my journal

HOW TO EXPLOIT PIVOT LEVELS? BOUNCING OR BREAKING? AND FOR HOW LONG?

SEVERAL BRIEF TRADES PER DAY (MINUTES LONG)
I am planning to make brief trades (5 minutes), not on breaking through them, but only on bouncing off them, as long as price leading to them is overstretched in favor (how dumb to say... it couldn't be stretched against them, because price wouldn't be going towards them but away from them).

I thought I could consider pivots like bus stops, but i can't, usually (I can't unless the price is highly overstretched, which only happens once a week). But I can count on the fact that a lot of people are considering them so. A lot of people are going to get on the bus thinking that it will take them to the next pivot level. You gotta bet on that, but not believe yourself in the fact that you will get to the next bus stop. There are a lot of false signals: too many. But you can make money on the false signals. Can't keep an hourly timeframe. Need 5 minutes and lens on chart.

FEW LONGER TRADES PER WEEK (HOURS LONG)
Now, there are exceptions: the more you're overstretched the longer you count on the bus moving towards the next bus stop. Say you have them 10 hours overstretched: you can count on them getting to the next bus stop. There's enough fuel cumulated there. If they've been zigzagging, don't count on them getting on the next bus stop upon touching a pivot level.

BUS STOP TO BUS STOP ONLY IF OVERSTRETCHED IN POINTS AND HOURS
You can count on them taking you to the next bus stop only as long as the "overstretched system" parameters are met. Like yesterday: big overstrechedness in points and hours, and then you can count on price getting from one bus stop to another (from pivot level to level).

IT'S LIKE A SPRING: IF YOU DON'T WIND IT, OR A RUBBER BAND IF YOU DON'T STRETCH IT
All futures I am trading, are close to pivot points most of the time. All I have to do is look for the most wound up springs and bet on a reversal. Continuation upon breaking through pivots is like those buses on their second stop and their spring is definitely not as wound up. Like the EUR now: it doesn't know where to go.



Once again, I want to bet on NOT on continuation upon breaking of pivot levels but on bouncing upon touching such levels. This is going to be what I'll do. Like the CL now.



FORMULA READY TO GO: the more bus stops we went through the closer to terminal
One will ask how do we could measure "overstretched". Simple. How many bus stops (pivot levels: if we're falling R2, R1, P, S1, S2) did we go through? 5? In how many hours? Forget ticks. Use the bus stops... or use both. All three: bus stops, hours, ticks (from top to bottom). Depending on those three factors the terminal could be close.

Say: we went through 3 bus stops: the next one will most likely be the terminus.

Another good idea might be (but I am just thinking out loud) to get off the bus at each stop, and get back on the bus at the last minute, once you've found if the bus is going back to terminal or continuing to trip forward.


ON THE "CL" BUS with 2 PASSENGERS
For example, a few minutes ago, I got on the "CL" bus (see picture below) with 2 contracts. Should I get off the bus as we reach this bus stop or hope for it to reach a second bus stop? According to the time of the time, to how much it's been screwing around earlier, I think it will reach a second bus stop, so I will stay on the bus for a second bus stop once it reaches the first one. Or I could let one passenger off the bus. So after all, I am staying on the bus despite the breaking through a pivot level. But one thing I will never do is get on the bus at the second stop. No sir. I am either already on the bus or I won't even get on it. There's other markets to exploit, from terminus.

But you know what? Forget everything I said. The CL and all the other futures do not look reliable at all as far as pivots. Not even the GBP. The only one that does look reliable is the EUR. And to that I still have to apply the overstretched requirements or I can't even trust pivots for EUR. So pivots after all seem like a big ripoff, except on the EUR and when it's heavily overstretched.

When that happens, and we're close to that situation, you place a limit order near the pivot level (slightly before) where it's supposed to bounce off, and leave. If it gets executed, you hold for say 3 hours and then take whatever you made. Then move on with your life. No trailing stops, nor stoplosses. Just time exits.

NEW VERSION OVERSTRETCHED METHOD

ENTRIES:
Set up a month of hourly candles with pivots on EUR FOREX

These 3 requirements MUST be met:
1) overstretched in ticks (>150 ticks top-bottom)
2) overstretched in hours (>24 hours going up or >12 hours going down)
3) time is between 3 and 10 pm CET

At least 1 of these 2 requirements must be met:
1) pivots (touched S2 or R2)
2) reversal pattern (increasingly shorter legs, do not enter after a tall candle)


EXITS:
Close position after >9 hours and 5-9 AM OR earlier if: you reach a second pivot level (e.g.: from P to R2) or you cover >50% of the previous move (that is at least 75 ticks).

I SUCK...
Today I lost about 1000 dollars with clueless trades on EUR, not being overstretched and therefore wrong trades, and on CL, that was a bit overstretched but wasn't reliable, for many reasons: time, not overstretched enough, pivots unreliable... Today I sucked badly, just like yesterday, and because of impatience and superficiality. I am so hard-working and serious when it comes to posting youtube videos, and when I place trades I am totally superficial, and light-hearted. Big problem.

Remember how I complained about being stuck at 10k forever? Well, I solved that problem. Now I am at 9k. I suck.

... BUT MY SYSTEMS ARE GOOD
But I did do one thing right. Good money management. That's my consolation. My system in these past two days lost thousands of dollars, but I wasn't trading it, because I implemented new money management rules, essentially based on drawdown and maximum loss.

My money management is based on drawdown: I invest more on those systems that have a good ration of forward tested profit over highest drawdown (between forward and back tested drawdown).

My risk management (I may use the term loosely) is instead based on the fact that no matter how good the above ratio is, I won't any systems to trade if their maximum forward loss is more than 5% of my capital. This way I am very very protected from any surprises.

However: I am missing patience. Patience to see my capital grow and even patience to wait for those good opportunities that my overstretched discretionary system could seize.

The rule should be that I make at the most 1 trade per day. Other than this, it's just gambling, or rather compulsive gambling.

NEW OVERSTRETCHED METHOD

ENTRIES:
Set up a month of hourly candles with pivots on EUR FOREX
Enter long/short at 8 AM/PM CET based on these principles:

These requirements MUST be met:
1) overstretched in ticks (>100 ticks top-bottom)
2) overstretched in hours (>24 hours going up or >12 hours going down)

At least 1 of these 2 requirements must be met:
1) pivots (near pivot level)
2) reversal pattern (increasingly shorter legs, do not enter after a tall candle)


EXITS:
Close position after 12 hours, and enter the next trade (unless the requirements are not met).


TRADE #1: SHORT for the next 12 hours

[... reasoning...]

New colleague moved in. She left for lunch....

[...walking and reasoning...]

[...scratching and reasoning...]

Ok. Reached the conclusion. The 12 hours time exit will remain in place - I was thinking of placing a take profit at the next pivot level, but why cut my profits when they're likely to increase for the next 12 hours? On the other hand, there's no reason why I shouldn't cut my potential losses, because if I am wrong I stand to lose 2000 dollars each time I enter and stay in a trade for 12 hours. Therefore I will introduce a change to my, not-so-discretionary, at this point, system:

NEW OVERSTRETCHED METHOD

ENTRIES:
Set up a month of hourly candles with pivots on EUR FOREX
Enter long/short at 8 AM/PM CET based on these principles:

These requirements MUST be met:
1) overstretched in ticks (>100 ticks top-bottom)
2) overstretched in hours (>24 hours going up or >12 hours going down)

At least 1 of these 2 requirements must be met:
1) pivots (near pivot level)
2) reversal pattern (increasingly shorter legs, do not enter after a tall candle)


EXITS:
1) Stoploss at half a pivot level (e.g.: half the distance from P to R1, from P to S1, from S1 to S2) higher/lower (for shorts/longs) than the pivot above/below your entry.
2) Close position after 12 hours, and enter the next trade (unless the requirements are not met).

This system is not a discretionary method any more but has become a manual system, and only because pivots are very very hard to implement and backtest.

I believe that by introducing the stoplosses I have reduced the losses from a potential 200 ticks (coming home and finding I am losing 2500 dollars would be unbearable) to just 40 ticks (500 dollars loss), and have decreased very little the efficiency of the system. After all, if my system is good, I should not have such false signals as to see my stoploss reached and then see the price come back to what would have been a profitable trade. I will miss a few trades because of the stoploss but so few to make it convenient to use it.

My objective is to achieve losses of 40 ticks with those stoplosses going off once every 5 times, and achieving 200 ticks when they don't go off (or less). 80% wins and 5 to 1 ratio, if it were always like this. But of course I won't always make 200 ticks when I guess the market correctly. Sometimes I will only make 40 ticks, but on average I'd predict that I'll win 4 out of 5 times, and have average wins of 100 ticks and average losses of 40 ticks.

That sounds very very good, too good, and even unrealistic for someone who has lost money with discretionary trading for 12 years, but the fact is that this has nothing to do with my discretionary trading which is characterised first of all by impatience. The cadence of this system (operating every 12 hours) deals perfectly with my impatience. The clarity of the rules takes care of the rest of my discretionary problems and in fact as i said this is a manually executed system, with univocal rules, and not a discretionary method, which choices that are up to your discretion.

Speaking of discretionary, and univocal... I just went over my latest ovestretched system's version and noticed there's something which is NOT univocal at all:

I will modify my system again, to enforce compulsory pivots (it will make me miss a few trades unfortunately), and get rid of that discretionary part about reversal pattern.

NEW OVERSTRETCHED METHOD

ENTRIES:
Set up a month of hourly candles with pivots on EUR FOREX
Enter long/short at 8 AM/PM CET based on these 3 requirements:

1) overstretched in ticks (>100 ticks top-bottom)
2) overstretched in hours (>24 hours going up or >12 hours going down)
3) pivots (near pivot line)

EXITS:
1) Stoploss at half a pivot level away
2) Close position after 12 hours, and enter the next trade (unless the requirements are not met).