Bringing Common Sense to Trading

[SIUYA 11]

picked this up from else where - relates to trading but also face book recent IPO as the example.

Facebook Handled their IPO Exactly Right « blog maverick

 

particulalry this point -

"I bought and sold FB shares as a TRADE, not an investment. I lost money. When the stock didn’t bounce as I thought/hoped it would, I realized I was wrong and got out. It wasn’t the fault of the FB CFO that I lost money. It was my fault. I know that no one sells me shares of stock because they expect the price of the stock to go up. So someone saw me coming and they sold me the stock. That is the way the stock market works. When you sit at the trading terminal you look for the sucker. When you don’t see one, it’s you. In this case it was me."

[Colonel B 10]

Hey Bob What I have read and what is actually happening are quite unrelated. The most unintuitive thing to do as a trader this day in age is to buy low and to sell high. So no its not common sense. You can say it over and over but what people do is completely different then buying low and selling high.

 

Are you suggesting that people who don't do this don't have any common sense? Are you implying that this thread didn't start with a commercial? Or are you perhaps a graduate of the worlds most elite trading school? I didn't mean to play down your Alma Mater. I am jealous really. In fact my tuition for 1 semester at the school I attended was 5 times more then what seems to be the entire program of the worlds elite trading school. I must of over paid for my education. In fact at the time paying that much to me was cheep considering the school. It wasn't the worlds most elite trading school or anything like that, but it is in the top 10 MBA programs in the US.

 

As far as the ES and things that are not common sense let me explain. Buyers are not buyers they are sellers in the short term. Buyers are not buyers unless they are in a longer time frame then what you are trading. Common sense is correlated markets but out of most of the posts (including this one) there is no mention of such things. However that common sense is only after some one who trades informs you. So how can it really be common sense? Also no mention of divergence of said correlated markets. Common sense is that you should be able to talk to any business owner about markets because they in fact determine value the same way traders do. However the truth is that it is easier to talk to some one about trading who is a failure at trading then it is to talk to some one successful outside of trading. Trading is not intuitive for most people.

 

The most common sense about this thread is that this whole thing was started by the self-proclaimed worlds most elite trading school in hopes to get others to sign up. So Bob what is your testimony of this elite school? What elite qualities did you acquire from your attendance? What did your 2500 get you?

[Ronin 10]

Here is what you ALL missed by Over-analysing :

 

" Frankly, there isn't anything new or revolutionary when it comes to technical analysis. However, there are different ways of interpreting the same raw data that we all use."

 

The pristine guy gave you a simple uncomplicated straight forward way of looking for a trend change in a daily chart. So what do you all do?

 

You all got off the subject bickering with each other like little children posting several subjective and unproven statements.

 

This is why I don't come back to this forums too often. Most subjects and topics turn into arguments and useless analysis paralysis !

[bobcollett 10]

Hey Bob What I have read and what is actually happening are quite unrelated. The most unintuitive thing to do as a trader this day in age is to buy low and to sell high. So no its not common sense. You can say it over and over but what people do is completely different then buying low and selling high.

 

Are you suggesting that people who don't do this don't have any common sense? Are you implying that this thread didn't start with a commercial? Or are you perhaps a graduate of the worlds most elite trading school? I didn't mean to play down your Alma Mater. I am jealous really. In fact my tuition for 1 semester at the school I attended was 5 times more then what seems to be the entire program of the worlds elite trading school. I must of over paid for my education. In fact at the time paying that much to me was cheep considering the school. It wasn't the worlds most elite trading school or anything like that, but it is in the top 10 MBA programs in the US.

 

As far as the ES and things that are not common sense let me explain. Buyers are not buyers they are sellers in the short term. Buyers are not buyers unless they are in a longer time frame then what you are trading. Common sense is correlated markets but out of most of the posts (including this one) there is no mention of such things. However that common sense is only after some one who trades informs you. So how can it really be common sense? Also no mention of divergence of said correlated markets. Common sense is that you should be able to talk to any business owner about markets because they in fact determine value the same way traders do. However the truth is that it is easier to talk to some one about trading who is a failure at trading then it is to talk to some one successful outside of trading. Trading is not intuitive for most people.

 

The most common sense about this thread is that this whole thing was started by the self-proclaimed worlds most elite trading school in hopes to get others to sign up. So Bob what is your testimony of this elite school? What elite qualities did you acquire from your attendance? What did your 2500 get you?

 

Hi Colonel Saunders

Thanks for the reply

I have never attented Elite so my testimony on it is zero, but I have done an MBA.My Alma Mater is the TOP University in the world...............U.O.H.K.

Your third paragraph is difficult to follow. Perhaps you would like to add a bit to make it clearer

My position remains unchanged.............buy the lows , sell the highs.

And I endorse Bankrobber99. Lets see Elit call a trade in advance

 

Heres some more common sense. The idea is taken from the Oakshire website

The ECB has now stated it will support the Euro come hell or high water by buying Bonds.

So firstly the Euro will strengthen against the $, and secondly financials will go up.

No more credit defaults. Just go and find a bank that writes Bond Insurance big time and you have a winner.....and I called my trades in advance.

 

regards

bobc

[Colonel B 10]

 

Your third paragraph is difficult to follow. Perhaps you would like to add a bit to make it clearer

My position remains unchanged.............buy the lows , sell the highs.

And I endorse Bankrobber99. Lets see Elit call a trade in advance

 

My bad Bob I thought from your post earlier you were some how defending the worlds elite trading school. My thought on this is that I dont see what the original post really did to bring common sense to trading. In fact I am surprised at how little it really brought. Also I put that guy on my permeant ignore list so I cant see his post anymore. Mostly because this post and many others that he posted are simple solicitations to yet another trading room.

I bet if you pony up the 2500 you can get him to call some trades. LOL

 

What part of my third paragraph was confusing?

[Greg Capra 10]

Greg,

 

I appreciated the clarity of your explanation, especially because of your examples.

 

Please comment on intra-day?

 

Hi Windsurfer,

 

The concept is the same intra-day, it's universal. What I have explained is simply using the retest of a prior high or low as a reference point where another reversal should setup and you can place a trade based on your overall analysis. Using this intra-day does not make sense to move down to a very short time frame without a bias from a larger time frame.

 

For example, you could use the 60 or the 30-min. time frame for your bias. If one of these (your choice) is in an uptrend you would buy a retest of a prior support pivot on the 5-min time frame. The higher time frame may form as continuous higher high, higher low bars with some overlapping. Within that overlapping is where the retest of the 5-min time frame will have occurred.

 

Price patterns show us pictures that we have recognized in the past that resulted in prices moving in a certain direction. As "pattern traders" we look for recurring patterns that place the odds in our favor. If we see that pattern with multiple time frames aligned, market direction in alignment and other technicals we should have the making of a profitable trade.

 

I have won 6 live trading challenges at various Traders' Expos using just simple price patterns and market internals. Trading doesn't have to be and shouldn't be complicated. The most complex part is finding a method that you have confidence in and then getting you human nature to follow the trading plan that you know has good odds of being profitable.

 

Once you have a setup, press the button, with a stop-loss and see what happens. You'll never know for sure before hand if the trade will actaully work or not. As we all know, there is no Holy Grail. If there was I would have found it by now.

 

All the best,

 

Greg Capra

[bobcollett 10]

 

As far as the ES and things that are not common sense let me explain. Buyers are not buyers they are sellers in the short term.

 

Hi Colonel Saunders

Heres that sentence that confuses me.

kind regards

bobc

 

PS I read a post you made somewhere... buy the RED candle .Real cool.

[Colonel B 10]

Hey Bob. On days where there is no OTF and just short term traders buyers are NOT buyers. They are actually sellers. The reason for this is because of the nature of short term or shorter term traders. Consider how short term retail traders trade. They all use lagging confirming indicators. Math based indicators that get them in far into the move. The typical stop and profit target for retail traders is 8 ticks or 2 points. Why is this important? Because if you get enough of these types of trades going in the same direction the market stalls and cant go any further. Why??? Because all buys are now sells 8 ticks above where the market is from where they bought it. In order for it to go higher now there has to be just as many new buyers to come in at the higher price so the first buyers can get out. How many retail guys don't use stops? How many retail guys don't use an 8 tick or less profit target? The trick is to understand the behavior of the retail market and to keep yourself from doing what they do. They are waiting for green candles to buy and waiting for it to break out before placing an order. I watch the red candles and look to buy so I can be as early as I can with what I do. If its a green candle I am looking to sell. Again this is in the context of no OTF. On an open drive day where its clearly in rally mode then yea I don't fade that.

 

You don't want to get in where the retail players (short term guys) are getting in if you can avoid it. Why? Lets say you have the direction right and lets say that every other person that is using a doji wedgie, abandon baby, MACD, Hiso, Moving average has it right too. And lets say the direction is up. Will it work? Maybe. Odds are it wont just because you are aliened with those guys. Why? Because after 5 mins of being in a trade with out it going anywhere they start to get out and in order to go flat they have to sell.

 

Hope this makes some common sense to trading.

[bobcollett 10]

Hey Bob. On days where there is no OTF and just short term traders buyers are NOT buyers. They are actually sellers. The reason for this is because of the nature of short term or shorter term traders. Consider how short term retail traders trade. They all use lagging confirming indicators. Math based indicators that get them in far into the move. The typical stop and profit target for retail traders is 8 ticks or 2 points. Why is this important? Because if you get enough of these types of trades going in the same direction the market stalls and cant go any further. Why??? Because all buys are now sells 8 ticks above where the market is from where they bought it. In order for it to go higher now there has to be just as many new buyers to come in at the higher price so the first buyers can get out. How many retail guys don't use stops? How many retail guys don't use an 8 tick or less profit target? The trick is to understand the behavior of the retail market and to keep yourself from doing what they do. They are waiting for green candles to buy and waiting for it to break out before placing an order. I watch the red candles and look to buy so I can be as early as I can with what I do. If its a green candle I am looking to sell. Again this is in the context of no OTF. On an open drive day where its clearly in rally mode then yea I don't fade that.

 

You don't want to get in where the retail players (short term guys) are getting in if you can avoid it. Why? Lets say you have the direction right and lets say that every other person that is using a doji wedgie, abandon baby, MACD, Hiso, Moving average has it right too. And lets say the direction is up. Will it work? Maybe. Odds are it wont just because you are aliened with those guys. Why? Because after 5 mins of being in a trade with out it going anywhere they start to get out and in order to go flat they have to sell.

 

Hope this makes some common sense to trading.

 

Hi Colonel,

You explained things very nicely.And you sound like a professional

Here in sunny South Africa I have a minimum 10 point spread.Its hard to make a living scalping.I must hold for longer periods .

Lets look at buying the RED candle.

The reason I believe most traders fail is because they cant take the drawdown

Different words to what you posted , but the same meaning.

We are taught to limit our losses to stay in business. Is that common sense?

The true professional can buy a red candle because he can take the drawdown and wait for the turn. He needs three basics......money

......big testicles

.......an edge

Even with all three basics I find it difficult to buy the RED candle

 

I am starting to lean your way. Trading is NOT common sense.

Kind regards

bobc

[SIUYA 11]

dont think in terms of candles - think in terms of price levels

Otherwse the thinking is flawed from the start....ie; common sense has been thrown out the window.

 

Lets say support is 100, and the price grinds down there using three red bars....but you dont buy.

But it goes through support and down to 95, but then rallies to 100 on a green bar.....thats the problem.

 

The other point Col B makes about retail traders is valid - if you are going to buy after waiting for confirmation then you have to hold for longer periods - you are buying momentum - and so you should expect momentum - why sell into it, and should only be buying those confirmed moves because you think they are going to be bigger moves - there becomes a miss match otherwise, and common sense has once again been thrown away.

 

(Waiting for the close might make more sense when using an automated service - a discussion joshdance has had previously http://www.traderslaboratory.com/forums/technical-analysis/12081-close-bar-meaningless.html

Edited September 15, 2012 by SIUYA

[BlueHorseshoe 10]

dont think in terms of candles - think in terms of price levels

Otherwse the thinking is flawed from the start....ie; common sense has been thrown out the window.

 

Lets say support is 100, and the price grinds down there using three red bars....but you dont buy.

But it goes through support and down to 95, but then rallies to 100 on a green bar.....thats the problem.

 

The other point Col B makes about retail traders is valid - if you are going to buy after waiting for confirmation then you have to hold for longer periods - you are buying momentum - and so you should expect momentum - why sell into it, and should only be buying those confirmed moves because you think they are going to be bigger moves - there becomes a miss match otherwise, and common sense has once again been thrown away.

 

(Waiting for the close might make more sense when using an automated service - a discussion joshdance has had previously http://www.traderslaboratory.com/forums/technical-analysis/12081-close-bar-meaningless.html

 

I agree that the 'red candle, green candle' account could be misleading - I think it's just being used here by BobC as a shorthand for entering counter-trend (ie on a limit order).

 

My guess is that this comes down to the differences between markets again. I suspect that Col B is coming at it from the point of view of trading the ES, in which case I would tend to agree with what he says. The momentum just isn't there most of the time, and buying the thrust from support/green candles won't provide the follow-through. In a market that trends more then this makes far more sense, and buying notional support/red candles is a bad plan.

 

Anyone interested in all this can carry out a few simple tests in the markets they trade. What percentage of the time, say, is a red/green bar followed by another red/green bar? For all N, what most often happens at a retest of the N-bar High/Low - breakout or reversal? For these tests you will also need to look at consistency in results throughout the data set - standard deviation from the mean result should give an idea of this (what you're trying to avoid is an end outcome percentage that is dependent on where the data set ends).

 

Do this over a large data set in all timeframes and you will begin to build an idea of whether that particular market tends towards breakout trends or mean reversion.

 

Hope that's useful to someone.

 

BlueHorseshoe

[SIUYA 11]

I agree that the 'red candle, green candle' account could be misleading - I think it's just being used here by BobC as a shorthand for entering counter-trend (ie on a limit order).

 

My guess is that this comes down to the differences between markets again. I suspect that Col B is coming at it from the point of view of trading the ES, in which case I would tend to agree with what he says. The momentum just isn't there most of the time, and buying the thrust from support/green candles won't provide the follow-through. In a market that trends more then this makes far more sense, and buying notional support/red candles is a bad plan.

 

an even simper test is to look at the number of red and green bars in a trend - that will tell you that magnitude is important. (even taking a range bar and counting them in a move is interesting over say the last 100 bars, mind you it does not help get you on board the actual move)

Regardless of market -dont confuse a red or a green bar with support and resistance. To get down to support you need red bars - but these are then indifferent to where they stop.....it would be nice if it were that easy.

Point is - you need to look at magnitude as well as price levels. Otherwise arent you just curve fitting again until you get the right sequence of 5, 10, 11.5 minute bars?

 

Re momentum - again, while some instruments might have more or less follow through, then to me it seems that counting bars, may or may not add anything without this info. What you need to determine is if there is enough momentum without hitting your stop - and how long it takes.

so do you use a closer stop in a low momentum market, but still go with momentum, or do you start mean reverting (in which case why not just look for support and resistance early rather than wait for confirmation), plus given where you can set stops, and what you might expect to make from them, then people can just adjust their quantities cant they?

(all these are just questions that need to be asked to put any common sense in to the trading - and as others have hinted before, sometimes people like to trade certain instruments for the ego, rather than the money)

 

Testers might be better off looking at things not in bars, but in terms of volatility and momentum.

[BlueHorseshoe 10]

Point is - you need to look at magnitude as well as price levels. Otherwise arent you just curve fitting again until you get the right sequence of 5, 10, 11.5 minute bars?

 

I was just suggesting bar count as one crude method for gaining an idea of how a particular market behaves. I think that the more tests of this kind one can design and perform, the better an idea one will have of the general behaviour of that market. It's just an extension of the notion that something's profitability should not be parameter sensitive; a general concept of market behaviour shouldn't be dependent on the measurement methodology of any single test.

 

What you need to determine is if there is enough momentum without hitting your stop - and how long it takes.

 

I'm not sure that I'd agree with that. If you're testing to determine general market behaviour, then there is no stop, entry, exit, profit target etc. There's just how the market acts, in complete isolation from how we might try and trade it.

 

I can't understand why more people don't do this kind of research first, and then develop a particular strategy for exploiting the market behaviour that they discover to be there. While I have made what many would probably consider schoolboy mistakes with the strategies I chose to use (such as trading without a stop), I am pretty confident that I would never have gotten killed . . . . because I had done the research beforehand to ensure that I was trading in line with the underlying behaviour of that market. That, of course, is all pretty hypothetical though!

 

and as others have hinted before, sometimes people like to trade certain instruments for the ego, rather than the money)

 

Sure. How many people on here try and daytrade the ES? Now that can't be easy . . .

 

Testers might be better off looking at things not in bars, but in terms of volatility and momentum.

 

As I said, why not look at both? And then anything else that you can think of? It costs nothing, and it's hard to see how it could possibly be anything other than beneficial, especially if you're kicking around waiting to fund an account, or trading in sim.

 

BlueHorseshoe

[MightyMouse 12]

Individuals using common sense is exactly what a trader needs to be able to profit. Common sense is what motivates someone to buy or sell at the wrong time or not buy or not sell at the right time. An individual's common sense exists on a completely different plane than that of a trader. What is common or sensible to an individual will never lead to profitable opportunities.

[BlueHorseshoe 10]

Hey Bob. On days where there is no OTF and just short term traders buyers are NOT buyers. They are actually sellers. The reason for this is because of the nature of short term or shorter term traders. Consider how short term retail traders trade. They all use lagging confirming indicators. Math based indicators that get them in far into the move. The typical stop and profit target for retail traders is 8 ticks or 2 points. Why is this important? Because if you get enough of these types of trades going in the same direction the market stalls and cant go any further. Why??? Because all buys are now sells 8 ticks above where the market is from where they bought it. In order for it to go higher now there has to be just as many new buyers to come in at the higher price so the first buyers can get out. How many retail guys don't use stops? How many retail guys don't use an 8 tick or less profit target? The trick is to understand the behavior of the retail market and to keep yourself from doing what they do. They are waiting for green candles to buy and waiting for it to break out before placing an order. I watch the red candles and look to buy so I can be as early as I can with what I do. If its a green candle I am looking to sell. Again this is in the context of no OTF. On an open drive day where its clearly in rally mode then yea I don't fade that.

 

You don't want to get in where the retail players (short term guys) are getting in if you can avoid it. Why? Lets say you have the direction right and lets say that every other person that is using a doji wedgie, abandon baby, MACD, Hiso, Moving average has it right too. And lets say the direction is up. Will it work? Maybe. Odds are it wont just because you are aliened with those guys. Why? Because after 5 mins of being in a trade with out it going anywhere they start to get out and in order to go flat they have to sell.

 

Hope this makes some common sense to trading.

 

Hi Colonel

 

Would you be willing to share a little of how you identify OTF activity in any particular cash session? "Common sense" might suggest that volume would provide this information - what's your approach to identifying institutional order flow?

 

Thanks,

 

BlueHorseshoe

[SIUYA 11]

 

I'm not sure that I'd agree with that. If you're testing to determine general market behaviour, then there is no stop, entry, exit, profit target etc. There's just how the market acts, in complete isolation from how we might try and trade it.

 

yes - I agree there are some more things to look at, but how are you going to determine the value of what this information is worth if you cannot test it against the rest of the system specifics. (As zdo rightly says - most things are system specific)

I would take a guess and say most markets have 50/50 in terms of up and down bars, regardless of bull, or bear market - and so that information by itself is useless....and even if you take a bull market, and the ratio might be 55:45, you still need to be able to get on, stay on and also distinguish that it is a bull market.

Re the ColB and Bob comments, then if you dont have enough momentum in a particular instrument without picking levels, and instead waiting for confirmation then common sense will tell which system to pursue.

[BlueHorseshoe 10]

yes - I agree there are some more things to look at, but how are you going to determine the value of what this information is worth if you cannot test it against the rest of the system specifics. (As zdo rightly says - most things are system specific)

 

Obviously that's essential - it just comes later. I'm saying that it's better to check whether the swimming pool is full of water or baked beans before you start working out the best stroke for staying afloat in it. Sorry, that might be the worst trading metaphor ever

 

I would take a guess and say most markets have 50/50 in terms of up and down bars, regardless of bull, or bear market - and so that information by itself is useless....and even if you take a bull market, and the ratio might be 55:45, you still need to be able to get on, stay on and also distinguish that it is a bull market.

 

I agree about 50/50 in terms of up and down bars.

 

I was talking about consecutive up and down bars though. So, given that the ES closed up yesterday, what is the probability that it will close up today? The probability that it will close down could be seen as a very crude measure of the likelihood that it will 'go back the way it came', or revert to the mean. The probability that it will close up for a second, third, or fourth consecutive day, is a crude measure for its capacity to trend.

 

Hopefully that's a bit clearer on what I meant.

 

BlueHorseshoe

[SIUYA 11]

it's better to check whether the swimming pool is full of water or baked beans before you start working out the best stroke for staying afloat in it. Sorry, that might be the worst trading metaphor ever

 

 

depends on the bar you are in and the company you are with...

[Ammeo 10]

Hi Colonel,

You explained things very nicely.And you sound like a professional

Here in sunny South Africa I have a minimum 10 point spread.Its hard to make a living scalping.I must hold for longer periods .

Lets look at buying the RED candle.

The reason I believe most traders fail is because they cant take the drawdown

Different words to what you posted , but the same meaning.

We are taught to limit our losses to stay in business. Is that common sense?

The true professional can buy a red candle because he can take the drawdown and wait for the turn. He needs three basics......money

......big testicles

.......an edge

Even with all three basics I find it difficult to buy the RED candle

 

I am starting to lean your way. Trading is NOT common sense.

Kind regards

bobc

 

Common sense does makes sense sometimes..u just have to look at the bigger pictures and trade long terms. Look at the 3 to 1 year charts ,look at the current and near term economic events, look if the current market is stable/overvalued/undervalued or reaching overvalued/undervalued position. look at some of the fundamentals of the underlying assets and their recent progress alongwith near term events. In the end do some technicals (RSI,S/R,MACD) if u want to and make entries/exits. If we talk about scalping then indeed common sense dont make sense but from medium to long term positions common sense does make sense most of the times if not everytime.

[SunTrader 10]

That is all good for investing. Doesn't do much for trading.

 

Overbought/oversold - is defined 1000 different ways by a 1000 different people.