Plan the Trade

Post on bars and candlesticks as they pertain to the Hot Rod Stochastic method on the blog.

https://ddaytrader.com/2019/04/07/of...-candlesticks/

I read an essay some years ago by a trader named Rod Roth. I believe it was from a blog, and I remember that I found it because another trader whom I was following at another forum at the time had posted a link to the essay. I thought it so good I copied and pasted it into an email to myself. He mentions his mentor, Dick Diamond. From what I understand, Dick Diamond was indeed a successful day trader who made his living for many decades trading and once very few years he help a seminar that he charged folks to attend. He also wrote a book near the end of his life. I DO NOT RECOMMEND YOU WASTE YOUR MONEY ON HIS BOOK - IT IS AWFUL.

That being said, the fact that Dick Diamond didn't know the first thing about writing a decently useful trading book shouldn't take away from Mr. Roth's mention of him. I mention his book only to save others from wasting their money on it. Go buy a pizza instead - that will do more to improve your trading than Dick Diamond's book. In fact, I will share with you the only valuable paragraph in his entire book just so the curiosity doesn't get to you:

"Two things are very important: 1) You must get in early based on the indicators. GET in early. 2) After you've set your protective stop, put in a bid and get out. You must get in and get out. This is not about making a lot of money on an individual trade. If you made a thousand trades in a year - which is very attainable -- and didn't make any trades winning over 2 or 3 points, you would make a lot of money for yourself. I'd expect you to probably do even a little better. But I'm telling you, it's not about making a lot of money on one trade. All you want to do is have successful trades. It takes discipline to wait for the right time. Get in, get out, and get the heck out of the way."

Sounds almost like Divergence speaking, if you asked me!

But back to Rod Roth. I couldn't find the link to this essay through google, and I hope he doesn't mind me posting the text here. This is an excellent essay on finding your way to being a successful trader:

It’s a great business, once you figure out what you want to do

—Dick Diamond

I understood everything about trading but I could not be profitable until I gained emotional discipline. The ability to execute a trading plan consistently is the biggest challenge in trading because it is principally a psychological problem. Since every trader has a unique psychological makeup, he must find a system that matches his individual psyche. What works for one trader may be totally wrong for another. I could not be successful trading until I incorporated three elements in my plan: An understanding of my trading psyche, a trading system that is in harmony with my mindset and experience trading my system.
I traded on the wrong side of the equity curve for a long time before I sorted this out.

My Trading Psyche

There are things in trading I cannot do. It matters not that these things are efficacious and that others execute them flawlessly and make lots of money. I can’t do them because the emotional part of my brain wants no part of them. Like it or not, the emotional part of my brain heavy handedly makes most of my decisions in a trade.

Social psychologist Jonathan Haidt describes the brain and the way it works with a metaphor given by the Buddha: The rational part of the brain is the rider on an elephant. The elephant is the emotional part of the brain. The rider can get the elephant to go where he wants it to go so long as the elephant wants to go there, too. If the elephant is not having any, it’s game over. Moreover, Haidt argues that our commonly accepted notion that the rider does all the thinking and the elephant does all the feeling is wrong. In The Happiness Hypothesis, Haidt cites research indicating that the elephant is doing lots of thinking, too, which gives it extraordinary power over the rider.

Traders may try to eliminate the influence of their emotions on their trading, but I don’t think it happens. I believe that successful traders intuitively accommodate their trading style to their emotional makeup. Haidt shows us that the elephant’s responses (emotional) are much more powerful than the rider’s (rational). Altering the elephant’s behavior and influence is not impossible, but it is much easier for a trader to recognize the pachyderm’s proclivities and devise a trading style the emotional side of the brain can embrace.

I’m a trader and it may surprise you when I say I don’t like being in the market. I was able to be honest about this after reading master trader Mark Weinstein’s interview with Jack Schwager in Market Wizards. Weinstein freely admits to fearing the market, yet his trading account statements reveal that he is extremely successful taking small pieces out of trading moves using high probability entries for very short term profits. I never was able to stay in trending moves because I am uncomfortable riding out significant reactions. I don’t like trading systems that generate big draw downs or depend on big trades to produce the profits in the system. I am happiest when I am liquidating my long position when the crowd is frantic to get aboard or my short position when the players are desperate to get out. I like taking my position just before a long bar in my favor takes me out profitably.

Happily, I can do this and make a nice living trading a system that accommodates my elephant.

The Nature of My System

Dick Diamond teaches a method of trading in his seminar that is entirely aligned with my psyche. The setups I like best come in the consolidation between the first move off a turn and the continuation of the move. These trades have a high degree of reliability. I can expect to get one to three such setups a day in the time frame I trade, with 70-80% of them profitable. As with all good systems, the better trades start working right away, often with a powerful thrust of buying or selling following my entry that makes it easy for me to follow Dick’s dictum to “Sell when you can, not when you have to.”
Like a turkey hunter, I sit very still for much of the day as I wait for my entry. Once I have taken the trade, I expect to be out in less than an hour. Usually it’s a matter of minutes to get an exit signal. If I’m making good trades, four out of five will be profitable. For me, it’s a very satisfying way to trade.

My Experience

Dick defines emotional discipline as “following 100% of your plan 100% of the time.” Now that I am trading a system that fits my particular emotional makeup, I am finding it easier to stay on track identifying setups, taking trades and managing positions. I had no chance to gain emotional discipline as long as my trading plan was in conflict with my psyche. The elephant just wasn’t going to go there.

Conclusion

Trading psychologist Brett Steenbarger holds that it is essential for each of us to find our own trading niche. That has certainly been my experience. Unfortunately, there doesn’t seem to be an easy way for a trader to do this other than trade, fail, and hope to stumble on the solution before tapping out. After much effort and much failure, I developed my trading style by eliminating the things I can’t do and working with what was left.

Elsewhere I’ve written that my essays are a meditation on my personal journey as a trader. If these thoughts help you, that’s good.

interesting article i always had a problem when people used the term psyche to explain the right way that is good for them. As i was examining the essay it almost seemed like i had wrote a part of this essay. When i started to put together all the pieces of info i had read over the years(EW,123s,2b,supply/demand etc) my first rule i ever made was to reduce risk asap hence the up 6 move to +1 so if that has to do with my psyche maybe maybe not. i have never been a long or medium term trader but a day trader because of rule #1 THE RISK. The whole purpose of any serious trader (not a hobby or casual trader) is to find a way to exploit the market to make PROFIT so as a day trader going for small gains like 12 to 25 ticks may not seem like a lot of money when you build acct up so you can up contracts it now becomes a lot of money. I read something a long time ago i think from the naked chart site master 1 setup and you become the master over the setup whether i would consider myself a master over the 123 pattern dont know dont care but what i do know is that it works and works consistently it has for my 8yrs of using it

Interesting that you mention the trading naked website. Unfortunately it has recently, and apparently, been taken down permanently. There were a lot of good simple set ups there. Some of the best ones were shared by a trader by the name of Mike Bruns, a long time day trader who passed away a year or two ago (one of his friends posted about his death on the elitetrader forum, which is how I found out about his passing)>

The 9/21 ema set up OI have shown here is just a version of his 9ema/30 ema set up. In fact, I found an old post on the interwebs this weekend referring to Mike's set ups and found a stochastic set up that is very, very similar to the stochastic set up I have been blogging about. I will be doing a blog post on his set up soon.

What's the point?

The point is as you say: We each need to find a set up that we can comfortably trade by sticking 100% of the time to 100% of the plan as Rod Roth and Dick Diamond said above. For most of us attracted to this thread, and your flag trading the trend thread is that each of us probably has a similar desire to miniimize market exposure.

Like Rod Roth, like Mark Weinstein (everyone should try to read his interview in Market Wizards) like Divergence, and like me, we each want to get into the market, know that we have a relatively small fixed risk, and that if we are right or wrong, we will know and be done with it within a few seconds, minutes, and in most cases (for me at least, an hour or less. Some folks can buy an NQ contract and hold it for days and weeks while it back and fills up 100 points down 80 points, etc. ultimatley exiting the trade for profits of 400 to 500 points ($8000 to 10,000 profit per contract). That is not something most of us here want or even can do. As Rod Roth said in his essay, "There are things in trading I cannot do. It matters not that these things are efficacious and that others execute them flawlessly and make lots of money. I can’t do them because the emotional part of my brain wants no part of them."

And finally, the point of threads like flag trading the trend, plan the trade, and what I am currently blogging is that a it really only takes one set up in one market that occurs with enough regularity that you can take small frequent profits and smaller less frequent losses to make a very good living in this business.

a bunch of +1s a +10 and a +25 on nq in ym a+12 and a -11

Just one trade today.
During the session I realized that I missed quite a few 123s, and for others the price just didn’t come back to the entry order.

One trade (SIM):

T1: long on a 123s. On the fill the price reacted straight away, and after a minute reached the TP.
Kind of the dream trade.

Have a good day every one.
Cheers,
J-F

nic e one j f i missed that one i caught the 2b pullback at 1026

ym 123

Three trades todaya and as I am up +5 points, I will call it a day. You will see a change here in that due to the gap down I decided to change the profit target to +3 points instead of +4, and that may be a permanent change going forward regardless of the open except in cases of profession gaps up that look like it may run.

First trade a +3, second trade a -2, third trade a +3 ...

There is also going to be an entry rule adjustment that I had been considering, but that second trade made my mind up that I will be making a change. I did not like that second set up at that moment, but it did conform to the rules as I set them out on the blog, so I too the trade. As you can see, the entry price was the high of the trigger bar and the trade was stopped before the trigger bar even closed five minutes later. The very next bar gave a signal I was more than happy to take, and the result was a very smooth +3 points, or +12 ticks, with an actual risk of only 2/4 point or -3 ticks. IN other words, the risk was $37.50 and the reward was $150.

I will add more as well as address the entry rules change on the blog tonight.

Considering one variation of the entry rule change, this current long set up would no longer be considered a long entry and therefore I did not trade it. It may be profitable or not ... doesn't matter. Again I'll go over the rules change tonight

been examining the 20 second chart for the last month since i am trading the ym on it I will attempt to trade the nq with it tomorrow. Some may ask why change well i am not changing the method but time frame by 10 seconds i see it gets me in at a better price and adds a few trades per week its all about making money

I've been doing some review as well on what I've been doing. Going to pull back in to demo mode for a few days to try some ideas in real time.

NQ was basically long from lunch the rest of the session huh? Some good pullbacks in that run also . . . .

I love the first hour nice setups less exposure I get to live instead of glued to a computer

H, getting the ticks you get in 1hr is plenty!
What do you thing abour the 512 tick on NQ? I know you used to prefer tick charts . . . .

You mean demo the ES 5min?

I've looked at tick and volume bars and the 30 and now the 20 looks clearer to me cranking down 10 seconds gets me more setups at better prices

since my main setup is the 123 pattern time charts show imop where supply/demand begins

look at these 2 charts 1 is 1 minute other 512 tick look at 2130 no 123 on 512 tick 1 minute shows 123