Hopefully most, if not every, possible point has been covered in:
Stages 1 to 6 posted in May,
Worked examples,
Comments.
I'm taking a break from trading, need to recharge the old batteries, hope to start the blog again in early July.
cheers theory
Friday, 12 June 2009
Thursday, 11 June 2009
Mm on 14 min - reward:risk was 1.5:1
The shape was there on the 17 min. but not as good in terms of internal gaps on RSI, so I used the 14 min. one. The windows have been adjusted to the same size for ease of use on this blog.
The long left leg of the M is purely there to define the context I am seeing it in i.e. the possible end of a long running uptrend - it does not affect the Pt1, 2 etc...
Entry was at 58.9 on RSI, Price equiv 4471/0.
The middle Bollinger line was close BUT the risk, to the top of the shape, was very small. Reward:ratio was just above the modified value of 1.5:1.
No problems with the rest of the filters, go for it.
The predicted problem occured, it got through the middle Bollinger and then came back before I could take 20 with half, so I was forced to take 15.
The rest was run from 10 above B/E, which was the top of the shape.
I now had a situation where I was "being paid to trade", the worst outcome was 0.5(15-10) for a 2.5 profit.
The extra little m (last bit of the original blck one + the extra bit in red ) appeared, usually a bearish sign, very encouraging BUT it didn't turn out that way. The trade was still running though when I shut down the platform.
cheers theory
The long left leg of the M is purely there to define the context I am seeing it in i.e. the possible end of a long running uptrend - it does not affect the Pt1, 2 etc...
Entry was at 58.9 on RSI, Price equiv 4471/0.
The middle Bollinger line was close BUT the risk, to the top of the shape, was very small. Reward:ratio was just above the modified value of 1.5:1.
No problems with the rest of the filters, go for it.
The predicted problem occured, it got through the middle Bollinger and then came back before I could take 20 with half, so I was forced to take 15.
The rest was run from 10 above B/E, which was the top of the shape.
I now had a situation where I was "being paid to trade", the worst outcome was 0.5(15-10) for a 2.5 profit.
The extra little m (last bit of the original blck one + the extra bit in red ) appeared, usually a bearish sign, very encouraging BUT it didn't turn out that way. The trade was still running though when I shut down the platform.
cheers theory
Wednesday, 10 June 2009
Patience rewarded - M on the 23 min.
Apologies for the different fonts, had to add a bit to the original, via Paint, when pacman raised a question via the iii UKX board.
The candles in the M do look much chunkier on Price when viewed on full screen - go and have a look if you don't believe me!
The difference between Pt2 and Pt3 was just over 1, so it just passed the internal check. With all the other WMs so far, this has not been an issue.
Nice high max RSI but only a touch on the Upper Bollinger by Price.
Entry was from RSI hitting 71.1 i.e. 1 below Pt2 which was @ 72.1.
Price equivalent just below 4500.
Risk very small - look where the top of the M is on price.
Reward potential very good - look where the middle Bollinger line is.
The rest is history, IMO a very simple trade to run whatever your personal style.
How about loading up the 23 min chart, it should still be there today and tomorrow.
What happened when it first hit the middle Bolliger line?
What happened when it hit the Lower Bollinger Band? And after that.....?
Put some Fib levels on using the maximum drop from the top and see how they could have been used to run the last bit of the trade.....
With the benefit of hindsight, we can all maximise the return from a trade. In reality it's about getting the balance right between protecting profit and giving it room to breathe. I like to split my trades and give myself the chance to do both.
cheers theory
The candles in the M do look much chunkier on Price when viewed on full screen - go and have a look if you don't believe me!
The difference between Pt2 and Pt3 was just over 1, so it just passed the internal check. With all the other WMs so far, this has not been an issue.
Nice high max RSI but only a touch on the Upper Bollinger by Price.
Entry was from RSI hitting 71.1 i.e. 1 below Pt2 which was @ 72.1.
Price equivalent just below 4500.
Risk very small - look where the top of the M is on price.
Reward potential very good - look where the middle Bollinger line is.
The rest is history, IMO a very simple trade to run whatever your personal style.
How about loading up the 23 min chart, it should still be there today and tomorrow.
What happened when it first hit the middle Bolliger line?
What happened when it hit the Lower Bollinger Band? And after that.....?
Put some Fib levels on using the maximum drop from the top and see how they could have been used to run the last bit of the trade.....
With the benefit of hindsight, we can all maximise the return from a trade. In reality it's about getting the balance right between protecting profit and giving it room to breathe. I like to split my trades and give myself the chance to do both.
cheers theory
Anatomy of a losing trade on 16 min
Looked superb, RSI level, Price/Bollinger,low risk, high potential reward.
Entry was at 72.2 i.e. 1 below the level of Pt2, this gave a Price equivalent B/E of around 4474/3.
After it failed in two attempts to get beyond 10 pts, I grabbed 5 with half and left to rest to survive or die, it died.
The double doji in the candles after the one that triggers the trade is not good news at all - this is supposed to be a momentum trade. If in doubt, grab profit with some and keep the potential loss as small as possible, is my personal style.
Total return 0.5*(5-12)= -3.5 pts, I can live with that as a failure!
cheers theory
Tuesday, 9 June 2009
Trading on less than 15 min - two examples 14 min.
Trading on 15 min or more is a guideline and not a rule. If the circumstances warrant it then I go for it. Shortening the time setting does leaves me open to market noise triggering a trade. However, if the RSI and Price/Bollinger criteria are met and the reward:risk ratio looks good, then so be it.
I'll happily shift to 14min, maybe 13 min if there is a potential shape showing on slightly longer timeframes but personally I will not go in on 12 min., other users go as low as 10 min, maybe even lower!
This example shows the use of a 14 min. one with supporting evidence.
Tight sharp M, good high RSI and excellent Price action/Bollinger.
Pt 2 was 62.4, so entry was at 61.4 or Price equiv around 4439.
The top of the M was 4449, just 10 above the entry!
The middle Bollinger line was well away compared to that, so reward:risk is fine.
I used the 14 min W to phase out the Shorts I had running - my dream of support levels collapsing did not materialise.
This time the entry is from 1 above the Pt2 on RSI, Price equiv was around 4403, with 4406 confirming the formation of the shape on Price.
I wouldn't have used it to enter a trade because the risk was much bigger than in the original and the Bollinger middle was closer - reward:risk didn't measure up.
There is a world of difference IMO, between using info to close a winning trade and protect hard earned profit; as opposed to entering the market and putting some of my bank at risk.
"nearlythere", I've put those RSI levels in for you and shown a WM with more than the minimum number of points.
cheers theory
I'll happily shift to 14min, maybe 13 min if there is a potential shape showing on slightly longer timeframes but personally I will not go in on 12 min., other users go as low as 10 min, maybe even lower!
This example shows the use of a 14 min. one with supporting evidence.
Tight sharp M, good high RSI and excellent Price action/Bollinger.
Pt 2 was 62.4, so entry was at 61.4 or Price equiv around 4439.
The top of the M was 4449, just 10 above the entry!
The middle Bollinger line was well away compared to that, so reward:risk is fine.
I used the 14 min W to phase out the Shorts I had running - my dream of support levels collapsing did not materialise.
This time the entry is from 1 above the Pt2 on RSI, Price equiv was around 4403, with 4406 confirming the formation of the shape on Price.
I wouldn't have used it to enter a trade because the risk was much bigger than in the original and the Bollinger middle was closer - reward:risk didn't measure up.
There is a world of difference IMO, between using info to close a winning trade and protect hard earned profit; as opposed to entering the market and putting some of my bank at risk.
"nearlythere", I've put those RSI levels in for you and shown a WM with more than the minimum number of points.
cheers theory
Sunday, 7 June 2009
Risk, reward and possible trading strategies.
Firstly I'm thinking of changing the rule about the initial potential reward to risk being at least 2:1. I feel that at least 1.5:1 will allow enough freedom to trade without allowing too much rubbish through the filter, if the reward is below 20pts then the nearer it is to 20 the better
Most people who follow my posts on the iii UKX board know that I like to split my trades. When I got to the stage where I could afford to enter with double the minimum stake allowed, I could not believe the extra freedom it gave me.
All my initial S/L goes at a point decided by the shape on Price.
If the trade immediately reverses then I'll phase out half at the first possible S/L above the original and leave the rest to survive or die.
If the trade moves my way, I'll shift up half to that same S/L, leaving the rest behind.
Next shift will be the moved one, shifted up again to B/E.
After that there are just too many possibilities to go through in detail.
If I have an effective free trade, running half from -x with x locked in then I'm happy.
If I can get where I'm being "paid to trade", then so much the better i.e. half at B/E and half with some locked in.
The other lines on the image are there to act as mental triggers.
If a bounce off the middle Bollinger line is expected and it does so, then why get caught out, maybe grab some with half?
If the opposite Bollinger Band is where some resistance ought to be expected, then why get caught out when it does, maybe grab some with half of what's left?
The last sentence implies I now use more than double the minimum, which is correct.
cheers theory
Friday, 5 June 2009
A tale of two Ms - Friday 5th June
The first one appeared this morning on the 18 min chart.
Max. RSI is nice and high, good sharp shape.
Price action/Bollinger Band is a double move up and back down.
Risk was small compared to distance to middle Bollinger line.
Full trade.
Bounce off a near approach to the middle line - ready for that, took profit with half and shifted rest to B/E.
Didn't qualify as a "failed M etc.." because it did not deliver the 20+ minimum needed. If you risked the profit and had a punt at half stake then you would have got away with it.
The second one was on almost the same time setting but not quite, being on 17 min.
Max. RSI is nice and high again, good sharp shape.
Price action / Bollinger Band is a double one again, including a very close / touch on the SD=4 Band - fairly rare event that.
This time though the risk is bigger and the Bollinger middle line closer.
It's at least a half trade but not,IMO, a full one - in that case I settle for a 75% trade.
Took profit with 25% and let the other two 25%s run as split trades. Will leave them, hopefully over the weekend but with guaranteed S/Ls if that happens.
cheers theory
Max. RSI is nice and high, good sharp shape.
Price action/Bollinger Band is a double move up and back down.
Risk was small compared to distance to middle Bollinger line.
Full trade.
Bounce off a near approach to the middle line - ready for that, took profit with half and shifted rest to B/E.
Didn't qualify as a "failed M etc.." because it did not deliver the 20+ minimum needed. If you risked the profit and had a punt at half stake then you would have got away with it.
The second one was on almost the same time setting but not quite, being on 17 min.
Max. RSI is nice and high again, good sharp shape.
Price action / Bollinger Band is a double one again, including a very close / touch on the SD=4 Band - fairly rare event that.
This time though the risk is bigger and the Bollinger middle line closer.
It's at least a half trade but not,IMO, a full one - in that case I settle for a 75% trade.
Took profit with 25% and let the other two 25%s run as split trades. Will leave them, hopefully over the weekend but with guaranteed S/Ls if that happens.
cheers theory
Thursday, 4 June 2009
Today's Post - there isn't one!
There is no post today - which of course is a contradiction in terms because I have just posted this.
cheers theory
cheers theory
Wednesday, 3 June 2009
Non-system M on 34 min & the "failed Ws" trade.
I've swapped the window sizes around because it's the Price action that needs to be looked at for both trades.
If you look on the readily available data there was a long drawn out M on the 15 min but the 30 min was useless - consecutive red/green equally chunky candles got joined to form an almost doji. It was just a matter of finding the time setting needed - happened to be 34 min, which just happens to be a Fib. number......
Max RSI is above 65 and it's a faller. The Price action is fantastic, a double break up and back down again through the Upper Bollinger band.
So why is it a non-system trade? Because the risk was around 15 and so was the initial potential reward marked by the middle Bollinger line.
It's a much better than 50% prob. in terms of two of the criteria but even money on the other. If the market moves my way on opening then the Bollinger Bands will widen......, I risked a half trade.
I've also drawn on the bases of the four Ws mentioned in yesterday's post in red, they were on different time settings to this chart but that doesn't matter.Yesterday I traded the failure of the first chunk of three and lost a small amount.
My rationale for repeating the trade is along the following lines. There is such a collection of support levels clustered together that IF they get hit at speed, then there could well be a whole load of S/Ls being triggered, which feeds the fall....
Failed yesterday for a small loss, worked today for a big win, part of which is still running.
cheers theory
If you look on the readily available data there was a long drawn out M on the 15 min but the 30 min was useless - consecutive red/green equally chunky candles got joined to form an almost doji. It was just a matter of finding the time setting needed - happened to be 34 min, which just happens to be a Fib. number......
Max RSI is above 65 and it's a faller. The Price action is fantastic, a double break up and back down again through the Upper Bollinger band.
So why is it a non-system trade? Because the risk was around 15 and so was the initial potential reward marked by the middle Bollinger line.
It's a much better than 50% prob. in terms of two of the criteria but even money on the other. If the market moves my way on opening then the Bollinger Bands will widen......, I risked a half trade.
I've also drawn on the bases of the four Ws mentioned in yesterday's post in red, they were on different time settings to this chart but that doesn't matter.Yesterday I traded the failure of the first chunk of three and lost a small amount.
My rationale for repeating the trade is along the following lines. There is such a collection of support levels clustered together that IF they get hit at speed, then there could well be a whole load of S/Ls being triggered, which feeds the fall....
Failed yesterday for a small loss, worked today for a big win, part of which is still running.
cheers theory
Tuesday, 2 June 2009
Dojis on Price as shape destroyers on RSI
This post is to show why I search the time settings to get the best shapes on RSI.
I like them as tight and sharp as possible. This corresponds to a dream scenario of a set of equally chunky alternate coloured candles on Price but that isn't always possible.
Sometimes they aren't equally chunky and other times they don't alternate in colour but they are more than acceptable replacements for the ideal.
The first image certainly isn't that!
The next one shows the same data but bundled in to 14 min. chunks rather than 19 min. ones and I am much closer to my dream. Now it is possible to put in the Ws on RSI, check out the candles that go with them, not perfect but so much better than on 19 min..
I like them as tight and sharp as possible. This corresponds to a dream scenario of a set of equally chunky alternate coloured candles on Price but that isn't always possible.
Sometimes they aren't equally chunky and other times they don't alternate in colour but they are more than acceptable replacements for the ideal.
The first image certainly isn't that!
The next one shows the same data but bundled in to 14 min. chunks rather than 19 min. ones and I am much closer to my dream. Now it is possible to put in the Ws on RSI, check out the candles that go with them, not perfect but so much better than on 19 min..
WwW on FTSE 14 min Tuesday 02/06/09
I've put two images in this post covering the same time but on one the Price will be the bigger and the RSI on the other - just to make it easier to see what was happening.
It's a rare event the WwW on RSI. First the one in black, which met all the criteria. It made a move up then stalled and came back again but not low enough to close the trade. Then the extra boost from the bit in red, again it didn't get going. Finally the tagged on green part kicked off and initial trade turned out well. There was no way IMO that the extra red and green ones were reasons to add to the trade, they just re-confirmed that the RSI was trying to move upwards.
The initial RSI W in black and associated Price/Bollinger data met all the criteria to trade - RSI level, risk and initial potential reward. I made it RSI ~ 32 for a Price equivalent of 4457.
The final outcome was a trade that went all the way up to the Upper Bollinger which at the time was around 4488 if my memory serves me correctly.
The problem for me was that I was already Short from the previous night! Instead of moving my S/L down towards the W as it formed on Price, my usual defence, I hung back, deliberately putting profit at risk, and got stopped out at 4470 for a reduced profit of 40.
The market then fell from this high and I traded the failure of a W. Which one? The highest base level, which I used to go Short at 4447. Looked promising, then the market turned, so I grabbed 10 with half and moved the rest to -15 which was linked to a Fib level of the drop. It died after putting up a bit of a fight, losing 2.5 pts overall.
Just for a laugh, it was ended by a W on the 16 min! The tail on the green candle between 1:00 and 2:00 triggered the "failed 14 min W" trade but provided Pt1 for the 16 min one!! To make matters worse, the 16 min one wasn't tradeable because the Bollinger Bands were too close together!!! Deduction, we were probably range trading.
cheers theory
It's a rare event the WwW on RSI. First the one in black, which met all the criteria. It made a move up then stalled and came back again but not low enough to close the trade. Then the extra boost from the bit in red, again it didn't get going. Finally the tagged on green part kicked off and initial trade turned out well. There was no way IMO that the extra red and green ones were reasons to add to the trade, they just re-confirmed that the RSI was trying to move upwards.
The initial RSI W in black and associated Price/Bollinger data met all the criteria to trade - RSI level, risk and initial potential reward. I made it RSI ~ 32 for a Price equivalent of 4457.
The final outcome was a trade that went all the way up to the Upper Bollinger which at the time was around 4488 if my memory serves me correctly.
The problem for me was that I was already Short from the previous night! Instead of moving my S/L down towards the W as it formed on Price, my usual defence, I hung back, deliberately putting profit at risk, and got stopped out at 4470 for a reduced profit of 40.
The market then fell from this high and I traded the failure of a W. Which one? The highest base level, which I used to go Short at 4447. Looked promising, then the market turned, so I grabbed 10 with half and moved the rest to -15 which was linked to a Fib level of the drop. It died after putting up a bit of a fight, losing 2.5 pts overall.
Just for a laugh, it was ended by a W on the 16 min! The tail on the green candle between 1:00 and 2:00 triggered the "failed 14 min W" trade but provided Pt1 for the 16 min one!! To make matters worse, the 16 min one wasn't tradeable because the Bollinger Bands were too close together!!! Deduction, we were probably range trading.
cheers theory
Monday, 1 June 2009
The Ms on FTSE RSI Monday afternoon (01/06/2009)
It was just a matter of waiting until the initial reward (as defined by the Bollinger Bands) was worth the risk, given the high level of probability of success.
The first tradeable M appeared on the 10 min IMO, but this is below my 15 min guideline. I have swapped the size of the Price & RSI windows to show what I mean by "chunky" candles on Price - alternating colours, lovely.....
The next one appeared on the 14 min, after the 10 min one was put under pressure but survived.
I traded the survival of the 10 min one and anticipated the formation of the 14 min one by going in at B/E 4510.
At this level the risk was small and the middle Bollinger Band was about twice the distance away (guideline is twice and this crept in).
What I really liked was the double break up and back down through the Upper Bollinger Band - the extra one is not needed for membership of Group A but is a real bonus.
I am going to re-think my groupings, maybe RSI above 75 or less than 25 should be A*, likewise the double moves on Price/Bollinger should also be A*!
If you were prepared to wait longer then the following ones on 22 min and 28 min had their good points.
The 22 min one was a faller on RSI, slightly so BUT it past the filter.
The 28 min one was also a borderline pass on one of the filters. Pt3 on RSI was only just 1 above the Pt2 BUT it past the filter - a measure of internal strength of the shape.
From then on it's personal choice as to how to trade it. I split the trade into halves, took 20 with half and moved the S/L on the other to B/E. The latter one JUST survived the first Stop hunting retracement - we always forget the ones that do!
cheers theory
The first tradeable M appeared on the 10 min IMO, but this is below my 15 min guideline. I have swapped the size of the Price & RSI windows to show what I mean by "chunky" candles on Price - alternating colours, lovely.....
The next one appeared on the 14 min, after the 10 min one was put under pressure but survived.
I traded the survival of the 10 min one and anticipated the formation of the 14 min one by going in at B/E 4510.
At this level the risk was small and the middle Bollinger Band was about twice the distance away (guideline is twice and this crept in).
What I really liked was the double break up and back down through the Upper Bollinger Band - the extra one is not needed for membership of Group A but is a real bonus.
I am going to re-think my groupings, maybe RSI above 75 or less than 25 should be A*, likewise the double moves on Price/Bollinger should also be A*!
If you were prepared to wait longer then the following ones on 22 min and 28 min had their good points.
The 22 min one was a faller on RSI, slightly so BUT it past the filter.
The 28 min one was also a borderline pass on one of the filters. Pt3 on RSI was only just 1 above the Pt2 BUT it past the filter - a measure of internal strength of the shape.
From then on it's personal choice as to how to trade it. I split the trade into halves, took 20 with half and moved the S/L on the other to B/E. The latter one JUST survived the first Stop hunting retracement - we always forget the ones that do!
cheers theory
Thoughts about the previous post - 3 examples.
The early morning W is typical of the problems faced at this time of day. The big limitation is the narrowness between the Bollinger Bands compared to the risk - IMO no trade.
The other problem it highlights, is backtesting systems using RSI. Only the final value for the candle based on the Close is available. The same candle on Price could have been formed in many ways.
Was it an Open, then down, then up and then move to the Close? Or was it an Open, then up, then down and then move to the Close? If you had decided to trade it, think of the two different outcomes and what they would do to your trade.
The first M looks great - HPLRHR. How you trade it is down to personal style. I use split trades and I would have ended up with running two of them. The minimum result would have been break even overall.
The next question is, "Does this count as a failed M etc....?". The answer depends on your definition of a "good profit". So go Long or stay out as it fails depending on your viewpoint.
The second M looks great as well - another HPLRHR. Again it fails to deliver big time! The comments about this one are the same as the last.
Just because you get a series of high probability trades, it does not mean one of them will work before you get destroyed! IMO, it is vital to survive in order to thrive at a later time.
What if I had decided to trade the initial W and it hadn't got stopped out? The Ms take on a whole new perspective, they are my enemies! Now I have to decide just how close I would move up the S/Ls on the runners when they form. If I survive I am going to add when they fail....
Context, context, context.
cheers theory
The other problem it highlights, is backtesting systems using RSI. Only the final value for the candle based on the Close is available. The same candle on Price could have been formed in many ways.
Was it an Open, then down, then up and then move to the Close? Or was it an Open, then up, then down and then move to the Close? If you had decided to trade it, think of the two different outcomes and what they would do to your trade.
The first M looks great - HPLRHR. How you trade it is down to personal style. I use split trades and I would have ended up with running two of them. The minimum result would have been break even overall.
The next question is, "Does this count as a failed M etc....?". The answer depends on your definition of a "good profit". So go Long or stay out as it fails depending on your viewpoint.
The second M looks great as well - another HPLRHR. Again it fails to deliver big time! The comments about this one are the same as the last.
Just because you get a series of high probability trades, it does not mean one of them will work before you get destroyed! IMO, it is vital to survive in order to thrive at a later time.
What if I had decided to trade the initial W and it hadn't got stopped out? The Ms take on a whole new perspective, they are my enemies! Now I have to decide just how close I would move up the S/Ls on the runners when they form. If I survive I am going to add when they fail....
Context, context, context.
cheers theory
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