Steve's Basic System for Retail Traders

[goodoboy 10]

Globex consists of several markets opening one after another....

 

For my purposes the primary opportunity is London...at Midnight

 

The attached 10 min chart shows the pre-position setup...(according to my "logic" system)

 

On the chart you see price has moved in a tight range...too small to trade....

so we wait for the pre-position time, which for this market is 11:40pm (2340 hours) local time

 

The "logic" is dictated by the arrows and the position of price in relation to the distribution lines....looking at the 11:40 candle (2340 hours) we see that it closes below the line....if we had an open below the line it would indicate a short entry....instead price moves back above the distribution line and the next open is also above (higher green arrow)...that open indicates a valid long...if you didn't like that one, the next retest (right most green arrow) also indicates a valid long entry...

 

As of this point in time, that long entry was only good for a couple of points however it was nice to see the distribution lines and our logic system confirmed once again...this is the kind of process that gives the trader confidence to pull the trigger.

 

This logic would have worked nice as well afternoon, when price action came back to this level, and candle opened and closed below the line (support) for a short entry.

[steve46 12]

Interesting.....I am starting to see "guests" and others coming in to read the thread, but not to post....and when I check them out (by clicking on their names) often what I get are messages from other TL members asking if they are still "on" a trading website....and if they are still using a "system" a "method" etc....this and the fact that the page views are growing exponentially tells me that A.)whatever these folks are doing may not be working as well as they might like and B.) they are checking this thread out to see if there is something they can learn about how my system works...

 

No problem... glad to help, just be advised that at some point I will have to stop and concentrate on my own trading...

 

Good luck in the markets

Steve

[steve46 12]

Here is how the last trade of the day worked out....as mentioned previously, the system frames price action in a specific way...we look for price to move from extreme to midpoint, then to "reset"

 

A previous post contained a request for clarification....the best I can do is to say that I use a very complex analysis concentrating on two states....balance and imbalance...and I am able to characterize how the market transisitions from one "state" to the other...as mentioned in my initial post, it is a time consuming process, but it enables me to in essence forecast where price is likely to test and fail or test and reverse...as with all things it doens't work 100%, nothing does...but it seems to provide a nice heads up that a possible trade is shaping up.

 

That may indeed be less than the read wants to know but that is the best I can do...it is after all still a work in progress.

 

Best Regards

Steve

[steve46 12]

Finally, I think it was "TradeRunner" who suggested that even if a person had all the info necessary to create the distribution they probably still couldn't trade like me...

 

One thing I have learned to respect is that kind of insight...I think you are correct...the fact is that trading as a profession requires that the individual have all their ducks in a row.

 

The system has to work

The trader has to be able to anticipate, recognize opportunity and then act without hesitation when they see a valid signal...

and they have to be willing and able to manage risk...meaning they have to be willing to put a stop in place and respect it....to take profits in a disciplined way and when wrong to "take the loss" and move on without having it affect the next trade....

and when each time period ends, you have to be willing to keep good records so that you can monitor and more importantly maintain your system's performance...

 

As far as I can tell their is no "middle ground"...you either do it or you blow out your account.

[Insearch 10]

Sorry can't "clarify"...as mentioned in the first post of this thread I am not going into detail on the math used to create the distribution...I expect that it will be somewhat different than anyone else's..I also expect that it will "work" better...it should, because it took a lot of time to develop....

 

Fair enough Steve!

 

Appreciate your contribution and knowledge nonetheless.

 

I'm not a complete rookie, but not an expert by any means either.

 

This thread can be of value to those are willing to put in the work to understand.

[goodoboy 10]

This relates to the previous post

 

My distribution is built to frame price action in a specific way....

 

The midpoint is the target for price action moving from either extreme OR failing to take out a long "logic arrow"...

 

The old saying is that the "proof is in the pudding"... and today is no exception...as we near the end of the day, we have a nice short as price moves through a distribution line, closing below it...(our signal to look for a short entry)

 

To repeat... our system is composed of distribution lines and "logic arrows"...as price tests those lines, we wait for a close above or below, then we act according to our pre-programmed logic...taking a long or short on the next open...with a 1 point stoploss and a profit target at or near the next line...or in this case at the midpoint...

 

Best of luck folks

 

Yes, I was looking at the area today specifically, and notice price closed/open below this line and never looked back. As price approached Friday LOD, it just flew past it. It was good to watch and take notes.

 

Thank you,

[steve46 12]

Today's open was like so many before...Price tested down and found no sellers...so up we go

 

Market sentiment is optimistic of a positive vote by the German Supreme Court regarding the Euro Bond Purchase Program

 

We haven't touched on the use of the DAX as a leading indicator yet...we have used it for years....and for most of that time period it has performed very nicely (with one exception)

 

With the attached chart we see how the DAX can be used...we have created a distribution for the DAX (chart on the right) and as price moves up, we see that the DAX encounters a limit line before the S&P does....and fails (three times) to take it out...when that happens, in our opinion, the odds favor a reversal....and you can see the S&P react in tandem on the other side of the screen.

 

So that everyone understands what is meant by "leading"...on the DAX 3 min chart the "failure" candles (where price tests the distribution line and fails to take it out) occur at 8:18, 8:27 and 8:33 .....on the right side the ES shows three "test candles" all topping out at 1437 and they occur at 8:33, 8:36 and 8:39 consecutively before price fails and heads south...hence the term "leading", and we can see that the ES is not near to the upper distribution line at the time of the reversal...again its clear that the DAX leads...

Edited September 11, 2012 by steve46

[steve46 12]

Another important element of this system is the use of "confluence" meaning the alignment of two or more valid signals

 

Using today's chart we see price move to take out a distribution line and then retest....on that retest it also tests the previous day and weekly low of 1433.50 (green up arrows)...the confluence of these two elements (test of the distribution line and previous low at or near the same price) tells us that a bigger audience of potential traders could be waiting to act (to enter long at that point)...

and as can be seen that is what happened...the follow through is limited because long time frame participants have already left the building....but the principle still applies.

 

Time based pivots (mentioned originally in the thread "An Institutional Look at S&P Futures") are used by primarilly by professionals and consist of yearly, quarterly, monthly, weekly and previous day's open, high and low (we do not use the close). My trading worksheet lists them, along with Market Profile Value numbers, and distributions for both the ES and DAX. It all fits on one sheet and is simple to use...

[goodoboy 10]

 

The system has to work

The trader has to be able to anticipate, recognize opportunity and then act without hesitation when they see a valid signal...

 

Very Very true on the hesitation part and the rest.

[steve46 12]

Another very gratifying day using the distribution

 

We learn something new every day trading this system...for example, the longer we use the distribution, the more we see that it self selects our entries (if you let it)....and what we mean by that is...that the high probability entries are by definition at the outer extremes of the bands that the distribution creates...the logic arrows tells us what orientation to have and to date they haven't failed us...alternatively if you wanted you could read the tape when price touched a line.

 

If you simply wait for price to touch one of the distribution lines and then act according to the logic, the result has been positive every day and our drawdowns have been significantly reduced....We have been using a 1 point stoploss but intend to modify (increase and decrease according to changes in volatility).

 

On the attached chart we show the open (left most green arrow) and then the other arrows show the "touch/tests" of the extremes on each side of the band....

Edited September 12, 2012 by steve46

[steve46 12]

This split screen example shows the final test this afternoon at the end of session

 

What you can see on the far right (the one min chart view) is how price "respects" the lines created by the distribution...

 

We think this indicates that a significant group of traders are visualizing price action in a similar fashion and making decisions to act based on tests of these price points. If that is correct if means our development process is on target...our primary goal was to get on the "same page" as the longer term participants. As side benefit was that the distrubution creates bands that work when the longer time frame participants are standing aside, and the short time frame participants (and automated execution programs) are trading in and out, creating horizontal ranges...

[steve46 12]

and here is the same trade, if held to the end of day

 

This is the reason we suggest that traders take partial profits and "stay with" a profitable trade as long as possible

 

As can be seen, participants came in to move price up, probably in anticipation of a positive overnight and next day action

 

This opportunity by itself would have made for a nice day.

 

Best Regards

Steve

 

Edit

 

This note for GOB....as you can see if you just entered at the distribution boundary (1433.25) you would have had to sit through a drawdown of almost a point....you might think this is a lot but really what matters is the expected profit....for this sytem, when we enter at the distribution boundary, the "expectation" is that a certain percentage of the time we are going to see a favorable move to the next line....still obtaining data, but at this point it looks as though we see a "round trip" (from one line to the next) about 26.9% of the time....

Edited September 12, 2012 by steve46

[steve46 12]

Normally these ideas occur to me as I am getting some exercise after the close...but today, perhaps because of the kind of day it was, I have been thinking of what I want to do from this point forward...

 

I have learned a lot about human behavior during my time posting here at TL. I learned for example that people have the capacity to learn and change and find success, but in order to do that, they have to give up the kind of behavior that in the past they may have needed in order to defend themselves in what they percieved to be a hostile world...

 

During the develpment process for this system, I worked with several of my neighbors...these were friends of mine who expressed an interest and wanted to learn how to do this..some of them had a past record of success, some had a record of failure, and what I learned was that regardless of that past record and their expectations, IF I could communicate to them a formula for success, to a man (or woman) once then saw how little stood between them and their goals, it became a purely a matter of choice...a matter of DECIDING to take responsibility...and a willingness to work at something and to invest in themselves in a way that they hadn't done (in some instances) in years....

 

I will be thinking about this over the next few days and weeks and decide how to proceed from here...

[goodoboy 10]

Another very gratifying day using the distribution

 

We learn something new every day trading this system...for example, the longer we use the distribution, the more we see that it self selects our entries (if you let it)....and what we mean by that is...that the high probability entries are by definition at the outer extremes of the bands that the distribution creates...the logic arrows tells us what orientation to have and to date they haven't failed us...alternatively if you wanted you could read the tape when price touched a line.

 

If you simply wait for price to touch one of the distribution lines and then act according to the logic, the result has been positive every day and our drawdowns have been significantly reduced....We have been using a 1 point stoploss but intend to modify (increase and decrease according to changes in volatility).

 

On the attached chart we show the open (left most green arrow) and then the other arrows show the "touch/tests" of the extremes on each side of the band....

 

Thanks Steve,

 

On the logic entry process, do you consider entry when candle open and close above or below the distribution line?

 

The last few days, I have watching for candle open and close above or below the support or resistance (and your distributions lines), but what I do is wait for a retrace back to the line and then another candle open and close above or below the line. I hope that make sense.

 

But looking your chart, there was no retrace on that short dis morning! I would have missed it.I think some record keeping or the success of entry is required to determine which entry process is better.

[SpideySense 10]

Nice thread Steve. It's been interesting to ride along and watch how another person develops and trades their perceptions.

[goodoboy 10]

the longer time frame participants are standing aside..

 

Steve,

 

What is consider longer time frame participants. Investors that hold more than a day?

[steve46 12]

Spidey Sense

 

Thank you sir, judging by your handle, the subject of perception is significant to you...without our perceptions it seems to me that we exist (if we do in fact exist at all) in a vacuum. Clearly our experience and our interpretation of that experience, are what makes each of us unique. The truth of that seen when Onesmith for example "decides" that I am a criminal (literally) while another member (say Goodoboy) may in contrast thank me for my help...I assume we have the capacity for both behaviors, and somewhere along the line, we choose on path or another...

 

Goodoboy, "long term" means (to me) people and/or institutions who hold a position over a period of weeks (at a minimum) to (more commonly) months at a time...and for the institutional client this is more oriented to the "taxable year".

Edited September 12, 2012 by steve46

[steve46 12]

Thanks Steve,

 

On the logic entry process, do you consider entry when candle open and close above or below the distribution line?

 

The last few days, I have watching for candle open and close above or below the support or resistance (and your distributions lines), but what I do is wait for a retrace back to the line and then another candle open and close above or below the line. I hope that make sense.

 

But looking your chart, there was no retrace on that short dis morning! I would have missed it.I think some record keeping or the success of entry is required to determine which entry process is better.

 

Sorry GOB missed this earlier

 

So your question is about finding "the best way" to make a decision to enter the market on a test of the distribution line....One way is to test each of your theories, and as long as you have the time and patience, that is fine...I think what you will find is that each variation has its good and not so good points. For experienced participants I have always favored letting price open and close outside the line, entering as price retests the line.....

[steve46 12]

Tomorrow's Distributions for the ES & DAX markets

[goodoboy 10]

Tomorrow's Distributions for the ES & DAX markets

 

Thank you Steve,

 

Are these lines for the Dec or Sep contracts? I am assuming the Sep contracts.

[goodoboy 10]

Sorry GOB missed this earlier

 

So your question is about finding "the best way" to make a decision to enter the market on a test of the distribution line....One way is to test each of your theories, and as long as you have the time and patience, that is fine...I think what you will find is that each variation has its good and not so good points. For experienced participants I have always favored letting price open and close outside the line, entering as price retests the line.....

 

Thanks Steve,

 

One way I have been watching over the past week is wait for price to open and close outside the line (line meaning any S or R that occurs), waiting for a retest of this line.

 

For example for short entry: After price open and close below support, I am looking for price to retest line and either close above the line or below it. If price test the line and close below or at the line, I will wait for the next candle to make decision. If next candle does not close above line, I enter short. If on retest price close above line, I continue to wait for price to break of line and repeat process.

 

For example long entry: I look for longs after price reverse from a support area and begin defining a small range where buyers and sellers decide to take price higher or lower. If price breaks the range and open and close above this range, this is my signal for entry long. If price goes below this small range, I go back to short entry steps above.

 

So far this has kept me on the right side of either direction. So, to avoid second guessing my entry and then breakeven, and the price turns in my favor, I will try this way when I am watching.

 

I know there is no way to be exact perfect, but its best to try it out.

[steve46 12]

Hello GOB, sorry to be late in replying, but I trade FOMC events much differently than retail participants....my "trading day" began last night prior to midnight.....so I am very sleep deprived..

 

With respect to your comment, realize that not matter what you choose, depending on your skill (and your luck) it will work some of the time, but certainly not all the time.....I suggest testing over a recent data set....(prefer at least 100 previous data points), then looking to trade it (keeping a record of how your method works over the next 100 opportunities)....

 

It takes time and committment to do this, but the advantages are that you can see immediately how your system works...and if it stops working, you can see that too...

 

I keep all kinds of data, and although it is a tedious job, when I trade I know what to expect and whether my system is working....that level of confidence means that I don't hesitate when I see an entry....and I am no longer late to the party..(one of the big problems for retail traders). Don't know if this is understandable or if it helps...I hope it does...

[steve46 12]

Here is today's chart

 

Clearly the distribution worked well (once again)...

 

If you waited for price to take out a line, entering on the next open or on a retest of the line, you had a nice profitable day...you can see the advantage of working with the 10 min chart (it minimizes a lot of the noise)....

 

The main lessons to learn are as follows

 

1. You need to have enough experience and skill to know when to enter...the distribution lines could be a big help to retail traders...if you simply go back and read the posts at Negotiator's thread, you can see that absent that kind of help, you folks are all over the place, taking losses and wondering which way price is going to go from there....one gets the impression that when you get a winner on the line, it is mostly random chance....rather than planning..

 

2. You have to have a reasonable stop in place and you have to be willing to honor it....take a loss when your wrong and move on...that stoploss has to be (in my opinion) big enough to give your mathematical edge time to kick in...I estimate my stoploss based on local volatility...and it seems to work pretty well...some folks like to simply look for the most recent high and low....and thats fine if you can afford it...

Edited September 14, 2012 by steve46

[goodoboy 10]

Hello GOB, sorry to be late in replying, but I trade FOMC events much differently than retail participants....my "trading day" began last night prior to midnight.....so I am very sleep deprived..

 

With respect to your comment, realize that not matter what you choose, depending on your skill (and your luck) it will work some of the time, but certainly not all the time.....I suggest testing over a recent data set....(prefer at least 100 previous data points), then looking to trade it (keeping a record of how your method works over the next 100 opportunities)....

 

It takes time and committment to do this, but the advantages are that you can see immediately how your system works...and if it stops working, you can see that too...

 

I keep all kinds of data, and although it is a tedious job, when I trade I know what to expect and whether my system is working....that level of confidence means that I don't hesitate when I see an entry....and I am no longer late to the party..(one of the big problems for retail traders). Don't know if this is understandable or if it helps...I hope it does...

 

It helps Steve and its a start to the hesitation part!

[goodoboy 10]

2. You have to have a reasonable stop in place and you have to be willing to honor it....take a loss when your wrong and move on...that stoploss has to be (in my opinion) big enough to give your mathematical edge time to kick in...I estimate my stoploss based on local volatility...and it seems to work pretty well...some folks like to simply look for the most recent high and low....and thats fine if you can afford it...

 

You are right about that. Three times today, I moved my stop loss to break even or just exit trade, next the price turn the way I wanted it to initially. Frustrating day!

 

And clearly in my Trade Management plan, I have to not move stop loss cause I place it in a spot that accounts for if I am wrong and market wants to go the other way. So that's my fault, walk away today with -1pt loss. hahahhaahha. lesson learn.