Fail Better

Now we're talking.

Aha. Now it's getting interesting.

One thing I like about J16 is he doesn't go on about needing a 1:2 (or higher), in terms of R, all day long.

If the probability of the trade is high enough, the R is largely irrelevant.

That's not to say one should start risking 100 pips to make 10 or anything silly like that but you do need to balance R with your strike rate.

They have an intricate relationship and their love child is called your EDGE :-)

For example the Sunday night gap. My R is 0.5. That means I risk 2 pips for every 1 that I make in the setup. The win loss ratio is 85%.

Check out 500 mathematically generated curves of those returns.

Thank you very much, Tom.
Makes perfect sense!
Thanks.

Hi

Very interesting thread so far. Im a J16 member and have nearly completed my 1st year. Recently I have been spending more time studying the larger PPZs and watching what happens when price reaches them. I had the EurChf marked up on my chart and was waiting for PA which I then missed, lol. Should have taken a touch maybe. How many time has the move nearly finished by the time the PA has formed or at least massively diminished the RR by the time the trouble areas are reached.

Ive also had lots of experience with stops to breakeven in fresh air and then finding that level gets hit, retested. I often take retrace entries on Outside bars to avoid this or just move to half risk rather than BE especially with pins. Hopefully this thread will be a good evolution of what I have already learnt.

Are you running a webinar this Sunday with it being Easter?

Hope my screen name doesn't confuse people..

Wiz

The question was directed at Wiz but i found it interesting too,

I think the reason behind famousnes (lol is that a word) of Double and Tripple touch is that they are clearly visible on chart's, i.e open a chart of say Dow and u will notice them immediately and visual backtesting is such a bitch that it always clouds our judgment and show us only the profitable setups. So that's why double and Tripple's are so commonly known and practiced. Also if u are trading live u can spot them very easily too, price goes up, comes down, goes up again to point where it fell last time and there u have your double top.

On the other hand there is no such thing as a single top on a chart i mean u cant see it until it's gone.lol

We are always advised to trade with the trend, wait for price to show us it direction, not catch a falling knife and all that.

So basically all those advises (not saying they are bad or something) will naturally make single top trading less attractive/famous.

Also trading a Tripple or double top will give a sense of ease that price have already reacted to that area before and it's a good chance that it will do the same again but when u have price approaching an area first time u dont have that comfort. (just a psychological point)

Just my thought's.
.

Hi Wiz,

nice thread, enjoying reading your strategy and thoughts, and very much appreciate your efforts. Best Wishes, Jeff.

A huge spider just ran across my living room floor.

Who is scared of spiders? I mean, really scared.

If you are, think about what do you do when you see one.

I want you to imagine you are sitting down minding your own business and you see one dart across the floor towards you.

What do you do? I move out the way. Fast. I put some distance between us. How much distance? Enough so that its nowhere near me but not enough so that I can't see it.

And now, after you have thought of your initial reaction, I want you to think about what you do next.

If you are anything like me, you do a similar thing everytime.

The spider has stopped. Right in the middle of the floor. I approach it. The initial shock of seeing something that I am not only frightened by but wasn't expecting to see, has passed. I go in for a closer look.

Then suddenly it takes off and runs again.

What do you do next? I move, almost involuntarily away from it. But only if it runs in my direction.

Still with me?

What next? It's stopped once again. It's time to take some action. If it runs again your heart might skip a beat but you don't want to lose sight of it because you won't be able to relax knowing that it could pop out at anytime. So you have to deal with it.

The more you get used to it, the more you familiarise yourself with its size, its location and its speed the more you are able to get close to take the necessary action - which will be either a glass and a piece of paper or a boot. Depends on your morals ;-)

This thread has a plot. And I haven't lost it.

Does anyone know where I am going with this? Can you relate this to the market action at a key level?

This is a prelude to the next topic of discussion in the webinar and a pattern we will come back to time and time again to help us determine where the market is about to move and get a very high probability trade.

If I'm correct, I had it by this line. If I'm not, well then I didn't get it at all. That's ok too as I'm not afraid of being wrong.

The spider is price, and you would be the stop loss. As it darts toward you, you move away but not so far as to lose sight of it (set that stop so far off as to be a silly loss). It stops in open space (around no key levels), so you breath for a moment and move in for a closer look (study where it stopped and why). Then it takes off again, you're tempted (if it moves toward you) to move that stop. If it moves away you need not do anything but keep a close eye on it and know where it goes.

The more you see this the more familiar you become with price action and thus how to deal with it.

Am I close? And ummm...I'm a glass and paper kinda guy...LOL

Trade management is so so important. Most of the trades I have seen advocated in the J16 thread are based off daily/weekly data that is aiming to take advantage of at least short-term momentum for the next day or two. Trading the turns with an S/R model is different and IMHO, requires a different type of trade management. I've been trading an S/R approach for the last 4 years and my personal results echo the idea about moving to breakeven. Feels great, but that is totally irrelevant to the market structure. I think the common trading literature is mostly to blame here. They have that saying, "never let a winner turn into a loser". It sounds like a great idea, but maybe the guy that coined that phrase was a momentum trader and not trading turns.

Conventional market wisdom and sayings like I quoted above confine many traders to a box of what is possible. I know one very successful trader that trades turns but will quite happily add to his losers. I've seen him doing this is real-time, not after the fact. It works for him and he does great with it as he dances with the market scaling in/out. I'm not suggesting one trade like that, but I'm just saying to keep an open mind and forget about most of those 'market wisdoms' or sayings that are ever so popular.

I'm wondering what exactly prompts wizz to enter the trade. Is it price touches the line and the limit orders are resting there in well in advance?

Is it some price action happening within a zone? I am thinking it is not because then you are not getting optimal trade location for a reaction.

Once entered, how is wizz deciding the stop to use? I typically use quite a large stop. I need the stop size so I can quickly calculate my position size.

That brings me to my last query - how is the wizz calculating position size? He said that he believes it should vary, but based on....?

I understand that probably a lot of these answers will be dependent on the market context so explaining it may be difficult. But maybe when people post examples of their trades they could address these basic questions as part of their posts. Over time we would end up with a library of contexts and answers to these basic questions. I also think trading needs to be flexible, so any posted trade management can be altered as new market data is interpreted.

With kind regards,
MK

PS: sorry for the long'ish post that is sort of all over the place. I'm fairly poor at structuring a nice flowing post...

Is this about the price movement(price being the spider) and the fact that traders have the urge to get into a trade too soon,the more you watch the market behavior the more you will know where price might turn or stall and knowing all this you will be able to take actions at the right time,get in the market at the right locations following sustainable patterns.The size of the spider is about the actual patterns that occur(big bar at the right location,small bar at a good location will make you as a trader to take totally different actions).If I missed the point my apologies,english is not my native language but anyway, this was a funny way to get us prepared for the next lesson,keep them coming...

Some people call this a wedge I believe.

I call it the spider out of deference to the fear inspiring arachnid :-)

Lets discuss the points marked in the chart below. Pull it up in a seperate window and follow this along. You might need to read it a few times. This is why I prefer webinars. Easier to get the point across rather than writing a dissertation. LOL

1 : Price goes vertical and sees heavy selling come in. The spider is the level and the fear it has over us mere mortals. I am the price. This is not the best analogy since levels don't really run at you while spiders do but hey, I've said it now, so lets roll with it or I will look like a complete idiot.

OK, so the longs have seen price breaking a previous daily swing high and they have seen it accelerating and they are as happy as Larry. However, it suddenly turns hard and there is some panic. Infact at point 1, price posts a key reversal pattern, the bearish engulfing. This is me jumping back from the spider.

2 : Once we have seen the spider, although we are scared, the initial fear is gone because part of that initial fear was the fact we weren't expecting to see it darting towards us. So although we hate the things, we have regained a little of our composure because now we KNOW WHERE IT IS. It is the sudden shock of the unknown that scared us. We are still scared but we can control our fear somewhat because at least we now have our eye on it. Now relate that to the other traders or the collective "market". The traders know where that previous high is.

So after the panic, we may go back and approach it. I almost always do this. And markets do this many times too at a significant level. They come back for a second look. (I think this is why a lot of people often get into profit and then get shaken out when they move their stops to the level they got in at after the first move off it)

So, here I come, moving closer for a better look. I want to see exactly how big that spider is. Traders want to know the same thing. They want to know just exactly how formidable that resistance is. They might also want to take some stops which means you should be more scared of them than spiders because at least spiders don't try to rob the weak.

So as soon as I get close, I think it sees me (don't they have eight eyes?) because off it runs again. What do I do? I jump back once again. Why? Because it is running towards me. Remember, I am price. I've gone in for a closer look at those highs at point 1. If price runs back on me, I'm scared because resistance is being confirmed. If it runs away from me (i.e. through the high), then I'm OK. I don't need to panic.

In this example it comes back and off we go for the second leg down.

Now lets stop for a moment. None of this is to necessarily be anticipated. I don't KNOW the spider is going to run when I get near. Just as I don't know the market is going to sell off hard at that previous high. But I react when it does. As traders do. They see the order flow coming in, the market does its thing.

3 : Now at points 1 and 2 we have a solid, clear resistance developing. At point 3, I go back for another look. The spider moves. I move back again. But note how price is moving back less each time. This is more or less the same with the spider. Usually, once you are familiar with something, it becomes less scary. I know how big it is and as long as I can see it, I know where it is, so it can't surprise me.

Traders know the same things. They know exactly where the resistance is and they know from the number of touches how "big" it is.

Note the circled areas show higher swing lows as we come into the area. The sell offs are less each time. Price is not coming back as far before it goes once again to get a better look at the level. And the more they come back to explore it, the more FEAR is turning to CURIOUSITY and then what is happening?

The psychological dynamic towards the level (or the spider) is shifting.

Now all of this is just a childish little analogy BUT the key point is this.

When price returns to 1.0326 on the far right hand side of the chart (for the fourth time) does it look scared to you? Or does it look like the market is getting accustomed to that level and is about to take some action (and stomp it)?

At this point, after this many touches, I am getting ready for a breakout. And so I watch and wait for the optimum opportunity where the spider will maneouvre itself into a position where it can be stomped. (You can't stomp it if its on a wall can you?)

So, here we go...we've got it. A glass and paper is all well and good but you have to get far too close for my liking to do that. So, get above it, lift your foot up....its the breakout.

Foot goes up, foot comes down hard on the spider.

Foot lifts up to check it's dead. (see red arrow)

Now we (the price) can move on.




Please can I add that no spiders were killed in the making of these posts and I always use a glass and paper and urge you all too as well. Spiders are useful, beautiful little things. (my lawyer made me write this)

Another example. This time from the Dax.

Very similar to last time but more touches and a slightly different dynamic before the breakout.

The circled areas show higher lows but the blue rectangle briefly breaks the pattern by making a marginally lower low.

It is quite rare that market patterns are flawless but there is a question you need to keep asking yourself here.

At point 6, how scared does price look of that resistance?

Oh and while we are on the subject, how many traders do you think got shaken out at the spot marked with the X? The answer is: Most likely a fair few that got in early looking for the breakout and a fair few that saw price coming off for the 5th time, turned to their bible on technical analysis, read about how a resistance is made stronger the more it's touched and then promptly sold sold the swing low break (and got their lunch eaten for them).

Just posted this in another thread... No loss on this but BE

should I jump out of the window?

http://www.forexfactory.com/attachme...1&d=1303381568

LOOOOL !!

I dont like spiders but if your lawyer told you to write that he must be right, lool !!!

Ouch, that hurts. Yeah, it's always easy to review 'after the fact' but you can see reducing your risk to the left eye would still have worked and then you have that bullish outside bar after the small consolidation after your stop was taken out, probably would have been another low risk entry.

Yes, almost re-entered on that one, but then I thought it was still not strong enough (not strong enough breakout of that consolidation).

If trading was easy, everyone would be doing it. It's a tough game, no doubt.

Agree

But I feel like I am very very close to "get" the game but something very minor is still missing... Hope it was a breakeven thing, lol.

The definition of stupidity is doing the same thing everytime and expecting a different outcome.