Anyone use the 50SMA retracing method?

[Splitlink]

Traders 'may' have got into or out of trades at all the places you mention (and more besides) but not at S&R levels. There's no 'may' about it; they definitely got in or out at those levels which is another reason why they are so important and why the Fib's, Bolly Bands and MA's etc. are not as important. That's not to say that they don't have value and that traders can't use them to make money. They can. (Please forgive the triple negative!)

No. Tim. Of all the traders available to enter a market, some did and some didn't. That is what I meant by "may". Now, of those that did, some went long and some short and, therefore, some won and some did not. I read a lot of the posts on these threads and we both know that the disappointments are many. If you say that it is lack of experience I would reply that it is more likely that the experienced traders only save themselves on their ability to leave the trade as soon as it goes wrong for them but, make no mistake, a lot of the trades go wrong.

If you have any particular issue with my annotation on the OP's chart - especially if you think it's incorrect or flawed in any way - I'd be very interested to hear you views.

Not sure what the OP thread is but, please, don't bring up IBs unless you can tell me which way they are going to go with any certainty.

I'm lost for words, other than to say that if you genuinely believe that zones of S&R are just 'as big a piece of TA BS as everything else' - you must have a torid time analysing a chart and deciding how to trade it!

As I said before, I am a trend follower. Mr Charts has shown how he takes profits out of the middle of a trend and gets out before the price starts to range, or whipsaw. That is what I try to do. I believe that more money is lost by traders trying to decide whether a line is going to support or not than is admitted. I tried that years ago and don't do it any more.

Anyone using pullbacks and trends does not have to have a torrid time with chart analysis. Not that I say that they are, always, right but they look more logical, to me, than anything else.

'Everything is coincidence on a chart.' I'm even more shocked now! If you believe that, then it's not possible for you to form a view about what's happening from a chart and trade it accordingly. You can't take that view AND use charts to trade as the whole point about TA is that price movement isn't merely random

Please, don't be shocked. As I said before, you only need to keep your eye on the averages to get the direction right, which is more than half the battle.

I agree that trendlines and MA's indicate whether an instrument is trending - or not. After all, that is their primary function. But, as you and others have commented already, they are of little use in non trending markets which, after all, is most markets most of the time. Traders who are good at identifying key areas of S&R will be ahead of the game because they will be able to spot an emerging trend long before the requisite number of HH's and HL's (in an uptrend) have been created to enable a trendline to be drawn.
Tim.

I agree that those who are good at interpreting S&R lines will get into the market sooner. So will the not so good ones and there are more of those! I take an established trend and my aim is to do one trade per session. It does not, always, work out like that, I agree, but if anyone wants to talk about the law of probabilities concerning R&S and a price that is already trending let them do so with someone else. My eyesight convinces me.

Split

 

[SanMiguel]

Hi SanMig',
I've recently been embroiled in a heated debate on another thread about price finding support or resistance (S&R) at MA's and trendlines. I'm not in a hurry to repeat the exercise as most people are of the view that they do indeed act as S&R. Each to their own. However, I maintain that price isn't in the least bit interested in trendlines and MA's, not least because where you draw or plot yours will be different to where I draw and plot mine. Add into the mix that let's say you use OHLC prices and work of hourly charts where as I use line charts based on close only prices - and you can soon see that trendlines and MA's will be in different places giving different signals on our respective charts. 'Jimbotrader' makes a joke about plotting a 49 MA and being in or out quicker than you and, believe it or not, some traders really do believe that! (Although I suspect Jimbotrader isn't one of them, lol.) Areas of S&R on the other hand don't change because, unlike indicators (MA's and trendlines are indicators after all), they are based on real emotional events. Namely; market participants buying and selling and, in the process, making or losing money. Here's a simple question for you. . . Which is more significant:- a bunch of lines on a chart (which vary from chart to chart) or clearly defined points in the same place on ALL charts (be they line, OHLC, or P&F etc.) across most timeframes, where market players made or lost a ton of money? If you subsribe to the idea that price charts reflect human fear and greed and the best places to observe these emotions is around areas of S&R, you will be one giant step ahead of the majority of other traders. If, on the other hand, you cling to the belief that the former is more significant than the latter, then good luck to you. At least you are on the side of the majority! However, you will find that 90% of the time, where price magically seems to find S&R at the MA's, lo and beyold - it turns out to be a key area of S&R. I've annotated your chart to show that all the areas you circled are in fact key areas of S&R. I put it to you that this is the real reason why price reacted the way it did and not because of some arbitrarily drawn trendline or MA.
Tim.

That is a great analysis and yes I am a firm believer in S&R. However, I do find S&R tricky to trade on forex as it is more of a zone. I keep an eye on the points.
The MA does inherently take account of S&R though as it is following price and a bounce off a S&R line could in fact just be a retrace of peopletaking profits before the trend continues?
During a strong trend, lots of traders are going to want to continue with the trend aren't they?

If you can make CONSISTENT money using this method, the more power to you and good luck.
However, it seems very probable that this method will get destroyed in a range- which happens often.

As I mentioned before, I would not trade this in a range.

A contraction is, for me, when the price reverses lots of times, gradually nearing the average. That is where there are whipsaws and when I see one. I don't want to know.

Could you circle any contractions on this chart as an example please?
I think most of the reversals in this one are straight reversals to the average.

 

[squall321]

Does anyone use a 50SMA retracing method where you wait for the price to cross, then on the next retrace you buy or short accordingly? Just wondering whether successful or not.
An example 1 hr chart attached (yellow 50 SMA, red 200SMA)

yes i use ma as support/resistance (or more accuratly i use horzontal s and r, and use the confluence with ma as a good value buying/shorting zone - mean "aversion" i suppose)

the best way i find use the ma only is to find a trend on a higher timeframe. look for rallies in uptrends, declines in downtrends.

then go to the lower timeframe and use retraces to the ma area to enter. using the higher timeframe like this filters out most of the chop on the lower one.

 

[Tickdoc]

An obvious candidate for using confirming factors rather than a blind simplified strategy...In the (admittedly historical) example shown, a very basic criteria such as waiting for three closes above the MA before getting out of your short or going long would have significantly improved your strat...

 

[Splitlink]

An extract from my post to Tim

No. Tim. Of all the traders available to enter a market, some did and some didn't. That is what I meant by "may". Now, of those that did, some went long and some short and, therefore, some won and some did not. I read a lot of the posts on these threads and we both know that the disappointments are many. If you say that it is lack of experience I would reply that it is more likely that the experienced traders only save themselves on their ability to leave the trade as soon as it goes wrong for them but, make no mistake, a lot of the trades go wrong.


http://www.trade2win.com/boards/us-stocks/38036-how-make-money-trading-markets-51.html

Post 401

Read and digest. It will keep you alive and well!

The rest of it, whether it be Tim's way, mine or anyone else's will have to stand the test of the trader trying them out.

Good trading

 

[trendie]

5Min Intraday System @ Forex Factory

Your post reminded me of Phil Nels 5-min that uses 50-MA strategy.
He has an indicator that quantifies the "angle" of the MA. And only trades when there is a "good" angle.
Unfortunately, the indicator itself is an MT-4 executable, so I cant read what the code is doing. but it must compare the position of a previous point on the MA to current to get the angle.

Its the ruleset of not trading unless the angle is greater than a certain value that should save you trading a choppy market.

have a look at it, seems reasonably similar to what you already do for it to be comfortable for you to adopt or improve upon.

 

[Splitlink]

I had no idea how far the price would move when I went long, so how could I even make an intelligent guess at reward?
Personally I don't look to reward, I concentrate on risk; reward takes care of itself.
Why? Risk you can control, reward you are only guessing at. .

Quote from Mr.Charts

 

[timsk]

Hi SanMig'
I'm not sure whether or not your question marks are rhetorical or if you actually want answers: I'll assume the latter.

That is a great analysis and yes I am a firm believer in S&R. However, I do find S&R tricky to trade on forex as it is more of a zone. I keep an eye on the points.

Yes indeed, thinking in terms of zones or areas of S&R rather than exact price points is very wise.

The MA does inherently take account of S&R though as it is following price and a bounce off a S&R line could in fact just be a retrace of peopletaking profits before the trend continues?

Correct, although the MA doesn't tell you anything extra that the S&R lines don't - in terms of where price is likely to retrace or continue in the direction of the trend. Anyone who needs a MA to inform them whether or not an instrument is trending (or not) and in which direction, has no business trading, IMO.

During a strong trend, lots of traders are going to want to continue with the trend aren't they?

Absolutely! Equally, there will be traders who fade the trend at those points where they perceive it to be over or under cooked. Just made a quick £10k this morning on the Dax doing just that. Sadly, it's only paper money in the Marketindex / RBS Comp'!

Tim.

 

[pedro01]

On those retracements on your chart - here's what I'd do.

If the retracement hit the SMA with 3 or 4 strong green bars with short tails, then it is still looking strong and I think you'd have to be a bit crazy to get in. Now - if the retracement started to falter, overlapping bars, a doji here or there & perhaps a strong bear bar, then I'd probably slap a stop order in a few ticks below that bear bar.

The trouble with retracements is that they can carry on retracing. On the surface they are easy but when you don't have the benefit of the right hand side of the chart, they can be great places to get stopped out a lot if for example, a 2 leg retracement suddenly decides to have 3 legs.

 

[SanMiguel]

An obvious candidate for using confirming factors rather than a blind simplified strategy...In the (admittedly historical) example shown, a very basic criteria such as waiting for three closes above the MA before getting out of your short or going long would have significantly improved your strat...

Yes, sure but I would use candle confirmation patterns in conjunction with this.

Correct, although the MA doesn't tell you anything extra that the S&R lines don't. Anyone who needs a MA to inform them whether or not an instrument is trending (or not) and in which direction, has no business trading, IMO.

It's not whether the market is trending...I can tell that from looking at it and drawing trendlines, it is more how strong the move is and at what points it looks like a retracement or consolidation is occuring before a further move especially in conjunction with the envelope and standard deviation (similar to bollinger bands).

On those retracements on your chart - here's what I'd do.

If the retracement hit the SMA with 3 or 4 strong green bars with short tails, then it is still looking strong and I think you'd have to be a bit crazy to get in. Now - if the retracement started to falter, overlapping bars, a doji here or there & perhaps a strong bear bar, then I'd probably slap a stop order in a few ticks below that bear bar.

The trouble with retracements is that they can carry on retracing. On the surface they are easy but when you don't have the benefit of the right hand side of the chart, they can be great places to get stopped out a lot if for example, a 2 leg retracement suddenly decides to have 3 legs.

True, bu the candle patterns should help to confirm what is happening.

 

[Splitlink]

Correct, although the MA doesn't tell you anything extra that the S&R lines don't - in terms of where price is likely to retrace or continue in the direction of the trend. Anyone who needs a MA to inform them whether or not an instrument is trending (or not) and in which direction, has no business trading, IMO.


Whow. Tim! Such self assurance and arrogance!

The same thing can be said of every trader using every indicator under the sun because they all give buy and sell signals, most of which don't work very well.

But although I may have my opinions about them, those opinions do not extend to the capacity of those traders using them.

To repeat. If a falling average is pierced by a price that returns to that average, IMO the probabities are that the price will follow the direction of that average and will present a low risk opportunity to trade

 

[timsk]

Whow. Tim! Such self assurance and arrogance!

On the contrary, Split', it's no more arrogant than to suggest that a chef who needs a ready supply of stock cubes has no place in a professional kitchen. What would be arrogant would be to suggest that stock cubes have no value and that any chef who uses them from time to time has no business cooking. But that's not what I'm saying. I repeat, MA's and trendlines are very good at assessing the state of a trend and determining its strength. They do not provide S&R IMO, which is not their function in life.

 

[Splitlink]

Well, Tim, I hope you had a good day. For someone who should not be trading I did very well and I prefer to follow my own course.

Good trading.

 

[SanMiguel]

The MA, I believe, is purely for strength of trend (well...and direction but you can see that anyway). It allows traders to get back in on a trend or join late after confirmation that it will go further and you can also use the candles for that. Have you read through the 5min strategy thread - makes for interesting reading. I don't believe the MAs actually act as support unless traders are using them but they do indicate consolidation areas.
I also agree that S&R could be traded alone in this way. However aren't there a gazillion levels of S&R especially on the majors and 5min charts?
I specifically targeted the 1hr charts earlier which means there are more but just studying this on GBPUSD recently, new ones form all the time and you can't always tell where they are going to occur?

 

[tenbobtrader]

Hi SanMig',
I've recently been embroiled in a heated debate on another thread about price finding support or resistance (S&R) at MA's and trendlines. I'm not in a hurry to repeat the exercise as most people are of the view that they do indeed act as S&R. Each to their own.

Before you post your answer its always a good idea to read the other persons post or posts so you get your facts correct no bags !

no one posted any information that indicted they believed in diagonal S or R, they said they found them useful


However, I maintain that price isn't in the least bit interested in trendlines and MA's, not least because where you draw or plot yours will be different to where I draw and plot mine. Add into the mix that let's say you use OHLC prices and work of hourly charts where as I use line charts based on close only prices - and you can soon see that trendlines and MA's will be in different places giving different signals on our respective charts. 'Jimbotrader' makes a joke about plotting a 49 MA and being in or out quicker than you and, believe it or not, some traders really do believe that! (Although I suspect Jimbotrader isn't one of them, lol.) Areas of S&R on the other hand don't change because, unlike indicators (MA's and trendlines are indicators after all), they are based on real emotional events.

are they

Namely; market participants buying and selling and, in the process, making or losing money. Here's a simple question for you. . . Which is more significant:- a bunch of lines on a chart (which vary from chart to chart) or clearly defined points in the same place on ALL charts (be they line, OHLC, or P&F etc.) across most timeframes, where market players made or lost a ton of money? If you subsribe to the idea that price charts reflect human fear and greed


Big IF


whats happening tim , loads of grown men crying on one side and the others having a party

and the best places to observe these emotions is around areas of S&R, you will be one giant step ahead of the majority of other traders.

your right up your own assssss mate

If, on the other hand, you cling to the belief that the former is more significant than the latter, then good luck to you. At least you are on the side of the majority!

are you sure ? it could be an even split tim 45% sucker - 45 % sucker and 10 % doing the right thing

However, you will find that 90% of the time, where price magically seems to find S&R at the MA's, lo and beyold - it turns out to be a key area of S&R. I've annotated your chart to show that all the areas you circled are in fact key areas of S&R.


I put it to you that this is the real reason why price reacted the way it did and not because of some arbitrarily drawn trendline or MA.


arbitrarily drawn S & R V arbitrarily drawn trendline

I put it to you that you are wrong and Split is much closer to the truth, and states his position/ level of ability and that you are preaching as per usual

Tim.

I will not respond because your always right and I am not in the least bit interested in what you believe you think everybody else needs to believe in

have you managed to tell mr charts how it should be done yet tim ? managed to sort out his method to your satisfaction ?


for those interested this was the post that caused the trouble. It was made by Split some time ago and was made with close to perfect timing to help a fellow trader identify a possible weakness in their own method (ftse daytrade thread)


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.

BY

Split


ar·bi·trar·y (ärb-trr)
adj.
1. Determined by chance, whim, or impulse, and not by necessity, reason, or principle:


Split I understand holds updated thoughts regards above today (original posted 2 yrs ago)

think you could replace the word trendline with MA if you liked, sure Split would not object

it does not in anyway lead one to believe trendlines and the like are set in stone tim, you caused the heated debate on the other thread, you and your requirement to attempt to enforce your views on others


Andy

 

[SanMiguel]

Originally Posted by Splitlink View Post
Everything is coincidence on a chart. What happens is that so many traders use S&R lines that they become self fulfilling. But this, too, is the same with averages, trendlines, fibs, pivots and all the rest. But even if they use that line, there is no certainty that it is going to work.
'Everything is coincidence on a chart.' I'm even more shocked now! If you believe that, then it's not possible for you to form a view about what's happening from a chart and trade it accordingly. You can't take that view AND use charts to trade as the whole point about TA is that price movement isn't merely random.

S&R is really formed by supply and demand though. Usually caused by a load of traders who went in the wrong direction at a line closing their trades out when it returns hence stalling the action at the line...or traders re-entering at the same place. There is a price where it becomes too expensive to buy hence the supply and demand issue.
I don't believe in fibs or pivots as any S&R is more exact to me than a calculated pivot. Trendlines I use but respect the fact that most of the time they happen to fall in line with an S&R point.
However, trends blast through S&R hence why a strong trend seems to be the key to these MAs?

?????

 

[pedro01]

LOL @ this thread.

I shall now attempt to steer her back on course...

The 50 SMA will give you one reason to enter. Think of having 2 or 3 decent reasons to enter any trade, then you will be on better footing.

 

[Splitlink]

The MA, I believe, is purely for strength of trend (well...and direction but you can see that anyway). It allows traders to get back in on a trend or join late after confirmation that it will go further and you can also use the candles for that. Have you read through the 5min strategy thread - makes for interesting reading. I don't believe the MAs actually act as support unless traders are using them but they do indicate consolidation areas.
I also agree that S&R could be traded alone in this way. However aren't there a gazillion levels of S&R especially on the majors and 5min charts?
I specifically targeted the 1hr charts earlier which means there are more but just studying this on GBPUSD recently, new ones form all the time and you can't always tell where they are going to occur?

The last part of your first paragraph.

That is, exactly, the point about all strategic points on a chart and, also, my argument on your point about the gazillion S&R lines. Also, a "zone" can cover a very large area.

These lines, averages, too, are only reference points for traders to enter, nothing else.
I am comfortable with averages.

 

[timsk]

I will not respond because your always right and I am not in the least bit interested in what you believe you think everybody else needs to believe in

If you believe that your post was not a 'response', then I'd love to know what you consider a response to be! But that does at least explain why you're so confused.

Thank you for sharing your thoughts about what you think I believe everyone else should think and believe. Most enlightening. Perhaps, in future, before I post my crazy views on any T2W thread, I should PM you first so that you may censor out that which upsets you or you disagree with. It's because of members like you and posts like yours that other long standing members have felt compelled to either stop posting or resign from T2W altogether. I too shall give this careful thought, as I don't want to spend another minute on here if I'm going to have to endure this sort of grief. In spite of the arrogance of which I'm accused, I'm humble enough to realise this will give cause to great celebration amongst a number of members, presumably with your name at the top of the list.
Tim.

 

[Splitlink]

It's not whether the market is trending...I can tell that from looking at it and drawing trendlines, it is more how strong the move is and at what points it looks like a retracement or consolidation is occuring before a further move especially in conjunction with the envelope and standard deviation (similar to bollinger bands).

My trading centres around my work schedule because I must have had lunch and be out by 1430. Essentially, I am only interested in what happens in the am.

Hourly TF does not give me enough bars to be able to form an idea of how I want to trade and I find 5 min. most convenient. On this TF the average is capable of whipsawing badly and is no indication of direction until it is well established. Then, I use a pullback approach which is likely to pierce the falling (bearish) average. Risk analysis is essential.

As far as S&R is concerned, I know these lines are there, as well as anyone else. There are so many of them that does it not occur to people that the most important one is that which pierces the ma. , simply because that ma is influenced by what has been happening beforehand?