Reading Charts in Real Time

[Dinerotrader 10]

Might be one to watch at the open on Sunday at 3:00.

 

[wwwin 10]

Next week should be another wild week as there is plenty of market moving news coming.

Monday the ISM Manufacturing report, Wednesday, the FOMC will provide the markets with some clarifications on current initiatives. Wednesday will also produce the ISM Non-Manufacturing index which will have implications for Friday’s Non-Farm payrolls report. . That is just the US.

The ECB, BoE and RBA will be announcing rates..fasten your seat belts.

[thalestrader 14]

Weekend Reading

 

Here is a post by Leonardo from another forum, and long enough ago to have been another era. The Curtis whom he addresses is Curtis Faith. I have quoted from this post myself here at TL (specifically his points about attacking the market and about how one comes by a million dollars).

 

I am sharing it here today in response to DugDug's post in another thread, where he wrote:

 

If your account size is not big enough to successfully trade without continually risking a blow up then most people would suggest you should not be trading. But equally so, why ruin the dream:)

 

Leonardo makes the point below that it does take money to make money. The story of how he got there is one of how to keep the dream alive.

 

I printed this post out long ago and I have read and re-read it many times. It is an excellent story, and I hope Leonardo does not mind me sharing it here with you folks. I hope you enjoy his story as much as I have. Enjoy your weekend.

 

 

Curtis--

 

I know you did the right thing when you told the unvarnished truth about trading. It does take money, and/or many correctly applied trades to have a reasonable expectation at profiting from trend trading. By being forthcoming about the realities of trend trading, you can only gain in credibility with those to whom it will matter the most.

 

To trade long term you have to be able to probe (read: spend money attacking a market) over and over until a trade gets under way that you can ride for a little while.

 

Timing is everything. That is, the time you start this whole process might be just before a lot of markets start exhibiting trending behavior, or a couple of years before they move. If your timing isn't very good (which is normal---no one knows for sure when profitable trades are going to happen in advance or the markets in question wouldn't exist) you make up for it with capital and persistence.

 

There is one way I know of to get started trend trading with small capital that almost assures victory. It is the method that I used to get started trading over 25 years ago.

 

Like most in this forum, I was not born to money.

 

It was the early '70's. I started my own business when I was 18, reclaiming silver from fixer solutions, x-ray films, printing developing chemicals, etc. Due to the obvious monthly fluctuations of selling the physical silver that I separated from the chemicals, I realized that there was a lot more money to be made by buying and selling silver in the futures markets at the right time than just the reclaiming alone.

 

Silver had great trends in the late '70's but in the early '70's it swung wildly back and forth while the Hunts were manipulating the prices and quantities for delivery.

 

This was an era when there was very little easily available information about trading. I did find books by Gann, and read about Stanley Kroll’s exploits and research by Donchian, which verified my own ideas about trading breakouts.

 

I had been researching markets for many years anyway, mainly ags, and then as now I realized that the only way you could deal profitably in the markets was by having sufficient capital. At the time, "sufficient capital" was $20K to $40K.

 

I only had $600. After numerous wins and losses in silver, beans and wheat, I was able to increase that stake to $1800.

 

I decided that to build a stake I would have to find a market which would inevitably have a large trending move. And low enough volatility to start with so I could build a relatively large position quickly with little money. I settled on one market that had a very long term upward bias but had been in a sideways range for more than 2 years. Cotton.

 

Things turned out better than I expected.

 

I was only interested in an up move, so the intent of my plan was to buy breakouts at new highs and if the breakouts didn’t hold on the day of the breakout I would exit by the close and wait for a new high to enter again. I was willing to keep at this for as long as it took, even if it took 5 years.

 

Cotton had been trading in a 2½ cent range for those 2 years and was dull as puddle ice. No one at the brokerage house I traded at had ever traded cotton and they all thought I was an incredible idiot for watching it, much less trade it. (If I would have traded pork bellies and beans more I would have been considered at least somewhat “respectable”.)

 

9 months went by with a number of small losses, and much frustration while other markets were swinging around making others money.

 

One day, after trading near the middle of the previously mentioned range for weeks, cotton opened lower nearly 100 points. The price was now only 25 points above the bottom of the range, which had 3 bottoms, all of which were many months apart. Even though my whole trading plan was centered on buying new highs; because of Cotton’s upward bias, I thought this was an extremely low risk situation. All I had to do was buy at the market with a sell-stop under the triple bottom for protection.

 

Instantly, I told my broker to place the order to sell 4 cottons on a stop below the bottoms and then another order to buy me 4 at the market. Risking $500 on this trade, I didn’t have enough margin available to hold more than maybe two overnight, but I figured if I had to I could sell 2 off by the close. After putting in my orders, the market continued to fall---to 1 tick above the previous bottoms (making a fourth bottom, and only 6 ticks from my stops), sat there for 5 minutes; and then in a huge swoop went to unchanged on the day. It traded around there for the rest of the day and then closed up 50 points. It took 3 hours to get my fills (nothing has changed in all these years) and it turned out I got filled on all 4 contracts 3 ticks off the low of the day. I now had enough money in the contracts alone that I could hold them all overnight.

 

A week went by and cotton was trading 25 points under the high of the (now) 3-year range. I had reservations to go on a 4-day skiing trip in Michigan, so I wasn’t going to be able to watch it personally for the potential breakout. I put in my stops to buy 4 more 5 ticks into new territory.

 

Of course, the first day I was skiing, the breakout occurred. I checked with my broker every 15 minutes by phone and even though I didn’t know my fills yet, I placed my stops on the 4 at the day’s low. It turned out that this was a real breakout and the market didn’t look back for months.

 

After my trip, all I did for weeks was buy new highs after 2-3 day congestions. Before the move was over I had ½ of 1 % of the open interest in the contract I was trading. I used a simple trendline-trailing stop to exit.

 

I have been breakout trend trading ever since. (Another boy wonder )

 

What I just described can easily be accomplished by trading the turtle method today. Pick one market with low current volatility, like corn, or oats (which has been in a very narrow range for a year) and keep attacking it from the long side. In an inflationary environment, like we find ourselves now, you have an increased edge automatically. Keep putting in the orders, and fund it from recurring cash flow if you have to. Calculate what you can afford, and then go for it.

 

It does take size to make money trading. Money is made in chunks. You can’t save $1,000,000. You have to MAKE it.

 

Again, this was Leonardo's story,not mine. I thank him for sharing it with us many years ago.

 

Best Wishes,

 

Thales

[MidKnight 12]

It still amazes me how long it took me to be able to do something that really is so easy that even a nine year old can do it well.

 

Best Wishes,

 

Thales

 

Hi Thales,

 

Yes, I agree with FS's post after this one. Why this BO and not any of the others on the decline? Like maybe everyone here, I've tried breakouts in the past as well. For me, it was just pure death. I know you and your daughter do well at these, but I really don't think it is easy, as you say above. You are doing some other filtering that isn't obvious to us, but is to the Thales family.

[brownsfan019 17]

Hi Thales,

 

Yes, I agree with FS's post after this one. Why this BO and not any of the others on the decline? Like maybe everyone here, I've tried breakouts in the past as well. For me, it was just pure death. I know you and your daughter do well at these, but I really don't think it is easy, as you say above. You are doing some other filtering that isn't obvious to us, but is to the Thales family.

 

I would agree as well - I think this is more of an art than it is a science b/c there's times where I look at charts and wonder why a breakout trade would not have been placed.

[Gabe2004 10]

It seems that everything that we see someone do well and efortlessly, hides a lot of practice behind it.

Also, things that we love to do would seems easy to the onlooker but proficiency and dedication is behind all things done well.

Thales' daughter might be an outlier so eventhough we might envy her (and her father for having such a daughter) we just have to realize that for most of us it will take longer, but with the proper attitude and dedication one should succeed.

 

Gabe

[thalestrader 14]

Hi Thales,

 

Yes, I agree with FS's post after this one. Why this BO and not any of the others on the decline? Like maybe everyone here, I've tried breakouts in the past as well. For me, it was just pure death. I know you and your daughter do well at these, but I really don't think it is easy, as you say above. You are doing some other filtering that isn't obvious to us, but is to the Thales family.

 

 

I would agree as well - I think this is more of an art than it is a science b/c there's times where I look at charts and wonder why a breakout trade would not have been placed.

 

Hi MidK and Brownie,

 

Here is a look back over the last couple of trading days on the EURJPY. Now, one thing to keep in mind is that the EURJPY trades 24 hours, and both myself and my daughter have found it nearly impossible to be watching every single one of them (though my wife insists that we must see each and every tick from Sunday in Sydney to Friday afternoon in NYC).

 

So, why this BO and not all the others? Sometimes we're asleep at the switch. She is in school. I have other responsibilities to my own business as well as to the good folks who employ me to trade a portion of their client's capital. I post as often as I am able, and I try to post trades before they are live, and if I cannot, I try to post it soon after or not at all. In other words, do not assume that the trade I post is the only one the market offered or that it was the only one we took.

 

As far as filtering trades, I do not think in terms of "filtering," but we do try to identify the relevant price levels, and we wait for a break of those levels. I assure you that every piece of information that we use to make a trading decision is on a plain vanilla chart. No secret indicators. No secret systems. No secrets whatsoever.

 

Is it art or science? It is art in the ancient Greek understanding of τέχνη (techne) in the sense of being a skill developed through practice and artifice (as opposed to an ability that is simply possessed by nature). In other words, it is a skill, a technical skill, one learned by practice rather than possessed innately by instinct. Which is to say that it is both an art and a science (a skill based upon knowledge). Which is to say that it is teachable and learnable by human beings in general, rather than a special talent possessed by one individual (and his offspring) alone. In other words, I can do it, and so can you.

 

Turning to the attached chart, we did manage to catch the break up on 10/29 5 minutes before she had to catch the school bus . We had two sells on the way down (both initiated by myself). There were other places where one could have bought or sold. I caught 150 ticks on the 28th (shown in an earlier post).

 

Did we catch every possible entry on the EURJPY? No, not even close. Do we win every trade? No, not at all. In fact, my daughter was quite upset with me one morning to find that I had lost 22 ticks on a short GBPJPY trade where I absolutely entered in the middle of nowhere, thinking that I "knew" the breakdown was immanent. Well, guess what? It wasn't.

 

But in the end, it didn't matter. We had a very good week with that little account.

 

Best Wishes,

 

Thales

[am5001520887468 10]

thales,

 

It's awesome to see what your daughter has done with her account.

 

If all of your posts on this subject was in one thread, it would be one of the 'infamous' threads that people like to refer to, such as the James16 thread.

 

I'm wondering how much of her account your daughter risks per trade.

 

Also, regarding these simple breakout trades with 1:1 and 1:2 targets, what sought of hit rate have you had (over the time of your daughter's trading)?

 

Thanks.

[thalestrader 14]

I'm wondering how much of her account your daughter risks per trade.

 

Too much, and yet not that much at all. Based upon the distance between average entry to initial stop loss, we may be risking just 1-2%, but at other times the theoretical risk may be as high as 5% up to 10%. And yet, since we re-funded this account in mid-September, we have only had one trade run to our initial stop loss (and it was mine, not hers). This is for three reasons: 1) we are very quick to go to break even, and 2) when you trade breakouts, it is a very high probability approach (most do not believe this, but when you pick your spots correctly, you will win most of the time), and 3) we will cut the loss well before reaching our initial stop if price is clearly going against us, e.g. if we are short, and price rallies above our breakout point, and then pullsback, but holds at, above, or just below our breakout point, we will cut the trade at a new rally high against us, which usually means we have cut our initial risk by 40-70%.

 

It is a small account, and while she knows about position sizing, we choose to trade for a minimum of $2/tick (two mini-lots or 20K). This lets us use multiple profit targets, and grows the account at a decent pace, while keeping the risk of ruin, presumably, to a minimum. Also, we do add to our position when a strong move gets underway, so while the initial position may be $2/tick, we may have $10/tick on the table by the time that trade is stopped or the profit target(s) are reached.

 

Also, regarding these simple breakout trades with 1:1 and 1:2 targets, what sort of hit rate have you had (over the time of your daughter's trading)?

 

By "hit rate," I presume you mean winning percentage. I would first caution anyone from falling into the trap of thinking winning % is most important. It is not. What is most important is the size of your wins relative to your losses. This ratio is far more important than winning percentage. For example, over time on my stock trades, I have a winning percentage in the high 30's. But I have a very consistant average winning trade of 55 pennies versus an average losing trade of 13 pennies. This fluctuates over time by +/-3 pennies or so. So even though I lose 60%+ of the time, I finish most weeks profitably, and I have not had a losing month in years.

 

I do not keep track of the winning percentage over time of my daughter's forex trades. I just pulled up our trades from this week. We had ten trades. Out of those ten, we had 1 loss (mine for -22 ticks on 20k GBPJPY position for -52.48), we had 1 break even trade, and 8 profitable trades, with the average profit a very strong $117.87. The size of our average win this week was no doubt helped by the incredible volatility of the markets this week. For example, I just spoke with my currency trading friend, who averages about 200 ticks (pips) profit per week. This week he tells me that his net profit was 765 pips. Eyeballing the trades my daughter and I took for this week, it looks like we came in a bit higher just over 800 ticks for the week. Unusual, but perhaps not surprising for a week given the volatility and the range of the Yen pairs.

 

Best Wishes,

 

Thales

[MidKnight 12]

2) when you trade breakouts, it is a very high probability approach (most do not believe this, but when you pick your spots correctly, you will win most of the time)

 

Good post man. I just want to comment that absolutely any approach is high probability if you pick the correct spots. For example, when I review a chart in hindsight and glance over it quickly, I'm at a 100% win rate for the day because my speed reading a hindsight chart only picked the correct spots Sadly, in real-time though, I do not pick the correct spots as well...

 

With kind regards,

MK

[HAL9000 10]

Also, we do add to our position when a strong move gets underway, so while the initial position may be $2/tick, we may have $10/tick on the table by the time that trade is stopped or the profit target(s) are reached.

 

Hi Thales,

 

I have simulated a lot during the last weeks,

and I don't know, if I am confident within myself now, or not, I guess I am now, but ...

 

Anyway, well I started to look at forex now (larger commission with smallest lots than using futures, but more freedom to move with a small account (IB (ECN like)).

 

I went live again Friday, but just as a starter, I hope Monday will be day 1.

 

My question is, how do you scale in (2$ up to 10$)?

 

But I guess, you like to ask me, how I would do it!?

So maybe, I can try to explain this in theory soon,

and maybe in real later!

 

But if you like like to explain this first?

 

 

Regards,

 

Hal

[HAL9000 10]

I'm at a 100% win rate for the day because my speed reading a hindsight chart only picked the correct spots

With kind regards,

MK

 

Hi MidKnight,

 

my problem is, that I can trade nearly any bar on any of my charts in hindsight and in real.

Too many signals, some telling a different story,

but, if I just would do, what my charts are telling me ... :rofl:

 

Anyway, its about discipline and precision, well and experience too. IMO.

 

 

Correct?

 

Hal

Edited November 1, 2009 by HAL9000
;-)

[thalestrader 14]

Good post man. I just want to comment that absolutely any approach is high probability if you pick the correct spots. For example, when I review a chart in hindsight and glance over it quickly, I'm at a 100% win rate for the day because my speed reading a hindsight chart only picked the correct spots Sadly, in real-time though, I do not pick the correct spots as well...

 

There are many profitable approaches which, if followed correctly, still yield a less than 50% win rate yet yield a decent enough profit factor to trade that approach. In other words, there are approaches where the trade could pick his or spots correctly, and nonetheless win only 38% of the trades, but, because the average winner is 3.5 times as large as the average loser, the method is extremely profitable. Do not mstake picking your entries correctly with winning trades. You can still enter correctly and lose. Perhaps Kiwi or one of our other friends experienced with systems auto-trading could explain my thoughts on this better than I.

 

As far as breakout trades, Linda Raschke once wrote that "[t]hough most breakout methods have a high initial risk point, their high win/loss ratio makes them easier to trade psychologically." I agree with her that trading breakouts has a high win to loss ratio. She also said that "[y]ou might get your teeth kicked in on the losers, but, fortunately, big losses do not happen very often." That is also true. I would add, however, that it is possible to trade breakouts in such a way as to cut your losses before one gets to the bloody "teeth kicked in" level.

 

Best Wishes,

 

Thales

[thalestrader 14]

Hi Folks,

 

Quite a bit of movement already, and we haven't even gotten to Tokyo yet.

 

Now what do you do?

 

Best Wishes,

 

Thales

[thalestrader 14]

Hi Folks,

 

Quite a bit of movement already, and we haven't even gotten to Tokyo yet.

 

Now what do you do?

 

Best Wishes,

 

Thales

 

You'd expect to see this kind of per bar range on a 15 minute or even a 60 minute chart. Here is the current 1 minute.

 

Best Wishes,

 

Thales,

[thalestrader 14]

Was this a good short entry? We shall see, we shall see.

 

Best Wishes,

 

Thales

[thalestrader 14]

Was this a good short entry? We shall see, we shall see.

 

Best Wishes,

 

Thales

 

Not too bad, so far.

 

Best Wishes,

 

Thales

[thalestrader 14]

Not too bad, so far.

 

And here I'd go to break even on the stop, and if stopped out, I'd be willing to look for another entry. It might be a lower short entry, it might be a higher short entry, it might be a long entry. The point is to recognize when price is acting contrary to your position, at least potentially so, and take steps to protect your capital while being ready and willing to re-enter, even if it means entering at a less favorable price level compared to the initial position.

 

Best Wishes,

 

Thales

[thalestrader 14]

And here I'd go to break even on the stop ...

 

Obviously the better way to have played that would have been to short 131.94 and take profit on half at 131.64 with a break even stop on the second half. Initial risk was -16 ticks, so +30 would have been a very favorable R/R for the first profit target.

 

Of course, given the recent weakness and the gap down, I thought it worthwhile to play for a potential multi-hundred tick move to the downside. As it is, it is a breakeven effort. You have to take your swings and put your capital in play. I'm usually quite content to be a contact hitter and make base hits, but sometimes you want to swing for the fence when the pitch seems right.

 

Best Wishes,

 

Thales

 

PS Go Phillies!

[MidKnight 12]

Good sequence of posts on the stalk, entry, mgmt. I totally agree about the importance of recognizing unexpected price movement and proactively managing the trade. I suck at that. I'm sure many would benefit (especially me) from learning more about real-time trade mgmt and proactive risk reduction.

 

My thanks,

MK

Edited November 2, 2009 by MidKnight

[thalestrader 14]

Long entry at 132.10, take a profit at 132.33, and move stop to breakeven on the second half.

Sorry for the late post. I drew in the resistance zone and forgot to take the pic.

 

Initial stop 131.87, for 23 tick risk, so shoot for +23 tick first profit which is the inside the resistance zone.

 

Best Wishes,

 

Thales

[Gabe2004 10]

2) when you trade breakouts, it is a very high probability approach (most do not believe this, but when you pick your spots correctly, you will win most of the time), .......

Thales

 

Hello Thales.

 

It was my impression that most breakouts fail and I have decided to concentrate on reversals.

 

I am sure that both reversals and continuation type breakouts have valid trading opportunities.

 

Can you tell us more about what makes a breakout point - a valid point - that will lead to a move in the direction of the trade.

 

My experience with breakout was negative. Meaning, I had more breakout trades backfire on me than not but reversals provided me more profitable trades (when I was not doing stupid stuff )

 

Gabe

[thalestrader 14]

Potential lower high ...

[MidKnight 12]

Potential lower high ...

 

So....BE on other 1/2?

[thalestrader 14]

It was my impression that most breakouts fail and I have decided to concentrate on reversals ...My experience with breakout was negative. Meaning, I had more breakout trades backfire on me than not but reversals provided me more profitable trades (when I was not doing stupid stuff )

 

If trading reversals works for you I would encourage you to continue to develop your skills in that direction. My way is not the only way. In fact, there are a fair number of traders (a few of whom post here at TL) for whom I have great respect, and they think my way of trading is not a choiceworthy approach. The market is big enough for all of us.

 

Also, I am not comfortable with the notion of a 'valid" break out point. Valid seems to imply profitable, while presumably invalid would be a breakout trade that resulted in a loss. Price can break from a support level, with a short entry on the break, and the trade could still result in a loss. That does not mean that the support level wasn't valid. It just means that the break resulted in confirming the importance of that price zone rather than a rejection of that level.

 

I will try to draw what I believe to be relevant zones on my charts more often going forward. I think that might help you see what it is you are asking better than me trying to put it into words.

 

Best Wishes,

 

Thales

Edited November 2, 2009 by thalestrader