rainman2's journal

[dbphoenix]

For clarity, is this how you define momentum? Or not until a HrL above the low of 10/23 happens would a momentum shift occur?

1. It's up to you to structure your trading environment. Some people consider that liberating. Others consider it limiting. "Momentum" is a concept, like up, down, trend. In order to make it useful, you have to define it in a way that generates a profit for you. For example, I define "trend" and "trend reversal" the way Sperandeo does (which is derived from the Dow/Hamilton definition). But I do so not only because that's the way he/they define it but because I've found value in it through experience.

2. The momentum on which the utility of the Darvas box depends is a level of buying interest that overwhelms its opposite. You can define that by price movement or by indicators. But that persistent and sustained push must be there or this particular pattern won't succeed (ditto any BO pattern).

3. What happened on 10/23 is relevant only insofar as it affects price movement through 75. Otherwise, it's outside your frame of reference, i.e., your trading environment. If you were to include all of that information in your trading decision, you wouldn't be going long until price got past 77.2

In other words, you have to decide exactly what timeframe you're going to focus on even though you must also place that timeframe in context. "Focus" does not mean "tunnel vision", any more than keeping your eyes on the road means ignoring that sign to the side of the road that tells you that there's a dangerous curve up ahead and you must slow down.

4. The Darvas Box is not necessarily a fabulous strategy, much less a surefire one. However, when you're starting out, you have to have someplace to begin, and the Darvas Box is as good as any, and better than most. By playing with it, you will learn something about hypothesizing and experimenting and controlling variables and testing backwards and forwards, all of which is the point of the exploration. You may find at the end of it that the Darvas Box is right up your alley. More likely you will discover something along the way that is much better for you. I, for example, when looking at the charts you just posted see something different. Not necessarily better. But different. That's what makes a horserace.

Db

 

[rainman2]

Why I am choosing the Darvas box strategy

In my first attempts at drawing s/r lines, I found myself questioning if the highs/lows or the open/close was where I should draw them. Was price itself s/r or is s/r a zone? Reading different threads, I came to an understanding that its not so much the s/r, its how price reacts around these areas. So I would draw my s/r the night before where s/r would touch the highs of one day, the close of the next, and the open of the next. But all I cared about was how price reacts at the line. Anyway, price reaches R(in this example) and stalls, another candle forms and R holds,the next candle breaks through R but closes back under it. AHH, "short city baby". To make a long story short, I get stopped out 2 bars later on a "bozo" through resistance.

"What did I do wrong?", I ask myself.
Easy, this s/r stuff is a bunch of horse sh.., I thought. After calming down, I was better able to analyze the trade.

What was the market doing at the time of your trade?
answer : going up
What was IWM doing at the time of your trade?
answer : going up
What did you do?
answer : bet that price will go down
What's wrong with this picture besides the fact that I don't have a clue?
answer : I went against the trend

Conclusion : To find a strategy that allows you to draw s/r without any thought of where it should be drawn and to trade with the trend. The Holy Grail awaits.

 

[rainman2]

By the way db, thanks for your suggestion to open this journal and you participation in it. I'm already looking at price action differently, which in turn should help in my trading setups, be it in taking or passing on the trade, position size mangement or where and when to take profits.

 

[rainman2]

Here's a trade I took today with my reasoning:

Chart 1- price gaps on the 60 minute chart above the erie line (33 sma)

Chart 2- price gaps up above R1 (74.90) in the premarket and breaks through R2 (75.24) on the open on increasing volume, as shown on the 15 minute chart.

Chart 3- momentum has clearly swung from down to up and I was looking to buy as long as price stayed above 74.90. My buy stop moved from 75.41 to 75.36 to 75.28 to 75.14 at which time I was filled.

 

[dbphoenix]

Here's a trade I took today with my reasoning:

On paper or with real money?

 

[rainman2]

On paper or with real money?

real

 

[rainman2]

what I see now

I think the moves over, probably won't take the break at 75.40 but depending on the time might take a break of 75.11 if price gets there.

 

[CYOF]

Hi rainman2,

FWIW - I would stay with it until it breaks down through the uptrend line - but I would also watch the overall market.

Just my thoughts!

Regards,

 

[rainman2]

Hi rainman2,

FWIW - I would stay with it until it breaks down through the uptrend line - but I would also watch the overall market.

Just my thoughts!

Regards,

Thanks CYOF, but I'm not in a trade right now. I actually have a new long signal but I don't trust it so I'm not going to take it.

Reasons why I don't trust it:
1) volume pattern as shown in last post
2) bumping up against ATR (currently 1.03)

According to strategy, I should have entered at 75.73, price is currently at 76.03. Thus the need to come up with and trust my trading plan.

One thing I am looking at: ATR was at 75.80, price consolidated there for 3 bars and then broke out. It will be interesting for me to see if price closes strong after the ATR breakout.

 

[erierambler]

Here's a trade I took today with my reasoning:

Chart 1- price gaps on the 60 minute chart above the erie line (33 sma).

Rainman2,
I assumed ( ass-u-me ) that you were constructing a trading plan. Thus my reason to mention the 30 or 35 ma . It was mentioned assuming you would backtest , to erase looking at trades with not much probability of success. As conditions can change, so could the variable of the ma. To me, the ma is useful in developing a method for evaluation of a plan. I like the name "erie line ". lol. Be careful .

erie

 

[rainman2]

Rainman2,
I assumed ( ass-u-me ) that you were constructing a trading plan. Thus my reason to mention the 30 or 35 ma . It was mentioned assuming you would backtest , to erase looking at trades with not much probability of success. As conditions can change, so could the variable of the ma. To me, the ma is useful in developing a method for evaluation of a plan. I like the name "erie line ". lol. Be careful .

erie

Real work starts next week after vacation. The money that I'm wagering is just enough to feel the emotion and with my partials and tight stop losses, they'll be no ferrari's nor yugo's in my near future. Thanks for the concern and am glad you like the "erie line" as I will continue to use that phrase if it's alright with you.

Until there's no more rum in the caribbean,

rainman2

 

[erierambler]

Real work starts next week after vacation. The money that I'm wagering is just enough to feel the emotion and with my partials and tight stop losses,. Thanks for the concern and am glad you like the "erie line" as I will continue to use that phrase if it's alright with you.



rainman2

Yes use that phrase, it's your journal. Have a good time........
My only concern was that today was an extremely high probability trade and don't want you to think things are always this way.
erie

 

[rainman2]

Defining Darvas

Here are my rules for the “Darvas Box”:



The upper limit of the box will be the highest price that will be reached during an advance and which price will not be penetrated for at least 3 consecutive 15 minute candles. The lower limit of the box will be the lowest price that will be reached during a decline and which price will not be penetrated for at least 3 consecutive 15 minute candles.



IMPORTANT: The lower limit of a new box cannot be established until the upper limit is firmly set. If a new upper limit is set, then the old lower limit will continue to serve as the lower limit until a new lower limit forms.



According to the way I interpret the rules, it will take a minimum of 5 candles to form a “box”. Below are examples of a valid and invalid box.

 

[rainman2]

Modifying Darvas

According to Darvas theory, he would buy the breakout of the upper limit of the box.

I will be using the breakout, be it on the buy side or sell side, as a long/short signal. NOT an entry signal. Price must break out of the box by at least .05 cents for it to be a valid signal. This rule may change as my trading evolves and I get better at reading and understanding price action. But for now, it will be just a signal.

 

[rainman2]

I still have to define entries and exits but am not feeling well. The old " get on a plane healthy as a horse and get off a plane sick as a dog syndrome."

Here's how tomorrow looks.

 

[TIKITRADER]

DARVAS BOX rules you have set are for position held trades? do you still use 15 minute candles for intraday or do you change that set up when looking at 1 min, or 5 or 10 min time frames?

Here are my rules for the “Darvas Box”:



The upper limit of the box will be the highest price that will be reached during an advance and which price will not be penetrated for at least 3 consecutive 15 minute candles. The lower limit of the box will be the lowest price that will be reached during a decline and which price will not be penetrated for at least 3 consecutive 15 minute candles.



IMPORTANT: The lower limit of a new box cannot be established until the upper limit is firmly set. If a new upper limit is set, then the old lower limit will continue to serve as the lower limit until a new lower limit forms.



According to the way I interpret the rules, it will take a minimum of 5 candles to form a “box”. Below are examples of a valid and invalid box.

 

[CYOF]

I still have to define entries and exits but am not feeling well. The old " get on a plane healthy as a horse and get off a plane sick as a dog syndrome."

Here's how tomorrow looks.

Hi rainman2,

Not sure is this info will help you - but I will give you my opinion FWIW

I have been testing my own setups for trading the YM - but I think that it really doesn't matter what you are trading if you can get a simple strategy that will actually WORK.

The main deciding factor with the success of any strategy is entirely dependant on how the trader thinks. So, I will explain my simple thoughts for trading IWM today (using my YM setup) - and every other day as well, if I decided I wanted to trade it.

1) I wait for the first 3 MA reversal after the market open - and trade immediately in the reversed direction if the DOW 30 stocks are trying to do the same. I will also look for a supporting candle formation, but the main focus is on the DOW 30 movement, IWM T&Sales and major market indices movements. If the trade does not develop quickly - I will stay with it until the DOW 30 movement tells me I was wrong and the 3MA + candle formation tells me to reverse trade. If the trade goes against me quickly I will exit reverse trade as quick as I can.

2) I will stay with the trade - drawing in the trendlines as they develop - until the 3MA starts to reverse again - and then check the DOW 30 stocks again to see if the are doing the same - if yes Go - if not - look at the the trendlines, S&R levels and candle formations to support the trade entry decision. But again, my main focus is on the DOW 30 movements - I want to trade with the main market movements - not against them.

3) I will repeat this until 11:00 - when I will either exit or set a trailing stop, depending on what the markets are doing - but generally it is close up shop at 11:00.

Finished for the day - and I don't really care what happens next :cheesy:

As I said, just my thoughts, and you may some find some use in the information.

No matter what strategy you use - I really think that timing of entries is crucial, and is worth spending a lot of time testing. If you can get into a trade just as it starts to reverse - you have a major advantage. Looking at LevII and T&Sales can be misleading if the major markets are not supporting - you will know when the big moves are on - as everything will go RED / GREEN very quickly - but you want to be in just before this happens - so the best way I have found is to take the RELEVANT signals - as stated above as you will not reverse trade every time the price line crosses the 3MA - and be prepared to reverse back very quickly.

When you are wrong get out with a small loss - when you are right stay with it until you can take as much as the market is offering - the Holy Grail of trading.

When you learn how to be right more times than wrong, then you can look at advanced position sizing strategies (more testing needed) to make some real money $$$$$.

If you want to trade the longer timeframe, then bump up the chart ranges and off you go as per the top chart - but you must be willing to have wider stops if trading for the longer timeframe - as we all know of course.

No disrespect - but remember that the most important thing is to concentrate on what the major markets are doing - for most of the time the others will follow - barring some major news of course. You want to trade with the large money flow - not against it.

There are hundreds of ways to read a chart - Darvis Box, 123 setups, Flags, Pennants, Wedges, etc,etc, but most of the time the main factor that will influence the direction of a stock is the direction that the Major Markets are trading.

So, don't get me wrong here, I am not saying that my setup will work for you, but I am saying that your chances of placing winning trades may be greatly increased if you learn how to read what the major markets are doing - as opposed to just concentrating on a single stocks chart with some specific chart formation used as the primary trade entry /exit decision tool.

It is at least worth some testing to see if it works - and for me, my results are beginning to improve as I continue with my testing.

Regards,

 

[rainman2]

DARVAS BOX rules you have set are for position held trades? do you still use 15 minute candles for intraday or do you change that set up when looking at 1 min, or 5 or 10 min time frames?

Tikitrader,

I will be using monthly, weekly, and daily charts for channels and longer term darvas box prices.
I will be using the 60 minute chart for boxes and momentum(33sma)
I will be using the 15 minute chart for intraday boxes that I will use for long/short signals
Finally, I will be using the 5 minute chart for entries and exits.

I plan to experiment with defining trend(momentum) on the 15 and 5 minute charts. At this point, I'm thinking of using the 33sma on both timeframes and also adding the 4sma and 12sma on the 5 minute but don't want things to get to complicated. I'm hoping to figure out trend and its strength through price action.

 

[rainman2]

Hi rainman2,

Not sure is this info will help you - but I will give you my opinion FWIW

I have been testing my own setups for trading the YM - but I think that it really doesn't matter what you are trading if you can get a simple strategy that will actually WORK.

The main deciding factor with the success of any strategy is entirely dependant on how the trader thinks. So, I will explain my simple thoughts for trading IWM today (using my YM setup) - and every other day as well, if I decided I wanted to trade it.

1) I wait for the first 3 MA reversal after the market open - and trade immediately in the reversed direction if the DOW 30 stocks are trying to do the same. I will also look for a supporting candle formation, but the main focus is on the DOW 30 movement, IWM T&Sales and major market indices movements. If the trade does not develop quickly - I will stay with it until the DOW 30 movement tells me I was wrong and the 3MA + candle formation tells me to reverse trade. If the trade goes against me quickly I will exit reverse trade as quick as I can.

2) I will stay with the trade - drawing in the trendlines as they develop - until the 3MA starts to reverse again - and then check the DOW 30 stocks again to see if the are doing the same - if yes Go - if not - look at the the trendlines, S&R levels and candle formations to support the trade entry decision. But again, my main focus is on the DOW 30 movements - I want to trade with the main market movements - not against them.

3) I will repeat this until 11:00 - when I will either exit or set a trailing stop, depending on what the markets are doing - but generally it is close up shop at 11:00.

Finished for the day - and I don't really care what happens next :cheesy:

As I said, just my thoughts, and you may some find some use in the information.

No matter what strategy you use - I really think that timing of entries is crucial, and is worth spending a lot of time testing. If you can get into a trade just as it starts to reverse - you have a major advantage. Looking at LevII and T&Sales can be misleading if the major markets are not supporting - you will know when the big moves are on - as everything will go RED / GREEN very quickly - but you want to be in just before this happens - so the best way I have found is to take the RELEVANT signals - as stated above as you will not reverse trade every time the price line crosses the 3MA - and be prepared to reverse back very quickly.

When you are wrong get out with a small loss - when you are right stay with it until you can take as much as the market is offering - the Holy Grail of trading.

When you learn how to be right more times than wrong, then you can look at advanced position sizing strategies (more testing needed) to make some real money $$$$$.

If you want to trade the longer timeframe, then bump up the chart ranges and off you go as per the top chart - but you must be willing to have wider stops if trading for the longer timeframe - as we all know of course.

No disrespect - but remember that the most important thing is to concentrate on what the major markets are doing - for most of the time the others will follow - barring some major news of course. You want to trade with the large money flow - not against it.

There are hundreds of ways to read a chart - Darvis Box, 123 setups, Flags, Pennants, Wedges, etc,etc, but most of the time the main factor that will influence the direction of a stock is the direction that the Major Markets are trading.

So, don't get me wrong here, I am not saying that my setup will work for you, but I am saying that your chances of placing winning trades may be greatly increased if you learn how to read what the major markets are doing - as opposed to just concentrating on a single stocks chart with some specific chart formation used as the primary trade entry /exit decision tool.

It is at least worth some testing to see if it works - and for me, my results are beginning to improve as I continue with my testing.

Regards,

CYOF,

Thanks for taking the time, I appreciate your input and your setup. At this time in my journey, I'm trying to develop a plan that will keep me out of reversing. I'm trying to concentrate on understanding why breakouts succeed and why they fail. A major reason, I suppose, is what the major markets are doing. I haven't posted attachments of them so far in the journal with my trades but have the $COMP, $DJI, and SPY on my screen at all times. I'm constantly monitoring what's breaking out/ breaking down and how that will affect IWM. Here's an example on the 15 minute chart of each. As you can see IWM broke out a full half hour before the $COMP and $DJI and 45 minutes before SPY. How you would use this info is up to you, but if I were a nasdaq futures trader, having an IWM chart up on one of your screens couldn't hurt.
By the way, good luck on your journal as I will continue to read it and hopefully contribute constructively if I can.

 

[rainman2]

Entries

I am a going to be a discretionary trader to start. Just because a breakout occurs does not mean that I have to automatically take the trade. A breakout to me will mean “Hey, a high probability trade might happen.”



What does discretionary mean? It means, where is price in relation to the trend(momentum), is the trade confirmed by the erie line(33sma), how far has price increased/decreased during this move, what is the nasdaq, s&p, and djia doing, volume confirmation.



Once a long/short signal candle closes, an entry will be a break of that closed candle high/low. If that high/low is not taken out on the next candle then the entry will be a break of that candle high/low, and so on and so on as long as price has not breached the bottom of the box by more than 5 cents. I understand that I might “miss the move” by doing it this way but you gotta start somewhere.