Best Thread Firewalker's Journey: A path of discovery in search for enlightenment

[firewalker99]

Exercise 1

Db, when doing your exercise I think we kind of moved through the 5 points you mentioned in #81:

1. Pre-market, post charts of the previous day, the previous week, the previous month. Plot whatever S/R lines you need for the current day.
2. State where you plan to go long or short after the open and why (no theory).
3. State what your stop is going to be and why (no theory).
4. State what your target(s) is(are) and why (no theory).
5. State how and where you're going to exit and why (no theory).

I calculated even some ratios. Now, what would be the next logical step?

 

[JillyB]

But not the lesser ones maybe. I trade equities and do not trade immediately prior and across results since there are often "shocks". If I was selling my method it'd be easy to tweak the parameters to have included the best of those results moves.




Three years is not so long (I'm using eod remember), about 500 trades I guess.

cheers

jon

Hi Jon,

I was wondering then, how many trades you would consider a system required to generated before you could be confident of the win/loss ratio?

Would you say that this would include backtesting too? Or just x number in real-time trading?

 

[firewalker99]

Definitions...

So you don't know what you're looking for, you haven't defined your setup, you don't know what to expect from whatever kind of backtesting you're doing, and you're not clear about what a hypothesis is?

Ok, here goes the definition part. I'll be using some parts of #5 in the Trading Journals thread, copyrights reserved To put it straight: "One is more likely to get what he wants if he knows exactly what it is that he's looking for."

Perhaps the problem is the difference in opinion about what a setup consists of.
"Only after the setup is defined and tested (...) can one even begin to think about where to enter, what the target ought to be, where the stop should be placed, and so on." A setup to my knowledge was everything that made up for a trade, including the entry, stop, target. So I got rid of that first. I posted something that looks like a setup in #307. There's no mention of target, stop, etc... only a description of what one would look for in a chart. So in this particular case my hypothesis could have been: "If price breaks through S/R on a WRB (by x number of points or ticks) and after that retraces to the S/R zone, price is more likely to continue it's up move." Is this the kind of hypothesis you want to be seeing? Because if it's not, no point in continuing, than I'm already stuck at the first step. I did think that something in the likes of "if a breakthrough S or R happens with price moving away further then 3 ticks, price will continue to move in that direction" sounds pretty much like a hypothesis to me... So the independent variables are support and resistance, the dependent variable is price. There's no volume on the chart, but if there was I'd probably argue being volume the independent and price the dependent, but let's not get into that.

Ok, next step was to limit myself to one strategy which is what I did, abandoning points 2 and 3 written in #78. So each day I put up the chart with S/R of day/week/month before and looked for entries on that day. Most of the time I didn't see any, some of the times I did. At that point we somehow seemed to be getting out of sync. The next step would have been to determine the ratio of P/L and W/L, but I'd have to have more data for that purpose. Hence me saying that I would be "backtesting", in that context refering to "looking at old charts to see where the setup appears".

Ok, I won't make this any longer then necessary and answer your questions:
-> I'm looking to see what price does after my setup appears, where does it go, how far does it move, does it retrace, reverse,...
-> I expect from backtesting to 1) in my context give me more data to check out where the setup appears and perhaps refine that setup in order to determine a better stop or target; 2) in your definition a way to define the setup
-> I've stated two hypotheses, so if this isn't what you had in mind, I'm not sure what is...

Feel free to reply whenever you have the time...

 

[firewalker99]

Five building blocks

1. Concept

Using my hypothesis on breakthroughs, I develop a concept that perhaps works, or not, but something to test.

2.Turn it into a set of objective rules

Define it clearly, so that anybody else who doesn't have a clue what I'm talking about, should be able to find the same setups when I show him the charts.

3. Check it out on historical data (backtest 1)

Look at old charts to see where the setup appears and how price reacts around that level. What happens before, or next. Where does price take you? What is the importance of volume at that level?

4. Full backtest (backtest 2)

Covering the whole market cycle and every time period.

5. Evaluate results

Check P/L, W/L, maximum string of successive losses, maximum profit on one trade, maximum loss,...
Then after this is written down, go back to step 2 and adjust the rules if necessary.


[with thanks to barjon for handing me a brick or two]

 

[barjon]

Hi Jon,

I was wondering then, how many trades you would consider a system required to generated before you could be confident of the win/loss ratio?

Would you say that this would include backtesting too? Or just x number in real-time trading?

jilly

I don't want to interfere with the flow of the thread but perhaps this slight diversion will be excused

Maybe I should whisper this in the light of what's been said, but I think the initial stages, then backtesting and paper trading just gave me a ball park figure. Confidence came from actual trading where I keep track of the ratio on a rolling basis, every 100 and every 10 trades. The latter triggers a change in my position size if it falls below the range of what I expect.

good trading

jon

 

[dbphoenix]

The review is fine, but I'm unable to find a clear statement of what your setup is. What it was is pertinent as a "learning experience", but what is it now?

 

[timsk]

I don't want to interfere with the flow of the thread but perhaps this slight diversion will be excused

I agree with Jon's comments quoted, but would like to add to the views expressed already that the progress between the two of you (dbp and FW) is very instructive.

dbp, for additional clarity, might it be helpful for the wider readership if you were to provide some examples of what you regard as a clear statement about a setup? As a future resource for other traders following the same path, this would make the thread (even) more user friendly. Just a thought.

Tim.

 

[dbphoenix]

dbp, for additional clarity, might it be helpful for the wider readership if you were to provide some examples of what you regard as a clear statement about a setup? As a future resource for other traders following the same path, this would make the thread (even) more user friendly. Just a thought.

Tim.

Sure. Look up O'Neil's Cup With Handle or the Darvas Box or the Ross Hook.

 

[firewalker99]

The review is fine, but I'm unable to find a clear statement of what your setup is. What it was is pertinent as a "learning experience", but what is it now?

As you're saying I have no clue of what a setup is, I think it's fair to say I'm unable to answer that question to a satisfying extent. Anyway, I don't know if you're referring to the exercise now, in that case I'd say my setup is a chart with S/R lines drawn before the day opens and drawn throughout the day. When price reaches such a line, I look for a breakthrough by 3 ticks (in the direction of the trend).

On the other hand, if you were referring to the earlier part of my journal than I don't know what to answer else that what's been posted in #307 with a little adjustments. Like a break through S/R on 5 points instead of just "a breakthrough on WRB". Then I'd also remove the "minimum of three bars" part.

 

[firewalker99]

Sure. Look up O'Neil's Cup With Handle or the Darvas Box or the Ross Hook.

I think Timsk meant by "a clear statement" a definition of some kind. I'll give it a try: a setup consists of a certain number of characteristics which identify a pattern that the trader can use to enter a trade with a higher probabibility rate of success, than just picking random trades.

 

[dbphoenix]

As you're saying I have no clue of what a setup is, I think it's fair to say I'm unable to answer that question to a satisfying extent. Anyway, I don't know if you're referring to the exercise now, in that case I'd say my setup is a chart with S/R lines drawn before the day opens and drawn throughout the day. When price reaches such a line, I look for a breakthrough by 3 ticks (in the direction of the trend).

I didn't ask what a setup is. I asked what your setup is. As for "not having a clue", you stated that you didn't know what you were looking for. I'm taking you at your word. The exercise is not pertinent at this point since you have some other setup in mind.

On the other hand, if you were referring to the earlier part of my journal than I don't know what to answer else that what's been posted in #307 with a little adjustments. Like a break through S/R on 5 points instead of just "a breakthrough on WRB". Then I'd also remove the "minimum of three bars" part.

I'm referring to whatever setup you're trading in your head. If the following is it, those who are reading this thread would likely find the setup easier to understand if it were stated as a series of rules. If any further changes have been made, then those changes should be included:

If a break through a previous resistance level should occur on a wide range body (closing above middle, this does not necessarily imply one bar try to "blend" bars) then wait for a retracement to touch the resistance line. If it waffles around or slightly above the line for a minimum of three bars, than take an entry. Also check for support to the left of the weekly/monthly chart if the marubozu upbar didn't create an air pocket without support.
In case of a support line -> similar situation but turn everything around

In the next step, I further defined what was too vague:
1) What is "near"? A point? Two? 5%? 10%? Are you shorting all your contracts at once?
Near = exactly to that point
Entering a trade is immediately with two contracts, exiting is done following fixed targets based on ATR as described.

2) Again, retrace how close? Short more contracts? How many?
Retracement to that same level, so exactly as it reaches 5690. For the moment I'm not adding to a position nor averaging down. So if I were to be in a trade that would be one going in the right direction and I'd leave it alone.

3) Ditto re "retrace" and "short". "Wider" than what? How many is "a lot"?
Wider = spread at least double than the down bars before. A lot is at least 3.

 

[firewalker99]

I didn't ask what a setup is. I asked what your setup is. As for "not having a clue", you stated that you didn't know what you were looking for. I'm taking you at your word. The exercise is not pertinent at this point since you have some other setup in mind.

You didn't, but I defined it anyway. Without defining what a setup is, how can I create one? So, is my definition usable or am I throwing darts from 100 yards?

I'm referring to whatever setup you're trading in your head. If the following is it, those who are reading this thread would likely find the setup easier to understand if it were stated as a series of rules. If any further changes have been made, then those changes should be included:

Ok, I'll enumerate them in a logical order.

 

[firewalker99]

Setup rules

- Put up a chart of the past months and draw long term S/R lines.
- Put up a chart of the last month and draw intermediate term S/R lines.
- Put up yesterday's chart and draw short term S/R lines.
- Before the day opens, make sure these lines are visible on today's chart.
- Draw new S/R lines throughout the day, wherever applicable.
- Pay closer attention when price moves towards a S/R zone.
- Check if price breaks this level or reverses from it.
- If it breaks through, check if it's happening on a WRB closing above the middle (doesn't have to be one single bar).
- Check how far price moves above the R (or below the S).
- If price moves away for 10 points, then wait for a retracement back to the line.
- When the retracement happens, there you have a entry possibility.

I sure hope this is what you had in mind.

As your references to examples of setups (Darvas, Ross,...) don't include a risk or money management strategy and don't give you an indication of where to enter or exit neither have I. I assume this isn't part of the setup as such. Anyway, I can add it anytime you wish, it's been defined and posted some time ago.

 

[dbphoenix]

If you are satisfied with these rules, then begin today to post a trading plan for the following day before midnight GMT. If the following trading day is a Monday, the plan can be posted on Sunday.

At the end of each trading day, post an analysis of what you did followed by an analysis of what you should have done. Do this every day for twenty consecutive trading days.

 

[firewalker99]

If you are satisfied with these rules, then begin today to post a trading plan for the following day before midnight GMT. If the following trading day is a Monday, the plan can be posted on Sunday.

At the end of each trading day, post an analysis of what you did followed by an analysis of what you should have done. Do this every day for twenty consecutive trading days.

I'm inclined to say "been there, done that?" What's the difference between now and a month ago where you asked me to do exactly the same? One other question: why do you think what I did and should have done will be any difference, I will be papertrading and only reacting on the setup rules I defined. Then, unless I make mistakes in drawing S/R correctly, I don't see where or why I should do things otherwise than how I defined them before the day? I'm not saying I won't do it, but this time I'd like to have some sort of "goal" to work to. Knowing that this time along the way I will pickup something.

 

[dbphoenix]

I'm inclined to say "been there, done that?" What's the difference between now and a month ago where you asked me to do exactly the same? One other question: why do you think what I did and should have done will be any difference, I will be papertrading and only reacting on the setup rules I defined. Then, unless I make mistakes in drawing S/R correctly, I don't see where or why I should do things otherwise than how I defined them before the day? I'm not saying I won't do it, but this time I'd like to have some sort of "goal" to work to. Knowing that this time along the way I will pickup something.

A. You did it three times, then quit.

B. There should be no difference between what you did and what you should have done.

C. The goal is to trade a plan rather than talk about trading a plan.

 

[firewalker99]

A. You did it three times, then quit.

B. There should be no difference between what you did and what you should have done.

C. The goal is to trade a plan rather than talk about trading a plan.

I didn't quit, I just decided not to upload my analyses because I failed to see the point as everybody apparently lost interest. Not that I'm opening a journal to attract attention, but I sure wasn't learning anything from it by doing a repetitive task. Why put me back another 20 days when I can make the same analysis of the past 20 days by scrolling through the chart from left to right?

I actually started August 1 and finished August 11 which makes it 9 times. Then again, if you're saying the exercise is the same, I can just as easliy put up the dozen other charts that came after those "three".

 

[firewalker99]

A. You did it three times, then quit.

B. There should be no difference between what you did and what you should have done.

C. The goal is to trade a plan rather than talk about trading a plan.

I have to ask, why the exercise? I thought you said that was "only the beginning". So we're not continuining that avenue?

 

[dbphoenix]

I didn't quit, I just decided not to upload my analyses because I failed to see the point as everybody apparently lost interest. Not that I'm opening a journal to attract attention, but I sure wasn't learning anything from it by doing a repetitive task. Why put me back another 20 days when I can make the same analysis of the past 20 days by scrolling through the chart from left to right?

I actually started August 1 and finished August 11 which makes it 9 times. Then again, if you're saying the exercise is the same, I can just as easliy put up the dozen other charts that came after those "three".

You posted plans for the 4th, 7th, and 8th, then quit. Then you posted a final one for the 10th. As for not posting your daily plans because nobody was interested, then I assume you see no point in putting together a daily plan at all. If you say you learned nothing from it after having done it only three or four times, I believe you.

If you want to post a trading plan for an old chart prior to opening the old chart and scroll through it bar by bar, that's up to you.

 

[dbphoenix]

I have to ask, why the exercise? I thought you said that was "only the beginning". So we're not continuining that avenue?

There's no point in continuing that particular exercise since you're still trading your old setup in your head. Turn your attention to my suggestion regarding posting your pre-market trading plan.