Setups! Finding, Defining & Testing Them

[SOCRATES]

Sorry, I forgot to add, so that you are not perplexed and think what I say above is in any way a contradiction.

The fact of the matter is, that there are many ways to skin a cat, so to speak, and therefore a wide kaliedoscope of interests and many different ways for traders to make money.

For this reason there are a huge amount of things that do not work, that you have to sift through yourself to verify that is the case. It is a process of personal elimination, that allows you to distil for yourself what does work for you within the arena of your specific interest.

The opposite is for me to sit down and write a heavy book, which I am not willing to do. What I am prepared to do is review sensible posts with regard to this topic and tell you what would work and what would not, and the reasons.

I have to find a way to help you but at the same time to prioritise my own use of time.

 

[fxmarkets]

It is extremely difficult to explain because it is wholly abstract. It is a very special kind of "knowing", a sort of "compelling knowing.

Do you think that this is what can be referred to as "moments of absolute truth"? I came across this term a few years back used to explain the odd?(in the sense that is quickly scoffed at by majority) instances for some individuals can see (as it suggests) exactly any event , it also seems to be beyond the constraints of theoretical time .

 

[SOCRATES]

Yes, perfect.

Tick tock time, as recorded by the clock, does not figure in this at all.

 

[Mr. Charts]

Hi Jon,
The links to Db's posts in other threads are very useful and informative. It is one process which is based on logic, although I've never seen a worked example from start to finish. I'm sure there are loads - I've just never seen one. Some people will endorse SOCRATES' view that a mechanical/scientific approach isn't enough by itself. Others will think it is all you need. It doesn't matter. Other traders will approach the problem differently. Jake Bernstein - 'famous trader' - has a set-up based around days of the week or some such. I know one trader (who is consistently profitable Sbing the FTSE100) who studies I Ching and gave a most enlightening talk on how this could be used in trading. The possibilities are endless. I was hoping to get input on the creative side of finding setups - which was meant to be the starting point of the thread. All artists get inspiration and ideas from other artists. I had hoped that the T2W community would share their ideas on how they find, define and test their set-ups. Sadly, it would appear that I'm very much mistaken.
Tim.

Hello timsk,
I am not too sure whether defining set-ups really helps since it is a subject where close and accurate description and analysis almost precludes or limits the functionality of the set-up; a sort of law of diminishing returns. I think you can loosely define the parameters and features almost scientifically but then the greater the depth of detail, the more you miss the art and experience which are key to success.
As Socrates suggests, and OpenMInd implies, there are layers beyond the easily delineated. The more experience you gain, the more the sub-conscious imput. How that is described and explained will vary hugely from experienced trader to experienced trader. I would talk about it in very different words to Socrates and probably OpenMind as we are different people and, more importantly, some of those "awarenesses" are very difficult to express in words which most people can understand. This is not because they can't understand them but because they haven't "yet" been there. There is a poetry and a beauty in it which comes from mastering it.
Now you can trade perfectly well without those deeper understandings, but I think you can learn them, or perhaps teach yourself them, by looking, thinking, gaining experience so these understandings develop within yourself. Perhaps they are just the product of thoughtful experience sub-consciously processed and delivered to the conscious awareness as an intuitive "feel" which proves to be correct very, very often.
You see what I mean. There are simple explanations and complex ones. You can look at a work of art, or science or engineering and understand the nuts and bolts and perhaps be able to learn how to "do" or reproduce it. That's great and that's all you need to do to be modestly successful at the endeavour. The same is true of trading and the benefits of experience add to understanding. I think a little art needs to be mixed with the scientific analysis.
The last line of your post, "Sadly, it would appear that I'm very much mistaken" may be correct.
However, I suspect most traders only have a vague idea of the features of the set-ups they use anyway and it is just too hard and time consuming for them to write them all down.
Also many traders are quite reluctant to reveal their edge - if they have one.
They are also not prepared to put up with the nonsense which is often the response they get.
Sometimes absolutely priceless information is written and no-one even bothers to express their thanks. Sometimes sneering derogatory remarks ensue. But hey, that merely demonstrates who are the fools.
The idea behind the thread was fine and in my view useful concepts have emerged, even if they were not what you were hoping for.
Thank you for starting this thread.
Richard

 

[JumpOff]

Tim,
I have recently returned from a vacation and am pleased to see this thread you have started. I gained several important insights from your idea of the trading plan template, and hope to learn a thing or two here also.

There are several basic setups that are already published and defined throughout trading literature. I believe your questions was, "How does one go about the creative/scientific process of finding and testing new setups?" Or perhaps, "How does one go beyond reading a published setup - to gain true understanding of it, and to make it your own?" I like to start with a simple idea of what I want a setup to do, namely:

I want an entry that is better than random. Is that possible? If so, what is better?

• An entry closer to a spot that says, "you're wrong about the direction, or the direction has changed since you entered. " A.K.A. a tighter stop.
• A signal that price action is doing something besides contracting, so that the velocity makes it worth my time to monitor the trade. I want my position to be profitable or stopped out in a fairly short amount of time - say the next 2-4 bars. I am willing to watch and wait for a good entry, but once I pull the trigger, I don't want to sit and 'watch the paint dry'.....

Now that I know what I want, I start the journal process. And I believe that is a topic for another thread....
JO

 

[SOCRATES]

The intermittent problem in all of this is that sometimes the question is not the question but the answer, and at other times the answer is not the answer but the question instead . At other times there are no answers to any questions you may ask, or any question you can think of asking. But all of it makes for very interesting reading. That is why in my circle we are so fond of the works of Lewis Carroll.

 

[jimmy1jag]

Hello timsk,
I am not too sure whether defining set-ups really helps since it is a subject where close and accurate description and analysis almost precludes or limits the functionality of the set-up; a sort of law of diminishing returns. I think you can loosely define the parameters and features almost scientifically but then the greater the depth of detail, the more you miss the art and experience which are key to success.

Richard

Richard, I hope you don't mind me pruning your post! This is purely to save space and to save people from having to scroll down.

I was particularly interested to read your post, for which I thank you, as I feel this hits the nail on the head.

An analogy I would like to draw is that of the process learning to speak a foreign language from beginners' level through to native speaker level.

At school/ in the classroom, one is presented with a grammar book and is taken through various aspects of that language's make up and the rules that have to be obeyed in order to converse in an understandable manner. These grammatical aspects are also set in the context of relevant practice. However, if one is learning say German (as this is my experience) remotely (i.e. not in Germany where one is surrounded by the language) then the process of learning to speak the language proficiently and beyond, is very very frequently doomed from the outset. When one learns a language, one has to change/ alter one's pattern of thinking. For example, in German sentence construction is different to English.

English sentence structure: I will be late home because I must go to the doctor's at 5.00pm.
German sentence structure: I will late home be, because I at 5.00 pm to the doctor's go must.

To go from only having known and executed the English sentence structure to being able to execute the German sentence structure subconsciously and at will, one has to go through a process of training the mind to be able to do this. It is not easy and requires high levels of application, ideally in an environment where one is immersed, in order to achieve this. I have been through this process to the extent that my written English is sometimes odd! It is, at times, Germanic!

Very many people fail to learn a foreign language because they lack the dedication, application, motivation, patience and time required; and this, in my view, applies equally to trading.

Vast quantities of text have been written on set ups, and this thread (which is laudable, by the way) may end up being an evolving grammar book. The danger here, however, is that one may go round in ever decreasing circles because the emphasis here is not in the correct place.

My view is that one can learn the basics from "grammar books", but ultimately one has to immerse oneself in the instrument/ market of choice to learn the language of the markets. I.e. screen time... and huge amounts of it... to watch set ups develop, to learn the nuances.

And, of course, one has to learn to accept the need to change one's way of thinking and doing things and to know oneself. And, even with a framework/ process to operate within, that is not easy either and requires a huge amount of work. As a starter for 10, I offer you, "Theory of Addiction". But that is a separate discussion for another day.

 

[SOCRATES]

Yes, and in my immediate post above, number 86 I forgot to add:~

Because it just " IS "......and cannot be forced or moulded to suit anyone.

 

[SOCRATES]

Hello timsk,
I am not too sure whether defining set-ups really helps since it is a subject where close and accurate description and analysis almost precludes or limits the functionality of the set-up; a sort of law of diminishing returns. I think you can loosely define the parameters and features almost scientifically but then the greater the depth of detail, the more you miss the art and experience which are key to success.
As Socrates suggests, and OpenMInd implies, there are layers beyond the easily delineated. The more experience you gain, the more the sub-conscious imput. How that is described and explained will vary hugely from experienced trader to experienced trader. I would talk about it in very different words to Socrates and probably OpenMind as we are different people and, more importantly, some of those "awarenesses" are very difficult to express in words which most people can understand. This is not because they can't understand them but because they haven't "yet" been there. There is a poetry and a beauty in it which comes from mastering it.
Now you can trade perfectly well without those deeper understandings, but I think you can learn them, or perhaps teach yourself them, by looking, thinking, gaining experience so these understandings develop within yourself. Perhaps they are just the product of thoughtful experience sub-consciously processed and delivered to the conscious awareness as an intuitive "feel" which proves to be correct very, very often.
You see what I mean. There are simple explanations and complex ones. You can look at a work of art, or science or engineering and understand the nuts and bolts and perhaps be able to learn how to "do" or reproduce it. That's great and that's all you need to do to be modestly successful at the endeavour. The same is true of trading and the benefits of experience add to understanding. I think a little art needs to be mixed with the scientific analysis.
The last line of your post, "Sadly, it would appear that I'm very much mistaken" may be correct.
However, I suspect most traders only have a vague idea of the features of the set-ups they use anyway and it is just too hard and time consuming for them to write them all down.
Also many traders are quite reluctant to reveal their edge - if they have one.
They are also not prepared to put up with the nonsense which is often the response they get.
Sometimes absolutely priceless information is written and no-one even bothers to express their thanks. Sometimes sneering derogatory remarks ensue. But hey, that merely demonstrates who are the fools.
The idea behind the thread was fine and in my view useful concepts have emerged, even if they were not what you were hoping for.
Thank you for starting this thread.
Richard

Quite so.

And the last ten lines are particularly relevant.

 

[JumpOff]

• ....... I want my position to be profitable or stopped out in a fairly short amount of time - say the next 2-4 bars.

When I read this part of my earlier post above, it doesn't look like I did a good job of saying it clearly - I don't expect the trade to end in the next 2-4 bars, (Gee, I'd like to see a profitable position run on and on...) but I want an entry with a logical stop out close by. I think I have heard this called "selling into strength, buying into weakness."
JO

 

[SOCRATES]

You really want a tighter result than this. You really want (if you are stopped out) for it to happen in the same bar, and not for it to linger. You really want to be using really tight stops, not wide ones.

 

[ale]

As someone trying to understand the basics of trading and trying to decipher what started as an understandable thread, I think that Jimmy1Jag has summed it up nicely with his language analogy.
At the end of the day, what would work for me is a series of examples that demonstrate the terms used and the reasoning behind why certain chart positions may be relevant for defining a trading point.
I am surprised that no-one has mentioned Traderpedia as a way to capture the output from here.

 

[SOCRATES]

As someone trying to understand the basics of trading and trying to decipher what started as an understandable thread, I think that Jimmy1Jag has summed it up nicely with his language analogy.
At the end of the day, what would work for me is a series of examples that demonstrate the terms used and the reasoning behind why certain chart positions may be relevant for defining a trading point.
I am surprised that no-one has mentioned Traderpedia as a way to capture the output from here.

This is because what you call the reasoning, which is not reasoning at all but a very highly developed awareness, cannot adequately be discussed in a public forum such as this and in a way that would do it justice. This is because you have to have a heightened sense of developed awareness in order to keep up. This is very far beyond what is mechanical, and subsequently what is mainstream. Therefore it is not readily tangible. It is like cigar smoke in a room that you can see and smell and know exists, but you cannot physically touch. The smoke cannot be described in terms of tactile feedback, which would be a tangible explanation. Therefore this medium is not suitable for discussions of this kind, Traderpedia or no Traderpedia, I am indeed sorry to have to tell you.