The "You can't be serious" system

Hmm, OK, I will continue with my monologue.
Today I do not have much time. It was choppy market day, so I will show how PA could have helped avoiding backlashes. One instrument only, though: cable. 15m chart



Frankfurt open on daily Pivot: always caution when this happens. It immediately tests Previous support and it is rejected: S becomes R.
Usually it either tries the other way or re-tests the R. A couple of Dojis would indicate that there is not much fuel. Trend is down, so we may attempt a short. We keep this short on a tight leash, ready to get out if it bounces at the previous low. It doesn't, and it tests the lower level. There we take profit.

After that, Cable goes back up to re-test the previous Support, right at the Breakout level and it is rejected. We are still in a short trend. This is an opportunity for another short for the more aggressive traders. And in fact it tests the support twice, giving the chance to scalp some profit.

Then the situation changes: the histograms become blue. Only longs are allowed. The first bar where the long signal appears, is way too close to the Daily Pivot. So it is not a good idea to enter there. Better to wait and see.
The really aggressive trader may try a long at a better entry, where the stop could be closer and justify and scalp. In this instance, the Daily Pivot (our scalp target) would not have been reached and it is better to bail out at break even.

Finally, we are back on red histograms: shorts only. The move down is the most assertive of the day, but the signals comes too late. It is true that the support is broken, but just below it there is S1. On a day where the range has been 40 points, would you really like to risk entering after a 35 point drop?
I would rather wait and see what happens there and perhaps jump in if the break is confirmed. In fact, it was not and cable made a V shape back to...where? Yes, the Daily Pivot, from where it bounced.
It sounds complicated but it is not, once you know what you are doing. But for that, I am afraid you need to clock in the hours. Not everyone's cup of tea!

your last case study is very interesting.
You know my taste for difficulty, can you please explore the subject of false breakout.
Don't forget that you are not a dream seller. Now that you have mentioned it, you must tell us moreabout this!

Ah, the wonderful topic of false break-out! How could I possibly explain in a few words? We know I can’t and if I try I will rapidly become the most boring and least popular of all the posters here! But I start from an already very low level, so what do I have to lose?
I could answer in a tweet-like way and say “it depends”. I’d rather answer in a typical intellectual and pedantic way and start with asking: when do we define a break-out as false? I will try to focus on some thoughts that may be of interest.



It is a very subjective issue. Sometimes it is easy to define. B is definitely a BO. Some text books say that we have a good BO when we reach our target before we hit our stop loss (SL) or when we are in profit once we hit our SL (trailing.) it is a good start. We could say that the lows never re-test the entry point. The sellers are on the run chased by the bulls and they do not really defend their positions.

We could also say with some confidence that A is false break-out. However, this case is more complicated. It is, according to our parameters. We set the short entry at that level (1) for whatever reason and that level was broken. We define it false because it reached our SL BEFORE it reached our target. Had the short entry order been a few points below that level we would not be talking about a BO at all, false or otherwise.
So, what is a false BO (or even just a BO) for you could be such just for you, depending on your definition and parameters. That may not satisfy your curiosity, so let me expand.

What does it take to tell you that a BO is not really a good BO (or it is a false BO)? Where you place the SL is crucial from this point of view.
If you, for some strange reason, had put the the SL just above the bar that generated the BO, you would call this a “false BO" at the bar immediately after you entered. If you chose your SL "more properly" you would have put it at the red line, above the double top that started a sideways move. You would not have called this a "false BO" until much much further in the day.
Notice also how the point where you would have ben stopped out may well constitute a BO in the other direction. Was that a "good BO"? Difficult to say until B. You could have been still in by the time it reached B. Or you could have tighten the stop and have another "false BO" on the doji just before B!

But let's focus on A. Some traders want to see a clear momentum following the BO (like in B). If they do not see it, they bail out at breakeven and look for another opportunity. For example, you entered at 1. That BO was immediately rejected (see the next bar). But as you set your SL above the Double top (red line) that is not a false BO for you, not yet at least.
So, you are still in and now the sellers are trying to push the market down. They had about 6 or 7 attempts to force the market down. There is obviously no great momentum behind this BO and some traders will prefer not to risk and wait for a better opportunity. We did not lose any money, but it is still a false BO, of some sort. Confused? Welcome to the club!

There is something else which is very interesting about BO (false or not) and it has to do with mechanical rules and eventually automation (yes, my favourite topic!)Let’s say that our set up for a BO is the violation of a significant (however defined, good luck!) low, as in case A. In order to be a BO we need to see the market to go through that level for 1,2 n points. Let’s say 3 points. The rule takes the low, add 3 points down and places a sell order. But we know that not all support or resistance points are made equal. Perhaps there is a reason why the sellers found it so difficult to push the market down in the proximity of A.



If we add the Pivot points, we would see that that short had an entry very close to the Daily Pivot (pale blue horizontal line). We need a big momentum to go through it, and in fact the buyers were waiting to defend that spot. The 3 point default looks rather silly now. But if we do not tell it, the system does not know this. So, my real BO would have possibly been a good distance away from the daily Pivot.
This is another example of using PA to limit the trades we take to the most likely (statistically) to succeed.

By the way, it was not too bad a day for our SMS. The only real loss would have been ......yeup! the "false BO" which would have been more than offset by the subsequent "good BO. With some PA, we would have filtered that loss.
I know you won't have any, but I will be happy to answer your questions.

Another way to look at it is that some threads are flooded with inane questions which distract from the content. Hopefully your subject will continue to flow as it has so far. Thanks for carrying on.

Yes, herewego, it is a very positive way to look at it. I like positive. Thank you.

Today, I would like to talk about another one of my favorite topics: BIG NEWS DAY. Today there was the EU Monetary policy statement, the EU refinancing rate, Lagarde press conference and US CPIs (the latter are quite important in general, but they are particularly relevant these days of media and pundits’ attention to inflationary pressure.)

What do we do in such days? My favourite (and only!) option is staying out. What usually happens is:
a) Nothing much happens before the news, as traders are reluctant (understandably) to take positions. Volatility and liquidity tend to dry out and this is not a nice environment for momentum/breakout systems.
b) On the news, heavens open. Bid/ask widen like a hippo’s yawn. Your orders (if you are fool enough to have some on) are filled at ludicrous places (usually at your target, so even if you were “right” about direction, you lose on slippage and retracement). Your stop is filled miles away from where it was. You have the picture.
c) After the news, our parameters are screw up, as the charts are all over the place. Huge bars unsettle moving average calculations, or S and R levels, we have no map, just fog of war.

In addition, if you have an always in strategy, the swings are ulcerously stressful! And even if you are “right” you end up giving back huge profits on the swings.
Let’s see a couple of examples.



Gold 15 m. At some point you were 146pt in profit on the short. What happened at 13:30 London time (US CPI and Lagarde’s speech?) in 15 min you gave back 146pt profit and you still did not have a signal to get out and reverse. You had it on the next bar where you would get out with a 65pts loss.
Not only that, the system would have entered after a 225 pts rally in 30 minutes. Up to that point the daily range was about 120pts. That, to me, looks a lot like a lousy trade!
You have to remember this, because our brains usually remove these examples and focus on examples like the next one

Now, let’s look at cable 15m.



This time the SMS would have been generous. It made you enter long before the big news, so you would not have had any slippage. And it never looked back after that.
That is the money shot I would use to show how magic this strategy and, of course, I, are! (if you want to see some other money shots for today have a look at 15m oil. BUT please do not look at DAX)
You would have had a couple of unpalatable retracements of about 30 pts each. If you closed at the “close” bar, you would have given back between a fourth and a third of your running profit, but that’s fine. You would still have made about 36 points.

Remember! Today it was: cable good, Gold bad. Next time it could be the opposite!
The point here is: why risk it? why apply a strategy that was built on data based on “normal situations” of volatility and range in what we know it will be a really abnormal situation? It sounds like looking for trouble.

I’d like to make yet another point. Let’s abandon the SMS and look at the “manual” version of the strategy with the addition of some basic PA action.



So you have the buy signal and enter at A. Where do you place your stop? Well, we are all clever now and we say: below S1 (the grey horizontal line at the bottom of the chart), of course! In this case we may just have saved ourselves. It was a good place as it gave an extra layer of protection. Not that this counts for much on big news days, but it worked this time.

But I am sure a lot of people would have placed the SL just below b or c, with obvious consequences.

Just for curiosity (and to prove my point) have a look at the 1m chart. I highlighted the 1m bar at 15:30 London time. 33 pts up and down, in 1 minute. Had you tried to enter long just above the previous high, you would have probably been filled 7-8 points higher. And if your stop was at, say, b, you would have been pushed out probably at the bottom of the bar, with more slippage on the way down. Same for c.
So, after 5 minutes you find yourself puzzled: "I was right, the market went up, how on earth am I out with a loss? what happened? Bloody brokers/market makers/ manipulators/ government/russian spies/Goerge Soros/whatever!"

Remember this when you are tempted to “trade the news”!

Very good man

Ah, what a day!

First of all, let’s celebrate! We are trend followers/momentum and a bit Break out traders here. Today was largely our day!

Do you want to bet on how many people will post HUGE profits, fantastic charts where nothing is wrong? How many people will be at their happiest, claiming they found something that works? There will be two main parties. I expect that the vast majority of those who trade momentum or trend will be quite vociferous and active today. The vast majority of those who trade contrarian swings and mean reversion will be sulky and, above all, silent. The former will claim they have a fantastic, fool-proof system (forgetting all the times they have been battered in choppy markets.) The latter will have an uneasy week-end pondering whether they should review and change their systems (and cursing the time when they said with no doubt whatsoever that “trend following is dead in the modern era!”)

As I like to go against the herd (well, at least outside trading!), I won’t post charts. I do not like to brag and it would be too easy.
If you are interested just have a look at the default portfolio on 15 m, or on 1H and see how even the simplest strategy (SMS) would have been a champion today, with the right market conditions. So was the PA version. Or indeed look at many other instruments. It was really across the board. It will largely be nice reading. Of course if you have questions, I will be happy to answer.

For a change, I won’t be the party pooper with warnings and provisos. Let’s enjoy our day and the week end!

Rumours of my death have been greatly exaggerated. I am quite busy in other matters these days.
Nevertheless, I noticed that I have not been missed much. Now, is it because I am a lousy communicator or is there quite a lot of myth about the alleged “community spirit”? In trading, you have to own your stuff, so I propend for the former. It’s all part of the experiment, I guess.

Today, I would like to use this pause to inflict upon you my reflections on a particular finding of my FF experiment. WARNING: some of you may feel offended by some remarks!

I always wondered what kind of people frequent these forums. There are many kinds, of course. But recent events made me think that there is a prevalent group. It has all to do with my good friend LauraT and her great new system. I admire and respect LauraT. I really think she is outstanding in many respects. What I am about to say is not related to her or her systems (I actually know she cares about education above all!) but rather at the response she had from a large number of people here.
LauraT came out with a brand new (well, not really, as she herself said) system, Daylight, which took the forum by storm. And with good reasons: her typically clear, simple instructions, coupled with a supportive and experienced style and numerous examples and testimonies of successful trades are certainly a great attraction and an inspiration for us all.
But what struck me is the sudden, unquestioned adoption by so many people of a strategy they knew nothing about and it is totally untested (as far as they are concerned.) I am always interested in LauraT’s inputs and I have been looking at her new strategy for a while, like everybody else. It's great and rather clever and I like it. Yet, it is a strategy (or rather a methodology) and it should be treated like all other strategies (methodologies.) I am experienced, and yes, OK, arrogant enough to claim that I know what the strategy is about. But I would still be miles away from committing any real money into it. Don’t get me wrong. I would say exactly the same thing if the new system (strategy/methodology) would come from Ray Dalio, Linda Raschke or Paul Tudor Jones!

Apparently many people took it just on …trust? OK, I would definitely buy a second hand car from LauraT, that is not the problem, but wouldn’t I like at least a test drive? Wouldn’t I like to understand why and how it works and may not work? Wouldn’t I think a bit before discarding LauraT’s previous great offering?
Fascinating to look at what happened to the Roadmap system. Nobody seems to talk about it anymore, despite many people apparently swore by it just a week ago. It is still a great system, based on sound logic and all that. But it looks as if it is not in fashion anymore.

All this made me think of all these people. I know I am generalising here, and I am sure there are people who know what they are doing. But I wonder what most other people are doing. Are they spending their days scouring for attractive systems and jump on one when they see it? Dangerous: from experience, it is a recipe for disappointment. What were they doing before Daylight? Are they actually learning something? And if so, what are they actually learning? But then I moved to another thought. The question is: do people really want to learn? Only one person apparently asked LauraT for private tuition. And only one or two more experienced traders pointed out that the most important and potentially helpful part of LauraT's offering is her other thread, the journal one.

Perhaps the real issue here is not education, but rather consumption. Many people may be here as consumers. And why not, considering that everything here is basically free? They are here for the latest washing machine. They want something that washes well and it’s cheap and has good reviews. They do not need to know how a washing machine actually works. Who has even ever read a washing machine manual anyway?
Or it is like going to the stadium to watch their team playing football. They do not need or wish to know tons of things about football theory and tactics. They just want to see their team win (even if they play badly!) OK, LauraT is the Messi and Ronaldo combined in this example, so there may be some excuses, but I am using the Daylight thread simply as an example of what I have seen replicated in many other threads.

I happen to think that trading is not like buying a washing machine, and know for a fact that the vast majority of those watching a football match at the stadium are not, or ever will be, professional or decent football players.

I know, I know, I am in my usual party-pooper mode. Please do not think this is a rant from a disgruntled, jealous moron. It is just a personal observation from someone curious to understand what’s going on out there. I am very happy that many people have found a fantastic inspiration from an outstanding trader and mentor. They should use this as an opportunity to get serious about learning. I will certainly follow these developments with interest.

Now, ready for the inevitable backlash! Bring it on!

I made mistake and jumped to Lauras new system.
Back to my own naked chart trading
Trading from level to level or close to it.
80 % for my days goal ( 2 % of my mini account balance ) reach and done for a day.

Indicators are distraction for me.

One person's name keep appearing in your post,you should just focus on what you do my friend,to each their own.

TRUST and ''what works'' does not go hand in hand all the time.

I don't like certain topics and speak my mind,I'm never afraid to stand up for the good people,sometimes I get temporarily suspended here for my mouth,but I will not expect majority of support of my statements.You started a very good thread here,subscribed and began reading.

You should keep it that way capm......YCBS ,or this thread will be in the recycle bin and you're the only one will be typing from time to time.

Please share the information you planned on doing and make it a hit,if possible. Take advice from educated minds/traders.

Not much of a backlash, I see. I was expecting much more!
However, I must really reply to you, scsstnt.

To be quite frank, you were not among those I had in mind when I wrote what I wrote. I thought (still think) that you would be one of those who know what you are doing and have trading experience. The fact that you took exception puzzles me. With your experience, I am sure that you did not take Daylight, or any other system for that matter, “on trust”, but you analysed it, applied your knowledge, assessed if it fitted your preferences and started testing it.
My post is referred to the many others that do not go through this process. In this sense, it is very much at the core of what I am writing about in YCBS.

Or perhaps you are particularly defensive of LauraT. I do not see why, as I definitely did not attack her in any way. Actually, the contrary is true. But just in case , let me re-assure you that:
a) I used her system as an example as it is the most obvious and most recent. I could have used Roadmap (much less controversial perhaps now?) or any other system from anyone else out there.
b) I am in excellent terms with LauraT. I deeply respect her and admire what she is doing. I actually cleared the general principles of my post with her before posting it. So, you do not have to stand up for her as I am not against her in any possible way.

As someone who “speaks his mind”, as you put it, I am sure you will understand and respect other people who speak their minds too.

Now, I put all this down to a rushed reading of my post and to some misunderstanding. I hope this clarifies, but if you are not satisfied, please proceed and throw my thread in your recycle bin, as I am not going change what and how I am going to write in it.
Still friends?

Mandariin.
I am not saying that jumping on any system is a mistake. well, probably "jumping" is a mistake. But looking into ideas is a good thing. It is just that systems and ideas should not be taken at face value.
A system is just a small piece of the puzzle. It has to make sense in itself (and certainly lauraT's ones make a lot of sense) and for you as a trader, your personality and your circumstances. If you looked at the system and decided it is not for you, for any reason, still it is not a mistake. You have learnt something.
Thank you for posting.

Hi capm and everyone else.
I joined FF in 2009 and this is going to be my 1st post. I've decided to post something because this thread was easy to follow and I like the style of how the information were presented.

capm, could you take a look and give your comment please?
Reviewing yesterday's chart.
EURUSD 15Min Chart

Grey lines: High and Low of Asian Session drawn manually.

#1
One hour before London open, there was a signal. However I feel it did not break the Asian session low clearly
2 candles later it closed clearly. There is enough potential/space/distance to S1.

Qn#1: Is is valid to use this bar (2 candles after the signal) as signal by placing entry maybe X pips below the candle low?

Qn#2: Or remains conservative and place entry on the (mechanical) signal's candle low?

If I follow the suggested trading time strictly, at Point #1 (London open), the candle will trigger either entry while it is forming, and end up positive.

#2
Now price hesitate at S1, marked by the green box. Not sure it may go up or down.
At Point #2, the candle just after the green box closed below S1.

Qn#3: I felt this could be a signal by placing entry below this candle? Or maybe when it breaks the recent low as indicated by the green box.

Qn#4: Can this be an un-official entry?

#3
At Point #3, price tested S1 two times and never close above it, then continue its way to S2. I think this is the price action as mentioned in one of your earlier posts.

Qn#5: Both histogram were still pink, favoring short only. I wanted to place an entry below on the candle that got rejected the 2nd time by S1 (resistance). Can this be a possible entry? The reason is the histogram were based on MAs, and at Point #3, price is probably pulling back near the MAs used in the histogram. This type of entry for small stop and slightly more profit potential? Would there be more type of entries revealed in future?