How Much Weight Should One Put on Market Direction?

[rgudgeon 10]

I am basically a trend trader. I have been out of this market now for some time as it (the market) has been up a down and sideways now for months. We have been in a sideways pattern for weeks and now we have seen a parabolic up move that just looks like it might blow off at any time.

 

The problem is that when I am out of the market I make no money - but don't lose any either.

 

Is it better to sit back and do nothing when the market is like this or should I just look for setups and work them regardless of having no direction from the market?

[SIUYA 11]

Is it better to sit back and do nothing when the market is like this or should I just look for setups and work them regardless of having no direction from the market?

 

rule number one is Capital preservation.....so sitting and waiting is best if it does not suit your system/style of trading. Plus unless you have setups that are robust, then they are not good setups, and taking them regardless at best might feed your broker but at worst will mess with you mentally and financially.....if that makes sense.

 

If you are a trend trader then these markets can be difficult unless your time frame is small enough, OR your trend entry system allows you to take a view and enter retracements and you happen to be bearish....then opportunities abound

 

If you feel you need to play, why not play very small size, or paper trade for a bit, or only take those setups you feel are the very best...(this last one is of course the hardest to sit and wait for). While you need to participate to win, you also need to be able to afford to play when it suits YOU.

[Do Or Die 10]

Is it better to sit back and do nothing when the market is like this or should I just look for setups and work them regardless of having no direction from the market?

 

Commonsense says IF there is money lying on the table, pick it up.

 

IF you have (or can research) a method which makes significant money after trading costs, why would you not trade?

 

And IF you don't have such method, why would you trade?

[Tams 20]

I am basically a trend trader. I have been out of this market now for some time as it (the market) has been up a down and sideways now for months. We have been in a sideways pattern for weeks and now we have seen a parabolic up move that just looks like it might blow off at any time.

 

The problem is that when I am out of the market I make no money - but don't lose any either.

 

Is it better to sit back and do nothing when the market is like this or should I just look for setups and work them regardless of having no direction from the market?

 

Re: How Much Weight Should One Put on Market Direction?

 

if you are an option trader, NONE.

 

 

if you are a trend trader, what is a trend to you?

can you define it?

describe it?

articulate it?

quantify it?

visualize it?

[xkr1962 10]

Yup, there is no such thing as a sideways or ranging market, trends work on the every timeframe, even m1 , learn to trade them instead / as well.

[steve46 12]

The significance of market bias (direction) depends on the context...off the open, it is critical...and I spend a lot of time and resource trying to determine what that bias will be

 

Why? Because when I get it right it is possible that I will be in the trade all day long, which is what I want to do...

 

If we are talking any other time of day, then it is questionable because other factors enter into the equation, such as time of day, news, programmed execution, price action of other markets, and several other factors. At other times I rely on tests of TBP and other factors including local volatility and momentum (as seen on the tape).

 

Good luck folks

Steve

[Tams 20]

The significance of market bias (direction) depends on the context...off the open, it is critical...and I spend a lot of time and resource trying to determine what that bias will be

 

Why? Because when I get it right it is possible that I will be in the trade all day long, which is what I want to do...

 

If we are talking any other time of day, then it is questionable because other factors enter into the equation, such as time of day, news, programmed execution, price action of other markets, and several other factors. At other times I rely on tests of TBP and other factors including local volatility and momentum (as seen on the tape).

 

Good luck folks

Steve

.......... what is context?

[steve46 12]

Context is the framework of data that surrounds the market. For example the context of the current market is primarily news driven, and that news is mostly about the European Debt Crisis. On any day that can change as events take place, and/or as economic reports are released introducing new information into the markets.

[Tams 20]

Context is the framework of data that surrounds the market. For example the context of the current market is primarily news driven, and that news is mostly about the European Debt Crisis. On any day that can change as events take place, and/or as economic reports are released introducing new information into the markets.

 

how could you know the context has changed?

[tulanch 10]

 

Trading is both science and art. The science is in your trade plan rules - signal setup, entry here, stop loss there, profit target here, manage the trade... whereas defining/reading market context is one aspect of the art-part of trading.

 

I agree news, time of day, open values, close values, 5th wave of Elliot wave, 930 cross, slingshot, 123 setup, ross hook, etc… etc… etc… all are part of reading context but I submit you can look at from a higher point of view.

 

Take any chart, the first instant you look at it - what do you see?

 

This is the basis of what defining context is about...

 

Do you see an uptrend?

Do you see a downtrend?

Do you see a sideways motion?

 

 

 

Say for example you see an uptrend.... and yes things depend on your definition of uptrend, me I have found I like a chart for at least 3 time frames of the market I'm trading – I find conforming context in all three is more comforting and conclusive.

 

Do you believe that there are only 3 possible directions the market moves? I do and they are: up, down or sideways, what else is there?

 

I believe profit becomes available when the market context changes. Nothing makes me happier than to help others get out of bad trading decisions – enter where they exit.

 

Therefore, if it's already up, what are the remaining possible direction changes? Sidways or down.

 

Get the idea...( I think that makes for 9 possible combinations...I find it interesting how other techniques come together at some basic levels).

 

So if you see an uptrend...(by whatever means you define up trend) and as time rolls on you start to notice that for whatever reason you now see sideways or down movement...

 

ding ding ding context change

 

It’s important where this change occurs... it may be a reversal forming or it may be a pullback leading to continuation....ask yourself what else is there?

 

Now THINK...(actually this should be done outside of trading hours during nightly research/review, the science of trading should kick in here)

 

When do the best pullbacks to trade occur? During the beginning of the trend, the 1st pullback...which occurs after a reversal.

 

When do reversals occur? At the end of the trend with exhaustion or final flag sideways motion on the failure of the test of the prior extreme... (thanks Al Brooks for showing me this)

 

 

 

Reading context is not mathematical in nature, if it were we would all have automated scripts to trade these moves...(ok taking it to the limit in millisecond timeframes - maybe)

 

Understanding this, thinking this way, is what I see as the basis of market context...

 

Other components I consider are: is price rising into a well-established resistance area... how many times has it done this 3-4 means reversal? How much profit potential is there in this setup versus risk burden? When did it last do this? Is this just before the well-established 10:00 EST news hour? Is this occurring on the 4th minute, 14th minute, 29th minute, 59th minute? Is price at 94 rising to 100(round numbers)? Did it spike on low volume thus is this a probe? Was there just a huge volume spike? Where are the prior reversal /swing points, does it want to head back there? Reading context gets complex... but It adds significantly to your confidence when you read what is going on correctly – confidence leads to consistency. Reading market context requires you to summarize the infinite number of market influences that come into the equation. (if you know differential equations, consider solving one with an infinite number of and ever changing constants).

 

With all this said, don’t over complicate things, pick one concept and master it, then move onto the next.

 

happy trading...

[steve46 12]

how could you know the context has changed?

 

By observing how each market reacts to news of the day.

[steve46 12]

Steve, what is TBP? You probably explained it somewhere but i missed it

 

In my thread "An Institutional look at S&P Futures" I introduced the idea of pivots based on time ("time-based pivots" or TBP). Essentially the idea is that the market is moved by institutions that want to reach profit goals based on time (yearly, quarterly, monthly weekly and daily open high and low). As we move through time, each period assume more (or less) importance....so for example....as we reach the end of a week (say thursday or friday afternoon) and price is near to that time period's open, you may see the market test and then move up off of that price as institutions try to defend it....the same would be true of the end of month, and quarter year for instance.

[Tams 20]

By observing how each market reacts to news of the day.

 

how could you know certain reaction was due to certain news?

is that a subjective decision?

[steve46 12]

How can you "know" anything?

 

I think you have to rely on your training, and your track record of betting correctly on your analysis of the situation.

 

I was trained by skilled professionals and when I look back on my own experience I see that I am generally correct....

[steve46 12]

Saw some of these other posts...

 

Certainly there is a mythology that everything is "in the chart"...therefore you need only look at the chart and see where it is going up, sideways, down.....and for the one dimensional thinkers in the crowd, I guess that is the solution you end up with.

 

Unfortunately that just doesn't "get it"....first a chart is just a display of data.....what happens in front of that...is that PEOPLE WHO CONTROL A LOT OF MONEY MAKE DECISIONS TO BUY OR SELL....THEN THE CHART IS CREATED...

 

I don't expect everyone to understand, but if one can obtain a good understanding of what motivates those people to buy or sell, you really have something...One of the purposes of Time-Based Pivots is to show how participants are motivated to act BEFORE the chart is created...If you know what participants are likely to do at specific times (and prices) then you have an edge over folks who simply watch a chart and then have to decide whether to react (or not) to what they are seeing.

 

While I were addressing this, I remember that Richard Dennis was asked once "Is technical analysis dead"?.....he is reported to have smiled and said "I hope not".....I think that about sums it up for me as well.,

Edited November 7, 2011 by steve46

[bobcollett 10]

I am basically a trend trader. I have been out of this market now for some time as it (the market) has been up a down and sideways now for months. We have been in a sideways pattern for weeks and now we have seen a parabolic up move that just looks like it might blow off at any time.

 

The problem is that when I am out of the market I make no money - but don't lose any either.

 

Is it better to sit back and do nothing when the market is like this or should I just look for setups and work them regardless of having no direction from the market?

 

Hi rgudgeon

Strange name?

If you are not trading, how are you supporting your family?

The present conditions are NOT going to change before 2013

Trade small , BUT trade.

Kind regards

bobc

[BlowFish 10]

I am basically a trend trader. I have been out of this market now for some time as it (the market) has been up a down and sideways now for months. We have been in a sideways pattern for weeks and now we have seen a parabolic up move that just looks like it might blow off at any time.

 

The problem is that when I am out of the market I make no money - but don't lose any either.

 

Is it better to sit back and do nothing when the market is like this or should I just look for setups and work them regardless of having no direction from the market?

 

One of the reasons 'old school' trend traders tend to trade multiple markets is for this very reason. On a well chosen basket of instruments (not too correlated of course) one or two will usually be trending.

 

Another possibility is to sample your data differently (a pretentious way to say look at another time scale ) For example an instrument that has been stuck in a range for weeks and months will often (usually) be making great 3 4 5 + day 'trend' runs from the top to the bottom of the range (and back again). If you observe this on lets say on an hourly chart these they can look like (and be traded like) epic trends.

 

Incidentally quite a few commodities and currencies have had some great trends recently (depending of your perspective of course).

[bobcollett 10]

One of the reasons 'old school' trend traders tend to trade multiple markets is for this very reason. On a well chosen basket of instruments (not too correlated of course) one or two will usually be trending.

 

Another possibility is to sample your data differently (a pretentious way to say look at another time scale ) For example an instrument that has been stuck in a range for weeks and months will often (usually) be making great 3 4 5 + day 'trend' runs from the top to the bottom of the range (and back again). If you observe this on lets say on an hourly chart these they can look like (and be traded like) epic trends.

 

Incidentally quite a few commodities and currencies have had some great trends recently (depending of your perspective of course).

 

Hi Blowfish

I rate this best advise given in 2011

MMS will have to give you a prize.

Kind regards

bobc

[BlowFish 10]

That's kind of you to say Bob. The bit on price behaviour was a bit of an aha moment for me. "Looking at a higher time frame for context" is a fairly well established concept however that idea is seldom fully explored. If you scratch a bit deeper and really look at how things fit together, you can come up with a really robust understanding of overall market structure.

[khamore1 10]

here is a quote for you: when in doubt get out

[Obsidian 10]

I never thought that I have to be in the market everyday. Sometime not trading is the best trade. Markets give us plenty of opportunities, missing a couple of them wouldn't kill you...

[MightyMouse 12]

I never thought that I have to be in the market everyday. Sometime not trading is the best trade. Markets give us plenty of opportunities, missing a couple of them wouldn't kill you...

 

It is true that there are a lot of opportunities to enter the market, but it is completely untrue that missing a few will not kill you. If you miss the good trades, at best, you could end up the year as wounded shark bait.

[TheDude 10]

One of the reasons 'old school' trend traders tend to trade multiple markets is for this very reason. On a well chosen basket of instruments (not too correlated of course) one or two will usually be trending.

 

Another possibility is to sample your data differently (a pretentious way to say look at another time scale ) For example an instrument that has been stuck in a range for weeks and months will often (usually) be making great 3 4 5 + day 'trend' runs from the top to the bottom of the range (and back again). If you observe this on lets say on an hourly chart these they can look like (and be traded like) epic trends.

 

Incidentally quite a few commodities and currencies have had some great trends recently (depending of your perspective of course).

 

adding to this, we can also look at spreads. calendar spreads are probably the best place to start.

 

Take a look at heating oil:

 

 

(image from Scarr Trading if i can say that - im not affiliated or even subscribe to their service, but this just shows the point graphically)

 

Its usual for the back months to trade at a premium to front months due to insurance and storage charges. This market isnt. Buy the July, sell March contracts?

 

Spreads to trend more than out-rights with less volatility due to the fundamental drivers behind them. You also get margin offsets meaning you can take bigger positions to make up for the lower volatility or trade in a more risk adverse way, risking little.

 

So with BlowFish's idea of looking at other markets, you have 100's in which to find a trend. When you include calendar spreads you have 10,000's. Including inter commodity spreads you have 100,000's of markets. Taking BF's idea of other time frames to all of the above, you have 1000000000000000000000000000000000000000's of different markets.

 

Still say you cant find a trend? :haha:

[Tams 20]

here is a quote for you: when in doubt get out

 

the problem is,

 

we were so certain we were right,

that we would go long in the face of an impending avalanche,

and when the slide begins,

we were so sure that it was only a minor correction, and that the market will go back on its upward trend in no time.

when the slide did not stop, we find justifications to allay the doubt,

when the doubt finally takes hold, we are already 3 feet under.

the wishful trader would look for a small rally to get out,

which never happened.

By the time DOUBT is confirmed, the trader is 6 feet under.

[khamore1 10]

RGUDGEON

"Is it better to sit back and do nothing when the market is like this or should I just look for setups and work them regardless of having no direction from the market"?

 

To.Mitubishi, and Tams

 

My answer: “when in doubt get out” was to the above question and intended to rgugeon I think it is the best course of action for him

 

Rgugeon even answered his own question “at least I did not lose any money”

 

And here is another quote for you Mitsubishi. “A trader become a real professional when he/she does not feel bad if they missed a trade” The biggest edge any trader has is: they don‘t HAVE to trade all the time

Edited February 4, 2012 by khamore1