Reading Charts in Real Time

[MidKnight 12]

I would add to Kiwi's comment that that low was clearly digging into what proved to be an important support zone.

 

Best Wishes,

 

Thales

 

Hi Thales,

 

Can you elaborate on this term 'digging into' at all? My failed short we are dissecting looked to me like it was showing an important resistance area.

 

Sure, I can see the differences between our two charts if I look at bar by bar - but that isn't what I mean when I say that they look similar to me. I mean in general, in both cases price goes into an overlapping type behaviour. Kiwi has mentioned that the duration of this was longer in my trade - good point. I partially justified the extra bars because the time of day when I came in was Tokyo opening area, so I was being less stringent on the number of bars. Maybe I just shouldn't trade during that time of day for any 15m trades, but it would be OK for the larger time frame stuff.

 

With kind regards,

MK

[MidKnight 12]

Nice short signal on GC.

Got in twice but did not trust it because the futures were moving up.

THis where what Thales wrote should be adhered to. ie Trade what you see, not what you think.

 

Gabe

 

Hi Gabe,

 

That has been a problem for me every time I have added more 'things' to watch. I end up getting shaken out of so many good trade ideas all because I'm trying to reduce my uncertainty. At one stage in my life, I was a commercial pilot and think this ingrained my need to try and get certainty....It's been large, ongoing issue with my trading that is slowly being chipped away at. I'm not saying trying to get better information isn't a good idea at all, but maybe track it and see if the added information being used is helpful overall vs unhelpful.

 

Have a great weekend.

 

With kind regards,

MK

[Kiwi 16]

Hi Thales,

 

I refer back to your trial defining post Rules at this Post .

 

I am coding some rules in Sierra Chart (available to anyone here who uses SC, just PM me) to help visualize the breaks so that its easy not to miss them and wondered about the potential view of a 2 overshoot and 3 overshoot.

 

As you've specified them there is no overshoot though Even on 3 is ok. And for a "beginner" while trying the base method I'd imagine you'd stick with this but from my years on hsi I know that I'd see (and accept) slight overshoots as still "ok." So, here's the question: what overshoots would you suggest to be acceptable on forex at points 2 and 3?

 

 

[Gabe2004 10]

Hi Gabe,

 

That has been a problem for me every time I have added more 'things' to watch. I end up getting shaken out of so many good trade ideas all because I'm trying to reduce my uncertainty. At one stage in my life, I was a commercial pilot and think this ingrained my need to try and get certainty....It's been large, ongoing issue with my trading that is slowly being chipped away at. I'm not saying trying to get better information isn't a good idea at all, but maybe track it and see if the added information being used is helpful overall vs unhelpful.

 

Have a great weekend.

 

With kind regards,

MK

 

As it happens, I posted chart about 2 minutes before it turned around and zoomed up about 100 pips. So I could have made 20-30 pips on the way down but it just did not feel right.

It was not a thought or an opinion. It was a feeling and I think that feelings should be used in trading.

Better safe than sorry.

 

Gabe

[Kiwi 16]

I now have some quite nice functionality for looking at how well it works; and Thales, it really does

 

I included internal swings (where it does abcde break) with a lighter colour as they are also good breaks but don't show up mechanically with a simple 123break rule. I also added adjustable day and night times so you can look at whether you'd be awake and how u might react the next morning to an "open trade."

 

I do observe that picking the trend using, higher timeframes plus standard hhhl and breaks and fakes from chopzones dramatically improves ones results. Its not so obvious in this particular picture.

 

[thalestrader 14]

Weekend Reading

 

Hi Folks,

 

I'll have a somewhat busy weekend, and also I have business obligations that will keep me from trading Monday-Wednesday this week.

 

I see some good posts here, and I will respond to all posts and the PM's as soon as I can.

 

Here is an article from the NYTimes from eight years ago called the "Wizard of Odds," and if you trade, you should be able to see its relevance to what you do.

 

Best Wishes,

 

Thales

Wizard of Odds.doc

[india quant 10]

I would add to Kiwi's comment that that low was clearly digging into what proved to be an important support zone.

 

Best Wishes,

 

Thales

 

sorry having prob with uploading

will upload a chart

Edited November 7, 2009 by india quant

[thalestrader 14]

I am coding some rules in Sierra Chart (available to anyone here who uses SC, just PM me) to help visualize the breaks so that its easy not to miss them and wondered about the potential view of a 2 overshoot and 3 overshoot.

 

As you've specified them there is no overshoot though Even on 3 is ok. And for a "beginner" while trying the base method I'd imagine you'd stick with this but from my years on hsi I know that I'd see (and accept) slight overshoots as still "ok." So, here's the question: what overshoots would you suggest to be acceptable on forex at points 2 and 3?

 

Hi Kiwi,

 

First I want to thank you for your offer to share your work with other TL members, as it is very much in the spirit of this thread. If I were wearing a hat, I'd tip it to you.

 

As to the "overshoot" question, I do not have a quantifiable parameter in mind. An overshoot at point 3 in an uptrend is indicative of a basing pattern that William O'Neil refers to as a double bottom base where price rallies into a high, pulls back, rallies to a lower high, and then pulls back yet again into a lower low before rallying to a new rally high (higher high).

 

I would not want to suggest a parameter, and you will likely be better off trying to test out a few conditions on your own.

 

When is a double bottom a basing pattern and not a breakout to the downside? That is usually a matter of the structure of the support zone into which price is digging. I cannot quantify it so much as I can qualify it by saying "I know it when I see it." All this to say that I do agree with you concerning what you term overshoots, both that they exist, and that they are tradable in the context of what we have been discussing here. Also, I agree that for the beginner, it is probably best to focus on the simple L-H-HL and the H-L-LH while learning to see and trade price itself.

 

I have attached a few views of the daily Dow Indistrials. The first shot is of my Telechart screen as it appears today. There is a trendline that I drew back in July, and it is drawn at what I considered to be a buy point at that time. This was at a time when you could not turn on CNBC without hearing someone squawking about the "Head and Shoulders top" in the Dow. The next two shots show that S/R must trump any "chart pattern" trading. This "H&S top" was really just a pullback into a support zone, and the buy point was when the LH was bettered. I made the same point in a chart Browning posted of AAPL where, strictly trading the H-L-LH would have caused the trader to initiate a short, this short would have been selling into a test of prior resistance being tested as new support. a discretionary trader should not trade this approach separate from an awareness of S/R.

 

If you are programming and auto-trading this, I do not know how you would account for S/R. I think the pattern is reliable enough to trade straight away and just take your (admittedly small) lumps. Perhaps something along the lines of the old turtle strategy would be in order - if the last two trades were long and were winners, do not take the next short, and vice versa. Then again, trying to program a loss avoidance is usually the first step in sinking an otherwise profitable system.

 

Best Wishes,

 

Thales

[thalestrader 14]

Can you elaborate on this term 'digging into' at all?

 

"Digging into support," is a phrase I learned from reading Stanley Kroll years ago, and it seemed a very apt description of what price does when it finds itself at a zone of S or R, and therefore, it stuck in my thinking.

 

In some of my charts, I use rectangles to illustrate these zones. For a breakout-type trade, I would usually require price to dig through, rather than merely into one of these zones before I'd take a position.

 

I do not draw these rectangles on my charts, but I do "see" them nnetheless. I've made no secret that Nicolas Darvas had a large impact on my approach, and I am sure these rectangles are more or less something that has evolved out of that influence.

 

I do not claim to be a very original trader. From the great many whom I have read, I have learned from but a very few - Darvas, O'Neil, Livermore, Wyckoff, Schumacher, among others. I have kept what has worked for me.

 

Best Wishes,

 

Thales

[MidKnight 12]

Hi Thales,

 

So why is the short gbp/jpy not digging into resistance? At the time of entry to me, it looked like obvious R, but for some reason I don't know of, you don't seem to think so....

 

With kind regards,

MK

[thalestrader 14]

I didn't mean to imply that price wasn't digging into resistance at that point. Clearly it was, and I was just adding that to the discussion of the EURUSD trade. Price, in my opinion, just did not indicate whether it was going to dig through it or whether it was going to reverse. As it was, price chewed through and then gave indications that shorts were in order. Look at Kiwi's charts in post #930. I think that might be instructive as to how price indicates where to buy & sell.

 

I know you want something more, a rule perhaps. And I am trying to come up with something that might help you. Kiwi's logic has captured something, and perhaps he might have something more concrete to add (unless he already did so in his posts surrounding your GBPJPY short.

 

Best Wishes,

 

Thales

[thalestrader 14]

We'll be watching the EURJPY tonight (at least through the first half of the Eagles/cowboys game).

 

Best Wishes,

 

Thales

[Kiwi 16]

The thing is that I think in terms of the trend giving an advantage. With trend, the extensions are longer, the counter-extensions are shorter; timing is more forgiving.

 

And to me the trend is read in some fuzzy way (that has to be quantified in systems) using some combination of hhs and hls, crossing of S&R areas and testing them (digging) before continuation, crossing and sloping of mas to indicate whats happening to the average of price, and new thrust (push of so many points in so few bars).

 

So in the 930 case we had a trend up (broke support and resistance with thrust, tested on the outside lows, were above the 50ema on a 4 hour chart). In fact we still have that longer timeframe chart pointing anemically up (but oh so weak).

 

If I was to automate this then I would be assuming longs until you had some criteria for a break down. In this case, if your system derived its information solely from the 15m timezone the three signals approach is actually surprisingly good, but could be combined with some larger breakout or an overshooting smoother like the hull ma rolling and turning down with price below. Or sufficient thrust. I'm not sure and won't know until I get a chance to test a full system (which I won't share because those little discoveries are what make the difference between profit and not and must be aligned with ones own beliefs about how the market works).

 

To the one party who did want the material, I'll drop it to you sometime in the next day.

[Kiwi 16]

FWIW. Mechanical EJ ... I must define chop zone if I'm going to automate this at some point and probably define a poke and fail to be truly sophisticated.

 

I note in passing that the test of top and two lower highs or lower high and slight break of the first that doesn't reach the top is a classic failure sign in hsi. Sucks in some longs and then goes ... and the sucked in longs generate extra liquidity on the collapse that follows. The tough thing is to distinguish it from a resumption upwards

[MidKnight 12]

I know you want something more, a rule perhaps. And I am trying to come up with something that might help you. Kiwi's logic has captured something, and perhaps he might have something more concrete to add (unless he already did so in his posts surrounding your GBPJPY short.

 

Best Wishes,

 

Thales

 

Thanks for the reply. I'm not really looking for a rule as about 1 year ago I stopped searching for the inflexibility of absolute rules in the markets. But I thought you had some clearly defined and objective rules. This was an assumption on my part because I couldn't see how else you could have taught your daughter....my apologies for the incorrect assumption.

 

With kind regards,

MK

[thalestrader 14]

But I thought you had some clearly defined and objective rules. This was an assumption on my part because I couldn't see how else you could have taught your daughter....my apologies for the incorrect assumption.

 

Well, I did say that since we are seeing higher lows and lower highs, price has entered what I consider to be the chop zone, and that I would take my cues from the last true high and the last true low. That is fairly close to a clearly defined and objective rule or guideline.

 

Best Wishes,

 

Thales

[MidKnight 12]

Ok ok, I'll stop with the endless stream of queries. I don't know why, but for some reason I feel like an idiot for taking the trade and was just trying to make sure it didn't happen again - or at least not very often. Thanks for the replies.

[thalestrader 14]

Ok ok, I'll stop with the endless stream of queries. I don't know why, but for some reason I feel like an idiot for taking the trade and was just trying to make sure it didn't happen again - or at least not very often. Thanks for the replies.

 

I would hope you don't feel like that over a trade. And, the thing to remember is this: If you were to take every single trade, even those such as that GBPJPY short that is bothering you, and you respect your stop loss, and play for 1:1 first target, you will be net profitable over time. Do not let that trade bother you, especially when you are doing so well. You cannot expect perfection.

 

Last week, between my daughter and I we took 20 trades in our little forex account. We had 7 losing trades and 13 winning trades. Of the thirteen winning trades, 5 were for less than +3 ticks, so those were basically breakeven. That means that the bulk of our profit for the week came from less than half of our trades. Had we taken that trade with you, we'd have still had a nice profit for the week. It is better to take a trade and lose than to not take a trade that could have run to two or three profit targets. So long as you manage your risk and trade based upon what price is indicating, you will be fine.

 

I think that doing a post mortem of losing efforts can be helpful. But do not let one losing effort gain such significance that it can damage your confidence. After all, technically your entry was correct. Based upon preceding price action, it was perhaps not the most favorable opportunity. But, you have to be in it to win it, so do not allow this one trade to feed your fear or to discourage you.

 

Do not compare yourself to what my daughter has accomplished. If I were to compare her experience to my own, I'd have to question what was wrong with me for so long. I am not kidding you. I bounced around, marginally profitable, with a few fortunate big wins for years before I finally settled down and focused upon trading the way that you are now. Even then, it took me far longer than it has taken her to really settle in to my approach.

 

Give this some time. Do not get discouraged. Do not give up. I am convinced that if you diligently apply yourself to the approach we are sharing here that the time remaining until you achieve your trading goal will be measured in weeks and months, not years. But you do have to keep your heart and your head straight,

 

Best Wishes,

 

Thales

Edited November 9, 2009 by thalestrader

[daedalus 10]

Just wanted to say a quick thanks to everyone participating in this thread and especially thales!

 

A year ago I was trading successfully using a logic very similar to this just looking for the L, H, HL patterns and over time my edge eroded as I added indicators and other crap to try and "filter" swings.

 

This thread in the last 20 or so pages has breathed some life back into me and got me focused back on the real truth in the markets. They repeat these same patterns time and time again and without Thales posting up that initial chart it wouldn't have got me back on the right track.

 

I just wanted to say thank you and tell you that you have quite literally made a huge impact on another trader. Keep it up!

 

Cheers!

[thalestrader 14]

This thread in the last 20 or so pages has breathed some life back into me and got me focused back on the real truth in the markets. They repeat these same patterns time and time again and without Thales posting up that initial chart it wouldn't have got me back on the right track.

 

I just wanted to say thank you and tell you that you have quite literally made a huge impact on another trader. Keep it up!

 

Cheers!

 

Great to hear, daedalus! I hope that you will share some of your charts here with us as well.

 

 

 

Best Wishes,

 

Thales

[thalestrader 14]

I couldn't see how else you could have taught your daughter

 

Pictures. If you read this thread from the beginning, I have said over and over that "beautiful pictures paint themselves."

 

Here is a look at the GBPJPY. Take a look at the price activity within the ellipse. That is a picture - a pattern that happens everyday. The hashed lines represent the chop zone we discussed. The dark blue represents short entry, the red line is the initial stop loss. Taking cues from the boundaries of the chop zone, this is the first trade opportunity (unless one were to have used a buy stop to buy the breakout).

 

I taught my daughter by pointing these patterns out, and then having her watch for them as well.

 

As daedalus said:

 

the real truth in the markets ... [t]hey repeat these same patterns time and time again

 

Best Wishes,

 

Thales

[thalestrader 14]

Hi Folks,

 

Not trading this - but note the rally back to the top of last week's "chop zone," and finding a bit of resistance there.

 

Best Wishes,

 

Thales

[hunnybunny 10]

Hi, everyone. Sorry i'm late with my weekend homework. Here's my marked out EJ chart. Please correct my understanding where i'm wrong .. many thanks!

 

Here goes ..

(1) so that's 5 trades?

(2)1-3 is a long trade, with adds at 2 & 3?

(3) 4-6 is a short trade, with adds at 5 & 6?

(4) 7 is a short that would have been stopped out for a loss

(5) 8 is a long that would have been stopped out for a loss

(6) 9 is a nice big short that was almost stopped out?

 

Haven't done the math to work out the P/L. Will attempt to do that next time.

 

Learning lots doing this. Thanks for the suggestion. Will mark out S/R zones when i become more adept.

 

:missy:

Edited November 9, 2009 by hunnybunny
typos

[Gabe2004 10]

Hi, everyone. Sorry i'm late with my weekend homework. Here's my marked out EJ chart. Please correct my understanding where i'm wrong .. many thanks!

 

Here goes ..:missy:

 

Just thought that it would be easier if the annotation would be on the chart.

I hope you don't mind.

 

BTW Shouldn't #2 be SHORT trades and #3 LONG trades?

 

Gabe

[hunnybunny 10]

and here is today's EG chart. Looks like 4 B/E trades if one isn't quick to take profits? Throw in a chop zone, 1 long and 1 short trade that i couldn't spot for lack of a HL and LH respectively ... and is the state i would be in