Trading the Storm - Methods for the Struggling Trader

[Phil-n-Texas 10]

another re-draw of forks for 3200 tick ES...

 

i may not be able to keep up with this all the way through as i'm going to have to leave here in about an hour...

 

[Phil-n-Texas 10]

had a close below lower boundry of pink fork so she's outta here...

 

scalped a point of a micro-fib on the move down...

 

[Phil-n-Texas 10]

just caught another point on a micro-fib move up and looks like testing fork mid-line upper triangle boundry confluence area...

 

[Phil-n-Texas 10]

gotta breakout here and made another another 1.5 pts. on 1/2 of position... just hit fib extension and remainder is trailing....

 

possible longer extension target around 1335 for pattern (wedge/triangle) extension but I'm inclined to be a little more conservative and keep it inside the upper fork boundry around 1330 less a tick or two but will trail using micro swing lows.

 

that's all for today... gotta take my daughter to dr. appt...

 

[Phil-n-Texas 10]

post mortem...

 

never made it to 100% extension target... final 1/4 of position got stopped out @ 1324.50 on the trail stop.

 

i guess another take on the pattern could've been the C&H or W... if one were to trade it as such then the measured move for the latter patterns was likely hit depending on how a trader would measure the pattern.... e.g. from the bottom of the handle or W to the b/o line... this chart has the extension re-drawn using the more conservative measurement of the handle or W.

 

also, on the flip side of things there was a potential short just after lunch when it reversed and broke below the fork mid-line... that swing was a perfect 50% retrace with a high probability of at least going back to the original b/o line... which it did and then some... but i was not able to catch any of that as i wasn't able to trade this afternoon.... even if i was, a lot of the time i opt to not trade in the afternoons or during lunch hour.

 

[JEHs 10]

I think the most important idea in the original method outlined in this thread is the idea of "market intent".

I realized as I was looking over these charts that it is what I have been slowing coming to realize in my trading, I had just figured a different way to define it using a moving average and just standard price action.

Weather we intend to use the exact method outlined here or not, the idea of seeing the "market intent" is as important a concept as one could have in trying to trade the markets. I know this has probably been said a million times in these forums, but I am just getting it now.

[Maelstrom 10]

Hello all,

 

My apologies to anyone who have been following the thread for my lack of posts. Unfortunately, had some personal issues that I had to deal with last week, so there was no trading for me. Glad to see that there have still been some great contributions to the thread.... if any out there are still interested in the continuation of the thread, let me know and we can pick up where we left off.

 

Thanks

M

[Maelstrom 10]

I think the most important idea in the original method outlined in this thread is the idea of "market intent".

I realized as I was looking over these charts that it is what I have been slowing coming to realize in my trading, I had just figured a different way to define it using a moving average and just standard price action.

Weather we intend to use the exact method outlined here or not, the idea of seeing the "market intent" is as important a concept as one could have in trying to trade the markets. I know this has probably been said a million times in these forums, but I am just getting it now.

 

JEH,

 

You hit my intentions for this thread right on the head. Entry triggers, targets, stops, etc - these can, and do, all depend on the trader. But the universal key to success imho is asking and answering "what is the market trying to do right now". Lots of ways to determine that, this way is just one - but, if it has helped at least one person out there in some way, then I am very glad I started this thread.

 

M

[IamJon 10]

M,

 

I have been wondering how we should deal with periods of consolidation. The rules of method as it stands indicates that we follow a long opportunity (if we trade it or not) with searching for a short setup. A good long trade may be followed with a short setup (to be taken), a long setup (to not be taken), or consolidation. Coming out of the consolidation we don't have a clue as to where the market will go next. The next short setup may be a fake out that is followed by a great long trade.

 

Are we better served by... taking the short (this is the rule) and taking the "small" loss?

 

If we take the short trade (and the loss) do we assume we are still looking for a short or is the nest trade "up for grabs" and we take the next setup, long or short?

 

How do we re-synchronize ourselves with the market intent?

 

I have looked at this method for a while this is the only area I am confused with.

 

Thanks,

J.

[Maelstrom 10]

M,

 

I have been wondering how we should deal with periods of consolidation. The rules of method as it stands indicates that we follow a long opportunity (if we trade it or not) with searching for a short setup. A good long trade may be followed with a short setup (to be taken), a long setup (to not be taken), or consolidation. Coming out of the consolidation we don't have a clue as to where the market will go next. The next short setup may be a fake out that is followed by a great long trade.

 

Are we better served by... taking the short (this is the rule) and taking the "small" loss?

 

If we take the short trade (and the loss) do we assume we are still looking for a short or is the nest trade "up for grabs" and we take the next setup, long or short?

 

How do we re-synchronize ourselves with the market intent?

 

I have looked at this method for a while this is the only area I am confused with.

 

Thanks,

J.

 

Jon,

 

I believe I know what you are asking about, but if you can post a chart or two with examples of these areas, I will try to offer an explanation.

 

Thanks

M

[phantom 16]

M,

 

I have been wondering how we should deal with periods of consolidation.

 

How do we re-synchronize ourselves with the market intent?

 

Thanks,

J.

 

In my mind, we should NOT deal with periods of consolidation, unless we already have substantial profits built into the trade.

 

Why not stand aside and let the market give clear indication of its intent, i.e. resumption of the trend?

 

If you need to trade, find another market to invest in that isn't consolidating and wait out the initial market's indecision.

 

No need to take unwarranted losses...

 

 

Luv,

Phantom

[JEHs 10]

In my mind, we should NOT deal with periods of consolidation, unless we already have substantial profits built into the trade.

 

Why not stand aside and let the market give clear indication of its intent, i.e. resumption of the trend?

 

If you need to trade, find another market to invest in that isn't consolidating and wait out the initial market's indecision.

 

No need to take unwarranted losses...

 

 

Luv,

Phantom

 

Problem is you usually don't know your in consolidation right away. Yes, the way to deal with consolidation is to sit aside, but recognizing the consolidation early on is the issue here I think.

I believe there were some ways outlined in some earlier post to this thread that might help answer the question...

A legitimate question, none the less...

[phantom 16]

Problem is you usually don't know you're in consolidation right away. Yes, the way to deal with consolidation is to sit aside, but recognizing the consolidation early on is the issue here I think.

 

Yes, it's tough to enter the market without some kind of test (after your entry) which threatens your risk stop. And since the markets consolidate roughly 85% of the time, this only exacerbates the problem...

 

But if, say, for arguments sake, you are using a 20 period MA as your trend filter, the slope of that MA is rising or falling as adversed to going sideways, you are much more likely to be in trend mode than in consolidation mode, especially if each new bar is rising/falling outside the previous bar's range...

 

I fully understand the concept of hindsight is 20/20 but the market leaves its clues to the watchful eye.

 

 

Luv,

Phantom

[Maelstrom 10]

Problem is you usually don't know your in consolidation right away. Yes, the way to deal with consolidation is to sit aside, but recognizing the consolidation early on is the issue here I think.

I believe there were some ways outlined in some earlier post to this thread that might help answer the question...

A legitimate question, none the less...

 

J,

 

It is a legitimate question. I will try to post an example of what I think you may be asking about here shortly. But briefly, I simply don't pay attention to consolidation periods, either between trades or during, as long as an exit point isn't breached, or a reversal occurs.

 

Often times, I get into a trade, and it immediately goes into consolidation - alternating up/down bars with no real direction. As long as it doesn't retrace enough to hit an exit point, this is fine an a normal part of a trend. For me a trend consists of bursts (or intention moves) in a given direction, then stalling/consolidation/minor pullbacks, then a move in the trend direction again, over and over in a good trend.

 

As for consolidation periods between trades, I will wait as long as needed for a signal opposite of the last to occur. You had asked earlier about a consolidation period, and whether to take the first trade right after that (a short I believe), and possibly take a long after that would have been a good trade. I would absolutely take that short IF the previous trade had been a long.

 

Look at it this way - losing trades are good with this method. Picture a up trend and a long entry, and lets say you took the trade, and got out with +100. Then, you have a short that doesn't work, so it a -21 or -22. Then, the market takes off north again, you get another long signal, and lets say you make another +100. You are now +178 for that day.

 

The point is, if I hadn't taken that short trade for the loss, I wouldn't have been able to take that second long and would have been sitting on only 100 pts for the day (of course, not a bad day at all) because I only take alternating trades.

 

Sometimes, this methodology doesn't let you get everything a day has to offer - today is an excellent example of that for me - but I got +160 today per 2 contracts with a new money management strategy I am using. Left a lot on the table, but no complaints here.

 

Back on point, there are several nuances I use that help keep me out of chop or whipsawing trades. If anyone out there is looking to actively trade this method, or something similar, I will be happy to post details - it would have certainly helped last week.

 

I didn't trade at all last week, but did go back and look through the trades available, and this is what I saw:

 

4 longs - 3 wins, 1 loss

4 shorts - 3 wins, 1 loss

 

So, 6 out 8 for about 295 pts/car. Tough week, not a lot of range at all, but would have held up just fine.

 

So far this week, 1 short and 1 long, +160 per contract.

 

M

[arndude 10]

Thank you for an excellent thread. Having read through each post I think I am beginning to understand your message but would like to check that opinion. Attached is a screen capture of the YM beginning on Sunday, with my interpretation of your method applied to the chart. Please comment as to its’ accuracy or lack thereof. I also have some related questions as posted in this note. I apologize for the congestion.

 

Am also borrowing some of your descriptive format… the “formations of intent” are enclosed in colored rectangles (yellow = downward, cyan = upward). Each formation is labeled with a letter (A through R).

 

Beginning Sunday night, I think the first legitimate entry signal occurs in block G, when a close below 12,335 “validates” the downward intent in block F. Then a pullback followed by an entry short at the close (12,314 or as close to that as possible) of the next candle.

If that is correct, I wonder how you enter the trade… stop market, limit order, manually entered market order… etc?

 

Set risk - Initial stop at 1 point above this candle… at 12, 335 in this case. Trail to 12, 292 (block I) if not exited by that point.

 

Exit plan… either

( A ) 1:2 risk:reward target, or 42 points,

( B ) extension target from entry by the height of block F, or 53 points in this case,

( C ) trail the stop (initially to 12,292 in this case),

( D) get taken out upon reversal at block L

Do you have suggestions or guidance as to choice of exit?

 

If my interpretation is correct regarding long entry at 14:44 yesterday… if held overnight with trailed stops, the position would be looking at +12,498-12,298 or +200 pts as of this afternoon at close of the market. I think you said previously that you set alerts and trade 24 hours during the week. You also offered a warning of sorts regarding the overnight lack of liquidity. How do you handle the overnight alternative?

 

Again I thank you for your excellent descriptive posts and your willingness to share your experience.

 

Kind Regards,

F

 

PS… this is my first run at adding an attachment… we’ll see how that works out. First file is complete history... next two are a repeat of first, broken into 2 parts for better visibility?

[Maelstrom 10]

Thank you for an excellent thread. Having read through each post I think I am beginning to understand your message but would like to check that opinion. Attached is a screen capture of the YM beginning on Sunday, with my interpretation of your method applied to the chart. Please comment as to its’ accuracy or lack thereof. I also have some related questions as posted in this note.

 

Arndude,

 

Your charts and annotations are excellent - I should refer people to you to explain this method I will try to answer all your questions, but looks like you have a pretty good grasp of this.

 

First off, it appears that we have a data discrepancy. The beginning of the downtrend Sunday night, then your first formation of the uptrend - bars on my charts are different. Was trying to figure out why, and I noticed that your bars seem to open at exactly the same price the precious one closes. For example, on my charts, it a downbar closes at 12400, the open of the next bar is always one tick from the close, 12399 in this example. Not sure if I am seeing the opening bar prices on your charts correctly or not, but do verify that for me. Even if that is the case, your charts seem like they will work just fine.

 

Your recognition of the formations, breaks and entries are dead on. Now, for the short trade, and I will base everything on your charts since mine are different (will post mine shortly) and will go step by step as you did.

 

1. Formation A forms (down)

2. Formation B forms (up)

3. Formation C forms (down) and there has been no close below A - the upward Formation B is ignored since we are only looking for shorts.

4. There is a close below Formation C a few bars later, a two bar pullback, then the entry bar would be the first down bar of what becomes Formation D.

 

Something to note....a setup formation does not have to be below a previous formation in a downtrend, or above in an uptrend. But, for me, I take only the first signal in a new direction, so your entry off of Formation F would not be something I would take. It IS absolutely correct in the setup, formations, etc, and worked well in this instance, it is just not something I do because I have had too many trades mid-trend flail around and take out my stops.

 

Also, with the extension - the first extension in a trade should be from the most recent formation prior to the entry bar - in this case, the extension should be based on Formation G, and the extension should begin from the bottom of the formation (the green bar terminating the formation). Overall though, great trade!

 

Now, for the long....

 

Looks great - entry is dead on. Again, the first extension should be of Formation K, however, not J. Also, in regard to extensions, keep making those extensions off of each new formation that occurs in the trend.

 

Overall, looks pretty damn close to what I do - great job!

 

Now let me see if I can answer your other questions....

 

If that is correct, I wonder how you enter the trade… stop market, limit order, manually entered market order… etc?

 

Usually during RTH, stop market orders - on overnight, since it is usually so slow, I will use a limit order to try and eliminate slippage.

 

Do you have suggestions or guidance as to choice of exit?

 

Timely question. Just this week, I have decided simplicity is the way to go. I have wrestled with fixed vs fluid exits, and have sort of merged the two now. In brief, I still adhere to the trailing formation stops and extensions, but now exit half my position at 60 pts, the 2nd half at 100 if no other exits have been hit. Today, I left a lot of money on the table, BUT....300+ pt straight moves are fairly rare, where as 100 pt moves are much more common, and I saw myself losing too much on retraces, even with trailing stops. But this is where each person's market experience comes into play - if you could clearly see there is a lot more upside, hang on to that thing and ride it out

 

You also offered a warning of sorts regarding the overnight lack of liquidity. How do you handle the overnight alternative?

 

At this point, I have to be ready to trade overnight to catch those first signals of a new trend. AH trading demands A LOT of patience, and watch the spreads.... you can slip a couple of points easily with a market order. Trading with significant size could also be a problem, but I have not seen an issue on anything up to 10 contracts.

 

If one chooses to trade overnight, setting price level/bar formation alarms is a must, otherwise you will never sleep. But, several people have contacted me and changed up this method to make it their own..... smaller bar sizes, only trading RTH, etc, and had good success. Take what works and discard what doesn't, and make it your own.

 

Thank you for taking the time to understand my method and for the outstanding post - keep the posts, questions and comments coming!

 

M

[Maelstrom 10]

Chart attached with notes.

 

M

 

[Maelstrom 10]

Thought I would make it interesting, and let anyone out there looking at this thread tell me where my trade today was? Was it point A, B or C? :\

 

M

 

[YMoca 10]

OK I'll take a stab at today's question.

 

My answer is B.

 

At Point A there was still no close below the intention move. The next bar after A closed below the intention move so you should short at B.

 

That my guess anyway

 

Cheers

[JEHs 10]

After the 3 bar signal from the top, there is a green bar. I don't know if you call the three red bars the "formation" or if you include the green bar that bottomed out and closed higher.

If you go with the three red bars and look for a close below the low of that third bar, then the "A" bar is the entry.

If you are going with the 1st green bar as the tip of the signal move down, then you need a close below there. That 2nd green bars goes lower but closes even with the bottom of the 1st green bar so no break yet. You would have to wait for the "B" bar for the entry.

 

Those are the type of fine tuning questions that are going to come up. I'm glad you are bringing them up for us.

 

From what I understand about your process, the "B" bar is the entry bar, but i would not say that with 100 % certainty.

 

Thanks,

John

[IamJon 10]

M.,

 

I believe you enter on the close of B based on my understanding of the rules.

 

J.

[adam777 10]

Hi M

 

Great thread! Can this system be traded withn a 10 point range bar (instead of 20) and only trading the YM during the New York night session? (I live in Australia)

 

 

Thanks

 

Adam

[JEHs 10]

A chart with some comments and questions. Just thinking out loud here...

Forget the time-frame and trading vehicle. this is just for discussion...

 

The question is, guess, recognizing congestion and what to do with it. I guess my rule is when you don't know what is going on, do nothing, but the trick is figuring out when that is...

[Maelstrom 10]

A chart with some comments and questions. Just thinking out loud here...

Forget the time-frame and trading vehicle. this is just for discussion...

 

The question is, guess, recognizing congestion and what to do with it. I guess my rule is when you don't know what is going on, do nothing, but the trick is figuring out when that is...

 

JEH,

 

Yup, that chart looks like crap :rofl: but, it is a good one to show congestion - looks like a really fast chart though.

 

I am looking for a graphic editing program better than MS Paint to make some notes on your attachment, and will make some comments on it shortly.

 

Going to take a guess on the chart though..... NQ, something around a 10 tick range? Actually, don't answer that lol..... but if you would, double whatever range that is and repost a chart of the same area - I would like to see what that looks like.

 

In a trade at the moment, but will post my comments on your chart soon, as well as award the winner(s) in the "where is the entry" contest

 

M

[Maelstrom 10]

YMoca, JEH, and IamJon :applaud:

 

BUT.....I did not take that trade at B - I took it at C.

 

And then, a lot of conflicting signals, several possible trades and probable losses, but I did not take another trade until 9:00am CST this morning.

 

This is the point where anyone reading this thread is saying "WTF, you are full of shit!" Maybe so, but....let's extend the exercise. Any ideas why I took that short later? or why no other trades in that choppy mess until this morning?

 

Well, for the amazing price of $97, I will hand you the keys to the kingdom, and ALL the secrets of the holy grail. Act now, only a few packages left!

 

MODERATORS and everyone else - I AM JOKING!! :rofl: Don't ban me, I just couldn't resist.

 

But seriously, I would like any thoughts as to why I took the trades today where I did, and not the others. I will explain the reasons, but this may be helpful to you guys.

 

Last thing, I REALLY hope no one out there is trading this without full understanding of what they are doing and why. I would assume that is a given, but you never know, and I would feel like crap if someone traded this mess this morning, as there are at least 2, maybe 3 losses there just using the methods I have posted (though the long this morning would have more than made up for it). There are some additional things I look for in days like today, and a lot of last week, that I haven't gone over yet. It gets a little more complicated, and I want to make sure anyone looking at this is clear on the "basics" first.

 

M