M6 - Man, Mind, Money, Markets, Method & Madness

[DSM]

A profitable trade setup.


Was reviewing some collection of old charts to write up on clear and well defined entry criteria. Here's one a gem, that requires some patience and watch. But if tracked, it gives kind of an entry that surely will qualify for 5:1 RR in my view. (Have not backtested this with data) but in my view has enough in terms of psychology and crowd behavior that trading it makes it high probability as well as a high RR trade. Can it be programmed into an AFL? Maybe, and it may be difficult, but for a trader scanning for such setups can surely lock it in. Giving an example of Bullish entry.

Bullish setup criteria :

Break above a pivot high with a big bar.
Let the price retrace to the bottom of the bar.
(Here it becomes a good entry with low RR and high probability)
However, as per our setup, the entry is confirmed once the price breaks and closes above the high of the big bar.
SL below the close of the big bar.

Psychological understanding of entry and crowd behavior :
The big bullish bar and close above the previous pivot high is tracked and captured by all AFL's/Systems/Traders. A distribution to the low over time, triggers SL's pushing the price down, where the last hold outs give out. There are no long traders, AFL's and System at that point. The script is now ready to make its move, having absorbed triggered SL's in 'Demand Zone'

One element of successful trading in my view is 'Time' which was much used by Gann, but is not a part of the methodology of most AFL's and systems. So just posting my views on a highly profitable setup (in my view) which provides a good RR trade.[/

 

[augubhai]

Check out yesterday's intraday chart of Crude Oil. Uncanny resemblance...
http://www.bazaartrend.com/nsecharts/intraday-free.php?symbol=CRUDEOIL1 MCX

 

[DSM]

Spot on Augubhai. Did not know you were tracking Crude. I had placed a buy limit order 7 bucks below, and it did not trigger. Here's the chart for reference, which shows price retracement to the bottom of the Bull Bar.

Check out yesterday's intraday chart of Crude Oil. Uncanny resemblance...
http://www.bazaartrend.com/nsecharts/intraday-free.php?symbol=CRUDEOIL1 MCX

 

[amitrandive]

Hi Amit,

Good template. Is this available somewhere that you can share ?

manishchan

Not many free excels available on the net.But got one fantastic excel sheet.Have posted the link.

www.4s h are d.co m/office/IaIdTQOLce/Master_Trading_Journal.html
(Please remove the spaces)
:thumb:

 

[manishchan]

manishchan

Not many free excels available on the net.But got one fantastic excel sheet.Have posted the link.

www.4s h are d.co m/office/IaIdTQOLce/Master_Trading_Journal.html
(Please remove the spaces)
:thumb:

Thanks :thumb:

 

[Vertigo_1985]

A profitable trade setup.


Was reviewing some collection of old charts to write up on clear and well defined entry criteria. Here's one a gem, that requires some patience and watch. But if tracked, it gives kind of an entry that surely will qualify for 5:1 RR in my view. (Have not backtested this with data) but in my view has enough in terms of psychology and crowd behavior that trading it makes it high probability as well as a high RR trade. Can it be programmed into an AFL? Maybe, and it may be difficult, but for a trader scanning for such setups can surely lock it in. Giving an example of Bullish entry.

Bullish setup criteria :

Break above a pivot high with a big bar.
Let the price retrace to the bottom of the bar.
(Here it becomes a good entry with low RR and high probability)
However, as per our setup, the entry is confirmed once the price breaks and closes above the high of the big bar.
SL below the close of the big bar.

Psychological understanding of entry and crowd behavior :
The big bullish bar and close above the previous pivot high is tracked and captured by all AFL's/Systems/Traders. A distribution to the low over time, triggers SL's pushing the price down, where the last hold outs give out. There are no long traders, AFL's and System at that point. The script is now ready to make its move, having absorbed triggered SL's in 'Demand Zone'

One element of successful trading in my view is 'Time' which was much used by Gann, but is not a part of the methodology of most AFL's and systems. So just posting my views on a highly profitable setup (in my view) which provides a good RR trade.[/

Thanks for sharing this setup, have some queries regarding it..
have you considered the context ?
entry is after a considerable move in trade direction and initial stop loss is also wide so i guess it's trending days that will give you good reward and win % will be less than 50(please correct me if i am wrong), so important question then is how you lock profit, do adds and how you trail stops ?

You have also mentioned about entries near the low of big bar, can you elaborate that with examples...

 

[DSM]

Hi Vertigo,

Just my 2C. First we need to look at the chart and understand what is happening. The price action is not strong, as the price has just moved above the MA, followed by a gap up (even the gap candle is red), and then a big fall in the direction of what traders would have shorted. The gap up was a false bump to have traders close their positions. (Important point here is to check the charts in higher TF - always, unless taking a scalp for a short duration, which if high probability or high RR, one can ignore the trend)

When I look at the chart, there is one important aspect in any chart analysis that I find useful which besides Price is 'Time' What is happening is that we are seeing in the chart, the downward move being arrested, and resisting breakdown. So I use time as a guideline, and in any given situation, if a trade is not working out as per expectations, I consider booking partial profits, or taking small losses and exiting.....

In this case, there is a quick pull back, a Bull bar, retracement to the bottom of the Bull bar. (Personally prefer to go long AFTER the failure or the first pullback from lows) as the probability of the 2nd pullback is much higher (You can analyse this yourself - traders trying to buy bottom will ususally get stopped on the first entry, as the stock will make a small upmove, and then get marginally lower.... (making a double bottom) before it zooms up. Will post some charts of these - ACC is a recent example)

In this instance, buying at the bottom of the Bull bar is a high RR trade. For every risk of failure, which if even 50%, you will have a much higher reward ratio - a clearly tradeable pattern. One problem we as traders encounter is looking at chart patterns is that look scary. It seems too much of a run up to buy, or too low to short. So we need to be objective in our analysis, understand the context - what has happened, and and as long at the price/chart supports the analysis we go along with our trade, knowing clearly as to why we are taking the entry, where is our SL, and let the market decide our target while we trail SL.

Again, will add that we must remember that all chart patterns are probability only, and we can trade them, with a high degree of confidence based on backtesting or experience (I don't backtest though) but this ofcourse does not mean that the trade will not get stopped out no matter what reliability of the pattern in the past. However what we are trying to do is to be objective in trading - take trades we understand, keep risk small for a higher and much probable and upside. Basically, WE GET INTO A TRADE THAT PROVIDES US AN EDGE. with setups that we are confident. Even if 50% entries result in failure, we will be making money. Trust this helps.

Thanks for sharing this setup, have some queries regarding it..
have you considered the context ?
entry is after a considerable move in trade direction and initial stop loss is also wide so i guess it's trending days that will give you good reward and win % will be less than 50(please correct me if i am wrong), so important question then is how you lock profit, do adds and how you trail stops ?

You have also mentioned about entries near the low of big bar, can you elaborate that with examples...

 

[DSM]

Chart of ACC, With a high probability and high RR pattern.

 

[Vertigo_1985]

Hi Vertigo,

Just my 2C. First we need to look at the chart and understand what is happening. The price action is not strong, as the price has just moved above the MA, followed by a gap up (even the gap candle is red), and then a big fall in the direction of what traders would have shorted. The gap up was a false bump to have traders close their positions. (Important point here is to check the charts in higher TF - always, unless taking a scalp for a short duration, which if high probability or high RR, one can ignore the trend)

When I look at the chart, there is one important aspect in any chart analysis that I find useful which besides Price is 'Time' What is happening is that we are seeing in the chart, the downward move being arrested, and resisting breakdown. So I use time as a guideline, and in any given situation, if a trade is not working out as per expectations, I consider booking partial profits, or taking small losses and exiting.....

In this case, there is a quick pull back, a Bull bar, retracement to the bottom of the Bull bar. (Personally prefer to go long AFTER the failure or the first pullback from lows) as the probability of the 2nd pullback is much higher (You can analyse this yourself - traders trying to buy bottom will ususally get stopped on the first entry, as the stock will make a small upmove, and then get marginally lower.... (making a double bottom) before it zooms up. Will post some charts of these - ACC is a recent example)

In this instance, buying at the bottom of the Bull bar is a high RR trade. For every risk of failure, which if even 50%, you will have a much higher reward ratio - a clearly tradeable pattern. One problem we as traders encounter is looking at chart patterns is that look scary. It seems too much of a run up to buy, or too low to short. So we need to be objective in our analysis, understand the context - what has happened, and and as long at the price/chart supports the analysis we go along with our trade, knowing clearly as to why we are taking the entry, where is our SL, and let the market decide our target while we trail SL.

Again, will add that we must remember that all chart patterns are probability only, and we can trade them, with a high degree of confidence based on backtesting or experience (I don't backtest though) but this ofcourse does not mean that the trade will not get stopped out no matter what reliability of the pattern in the past. However what we are trying to do is to be objective in trading - take trades we understand, keep risk small for a higher and much probable and upside. Basically, WE GET INTO A TRADE THAT PROVIDES US AN EDGE. with setups that we are confident. Even if 50% entries result in failure, we will be making money. Trust this helps.

Thanks for the detailed explanation :thumb:
from the shown chart i would avoid a long above the bull bar(my personal view ) as this was the place from which the fall came in morning, most times even if it does go to break days high we will have a breakout failure or a deep pb so better trade would be to look for short here imo. If we are looking for a long here then the stock needs to be supported by higher tf or if we expect a strong market to pull it with it.
I too take failed swing low break or stall break near support zones keeping overall structure in mind but their frequency is less.
I like the test of low of big bull bar though and would like to develop a strategy around it as it seems to suits my trading style. Please share your learning's about it, i will also post charts whenever is see this scenario.

Regards

 

[DSM]

11 Barriers to traing

http://thepatternsite.com/TradingBarriers.html

Excerpt from an article published in issue of Technical Analysis of Stocks & Commodities magazine by Robert Koppel

#1. Loss: Undefined.
"Define an upside target and also stop loss price. "At what price would the market be telling you that you are wrong?" Some traders don't set profit targets and loss limits.

#2. Hesitation
You receive your trading signal and then what? You watch it go by, believing that if you hold a bit longer, price will continue the uptrend or will soon change from a loss into a profit. You could be right...or wrong. One thing is clear is that you are ignoring your trading signals, and that is never good. Plan the trade and trade the plan. If you set an exit price and the stock reaches it, then close out the trade either for a profit or loss. Taking a loss should be just as easy as taking a win.

#3. Stubborn Beliefs
The worst trades are those which you know how the stock is going to behave. When the unexpected occurs, you sit paralyzed, unable to pull the trigger to exit. The loss grows Don't let your beliefs dictate your trade. Only price should do that.

#4. Suicide Trading.
Have you ever been so mad at the world that you didn't care what happened? Don't trade if upset.

#5. Euphoric Trading.
This is the opposite of the last one, but the results are often the same. How many times have you made trade after trade that wins? You feel invincible. If you have the euphoric feeling of invincibility, stop trading.

#6. Missing Breakouts.
This one is not about getting into a trade well after it has begun its move. Rather, it is about failing to get into the trade at all.

#7. Losing Focus.
When you are in a trade, keep the focus.

#8. Being Right or Making Money?
There are a few traders I know that advocate scaling out (selling part of a position) on the first trade of the day so as to book a profit. They want a win behind them to set the tone for the day. But if you were to rephrase their style and ask them, "Which is more important, winning or making money?" They will answer "Making money," and yet that's not how they begin their day trading. They sell part of a winning position (increasing the win/loss ratio) instead of making more money by selling later. They have a valid point, that of a psychological need to set a winning tone for the day, but I'll take the money. If you scale out of a trade, check your numbers. Would you have done better if you sold the entire position at once or in pieces? A clue to the answer, at least for me, occurred during losing trades. If I sold the entire position, I kept more of my money than selling half and hoping I could recover if price bounced. I found that by scaling out, I sold at an even lower prices, compounding my loss. Now, if I have a losing trade and want out, I sell my entire position at once. For winning positions, I almost always sell my entire position also at once.

#9. Inconsistency.
If you obey your trading signals some of the time and not others, then why are you trading using that system? You can't tell ahead of time which trade will be a winner and which one won't. Thus, you have to obey every trading signal that a system gives you.

#10. Missing Money Management
The big one here is using stops on every trade, but it also includes the proper position sizing and sane use of leverage. Money management is all about preservation of capital, of keeping those losses small and your profits larger. If you can do that, then you can probably make it in this business.

#11. Dollar Dependence
What's the problem here? You focus on the money. How many times have you looked at your profits and decided to get out? It does not matter at what price you bought a stock. What matters is when you sell. Forget about profits and losses and concentrate on how well you are obeying your trading rules. You compound your stress when you look at the bottom line each day or after each trade. Instead, concentrate on whether or not now is the time to sell. If you can do that, then your stress level will drop and the profits will take care of themselves.