Hi Sidner - that's remarkable, I've just been mulling this over with some notes in my personal journal. After thousands of trades all I can say is I believe there's no single right answer.
I'm a trend-follower using daily charts so not a million miles form your approach I hope.
Let's get this going. I would say there are basically four classes of entry: using an uptrend/upswing as an example -
1. buy in the pull-back - i.e. on a low and falling price. This might be triggered by a %age price fall or breaching a MA or closing below a MA etc. etc. But the key is to enter low, don't wait for confirmation.
2. enter after the pull-back has finished - i.e. buy on a low but rising price. This might be triggered by a %age rise or a MA situation again or breach of high of a swing low bar etc. The key is to wait for confirmation of buying interest to demonstrate the uptrend is still dominant.
3. buy on an off-chart technical signal - i.e. MACD cross or stochastic oscillator cross or whatever you prefer - irrespective of price, the indicator hopefully merely confirms buying pressure.
4. buy at new high - i.e. new all-time or recent high, or highest close in n days or breach of a prior swing high or breach of overhead resistance etc.
The actual signals, like hammers and outside key reversals and technical alarms I think don't really matter - its the trend that's doing the money-making work, not the entry signal. But where you enter on the trend is important, that's why I am coming to favour entry class 1. My risk isn't that the trend will fail, that's common to all entries, its that I will enter at a higher price than I could have got - I can live with that.
I'm a trend-follower using daily charts so not a million miles form your approach I hope.
Let's get this going. I would say there are basically four classes of entry: using an uptrend/upswing as an example -
1. buy in the pull-back - i.e. on a low and falling price. This might be triggered by a %age price fall or breaching a MA or closing below a MA etc. etc. But the key is to enter low, don't wait for confirmation.
2. enter after the pull-back has finished - i.e. buy on a low but rising price. This might be triggered by a %age rise or a MA situation again or breach of high of a swing low bar etc. The key is to wait for confirmation of buying interest to demonstrate the uptrend is still dominant.
3. buy on an off-chart technical signal - i.e. MACD cross or stochastic oscillator cross or whatever you prefer - irrespective of price, the indicator hopefully merely confirms buying pressure.
4. buy at new high - i.e. new all-time or recent high, or highest close in n days or breach of a prior swing high or breach of overhead resistance etc.
The actual signals, like hammers and outside key reversals and technical alarms I think don't really matter - its the trend that's doing the money-making work, not the entry signal. But where you enter on the trend is important, that's why I am coming to favour entry class 1. My risk isn't that the trend will fail, that's common to all entries, its that I will enter at a higher price than I could have got - I can live with that.
Hi tomorton.
Thanks for your reply.
Because you're a trend follower the entries will be a bit different I think. Like you said, you will be looking to enter on pullbacks.
As a swing trader I'm looking primarily to trade reversals. As an example, say I'm looking to short SPX soon, I'll be looking for some kind of signal to tell me when to short.
There are a few options in my opinion:
1. Enter on a down candlestick with a tight stop (market likes to take these out, so might take a few attempts)
2. Enter on a down candlestick with a wide stop (higher risk)
3. Enter on a moving average crossover
4. Enter on a pattern completion (e.g. a rising wedge) or a trendline break.
I've noticed I'm almost always too early for the reversal when it comes so I'm trying to slow it down and wait for more strength or weakness before entering. So I'm thinking a moving average crossover is probably the way to go.
In terms of trend following I've also considered entry criteria. In these cases I've been very discerning with what I choose to trade so that the entries are clear. For example a trendline break of a minor degree in a long term up trend. I also like RSI crossovers (above and below the 50 line).
Thanks for your reply.
Because you're a trend follower the entries will be a bit different I think. Like you said, you will be looking to enter on pullbacks.
As a swing trader I'm looking primarily to trade reversals. As an example, say I'm looking to short SPX soon, I'll be looking for some kind of signal to tell me when to short.
There are a few options in my opinion:
1. Enter on a down candlestick with a tight stop (market likes to take these out, so might take a few attempts)
2. Enter on a down candlestick with a wide stop (higher risk)
3. Enter on a moving average crossover
4. Enter on a pattern completion (e.g. a rising wedge) or a trendline break.
I've noticed I'm almost always too early for the reversal when it comes so I'm trying to slow it down and wait for more strength or weakness before entering. So I'm thinking a moving average crossover is probably the way to go.
In terms of trend following I've also considered entry criteria. In these cases I've been very discerning with what I choose to trade so that the entries are clear. For example a trendline break of a minor degree in a long term up trend. I also like RSI crossovers (above and below the 50 line).
Sidner, you're right, we will have differing intentions but there are parallels.
Yes, MA crossovers will work, they are a notoriously lagging signal but if you want to wait for confirmation by (both) the cross and price, then this will be good for your approach. Likewise patterns - see http://thepatternsite.com/index.html for fine analysis of patterns from Thomas Bulkowski.
On your 1. and 2. entry options - a wide stop isn't automatically higher risk, it depends how much your stake per point is. So a stop at -2.5% of the entry price might cost you £100. but if your TA said you should place the stop out at -10% of the entry price, you should just reduce your stake per point so that £100 is still your capital at risk. Of course its much more likely that price would hit -2.5% than -10%, so the wider stop is actually lower risk.
Yes, MA crossovers will work, they are a notoriously lagging signal but if you want to wait for confirmation by (both) the cross and price, then this will be good for your approach. Likewise patterns - see http://thepatternsite.com/index.html for fine analysis of patterns from Thomas Bulkowski.
On your 1. and 2. entry options - a wide stop isn't automatically higher risk, it depends how much your stake per point is. So a stop at -2.5% of the entry price might cost you £100. but if your TA said you should place the stop out at -10% of the entry price, you should just reduce your stake per point so that £100 is still your capital at risk. Of course its much more likely that price would hit -2.5% than -10%, so the wider stop is actually lower risk.
Whatever your capital at risk is per trade, the stop should be derived from TA. So, going long, I look for the low of the previous swing low in the uptrend. If that low is breached, then it implies the uptrend is over, so the stop goes a few points below there. Whatever that means in £ per point.
Error over stakes is more often made by daytraders - they do think that 6-pip risk is much lower risk (and somehow better trading) than a 30-pip risk.
Error over stakes is more often made by daytraders - they do think that 6-pip risk is much lower risk (and somehow better trading) than a 30-pip risk.
dbphoenix
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Risk has less to do with whether stops are wide or tight than it does with knowing how to determine whether the trend is slowing, breaking, over, or reversing. Tom describes one yellow flag.
If you don't know how to determine the health of the trend, focusing on stops isn't going to fix the problem. One of the easiest and quickest ways to go broke is to use wide stops exclusive of all other considerations.
If you don't know how to determine the health of the trend, focusing on stops isn't going to fix the problem. One of the easiest and quickest ways to go broke is to use wide stops exclusive of all other considerations.
dbphoenix
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Developing a thoroughly-tested and consistently-profitable trading plan is only a preliminary step. If one doesn't trust it enough to follow it, there's really no point in having done it. OTOH, if one doesn't trust it, there may be unexamined issues with the design.
dbphoenix
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Entry and exit protocols are an essential part of the plan. To begin with, in order to stack the odds in your favor of a reasonably sure and profitable short, you must ensure that you have a considerable number of traders trading with you, in the same direction. This means in part that a substantial number of those who have been and are long have some compelling reason to at least exit their trades, even if they are not yet ready to reverse them.
So, if long, what criteria would you employ to determine whether or not you'd exit your trade?
So, if long, what criteria would you employ to determine whether or not you'd exit your trade?
I'd say I have that down pat given a W/R of around 70%. I can pick the moves but not the timing. I think for me it's more psychological. I find that I rush to enter a trade due to FOMO and I also find it hard to buy strength and sell weakness. The alternative is to enter early and get stopped out more frequently. I need a set of rules (say a MA crossover) that I can stick to religiously.
dbphoenix
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The winrate is irrelevant unless it has an accompanying robust profit-to-loss ratio. Without that, you're just racking up commissions.
And, no, the problem is not psychological. The problem is the lack of thoroughly-tested protocols for entering and exiting trades. Once you have those, you will find that rather than buy strength and sell weakness you ought to be doing the opposite if you favor reversals.
MAXOs won't save you. Begin by determining your criteria for exiting a long. Once you have that, you'll be on your way to entering a successful short.
If you decide to explore something other than trading candles or patterns or indicators, click my signature or look at my Trading Price thread in Journals.
And, no, the problem is not psychological. The problem is the lack of thoroughly-tested protocols for entering and exiting trades. Once you have those, you will find that rather than buy strength and sell weakness you ought to be doing the opposite if you favor reversals.
MAXOs won't save you. Begin by determining your criteria for exiting a long. Once you have that, you'll be on your way to entering a successful short.
If you decide to explore something other than trading candles or patterns or indicators, click my signature or look at my Trading Price thread in Journals.
Yes my risk/reward is also fine. Enough for positive expectancy.
And I agree about the protocols. However, are you saying a MAXO cannot be part of good protocol? I'm definitely focusing on this part of my system as I know it's my Achilles heel.
I'm also not sure I agree with your binary view of either being long or short. Most of the time I want to be on the sidelines, only participating when I feel there is a high probability of success.
I will check out your thread soon. Thanks.
And I agree about the protocols. However, are you saying a MAXO cannot be part of good protocol? I'm definitely focusing on this part of my system as I know it's my Achilles heel.
I'm also not sure I agree with your binary view of either being long or short. Most of the time I want to be on the sidelines, only participating when I feel there is a high probability of success.
I will check out your thread soon. Thanks.
