Monthly Archives: October 2015

Captain’s chest and PA trading

Finished the Hopwood PA thread. Interesting read. I think it was personally beneficial to me because PA was one of the areas of trading that I never put too much screen time into, but I think is something that every new trader attempts early in their career and fail because of a lack of understanding of the proper context. All the numbers, statistics, models, are really just aimed at that: context. There’s nothing wrong with trading pinbars and breaks and the most obvious patterns that everyone knows, as long as one can tell where to expect it to occur, and how far it can be expected to travel.

The whole “market makers are out to get me” is another interesting corner of the trading world. I don’t like to believe in these things because it’s very difficult to prove to myself, however I think there’s a benefit to explaining things this way as it provides an easy way to offer a different perspective of what’s happening in decision spots. MMs, banks, institutions, the simple majority, does it really matter who is “moving” the market? At the end of the day, “their” direction is the correct direction, and nothing matters as long as you can predict what direction that is.

A few take away points I got from the thread:

  1. The complete cycle, or simple Elliot move, is made of: push-push-push-pause, push-push-push-pause, erratic movement, end of wave. Or, as it’s called in the thread, 123 L1, 123 L2, SH, 3. This “stop hunting” or weird movement at the end of the complete wave is probably why finding the end of the 3 leg proves to be so difficult. (*heh*)
  2. If you’re going to subscribe to the MM belief, I think the safest/easiest/most practical way to implement this in your trading is to believe that MMs control the beginning and the end of the wave. This means that if you’re lost in your count or wave leg, using the nearest high volume high range bar on the chart (most simple on 1hr I think) can be used as a guide.
  3. Making counter trend trades at extremes like this is actually not as risky as it may seem. The BARF pattern is a mean reverting trade and is pretty accurate. Using double tops or pairs of wicks, etc, turns out to be pretty good, even in a discretionary setting.

The thread is a large advocate of a lot of screen time on a lot of pairs, something that I think is very productive when you know what to look for. I think it’s worthwhile to go back and try to pair some of my wave move and timing concepts into these “obvious” counts and see if I can get them to mingle a little.

Session Candles

I’ve taken some glances at this thread:

In particularly, Mr. Wolf, or Captain Jack. The short trip to the store reveals the stevehopwood forum, where I end up pretty much at a dead-end. It seems to me that he is a self-proclaimed and proven discretionary PA trader.. which I admire but hate. I believe he’s also stated that no one quite does his methods as well as he, which is understandable… but makes following the rabbit hole a very arduous task. I’ve personally found the “spot the dumb money” game to be very circle driven – if dumb money and retails are too small to move the market, how is it that they continually print wicks on the chart? If the dumb money is so easy to spot and exploit, why isn’t it exploited more than once? (expanding triangle formations) To ‘trap’ the most traders, it seems most profitable to continually poke tops and bottoms and drive them the other way.. This does not appear on the chart however. Perhaps there is a stop to how manipulated proce can be from “the big dogs” where they can’t step over certain bounds without risking too much of themselves.. but that is a question for another day.

Reading through his thread, one ‘tradeable’ pattern that pops up is the following: follow the asian range. Price will be manipulated through an asian level, usually by about 20-30 pips in the London session to bait breakout and possibly trend traders. Then price will reverse and sucker everyone who took the break. If sessions have this data within them, let’s try to find it!

I took this years data and broke the data into 3 candles per day, with each candle end being the beginning of the next session, aka there are no overlapping sessions. I ended up with about 200 days made of 3 swings, H/L per bar, so 6 points of data and many lets see..

If it’s true that price breaks out to bait traders and take it the other way, then there are a lot of ways to go about possible positions of the London and NY highs and lows, but one thing is for sure: the highs and lows of the Asian range have to be engulfed. I found the positions of the highs and lows of the three candles, labeled as follows:

High of Asian: A
Low of Asian: B
High of London: C
Low of London: D
High of NY: E
Low of NY: F

fake break

Not really what I call a tradeable edge (the other way), but this is definitely a confusing result if the hypothesis is to be true. It’s not completely dead, but this is not the start to be looking for..


Ideas on profit and post-trade analysis

As I have been trading more and more, I have been doing less general research and now only really focus on the bits that I think I really need to work on (busy schedule has led me to not do much of that either though..). I spend most of my think time on random posts/topics that have stuck to my mind, as well as strategies and ideas that I think work and don’t work, and why. I try to juggle the thoughts of traders that have seem to have made it, ideologies that retail traders were taught to be true, as well as my constantly developing thoughts, and make sense of the whole thing and create a picture of how the market functions in a way that ‘upsets’ the fewest thoughts. One of these thoughts that I have spent more time thinking about lately is the idea of “cutting losses and letting winners run”.

There are actually so many ways to think about this idea. Cutting losses is one thing, getting big winners is another, and often traders face the issue of an expected or average yield of win/loss. Anytime you allow a “winner” (predefined by the system) to run, you risk it becoming a breakeven trade. Not bad, but when you rely on the winners to make the system a winning system, you really just need to win. Its tough analysis a lot of times to continue to section off winners into trades that may become big winners, because it may make the system worse, turning more winners into nulled (breakeven) or even small loss trades. After all, if the process to become a successful trader is losing trader->break even trader->winning trader, you’re really looking at the function of growing winning trades to further your equity growth.

One idea that I’ve enjoyed thinking about a lot lately is something I think TheRealThing from FF has said: that the breakdown of his trades is basically a lot of small winners, a lot of small losers, and a few, just a few, HUGE wins. It makes the grinding and focused aspect of trading more realistic, and it does make sense. In my study of transient bars, this is quite akin to catching a long right in the middle of a mid-transient bar. It’s not so much that you try to identify them as they occur, but you just kind of “luck out” (although I do think there may be something to be done in this area..). It also coincides with the Tsunami thread (now junked) that the goal is to move the stop to BE in a good place, and just wait for the black swan events to not be the things we fear and try to control as the risk factor of our trading, but rather accept and look forward to them, as they are the events that really make our account grow. In other words, if you can manage to get into a trade that just takes off, if you don’t “need” the trade, try to just sit on it stubbornly and not take 2, 4, or even 8% growth. Rather, sit and wait on it to grow into a 15 or 20% trade. I know I would be fine with catching one or two of these a month.

Of course, how do we really do this?

Currently I’m thinking about:

-Further analyzing price movement post break
-Analyzing the time component for a trade to exhaust
-Average/middle leg lengths for 5M-H4 breakout waves
-Classic (my version) ABC waves in 1Hr-W1 swings (1 mo scale)
-Taking a look at mid-transient bars and return probability (BE) for 15m-1hr bars
-Possible “Speed” of breakout waves on 5m-1hr waves

Lots to think about, many ways to design them…