journal of trader formally known as wasp

[dbphoenix]

the cost remains constant ie 3 pips, no commission. As size increases the cost remains 3 pips, so no change on a relative basis.......the amount that could be saved by trading a different instrument increases though with size increase.......which is what i was getting at.

If the cost is absolute, then an increase in size increases the profit relative to the cost.

But this was all a week ago and is probably off-topic by now.

 

[jm99]

To anyone:

In backtesting you check the validity of a strategy for trading in the future to (hopefully) attain some sort of consisitent decent return.

2 conflicting, no 3 things I have read are -

market behaviour changes
markets go in cycles
backtests are there to show and give an edge

If market behaviour changes, what is the point of testing unless you test every day say since your market ever began, and even then, market behaviour can still change.

Then, if they go in cycles, you'll have good and bad periods (cheers to Yoder) so in the end it'll all work out?

db, I know you often say you should never exceed your backtested maximum losses and if you do, theres something wrong. Would you then say that means its changed enough to exceed, therefore you have to rethink your plan?

I am pretty sure last weeks tightness and excellent rolled up hedgehog impression, was due to little news/pre FED/August, but if next week is equally is bad, is it time to change or is it me being impatient through quiet periods and I should grin and bear it?

Obviously this is my decision but it would be annoying after alot of work for market behaviour to change and to start again only for the whole process to repeat. It would be enough to make you want to never test or have a plan again...

I don't think market behavior changes though in that it is normal for markets to go through phases of congestion and trend (70:30 approx) at differing levels of volatility (range expansion/contraction) on any one time frame. When testing a system it needs to be know imo how the system performs in each type of market condition Roughly speaking, the "type of market" can be split into the following categories.

trending up and volatile,
trending up and quiet,
trending down and volatile,
trending down and quiet,
non trending/sideways and volatile
non trending/sideways and quiet

also, add "normal" to all of the above. system performance will vary greatly depending on the market condition and I've never seen a system that is profitable in all type of markets (yet ) There is no point backtesting a system with data from a trending an volatile market and expecting the system to work in a sideways and quiet market.

eg 1998 - 2002 there was a massive pick up in volatility for sp, compared with recent previous years and the market was trending up then down. If this data was used to compile a system and that system was then applied to the 2003-2006 sp market (where volatility completely dropped off (until recently) and trend was up/sideways) it is unlikely to perform. Another recent example is gold, where there was volatility explosion this year. any systems that were tested on previous data (ie when the market was quiet) would have likely fallen down when the trend and volatility took off. when backtesting I try to categorize data to type of market condition and use trend and volatility filters.

 

[passive]

2 conflicting, no 3 things I have read are -

market behaviour changes
markets go in cycles
backtests are there to show and give an edge

If market behaviour changes, what is the point of testing unless you test every day say since your market ever began, and even then, market behaviour can still change.

if you choose to approach trading this way, you have to dig beneath these cliches and characterize (mathematically, objectively) the behaviors in ways that are useful to you.

 

[wasp]

MON - no trading
TUE - no trading

With the FED and funding new brokers I've just been watching but back in today...

 

[leovirgo]

MON - no trading
TUE - no trading

With the FED and funding new brokers I've just been watching but back in today...

Are you trading full time or just a sideline to 9-5 job? I've been trading Dow mostly but now watching and testing strats on cable. Breakouts seem to work well with cable.

 

[wasp]

Hi Leovirgo,

Fulltime trading. I have enough capital for 2006 plus my trading capital from another business so I have a few months to prove myself. Breakouts can work well on cable and one of the things I do watch for. Never particulary liked the dow, or maybe the dow just didn't like me!

good trading...

 

[leovirgo]

Hi Leovirgo,

Fulltime trading. I have enough capital for 2006 plus my trading capital from another business so I have a few months to prove myself. Breakouts can work well on cable and one of the things I do watch for. Never particulary liked the dow, or maybe the dow just didn't like me!

good trading...

Good for you. I'll be watching your journals. regards,..

 

[wasp]

Wednesday

Well I said I wouldn't trade pre FED days but what with the US GDP this afternoon I thought the morning would be worth a shot, up till 2pm at least. how wrong I was. Guess the markets are doing just what I didn't want at the moment, changing... I'm not sure if it is the FED factor or becuase its August but the last 2 weeks in cable have been dire. I've profited but not as much as I'd like. I'm not being greedy but when I chose and settled and worked out my plan it was with the knowledge that 100+ pip moves are not uncommon and once a week they can be relied on, it looks as though this weeks will be the NFP on Friday. All the news out this week and still nothing... everything has been obsorbed... the FED yesterday pushed it down then rose it back up and maybe I'm being hasty in my dismissal but it would be nice to see some solid movement tomorrow and Friday because spikes and chop are no good for my wallet.


T1 > moved stop below spike S/R and out
T2 > went nowhere but against me
T3 > after spiking each way it went up a bit later but not far
T4 > pulled back to B/E +1

(Thankfully the rise after the US open sat around in the 40/60 region for a couple of hours whilst I went to the beach before I punched something )

 

[dbphoenix]

Don't forget that we have a holiday weekend upcoming, so don't be surprised at continued drift.

 

[wasp]

Just a half decent day tomorrow and a good NFP will please me...

Is your holiday weekend just the Monday?

 

[dbphoenix]

Yes, though the bond market closes early on Friday. And Friday afternoon before a holiday weekend is generally not the best time to trade anyway.

Which is not to say that it's impossible to find a trade at times like these. But there's also a lot to be said for just taking the time off and not thinking about it. The next few months will be plenty busy.

 

[wasp]

Ahhh but its NFP Friday and if that doesn't move cable, nothing will!

 

[jm99]

Well I said I wouldn't trade pre FED days but what with the US GDP this afternoon I thought the morning would be worth a shot, up till 2pm at least. how wrong I was. Guess the markets are doing just what I didn't want at the moment, changing... I'm not sure if it is the FED factor or becuase its August but the last 2 weeks in cable have been dire. I've profited but not as much as I'd like. I'm not being greedy but when I chose and settled and worked out my plan it was with the knowledge that 100+ pip moves are not uncommon and once a week they can be relied on, it looks as though this weeks will be the NFP on Friday. All the news out this week and still nothing... everything has been obsorbed... the FED yesterday pushed it down then rose it back up and maybe I'm being hasty in my dismissal but it would be nice to see some solid movement tomorrow and Friday because spikes and chop are no good for my wallet.


T1 > moved stop below spike S/R and out
T2 > went nowhere but against me
T3 > after spiking each way it went up a bit later but not far
T4 > pulled back to B/E +1

(Thankfully the rise after the US open sat around in the 40/60 region for a couple of hours whilst I went to the beach before I punched something )

this may be of help if you want to test more of the fed date stuff -
http://minneapolisfed.org/info/policy/dates-hist.cfm

re your system, what timefraem are you using, what are the ma's and do you wait for the bar to close after a ma cross to enter or intrabar??

 

[wasp]

Thats brilliant thanks jm99, I have real issues with the fed and avoiding them would be great if plausible and I don't miss too much.

My system is on 15min TF with 12/13 MA's (with a twist ) and I wait for a new candle on or over the MA cross unless its 9:30 / 1:30 news when the announcement 'should/usually/used to' be enough to push it through nicely. Any other time of the day I'd rather wait for a new candle.

 

[wasp]

Price action / indicators / intituition......

I've been toying with all three for a while now. I have been watching cable everyday for months and months now and you start to get an understanding of how it relates with price action. I'm not looking at anything larger than a 15 min frame and watching how it acts first thing in the morning, how it changes or stalls mid morning and then again from US open through till their close.

It certainy has characteristics you can rely on to a point and sense how and why and when and then as soon as you try to put it into real time it all goes pear shaped and then, look back over the past 12-18 months and you realise that, no, market behaviour does change.

There used to be thing called 'bigben' which produced a good run first thing before a reversal... not seen that in a long time... Back at the beginning of the year you got an early dip/rise for 20/30 pips and then a reversal extending up to 100+ pips. Now the current thing seems to be a small rise/dip followed by a mid mornng stall through to 1 ish and then possibly a good afeternoon run but usually more chop.

As for price action alone, well this morning I looked at that too and watched as support didn't hold, shot back though and then 10 minutes later it held... The relationship between S/R is just not reliable enough.

All these ramblings and musings lead to one thing alone, my indicator based strategy works better than all the above... S/R cannot be relied upon to give a high consistency with tight stops and reliable trades... market behaviour changes so easily that what works one day won't the next week and even the news cannot be relied upon to do anything exciting and worthwhile (NFP aside).

Basically the MA's work as moving trendlines and thanks to a copuple of tweaks here and there, they pick up 80% out of most trends and when theres chop and spikes, the are no worse than price action or intuition or psychology or news or bigger timeframes or anything else....

So from here on in, I won't even watch price action and try to understand too much, as my goal is profits and nothing seems to produce better than my MA's at the moment...

 

[coolTrader]

But don't you think it is a combination of all the above that works.. For example on the big ben system... that happens at set times of the year. and even then I don't know how it works.

I cannot place my trades based on time except when the market close and even then you you to get some signal. This morning despite all the chops it went straight to R1 and pierced it slightly but did not close above it on the 15min chart. This to me says come out and wait. But then there are invisible support like today we have 1.9050/54 holding. then if you are bold you could buy and wait.. or just simply stand aside.

Together with this using the moving average on the 2mins chart they are all converging and forming a straight line. Though the 15min says up. All these combinations tell me when to and when not to take a trade..

As you rightly said the market changes. but the indicators behave the same way. The only problem is that they are a lagging indicator. I use a very tight stop and I need to know that my entry is right so that my stop is protected...

 

[wasp]

But don't you think it is a combination of all the above that works.. For example on the big ben system... that happens at set times of the year. and even then I don't know how it works.

I cannot place my trades based on time except when the market close and even then you you to get some signal. This morning despite all the chops it went straight to R1 and pierced it slightly but did not close above it on the 15min chart. This to me says come out and wait. But then there are invisible support like today we have 1.9050/54 holding. then if you are bold you could buy and wait.. or just simply stand aside.

Together with this using the moving average on the 2mins chart they are all converging and forming a straight line. Though the 15min says up. All these combinations tell me when to and when not to take a trade..

As you rightly said the market changes. but the indicators behave the same way. The only problem is that they are a lagging indicator. I use a very tight stop and I need to know that my entry is right so that my stop is protected...

Yes they are lagging but through tests and checks I can ensure a hell of a lot more reliable signals with the smallest of stops to ensure my R:R is good and my risk factor is at a minimum. I can't do that with pivots and S/R. I use a 10 pip stop most of the time and there is no way I'd pull that off with anything else. Especially with S/R and pivots as unless your scalping the signals would be every 2 seconds and from what I can see, stops would need to be wider.

Take today as per example.... (I don't have pivots BTW)

We broke up through yesterdays high at 60, we pulled back straight through to the next S/R at 55, bounced off and shot up to 85 and then 60 became support for an hour. Consumer confidence dropped it through to 55 and then we're now back up through to 80 (just below todays high)...

I had a long signal at 7am which needed no SL at all, then one at the CC figure and one just now to go long again at 70 (no SL required at all again).... Apart from the CC signal which rose by 8 against me before dropping, there was no way I could have swung those 3 trades on PA alone.

Maybe its just me but from a risk and goal perspective, nothing gives me more concrete and clearer signals that the MAs, lagging or not.

Of course the other thing that doesn't help is the fact this market just won't follow through and go anywhere but thats something else entirely.

 

[firewalker99]

I've been toying with all three for a while now. I have been watching cable everyday for months and months now and you start to get an understanding of how it relates with price action. I'm not looking at anything larger than a 15 min frame and watching how it acts first thing in the morning, how it changes or stalls mid morning and then again from US open through till their close.

As for price action alone, well this morning I looked at that too and watched as support didn't hold, shot back though and then 10 minutes later it held... The relationship between S/R is just not reliable enough.

All these ramblings and musings lead to one thing alone, my indicator based strategy works better than all the above... S/R cannot be relied upon to give a high consistency with tight stops and reliable trades... market behaviour changes so easily that what works one day won't the next week and even the news cannot be relied upon to do anything exciting and worthwhile (NFP aside).

So from here on in, I won't even watch price action and try to understand too much, as my goal is profits and nothing seems to produce better than my MA's at the moment...

well, I must say this comes as quite a shock to me. My quest for understanding how to trade has been all about understanding price action (and incorporating volume if that can support your hypotheses). Reading you say that S/R isn't reliable enough doesn't give me much hopes on developing my own strategy which is based on that primarly.

I'm sure there are people out there who are able to trade successfully on those patterns, but I actually thought you were going to get the hang of this much faster than me. I wonder what others have to say about this. Hopefully something more than "what others think or do doesn't matter". :|

 

[firewalker99]

Take today as per example.... (I don't have pivots BTW)

We broke up through yesterdays high at 60, we pulled back straight through to the next S/R at 55, bounced off and shot up to 85 and then 60 became support for an hour. Consumer confidence dropped it through to 55 and then we're now back up through to 80 (just below todays high)...

I had a long signal at 7am which needed no SL at all, then one at the CC figure and one just now to go long again at 70 (no SL required at all again).... Apart from the CC signal which rose by 8 against me before dropping, there was no way I could have swung those 3 trades on PA alone.

.

Could you perhaps put up a chart of these trades? Perhaps somebody who's not trading on MA's on the same instrument can give his or her comments...

 

[wasp]

well, I must say this comes as quite a shock to me. My quest for understanding how to trade has been all about understanding price action (and incorporating volume if that can support your hypotheses). Reading you say that S/R isn't reliable enough doesn't give me much hopes on developing my own strategy which is based on that primarly.

I'm not saying it doesn't work just it doesn't work for me... I used to think that I'd be using indicators as stabilizers until I got my head around trading price alone as this was/is the ultimate goal and whilst I am not ruling that out completely, right now, I am doing far better with indicators than without and my comfort zone cannot be found in using S/R alone.

I'm sure there are people out there who are able to trade successfully on those patterns, but I actually thought you were going to get the hang of this much faster than me. I wonder what others have to say about this. Hopefully something more than "what others think or do doesn't matter". :|

I'm sure there are and I think you are already further ahead than me mate. I can see the S/R and I can give a good general view of what I think the market will do based on price alone but, and this is where the big but comes in, I cannot comfortably trade off price alone with the stops I'd like and the overall daily goals I'd like, yet I do so through other means.

Hopefully something more than "what others think or do doesn't matter". :|

:cheesy: now, now!