My trading rules are 100% defined thanks to the filters I mentioned. If price breaks through either side of an inside bar on the 5-min chart, it's not a trade signal. That's a filter. If price breaks through both sides of any 5-min bar, it's an outside bar and it's not a signal. That's a filter. If price pulls back a certain % of the way to a 20EMA and sets up a tradeable pattern, my stop loss on the trade has to be able to survive the 20EMA, otherwise, it's no longer a trade signal. That's a filter. I'm not looking for longs going into a double bottom (or failed breakout or higher low). I'm shorting because that's what I do in a down trend until a potential reversal signal appears. I will continue to short until I get a signal to take my foot off the gas and wait for clarity. Once price finds support at the last new low, or breaks the previous low by only N ticks, or doesn't quite make it to the previous low before buyers step in and cause price to run back up, only then do I stop shorting and wait for the pre-defined conditions to arise that tell me to consider trading to the long side. Suppose I've been shorting in a down trend and price has printed a new low at a line that's on my 5-min chart because I connected descending swing highs on my 60-min chart and placed a parallel channel line across the swing low(s) in between. (Any line I draw on one chart automatically appears on the others.) So a with-trend continuation pattern sets up for me to go short again, but if I do I can see at a glance that there are only 4 ticks of "airspace" to the second test of that channel line. That's a filter. I know from studying a hundred appearances of this immediate pattern in this larger context that more often than not price will run right into that line, printing a slightly lower low, and then turn back up quickly and become a 1-2-3 failed final breakout reversal signal on my precision entry chart (1-min). Therefore I do not put on that trade. Sometimes I miss another fine leg of the downtrend, but more often than not I avoid a loss. That's a well-defined rule for me. I'm not cherry-picking from among valid setups; instead my rules regarding valid setups in acceptable contexts ensures that I only take trades that meet my win rate + R:R criteria. And that is how I define an edge.
Wow.. extremely detailed... so I can absolutely see how you are in fact following very stringent rules. Do you think that rules have to be this stringent? I know you followed geez quite closely, so do you think he was thinking through his trades in this much detail? Perhaps what I am asking is that the price in a nutshell can only either go up, or down, or sideways. If we assume that if it stays sideways you don't lose too much, then we are left if up or down. Now if filters for entering a trade are more broad, or rather you have less of them, and this leads to a lower hit rate, is this so bad? You take more trades this way, but if you have a win ratio of 40% on 50 trades, won't you make more money than a hit ratio of 50% but on only 25 trades? (just throwing numbers out there, not sure how this would actually work out... perhaps 40% is too low to be a winning strategy on a 1:2 R:R). I realize I have to do the work myself, test what I would do when looking at a setup and figure out my win rate, but I wonder if statistically speaking, the effort for such specific filters pays off. May I ask what your win rate is and what risk:reward ratio you use? I realize this might depend on how much room the stock has to move to your target or stop, but with geez only being right 50% of the time, it seems like the secret to his strategy was money management and using only simple setups. Or is even 50% extremely difficult to reach? Thank-you so much for your time. PS. On a side note... given so much info back and forth about Al Brooks, seeing as you started with his methodology from what I recall, how much of it do you use for your trading today? Are there things you would say about his methods that don't work?
I'm not following the DBPhoenix comment about there being no gaps in futures, except for the weekend time gap. While price gaps in futures may be rare compared to individual stocks, they certainly occur, and that's not counting the 'artificial' gaps (for lack of a better word) that regularly appear with certain linking methods that are used to create a continuous contract. Am I missing something in his 'no gap' statement?
Excellent previous post by nodoji. Notice she calls price action by its given name, price movement. To place labels on the movement itself is not necessary in a game of chance based on probabilities. The moves either go toward your target or not. She uses filters, (we all do) in general those are as basic as letting the move "tag" your STOP or let it capture a target. Once a trade is filled, discretionary odds based intuitive tactics take over the trade. Understanding why a move in price happens is really useless because there is no knowing what was behind the persons entry/exit thinking. Price moves happen, thank goodness for that. Imagine this: if anyone or everyone could explain the individual thinking of why that order was placed what good would it do? In futures, there is a seller for every buyer, that smashes away the labels and leaves us all with what? Correct, odds based trading in a game of chance. Momentum matters, either it tags the loser or rewards us. Reasons are for seasons, not short-time frame day trading. Think back when you never kissed someone you admired and had the hots for. How nervous were you? How complicated was your thinking do make the kiss perfect? After all that thinking and complications what happened? Right, you kissed her and in an instant you both were playing "longue hockey" , WHO NEEDS REASONS, just play the game. http://www.youtube.com/watch?v=tXmLRHnoSAs
Gaps are very common (not rare) in many futures instruments without manipulating the chart setting (e.g. Eurex and Euronext futures). In contrast, some traders that use high end data providers have the option of changing their chart setting so that it only shows the regular trading session instead of showing the all session globex session (includes overnight trades) to produce regular session gaps that you would commonly see in their related index (e.g. Emini futures regular trading session). So yeah, gaps are common in futures. It depends on the trading instrument or your chart setting capability. Anyways, there's a few examples of trading instruments that have no gaps or rarely have gaps even if you're using a charting software with the option of switching between globex or regular session only (EuroFX 6E futures, Gold GC futures, Treasury ZB/ZN/ZF/ZT futures and others).
Mark is correct. I was referring primarily to the practice of turning off certain segments of the day so that the trading is not shown. This is common amongst those who think that some trading is "noise", such as that which occurs during hours outside the NY RTH. The professional trader will look at everything that is available before selecting those bits that are pertinent to his trading plan. Jingoism is not a filter.
What is an acceptable sample size for you guys? 500 trades? Looking back 2 years to cover all market conditions? Etc..
I found an edge just looking at the newest threads of ET. Amazing. I hope it will work when I execute months into the future.