luck

Steve

 

I'll defend anyone's right to post ideas on a thread, just as I did on yours, but all I ask in return is that you read what you are commenting on BEFORE criticizing.

 

As the threads I linked to show, main chart is a 2 minute chart. Again, if you had done any looking into it before posting, you would actually see that the 2 min is quite nimble and there are few 'too late' to the party trades. Of course there are some losers. Most systems have losers although I'm not sure we've ever seen one in your thread. Regardless, the SPM is a good idea or a base to work from. It's not perfect in and of itself, does require some work by the end user.

[steve46 12]

Well first of all, my own little thread is called "Ideas for struggling traders"...

 

So before you get upset, take a moment to read the title...

 

I am not suggesting that people trade any of the many ideas I present as complete systems. Instead I am suggesting that they use them as the basis for their own...

 

Since I am not trying to prove anything I don't post a blotter.

 

 

Steve

Edited October 28, 2008 by brownsfan019
Incorrect information deleted.

[brownsfan019 17]

Ok, just making sure that you can discount a strategy based on lack of blotters (when clearly there is many there) but yet you do not do that... Any particular reason why we've never seen one blotter in all the ideas presented there? Since you brought this up, I think it's interesting that you have not posted a blotter once, unless I missed it...

 

Again, you are totally wrong in your impression of the SPM. CLEARLY you have not taken any time to read the thread, so please refrain from commenting. Once you take the time to read it, then we can chat. Till then, your comments are wrong and incorrect and will be moderated appropriately.

 

So please stop posting incorrect information. I would like any trader reading the thread to get views from a person that actually has taken the time to read the thread to begin with.

[steve46 12]

I did see the blotters on the thread you posted. Yes you are correct.

 

I will however be deciding for myself what and where to post

 

Thanks for your comment

 

Steve

[brownsfan019 17]

No problem Steve. And when you are completely wrong, I'll be sure to let you know.

 

[steve46 12]

Alright then, lets continue with my original opinion.

 

First one should know that this comment relates generally to the use of MACD in its basic form (12, 26, 9) where the trader takes signals long or short when the "signal line" passes through the "zero line".

 

First the obvious, the signals lag...if one simply looks at the price action you see that the signal occurs after a significant portion of the move has occurred. The implication is that with big volatility there is more "sustained movement" to come, but if volatility dries up, that movement is likely to be over (or almost over) by the time you get filled. This last week would have been about perfect for a MACD system.

 

Second, the entry seems easy, but when you try it in real time, you see that it is not "cut & dried" for instance, as the signal line approaches the zero line it oscillates responding to the oscillation of price. As a result the signal line can closely approach the zero line and then get rejected. If you anticipated the move through and got long or short, you have a position on and you are starting on the wrong side (you better hope your stoploss is sized correctly). If you are right, well you are in a position and you have what I would characterize as "minimal trend" on your side (which is half of what you need for a successful outcome).

 

Third, and this was not part of my original comment. This indicator has already been backtested by numerous third parties. Using standard settings (12,26,9) MACD does not test particularly well when used without filters.

 

I think MACD can be adapted to provide a nice system. Here are some ideas that a trader could use to improve a basic MACD system.

 

1. You can vary the time frame on the chart. I suggest traders start with 1 minute and then step up 1 minute at a time taking note of the way that the signals "act" and as importantly, look at the how easy or difficult it is to visualize the entry. Do you have enough time to act, or do you feel hurried when the signal line approaches the zero line? How many false signals do you get? For newbies, I suggest you will find 1 minute charts hard to trade. One the other side, with 5 minute charts (especially with this volatility) you will see that you will need to set your stops at least 2.75 to 3 points wide. So you will want to find a compromise that works, giving you enough time to evaluate the signal without requiring too big a stoploss. Look at the length of the swings in the market you are trading. If 10 point swings are common you want to have a stoploss no greater than 2 to 2.5 points.

 

2. You can filter your signals. There are two primary elements of the MACD that tell the trader just how strong the signal is...one is the width (the distance between the signal line and the MACD line) between the lines, another is the slope or angle of the line as it passes through the zero line. The greater the distance between the signal line and the MACD line, the stronger the signal. The more acute the angle as the signal line passes through the zero line, the stronger the signal. Finally the MACD is composed of two lines for a reason. The "signal line" indicates the amount of trendiness, the "MACD" line indicates the amount of momentum. So to get the best odds of success, you want the signal line to pass through the zero line as close to vertical as possible and you want to see significant space between the signal line and the MACD line as it penetrates the zero line.

 

My comments about confluence of multiple signals applies here as well. What should work well is using a relatively long EMA and taking signals when they correspond to a move up or down through the EMA. Pivots would work as well as marking out the opening range (I can talk more about that if there is continued interest).

 

So my best advice is the same no matter what system you are evaluating. Look closely at the signal type, and the way it works. If like the MACD, the signal is comprised of both trend and momentum elements, you want to maximize both components. You want to minimize the amount of discretion you use and you want to have a suitable stop loss in place. You can do this by adding a filter (or filters) and/or taking signals based on "confluence".

 

Steve

[brownsfan019 17]

Once again Steve, the SPM method outlined at ET (which is what I am discussing here) is NOT A SIMPLE MACD CROSSOVER. I don't know how many times I can say this yet that's what you are basing your opinion on.

 

Either read the threads that I mentioned in their entirety or start your own thread on the merits of using the standard MACD.

 

This entire thread is now polluted with your opinion about the use of the standard MACD, yet the threads I referenced are not about just using a standard MACD crossover.

 

:doh:

 

I'll ask another mod to create a thread dedicated to the MACD standard and we can move your posts there.

 

Now if you want to read the threads and then discuss, sounds great to me. For example, I see no mention of the 3 SMA and pullbacks to it while anticipating the MACD movements in the direction of the current trend. 3 SMA here is a key part that you have not discussed which leads me to believe you have yet to read the threads I initially quoted.

[steve46 12]

I think I am being very patient with you sir

 

Your comment is simply wrong

 

The basis of the thread and I have read it, is a MACD crossover system.

 

Yes there is a displaced 3 period Simple moving average, also from a related thread by the same original author, there is a 9 period moving average that can be used. The person who started the thread states that both could be used to "re-enter" the position....(I encourage YOU to take a moment to read the text). Clearly the basis of the system is not either of these moving averages, but the MACD itself.

 

Thanks

 

Steve

[brownsfan019 17]

Actually Steve the SMA is a big part of it.

 

 

It's pretty clear who has actually gone through these threads so please go back to your thread and comment there until you actually read these threads.

 

I believe 3 or 4 posts ago you said you were done commenting here, so feel free to follow your own guidance there. Thanks.

[steve46 12]

Once again sir and for the last time I will decide where and when I post. As I understand it, you have been given direction by the gentleman who owns the business. I suggest you get your personal issues under control so that we can move forward.

[brownsfan019 17]

 

I have zero 'personal' issues here Steve.

 

I have issues w/ someone that is trying to explain how an idea works when they don't get it. It's that simple.

 

Feel free to start your own thread about your view of how a MACD system could work. As for this thread, I was hoping it could stay on the topic at hand but it's going off in a completely different direction now.

 

I don't know how many more times I'll need to state this, but here it goes again... THIS IS NOT A MACD CROSSOVER ONLY SYSTEM. But until you read the threads, there's nothing to discuss further w/ you. You have your own version of the MACD trading idea in your head and I am referencing the threads on ET, which are two very different things b/c you are not taking the time to read the threads in their entirety. Obviously you have glanced at a few things and then think you have it figured out but that's not true here.

 

It may be best to just delete this thread and start over. Or maybe just delete it completely.

[brownsfan019 17]

For anyone reading that is interested in the idea, here's 2 blotters that were posted from today so far:

 

#1

#2

 

Nothing huge, but a nice profit on a FOMC day.

 

Personally, I enjoy seeing blotters b/c it helps substantiate the idea being presented whereas many other threads all over the internet never provide any backing to what is being presented. It's great to talk about things after the fact, but that means nothing in real-time. In this thread there is discussions in real time w/ real blotters. Hard to find IMO.

 

 

Fair warnings:

 

1) Is this the grail? Nope. You have to do some work yourself and customize the plan to fit you. As you can see in the thread, there are a number of variations in the idea.

 

2) Exits are key as well and again, up to you.

[steve46 12]

So what I would like to do now is to build a bit on one of my comments regarding MACD as it relates to the SPM thread. In that thread and in general usage, newbies often think (mistakenly) that the only signal is the "signal line" crossing the zero line. As they look into the subject a little more, they may find that there are a number of ways to obtain tradable signals from the MACD, some of which enable the trader to get a "second chance" to climb onto a good trade if thay missed the primary "Zero Line Cross"

 

As I mentioned before, the primary signal occurs when the "signal line" crosses the "zero line" of the display. This component of the MACD is corellated to "trend"....if you miss that however you still have a second chance as the MACD line itself crosses the zero line. Because that line corellates with momentum, in a strong move, or in a volatile market, you can still get on here and perhaps make some money.

 

If you look at the attached chart, you can see the where the signal line moves through the zero line. I have noted the time stamp so readers can see it on their own charts. Notice the initial move at 15:12 EST and then the followup at 15:18 EST

 

The second chart shows an alternative entry using a 729V chart. Again you can see both the primary entry and the secondary. If you chose to enter after a retest of the EMA (as I prefer) psychologically it is easier to get on board.

 

Steve

Edited October 29, 2008 by steve46

[brownsfan019 17]

 

 

Nice looking blotter from 10-31 (from ET).

 

TV, the guy who posted that blotter, has some good things to say in the thread and constantly produces blotters that would impress most people.

 

Here we have a guy that has posted throughout the thread and has not messed around when it comes to putting it to use. Much more than myself.

 

 

In particular today he posted these screenshots:

 

 

 

 

 

 

So if you are struggling and/or looking for a fairly simple idea to work with, I would take a look at the thread on ET. It's much too long to copy and paste here or I would. It's not often you find threads where an idea is discussed AND then you see live blotters posted. It's just not that common. The easy answer is b/c those posting simply cannot replicate in real-time how easy/good something looks in hindsight. This thread however does just that - gives you the foundation to work with and then you see some guys doing it. Some are fairly plain vanilla while a couple are trying to create something more complex that works for them. This is not a step-by-step, A B C hand-holding methodology. It's a foundation and it's up to you to build upon it. But IMO it's a great place to start.

[2YRHealth 10]

Thank you BF for bringing the thread to my attention I have looked into the SPM method and see how it could help my trading. I must say though it was quite an interesting journey reading some of the associated threads. Much better than any mid day television drama.

 

I have been around for a while and have settled into a method that is based on support/resistance and price action setups (akin to candle patterns, actually almost the same with different names). My dilemma has been taking too many counter trend trades which has stunted my profit objectives ( 1:1 RR), my accuracy is quite good 70%+(when I follow my system properly ) but I feel its too much work to settle for such a poor RR ratio. Exits and psychology are the things that are holding me back at the moment, mind you I am comfortable with my method in terms of having an edge. So I am happy to be where I am in terms of my trading career.

 

What I have found beneficial to me with the SPM is that it gives me a much needed directional bias and gives a well defined window of opportunity to look for my price action setups.

 

I'll show you what I mean with a sample chart.

Green vertical lines are my SPM entries based on looking for my price action patterns after the ZLC.

Pink arrows are successful or failed trades based on the SPM

 

Blue arrows are successful or failed trades based on my current method.

 

Being well versed in candle stick formations I'm sure you will recognize my entry patterns .

 

If anyone is interested i am happy to discuss the method further.

 

 

Cam

 

PS. I trade Forex EURUSD 5Min with 30Min Support/Resistance. Broker - Alpari UK.

[brownsfan019 17]

Nice post Cam. If you want to elaborate more, that'd be great for the group1

[2YRHealth 10]

First of all I am not trading this method live yet. I will back test and forward test the method until I am comfortable enough with it but I am fairly certain I can make it work for me and that it will replace my current live method. It is really an enhancement on what I already have.

 

Necessary definition; Price Action is a term used often but will mean different things to different people. My use of the term encompasses a range of 1-3 bar patterns used for trade initiation. However, it is also used in reference to analyzing pivots and support/resistance structure, as in 'higher highs, higher lows' etc. So when I mention it here, you know I am referring to the former rather than the latter definition.

 

Now back to the method.

 

simple description: I am looking for reversal bar setups (PA) in the direction of the 5minute trend within context of the 30M trend and support/resistance.

 

detailed description:

 

Price Action Setups

I have posted a description of the primary patterns I look for, as I said before they are basically candle patterns with different names. You need to be a little flexible with these at times (that does not mean sloppy!), but if you just wait for the ones that look perfect at the right place then you wont go wrong.

You can also zoom in to a lower time frame to read the PA. Often you will get a number of PA patterns and micro SR areas on a lower TF that add up to give you the decision to pull the trigger. It is important to note though that a PA signal will increase the odds of a decent reversal, but if you rely on signals from lower time frames the amount that it reverses is relative to the time frame you are look at (I hope this is not too vague!).

 

There is more to PA then what I have written here but....:sleep:

 

 

Use of the MACD

When the MACD (standard setting) fast line crosses below the zero line I am looking for shorts only. (Trend defined)

 

As long as the fast line stays below the zero line I will look for pullbacks to get short (with caveats, see below).

 

Use of the 3 period SMA with 2bar shift

If I am looking for shorts I will hunt for my price action setups when price pops above the 3SMA. I am also very aware of near term and long term support/resistance and where the pattern occurs within that context. This sounds complicated but it is not. I will elaborate further below.

 

Use of the 25 period SMA

The 25sma aids in identifying where support/resistance might be found. If there is a PA reversal pattern at the 25sma this will usually coincide with a near term S/R area.

The 25sma also aids in identifying momentum. If I am looking for a short, I want to see a bounce at or just under the 25sma, if price has punched through the sma then there is significant momentum from the bulls and I will be wary of taking the short (this is the caveat I mentioned earlier). If price is just above the 25sma it has probably just broken resistance and is now testing for support. I still may take the trade if the PA/SR looks good but the trigger must be below the support line.

 

Use of Support and Resistance

A simple use of S/R is to make sure the trade sets up being supported by SR and not against SR. I have attached a diagram to explain this.

 

Final words

Discretion, pattern recognition, common sense, good trade management, good nerves and MM are all necessary to make most systems work. Every potential trade is a new set of circumstances.

 

I hope someone got something out of this.

 

Cam

[2YRHealth 10]

I just wanted to add one more chart to show the difference between a supported trade location and an unsupported trade location with regard to filtering out low probability trades.

 

The examples in this chart can be seen with greater context on the previous chart I posted 'trade sample 2'

 

For me trading is a game of strategy.

 

Cam

[brownsfan019 17]

Thanks for sharing Cam.

[steve46 12]

We know that markets trend and consolidate. Most folks would agree that markets consolidate & chop around more than they trend.

 

If that is true, trading a system that performs well during trend but loses money in choppy conditions is still a net loser at the end of the year.

 

One way to prove it once and for all would be to do a backtest spanning several different market conditions. This would prove alot more than a few daily blotters.

 

Any programmers out there willing to do it?

 

Thanks

 

Steve

Edited February 17, 2009 by steve46

[diablo272 10]

I always advised not trading during lunch.. how are you going to program that when every lunch is different? Sometimes the market fires up an hour after lunch.. sometimes 3 hours..

 

That's like asking how anyone could make a mechanical system when the market is never exactly the same day to day.

[MandelbrotSet 10]

If anyone would bother to look at the threads on ET, several different traders from very different backgrounds traded the SPM methodology with continuous and ongoing success.

 

I became quite successful at the method. It's not a simple MACD system like Stever46 is describing here, he hasn't traded it and doesn't actually know how it works, so he really cannot comment on it in a knowledgeable fashion.

 

Eventually I ended up mentoring serveral traders for a while ... just long enough to know that I have no real interest in being a mentor. Mainly because you have to answer the same battery of questions over and over and over again as they are raised by different people, and the system is, as they say, very simple.

 

I currently trade a system based on the time I spent working with and trading the SPM, with continued, consistent success.

 

Good trading

[daedalus 10]

Very interesting stuff!