LFX Trading Proverbs

I think a lot about trading. It is habitual from the many hours a day I spend trading. The other day I thought of another way to try to explain why I trade differently than most other traders.

If you know anything about American Football, then you know each team has to advance the ball at least 10 yards in 4 attempts. Each time they do, they get a new 4 attempts, or downs. If they are close to the goal posts they can kick the football in between them for 3 points. Otherwise, they must reach the end of the field and score a touchdown for 6 points.

Imagine you go to see a game. You keep track of how the play happens. Team A gets the ball, makes 3 downs and has to kick it away. Team B then advances close enough to score a field goal in 7 downs. Team A then has the ball and also ends up scoring a field goal in 11 downs. Team B then has the ball and scores a touchdown in 9 downs. Team A then has the ball and kicks it away after 3 downs. Team B then scores a touchdown in 3 downs. Get the point? Unpredictable. There is no way to know how far a team can advance the ball based on their field position.

Now it is the next week and you are going to another game. You have a record of what happened last week. Will you bet the same actions happen again? Same downs? Same score?

Yet, you don't have a problem with connecting previous trades together and assuming that since price stopped at a certain point last week, then it will stop there again this week. That is the fallacy of support/resistance. You have no idea if Team A will go 3 downs and kick, or 11 downs and score, but, suddenly, on a trading graph, you know what will happen.

Not trying to insult anyone. This is just how I view that trading style. I do not think it is a good method. It is my opinion based on history not repeating itself. The names of the traders, the number of lots, and the reasons for entry/exit have all changed since the last trade. It is not the same trade, so why would it do the same thing?

I measure the difference between the buyers and the sellers. To me, it makes more sense to follow them. I do this by averaging averages. I measure short-term buyers/sellers against long-term buyers/sellers. Whichever side of the equation has more, I join. I join after they equalize so that I can gain the most distance between the entry and the exit.

I hope this helps explain my thought process better. Good Luck.

Good explanation. I haven't read enough of your work to understand how you measure different durations of buyers & sellers against each other but that's okay. If it works for you and you've got good reasoning than I'm happy to wish you all the best. For me I've got my methods that work okay (still fine tuning) and suit my timeframes. One comment from my style is that I don't expect price to do the same thing at support and resistance. There is an increased probability that it will react there, but the reaction may come before, on or be a breakout. I often use other methods to gauge direction and level I wish to begin a trade and then have a little entry before a S/R line, but don't use stops and plan to enter more if there is a breakout.

Keep an open mind. I like to think of the market as a moving river. The river bends, but you can also go to either shore. Many options on direction. Keep your strategy of not expecting price to do anything. Use probability instead of predictability. Good Luck.

What is probability? The simplicity of trading well is often complicated when forgotten.

A candle is a pictorial view of the difference between buyers and sellers over a given time period. By grouping candles, you create a sample size, which improves your ability to see what direction the market is "probably" going to go.

This grouping can be measured by mode, median, and mean.

The mode is prevalent when support/resistance traders meet a line. The buyers and sellers are more or less in a tie, which makes it hard to know the tie-breaker. Many try though, but with a sample size that has no predominant winner, it feels like more of a guess to me. These mode areas also occur when the mode, median, and mean are close in value to each other and appear as consolidation; an area where price action generally flattens sideways.

If you want to tackle a football player, you should keep track of the hips. If you want to guard a basketball player, you should keep track of the hips. A person can fake you with their eyes, head, hands, arms, feet, and legs, but wherever the hips go, so goes the person.

In trading, the hips are the median. When the median crosses the mean, it indicates a possible reverse in direction. It is that simple. You can complicate it as much as you feel you need to complicate it, but if you keep that simple idea in your strategy, you are using probability.

In an attempt to avoid conflict, lol, I have come to my safe place to give opinions about two issues I have recently seen being discussed in FF.

1. Random markets.
Since each new trade is comprised of new traders, with new names, new lot sizes, and new reasons, it only makes sense that the market moves randomly. That does not mean tradable patterns do not exist.
Cars enter the street whenever, wherever, and in various quantities. It is completely random. But...we can control the randomness with a traffic light.

2. Zero sum gain.
There are many ways to trade and many different entities in the market. Most likely you are a retail trader, therefore when you enter you have a spread and/or commission levied against your position, placing you in an immediate loss. That would make it a negative sum gain for you. When I used to trade stock options it cost me $12.95 to enter a trade and $12.95 to exit a trade, plus whatever the spread was. Forex was appealing because not only could I make more money in shorter periods, but I could eliminate the ridiculous fees.

MERRY CHRISTMAS AND HAPPY NEW YEAR!!

Merry Christmas and happy new year for you and the ones you care.

(:

Hi DKrock,
Just wanted to express my gratitude for all the information you have kindly shared. It’s certainly opened eyes to look at the market differently.
Thanks again

You are welcome. Thanks for viewing. I use general business analytics to find trades. Basic supply/demand measurements. I look for the equilibrium between them and then use that to project apexes. Good Luck.

dkrock, Ivé been trading for over 20 years (part time), a few margin calls, became slightly profitable last year.
Read tons of books, videos, thousands of hours spent learning. I really like trading.
Robert Miner, "Crucial" and yourself, where by far the best teachers...still your insights, are helping me change gears in my performance.
GRACIAS

I hope you figure it out soon. There are quite a few patterns in the market. Find the one you want to trade, develop a method of signaling it, and have fun. Good Luck.

I have my range and entry indicators based on your suggestions. I am a bit stuck on the exhaustion indicator. What is the base indicator you use ? (I know you don't want to reveal your system, which I respect, but if you could give me an idea of how to construct it I will experiment).

Thx for your extremely insightful thread.

Currently I only have the bollinger 34 on my 2 indicators to signals a potential exhaustion along with S/R and pivots on the chart. I am also playing around with ichimoku cloud for further confluence.

If you know your target moving average, then use that value for the period setting of your indicator. Then experiment with the same value, half the value, and twice the value as your trend line on the indicator. You might even use more than one to show the current time frame and the next higher one, depending on your setup. Once you have your indicator dialed in, then you can use the Bollinger band of the trend line value at Deviation 1 as a potential alert to a change in direction. In order to use the Bollinger band indicator you have to first delete any moving averages. It has to be the first indicator you load. Then you can apply moving averages.

It might require a bit of analysis. Black out the candles when you think you have a good view and try to trade with only the indicator using historical analysis. Then put the candles back on the chart and compare. Keep tweaking until you get the targets you are after. In my experience, the more precise I tried to be, the worse the results. Keep a macro view. Use the next higher time frame for smoothing. Demo when you think it is working because history and live do not always match up. That should keep you busy for awhile.

I have my setup as a high probability entry when my indicator crosses 0, and a potential exit when the main signal crosses the trend line. It depends, lol. If it is a range trade, the main/signal cross is usually valid. If it is a trend trade, then I ignore the cross and use the 0 cross instead. But, I have mine aligned to two time frames at once, so it might not work that way for you.

So I am using the MACD and WPR as my base indicators. I put the BB on first. I use a 21 EMA with a 5 EMA as my signals. It sounds to me like yu are onlyusing the MACD for your signals. From your posts I was under the impression that you used 2 indicators. One for entry/momentum and another for Exhaustion. Could you clarify this for me ? I use a double persiod trendline on my WPR and a 2&3 EMA for momentum and they respect the trendline (42) very nicely. Just not exactly sure how to mesh all of this together.

You can PM me if you will be disclosing "Sensitive" info lol.

Perhaps the simplest way to explain it is to target the entry of the higher time frame and then convert that signal to a lower time frame. Effectively you are adding candles to the higher time frame trade, which is translated as increasing your sample size by using the lower time frame. A higher time frame range trade then becomes a lower time frame trend trade. You would then use the lower time frame for finding more precise entries and exits rather than waiting for the higher time frame signal. If the higher time frame trends, then trade it, and ignore the lower time frame until price ranges again. Remember a time frame is just a time frame. You can trade them both the same at the same time. When they agree, enter. When they disagree, exit. That is the simplest explanation. The work involved to get to that point though, is what separates one type of trader from another. For instance, most threads involve traders using lines from dead trades, doing the same after-the-fact analysis, using the same tools, and getting the same results...losing. I have studied hundreds of systems and indicators and the ones that made profit all used multiple time frame analysis. Smaller time frames change the direction of higher time frames. This fact leads to determining the probability of changes in direction. Hope this helps.

[quote=dkrock;8486596]{quote} There are three ways to trade like this to get a fair price for the day. 1. Enter at the equilibrium value and exit at the apex. 2. Enter at the apex and exit at equilibrium. 3. Enter at the apex and exit at the opposite apex.

Again DKrock, although I don´t understand the full length of your ideas, your help has been invaluable.
GRACIAS
Here´s my own design, based on my humble experience, and adding some of your ideas.
-Identify stop run levels.(and wait till hit)
-Wait till candle closes outside BB.
-Enter on reversal of of my favourite indi (stochastoc rsi)
-Be once the candle touches BB median-
-Trail one bar after the first candle closes beyond BB median.

Friday results (did not trade them all) on EURJPY, GBPJPY, EURUSD AUDJPY. (5 min.)
15 trades, 13 winners.
This chart is a 5 min. EURJPY

Sounds good, but understand everyday is not the same, lol. Some days are going to suck, others are going to be awesome. The important thing is to understand the intent of the design -- to trade up and down movement. In time, you can fine tune against the lessons you learn. Winning so many is pretty cool. I use back up indicators for each time frame on my template. I would also suggest placing the same moving averages on your chart that you are measuring with your stochastic. Then, also add the same value on the chart that would appear on the higher time frame you want to use for market direction analysis. This will give you more visual clues as to when trades start and end on two different time frames. It is a good start, but never stop improving the design until you are absolutely comfortable with it. Remember, it is not a holy grail that will never lose, as you have seen. It accumulates trades, like any other game or sporting event. The score at the "end" determines the winner. One of the first problems I encountered was getting lost from the market direction, so I personally think it is important to use a higher time frame as a guide and the lower to maneuver in and out. Good Job!

Thanks again "Kidrock"
I mean dkrock, (I´m from Argentina, we love to play around with names of people we appreciate).

I will spend time tomorow, just studying your reply in detail.
Have a fantastic weekend.

In your blog you describe how to set up the WPR with the 2 MA's and trendline. ( I assume we can use the length of our MA on our chart, and multiples thereof to suit our own system). Is this example you give a momentum indicator ? I feel like it is because of the very short MA's you use. Could this be used as a signal to enter and as potential exhaustion ? I know you said you use the zero line (MACD or OSMA ?) to enter. Could you clarify ? Also what supporting indicators do you use to confirm entry or ext ?