Price Action - not quite what it seems?

[DashRiprock]

i like dave, search his other posts

 

[Black Swan]

My point was that professional traders (and consistently winning non-pro traders) do not trade emotionally, nor do they trade like the majority of players in the market.

Numbertea, you see the fear and greed in the price action. This is definitely not what the average player sees nor how they trade. That comment alone makes you stand out among the majority.

As for shaking your "motivation", players TRADE patterns, large institutions (smart money anyway) MAKE patterns for them to trade. Why do you think there are so many false signals, head fakes, and unexpected reversals? Not big ones mind you, just big enough to hit the stops, weed out the weak positions, and make a ton of cash for professional traders.

Why not trade the first break? Why wait for the second or even triple top? Is that really a head and shoulder or is it a mushroom top? Does the high volume mean supply covering demand, or is it a sign of rising demand? Heck, one could go on indefinitely defining patterns and signals and systems... In the end they are all the same. They work sometimes, and cost you money at rest of the time.

Now it's just my opinion but the "lottery" as an alternative to trading? Really? If you think your odds are that bad trading then you really should rethink your "motivation".

I'm not trying to be belligerent, or knock you down in any way. As I said, your perception of fear and greed is stellar. But the real "edge" is not in a system, or signal, or pattern... it's in your head and how you can control your own fear and greed during a trade.

I was taught that the ONLY time we have any control over a trade (including risk management) is before we place the order. After that, it's trade management and how well you can stick to your exit strategy. I consistently return 24 - 30% a month on my trading capital. That works out to 1-2% per trading day. I can guarantee you I do not trade like most people and I'm pretty certain those returns are better than the average player.

Since I have a hard time reading my wife's emotional state or intentions most of the time, I'll not trust my capital to the whims of a crowd of strangers.

However, if you are successful reading the emotions of the market participants, then you should continue with confidence that your strategy is in harmony with your own emotional control, and that my friend is the best edge you can ever hope to achieve.

Dave

Maybe we should open a thread on Fear and Greed???

1-2 percent per day consistently is epic, I'm at 0.5 percent....respect...

 

[dbrawner]

1-2 percent per day consistently is epic, I'm at 0.5 percent....respect...

My success is partly due to the fact that I do not trade every day. I have a weekly target and when I reach that I'm done for the week. Sometimes it takes all week, most times just a few days. Also, I set my targets based on the market ranges so they are entirely achievable on most days.

My targets are small and my position size is relative to my risk and account equity. I started with a very small account two years ago and at the time a $50 profit didn't seem like such a big deal. But allowing the account to grow and those same small percentage trades are almost providing a level of respectable income.

It is definitely a slow paced methodology but I've learned the hard way that, in the long run, slow and steady beats wild swings every time .

Chances are the average player will not have the patience to ride this kind of pony for as long as it takes. But I'm an old fart now and I've had my "fun" blowing out accounts (3 that I'll admit to).

By the way, if your .5 % is consistent then you have a successful future in the markets.

Keep the shiny side up,

Dave

 

[Pazienza]

Good post .

Slow and steady, not trading everyday, it took me a while to take those lessons on-board.

My success is partly due to the fact that I do not trade every day. I have a weekly target and when I reach that I'm done for the week. Sometimes it takes all week, most times just a few days. Also, I set my targets based on the market ranges so they are entirely achievable on most days.

My targets are small and my position size is relative to my risk and account equity. I started with a very small account two years ago and at the time a $50 profit didn't seem like such a big deal. But allowing the account to grow and those same small percentage trades are almost providing a level of respectable income.

It is definitely a slow paced methodology but I've learned the hard way that, in the long run, slow and steady beats wild swings every time .

Chances are the average player will not have the patience to ride this kind of pony for as long as it takes. But I'm an old fart now and I've had my "fun" blowing out accounts (3 that I'll admit to).

By the way, if your .5 % is consistent then you have a successful future in the markets.

Keep the shiny side up,

Dave

 

[SawViper]

I consistently return 24 - 30% a month on my trading capital. That works out to 1-2% per trading day.

Stop the press !! Are you serious?? I'd be lucky to return half that in a year - on a good year that is. Care to share some of your methodologies with the less canny amongst us? Would be a great help.

 

[SawViper]

My success is partly due to the fact that I do not trade every day. I have a weekly target and when I reach that I'm done for the week. Sometimes it takes all week, most times just a few days. Also, I set my targets based on the market ranges so they are entirely achievable on most days.
Dave

Do you use a lot of leverage? I am a newbie. Just curious.

 

[dbrawner]

Do you use a lot of leverage? I am a newbie. Just curious.

Viper,

I use the maximum my account and broker allow. However, I set my position size relative to the stop value for the day and never risk more than 5% (most days 3%) of my account equity per position. As you might correctly guess that means I risk approximately what I intend to make each day (1:1). I do this because I have time tested faith in my ability to take high probability trades for small profits.

My stops are calculated at the start of each day based on a % of the ATR for the time period I'm trading (usually 9-12 EST). I don't count the volatility during my non-trading hours since that has no bearing on my trades. I'm only concerned with the activity during the time period each day which would affect my trades. I do not carry positions past the NY session close, almost always I'm out within 4 hours.

I use pip stops and time stops. If a position isn't in a profit within 30 minutes I'm most likely to close it and wait for another opportunity. High probability trades should act that way, otherwise they are not the trade you were thinking they were. I've found that my successful trades hit their targets fast (even my unsuccessful trades usually stop out quickly). Trades that take too long to move are: 1.) most likely to be losers, and 2.) make me sit at the computer too long (I'm lazy and it makes me too anxious).

As you might also guess from the above, I keep learning about my trades and my emotional disposition when trading. These two factors are the keys to long term and consistent profitability, in my opinion.

I'm traveling this week but when I get home, perhaps I'll write a post with details of my methodology. Frankly, I've only met a few traders who have acquired the patience and self discipline to trade this way. Most of what I do, I learned from them. That is not meant as a slight or provocation, only that this methodology is not for everyone (probably not for most people). But I will share what I know and let it fall on whose eyes it may profit.

Stay focused and don't buy the hype out there...

 

[shadowninja]

High probability trades should act that way, otherwise they are not the trade you were thinking they were.

Jedi trading.

But you're right. I've been testing a more nimble idea and have found that, as you say, if a trade isn't immediately profitable (based on PA), then it's likely to fail so why give away more pips than necessary.

 

[Pazienza]

Jedi trading.

But you're right. I've been testing a more nimble idea and have found that, as you say, if a trade isn't immediately profitable (based on PA), then it's likely to fail so why give away more pips than necessary.

This is an old principle and a good one. The best set ups are often high momentum ones, and of course this makes effective management very easy.

 

[shadowninja]

say AUDUSD on a 15m or 1H chart and I'll see the price hit a support/resistance level, whilst forming a Pin and showing overbought/oversold on a CCI or RSI.

It's interesting that you talk about this. I think anything above M5 is hard to see price action in its truest sense. I used to use H1 candles but they hide a lot of critical information as to how good a candle really is. It's only when I started looking at how the pinbar formed by looking at M1 or M5 (but scrunched up, not individual candles), I realised that you could predict whether a pinbar would fail before taking a trade.

Edit: I suppose one has to decide whether price action means candles or just the lines moving up and down. To me, the attached is PA.

 

[shadowninja]

I do not carry positions past the NY session close, almost always I'm out within 4 hours.

Why not, though? An example: I took an Aussie trade on Monday, 20 pip stop, took half at about 30-40 pips. It seemed to continue so I moved stop to B/E and let the rest run. I'm currently looking at 180 pips profit. I have a trendline in place - if it breaches this, I'll bail. I was in because it touched a TL.

 

[shadowninja]

This is an old principle and a good one. The best set ups are often high momentum ones, and of course this makes effective management very easy.

Yep, especially if you're trading based on PA.

 

[SawViper]

Viper,

I use the maximum my account and broker allow. However, I set my position size relative to the stop value for the day and never risk more than 5% (most days 3%) of my account equity per position. As you might correctly guess that means I risk approximately what I intend to make each day (1:1). I do this because I have time tested faith in my ability to take high probability trades for small profits.

My stops are calculated at the start of each day based on a % of the ATR for the time period I'm trading (usually 9-12 EST). I don't count the volatility during my non-trading hours since that has no bearing on my trades. I'm only concerned with the activity during the time period each day which would affect my trades. I do not carry positions past the NY session close, almost always I'm out within 4 hours.

I use pip stops and time stops. If a position isn't in a profit within 30 minutes I'm most likely to close it and wait for another opportunity. High probability trades should act that way, otherwise they are not the trade you were thinking they were. I've found that my successful trades hit their targets fast (even my unsuccessful trades usually stop out quickly). Trades that take too long to move are: 1.) most likely to be losers, and 2.) make me sit at the computer too long (I'm lazy and it makes me too anxious).

As you might also guess from the above, I keep learning about my trades and my emotional disposition when trading. These two factors are the keys to long term and consistent profitability, in my opinion.

I'm traveling this week but when I get home, perhaps I'll write a post with details of my methodology. Frankly, I've only met a few traders who have acquired the patience and self discipline to trade this way. Most of what I do, I learned from them. That is not meant as a slight or provocation, only that this methodology is not for everyone (probably not for most people). But I will share what I know and let it fall on whose eyes it may profit.

Stay focused and don't buy the hype out there...

Thanks @dbrawner. Looking forward to your post.

 

[Pazienza]

Why not, though? An example: I took an Aussie trade on Monday, 20 pip stop, took half at about 30-40 pips. It seemed to continue so I moved stop to B/E and let the rest run. I'm currently looking at 180 pips profit. I have a trendline in place - if it breaches this, I'll bail. I was in because it touched a TL.

I could never make scaling out work. Have you tested the outcomes of different approaches?

 

[shadowninja]

I could never make scaling out work. Have you tested the outcomes of different approaches?

Yes, it works for me. Too many times have I seen reasonable profit then bailed for zero or 1 pip. You need to experiment for your style of trading, really. It depends on whether you're trying to jump on a trend or predict a reversal in the trend. (The trend being defined by whatever your eyes see.)

If you're trading based on trend continuation, then knowing it could fail, you would take half at a certain level (eg resistance area) then see what happens afterwards. If the trend ends, you still have some profit. If it's based on your expectation that the trend is over, then take whatever you can get as it may well continue.

 

[bedsit]

Jedi trading.

But you're right. I've been testing a more nimble idea and have found that, as you say, if a trade isn't immediately profitable (based on PA), then it's likely to fail so why give away more pips than necessary.

Hi Ninja.

I've tried it, but it's not easy. Do you cut it when it goes 10, 20, 30 pips against you?

Through my experience on eu may go up to 20 against me to end up nicely. Straight away good positions don't happen to me very often - maybe 1 in 3 or 4.

PS My trades are between 5 minutes and max 2-3 hours.

 

[shadowninja]

Hi Ninja.

I've tried it, but it's not easy. Do you cut it when it goes 10, 20, 30 pips against you?

Through my experience on eu may go up to 20 against me to end up nicely. Straight away good positions don't happen to me very often - maybe 1 in 3 or 4.

PS My trades are between 5 minutes and max 2-3 hours.

Well, you need to practice and get a good eye for identifying the moves, I guess.

I am still primarily a swing trader, holding (profitable!) trades for up to a week. I used to set quite big stops, taking my style of trading into account eg 50-100 pips, then I noticed that the profitable ones generally never saw more than 15-18 pips loss (if that) before heading to profit ie >30 pips (and often 60-80 pips) and the losing ones would soon fall to -30, then -40, then -50 pips loss etc and struggle to get back to break even. So I decided that my eye for identifying good trades had clearly improved and there was no need to give away another 80 pips if I was wrong. The alternative would be to use 200 pip stops but all you need is to get it wrong two or three times in a row and you're in a bit of a pickle - which is possible as I'm no trading god.

Part of this improvement was, as I alluded to earlier, breaking down the candlestick by looking at how it was formed, and then not bothering to look at them again. Note that this is for hourly candles. Daily candles and above seem to be better indicators - I suppose that is because more people are paying attention to them.

Take, for instance, a perfect hourly pinbar where the open, high and close are equal. If you look at the M5 charts, you will see one of two things:
1) the price dropped down, bounced off some support level, then headed back north. Lovely, you are thinking. However, this renders the open, high and close prices as meaningless as there will be no reason for anyone to place orders there, thus it could easily creep a few pips above before falling more. Contrast with:
2) the price dropped down, bounced off some support level, went up to near the open, dropped down some, then went back up, fell from near the open, did this a few times to reinforce a high, then closed at the open. Looks crap, but a very well-defined resistance area has been formed. Now, if it breaches that in the next candle, then the momentum should carry it upwards as loads of people will have noticed this level whether they are looking at M1, M5, M15, M30 or H1.

Now, I ought to try to sound trendy and down with the kids so: Boom! Headshot!

The point: in order to use any indicator, you need to understand how it is created and not blindly use it, whether it's a candlestick, a moving average or MACD.

 

[shadowninja]

Schwing!

 

[Splitlink]

Re: reply to op

a. It is not an exact science
b. You will never be able to identify all the areas at which every market turn results.
c. The analysis you complete in this respect is best viewed in context with the overall prevailing conditions of the instrument you are trading (ie is the instrument trending, strongly trending or ranging ?)...as you correctly say it is best to view this analysis in the light of general market sentiment (howsoever you detrmine that.)


Many times I see price turn at an area that I had not pre-identified as potential support/resistance and the only conclusion I can draw from this is that the methodology underpinning my analysis for determining such did, on that occassion not pick up such an area. On other occassions I have poptential support/resistance factor (s) pre-identified at which I would not act if price tests them as they do not fulfill the criteria of my trading edge.

G/L

The above are the reasons that I do not have faith in these S&R lines. When I was at sea the engineers would tease us with the "navigation is not an exact science" argument but navigation is far more exact than dealing with S&R points simply because position lines must cross at the ship's position. but, at least, the stars were of more use to me at sea than they are when forcasting future turning points.

 

[bbmac]

Re: reply to op

Your statement tells me that you therefore do not have a trading edge that can tell you what the greater probability is (bounce or break) when price reaches such an 'S&R line.' If you do not have faith in anything that is not 'an exact science' - then good luck finding one - Lol !

These Previous Price pivots or S&R lines as you call them, are simply areas at which there existed an imbalance of supply over demand sufficient to send price down -or conversely- an imbalance of demand/supply sufficient to send price up. These are represented on a chart as fractal swing Hi or Lo's..this is fact...as for having faith in them, I assume you are referring to price re-testing such areas and price bouncing from them ? Well PA (and some technical studies if used) can tell you what the greater probability is, but this does not mean that the greater probability will play out. There are 5 general rules of thumb I bear in mind when price is approaching a previous price pivot/ S&R line (or indeed another potential support/resistance factor (s.) ]

a. A trend will usually go further than seems possible even given potenential obstacles like previous price pivots (or potential support/resistance factors historically proven to cause an opposite reaction - fbs, trend lines etc...)
b. The more times a support/resistance level is tested the waeker it becomes
c. The confluence of potential suppoprt/resistance factors on the same meaningful t/f (and higher) is where the historically greater chances exist for a counter prevailing price/trend reaction are.
d. When price is devaited/extremely deviated from it's average, there exists a greater chance of a counter trend pullback or more.
e. As a working assumption - counter trend move should be traeted as a pullback unless/until PA on subsequently higher t/f's than that used for entry give a contraray indication.

If you trade potential support/resistance it really isn't about 'forecasting' where a future turning point may occur but about gauging what the greater probability is when price reaches it by means of an historically proven trading edge and it is advisable to involve PA and it's beahaviour at such as part of such a edge.

So don't judge 'S&R lines' or indeed 'have faith' or not in them until you have a proven trading edge that tells you what the greater probability may be at them...this is not a forecast it is simply looking for repeating patterns of market behaviour as represented by PA and possibly technical studies that tell us what the greater probability may be of an 'S&R line' holding or breaking, remembering that the greater probability does not always play out - such is the nature of probabilities and indeed by extension a probability based trading edge.

G/L

The above are the reasons that I do not have faith in these S&R lines. When I was at sea the engineers would tease us with the "navigation is not an exact science" argument but navigation is far more exact than dealing with S&R points simply because position lines must cross at the ship's position. but, at least, the stars were of more use to me at sea than they are when forcasting future turning points.