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The DIBS Method... No Free Lunch continues

  • #8,941
  • Nov 30, 2009 2:19pm Nov 30, 2009 2:19pm
Forget the filter,
take the trade,
workout a good exit strategy


Quoting jzw
I'm not generally in favour of filtering DIBs, although I keep an open mind about it. Here's an example from Thursday's Dubai inspired risk asset sell-off/USD rally.

The chart is EUR and there were two DIBs formed in the same conjestion area. The first broke by a few pips and was stopped the second was a clean break i.e. if you took it you had...
  • #8,942
  • Nov 30, 2009 3:36pm Nov 30, 2009 3:36pm
Quoting geoffrod
Forget the filter,
take the trade,
workout a good exit strategy
My words exactly.

Bluefish
  • #8,943
  • Nov 30, 2009 6:44pm Nov 30, 2009 6:44pm
Unless you have a filter in place that is for ALL trades then forget about it. Too much has gone into the past few pages about filters and implementing them but it seems to be a situational thing, which destroys the credibility of the filtering process. It is much the same as curve fitting your results during testing. It looks great on paper but in reality the newly curve fitted setup is optimised for a past event. Filters are much the same, they will work for a few setups, remove a few bad trades and miss some good ones. I will post below some wise words that everyone needs to absorb and accept, it is reality in its purest form and it comes from a brilliant trader who has been trading breakouts for 20+ years. His name is Joel Rensink and I know you have all heard and read his stuff but really consider the quote below from his original post

"I will tell the only way a trader is able to make $1,000,000 from trading.

Here's an example of 10 thousand trades. Of these trades, you might lose on 6000 of them for small losses, win on 3800 of them for moderate profits, and win fairly big on 200 of them. You make your million from this series of trades by losing only $9 million on your total of losing trades while making $10 million dollars on your total of profitable trades. This means averaging $50 a trade per lot or contract (in the case of futures), which is really good after expenses. Very doable with robust methods. And, you have to stay on your game or you won't do this well.

All the backtesting has been completed a number of times with Nathan backing up IBs at there core. You dont need to filter the bad trades, you just need to hold the good trades for longer. PC made it quite simple with the half off at 1:1 which should allow you to forget about the trade.

In the end, over the course of 10000 trades you may average $50 per contract in average. That may not sound great to new traders but heres the reality. If you were trading 10 contracts on average thats $500 per trade averaged over 10000 trades is a great deal of money, however it doesnt sound compelling to those who want the money here and now. The above figure is also relative to your account size and your lotting potential so a smaller account will still achieve roughly the same growth on a % level. This also makes it tough because as I have stated many times before that the payoff may not justify your involvement in the trade. That is you may hold trades for months to get paid off, however when you work it back with the losses you have incurred over that period the results from a $ value may not be enough to feed the greed mechanism inside you. Trading a larger account would possibly solve this problem but if your not ready then the losses will drain you from a psychological level.

Im not against filtering but it needs to be all or nothing, every trade or none. I in essence do the same by taking descretionary trades based on higher TFs S/R points and Price Action. The difference being the ability to hold the winners, absorb and move past the loosers and to concentrate on playing the game for a longer period.

Razor
  • #8,944
  • Edited 7:34pm Nov 30, 2009 7:22pm | Edited 7:34pm
Quoting geoffrod
Forget the filter,
take the trade,
workout a good exit strategy


Yes, I wouldn't want to filter too much. I may be in favour of only taking DIBs trades in the direction of the main trend, though. This looks promising in backtesting, though it's too early to draw a conclusion.

Peter makes several comments about this in his posts. Here's an example:

Quote

"...I only like to take trades that have low risk and are in the direction of least resistance, the main trend...."

-Peter Crowns-

From his other comments regarding trend, I think he's referring to the higher timeframe trend, not just the trend for that day.

I would like to hear opinion on this.

As for exits, I'm a firm believer that the key to unlocking the potential is in the exits. I'm still trying to iron out my own exit strategy in backtesting, which could take weeks!

It may be of interest to any newcomers to trading and/or DIBs, as I'm sure the more experienced among you already know this, one other important element that has come up in backtesting is position size. Large position sizing, for example risking 2% per trade, brings with it the potential for larger profits and larger drawdowns when you go through an extended flat period, and you could very easily blow your account if you take all DIBs trades according the rules given by Peter whilst risking too high a position size per trade. (Depending on your definition of a blown account.)

Consider what could happen if you're risking that much and the markets make no significant movement for a period of weeks. My testing has revealed it necessary to risk smaller position sizes simply to survive those periods when you're going to get nothing but drawdown.

At least that's my experience from backtesting and the way I've been trading DIBs, which is to take many small losses and try to capitalise on the few winners. I don't expect a high percentage of wins. In fact, my results show a very poor win rate. It's all about making the most of the winners. Which is why I'm bringing up the point, of reducing position sizing, to anybody that is intending to try this risking 1% or 2% or even more per trade without having done some research first.

It's another tradeoff. (Similar to the tradeoff between large stops and increased drawdown and potentially higher rewards). Reduced position sizing keeps me in the game longer at the cost of reduced profits from the few winners that make my account grow. (And that's where the importance of 'making hay while the sun shines' comes in, i.e - letting my few winning trades run.

I'll post some more on exits and position sizing after I've done some more backtesting and if there is any interest. At the moment, I've reduced my sizing down to .25% per trade. (one quarter of one percent). I'm experimenting with the idea of having smaller winning trades, (in terms of profit, not pips), in order to reduce the risk of blowing my account.

I've tested taking DIBs trades in flat markets and risking 1% per trade and have 'experienced' severe drawdown on account balance with no large winners and hence no equity from live trades. In other words, I have blown the account, by my definition. Not a situation I would like to find myself in when trading live!

With the reduction in position sizing, I am trying to find a 'balance' between too low a postion size and too high. I want the winners to be sufficiently profitable without having severe drawdown. I believe this will be achieved with sensible money management and a large trailing stop mechanism.

I apologise if all this sounds too 'mechanical' or 'obvious' to the more experienced of you, I'm directing these findings to people who are new to this like myself. I think it's important to develop a model that takes all these variables into consideration. One that gives me a sense of confidence before going live. I understand there is no 'one size fits all' way of trading DIBs, but I feel there should at the very least be a good idea of when to exit coupled with sensible money management.

My observations are based on trading DIBs over the longer term using a strategy tester, taking all trades according to PC's advice and also experimenting with only taking trades in the direction of the higher trend, weekly/monthly. I don't know any other way of trading DIBs at my current skill level. As I progress and gain experience, I may very well be able to filter out some trades or find some style of DIBs trading of my own, but at the moment this is where I'm at.

I'm still testing and expect to do so for a few more weeks.

I welcome any comments.

-TTP-
  • #8,945
  • Nov 30, 2009 8:01pm Nov 30, 2009 8:01pm
Quoting takingthepip


Yes, I wouldn't want to filter too much. I may be in favour of only taking DIBs trades in the direction of the main trend, though. This looks promising in backtesting, though it's too early to draw a conclusion.

Peter makes several comments about this in his posts. Here's an example:



From his other comments regarding trend, I think he's referring to the higher timeframe trend, not just the trend for that day.

I would like to hear opinion on this.

As for exits, I'm a firm believer that the key to unlocking the potential is...

Risk ultimately has its ups and downs. The more you risk the more you can potentially gain but the deeper your drawdown will be. The recovery process will be similiar regardless. If you risk 5% and take the exact trades as someone taking .25% (completely mirror them) then sure the drawdown of the 5% trade will be greater as will there rewards. Even at 5% you will never completely blow your account, you just may run out of margin.

Both will experience results relevant to there risk, there longevity will differ and it will differ in different ways. Naturally the lower risk trader can withstand longer periods of sideways markets (very few winners to make up for the loosers) and that is in 2 ways. The larger risk trade not only has to face the reality of drawdown from a margin POV but also from the psychological aspect. Trader B doesnt have those problems as such because the drawdown is smaller. The flip side is positive growth, when the markets are in favour then trader A will have a much larger capital dollar growth. This can be negative for trader B who is putting in the same effort for smaller gains (much smaller in respect to the % difference of 5 and .25) which can have them wondering whether the time and effort is worth it.

Now the above also depends on the starting capital. The larger the capital the less you require to risk to get a substantial reward. Trading 1 million as opposed to 10k carries greater rewards at lower risk. So trader B who risks .25% of 1M will make (initially) more than trader A. Eventually though as capitals get closer then the risker trader will naturally eclipse the more risk diverse trader, but as mentioned not without the fundamental baggage or much greater drawdown.

Payoff expectancy relevant to time is what we are all here for. Some for the right reasons (longevity and growth) and other not so (short term riches). In the end who will survice longer is dependant on the variables of emotion and market condition and the personality of each trader.

Razor
  • #8,946
  • Dec 1, 2009 3:02am Dec 1, 2009 3:02am
Quoting Razor_trader
"I will tell the only way a trader is able to make $1,000,000 from trading.

[b]Here's an example of 10 thousand trades. Of these trades, you might lose on 6000 of them for small losses, win on 3800 of them for moderate profits, and win fairly big on 200 of them. You make your million from this series of trades by losing only $9 million on your total of losing trades while making $10 million dollars on your total of profitable trades. This means averaging $50 a trade per lot or contract (in the case of futures), which is really good after...
i disagree with mr. joel rensink.

i trade since 20 years, and since 14 years on a professional base. many trades i close with a risk/reward ratio of 2,3 or 5 times the risk.
every trade will be closed EOD.
so from 10.000 trades i would say 1.500 are equal or higher than 2.

my philosophy is i dont want to live from the few home-runs, which are very rare and seldom. i want to catch here and there my little fish a day. on some days i wont catch a fish.

two different approaches, but both work if you look at the nature and how predators survive. the shark or krokodile catch one big animal once a month.
the pelican hunts every day in a specific time for some fish. both are good survivers.
  • #8,947
  • Dec 1, 2009 3:32am Dec 1, 2009 3:32am
takingthepip, I will try to make it easier by speaking about facts and not the usual crap about emotion and personality.

Take any breakout after an IB according to the rules of PC for one pair during one year.
You'll find out that the number of trades who lost is equal (little more or little less) to the number of trades who reached their breakeven point. This means that the enter doesn't give you an edge.

If the entry is "edgeless", why entering all the trades? Wouldn't be better just to wait till a trade reaches its breakeven point and then to enter? Real food for thought to all the "gurus" here who repeat the mantra that lots of losses and a few winnings will make you rich in the long run.

Let's suppose that the edge is in the exits, as the gurus like to proclame.
In this case the trading can be reduced to an optimum problem which has as inputs the lost and running trades and at any moment tries to achieve the best compromise, by taking partial profits to reduce the drawdown and letting always something running.

If there is a solution to this optimum problem when the entry doesn't offer an edge, is extremely hard to prove. If a computer can't find it for you is is very improbable that you will be profitable.
  • #8,948
  • Dec 1, 2009 6:34am Dec 1, 2009 6:34am
Before it gets all too philosophical on where an edge lies, the underlying assumption is that the method/system yields a positive expectancy and you the trader believe it is possible to compound your account. After all this is why traders trade, right? And as such, something like cutting your losses and letting winners run to the extent that overall your trades yield a positive expectancy is all it matters. Even the slightest edge in your favor can be profitable through compounding. (If you really do have an edge and are not over risking)

Also, on the topic of filtering, do any of you traders currently trading DIBS consider the "above/below the weekly open" as the basic criteria along with the general trend direction? I've just started the past week trading DIBS live with a 0.5% risk using the 1:1 concept (0.25% each set)

Aside from the your market bias from your existing trades (ie, you have longs in the overall trend and will continue looking for longs only) and the simple +/- daily open, do you guys consider " +/- weekly open " as an additional filter or just part of "barebone" DIBS? PC mentioned if trading in a daily TF, then the weekly open is something you would look out for. What if it was applied to the hourly TF, what are your views?

PS. - Yes, I've read both threads in detail and the closest thing mentioned to it is the hot hand for selecting between pairs to trade to avoid a dull market. And also how the when things really move when it is aligned on multiple TF (Monthly, Weekly, and Daily) But it is just impractical to use +/- monthly open as a filter as too many trades get filtered.

Also, I'd like to thank you guys for sharing your experiences with this concept and Pinman for sharing some of his trading stats. Seeing how making a profit isnt just limited to long tailed trades. (You have your home runs but there are other players that making a career out of hitting singles and their batting average is 33%. Whether you get striked out or not, you still have to swing the bat)
  • #8,949
  • Dec 2, 2009 3:02am Dec 2, 2009 3:02am
Quoting Sauron
takingthepip, I will try to make it easier by speaking about facts and not the usual crap about emotion and personality.

Take any breakout after an IB according to the rules of PC for one pair during one year.
You'll find out that the number of trades who lost is equal (little more or little less) to the number of trades who reached their breakeven point. This means that the enter doesn't give you an edge.

If the entry is "edgeless", why entering all the trades? Wouldn't be better just to wait till a trade reaches its breakeven point...
Interesting post - although I think your tagline says more about your opinion of 'Gurus' rather than your post itself. Would you like to expand on your trading experience and account performance? I don't mean to be harsh but very few people seem to have come onto this forum with the sole intention of shouting down others - the only raised voices are directed at those who can't be bothered to plough through the thread.

Maybe it is aimed at me (I don't consider myself a 'Guru' at all, btw, I'm a complete amateur), but I'd love you to tell me how a newbie could hope to trade a large enough account to make big money straight away (or alternatively taking too large a position size) without emotion coming into it. Hence my advocating not doing so. In my first year I could have traded my way to $1m as my trades seemed to have the midas touch, but if I'd started a year later I'd have blown my account within 3 months.

I don't think anyone is claiming the entry on DIBS itself has an edge. Okay, according to candlestick theory it shows a consolidation in the market, but nothing else. For a non-pro trader like me it's just a very useful position sizing tool and enough backtesting has been done to show it has its use. My edge IS taking frequent losses and occasional big winners. I'm not asking you to agree with me, but my account seems to suggest it works - I win less frequently than I lose, but I still make good money year-on-year.
  • #8,950
  • Dec 2, 2009 3:06am Dec 2, 2009 3:06am
For what ever reason, this thread over the past few weeks or so has been very limited on its focus to Inside Bars and more focused on the drama that is edges and all other areas of philosophical dramas.

IF you have spent the time to read and understand the methods within and you wish to embark on the journey then please post your interests and charts/trades etc. If your just here to bash and crash with rambling about other stuff that is not constructive then please take it elsewhere.

For those who are also just looking for everything handed to them, that includes those who for whatever reason find the need to bash this thread because it hasnt had ALL the secrets revealed then please go find something else to do with your time and money, or perhaps go to another thread and see what you can do there.

The facts are that most of you who havent bothered to even trial any aspect of IBs for longer than it takes for you washing to dry will not work out what works best and when. PC and others who have found those little extra things that help have spent the time trading it and learning from it, WHY should they give you everything. Nathan tested, as have many others with there own spin on it and have in the vast majority of cases come back with positive results. The system at its core with 1 off at 1:1 has a mathmatical edge, those who have taken the time to really do some testing have found this. The model returns a positive PF of over 1.1 in most cases, thats $110 gained for $100 invested. May seem like nothing but those who are aware of it, a standard roulette wheel returns a PF of 1.05 and makes millions.

This thread when I first came along offered something that was new to me, a simple scope on a way to trade without the BS that is involved in so many other models. No fancy lines, no squiggles or sub menus with RSI, MACD and Stoc written on them- all in all no added confusion. What it didnt give you was everything. It gave you a starting point, something to look at and a way to trade it. You, as an individual capable of processing and learning, are in charge of your money and how you trade it. You, as a person who has a desire to make more out of life through trading for whatever means needs to take control and learn. You are ultimately responsible for what ever path your take. So if that means that you need to sit in front of a screen, punch through data for the past 10 years and learn a thing or 2 about what works better then so be it.

NO FREE LUNCH is at the top. There is enough here to get you started and you now have to work at it. I know now why there are few people here who give away there secrets. The more you give the more others expect and when they dont get it they feel the need to bash even though they havent stepped up to the plate at all.

Razor
  • #8,951
  • Dec 2, 2009 6:14am Dec 2, 2009 6:14am
that 1.05 edge is for the house


I've done about 17 years of "testing" on IB's using the daily chart.
10 on the GBP/USD and about 7 on the USD/Yen with trails between 20 and 55 days. I looked at other pairs, but found that if I was going to enter both a USD/CHF and EUR/USD, I was often just doubling down on the same trend, so I am trying to eliminate correlations between pairs. I will probably look to test the USD vs the CAN as a proxy for oil

I take every IB. If an IB is sitting on an MA that I am using for a trail, I will consistently reenter if it keeps crossing back and forth. I have gone in on the GBP/USD a few times over the past week or so as there are two IB's sitting on the MA line I am using that keep getting crossed.

Long and short of it is that it is not the 1:1 that has the edge as you make more pips over the long term if you do not close half @ 1:1 (remember, lots of these stop out for BE) - this just smooths your equity curve and as mentioned by PC, lets you use more leverage - this is pretty much the result that "Nathan" found. It is controlling your risk and letting the winner run that is the edge, IB's are just a really convenient way of doing it - This is the commonalities between all winning methods - Idiot Bars are just a simple way of doing it.......I like Idiot Bars combined with a lot of back testing


I'll be in the cafeteria all week surving lunch...........




Quoting Razor_trader
For what ever reason, this thread over the past few weeks or so has been very limited on its focus to Inside Bars and more focused on the drama that is edges and all other areas of philosophical dramas.

IF you have spent the time to read and understand the methods within and you wish to embark on the journey then please post your interests and charts/trades etc. If your just here to bash and crash with rambling about other stuff that is not constructive then please take it elsewhere.

For those who are also just looking for everything handed...
  • #8,952
  • Dec 2, 2009 7:16am Dec 2, 2009 7:16am
Quoting PinMan
...
I gave an idea to takingthepip and it is a good question for every trader. If the entry doesn't provide an edge you could skip every entry till the trade goes on your favor. It applies perfectly to DIBS, where you should take partial profits after 1:1.
  • #8,953
  • Dec 2, 2009 8:16am Dec 2, 2009 8:16am
Quoting razorboy
that 1.05 edge is for the house


I've done about 17 years of "testing" on IB's using the daily chart.
10 on the GBP/USD and about 7 on the USD/Yen with trails between 20 and 55 days. I looked at other pairs, but found that if I was going to enter both a USD/CHF and EUR/USD, I was often just doubling down on the same trend, so I am trying to eliminate correlations between pairs. I will probably look to test the USD vs the CAN as a proxy for oil

I take every IB. If an IB is sitting on an MA that I am using for a trail, I will consistently...
I meant that (houses edge) with the roulette wheel so sorry if there was confusion. I think, and this is my personal opinion, is that all too often, especially lately and on more than this thread, that the focus is limited. Here we are debating edges and whether this part of it has it or that part of it hasnt. Reality is that having an edge is needed but trading is more than just having an edge. Knowing where your edge lies and how to exploit it is one thing, actually doing it, day in day out is the other.

In the end you would find that you could backtest any bar formation (pins, engulfings, OBs etc) with the same rationality given in this thread and you would find that the results over time would perhaps come close or exceed. AS you mention, and it backs up Sauron, that the edge lies in more than just the entry. There is more than 1 way to skin a cat which is why I try not to get caught up in the whole edge saga. At the end of the day each person is going to trade this differently and there are a number of reasons why.

They may be personal or it could be as simple as different charting software will have different candles. Once again this will back up the above because 2 traders staring at the same screen may have 2 different candles/bars. 1 enters, the other doesnt, or they both enter in different directions. Who is going to make money? The trader who makes more than they loose over time.

Im personally off the subject now. I will post charts and give constructive feedback from here on in. The dribble is tiring me and fortunatly for me I dont trade lower TFs so most of my trading is limited which is why I tend to be here giving some feedback.

Anyways later all
  • #8,954
  • Dec 2, 2009 11:11am Dec 2, 2009 11:11am
Maybe it is just me but I think I am missing something.

no one trade has an "edge" - an edge is only visible based on an aggregate of trades

If you are suggesting that you should only enter trades ones they have broken even, are you saying that you enter when the price returns to the entry price, then you are getting in at exactly the same price as the person who took the dibs trade. Or are you suggesting you get in when a DIBS trade would have hit 1:1.

Either way, I have only one suggestion for you....test it out

Alternatively, you may be looking for a time machine to aid in your trading, which as far as I know, has not been invented, but if you find one, let me know..........


I am not sure you understand what an edge is......


one trade does not a trader make......


Quoting Sauron
takingthepip, I will try to make it easier by speaking about facts and not the usual crap about emotion and personality.

Take any breakout after an IB according to the rules of PC for one pair during one year.
You'll find out that the number of trades who lost is equal (little more or little less) to the number of trades who reached their breakeven point. This means that the enter doesn't give you an edge.

If the entry is "edgeless", why entering all the trades? Wouldn't be better just to wait till a trade reaches its breakeven point and...
  • #8,955
  • Dec 2, 2009 6:40pm Dec 2, 2009 6:40pm
Quoting PinMan
But the main thing you can see from this is that eliminating a slightly more frequent occurrence of losses doesn't improve your bottom line, if anything it worsens it if you try to overcomplicate it. Just go with the short-term trend and you'll get lots of free trades; if that is already, or turns into, the long term trend you are more likely to win big. Simple.
Well said.
Good Trading
  • #8,956
  • Dec 3, 2009 1:32am Dec 3, 2009 1:32am
razorboy, you enter after the trade has reached its breakeven.
Be sure that I know enough about edges to write book but english is not my mother tongue so it is possible that what I'm trying to say isn't exactly right.
Anyway, if you read my posts you'll see that I'm talking about a big number of trades and because the entry and SL are clear I can measure the profitability of a system based on them.
Just for the record, I've made enough tests before I wrote the first reply to this topic. I see no difference between DIBS on a random chart and any pair you may consider.
  • #8,957
  • Dec 3, 2009 2:07am Dec 3, 2009 2:07am
Quoting Sauron
razorboy, you enter after the trade has reached its breakeven.
Be sure that I know enough about edges to write book but english is not my mother tongue so it is possible that what I'm trying to say isn't exactly right.
Anyway, if you read my posts you'll see that I'm talking about a big number of trades and because the entry and SL are clear I can measure the profitability of a system based on them.
Just for the record, I've made enough tests before I wrote the first reply to this topic. I see no difference between DIBS on a random chart and any...
where would u suggest to place then the stop?
  • #8,958
  • Dec 3, 2009 2:12am Dec 3, 2009 2:12am
Quoting Sauron
razorboy, you enter after the trade has reached its breakeven.
Be sure that I know enough about edges to write book but english is not my mother tongue so it is possible that what I'm trying to say isn't exactly right.
Anyway, if you read my posts you'll see that I'm talking about a big number of trades and because the entry and SL are clear I can measure the profitability of a system based on them.
Just for the record, I've made enough tests before I wrote the first reply to this topic. I see no difference between DIBS on a random chart and any...
Where do you place your stop loss in the above scenario. In the case of what we do, once that BE point has been reached we take off half which in the event the market moves back we loose nothing but the opportunity that was. In your case entering at the BE point, if the market comes back you take a loss.

So im not sure if I am in the same boat with you on this theory. If you enter at the BE marker with 1/2 the risk that would be taken by a normal DIB trader then you have the advantage when the market doesnt reach that BE point and an IB trader would loose there entire risk.

Some clarification on what it is exactly you are getting at with entry at BE theory might help answer this.

Razor
  • #8,959
  • Dec 3, 2009 2:13am Dec 3, 2009 2:13am
Quoting RussiaTrader
where would u suggest to place then the stop?
LOL you beat me to the question!
  • #8,960
  • Dec 3, 2009 3:30am Dec 3, 2009 3:30am
You don't enter after the signal but you wait till the trade loses or reaches BE or 1:1 or how you want to call it.
If it loses you do nothing.
It it reaches BE you enter.

The stop loss is the one which you would use if you have entered.
You use the same position size as if you would have won.

So nothing changes, only the enter position.
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