Steve's Basic System for Retail Traders

[steve46 12]

and here is the London open, with the DAX on the left and the NQ on the right....as can be seen, the setup for the NQ was absolutely perfect....price tested and then launched up allowing us to take a couple of quick points (we call it "buying a stop"...then it becomes a risk free entry...if it continues, great if it retraces we have a choice to make....or we can simply get out with our couple of points....

[greedygekko 10]

Greedygekko here Steve46

 

Been watching your thread from the outside for awhile. Thanks for doing this. I do trade ES and find what your doing interesting. Although I do not trade like this I think what you do can help others and I commend you for even posting. As you said above if your posting your eye is not on the ball. Cant have that!!

 

My mentor in Philly is a stats guy. You probly even know him.

 

Is it cool to post charts?

[steve46 12]

Attitude and how you approach people is important (in my view)...so yes it is just fine to post charts

 

Regarding your trade...its what we call a "big concept" and in this market it is a smart trade because odds are that the big players see it too and are motivated come off the sidelines and put money on this one, making it easier for you to win....

 

As with all things the devil is in the details, its all about how and where you decide to enter and whether you have enough experience and savvy to hold through the ups and downs...Institutional guys who put this one on, enter and set their numbers and walk away..while the amateurs "tick watch"..

 

I was trained in NY and Chicago....don't know many folks in Philly...however it is nice to have your comments

 

Steve

Edited September 27, 2012 by steve46

[steve46 12]

Excellent day....nice to see big players come in to mark it up instead of taking it down....

 

We hope this lasts another day or so before we hit that infamous Oct period

 

Anyway the final trade of the day was on my mind....because I had a guest in my office watching and trying to get sorted out...I learned some interesting things about how people think under pressure

 

First, there are time constraints to the market...opportunities are time constrained meaning that things happen at a certain time and if you can ANTICIPATE.....then recognize the opportunity as it forms on the screen, all you have to do is pull the trigger and manage your money....seems simply in hindsight but to make it happen is where the magic is....

 

I have some simple rules for amateurs

 

First, find a framework that takes discretion out of the game....find a set of rules for you behavior...test them to prove to yourself that they work....over at least 400 data points

 

Then as stated above, learn to ANTICIPATE the opportunity to trade (ask yourself, when is my setup likely to occur....off the open, on the turn (at about 7am PST)....after lunch or in the last hour...these are MY prime times...if you are new to the game....DO NOT freelance...why because it costs money every time you pull the trigger...and if you don't have high expectation of success, you are going to find that at best you float around break even....and even then the commissions will sink your ship....sorry but thats the way it breaks down....

 

Once you have that discipline in place.....and you are able to "ANTICIPATE" where you entry is likely to occur, you still have to RECOGNIZE it as it develops....be clear on what your setup looks like before its fully formed....be able to recognize all the variations...be clear on what is tradable and what is "not quite right" and stay off the borderline stuff....be selective at first and keep records of what worked and what didn't....learn from that data, and not by having to recharge your account....

 

Learn to ACT PROMPTLY, don't enter trades late....especially if you are new to trading....it will come back to bite you....respect your stops, and manage your money smartly...those who follow my comments know that I recommend trading at least 2, and better yet 5 contracts....scale out at first until you get comfortable with how your target market acts....theres a trade off because of this but, if you trade in a disciplined way, this will help smooth out market volatility...

 

KEEP GOOD RECORDS...of every trade...this is the only way you will have of confirming that your system is working well, and it will provide a early warning if your system goes belly up...

 

The attached chart shows my last trade....the rules are simple...buy the bottom of a channel, sell the top, preferring entry on the retest of the channel boundary line (distribution line). This one is pretty classic, as price tries unsuccessfully to take out the upper boundary line, then pulls back, and eventually retests....setting up a high probability short entry.

 

Best of luck

Steve

Edited September 27, 2012 by steve46

[steve46 12]

This is my daily screen....I start my pre-market review by looking at (and characterizing) these three markets....

 

In this case you can see that all the charts display the same behavior.....trend, then sideways (horizontal development) then what could be interpreted as the start of a "rolling over" or reversal...

[steve46 12]

and my 130 min screen....from which I develop (and place) my distributions for the next day

[steve46 12]

From the 130 min charts I move to the 10 min, then the three min, and finally depending on volume and volatility, I may look to the 1 min chart for entries and exits.

 

As seen in the prior charts, the 10 displays the initial test of the distribution boundary....from that point it helps to see the additional granularity displayed by the 3 and/or 1 min charts...

[steve46 12]

Here is my Globex Trading screen for the London Open..

 

As you can see we chose to use the DAX (primarily because of their ban on HFT) and the NQ, because we like the way it trades.

 

1 min charts with our distributions on the screen....most of the real work is the prep which includes review pending economic reports (any solid econ calendar will do) and of course we use our Bloomberg for latest news and to monitor both Asia and Euro news..

 

Most nights we "observe the DAX open" first (at 2300 hours) then trade London an hour later.

 

The "preferred" entries are usually the counter moves off the open about 15 to 20 minutes past midnights....because we are still gathering data we trade small and our profit target varies but is generally about 5 NQ points....

 

Tonight we actually saw two entries based on the DAX...the first as the market formed a double touch bottom and then the next as it tested a distribution line, taking it out and then retesting for a valid second entry (or a place to recharge it the trade had taken profits prior to the retest)....as mentioned, this seems to us to be similar to picking up $20 bills off the floor...your not going to get rich doing it (because you can't put size on in this market) but the risks are relatively easy to manage...

 

As an aside, we have been noticing Predictor (and others) coming in to take notes on our thread....hehehe...one can only smile at this and hope it helps....if not, the guy can always go back to selling used cars or insurance......

Edited September 28, 2012 by steve46

[steve46 12]

Today's Trading Opportunities all occurred at the boundaries of the distribution

 

If you simply stayed out except for these tests you had a good day..

[TradeRunner 10]

Hey Steve

 

Are you looking for tips on how to trade?

 

[steve46 12]

Hey Steve

 

Are you looking for tips on how to trade?

 

 

 

 

Yes, I haven't quite figured it out yet...

 

Surely your list is longer than that...I look in on quite a few threads every day....

 

I'll be going over to Negotiator's thread next.....

 

You seem quite interested in my activities.... are you having a bad day?

Edited September 28, 2012 by steve46

[TradeRunner 10]

Terrible - I'm always the last to buy and sell! Can you help with that?

 

Just happened to catch you sneaking a peak and couldn't resist the post. Sorry!

 

You do like to take an interest, and place great importance, in who is viewing your thread. I wonder what interests you have in that thread?

 

TradeRunner

Edited September 28, 2012 by TradeRunner

[steve46 12]

I look closely at the behavior of my fellow man....to the extent that I can learn why people do what they do, I believe it gives me an advantage in terms of decision making....

 

for example, in these intercorrellated markets, there are folks in several locations making decisions to put capital to work (or not)....to the extent that we can understand how they think, we can 1) anticipate what they might do, and 2) if it is in our interest, make our own decisions to buy or sell in these markets.

 

Here on this site, it is mainly "practice" and continued observation...simply put I like to understand how other traders think about trading decisions...

[TradeRunner 10]

in these intercorrellated markets

 

What did you think about these posts?

 

http://www.traderslaboratory.com/forums/swing-trading-position-trading/14358-there-strategy-wins-90-a-3.html#post161907

 

http://www.traderslaboratory.com/forums/swing-trading-position-trading/14358-there-strategy-wins-90-a-4.html#post161939

 

TradeRunner

[steve46 12]

I think I can expand my comment to include quite a few folks here, who show up and "suggest" or more often "proclaim" concepts central to a trader's success.

 

The "problem" is that more often than not, the concept is correct, but has to be applied in the proper context in order to be of value

 

For the first post, the gentleman is mostly correct...for example I know several good professionals who scale in and out of positions (just one example of position sizing) to great advantage....however they do it in the context of a confirmed trend only....and it is this ability to determine trend that gives them the confidence to do it....also they are adequately capitalized which is a problem for many retail traders, who by the time they have learned this lesson have little or no money to put at risk...

 

Unfortunately I don't have time to review the second post...because of prior obligations I have to leave my screen....I will get back to it later if you don't mind..

 

best of luck

[steve46 12]

Got a minute here before I leave my desk...this is the chart for today (10 minute candles)

 

and it shows how nicely this system works provided you understand the context and have the ability to work in a disciplined manner of course

[goodoboy 10]

and continuing the theme of the previous post, this morning the NQ moved down

 

Interestingly the attached chart shows the trending nature of that market even though the DAX is sideways

 

New home sales data was reported at 7am PST and three minutes later we tested a distribution line and then dropped....the "strange" (according to some) logic has us waiting for this retest as price takes out the distribution line, and then entering short on that retest....the move down is worth about $200 per contract (thus far)

 

With the recent comments about "proof" (how much do you need)....and backtesting, we observe that the reason this distribution is valuable to the trader is that it identifies areas where MARKETS ARE LIKELY TO TEST AND THEN TREND SIGNIFICANTLY....thus it provides a framework that a trader can use to initiate a position....once he/she does that it becomes a question of whether or not they can A) hold long enough to obtain a profit, and B) manage risk adequately to avoid (and/or minimize) losses...

 

Thats the kind of "strange" I'll take every day.....

 

Best of luck to all.

 

Steve

 

Thanks Steve for the effort of posting daily. I like the system and the logic.

[goodoboy 10]

 

First, find a framework that takes discretion out of the game....find a set of rules for you behavior...test them to prove to yourself that they work....over at least 400 data points

 

Thanks Steve,

 

Just a few questions when you get free time to respond.

 

What do you mean by data points? Does this mean 400 candle sticks on the timeframe of my choosing.

 

DO NOT freelance...why because it costs money every time you pull the trigger

 

You are right about this. If I'm not serious or too tired to take the trade, I stay clear away. The patience part is really key. Its an everyday grind for the newbies, but its doable.

 

that I recommend trading at least 2, and better yet 5 contracts....scale out at first until you get comfortable with how your target market act

 

Here is where I am stuck at. I am trading one contract in sim until I meet my objective. And with one contract, its a bit difficult to take profits early on in the trade and I have to use strict trade management. I am winnig, but its fustrating when I am up 3pts, and price comes back down to breakeven on me. Currently, using 2pts stop loss.

 

The reason I trading one contract is because I read somewhere that its better to trade one contract until the trader double the margin cost of one contract. I do believe if I trade two contracts, I can accomplish more and make better trade management decisions as far taking profits to cover the stop.

[steve46 12]

I will give you a general example....my basic "setup" consists of approximately 5 to maybe 8 candles, depending on the time frame.....for my record keeping, each setup no matter how many candles it consists of, is considered as one "data point".....

 

Without going through all the math, in order to have confidence in the data I think you need at least 400 "examples" or "data points" to evaluate....

[greedygekko 10]

I'd say trading 1 contract is where every trader needs to be when coming up on sim. Matter of factly you should make the balance of the the sim account what you plan to trade IRM. You should also set the sim account to take off fee's and commissions automatically then you will really know if what your doing is realistic OR NOT.

 

Trading size is earned not to mention knowing your instrument(s) inside and out. I just got a "talking to" from my mentor because I was in a trade on Thursday and took a huge spike up in what I was trading. The spike was a reaction event due to some release I had not known about before I went into the position. My bad on that. I already had 4 points of equity locked into that trade and ended up taking out15 however it could have been the other way around and I could have gotten FUBAR.(F###ed up beyond account recovery).

 

If your system/method doesn't have positive expectancy then get a new system/method. It is that simple otherwise you mine as well write your check to your broker for the full amount of your account and save yourself the pain of all those cuts. If you are trading any other way but the way you will be trading IRM then you better check yourself before you wreck yourself.

 

I have been at it since February and just now consistently profitable everyday to the point where I feel I can go in there live and trade IRM and get something done.

 

Steve did you trade those 6 arrows in the 10 minute chart above? That's a nice range and I hope you made a boat load in it. I apologize in advance for the above rant. Did not mean to have that happen. GG

[goodoboy 10]

I will give you a general example....my basic "setup" consists of approximately 5 to maybe 8 candles, depending on the time frame.....for my record keeping, each setup no matter how many candles it consists of, is considered as one "data point".....

 

Without going through all the math, in order to have confidence in the data I think you need at least 400 "examples" or "data points" to evaluate....

 

Thanks Steve,

 

That makes sense. What I like to do each day is take screen shots of every entry I took and missed along with stop loss and exit of trades that meet my requirements. This way I get a daily review of what I am doing and what I missed or gained.

[steve46 12]

GOB

 

You're doing fine, just keep on managing risk FIRST....profits will take care of themselves if you protect your account and select your entries carefully.

 

GG

 

I missed the last entry, and by chance that is an important issue you bring up....I have some experience to call on, so I should know that its possible to make money even at the very end of the day, I should have kept my head in the game there at the end....I got complacent and missed that one....

 

The distribution looks good in hindsight, but if you go back through the thread, you will see that it doesn't always work that way....basically there are a couple of scenarios that we see using this method....just common sense, but price CAN move from the outside toward the mid point (the blue rectangle) or in reverse...and then (and this is happening more often these days) price can stay inside two of the distribution lines bouncing from one to the other....

 

These are the three basic scenarios I keep in mind...and the rest is simply watching patiently for these test points....I try to keep my powder dry until I get one of these tests...keeps my expenses down which is very important for those paying retail commission on each trade.

[steve46 12]

Been looking for a way to "approximate" my distribution lines. Because they are so time consuming, this has become a big priority....also if I am going to try to show a retail trader how to do this I REALLY don't want to have to go through a lot of math...so here is my first try at "approximating" the lines...we'll see how it works on Monday...

 

Anyway they look pretty, and I still have my daily worksheet numbers and time-based pivots to put in place for the Globex open so I have to get going...

 

Good luck folks...

[greedygekko 10]

My mentor turned me on to watching the for the EOD move. They normally are having to rebalance and what not around that time. I have recently have been getting as many points in that 1 EOD move (provided you are there for it and see it) as I have taken out on the whole day.

 

The volatility is just not there in the ES right now so I have started to look at the grains specifically ZS. 2 weeks ago on Friday there were 3 10 point swings in a row and the whole day was like 60 and change. Dunno if/when that's ever coming back to the ES. Mean time I am into this thing to make money and so I have been testing charts in other instruments to see were the volatility is happening and then tweaking my main trading chart accordingly. I'll post some here in the future to show what I have going on. I don't think anyone should trade the way I do however if they can take something from it and then use it in their own way so be it.

 

That 3-4 point range on that chart above might not seem like a lot however if you DO see it and you DO trade it and you are buying the bottom and selling the top and you do it 6 times in one range and your doing it with 10 cars or what ever your MM provides you to do it with I'd say that's a whole different ball game then. Personally I love trading the ranges in the ES because they are so predicable. Not saying it's easy points to get but if you know how to see and trade S/R levels in there then you can take out a hefty sum if you are trading size.

[steve46 12]

Once again a picture perfect setup, as price tests the dist line, falls away and then retests (our entry target is at the line, on the retest)

 

This one was good enough to provide an initial 3 point "favorable excursion" ...allowing us to "buy a stop"...and wait to see if we have continuation south...this is exactly what we are looking for..

 

So far, this first attempt at approximating the distribution seems to be working...its early days, and this is our first shot at it...so we'll let it play out and see where we stand at the end of the RTH session tomorrow...

Edited October 1, 2012 by steve46