Trading the Storm - Methods for the Struggling Trader

[Maelstrom 10]

...but I am not convinced on the upside right here. Could be wrong, but I am smelling a fake out.

 

M

 

[jpennybags 11]

Going on a brief tangent here on something I should have touched on earlier, and that is time frame/range size of charts.

 

I have traded for a while now, and been through what most of us have - trying this, tweaking that. One thing that I had a very hard time with was trading a "slower chart, but I can tell you, when I did, things changed dramatically for the good.

 

I laugh now sometimes looking back and trading (or trying to) 10,20,50 tick charts, or 5 second bars or whatever, because I wanted every little piece of the market. Well, I got every little piece all right - every piece of pain and heartache the market had to give me.

 

In my opinion, a bigger chart will let you get some perspective. Using the YM as an example, 20R bars is approx 1/8 to 1/10 of the daily range. For ES, a 2 - 2.5 pt range works pretty well, NQ, maybe around 5R. That is a decent size bar chart. But it does something for me that the faster charts could not - let me think, to see the bigger picture of the trading day or week, and most importantly, give me a sense of structure or flow, or at least my delusion of that.

 

Yes, a bigger chart means bigger stops, but for me, I would rather lose $100 on a failed trade every once in a while versus dying a death of a thousand cuts with $10, $20+ over and over.

 

I know traders who successfully trade insanely fast charts, and I have a tremendous amount of respect for them because they do something that I have yet been able to do. But, if anyone is reading this and having that feeling of "wtf is going on" when they are looking at the market, double up your normal chart and take another look. Still looks like crap? Double it again. Bigger charts won't fix everything, but it will allow you to think things through with a lot more time.

 

M

 

Maelstrom - Thanks for sharing your ideas. Well done presentation as well.

 

I trade a similar "swing/trend" system. I like the simplicity of your technique. It may just be a personality thing, but I found that slower charts worked best for me too. For me it seems that changing to a slow chart… simply put, was more relaxed. As you noted, and I would agree... my thought process is better with the slower chart.

 

I also like that you don't use any other indicators. When I was "new" I tried everything… MACD, RSI, ADX, Bollinger (on and on)… it caused a lot of unnecessary second guessing for me. Everyone is different, and I'm sure these things work for others… whatever works for you is what you should be using. To someone "new"… if what you are doing is not working, please try it without the indicators… for some simple is better.

[Maelstrom 10]

Maelstrom - Thanks for sharing your ideas. Well done presentation as well.

 

I trade a similar "swing/trend" system. I like the simplicity of your technique. It may just be a personality thing, but I found that slower charts worked best for me too. For me it seems that changing to a slow chart… simply put, was more relaxed. As you noted, and I would agree... my thought process is better with the slower chart.

 

I also like that you don't use any other indicators. When I was "new" I tried everything… MACD, RSI, ADX, Bollinger (on and on)… it caused a lot of unnecessary second guessing for me. Everyone is different, and I'm sure these things work for others… whatever works for you is what you should be using. To someone "new"… if what you are doing is not working, please try it without the indicators… for some simple is better.

 

JP,

 

Yes, slower charts have allowed me to "see" patterns that I couldn't before. One of the downsides of course is like the past two days - no trades. But, I will take no trades over a bunch of losses any day! Can be hard sometimes though - find myself peeking at faster charts and getting that familiar itchy finger feeling

 

And agree with you on indicators. They can be helpful for showing some kind of structure, but I also found myself getting conflicting signals and trying to curve fit them endlessly when market conditions changed. But, some people have them down pat, and trade very well with them, and I have a lot of respect for those traders.

 

Thanks for the comment on the presentation - sometimes I struggle with trying to explain what I am doing, so I am glad to hear it is coming across pretty well.

 

Feel free to post some charts or methods if you like, other markets are fine too - and this goes to everyone else out there that may be reading this. I am a perpetual student of the markets, and "met" several traders already through this thread that have a lot of knowledge and skill in their trading. Different methods, different markets, same goals - taking some $$ out of the markets and keeping as much of it as possible.

 

M

[Maelstrom 10]

If you don't use tick or volume charts in your trading, then Interactive Brokers is going to be the cheapest, real-time data fee around (pretty much no charge for most U.S. based markets). Of course, it's snapshot data, not time-stamped, transactional data For minute-based charts and range bars, I'd say that's your most economical approach. And besides, your Ensign charting package supports them.

 

For transactional data, Anyone else is going to wind up costing you $600-$1500 per year. This is total cost, regardless of how they slice or dice the charting / exchange data charges in "the package" they're charting.

 

If you are using IB data already and you think that's the culprit, I would tend to doubt that.

 

Thanks Steve - no, my data provider was someone that I think was fairly new.... that should have been my first clue. I won't name names because I don't like promoting or bad-mouthing everyone, but I think I have things set up reliably now.

 

M

[Maelstrom 10]

Not my cup of tea, but this is the logical place to do it.

 

M

 

[phantom 16]

 

I also like that you don't use any other indicators. When I was "new" I tried everything… MACD, RSI, ADX, Bollinger (on and on)… it caused a lot of unnecessary second guessing for me. Everyone is different, and I'm sure these things work for others… whatever works for you is what you should be using. To someone "new"… if what you are doing is not working, please try it without the indicators… for some simple is better.

 

Thought I'd add some light to your statement...

 

Charts will work with indicators if one knows how to read the indicators

 

MACD: Moving Average Convergence-Divergence: Use this indicator to pinpoint reversals on failed tests of previous swing points. Also use this indicator on 20 sma tests to see if the test is "normal" for the current trend-the fast line on the MACD should not penetrate the slow line during the test.

 

RSI: Relative Strength Index" Set this at a value of 6. When overbought (touching the 75%

line) or oversold (touching the 25% line) look for reversals in the market when the RSI crosses over to head for the other side (OB or OS line)

 

ADX: Average Directional Index: A value of 30 or greater is supposed to indicate strength of trend. I never touch the stuff...I prefer to see failed tests of the 20 sma on the current swing as my indicator of TREND STRENGTH. At a minimum, the BB should not be penetrated on the counter-trend side of the band.

 

Bollinger Band: In the hands of a real trading pro, this band is quite deadly. The underlying premise is this: a 20 sma of price action channeled by a 2 SD band. 2 SDs are supposed to contain price action around 96% of the time?

 

So, how does this band give any advantage to the novice trader? Look for PINCHES in the band; places where volatility has subsided to historically low values. Then look for breakouts of the pinch zones with large range bars, especially following narrow, tightly ranged bars. These volatility breakout bars should be 2 to 3 times the average range of the range-bound bars. And the breakouts should be congruent with the overall trend (i.e. the 240 minute chart 20 sma determines the immediate trend?)

 

Practice makes perfect!

 

Luv,

Phantom

[Maelstrom 10]

Thought I'd add some light to your statement...

 

Charts will work with indicators if one knows how to read the indicators

 

 

Phantom,

 

Informative post - it appears you are one of those traders I have referenced who trade well with indicators, though from reading your thread previously, you certainly have a good understanding of price action.

 

Consolidation, decisive movement in a direction, confirmation, entry - I actually see a lot of similarities in the way we trade. Different tools, but (hopefully) same results.

 

M

[Maelstrom 10]

Looking for close below yellow box, pullback, then entry - lots of news coming out, so lets see what happens here.

 

M

 

[Phil-n-Texas 10]

M,

 

Thought I would provide a few links to some posts I did on another thread related to this subject...

 

here are some examples (ES) of trading price / pattern / fibs / pullback, then figuring out targets using fib and/or measured pattern extensions...

 

http://www.traderslaboratory.com/forums/trading-markets/9551-how-complex-your-trading-system-3.html#post116185

 

http://www.traderslaboratory.com/forums/trading-markets/9551-how-complex-your-trading-system-4.html#post116367

 

http://www.traderslaboratory.com/forums/trading-markets/9551-how-complex-your-trading-system-4.html#post116439

 

http://www.traderslaboratory.com/forums/trading-markets/9551-how-complex-your-trading-system-5.html#post116446

[steveh2009 10]

I promised Tom in a PM that I would send him some charts showing the 2 best price action trailing stop rules that I've seen on a 5 min chart. From my experience on the CL (crude futures), these are highly reliable. The 1st one, well, everyone knows about that one. On the CL, you'll find that it's better to wait for the close than a touch with rule #1. Rule #2 is my own idea. It has also served me well. You should NEVER close below the midway point of a large candle body in an uptrend (the body, not the complete height of the candle) if you're expecting a strong CL move to continue without further consolidation or pullback first.

 

Now, I also took the opportunity in this attachment to show you how to make the big money in a strong trend on the CL contract. One is aggressive, and the other is not so aggressive (but, in the beginning, you will swear the non-aggressive approach is very aggressive).

 

This contract does not fool around. It doesn't take prisoners when it gets moving well. If you are a newbie, I guarantee you that you will just sit there in astonishment, watching the price go up and up and up (or vice verse in a downtrend)...and cry over spilled milk that you didn't get a pullback to enjoy a trend entry and justify your decision by saying to your trading buds, "well, it was just too risky to jump in without a decent pullback". Nice try in justifying your paralysis, but you are wrong.

 

Of course, in this pic, you're not going to always get those perfect buy-ins with buy-stop orders, You will tend to have a 1 or 2 tick slip or an actual 1 or 2 tick slip in your favor so it all averages out and makes no difference. You don't want to enter stop-limit orders. They can and will get jumped over and you're defeating the point of the whole plan.

 

Look at Tom's charts and his feeling that range charts are ideal. Does he see a lot of non-overlapping bars as trends get moving or bars that overlap by only half or, after many non-overlapping bars, a consolidation that overlaps by his range bar distance? Of course he does! This is the nature of price action in strong trends. All I'm saying is that adding on either bar closings or specific tick spreads to ensure a good price average (which will keep you away from the current price action) is HOW you can "up-size your fries" with having no higher brain function than putting the spread of orders out there for the market to take in.

 

This is posted to inspire you to realize that you make the big money by betting small when you don't know what's going to happen next and then grow your position rapidly as the market shows you that you're right to do so. It is posted to help you realize that any normal position you enter into the market can turn into one of these and then you will know what you can do to get the most out of your good fortune to be in one from near the very beginning.

 

The CL is an exciting contract to trade. If you're coming from the U.S. Index futures, you're in for a treat. It is a strong contract and strong contracts can handle aggressive plans like this one in strong trends.

 

[disclaimer: This post is a pay forward, like Tom's thread, and not a hijack attempt]

[BooDoo 10]

Hi Maelstrom, I find your thread is very interesting and useful. Thanks a lot for sharing.

 

I had posted a chart earlier with extension target levels that were incorrect.... just chart and data problems. Attached is a corrected chart, ...

 

In regards to "chart and data problems"

 

That may not apply to your charting package (ensign) but this is my experience with Ninja and I think it is how range bars work in general.

 

As far as I understand this is a nature of range bar charting. A chart look depends on starting point of the chart, day/time or precisely price point from where your chart starts. Say, you have 3 days of data in your chart starting from Monday open and you look at Wednesday. When you reopen the chart next day, it starts from Tuesday open from a different level and when you look at the same Wednesday's data you can see that the highs and lows at certain points in time are still the same but closes (and candles themselves) may look different. Next candle starts where previous one ends, and if the first one starts from a different price level, you get the picture.

 

The issue exists because standard range bars continue to new session flawlessly. I think NinjaTrader has range bars (as a custom type, have not tried yet) that start anew at the beginning of each session and respect gaps. So the charts are supposed to look the same.

 

Cheers,

Boo.

[Maelstrom 10]

Phil, Steve,

 

Outstanding posts and excellent information!

 

I appreciate, and I am sure I speak for others reading this thread, the information and knowledge you two have presented. You both have given me a new perspective on a few things, and please, continue to post as often as you like - no worries about hijacking anything.

 

Thanks again

[TimRacette 11]

Great thread of comments, I'll keep mine brief. I incorporate the NYSE tick into my entry methodology and it really helps limit the number of stopouts because you are entering as the freight train is slowing to a hault and starting in the other direction (so to speak).

 

A 15-minute & 512 tick chart on the ES + a NYSE tick chart is what I use for the ES.

 

I use the same for the 6E minus the NYSE tick.

[Maelstrom 10]

Great thread of comments, I'll keep mine brief. I incorporate the NYSE tick into my entry methodology and it really helps limit the number of stopouts because you are entering as the freight train is slowing to a hault and starting in the other direction (so to speak).

 

A 15-minute & 512 tick chart on the ES + a NYSE tick chart is what I use for the ES.

 

I use the same for the 6E minus the NYSE tick.

 

Welcome Tim - thanks for the post. Would you mind posting a chart highlighting how you use the NYSE tick chart? I remember using this some time ago, but it has been so long I am not as familiar with it as I should be.

 

Thanks

M

[TimRacette 11]

Hey Maelstrom, one way I use the NYSE Tick is to confirm a long target with a LOW tick and a short target with a high tick. These low and high ticks are relative, i.e. if the highest ticks for the day are +800 and we have a short setting up with a confirming +700 tick that is a very high probability setup. Does that make some sense?

[Maelstrom 10]

Hey Maelstrom, one way I use the NYSE Tick is to confirm a long target with a LOW tick and a short target with a high tick. These low and high ticks are relative, i.e. if the highest ticks for the day are +800 and we have a short setting up with a confirming +700 tick that is a very high probability setup. Does that make some sense?

 

Absolutely - extremes are framed by the days activity. Thanks Tim!

 

As a side note, I want to say thank you to everyone who has contributed ideas and methods. I was very hesitant to start a thread anywhere, having been a long time reader of many other sites that were nothing more than venues for braggarts and jerks. I have been very pleasantly surprised by the response and contributions here. As I mentioned at the beginning of the thread, it is about helping others who may be struggling. Any of the ideas presented here may cause the "spark" in someone that turns their trading around completely.

 

So, thanks again to everyone :applaud:

[Phil-n-Texas 10]

Great thread of comments, I'll keep mine brief. I incorporate the NYSE tick into my entry methodology and it really helps limit the number of stopouts because you are entering as the freight train is slowing to a hault and starting in the other direction (so to speak).

 

A 15-minute & 512 tick chart on the ES + a NYSE tick chart is what I use for the ES.

 

I use the same for the 6E minus the NYSE tick.

 

Ditto that Tim...

 

I use the 1min. $TICK as well... and have a dynamic linear regression channel plotted along with a couple 25MA's (one based on bar high and the other on bar low). I wait for the $TICK to be below the low MA and on the low side of the LR channel for longs and just the opposite for shorts...

 

 

I also use the IB version of $TICK as it tracks faster but since they don't have the high/low MA's capability I just use a 25SMA keltner with .5 STD and it plots about the same.

 

 

I also keep an eye on other internals like advance/decline and up/down volume. I have grid of charts that the internals are on and if I see a setup then I just look to make sure a majority of the internals are in agreement and then use the low or high tick to time it. I also like to watch 5 min. charts of the $DJI and COMP.... it always helps when those two are marching in formation.

 

but the overall setup and big picture is always a deductive process of spotting the larger pattern on the 3200 tick chart (globex) w/o any indicators. of course i always look at the 30, 60, and daily charts... as I mentioned in one of the threads I linked to above, i have some longer term charts that have trend lines and forks spanning years.

 

all good stuff going on here...

[JEHs 10]

We seem to have the three down bars overnight and a lower low as well... Do you wait for the break of that new low or, being it is a lower low already, do you look for the entry here?

[Maelstrom 10]

We seem to have the three down bars overnight and a lower low as well... Do you wait for the break of that new low or, being it is a lower low already, do you look for the entry here?

 

JEH,

 

I am looking for a bar close below the entire formation (yellow box), a pullback (one or more green bars), then an entry at the close of a bar moving down (red bar).

 

Be very careful here, news coming out soon....

 

M

 

[Maelstrom 10]

at 12577. Doesn't look like a great trade, let's see

[JEHs 10]

...so we would have an entry at 7:31 central time if I am understanding right.

[Maelstrom 10]

...so we would have an entry at 7:31 central time if I am understanding right.

 

That is correct Jeh.....

 

Edited July 8, 2011 by Maelstrom

[Maelstrom 10]

NFP news absolutely awful.

 

That probably means the market will rally for 800 pts now :rofl:

 

M

[Maelstrom 10]

Chart attached

 

[Maelstrom 10]

...if I don't get stopped out on this move