Useful things I've found on the Net.

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Old Mar 9, 2008, 12:15am   #46
 
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nine started this thread Another useful thing. We all know that futures contracts should be rolled over when the next contract has more volume than the contract you've been trading right.

This site gives daily volumes across a wide range of contracts:
MRCI's End of Day Prices

And this explains the joy of rolling your contracts:


Back-Adjusting Futures Contracts

Bob Fulks
May 11, 2000
Introduction

To backtest a trading system for trading futures contracts, we would like to have a long duration of price data on which to test our trading system. The problem is that futures contracts expire periodically and the data for each contract lasts only a few weeks or months. So we need some way to create a long series of price data from a sequence of contract prices. This paper discusses the various ways it can be done and explores the advantages and disadvantages of each method. My experience is with only the S&P futures contract so I will use it as an example although the same principles apply to any future contract.

The Problem

The issue arises because the pricing of a futures contract is slightly different than the price of the underlying commodity since it includes other factors. This difference is called the "premium". For the S&P Futures this difference includes the cost of interest and the dividends of the S&P stocks. The theoretical value is called the "fair value". It is the price at which investing in the underlying commodity has the same return as investing in the futures contract. For agricultural futures, the difference can include such things as storage costs, etc. For the S&P futures it is calculated as follows: Futures_Price = Cash_Price * (1 + d * (i - v) / 365) where: i = interest rate for fair value calculation = about 5% now v = dividend rate of the S&P cash index = about 1% now d = days_to_expiration At rollover, the days_to_expiration number jumps, causing the jump in the premium. With today's values, the jump in price is about 1%, or about 12 points on the S&P futures contract. In the examples that follow, for simplicity, we will use the 12 points as the size of the jump at expiration, keeping in mind that the actual number does depend upon the level of the index, and interest and dividend rates.

The interest rate term arises because with the futures contract, we are using leverage for which we are not paying interest. Thus, the cost of the interest gets built into the price of the futures contract. The dividend term arises because with futures, we do not get the dividends that we would have gotten if we had bought all the stocks in the S&P. (This is approximated as an average but since dividends occur at different times, an accurate simulation would include the exact expected dividends and when they were paid.) The actual price difference between the futures contract and the underlying can and does deviate from this theoretical value on a minute-by-minute basis. But the difference is usually very short lived because arbitrage players step in to buy one and sell the other and this activity keeps the relative prices closely tracking fair value. There are often fairly big differences in the reported daily "closing prices" since the futures markets close at a different time than the cash market and a lot can happen between the close of the two markets. Thus, we have a discontinuity in the price of the futures contract at the expiration that must be accounted for in some way for backtesting.

Possible Methods

The primary alternatives are:

1. Splice contracts together without price adjustment. This causes large price jumps at splice points. The price jumps cause two problems. They distort the operation of most trading indicators and automatic trading systems. For example a 14-day simple moving average would mix some of the prices from the old contract and the higher prices from the new contract giving a distorted picture of what is happening. They can cause large trading profits and losses to be included in backtest results that a trader would not have experienced in actual trading. For example, if our system was long one contract before the expiration and we sold after expiration, then the system would include the 12-point artificial jump in price for an apparent profit of 12 * 250 = $3000. If we didn't notice this, we might think our trading system was very profitable. Even worse, if we were optimizing the parameters of our trading system, some of the parameter values might cause us to hold the position through the transition and some might not, causing big discontinuities in the results and causing us to get false optimum parameter values. As a result of these problems, this method is unsuitable for most backtesting.

2. Close out trades at "roll over" to the new contract at expiration. This is what we have to do in real life at the end of a contract. To do this, we exit the old position and re-enter a new position in the new contract. But this is trickier than it appears in backtesting since we would have to make sure that any indicators or averages we are using do not simultaneously look at some old and some new price values. Some people prevent this by using "bridge data". For example, if your trading system uses 14 days of past data as part of its calculations, you would need to artificially create 14 days of bridge data from the old contract, increased in price by the 12 points, to get the trading system initialized at the new contract values. This can be difficult to do if we are trying to test over a long price series including several contracts.

3. Splice contracts together with forward price adjustment at contract boundaries. Subtracting the 12-point difference from each new futures price before we use it does this. On the following contract, the offset would be 24 points, etc. This method eliminates the need to manipulate old price data but causes the futures contract prices to keep diverging further and further from actual prices as time goes on.

4. Splice contracts together with backward price adjustment at contract boundaries. This is the method most often employed. Adjusting the price of the old contracts by adding the offset (12 points in our example) accomplishes this. With this method the most recent continuous futures contract prices are same as the current contract prices, but previous contract prices are offset. Backward adjustment is much more difficult to do, because all past prices have to be recalculated at each new contract boundary. Some people add the difference to past contracts and some multiply all old data by a factor, 1.01 in our example. Adding the offset is most common since it keeps the old price values lined up with the tick values. For example, if a contract moved in 1/32-point increments, we would like the increments to remain on 1/32 boundaries far back in time. Using the multiplying factor would slowly cause them to deviate. Either of the method 3 or 4 above gives us a series of prices with no discontinuities. They maintain the bar-to-bar increments as they were in the original contracts. Since most trading systems use the bar-to-bar differences these methods will not distort the trades. You can test if your trading system is sensitive to the absolute level of prices by adding some constant, such as 100 points, to all prices. If the trades and profits remain the same, your system is independent of the absolute level of prices and will not be affected by the back adjustment process. On some commodities, the back adjustment is negative and this can make the price go negative over time. This is easy to handle by simply adding a constant value to all prices when backtesting to assure that all prices remain positive.

5. Continuously adjust the price series over time ("Perpetual") This approach adds some of the prices from the current contract with some from the next contract. The continuous futures contract value initially would be composed of a large percentage of the current contract and a small percentage of the next contract. As a contract expiration date becomes closer, a progressively smaller percentage of the current contract and larger percentage of the new contract is used. This results in a smooth blend from one contract price level to the next. The calculations are shown below: Assume we are merging the prices of the 9/98 and the 12/98 contracts. Assume the following can represent the price in each contract: P1 = C + F * d1 + s1 P2 = C + F * d2 + s2 where: P1 is the price of the 9/98 contract on any bar P2 is the price of the 12/98 contract on any bar d1 = days to expiration on the 9/98 contract d2 = days to expiration on the 12/98 contract s1 = a residual value indicating how the actual price differs from "fair value" on the 9/98 contract s2 = a residual value indicating how the actual price differs from "fair value" on the 12/98 contract F is the "Fair Value Factor" defined as follows: F = C * (i - v) / 365 (about 13% then) C = the value of the S&P cash index = about 1186 then i = interest rate for fair value calculation = about 5% then v = dividend rate of the S&P cash index = about 1% then By manipulating the algebra, you can show that the merged contract price, Px, equals: Px = (91 * F) + (s1 * d1 / 91) + (s2 * (1 - d1 /91)) This consists of three terms:

(91 * F) = (91 * 0.13) = about 12 then. This is the premium at the start of each contract due to the fair value calculation.

(s1 * d1 / 91) = the residual value of the 9/98 contract weighted by the days remaining on the 9/98 contract.

(s2 * (1 - d1 /91)) = the residual value of the 12/98 contract inversely weighted by the days remaining on the 9/98 contract.

So there is a fairly constant offset due to the fair value rates, plus the weighted average of the residual price values of the two contracts. It will be about 1% higher that the S&P cash index at all times with no discontinuities and noisier because the volatility of the futures contract is greater than that of the cash index. The residual value of the combined price series will have volatility less than either of its two components since uncorrelated random variations will partially cancel. The characteristics of the resulting adjusted price will be quite different than the price of either contract. The prices will not fall on multiples of the minimum price movement such as 1/32 in the case of bonds. We could round to those increments but this would introduce a new source of noise. The volatility of the resulting price will be less than the real contracts, particularly near expirations. Finally the price will always be about 1% higher than the S&P cash index. This is unlike the futures price, which decreases at about a 4% per year rate over time. All of these factors can affect the performance of a trading system and could make the results of backtesting differ from trading a single contract. For a long-term system, one that stayed in the market for many months, using such data would be very convenient since it would eliminate the need to ever worry about expirations in backtesting. For a medium-term system, say one that stayed in the market for many days to weeks, such distortions would be insignificant. For short-term trading, say under a few days, they become important. For a day-trading system they could be serious sources of error. Systems that trade on the volatility of the price data will not work as well on such data since the volatility of the merged data is less than that of either contract.

6. Use continuous adjustment for both backtesting and trading Actually, trading a mix of the two contracts can eliminate the distortions mentioned above. This is only practical if you are trading perhaps over 20 contracts so that you can adjust the number of each in the proper proportions over time. It also adds a level of complexity to the trading system.

Special Cases

The processes described above are suitable for most cases. But there are special cases that cannot be covered by any general technique. For example:

* "Beginning with the March 2000 contract, the notional coupons of the CBOT Treasury bond, 10-year, 5-year, and 2-year Treasury note futures contracts will change from 8% to 6%." Thus, all past data on the 8% contracts will not be suitable for backtesting the 8% contract.

* "The Chicago Mercantile Exchange (CME) announced that it has increased the size of the random length lumber futures contract beginning with the January 2000 contract expiration. The contract is currently sized at 80,000 board feet and will increase to 110,000 board feet due to the size and capacity of railcars used to ship lumber." Thus, the prices for the old contract will not be applicable to the new contract. There is no general way to handle such special cases. Frequently, guidance for how to make adjustments is available directly from the web sites of the exchanges where these commodities are traded.

Summary

There is no "best" method in an absolute sense. All the methods have advantages and disadvantages. The best method in particular cases depends on the type of market analysis being done or the type of trading strategy being used. For instance, trading systems that compare current prices to distant past prices probably will back-test more realistically with Method 5, because there is less long-term price distortion. However, Method 5 tends to produce very unrealistic results with trading strategies that depend upon price waveshape measurement, because there will be significant medium and short-term waveshape distortion. Neural networks, exotic waveshape filters, wavelet methods, Fourier methods, and many other advanced methods do not back test realistically with that method. Method 3 or 4 will be much better to use in those cases. Method 4, using backward price adjustment is the most popular.

My Conclusions

I use Method 4 - back adjusted - because my objective is to simulate the behavior of my trading system on actual contract data as accurately as possible. My trading systems use the bar-to-bar price differences so are unaffected by adding a constant to all prices. Since method 4 (and method 3) maintains the exact bar-to-bar price changes of each original contract, this is what I prefer. Needless to say, other people might consider other factors more important. I have no interest in having my systems perform more poorly on backtesting that they would have on actual contracts. (Maybe you could call it some sort of "stress testing".) If I were using a long-term period, I would definitely use method 5 - the continuously adjusted contract but that is not what I am trading.

-Bob Fulks

Back-Adjusting Futures Contracts
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Old Mar 9, 2008, 12:31am   #47
Joined Jun 2006
Nine,

For index futures, the underlying cash market will be adequate as a proxy.

Grant.
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Old Mar 9, 2008, 7:59am   #48
 
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nine started this thread For Pete, an example of these strategies as they apply to a contract I trade ($25 per point or $50 per horizontal line per contract). I haven't marked the trades, that would simply be showing off and might not reflect the readers eventual strategy.

For Grant, an example of how volume can provide useful supporting information in a sub 5 minute bar timeframe. I didn't used to use volume but following db's stuff I gradually realised that it could help ... its not a holy grail but it can improve your perception of what's taking place. Note that the lack of holy grail status may simply reflect my limitations


Edit: I think I might have run out of useful things from the net for the momet. If anyone else has any though, please feel free to add them.
Cheers and the best of luck in this tricky game.
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Old Mar 9, 2008, 12:00pm   #49
Joined Jun 2006
Nine,

I've always believed in the importance of volume, especially as conveyed by DBPhoenix(I've printed most of his stuff).

However, your charts illustrate the fact that prices move on low volume. This is why from a scalping perspective I question it's significance. By the time a move is a showing conviction, ie good volume, the profit has already been taken (unless of course it's still running in your favour). Therefore, at best, volume is only a reinforcement to your initial decision.

But before I'm written off, you have made me look again at volume re scalping, specifically where volume seems to reach a low point indicating a possible reversal or turning point in price.

Grant.
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Old Mar 9, 2008, 1:52pm   #50
Joined Jan 2007
good thread and posts

Hi Nine

good thead and posts Nine

I have found many things on the net that I thought were of value, only to later find that .................. they were not of any value at all

all that sparkles is not Gold.

A few things I have come across on the net that I consider of value imho are......

1)

Trend lines, to me, are drawn arbitrarily. I just use them as a sort of "comfort line". If I am on the right side of it I feel fine and have no worries. The rule that they must be drawn across the tops or bottom is, more or less, telling the market what to do. How can you expect that of a price? When the price cuts the trend I look to see if a pattern is forming. If the pattern is continuous, I revert to a trend line, again, almost certainly, the momentum will have changed but if I keep to the right of it in a bear and to the left of it in a bull then I am OK- Whenever it crosses, it is a warning to pay attention to the trade, nothing more.

There is nothing to be learned from trend lines, IMO anyway, except to help keep the ship on course. Go inside it and you are entering into shallow water.

Watch the trend line but remember that deep sea men don't like shallow water. Neither do coastal men like deep water.

BY

Split


thanks for passing it on to me Split, thanks for the last sentence to at the appropriate time to provoke some required thought on my part :-)

2)

The Five Fundamental Truths
1. Anything can happen.
2. You dont need to know what is going to happen next in order to make money.
3. There is a random distribution between wins and losses for any given set of variables that define an edge.
4. An edge is nothing more than an indication of a higher probability of one thing happening over another.
5. Every moment in [a game] is unique.
The Seven Principles of Consistency
1. I objectively identify my edges.
2. I predefine the risk of every [betting decision].
3. I completely accept the risk or I am willing to let go of the [hand].
4. I act on my edges without reservation or hesitation.
5. I pay myself as the [game] makes money available to me.
6. I continually monitor my susceptibility for making errors.
7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them.

thanks for passing them on to me FW :-)

3) Last but not least, or perhaps thats where it belongs

dbs work, thanks for passing it on to me db, I was going to highlight a bit but resisted the temptation :-)

http://www.trade2win.com/boards/mapping-territory/

A springboard can be said to exist when preparations have been made for, and the psychological moment has arrived for, a quick and important move . . .

Auction markets are in continuous flow from trending states to non-trending states. If a trader is interested in movement and momentum, he will likely be interested in a trending market and try to avoid a non-trending market (what is often called "chop"). Springboards serve to alert him to upcoming changes from one state to another. They alert him to prepare for a transition (whether it turns out to be substantial or trivial) from non-trending to trending or vice-versa, i.e., that point at which price is on a "springboard" to an advance. One can busy himself with questions of who's doing what and why (weak hands, strong hands, professionals, amateurs, intent, prediction, and so on), but none of this is essential or perhaps even important. What is important is being prepared for whatever hand the market deals you. In this way, one can maintain calm and objectivity, not dither with last-minute surprises.

What one does with what is in front of him depends largely on whether he is in a trade or he is looking to enter one. If he is in a trade, he's looking for signals that momentum is slowing. If he isn't, he may be looking for the same thing as an opportunity to enter, depending on what else is going on (e.g., is support being tested, is this the end of a parabolic move, has trading activity spiked or evaporated). However, before getting into all the possible tactics that can be employed to play these movements, I suggest that whoever is interested in this subject work toward finding these zones where traders are seeking balance (or equilibrium or fair value or whatever one chooses to call it). Again, these zones occur in all charts in all timeframes. And if one understands why they form, he is less likely to be freaked when his trade stops, much less retraces (he will, of course, have decided in advance what he is going to do when this unavoidable circumstance presents itself).

4) Wings and glass"s for Pinkpig :-)


Good Luck in your search
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Old Mar 9, 2008, 2:42pm   #51
 
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Quote:
Originally Posted by nine View Post
The floor trader's method provides one basis for trading based on price pattern recognition. In some markets observation of volume can improve your results.

Although it may seem dissimilar to what dbPhoenix discusses with S & R and Wyckoff they are not that far apart. In both cases you are looking for price action at anticipated support or resistance to generate signals for trading. With Wyckoff the S&R is "true" S&R based on areas of previous activity but in the FTM the S&R comes from moving averages. In both cases you largely ignore price action unless it takes place at valid S&R.

FTM does not provide you a "no-thought" packaged solution to trading the markets. What it does provide is a framework that can be used independently of or as a complement to Wyckoff style S&R trading. My own strategy combines elements of both under certain circumstances to improve my probabilities. Think about the progression of a move and what you a being told as price progresses or fails to progress.

One of the keys is finding the "right" mas for S&R. The ma is just a visual way of representing what players in the market will perceive as value. And, as a move progresses the perception will change so the FTM talks about different levels of penetration of the MAs depending on the nature and stage of the trend. Different markets (on different timeframes) gain support from different mas so picking the right ones by trial and error is an important component of success - think about what other participants are using. Are they using emas (intraday) or smas (daily)?

Potentially you could eliminate the emas and use trendlines or channels instead. A good friend of mine, perhaps poking fun at me, refers to my mas as a lazy man's trendlines.

This is, however, a sound strategy for trading especially in markets prone to good trends.
I was told I'm being talked about over here.

It appears that the system you've quoted above is just a variation on Dunnigan, i.e., Dunnigan with MAs. And your friend is right: MAs are a lazy man's TLs, i.e., MAs are simply moving TLs, and are not necessarily of consequence to this approach.

As for whether it's all consistent with Wyckoff, of course. Unfortunately, these template-style examples tend to overlook the real-time difficulties that go on with annoying frequency. That's where understanding the various hesitations and tests and timeouts and how all of that relates to all that went before (S/R) is key to knowing what to do next, or whether or not to do anything at all. If only all trends were stair-step, life would be simple indeed.

As for Teresa Lo, she gave me some of the best advice I've ever received, regarding what happens after one enters a trade: "if it doesn't go, you don't want to be there".

But in general, at some point the trader is likely to find himself faced with an obstruction to his continued advancement. He may be able to work his way past that obstruction by remembering two things: (1) price and volume do not move in bars (which carries certain implications with regard to counting them), (2) there is no such thing as "noise".

I'm attaching an extremely introductory pdf re trends which includes Dunnigan. If you're interested in trend, I urge you to read his explorations of it in his One-Way Formula book (don't pay an inflated price; get a used one).
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Old Mar 9, 2008, 2:43pm   #52
Joined Jan 2007
Forget my own head if it was not attached....Rules

Some rules I found on the net are up to the job imho


Old Rules...but Very Good Rules.

If I've learned anything in my 17 years of trading, I've learned that the simple
methods work best. Those who need to rely upon complex stochastics, linear
weighted moving averages, smoothing techniques, fibonacci numbers etc.,
usually find that they have so many things rolling around in their heads that
they cannot make a rational decision. One technique says buy; another says
sell. Another says sit tight while another says add to the trade. It sounds like a
clich, but simple methods work best.

1. The first and most important rule is - in bull markets, one is supposed to
be long. This may sound obvious, but how many of us have sold the first
rally in every bull market, saying that the market has moved too far, too
fast. I have before, and I suspect I'll do it again at some point in the
future. Thus, we've not enjoyed the profits that should have accrued to
us for our initial bullish outlook, but have actually lost money while being
short. In a bull market, one can only be long or on the sidelines.
Remember, not having a position is a position.

2. Buy that which is showing strength - sell that which is showing
weakness. The public continues to buy when prices have fallen. The
professional buys because prices have rallied. This difference may not
sound logical, but buying strength works. The rule of survival is not to
"buy low, sell high", but to "buy higher and sell higher". Furthermore,
when comparing various stocks within a group, buy only the strongest
and sell the weakest.

3.When putting on a trade, enter it as if it has the potential to be the
biggest trade of the year. Don't enter a trade until it has been well
thought out, a campaign has been devised for adding to the trade, and
contingency plans set for exiting the trade.

4.On minor corrections against the major trend, add to trades. In bull
markets, add to the trade on minor corrections back into support levels.
In bear markets, add on corrections into resistance. Use the 33-50%
corrections level of the previous movement or the proper moving average
as a first point in which to add.

5.Be patient. If a trade is missed, wait for a correction to occur before
putting the trade on.

6.Be patient. Once a trade is put on, allow it time to develop and give it
time to create the profits you expected.

7.Be patient. The old adage that "you never go broke taking a profit" is
maybe the most worthless piece of advice ever given. Taking small profits
is the surest way to ultimate loss I can think of, for small profits are
never allowed to develop into enormous profits. The real money in
trading is made from the one, two or three large trades that develop
each year. You must develop the ability to patiently stay with winning
trades to allow them to develop into that sort of trade.

8.Be patient. Once a trade is put on, give it time to work; give it time to
insulate itself from random noise; give it time for others to see the merit
of what you saw earlier than they.

9.Be impatient. As always, small losses and quick losses are the best losses.
It is not the loss of money that is important. Rather, it is the mental
capital that is used up when you sit with a losing trade that is important.

10.Never, ever under any condition, add to a losing trade, or "average" into
a position. If you are buying, then each new buy price must be higher
than the previous buy price. If you are selling, then each new selling
price must be lower. This rule is to be adhered to without question.

11.Do more of what is working for you, and less of what's not. Each day,
look at the various positions you are holding, and try to add to the trade
that has the most profit while subtracting from that trade that is either
unprofitable or is showing the smallest profit. This is the basis of the old
adage, "let your profits run."

12.Don't trade until the technicals and the fundamentals both agree. This
rule makes pure technicians cringe. I don't care! I will not trade until I am
sure that the simple technical rules I follow, and my fundamental
analyses, are running in tandem. Then I can act with authority, and with
certainty, and patiently sit tight.

13.When sharp losses in equity are experienced, take time off. Close all
trades and stop trading for several days. The mind can play games with
itself following sharp, quick losses. The urge "to get the money back" is
extreme, and should not be given in to.

14.When trading well, trade somewhat larger. We all experience those
incredible periods of time when all of our trades are profitable. When that
happens, trade aggressively and trade larger. We must make our
proverbial "hay" when the sun does shine.

15.When adding to a trade, add only 1/4 to 1/2 as much as currently held.
That is, if you are holding 400 shares of a stock, at the next point at
which to add, add no more than 100 or 200 shares. That moves the
average price of your holdings less than half of the distance moved, thus
allowing you to sit through 50% corrections without touching your
average price.

16.Think like a guerrilla warrior. We wish to fight on the side of the market
that is winning, not wasting our time and capital on futile efforts to gain
fame by buying the lows or selling the highs of some market movement.
Our duty is to earn profits by fighting alongside the winning forces. If
neither side is winning, then we don't need to fight at all.

17.Stock Markets form their tops in violence; Stock markets form their lows in quiet
conditions.

18.The final 10% of the time of a bull run will usually encompass 50% or
more of the price movement. Thus, the first 50% of the price movement
will take 90% of the time and will require the most backing and filling and
will be far more difficult to trade than the last 50%.

There is no "genius" in these rules. They are common sense and nothing else,
but as Voltaire said, "Common sense is uncommon." Trading is a common-sense
business. When we trade contrary to common sense, we will lose. Perhaps not
always, but enormously and eventually. Trade simply. Avoid complex
methodologies concerning obscure technical systems and trade according to
the major trends only


Time for take off...........
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Old Mar 9, 2008, 2:54pm   #53
Joined Jan 2007
Time Stop

Quote:
Originally Posted by dbphoenix View Post
I was told I'm being talked about over here.

It appears that the system you've quoted above is just a variation on Dunnigan, i.e., Dunnigan with MAs. And your friend is right: MAs are a lazy man's TLs, i.e., MAs are simply moving TLs, and are not necessarily of consequence to this approach.

As for whether it's all consistent with Wyckoff, of course. Unfortunately, these template-style examples tend to overlook the real-time difficulties that go on with annoying frequency. That's where understanding the various hesitations and tests and timeouts and how all of that relates to all that went before (S/R) is key to knowing what to do next, or whether or not to do anything at all. If only all trends were stair-step, life would be simple indeed.

As for Teresa Lo, she gave me some of the best advice I've ever received, regarding what happens after one enters a trade: "if it doesn't go, you don't want to be there".

But in general, at some point the trader is likely to find himself faced with an obstruction to his continued advancement. He may be able to work his way past that obstruction by remembering two things: (1) price and volume do not move in bars (which carries certain implications with regard to counting them), (2) there is no such thing as "noise".

I'm attaching an extremely introductory pdf re trends which includes Dunnigan. If you're interested in trend, I urge you to read his explorations of it in his One-Way Formula book (don't pay an inflated price; get a used one).

Hi db

Just off for another week of adventure


good post as per

"As for Teresa Lo, she gave me some of the best advice I've ever received, regarding what happens after one enters a trade: "if it doesn't go, you don't want to be there"."

good point imo, I use a bit of a time stop regards this one and have found it very effective. You could use bar count in your time frame of just a watch.(time piece/clock :-)

I use my tummy get a funny feeling a bit like sickness after a set period of time if its not moved in intended direction, other signs to look out for

watching intently =

GONE ASAP

Later...........
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Old Mar 11, 2008, 7:46am   #54
 
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Quote:
Originally Posted by grantx View Post
Nine,

Re your post 21, from FTS8 onwards.

This is the method I’m trying to perfect at the moment (although I ‘discovered’ the method independently as a modification of another method) . I reckon it’s the best approach for scalping. However, I don’t refer to volume - holding a position for seconds, if possible, I don’t think it strictly relevant (however, if someone can convince me otherwise I’ll certainly listen); and I have no need for technical indicators - their lagging nature would undermine the immediacy of the method.

There is one point of yours with which I would disagree regarding this method: “warning against going to too short a timeframe”. To illustrate why, please refer to the attachment in the second pot - tyhe one haere is incorrect.

The charts are for Friday’s CBOT 10-year future. The upper is a 1-minute time-frame, the lower a 10-tick time-frame. 1, 2, 3 and 4 show high/low points (I’ll use only these – it’s sufficient).

Here are the times of the highs/lows. The first figures are for the 1-minute chart, followed by the times for the 10-tick chart. The figures in brackets are from a 5-minute chart simply to provide a broader perspective.

1. 18:31, 18:30 (18:35)
2. 18:45, 18:44 (18:45)
3. 18:48, 18:48 (same time on the 5-min but the bar is a down-bar compared to an up-bar for 1-min and tick)
4. 19:05, 19:04 (19:05).

Is 1-minute significant? Of course it is (5-minutes is an infinity).

I think the greater the time-frame, the greater the risk. Assume you have a buy (sell) signal and you open a position; your entry price should be as close to the high (low) of the high(low) bar as possible, but not at the high (low) as this level would invalidate the high (low) bar as a buy (sell) signal (you won’t know if a bar is a high or low until the following bar).

Your stop is above (below) the high (low) bar. Therefore, the further away from the high (low) where the position is opened, the greater the potential loss to the stop point. And as price can rise/fall over, eg 1-minute (bar), then logically it can rise/fall by a greater degree over 5-minutes (bar)and the further away your stop.

Each instrument has a unique optimal time for generating signals. As shown, the 10-year note is 10 ticks which is also (strangely) the optimum for the 5- and 2-year notes. For comparison, Eurex’s Bund (10-year) is 25 ticks, Bobl (5-year) is 10-15 ticks, and Schatz (2-year) is 25 ticks. However, I think it’s important to occasionally adjust (check daily) these periods to reflect any change in underlying volatility (the same also applies to moving averages, for example – a 5- and 15-minute ma may work fine one day but if the underlying becomes more volatile 3- and 13-minute may be more suitable).

Are there any weakness? Only my own – not closing some losing positions quick enough (but I’m improving).

Any comments welcome.

Grant.
Hi Grant,

Inclined to agree with you. Like Brutus Dog I use the 5 min and the 1 min trying to trade in the direction of the 5 minute from the 1 minute t/f using a similar method to the one Nine describes. I find that by moving up the t/frames it can cost you a lot more to find out you're wrong. However, there are fewer signals so you are going to get thrown far fewer dodgy ones.

Using divergance as a filter I am finding the signals even stronger. As BD says using divergance with an indicator is actually pre emptive as opposed to lagging.

The key in my opinion to using a setup like this is NO THINKING ALLOWED, literally see the signal and click the button.

Just my $0.02 worth !!

CB
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Old Mar 11, 2008, 10:20am   #55
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CB,

"I find that by moving up the t/frames it can cost you a lot more to find out you're wrong."

This is a good point. I have a similar attitude which I apply to any time frame: how far does the price need to go to prove you are wrong?

In my post above I refer to stops being around the high/low (of the previous bar). For me, this is only relevant if I can open near that point. In practise, this is rarely the case. So I will close immediately if I sense a change in direction as shown by the rapidity of order flows (on the DOM)in the opposite direction. Of course, on occasions you will close prematurely but I justify this approach in the knowledge that I can always re-enter at the original opening point (sometimes better).

I have a quote written on a scrap of paper (forgot the origin):"Get to the point where you don't lose money then profit will take care of itself". For me this also implies maintaining your trading capital.

As regards fewer signals I think this depends on the instrument and volatility, eg equities, index or bond futures. In my experience there is indeed sufficient volatility to scalp over very short periods, eg on a one-minute time frame. Perhaps an immediate reaction would be, 'not enough points to be made in one-minute'. But this misses the point (no pun intended) - the signals generated provide you with early entries (and exits) which could put in a long and sustained movement.

"NO THINKING ALLOWED". Absolutely, but difficult (I'm still fighting this)

Good Trading,

Grant.
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Old Mar 11, 2008, 11:16am   #56
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Quote:
Originally Posted by grantx View Post
"NO THINKING ALLOWED". Absolutely, but difficult (I'm still fighting this)
A reasonable day overall for me yesterday, but it would have been a whole lot better had I stuck to this golden rule. I had two losing trades because my brilliant mind decided (along with a dash of ego) to ignore the blindingly obvious evidence before my eyes, because I thought I was one step ahead of the market. Someone please give me a massive poster to put on the wall with NO THINKING ALLOWED in bold red letters! It'll save me a ton of money. 'NO THINKING ALLOWED' is a more concise, harder hitting variation on Joe Ross's 'trade what you see and not what you think'. I like it.
Tim.
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Old Mar 11, 2008, 11:17am   #57
Joined Jan 2007
good advice

Quote:
Originally Posted by grantx View Post
CB,

"I find that by moving up the t/frames it can cost you a lot more to find out you're wrong."

This is a good point. I have a similar attitude which I apply to any time frame: how far does the price need to go to prove you are wrong?

In my post above I refer to stops being around the high/low (of the previous bar). For me, this is only relevant if I can open near that point. In practise, this is rarely the case. So I will close immediately if I sense a change in direction as shown by the rapidity of order flows (on the DOM)in the opposite direction. Of course, on occasions you will close prematurely but I justify this approach in the knowledge that I can always re-enter at the original opening point (sometimes better).

I have a quote written on a scrap of paper (forgot the origin):"Get to the point where you don't lose money then profit will take care of itself". For me this also implies maintaining your trading capital.

As regards fewer signals I think this depends on the instrument and volatility, eg equities, index or bond futures. In my experience there is indeed sufficient volatility to scalp over very short periods, eg on a one-minute time frame. Perhaps an immediate reaction would be, 'not enough points to be made in one-minute'. But this misses the point (no pun intended) - the signals generated provide you with early entries (and exits) which could put in a long and sustained movement.

"NO THINKING ALLOWED". Absolutely, but difficult (I'm still fighting this)

Good Trading,

Grant.
Hi Grant

"I have a quote written on a scrap of paper (forgot the origin):"Get to the point where you don't lose money then profit will take care of itself". For me this also implies maintaining your trading capital."

Good advice/quote Grant 1st responsibility always imho is the protection of your account/trading capital, one good trade counts for a lot if you have churned for a couple of weeks at or around BE

old advice that used to be given to an apprentice body repairer (vehicles/cars) when experiencing difficulties repairing a dent ....................

look after the edges and the middle will look after its self
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Old Mar 11, 2008, 11:27am   #58
Joined Jan 2007
lol

Quote:
Originally Posted by timsk View Post
A reasonable day overall for me yesterday, but it would have been a whole lot better had I stuck to this golden rule. I had two losing trades because my brilliant mind decided (along with a dash of ego) to ignore the blindingly obvious evidence before my eyes, because I thought I was one step ahead of the market. Someone please give me a massive poster to put on the wall with NO THINKING ALLOWED in bold red letters! It'll save me a ton of money. 'NO THINKING ALLOWED' is a more concise, harder hitting variation on Joe Ross's 'trade what you see and not what you think'. I like it.
Tim.
Hi tim

arrrrrrr thinking = dangerous, well always as been for me in the past

I deal with it with a rule.............

thinking is allowed

I write down my thoughts the night before or post some rubbish on T2W/whatever, do not consider it rubbish at the time I might add.

Next trading session I take my trades as per method

BUT ! if market looks to be agreeing with my earlier thoughts / rubbish I am inclined to hold a touch longer or close a touch earlier, seems to work ok and do not have to worry regards having thoughts anymore
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Old Mar 11, 2008, 1:01pm   #59
Joined Jun 2006
Timsk,

I already do something similar. Stuck to my screen is a page of A4, highlighted by fluorescent pens of suitably gaudy colours is various notes:

“if all losses were kept to a maximum of -20 (2 points), the profits would be substantial.

These big losses are your major problem; they will be your ruin/downfall. You have got to earn a living.

Just close [losing positions] for Christ’s sake. Get a grip. What’s wrong with you?

Stop taking flyers.

Only add when in profit.

Need to look for better set-ups.”

Pink,

“one good trade counts for a lot”. Dead right. I’ve found while some/most trades may be losers, as long as you cut them soon enough the really good trades (anything up to three times a day) will more than make up.

“Measure twice, cut once”

Grant.
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Old Mar 11, 2008, 1:12pm   #60
 
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nine started this thread It seems that not following the plan is a frequent problem. I've always said that day trading is harder than swing trading because the time to make decisions is shorter ... but I wonder if I'm wrong. It could be impulse control fatigue.

When you trade eod you have a 20 minute period when you think about your trades and make your decisions. If you get the impulse to try something "off plan" you usually reject it and then act according to plan. Then you go about your normal business, dinner, tv, kick the cat.

When you day trade, even for only 3 hours as I do, you get multiple opportunities to make an impulsive off plan move. You get one, and you reject it. Then you get another, and you reject it. And you get another, and fxxk it, you do it ... and maybe you even repeat it.

So how do you fix this? One way is a bunch of psychological tricks and some procedural ones as suggested here. Another way is: have a chocolate bar (or just a bit every 15-20 minutes during the trading session.




Resisting temptation is energy intensive:

Cognitive Daily has just published a great write-up and demonstration of a study that illustrates how self-control is an energy intensive process that puts a big drain on the body's glucose levels.

The article tackles a recent study [pdf] led by psychologist Matthew Gailliot that found that exercising self-control in either conversations or in lab tasks reduces blood glucose levels.

The researchers also found that initial glucose levels can predict how well people do on these tasks and that self-control can be temporarily boosted by giving people a sugary drink.

Cognitive Daily's have recreated one of the lab tasks. Go and check it out, it's an excellent demonstration. It makes the task wonderfully clear but also illustrates how even such simple self-control tasks are so difficult.

This sort of 'self-control' is heavily linked to attention - in part, the ability to focus yourself on one particular thing and not get drawn into perceptual or emotional distractions.

This study doesn't tackle brain function, but another recent paper by Gailliot [pdf] does link these findings to what we know about the neuropsychology of 'self-control'.

This ability is particularly associated with the frontal lobes, which are known to play a key role in inhibiting inappropriate responses.

You can see control break down in interesting ways after frontal lobe damage, which can often lead to a range of impulsive behaviours.

For example, patients with damage to this area might display utilisation behaviour, where they are unable to resist carrying out actions presented by their environment.

The affected person might be unable to walk past a door without trying to open it or sit in front of a coffee cup without sipping it, even when they know it's too hot to drink.

What's interesting, is that as the CogDaily article illustrates, we seem to have a mild form of this when we are low on energy or fatigued.

It's interesting to speculate that the reason we get 'snappy' when tired is because we're less able to control the emotions sparked by small annoyances.


from Mind Hacks
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