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The DIBS Method... No Free Lunch continues

  • #8,481
  • Aug 1, 2009 4:18am Aug 1, 2009 4:18am
A few posts back Razor Trader and takingthepip where discussing PC's referral to "tipping points". I remember reading that and at the time I was sure he was making a reference to Malcom Gladwell's book "The Tipping Point".
Now the book has nothing to do with 4X per say but it is (in part) about mass psychology and that is what Tech. Anal. is all about.
I think PC was saying that when the factors that move pairs compile and display themselves mathematically on a chart, then it is time to enter a trade. You have reached the "tipping point".
At least for me. Any thoughts on this.
PS. Everybody go back and read RT's post #8478 in this thread. One of the best.
  • #8,482
  • Aug 1, 2009 7:29am Aug 1, 2009 7:29am
I found this the other day, seems to work well when applied to daily charts.

How can you trade inside bar:

a. Look for an opportunity in the direction of the main trend.
b. Look for an inside bar at the lower part of the previous bar, I try to avoid inside bars which form in the middle of the wide range bar.
c. Look for an opportunity in the trending market (Look for short in the bear and long in the bull market); try to avoid range bound market.
d. Place a buy stop above the high of that inside bar if it formed in an uptrend or a sell stop below the low of that inside bar in a down trend.
e. Place your stop at the opposite side of the inside bar.
Attached Image(s) (click to enlarge)
Click to Enlarge Name: ib 1.gif Size: 15 KB
Click to Enlarge Name: ib 2.gif Size: 11 KB
  • #8,483
  • Aug 1, 2009 9:47am Aug 1, 2009 9:47am
Thank you jarroo for starting this thread, I have been following it for quite a while and am happy to see it grow and develop.
It was nice to see Peter drop in and say a few things as well.
I think some of the new guys here and maybe even some of the old need a little refresher on the reality of trading though.
So with that in mind here is a little light reading for all to contemplate, Can You Handle Some Truth
Same Whore .... Different Dress
  • #8,484
  • Edited 2:53pm Aug 1, 2009 2:23pm | Edited 2:53pm
...

Hi all.

Sorry if this has been brought up and discussed in depth before. It's been a couple of months since I finished reading the thread and don't recall such. I think it might be beneficial to begin a discussion on 'extracting the edge', something PC mentions in his last post. He said, I believe, "any logical trailing stop mechanism", would be enough to extract the edge. Profiting from this particular strategy, IMHO, has a lot to do with EXIT, not ENTRY. According to Van Tharp, "Trade Your Way to Financial Freedom", exit is far more important than entry in many trading plans. (He even tested using a coin flip for entry and proved that an appropriate exit strategy could make many trading strategies profitable!)

I highly recommend this book to all newcomers to trading, by the way.

Exiting trades is still something I'm struggling with. I like the idea of using Moving Averages, though, rather than limiting myself to fixed targets. A poster asked a while ago if anyone had tried Peter's method of using a 20 period SMA on the daily as a trailing stop. Personally, I have not as that is usually a huge stop. (Depending on how you apply it...to the low, high, etc.). It would certainly extract maximum profit from a large move, but would mean more drawdown/losses.

I would welcome a discussion on how to 'extract the edge', ie. which trailing stops mechanisms to use for various market conditions? So, assuming we enter all DIBs trades, (until we know better), to get the best out of this strategy, I feel a discussion on exit methodology would be beneficial to those who don't yet have one, such as myself...:-)...Applying a 20 period SMA on the Daily would surely mean more losses, but would, as far as I can understand, extract a lot of the bigger moves as it could be very wide. Depending on whether it's applied to the high, low, etc, it can be many hundreds of pips wide. At least in the long term style of trading. Shorter term style might be to use a smaller stop?

I'm even contemplating learning how to program an EA and using historical data, much like Nathan, though I am merely an amateur programmer. By doing that, I could use different trailing stops and see how they compare. Forward testing exit strategies, which is basically what I've been doing in a not very methodical way, is just not viable due to the amount of time involved. Still struggling with deciding whether to trade DIBS long term, short term or a mixture of both! It all comes down to time and having confidence in an exit strategy, which I feel cannot be derived from forward testing. Back testing with data is the only way I am going to get that confidence.

I'm trusting in Peter Crowns, but I NEED to verify...:-)

Any thoughts on exits anyone? Do you have an exit strategy you're happy with or do you struggle with this also?

:-)
  • #8,485
  • Aug 1, 2009 10:26pm Aug 1, 2009 10:26pm
Quoting takingthepip
...

I would welcome a discussion on how to 'extract the edge', ie. which trailing stops mechanisms to use for various market conditions?
A trailing stop mechanism that I think really suits DIBS (or any trading style that may produce long term runners from an initial short term trade) is an increasing trailing stop. As you lock in more profit, the size of the trailing stop also increases and doesn't rachet up at the same rate.

Just using completely arbitrary numbers, here is an example of increasing the trailing stop as a straight ratio of the max profit achieved. In this case, I've just multiplied the max profit by 40% or 0.4:

Profit........ Trailing Stop Size
50 .................20
100 ...............40
150 ...............60
200 ...............80
300 ..............120
500 ..............200

There would many different ways to calculate the rate that the trailing stop should move and whether it constantly changes and is managed by an EA or done manually at every 50 or 100 pips of profit, but this could all be backtested quite easily.

For this type of method, there could still be certain criteria to get you out of the trade, such an opposite position etc. but by increasing the trailing stop, hopefully one can stay in the very long trades that PC mentions, without starting with a huge trailing stop.
  • #8,486
  • Aug 1, 2009 11:24pm Aug 1, 2009 11:24pm
Exitting the market is truely a personal thing. There are agressive traders and conservative traders and their trading personality are usually very different.

The discussion on exits is coming about, in my opinion more and more lately, because the market is not being highly favourable for long tail traders, therefore we are looking to save our skins and take some money instead of perhaps watching profitable trades turn to dust, thus wasting time.

Here is my focus. I still love the 1:1 theory on the free trade, less emotion outlook. I have refined mine, and I personally will be keeping it for the times that the markets really ramp up and the trend continues.

I no longer take a set 1:1 at the beginning of trades, I wait for the market to move past the point and then place my 1:1. I also take off at the moment 2/3rds of my size at the point which is something I may continue with. The trade off is naturally a smaller portion to run, but my outlook is that it may be a small position that gets added to over time. In the mean time by taking 2/3rds I take a small amount off the table, thus my account grows slightly during times that are tough. The other side of the coin is that by putting in the 1:1 after the fact the market has moved past, I have a chance to book my orginal at 2x or great risk before a pullback will exit my 2/3rds.

It has helped get my account back into the green during a relatively choppy month after the previous month hit me hard. I am also not trading as much due to outside committments taking more time thus I have missed some great IBs that have done very well, so i guess my approach as of late has been more conservative than agressive, which it was back in March when I made some very good gains.

Exit strategies are everywhere and is there a particular one that is better. Of course there is. It is the one that suits your style, your comfort level and the one that you trust more than the others. It is the one that works for you and only through some trial and error will you find the one that suits you best.

Moments like these, when you see the G/U, E/U and U/J lagging and really trying to push some stronger levels will always make us question a strategy. E/U has been between 3750 and 4300 (600ish pips) for 2 months now, G/U 5800 and 6700 (900 pips) and U/J 92 to 98 (600 pips). These are great ranges but the fact is that it has been up and down most of the ranges for some time which effectively cuts out the running trades. We may still not have some clear movement this month but signs are better that the trend may come back into play.

My point here is that when times are tough the weak look for solutions to a problem that really doesnt exist. The strong stand there mark and continue knowing that the sun will rise on a new day and there are always more opportunities around the corner.

Razor
  • #8,487
  • Aug 2, 2009 12:05am Aug 2, 2009 12:05am
Here is a post from Bemac regarding stop losses.
Very similar to what you are talking about mjs12.
a progressive SL
Same Whore .... Different Dress
  • #8,488
  • Aug 2, 2009 4:08am Aug 2, 2009 4:08am
Quoting johnedoe
Here is a post from Bemac regarding stop losses.
Very similar to what you are talking about mjs12.
a progressive SL
Bemacs post and that entire thread are quit interesting. At the time of the post I and spent some time forward testing.
For me it did not work. Almost any time I set a 10 pip SL (except if I am scalping) I might just as well have closed the position before it went down 10 pips.
In a choppy market I now try not to let a trade that has reached 50% of my TP1 become a looser (period). I can always re-enter and sometimes the second or third etc. break runs.
If the market is trending I will use the last swing point that is in profit. First with 15m charts then 1hr. Now that said, I am not looking to hold anything over the week end anymore. The world is too much like a "soap opera" . The only thing you can be sure about is that something unpredictable will happen.
  • #8,489
  • Aug 2, 2009 9:15am Aug 2, 2009 9:15am
Quoting johnedoe
Here is a post from Bemac regarding stop losses.
Very similar to what you are talking about mjs12.
a progressive SL
Aahhhh that was the thread! Sorry Bemac, I did look for that thread but couldn't find it and couldn't remember who had written it. So for the record, I did get the idea from Bemac.

bapxyz, did you test with larger stop losses? A 10 pip SL does sound pretty tight.

Kind Regards,
Matt.
  • #8,490
  • Aug 2, 2009 9:32am Aug 2, 2009 9:32am
...

I'm going to go ahead and program a PHP script, not EA as that would be far too slow. The idea is not to automate trading, but to research various trailing stop mechanisms to see what results.

All that is required is, say, 5 years of historical data. If anyone knows where to get this for free, :-), please let me know. I'll have a look in the meantime. I use MT4, so I'll have a look at Metatraders History Center first.

Anyway, it'll take a few weeks to finish the script.

  • #8,491
  • Aug 2, 2009 10:26am Aug 2, 2009 10:26am
Quoting takingthepip
...

I'm going to go ahead and program a PHP script, not EA as that would be far too slow. The idea is not to automate trading, but to research various trailing stop mechanisms to see what results.

All that is required is, say, 5 years of historical data. If anyone knows where to get this for free, :-), please let me know. I'll have a look in the meantime. I use MT4, so I'll have a look at Metatraders History Center first.

Anyway, it'll take a few weeks to finish the script.

It may take longer but I suggest at least 10-15 years if you want a more accurate picture. Whilst the past 5 will factor in the last few years of the boom and most recently the bust, to get an accurate idea you really need to get at least a few cycles in there. From say 94 you will have at least a few runs and busts that will give your numbers much more credit.

Razor
  • #8,492
  • Aug 2, 2009 11:20am Aug 2, 2009 11:20am
Quoting Razor_trader
It may take longer but I suggest at least 10-15 years if you want a more accurate picture. Whilst the past 5 will factor in the last few years of the boom and most recently the bust, to get an accurate idea you really need to get at least a few cycles in there. From say 94 you will have at least a few runs and busts that will give your numbers much more credit.

Razor
Agreed. It depends on cost really, Razor. If I can get more than 5 years data for free, then I'll certainly take it or buy if it's not too expensive.

  • #8,493
  • Aug 2, 2009 11:34am Aug 2, 2009 11:34am
If you have an FXTrade account with Oanda you can get free historical tick data.
Here's the link to check it out..... Historical tick data
Same Whore .... Different Dress
  • #8,494
  • Aug 2, 2009 3:45pm Aug 2, 2009 3:45pm
I'm not sure back testing with that amount of data is going to be much more useful than a few years. Essentially in a rangebound market you are going to want to take profits and in a trending market trailing with wide stops is going to work best. Any results you get are just going to reflect the amount of trend vs range in your historical data.

A lot of this is going to come down to personal perference. Most people prefer to be right frequently and so will take profits early. Holding out for bigger individual wins means enduring longer and deeper drawdowns. Even if it results in better results in the long run, most traders just don't have the stomach for it.
  • #8,495
  • Aug 2, 2009 6:22pm Aug 2, 2009 6:22pm
Quoting johnedoe
If you have an FXTrade account with Oanda you can get free historical tick data.
Here's the link to check it out..... Historical tick data
Thanks, Johndoe.

I've managed to download 10 years of 1M data through Alpari. I'll look into getting tick data. It would be more accurate.
  • #8,496
  • Aug 2, 2009 6:32pm Aug 2, 2009 6:32pm
Quoting jzw
I'm not sure back testing with that amount of data is going to be much more useful than a few years. Essentially in a rangebound market you are going to want to take profits and in a trending market trailing with wide stops is going to work best. Any results you get are just going to reflect the amount of trend vs range in your historical data.

A lot of this is going to come down to personal perference. Most people prefer to be right frequently and so will take profits early. Holding out for bigger individual wins means enduring longer and deeper...
...

Exaclty. And it's something I may be able to code for. If there's a way to mathematically determine whether a market is ranging or trending, by using an MA for example, then different stop loss mechanisms could be used for each situation.

There is also the situation where the market is trending, and a DIBS trade is signalled counter to it. A smaller stop loss surely would be more appropriate as a counter trend DIBS trade is less likely to become a runner.

So the script could be run 3 ways.

1. Apply wide stop to ALL trades.

2. Apply wide stop IF market is trending AND trade is in line with trend or use small stop IF market is ranging or trade is counter the main trend.

3. Always apply short trailing stop mechanism.

Thank you.

  • #8,497
  • Aug 2, 2009 7:12pm Aug 2, 2009 7:12pm
Quoting jzw
I'm not sure back testing with that amount of data is going to be much more useful than a few years. Essentially in a rangebound market you are going to want to take profits and in a trending market trailing with wide stops is going to work best. Any results you get are just going to reflect the amount of trend vs range in your historical data.

A lot of this is going to come down to personal perference. Most people prefer to be right frequently and so will take profits early. Holding out for bigger individual wins means enduring longer and deeper...
The benefit of longer term is you get more information. Taking from the last 5 years may give some information but you are limiting yourself. The difference in this method vs you making something yourself is that all the work has been done, so essentially the backtesting is being done by the individual to perhaps add comfort and trust. It is easy to be a sheep and be lead to the slaughter by following the "words" of people you dont know based on the presumption that the info sounds good and has some backers, which is why I always recommend a good backtest and a trial for a period with a small live account (Oanda Micro is good) or demo if you not that way incline.

Not sure what you mean by cost of getting data. I thought you had Meta Trader and surely they have charts that go back more than 5 years. (i have GFT which has decades of historicals built in, not sure on there accuracy though, have never needed to head that far back for hourly charts).

Razor
  • #8,498
  • Aug 2, 2009 7:19pm Aug 2, 2009 7:19pm
Quoting jzw
A lot of this is going to come down to personal perference. Most people prefer to be right frequently and so will take profits early. Holding out for bigger individual wins means enduring longer and deeper drawdowns. Even if it results in better results in the long run, most traders just don't have the stomach for it.
Absolutly, the longer the tail, the more scarce the traders. My tail depends on the market and at what point I get my Free trade + the direction im in. SO if I get my free trade at a point greater than 2x and im with the daily and weekly trend then my outlook may be longer. Can I hold a trade for more than a year, at the moment I havent. Im still building my account so I can spend more time trading at home and less time at work (ill never be a fulltime trader because I enjoy my business a little too much at the moment).

I believe that once you reach a certain point you will move up slightly, to holding trades for longer. Just the same as when you increase you lots as your account grows and you see the increase in terms of floating P/L. It can be hard to stomache that increase in the beginnning, but as you build trust in your plan and are comfortable with trading in systematically that unease will pass.

Razor
  • #8,499
  • Aug 3, 2009 7:09am Aug 3, 2009 7:09am
Anbody take EURUSD Long At 1.4309, 1100GMT?

Or

USDCHF Short at 1.0657, 1100GMT?


Rusty
  • #8,500
  • Aug 3, 2009 10:29am Aug 3, 2009 10:29am
Hello!

Yea i took both of them, nice breakouts =)

Nuclear
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