Bottom Up or Top Down?

This is a discussion on Bottom Up or Top Down? within the General Trading Chat forums, part of the Reception category; Originally Posted by DionysusToast I've been chatting recently to a prop trader that has an interesting philosophy when it comes ...

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Old Apr 6, 2012, 4:07pm   #16
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Re: Bottom Up or Top Down?

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Originally Posted by DionysusToast View Post
I've been chatting recently to a prop trader that has an interesting philosophy when it comes to day trading.

Basically, it is his view that unless you can just sit down and trade in and out of a market with a co-equal stop & target, just based on the rhythm of that market - you might as well forget adding in anything else to your day trading strategy.

Now - he's not saying that you should be able to make a ton of money doing this. On a market like the ES for instance, take 6 tick target and stop and trade in and out based on the flow of the market. If you can't make a profit doing that, then your chances of day trading with the addition of other analysis techniques are slim.

I hear other people saying a top down approach is better, to refine those higher level methods of analysis before looking at the lower level ones.

Any thoughts?
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Old Apr 6, 2012, 4:11pm   #17
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Re: Bottom Up or Top Down?

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Originally Posted by DionysusToast View Post
Good link....

I like this bit...
I agree.

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Try scalping off of the order flow without watching the charts at all. Turn your charts off and try to see support and resistance on the ladder alone.

Many prop firms ask new recruits to initially start to trade without access to any charts; that is to say no indicators, no trend lines, no patterns and, as a result, no temptation to seek the technical analysis holy grail that does not exist. You need to be comfortable executing trades with nothing more than the market depth at your disposal. It is this ability, developed as a result of many hours of intelligent observation and interaction with the market, which actually enables you to employ technical analysis effectively! Technical analysis is a decision support tool for traders. The charts themselves represent a very small percentage of the total, available information upon which elite traders make their decisions.
What do you think about this bit?
Quote:
6. On a real-time chart flip a coin to take a short or long entry when the latest bar is half formed (eg: half an hour into a one hour bar or five minutes into a ten minute bar etc etc). Once you’re in, manage the trade to gain the best result over the next 10 bars.

This exercise gives you with a chart-full of info, but takes away any entry consideration making you focus on the relatively short term action from a given point in the context of managing what you’ve got to best advantage (or least dis-advantage) utilising the info you have in the chart.
BTW, I still don't know why you don't just sell your software outright to ninja,
or negotiate a royalty deal.
Correct me if I'm wrong, but 3rd party plugins are pretty rare in this area aren't they?
Could be putting people off with the machine ID transfer problem if you decide to knock it on the head?
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Old Apr 6, 2012, 5:11pm   #18
 
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Re: Bottom Up or Top Down?

Quote:
Originally Posted by DionysusToast View Post
I've been chatting recently to a prop trader that has an interesting philosophy when it comes to day trading.

Basically, it is his view that unless you can just sit down and trade in and out of a market with a co-equal stop & target, just based on the rhythm of that market - you might as well forget adding in anything else to your day trading strategy.

Now - he's not saying that you should be able to make a ton of money doing this. On a market like the ES for instance, take 6 tick target and stop and trade in and out based on the flow of the market. If you can't make a profit doing that, then your chances of day trading with the addition of other analysis techniques are slim.

I hear other people saying a top down approach is better, to refine those higher level methods of analysis before looking at the lower level ones.

Any thoughts?
Basically what this says to me is that if you don't have an edge on entry that's sufficient to overcome costs and spread, then you won't make it. I disagree with this. There are two parts to the trade, the entry and then the exit. If you have a good edge on entry, you could make money with fixed stop and target same size, like the prop trader suggests. If you have a good edge on exit then you can make money from a random entry system. If you have both, then you can make a lot of money.

However, I suppose he has a point, in that if you can't find an edge with entry, you're unlikely to find one with exit, since that's harder imo.
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Old Apr 6, 2012, 5:27pm   #19
 
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Re: Bottom Up or Top Down?

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Originally Posted by DionysusToast View Post
Are you saying that throwing it all in the pot right from the start is the best approach?
I think so, Lord Toast although I would probably err on the bottom first if I was doing it all over again.
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Old Apr 7, 2012, 12:15am   #20
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Re: Bottom Up or Top Down?

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Originally Posted by Shakone View Post
Basically what this says to me is that if you don't have an edge on entry that's sufficient to overcome costs and spread, then you won't make it. I disagree with this. There are two parts to the trade, the entry and then the exit. If you have a good edge on entry, you could make money with fixed stop and target same size, like the prop trader suggests. If you have a good edge on exit then you can make money from a random entry system. If you have both, then you can make a lot of money.

However, I suppose he has a point, in that if you can't find an edge with entry, you're unlikely to find one with exit, since that's harder imo.
Well said.
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Old Apr 7, 2012, 1:01am   #21
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Re: Bottom Up or Top Down?

A very successful trader said the exit was more crucial then the entry.
I think he maybe right although I myself get very focused on entry and then grab the profits when available.
I'm slowly coming around because I realise if too much focus is on the entry, it is harder to except that the trade could be going wrong.
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Old Apr 7, 2012, 1:24am   #22
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Re: Bottom Up or Top Down?

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A very successful trader said the exit was more crucial then the entry.
I think he maybe right although I myself get very focused on entry and then grab the profits when available.
I'm slowly coming around because I realise if too much focus is on the entry, it is harder to except that the trade could be going wrong.
Well, excepting that the trade could be wrong is very important in my view. Is part of the development and maturity of the trader. The outcome of the last trade is not important but the overall one is to be taken in much consideration. We take our trade if is a valid one that is part of our plan, if the trade goes wrong, that is good if taken with the knowledge that losing is part of the business.

The problem arises when we take an invalid trade because our emotions kicks in (revenge, greed, fear,frustrations on so on) specially when that invalid trade turns to be a winner.
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Old Apr 7, 2012, 2:24am   #23
 
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Re: Bottom Up or Top Down?

To say that the entry is not important is pure bull, imo. Proper entry reduces risk.

It's once you've entered that the exit matters. Good entry = stay the course, bad entry = bail asap. But a good entry will always provide a better opportunity to minimize loss, and maximize profits.
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Old Apr 7, 2012, 2:31am   #24
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Re: Bottom Up or Top Down?

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Originally Posted by VielGeld View Post
To say that the entry is not important is pure bull, imo. Proper entry reduces risk.

It's once you've entered that the exit matters. Good entry = stay the course, bad entry = bail asap. But a good entry will always provide a better opportunity to minimize loss, and maximize profits.
Absolutely.

And I would like to add that entries are more important specially for scalper than longer span ones.
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Old Apr 7, 2012, 3:14am   #25
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Re: Bottom Up or Top Down?

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Originally Posted by VielGeld View Post
To say that the entry is not important is pure bull,
Of course the entry is important.
My point is.......When a trader (particularly myself ) has become extremely focused on the entry he has already tilted his psychology into a certain direction.
How many times even after all your focus there was actually a better price or time to enter....almost every time.
But be assured VielGeld, I take my losses quicker then you, going by a couple of live trades of yours that I noted.
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but risk-seeking when making a decision that will lead to a certain loss." - Daniel Kahneman

"Men who can both be right and sit tight are uncommon.
I found it one of the hardest things to learn."
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Old Apr 7, 2012, 3:45am   #26
 
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Re: Bottom Up or Top Down?

DionysusToast started this thread
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Originally Posted by Liquid validity View Post
I agree.



What do you think about this bit?
Funny - that topic came up in the conversation. To some extent I agree with what Mr Hare claims.

Get in on a coin toss & manage it.

Now - we didn't discuss tossing but we did discuss the way your focus entirely changes once you are in a trade.

In short "I wish I could read the action when I'm not in a trade as well as I can when I'm in a trade"

There is something about being in a trade that gives you a very accurate feel for whether it will work out or not. Now, whether you act on that is a different matter. I just can't get the same feel for the market without having any money on.


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Originally Posted by Liquid validity View Post
BTW, I still don't know why you don't just sell your software outright to ninja,
or negotiate a royalty deal.
Correct me if I'm wrong, but 3rd party plugins are pretty rare in this area aren't they?
Could be putting people off with the machine ID transfer problem if you decide to knock it on the head?
Well - there's plans but not in that direction.
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Old Apr 7, 2012, 4:42am   #27
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Re: Bottom Up or Top Down?

Quote:
Originally Posted by DionysusToast View Post


In short "I wish I could read the action when I'm not in a trade as well as I can when I'm in a trade"

.
Yes is much easier to feel the market more only when we are in the trade (some traders send "the scout" before sending the troops, for those reasons).

But in my view is wrong to do that, we should be engaged in the market specially when we are not in the trade, and entering the market should be only a consequence of that connection. (If we feel a sentiment of excitement when we enter the trade, that means that we still have a lot of work to do with ourselves).

We can do that (engaged) by a close and constant examination of the condition of the market.

Often it becomes difficult to keep the focus on, specially when the market gets into one of his dull move, is then tough that we mostly should not slip into boredom because the stalling of the movement tends to accelerate as a consequence of that balance.

Last edited by Mike Kshemaraja; Apr 7, 2012 at 6:52am.
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Old Apr 7, 2012, 7:28am   #28
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Re: Bottom Up or Top Down?

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Originally Posted by DionysusToast View Post
Funny - that topic came up in the conversation. There is something about being in a trade that gives you a very accurate feel for whether it will work out or not. Now, whether you act on that is a different matter. I just can't get the same feel for the market without having any money on.
No, neither can I, no matter how small the stake. It sharpens the senses!
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Old Apr 7, 2012, 2:19pm   #29
 
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Re: Bottom Up or Top Down?

DionysusToast started this thread
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Originally Posted by Shakone View Post
Basically what this says to me is that if you don't have an edge on entry that's sufficient to overcome costs and spread, then you won't make it. I disagree with this. There are two parts to the trade, the entry and then the exit. If you have a good edge on entry, you could make money with fixed stop and target same size, like the prop trader suggests. If you have a good edge on exit then you can make money from a random entry system. If you have both, then you can make a lot of money.

However, I suppose he has a point, in that if you can't find an edge with entry, you're unlikely to find one with exit, since that's harder imo.
Good point but I think you are thinking too much.... Or rather, being too literal...

It wasn't a case of "set your target and stop and don't under any circumstances tighten either of them".

It's about - giving yourself a goal and a stop of say 6 ticks and trading the ebb & flow. Of COURSE you can get out early. It would be a bit daft to have an exercise where you tune yourself into the market and don't react when you are tuned into the fact it's going against.

It's about getting into the flow of the market, getting into the way it moves, of course if you get in and it moves against you, you need to get out. The skill of course, is to recognise 'moving against' and 'just wiggling about'.
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Old Apr 7, 2012, 2:22pm   #30
 
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Re: Bottom Up or Top Down?

DionysusToast started this thread Finding flow | Psychology Today

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AGINE THAT YOU ARE SKIING DOWN A SLOPE and your full attention is focused on the movements of your body and your full attention is focused on the movements of your body, the position of the skis, the air whistling past your face, and the snow-shrouded trees running by. There is no room in your awareness for conflicts or contradictions; you know that a distracting thought or emotion might get you buried face down in the snow. The run is so perfect that you want it to last forever.

If skiing does not mean much to you, this complete immersion in an experience could occur while you are singing in a choir, dancing, playing bridge, or reading a good book. If you love your job, it could happen during a complicated surgical operation or a close business deal. It may occur in a social interaction, when talking with a good friend, or while playing with a baby. Moments such as these provide flashes of intense living against the dull background of everyday life.

These exceptional moments are what I have called "flow" experiences. The metaphor of flow is one that many people have used to describe the sense of effortless action they feel in moments that stand out as the best in their lives. Athletes refer to it as "being in the zone," religious mystics as being in "ecstasy," artists and musicians as "aesthetic rapture."

It is the full involvement of flow, rather than happiness, that makes for excellence in life. We can be happy experiencing the passive pleasure of a rested body, warm sunshine, or the contentment of a serene relationship, but this kind of happiness is dependent on favorable external circumstances. The happiness that follows flow is of our own making, and it leads to increasing complexity and growth in consciousness.
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