Learning to catch High Probability Breakouts

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amitrandive

amitrandive

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#3,891
#3,891
timepass said:
Not a perfect world, brother. Maybe not right to assume that a single candle indicates change of sentiment. Confirmation is always needed from the following candles. The indicators just make it easier.
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TP

Of all the posts in this thread , no where has it been said that don't use indicators.

The only advise is not to heavily rely on indicators and focus on price action also.

I have seen a lot of traders start using indicators,then get into optimization and then into spotting divergence,etc,etc and when they get nothing from it they get into another indicator and the search continues.

Also price action takes into account supports and resistance also,not single candle in isolation.That is why chart patterns and candlestick patterns also should not be studies in isolation but at important support and resistances.

The same applies to indicators.People use indicators designed for EOD basis on the smallest of timeframes ,viz 1 minute and expect the same results.

Usually, traders just randomly pick an indicator, place it on their charts and then try to make use of it without really understanding what they are looking at.

How wise is that ?

Therefore, the debate whether indicator based trading is superior over price action based trading is redundant.

A trader may use whatever is comfortable to him and his risk appetite.
Traders always look for reasons why a trade turned out to be a losing trade. In quest of answers, they arbitrarily alter indicator settings, add new indicators or seek for answers elsewhere until they have found a possible explanation why their signal was “not correct”. It is important to understand that you will always be able to find reasons why a trade did not work out if you just play around with indicators long enough.

A broad classification of the indicators and their use,I doubt whether those people who use them excluding senior and professional traders ever know their use and in which context.(read "trending or sideways markets").





Good article for using indicators effectively.

http://www.investopedia.com/articles/trading/12/using-trading-indicators-effectively.asp

Bottom Line: If you are randomly selecting indicators to support your analysis, you will more than likely fall into the multicollinearity trap of using multiple indicators that are all saying the same thing. They are not giving you any additional information; in fact, they are restricting your overall view of the market. Don't search for supporting information among collinear indicators, it is just misleading.
 
amitrandive

amitrandive

Well-Known Member
#3,892
#3,892
The Holy Grail is in the execution

http://www.optimusfutures.com/trade...ical-indicators-can-misguide-you-as-a-trader/

The difference between an amateur and a professional trader is not necessarily defined by the indicators they choose or which entry signals they follow, but how they approach trading in general. The following points sum up what we have discussed and can provide guidance on your way to more consistent results and a professional mindset.
  • First, it is important to understand that there is no significant difference between indicators and price information. Indicators just apply a formula to what you see on your charts and translate it into visual information.
  • There are mainly two categories of indicators: trend and range indicators. Knowing which one to use in a specific situation and not applying too many indicators to avoid redundancy and indicator-paralysis is important.
  • Understanding your trading tools and really knowing what they do and how they process information is inevitable.
  • Constantly adjusting your indicators and the setting of your indicators based on the hindsight bias can lead to inconsistent results.
  • Hindsight bias and exclusively judging your performance based on your recent trades can result in what we call “riding the learning curve”. Try to follow a consistent approach, don’t engage in”system hopping” and only make small adjustments along the way.
 
amitrandive

amitrandive

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#3,893
#3,893
Smart_trade said:
I had posted earlier on this. It is the initial period of the trade or take off period which is more likely to give us gap open against us.. So on the entry day if the trade does not move more than 30-40 points in my direction I exit the trade at the close of the day and will try to get a fresh entry next day. Generally after we take a short trade and market refuses to go down strongly and at the time of closing it is just 10-12 points below my entry or 10-12 points above the entry but still not hit the stoploss. Such cases are most likely to give a gap up opening next day as the market is refusing to go down . So I exit the trade.

Once the market moves 30-40 points, it gives me a cushion that even if it opens 40-50 points gap up...still my loss is limited.

Smart_trade
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amitrandive

amitrandive

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#3,894
#3,894
Smart_trade said:
Swing Trade with smaller stoploss

Swing trading is a very profitable way of trading with a high RR but a trader faces a few problems in swing trading. One of the problems is a large stoploss in swing trades. Swing trades stops will normally be 70-75 points in Nifty and that makes swing trading difficult for traders. Other problem is gap up/down against our positions particularly in the initial stages of the trade. We have to find solutions to these problems. I have found following solution for me for large stoploss at entry.



The above chart shows swing buy level market in blue line based on 60 min chart. The stoploss for this trade is large and we have to see if we can take the trade on lower stops.



Second chart shows the same trade on 3 min timeframe.The swing buy level is same as 1st chart but it is on 3 min chart now. The following possibilities give good low risk entry.

1) When 3 min bar closes above the swing high level, we buy above hih of that bar and keep stoploss at low of the bar.

2) If a 3 min minor pivot low or even aggressive pivot low is nearby, we can keep our initial stoploss there.

3) Another way is buy above the first mph above he swing buy level with a stoploss at the immediate lower mpl.

4) If the any bar closes back below the swing buy level, the breakout is suspect. My experience is valid breakouts move fast in direction of the breakouts and dont look back to close below the swing buy level.

5) If none of the above is closeby, just take a buy above the high of the bar which closed above the swing buy level and keep a hard stop of 20 points from my entry price in Nifty.

The above has advantages of lower stops but it comes with disadvantages of a few whipsaws.But my experience shows that one may get 1 or max 2 whips before a good entry is achieved. So that is a trade off. Every trader should experiment with these stops and use them only if his backtest is satisfactory and he is comfortable using them.

Smart_trade
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