Scientists at Work - Diagnosing the Pathological Trade Setup

[Ingot54 13]

This forum wouldn't truly be a Traders Laboratory unless we placed trading situations under the microscope for diagnosis and therapeutic

treatment. In this thread I propose to attack the pathogens of trading by coming at it from a different direction.

 

Usually we assemble our favourite indicators on our charts, and stalk the trades, until we think we have the target situation confined and controlled.

It does work out enough times to keep us interested, but frequently not well enough to make us contented as traders.

 

So what I hope to do on this thread, is to present a "great" setup, and freeze the frame right there. I say "freeze" so that before we take the setup, we actually

submit the setup to the "panel of scientists" (membership of TL) for their views on what they see as "wrong" with the trade.

 

This is in contrast to finding setups first, taking the trades, and later looking back to see "what went wrong?" Let's see if we can spot the difficulties before

they occur - diagnose the disaster before it becomes toxic to the account.

 

Note - we do not have to play the trade out - that would be good to see the results of course. But the value in this should be in the varied input from

traders, because we are all going to see trading setups differently.

 

Feel free to add trades of any instrument - this is the FX section - but because of the nature of the discussion, I hope we can tolerate a little

cross-pollination this time.

[Ingot54 13]

So what I hope to do on this thread, is to present a "great" setup, and freeze the frame right there.

I say "freeze" so that before we take the setup, we actually submit the setup to the "panel of scientists" (membership of TL) for their

views on what they see as "wrong" with the trade.

 

This is in contrast to finding setups first, taking the trades, and later looking back to see "what went wrong?" Let's see if we can

spot the difficulties before they occur - diagnose the disaster before it becomes toxic to the account.

 

Note - we do not have to play the trade out - that would be good to see the results of course. But the value in this should be

in the varied input from traders, because we are all going to see trading setups differently.

 

OK - here is an unknown setup in an unknown time frame.

 

I have purposely left out those details so that no one would check to see what happened, and give advice after the fact.

 

The point is that I took both trades.

 

1) What was the risk with the first (successful) setup?

2) What is wrong with the second setup.

 

Remember we take all trades as they present from the RHS of the screen. We do not know what the next candle is going to do.

 

So what are the grey areas - points that need special care?

 

Defining possible risks AT THE TIME OF analysis can go a very long way towards building confidence in trading the setup.

 

It is only when the unforeseen occurs, and the trader has no clue why it occurred, or how to be prepared for it that damage to confidence can creep in.

 

Would you have taken this second setup? (or indeed the first?)

 

Why ... ?

[TheRumpledOne 14]

What's wrong?

 

SQUIGGLY LINES on the chart... that's what's wrong!!

 

"Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.

 

The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat."

 

P64 HOW WE DECIDE (italics added)

 

========================= ====================

 

"Now, 2 patterns of market behavior happen on a regular basis:

 

1) the price breaks to new high's (or low's)

 

2) the price reverses from new high's (or low's)

 

They happen regardless of time frame (with the obvious limitations explained above)

 

They are phenomena that can be exploited without the fear if found out by others, that they might cease to exist." - H. Rearden

[Tradewinds 12]

OK - here is an unknown setup in an unknown time frame.

 

1) What was the risk with the first (successful) setup?

2) What is wrong with the second setup.

 

So what are the grey areas - points that need special care?

 

Defining possible risks AT THE TIME OF analysis can go a very long way towards building confidence in trading the setup.

 

Would you have taken this second setup? (or indeed the first?)

 

Why ... ?

 

I would have been looking to take the trade way before the circles that are drawn on the chart. I don't like entering orders after the price has already turned. As soon as the MACD showed a shorter value on the way up, I would put in a short order just slightly over the highest high. The short would have filled, and showed a loss on the long tail of the candle that is the peak. But what people must understand, is that the speed at which the price moves on those long tails is so fast, that you are only loosing money for a very short period of time before price quickly starts moving in your favor. Then I would have taken profit immediately on the next candle, and re-entered a short at a better price as the price was moving back up.

 

On the way up, as soon as I saw that higher high, I would have entered on that candle. I would not have waited until the candle that you have circled. Price often surges up, defines the upper range, and immediately drops hard on the same price bar.

 

What you see on a chart, can be deceiving compared to how price behaves even within the time frame of that one candle. The typical analysis that people make, is that they look for pull backs to enter a long on a bar or candle that shows a pull back. But a nice price drop to enter a long can happen on a candle that shows a higher high. But I'm guessing that people do not readily or intuitively understand what I just described when doing chart analysis. Price can do all kinds of things inside that bar between the high, low and close.

[Ingot54 13]

What's wrong?

 

SQUIGGLY LINES on the chart... that's what's wrong!!

 

"Look, for example, at this elegant little experiment. A rat was put in a T-shaped maze with a few morsels of food placed on either the far right or left side of the enclosure. The placement of the food is randomly determined, but the dice is rigged: over the long run, the food was placed on the left side sixty per cent of the time. How did the rat respond? It quickly realized that the left side was more rewarding. As a result, it always went to the left, which resulted in a sixty percent success rate. The rat didn't strive for perfection. It didn't search for a Unified Theory of the T-shaped maze, or try to decipher the disorder. Instead, it accepted the inherent uncertainty of the reward and learned to settle for the best possible alternative.

 

The experiment was then repeated with Yale undergraduates. Unlike the rat, their swollen brains stubbornly searched for the elusive pattern that determined the placement of the reward. They made predictions and then tried to learn from their prediction errors. The problem was that there was nothing to predict: the randomness was real. Because the students refused to settle for a 60 percent success rate, they ended up with a 52 percent success rate. Although most of the students were convinced they were making progress towards identifying the underlying algorithm, they were actually being outsmarted by a rat."

 

P64 HOW WE DECIDE (italics added)

 

========================= ====================

 

"Now, 2 patterns of market behavior happen on a regular basis:

 

1) the price breaks to new high's (or low's)

 

2) the price reverses from new high's (or low's)

 

They happen regardless of time frame (with the obvious limitations explained above)

 

They are phenomena that can be exploited without the fear if found out by others, that they might cease to exist." - H. Rearden

 

TRO - what you have done on this thread is spread your own thread all over the top of this one. Anyone that can read has probably read all of the above from you just about every time you post. For that reason I no longer read your thread - the repetition is exasperating.

 

I have already read your methodology and rejected it as unsuitable for my trading approach and style. However, it may suit others - unsure about that, because I see very little discussion on your thread.

 

Are you asking me to discard my methodology entirely and to adopt yours? I do not see that as a technical solution, given that I asked for a discussion on the technical setup in the chart that was posted.

 

You seem to have misread the intent of this thread - we are looking at the technical pathology of a setup. We are attempting - any of us - to place a trading situation "under the microscope" - so as to help each other with ideas about what is wrong with particular setups.

 

I find nothing educational or diagnostic about your statement:

 

What's wrong?

 

SQUIGGLY LINES on the chart... that's what's wrong!!

 

which then fails to elaborate on W-H-Y the "squiggly lines" might be "wrong" ... in your view they are "just wrong" ... period.

 

I am aware - well aware actually - of your trading philosophy and business model. I am also apprised of the way you treat those who disagree with you in any way. And it is small wonder that few venture onto your threads to attempt to engage you in meaningful dialogue regarding any technical enlightenment.

 

I see your method if discussion has always been "Avery's way or the highway", and since it has worked so well for you, I will adopt the same tactic.

 

I invite you to leave your proprietary-and-for-sale indicators and strategies at the door as you come in here. Otherwise, collect them as you leave - the highway is over to the left!

 

Meanwhile - the invitation remains:

 

So what I hope to do on this thread, is to present a "great" setup, and freeze the frame right there. I say "freeze" so that before we take the setup, we actually

submit the setup to the "panel of scientists" (membership of TL) for their views on what they see as "wrong" with the trade.

 

You are welcome to present any setup that you are having difficulty with, so that the members of TL can examine it, and see whether any consensus view can be reached. We are willing to help you with your trading problems.

 

Now - please don't come back with any of your "Jumbo-747-cockpit" instrument/indicator mazes and ask the readers to try to understand it as an "alternative" setup, or as a solution. Most of us are not in the market for your latest pip-hoover!

 

We are looking at trades in this light:

 

1) What was the risk with the ... setup?

2) What is wrong with the ... setup.

 

Remember we take all trades as they present from the RHS of the screen. We do not know what the next candle is going to do.

 

So what are the grey areas - points that need special care?

 

Defining possible risks AT THE TIME OF analysis can go a very long way towards building confidence in trading the setup.

 

By the way - there are other more appropriate sections of the forum where you may post strategies ... just not here.

 

If you are having technical difficulties with your own approach, feel free to post a chart, and request help ... that's what we are doing on this thread.

 

Thank you for your interest - please stick to the defined topic.

[MightyMouse 12]

OK - here is an unknown setup in an unknown time frame.

 

I have purposely left out those details so that no one would check to see what happened, and give advice after the fact.

 

The point is that I took both trades.

 

1) What was the risk with the first (successful) setup?

2) What is wrong with the second setup.

 

Remember we take all trades as they present from the RHS of the screen. We do not know what the next candle is going to do.

 

So what are the grey areas - points that need special care?

 

Defining possible risks AT THE TIME OF analysis can go a very long way towards building confidence in trading the setup.

 

It is only when the unforeseen occurs, and the trader has no clue why it occurred, or how to be prepared for it that damage to confidence can creep in.

 

Would you have taken this second setup? (or indeed the first?)

 

Why ... ?

 

I would need to know what the relationship is between the 3 indicators in the bottom window to price and to each other and to the lines on the candles, which I assume are moving averages. So, for example, what does it mean when A and B are giving you bullish signals and C isn't? Do you need all 3 to be bullish to go long? Can you stay long if 1 or 2 of the 3 indicators go negative? If so, which can be negative? When do you simply get out and when do you reverse? Each indicator I am sure tells you something different from the other and you need to know how or if you need to take action when they are all bullish, all bearish, all neutral, and mixed. I know what the indicators are, but I am not familiar with how to interpret them.

 

In addition, the indicators will probably act differently if those bars are occurring at the top of a larger range or the bottom of a larger range and if the action is occurring in a larger up trend or in a down trend? So, I would want to back out and look at what is developing from 2 other time frames.

 

When you do know the different possibilities and execute based on your interpretation, damage does not occur. Anger maybe, but not damage.

 

Unfortunately for me, I do not use those indicators and cannot add much.

 

MM

[Ingot54 13]

I would have been looking to take the trade way before the circles that are drawn on the chart. I don't like entering orders after the price has already turned.

 

That could be a possibility Tradewinds, but what happens with fake-outs and false breaks? Should we be requiring confirmation of the move before entry? What about whipsaw activity, or range-bound prices? I can follow your reasoning on it, because there is that nice hammer candle signaling a higher probability of a reversal there.

 

As soon as the MACD showed a shorter value on the way up, I would put in a short order just slightly over the highest high. The short would have filled, and showed a loss on the long tail of the candle that is the peak. But what people must understand, is that the speed at which the price moves on those long tails is so fast, that you are only loosing money for a very short period of time before price quickly starts moving in your favor. Then I would have taken profit immediately on the next candle, and re-entered a short at a better price as the price was moving back up.

 

I guess this comes with experience.

 

I would have seen that long tail (which would have been red at the time) as a continuation of the current (then) downtrend - particularly with the Stochastic being in strongly trending (under 20) territory. But then, I wouldn't have been in at that point - it was 5 candles too late for entry in the short direction.

 

On the way up, as soon as I saw that higher high, I would have entered on that candle. I would not have waited until the candle that you have circled. Price often surges up, defines the upper range, and immediately drops hard on the same price bar.

 

Aah! Yes - good point - price action opportunity for entry - a higher high following that long tail! Thanks for pointing that out. That confirms the need to be THINKING at all times - not just blindly following indicators.

 

What you see on a chart, can be deceiving compared to how price behaves even within the time frame of that one candle. The typical analysis that people make, is that they look for pull backs to enter a long on a bar or candle that shows a pull back. But a nice price drop to enter a long can happen on a candle that shows a higher high. But I'm guessing that people do not readily or intuitively understand what I just described when doing chart analysis. Price can do all kinds of things inside that bar between the high, low and close.

 

Exactly - and this is why I do an analysis that includes the higher TF. If the higher trends are showing continuation, then entry on pullbacks in lower TF can be a high probability play for entry.

 

I like your thoughts on taking a long entry on a price drop. It takes experience and a bit of guts to take those entries, but I am not sure of the proportion of each that is required. Obviously the more experience, the less guts required ... and only screen time can deliver that.

 

Thanks for the input - that has broadened my mind.

[steve46 12]

Ok then I don't know if this is going to "get through" to anyone but the idea of trading with indicators doesn't impress me much...Actually there are many skilled pros who actively look for "indicator fed" setups just so they can trade the failures....

 

For me the example displays insufficient data to make a decision.

 

I have attached a similar chart example showing why I prefer not to use indicators..and how I frame the trade using support and demand.

 

By the way Ingot... the example is for your benefit...notice that it is a currency chart on a 20 min time frame. Once you learn how to identify supply/demand, it changes how you view charts and how you select trades....

 

Hope this helps

[steve46 12]

and here's the same concept with bonds.

 

As regards your original chart example, I notice you have several indicators stacked below the price panel....For me the fact that you have "confluence" (agreement of more than one indicator) IS an important data point to consider...it suggests that a larger potential audience is likely to act on the setup...That is significant in my book.

 

Also the time frame is significant.....If I see this data (your original chart example) on a longer time frame chart, I would be more likely to take the trade, because in my opinion, the audience looking at this data would include participants more likely to move size.

 

Just trying to put myself in your shoes for a moment....Hope the comments help

Edited March 22, 2011 by steve46

[snowbird 10]

Steve,

 

Both setups show price accelerating out of a small base of "demand", which is determined by the way price left the base (many more buyers than sellers).

 

It appears your strategy would be to wait for price to return to the top of the "base", as there are likely more buyers still at that level who either missed the first train when it rapidly left the station, or were just not able to get all of their original orders filled due to the limited number of sellers during the "basing" period.

 

I would set a stop loss below the area you defined, and targets at the next visible supply level (unknown in the case of the first example).

 

In the second (bond) example, possible targets around 122'10 and 122'16.

 

I am curious about one thing in the levels/bases you have outlined.... why do you determine the lower level from the point of origin of the price rise, instead of the pivot point of the last low price made?

 

snowbird

[SIUYA 11]

for me the thing that is wrong - there is little context.

Otherwise its just a back tested system to trade a variety of indicators. These usually get eaten by fees in my experience.

[Ingot54 13]

I would need to know what the relationship is between the 3 indicators in the bottom window to price and to each other and to the lines on the candles, which I assume are moving averages. So, for example, what does it mean when A and B are giving you bullish signals and C isn't?

 

I agree the snapshot does not provide much information, which makes it fairly difficult to make an objective assessment. I have added another chart with more detail. The idea was to conceal the currency pair and TF, but I see there is as much to be gained by knowing at which stage of the trend our trade occurred. I have added a chart with more disclosure ... the GBJPY 15M from 10th March 2011 @ 2000 hrs.

 

Two of the indicators are "compulsory" triggers. In order for a setup to be valid, we must be seeing the crossing of the 4EMA with the 10SMA. Put these on a chart and you will notice the reliability of the combination. The other is the 4 - 21 - 1 - 5 MACD.

 

The other two indicators are for fine-tuning. For example, the Multi-stoch needs to be crossing 23.6 from below, or 76.4 from above, or have recently achieved this. As well, the stochastic lines need to be fairly tight, or at least orderly. If the stochs are fish-netted, then it indicated range-bound price, and it is not a good time to enter. This would be evident on the chart anyway - eg as price seen to be oscillating in a 40-pip range.

 

By the way - the RED line in the Multi-Stochastic indicator is simply the 14-3-3 stoch.

 

The RSI also confirms timing of entry - the RSI trend needs to be strongly towards the zero line, or have already crossed. It is the weakest of the indicators, and may be ignored if strong signals occur from the others. Note that I have not seen a conflict yet, but I have been saved from a poor entry by RSI not being "ready".

 

You can clearly see that after the down-move ending around 133.00 price began to be range-bound. The Indicators - particularly RSI - dissuaded me from attempting to re-enter. MACD was rising, slightly counter-trend if anything, which is typical of consolidating price - no momentum.

 

Do you need all 3 to be bullish to go long? Can you stay long if 1or 2 of the 3 indicators go negative? If so, which can be negative? When do you simply get out and when do you reverse?

 

See earlier comment for part of reply.

 

Exit is achieved when MA's cross again in opposite direction, or if crossing seems inevitable. At the same time, the MACD signal line will be confirming the weakening of momentum. If not then I re-check the higher TF - we might only be witnessing a pull-back.

 

Stochastic and RSI usually play no part in exits, though a re-crossing of the 23.6/76.4 for stochs, and the zero line for RSI, would be strong positive exit signals. But this will not occur before the MA cross, or the MACD exit signals anyway. It is like baking a cake - you get to know the mix of ingredients, and you get to know when the oven is hot enough, or too hot/cool. You can't leave out an ingredient without risking spoiling the result.

 

Each indicator I am sure tells you something different from the other and you need to know how or if you need to take action when they are all bullish, all bearish, all neutral, and mixed. I know what the indicators are, but I am not familiar with how to interpret them.

 

Explained above.

 

In addition, the indicators will probably act differently if those bars are occurring at the top of a larger range or the bottom of a larger range and if the action is occurring in a larger up trend or in a down trend? So, I would want to back out and look at what is developing from 2 other time frames.

 

This is something I could probably investigate to yield very useful information. This afternoon (our time) I managed to squeeze 27 pips from the GBPCHF on the 15M TF, as price dropped through the DAILY PP. I didn't trade the bounce, where around 75 pips could have been very easily harvested.

 

I need to be aware of these sharper reversals as excellent opportunities too, and trade what I am seeing, not what I am expecting. Having said that, I do frequently refer back to the higher TF to "keep in touch" with the strength of the overall trend.

 

When you do know the different possibilities and execute based on your interpretation, damage does not occur. Anger maybe, but not damage.

 

Unfortunately for me, I do not use those indicators and cannot add much.

 

MM

I like that last quote of yours: "Anger maybe, but not damage." I can see how that is true if one is prepared for all possible outcomes and combinations. Where there can be no surprises, there can be no loss of confidence (damage).

 

Thanks for those comments MM.

 

Will respond to other comments tomorrow - have to sign out for now.

 

All comments noted and much appreciated.

Edited March 22, 2011 by Ingot54

[steve46 12]

I will be very brief out of deference to Ingot whose thread we are in.

 

Like Ingot I start my analysis with a longer term reference, if that time frame suggests long bias I look for supply below the current price as a place where favorable entry can be obtained

 

For the bond chart the actual target is the weekly high at 121'21. At that price, a short entry is the preferred action. "Time--based pivots" were taught to me long ago and work quite well as you will see if you refer to a current bond chart (price tested the weekly high and failed)...

 

Finally if we can get back to Ingot's question, my additional comment is as follows....after all these years of looking at charts (I am 60 years old now)...it is clear that a trader can obtain success with either orientation (indicators/no indicators)...IF he/she will approach the problem in a non-random way..and for me that means knowing that on an individual basis NO ONE can tell whether a setup will result in profit or loss...however if one will simply take every trade in a statistically significant sample and manage risk skillfully, that outcome (the result of all the trades) is likely to be non-random.

 

I hope that helps

Edited March 22, 2011 by steve46

[MightyMouse 12]

Ok then I don't know if this is going to "get through" to anyone but the idea of trading with indicators doesn't impress me much...Actually there are many skilled pros who actively look for "indicator fed" setups just so they can trade the failures....

 

For me the example displays insufficient data to make a decision.

 

I have attached a similar chart example showing why I prefer not to use indicators..and how I frame the trade using support and demand.

 

By the way Ingot... the example is for your benefit...notice that it is a currency chart on a 20 min time frame. Once you learn how to identify supply/demand, it changes how you view charts and how you select trades....

 

Hope this helps

 

Steve,

 

Supply/demand is an indicator, the OHLC is an indicator, volume is an indicator, time is an indicator, range is an indicator, trend is an indicator, S/R, and etc. And each and everyone of them is based on lagging information. If you look at 250 bars on a chart to determine trend, you are using data that is (your time frame)X(250) periods old. If someone chooses to use a smoothed MA to decide or their bare eye to decide, there is very little difference.

 

Stoch, rsi, ma, and macd, I believe are all price based so I would tend to think that they are all indicating something similar or confirming each other which may get you nowhere further than you were by looking at one of them. I do not know and i am too lazy to look, but that is my suspicion.

 

Personally, I use price, volume and time but i would be remiss to say that they are not indicators.

 

MM

[steve46 12]

Sorry, but I don't have much interest in the debate....by all means continue as you were.

 

For those adults who are interested in the subject, I use the classical economic principle of supply and demand. Interested parties can get background on this principle by googling the phrase....and you can email me if you want more detail on my use of the principle.

Edited March 22, 2011 by steve46

[MightyMouse 12]

For those who have the ability to think critically, supply & demand are economic principles...for the adults in the crowd, these principles are well understood...and to my knowledge classical supply and demand are not included in chart packages....small mistake I guess, but then that seems to be your special talent....

 

Ha Ha! That is great. For those who who live outside of the tender bubble created by an over inflated ego, if you put supply and demand on a chart, it is an indicator. It doesn't have to come in a char package to be called an indicator. But you don't count steve since you are the sole occupant of your bubble. Goodness your posts have a stench of insecurity when you respond to my posts.

 

For some reason, egotistical I assume, saying you use indicators is beneath you. I never thought to divide traders between those who use indicators and those who don't. This is getting more interesting everyday.

 

And since we are splitting hairs, pros do use indicators packages, but I suppose that the pros I know do not count or something silly like that.

[steve46 12]

Okay so I finally get it...you desperately need to correct me....clearly it is very important for you to be right (about something/anything)...

 

I understand....and if it will help you to feel better about yourself.....please by all means....you are right....

 

By the way, I reviewed my CQG software....no supply/demand indicator

I reviewed my Esignal software.....no supply demand indicator

Investor RT.....no supply/demand indicator

Sierra Chart....no supply/demand indicator...

 

but really if thats what it takes...be my guest....YOU ARE RIGHT...there I hope you are feeling much better now....

and now if you will excuse me I am going to go use my "indicator" to make money....

 

Good luck folks

Edited March 22, 2011 by steve46

[zdo 20]

“TRO - what you have done on this thread is spread your own thread all over the top of this one”

 

Ingot, no one, no one, can NOT spread their own ‘thread’ all over the top of this one

 

Nothing ‘scientific’ is going on here Ingot. Even if you could get a good sample of ‘traders’ in agreement to utilize those three indicators, it would not mean in any way that they would be on the same page with you on your 3 indicators. Just within a small sample of traders, a literal infinity of systems would emerge and mutate… I’m not saying this is a waste of your time at all, just pointing the dangers of assuming something ‘scientific’ is happening …

 

Also, there is no pathology involved in any setups you may be investigating. Each one either profits or it doesn’t…

 

welcome to the anti lab

[zdo 20]

Steve,

 

"I just reviewed my CQG software....no supply/demand indicator

I reviewed my Esignal softwarre.....no supply/demand indicator

I reviewed Sierra Charts list of technical studies....no supply/demand indicator"

 

I reviewed my TradeStation softwarre.....it has a supply/demand indicator!

Made it myself...

Works almost as good as wetware...

[$5DAW 10]

Ingot54

 

Great idea for a thread, I hope it catches on.

 

The first thing that jumped out at me was, all your indicators are basically indicating the same thing, momentum. This tells me you are risk adverse and want to be absolutely sure, without any doubt, that when you enter a trade, the market, is trending in the time frame you're trading.

 

We all have different ways of keeping our finger on the pulse of the market, but I'd bet if you only used 2 of the 3 EMAs you have plotted on your chart you'd get damn near the same results over a sample of 100 trades. A MACD is just that, "a moving average" and why ten stochastics (10 lines), isn't the spread between a fast and a slow enough? But wait there's more, the RSI another momentum indicator. It's like looking at six different size wind socks to come to an agreement the wind is blowing out of the East @ 25mph.

 

I'm not sure what you're asking, you must be trading this method (with some discretion) and it appears to work for you. If it works you have two choices, you can not fix it, or, you can fix it until it is broken. If you can identify support and resistance on longer and shorter time frames, and you are absolutely comfortable with the amount of risk needed behind your trade, and you're making money, go for it.

[MightyMouse 12]

Steve,

 

"I just reviewed my CQG software....no supply/demand indicator

I reviewed my Esignal softwarre.....no supply/demand indicator

I reviewed Sierra Charts list of technical studies....no supply/demand indicator"

 

I reviewed my TradeStation softwarre.....it has a supply/demand indicator!

Made it myself...

Works almost as good as wetware...

 

Zdo,

 

I think that if it is not part of a charting package its not an indicator, so on this thread its best to refer to it as something other than a supply/demand indicator. Ha ha.

 

MM

[steve46 12]

Steve,

 

"I just reviewed my CQG software....no supply/demand indicator

I reviewed my Esignal softwarre.....no supply/demand indicator

I reviewed Sierra Charts list of technical studies....no supply/demand indicator"

 

I reviewed my TradeStation softwarre.....it has a supply/demand indicator!

Made it myself...

Works almost as good as wetware...

 

Cool, have you tried it? How does it work?

 

Not clear about the wetwork part but I do have a comment about indicators in general

 

It seems to me that indicators take price at some point on a chart, and then apply a mathematical operation to it....that process produces a derivative of price, and because that takes time...it also introduces a time delay (lag). All indicators do the same thing (they process price and transform it into something else on the screen).

 

In contrast, classical supply and demand doesn't take price and do anything to it....based on the pattern I see, I can tell you that there are more buyers than sellers (demand) or more sellers than buyers (supply)...it is a matter of direct recognition so there is no delay or lag, and of course I don't want to upset fragile egos, but the argument that marking a chart = an indicator is silly....I don't need to mark my charts...I do it to show others where the supply/demand areas are....that being the case, if I don't mark supply/demand, does that mean its not an indicator....? Its just silly

 

The fact is that indicators provide a mental crutch for traders....and in the process they give the trader false confidence that he/she is can forecast where price is going to go...as we all know by now, that confidence is short lived....

 

I wish you all the best with that "indicator", but I am guessing that it is different than the concept I use.

Edited March 22, 2011 by steve46

[MightyMouse 12]

Cool, have you tried it? How does it work?

 

Not clear about the wetwork part but I do have a comment about indicators in general

 

It seems to me that indicators take price at some point on a chart, and then apply a mathematical operation to it....that process produces a derivative of price, and because that takes time...it also introduces a time delay (lag). All indicators do the same thing (they process price and transform it into something else on the screen).

 

In contrast, classical supply and demand doesn't take price and do anything to it....based on the pattern I see, I can tell you that there are more buyers than sellers (demand) or more sellers than buyers (supply)...it is a matter of direct recognition so there is no delay or lag, and of course I don't want to upset fragile egos, but the argument that marking a chart = an indicator is silly....I don't need to mark my charts...I do it to show others where the supply/demand areas are....that being the case, if I don't mark supply/demand, does that mean its not an indicator....? Its just silly

 

The fact is that indicators provide a mental crutch for traders....and in the process they give the trader false confidence that he/she is can forecast where price is going to go...as we all know by now, that confidence is short lived....

 

I wish you all the best with that "indicator", but I am guessing that it is different than the concept I use.

 

Steve,

 

One can create indicators out of volume or time too, it doesn't have to be price only. If you want to get really funky, you can combine price and time and volume and come up with an indicator. You also do not actually have to have an indicator on the chart that tells you how much or how little time has passed to use time as an indicator. The fact would be that you are using time as an indicator.

 

Whatever way you are determining supply and demand makes little difference. If Price reaches some level where you expect supply or demand to be, you will act or not act because you have either graphically or mentally noted that supply or demand is there.

 

If one chooses to leave the chart blank and mentally assess price time and volume then he can do so if it makes him feel better. If one chooses to only call an indicator an indicator if a mathematical operation is performed on price only then, he can do so if it makes him feel better. What ever makes him feel better, is best.

 

I am sure that most people do not stare at blank charts. They at least have some indication of price movement through time. I call anything you use to enter, stay in, or exit a trade an indicator. And I do not have a feel superior to those who choose to use a macd or rsi or a mini skirt index, nor do I feel that anyone should feel superior to them.

 

Hope this helps you understand my point of view.

 

MM

[Tradewinds 12]

That could be a possibility Tradewinds, but what happens with fake-outs and false breaks? Should we be requiring confirmation of the move before entry?

 

The market rewards risk, not safety. Risk = opportunity to make money. Most people intuitively perceive the exact opposite. I don't require confirmation BEFORE the entry, I require confirmation AFTER the entry. Those are two different things. I should not worry about fake-outs and false breaks. (I do worry about them. But that fear will never help my trading.) There is nothing I can do to stop those, and unless I had a time machine, I'll probably never be able to predict them. My point is, there was a signal there. So it's not just a random entry.

 

What about whipsaw activity, or range-bound prices? I can follow your reasoning on it, because there is that nice hammer candle signaling a higher probability of a reversal there.

 

Once that short order had filled, and you saw the hammer, that is confirmation after the entry. Of course, by that time, your order is already into a nice little profit. So we are back to the risk question. Is that strategy more risk? Or is it actually less risk? The market rewards traders for taking risk. My opinion is, that price action is designed to be against rewarding traders for playing it safe. Yes, yes, you can "play it safe" and make money. But overall, I don't think the market is designed to reward safety. If everyone could play it safe, and make tons of money, that would be the end of the investment industry in about a week. All the profits would get sucked out, and there would be nothing left.

 

So, if the market is designed to reward risk, then is "risk" really risk? If the market rewards risk, then the risk is actually less risky.

 

I would have seen that long tail (which would have been red at the time) as a continuation of the current (then) downtrend - particularly with the Stochastic being in strongly trending (under 20) territory. But then, I wouldn't have been in at that point - it was 5 candles too late for entry in the short direction.

 

Here is the problem with chart analysis, or any market analysis. Your signals will almost always be late. By that time, you've missed the best opportunity. There are extremely few leading indicators. Almost all of them lag. One of the few leading indicators is when two trend lines are converging. Momentum is slowing down. Yes, on a very strong trending day, you could be trying to reverse all day, and get killed, when you should have just traded one direction all day long. But that's where interpreting the news comes in, and that has nothing to do with indicators.

[abuguapo 10]

The market rewards risk, not safety. Risk = opportunity to make money. Most people intuitively perceive the exact opposite. I don't require confirmation BEFORE the entry, I require confirmation AFTER the entry. Those are two different things. I should not worry about fake-outs and false breaks. (I do worry about them. But that fear will never help my trading.) There is nothing I can do to stop those, and unless I had a time machine, I'll probably never be able to predict them. My point is, there was a signal there. So it's not just a random entry.

 

 

 

Once that short order had filled, and you saw the hammer, that is confirmation after the entry. Of course, by that time, your order is already into a nice little profit. So we are back to the risk question. Is that strategy more risk? Or is it actually less risk? The market rewards traders for taking risk. My opinion is, that price action is designed to be against rewarding traders for playing it safe. Yes, yes, you can "play it safe" and make money. But overall, I don't think the market is designed to reward safety. If everyone could play it safe, and make tons of money, that would be the end of the investment industry in about a week. All the profits would get sucked out, and there would be nothing left.

 

So, if the market is designed to reward risk, then is "risk" really risk? If the market rewards risk, then the risk is actually less risky.

 

 

 

Here is the problem with chart analysis, or any market analysis. Your signals will almost always be late. By that time, you've missed the best opportunity. There are extremely few leading indicators. Almost all of them lag. One of the few leading indicators is when two trend lines are converging. Momentum is slowing down. Yes, on a very strong trending day, you could be trying to reverse all day, and get killed, when you should have just traded one direction all day long. But that's where interpreting the news comes in, and that has nothing to do with indicators.

 

 

Tradewinds - I really appreciate what your saying on the topic of risk, it's fresh (to me at least). Thanks for that. Looking at the chart from Ingot again - do you see a place of entry that speaks to what your saying about risk? Where would you have gotten in and why? How to you 'see' risk (in setup) vs safety? Hope that makes sense...

 

Ingot thanks (for all your contributions) for the great topic and great commentary.

 

g