Reading Charts in Real Time

[sevensa 10]

S/R matters until it no longer matters. I don't mean that to be flippant, but it is true. I remember an article or book by John Murphy where he used the example of IBM stock to show the "memory" the market has for various price levels. I do not remeber precisely, but I beleiev that IBM found support at $40/share some twenty-five years apart. I am likely off by a bit, but that is how I remember it.

 

Probably not the answer you were looking for, and maybe if I weren't so tired I could come up with a more well thought out answer. But off the top of my head, I'd have to say just what I said - An S/R level matters until it doesn't.

 

Best Wishes,

 

Thales

 

In essence I agree with your statement, but I have higher confidence in more recent S/R levels.

 

If you look 25 years back, you will find "S/R" levels for any turning point and I think this become no different than drawing Pivot, S1, S2, R1, R2, their midpoints, Fibonacci ratios, Murrey Math from the previous day, etc. If you draw that many lines, you some are bound to "hold" price.

 

The same with going back 25 years to find S/R levels. If you draw lines on each one, you are bound to find some level which held current price. I think at some point, these S/R levels are nothing more than random lines and becoming coincidence for price to stop there. How far back that is, I don't know. I guess after a while one get some kind of feeling about what levels are important and which ones are just random lines. This is where your statement about it matters until matters is probably more important than many people realize. Many people will not get it until they get it.

[thalestrader 14]

At what point does historical S/R become irrelevent to current trading? I start looking back 1 month, 4 months, and even a year wondering if there is any point to using S/R from that long ago especially given the changes in the economy.

 

I also do not consider fundamentals about the economy in my trading.

 

A very good thread that I used to read when I was content to lurk here at TL is Firewalker's "All you need is a chart ..." and I highly recommend it and you can find it here: http://www.traderslaboratory.com/forums/f34/all-you-need-chart-3843.html

 

It apparently came to an untimely end, and I would love to see Firewalker resurrect it.

 

Best Wishes,

 

Thales

[Dinerotrader 10]

Trading the GBP/JPY. The resistance level that broke appeared pretty strong since that zone had been tested several times so I would anticipate a strong move up.

 

 

Update: New resistance level is occuring in expected area. Trying to keep stop low so I don't get stopped out in the chop.

 

 

Update. Stopped out. Probably should have move up the stop once I saw so much resistance at the 2nd green line. Your comments are welcome.

 

Edited July 30, 2009 by Dinerotrader

[Dinerotrader 10]

Well, it looks like my anticipated resistance levels were correct, I just failed to manage the trade properly. I should have either moved my stop up so I could have taken some profit or kept my stop where it started so I wouldn't have gotten stopped out before the move back to the upside.

[thalestrader 14]

Well, it looks like my anticipated resistance levels were correct, I just failed to manage the trade properly. I should have either moved my stop up so I could have taken some profit or kept my stop where it started so I wouldn't have gotten stopped out before the move back to the upside.

 

Yes, if you are going to cut the trade short, cut it short with a profit and not with a loss. Otherwise, trail below resistance, that's what its there for (though it is indeed easier said than done!)

 

Looks like GBPJPY is going to make a run for just north of 158.00 (158.22 looks like a good target). It is 157.66 as I type this.

 

Good work!

 

Well, I'm off for a day at the zoo. Good Luck today!

 

Best Wishes,

 

Thales

[ZenMachine 10]

Hi folks,

 

I've been following this thread and so inspired!

I really appreciate how much you folks are sharing, and decided to take part in it!

 

I've been trading for about three months mostly with small money, but the trades you will see are demo trades since I'm still learning new tools and strategies.

 

Here's my chart, right after long entry -

[ZenMachine 10]

First target hit, moved up stop to halfway point.

[ZenMachine 10]

Stop hit. Well, that was fast, but not a bad start.

[ZenMachine 10]

Reviewing it in 1 min chart, I think I moved stop up too tight too quickly. :crap:

Thought it was still going up and entered again.

[ZenMachine 10]

... Or maybe not.

It stalled and I decided to exit for now for 5 point loss.

 

As soon as I moved my stop to just below the current price (-5 from entry), price shot down and I was stopped out for -12p ... :doh:

 

I think I should take a break now...

[ZenMachine 10]

Entered long with a buy stop, anticipating this is going up slow and steady. Got stopped out after 15 minutes...

 

There isn't much liquidity... shouldn't have entered.

[RichardTodd 10]

First target hit, moved up stop to halfway point.

 

This made me wonder: Have you done some sort of analysis that says that price rarely hits the halfway point on the way to the second target?

[ZenMachine 10]

This made me wonder: Have you done some sort of analysis that says that price rarely hits the halfway point on the way to the second target?

 

Thanks for asking.

 

No, it's just my attempt to protect the profit. I have a horrible habit of turning paper profits into actual losses, and am working on fixing it...

 

I've read, though, that some people use numbers like 50% or 20% as a guideline to place stops on profitable positions.

I myself never felt that this is a valid S/R point in my brief trading career.

[HAL9000 10]

Thanks for asking.

I've read, though, that some people use numbers like 50% or 20% as a guideline to place stops on profitable positions.

 

Hi,

 

some people call a 50 % retracement an ambush,

so this would be an entry for them, not an exit.

 

Anyway, maybe you should think about placing your stop at BE, when

appropriate, and exit on strength, or, if you like your profit target, or if something stalls (price/time). Just think about it.

 

I guess Richard asked you, because of these 50 % retracement trade entries.

 

Maybe he will add something, or correct me.

 

Hal

Edited July 31, 2009 by HAL9000
;)

[RichardTodd 10]

I guess Richard asked you, because of these 50 % retracement trade entries.

 

Maybe he will add something, or correct me.

 

He had said 'moved up stop to halfway point' as if that were an obvious choice that required no explanation. So, I just wanted to get a sense of how much research had gone into that decision. Like you say, 50% retracements are so common that they are often considered entries, so it didn't make sense to me. I didn't want to criticize the idea without hearing the rationale, though.

 

The biggest mistake I see my clients make with stops is: they move their stop while thinking about their personal entry price. Of course, the market doesn't know or care where they got in, so they are cutting the cord between their stop placement and their analysis of the market. When they do this, they'd usually make more money by just exiting immediately at the better price, rather than putting their stop in harm's way. Though it's kinda a cliche, I suggest that people try to keep their stop in a place that they don't think price ought to reach... in other words, if price reaches the stop, it would invalidate their reasoning behind the trade. Easier said than done, with money on the line, I know!

[thalestrader 14]

I have been asked by many folks via PM and by more than one in direct posts to post entries/exits of my daughter's trades. I posted this over in the p/l thread in response to one of those requests.

 

This is not a live trade. My daughter is asleep, and we are both not trading anymore this week. But here is an example of the current USDJPY. This is how 90%+ of her trade opportunities look.

 

She trades for two targets usually (sometimes it is just one). This did not come from me, but from a friend who trades currencies and always uses two targets.

 

She looks for opportunities where the first profit target has a 1:1 or better ratio to the stop loss. Once that first target is hit, then she moves the stop loss to BE or the closest natural stop, whichever is, in this case, lower.

 

This is the trade, and it provides an opportunity 1-3 times each day for her.

 

Many, though not all, reach the first target, many of those reach the second target. A few never reach the first target and she is stopped out for a loss.

 

I think that the focus on R/R, money management, and trade management are as, and probably, truth be told, more important than how she enters and exits a trade.

 

Best Wishes,

 

Thales

[thalestrader 14]

I think that the focus on R/R, money management, and trade management are as, and probably, truth be told, more important than how she enters and exits a trade.

 

Best Wishes,

 

Thales

 

For example, ask yourself and answer honestly: If this were your trade, how would you feel right now? How many of you might be tempted to hit the "flatten," "close position," or "liquidate" button seeing that "bull candle" so that you could "lock in some profits"?

 

I can tell you what my daughter would: Not a thing. She'd just be waiting (probably reading a book) waiting to here the alert that tells her that one of two things have happened - either her first profit target was reached or her stop loss was hit.

 

How many here have the discipline and confidence to watch this trade to completion without any additional interference? I am not saying that this is not the beginning of a reversal that would stop the trade out for a loss. But this is a game of playing for profits, not pennies. If you cut every profit short, you will be certain of only one thing: Your average loss will exceed your average profit.

 

Best Wishes,

 

Thales

[diablo272 10]

How many here have the discipline and confidence to watch this trade to completion without any additional interference? I am not saying that this is not the beginning of a reversal that would stop the trade out for a loss. But this is a game of playing for profits, not pennies. If you cut every profit short, you will be certain of only one thing: Your average loss will exceed your average profit.

 

Best Wishes,

 

Thales

 

I used to constantly cut my profits short doing what you've described, but now, to be completely honest, it's just kind of irritating to do anything other than follow my initial stop and trailing stop plan...Too much brain work involved in doing anything else, I guess. I know that some here only trade a certain section of the day (usually the NY morning session), but I trade all day, and it is very taxing mentally to have to stay totally focused all day. If I actually had to "figure out" each trade as it was in progress instead of simply sticking to a preset plan, I don't think I would be able to do it. It would be too draining. As it is I often have a hard time staying focused all day and end up missing trades because I'm browsing the internet or going to the bathroom or something.

 

As an aside, I would say at this point, my biggest problem is focus. In the morning, I am usually still groggy from waking up, and eventually I get really hungry around lunch time, but I don't want to leave to get food because I don't want to miss a setup. One of two things will happen: I'll give in and leave to get something to eat, thinking, "I won't be able to concentrate otherwise." When I come back, I'll find that I missed a setup. OR, I'll say, "Too bad, be tough and wait until later to get food." Then I end up zoning out and missing a setup. My sleep cycle is also very "out of alignment" shall we say. Oh well, it could be much worse.

 

That just made me think of a question for you Thales: As a prop trader, do you have a secretary or something who'll leave the floor to get everyone lunch (or do you trade remote)?

Edited July 31, 2009 by diablo272

[ZenMachine 10]

Like you say, 50% retracements are so common that they are often considered entries, so it didn't make sense to me.

 

Does that mean that 50% line is often considered legitimate enough to be used as an entry?

If so, it sounds to me that it may be a good place to place stops too. (I am a little confused....)

 

Of course, the market doesn't know or care where they got in, so they are cutting the cord between their stop placement and their analysis of the market.

 

So true!!

I definitely make this mistake when I'm too worried about losing.

Thanks for your insight!

[RichardTodd 10]

Does that mean that 50% line is often considered legitimate enough to be used as an entry?

If so, it sounds to me that it may be a good place to place stops too. (I am a little confused....)

 

Well, the reason I asked about research in the first place is: it may well be just fine for the type of trading you are doing, on the markets you are doing it on. The last thing I would do is tell you not to move your stops someplace. You know, it's easy to fall into the pattern of detailed study when it comes to entries, and just wanting rules of thumb when it comes to exits. But, in some ways exits are actually the harder problem!

 

I will say this: for my style of trading, it pays to anticipate the future, but wait to act until the market shows its hand. In other words, let's say I know from experience that my market often finds support at about a 50% retracement from a big push up. So, when price starts stalling out, I might expect price to retrace half the move and continue. That doesn't mean I'm going to just throw a stop under that level while price is still at the top, and hope for the best. I'll be watching for signs that buyers are stepping in, and once I've seen that, I can require (via my stop) that support hold.

 

On the other hand, if price blows right through the 50% area, I know buyers didn't step in, and I'm glad my stop is still below the last s/r I actually witnessed. If I know I'm NOT going to be glad to sit through a bigger retracement for some reason, then it's better for me to just exit the trade at the top, rather than gamble on phantom support showing up in the middle. I can always re-enter, after all.

 

(although in real life I'm better about telling myself I can re-enter than I am about actually re-entering. I have a kind of post-trade euphoria that makes me less sharp for a few minutes after each trade!)

[thalestrader 14]

Here is how the USDJPY from last night turned out: I've included a screenshot taken right before I shut down last night, and one from this morning. Price racted back to the entry point of 95.41, and then declied to make a lower low. If I were trading this, (and I were awake!) I'd have moved the stop to 95.42, which is one tick above the reaction high. That stop would have been hit and the result a -1tick loss. If I had been trading this, and I were not awake, then this would have been stopped out for -20 ticks.

 

Someone might ask if a better initial stop, and one which would not yet have been hit would have been above yesterday's high. I would say technically yes. However, this would have resulted in nearly a 50 tick risk for a only a 3 tick first target.

 

Anyhow, that is how we do it. So easy, even a nine year old can do it consistently well.

 

 

Best Wishes,

 

Thales

[thalestrader 14]

Someone might ask if a better initial stop, and one which would not yet have been hit would have been above yesterday's high. I would say technically yes. However, this would have resulted in nearly a 50 tick risk for a only a 30 tick first target.

Best Wishes,

 

Thales

 

Rain has changed our plans a bit today, and I took this shot of the USDJPY just as we popped in a few moments ago.

 

As you can se, the technically better stop would have kept you in the trade and both targets would have been hit (though the route price took was not as I had expected).

 

I guess this shows that sometimes, the correct stop, though a larger risk in both nominal dollars and % equity, is often less risk in reality than a tighter stop.

 

Second blue line indicates a possible re-entry for a short, but I only looked at the chart quickly, so I can't say for sure I would have wanted to take that trade myself. And this is, of course, all hindsight at this point. I just thought some folowing along might find an update to be of interest.

 

 

 

Best Wishes,

 

Thales

[Gabe2004 10]

Maybe the tight stop with a re-entry would have been a good idea as well? (it is in hind sight )

[ZenMachine 10]

Wow.... this is a bit painful (going head to head against a 9 yr old girl!), but hopefully someone may find it entertaining.

 

I was playing USDJPY last night too, though in lower time frame (5min/1min).

 

I didn't find this setup until the price was falling through prior day's high. That's why the entry point is a little off.

I don't know if I would've entered at Thales' daughter's entry point, because (this is all post thought) I thought that it was too close to prior day's high (95.36).

 

Thales, your daughter's setup looks much better than mine!

I have a lot to learn from her

[thalestrader 14]

Maybe the tight stop with a re-entry would have been a good idea as well? (it is in hind sight )

 

Well, in the end, I was looking for a potential opportunity last night to use as an example to answer a question put to me in another thread. In that thread, I wrote that it was not a live trade, but it was "the closest thing I could find" at that time to what I considered a tradable opportunity. In the end, I would have passed on it, because I would have wanted my stop above yesterday's high. Since the first profit target was only 30 ticks below entry, but a stop above the prior high would have been nearly 50 ticks, I would say that was no trade. I have not had a chance to ask my daughter what she would have thought, but I would guess that the small first target would have caused her to pass. But, otherwise, that was very much the type of opportunity she is looking for.

 

I just got back in from NYC, and a quick look at the USDJPY shows the relevance of those S/R levels used as profit targets even though it took price 10-12 hours to reach them.

 

Also, Gabe, look at how price reacted back to your short entry to retest the breakdown point. If you miss the initial break, selling the retracement can be a good second chance entry point in itself.

 

Thales, your daughter's setup looks much better than mine! I have a lot to learn from her

 

Your trade looks fine if I am reading your post correctly. You shorted just below 95.41, and it looks like the first profit target was hit, and quite possibly the second as well.

 

Best Wishes,

 

Thales