The DIBS Method... No Free Lunch continues

Exit au with 30 pip and gu with 32 pip.
62 dibs pip = done for the day

Anyone care to share some of their exit methods for their DIBS?

The one thing that Peter Crowns found more enticing than anything else about DIBS is the potential for huge R-multiple trades on the order of 25:1, 50:1, and more. Today's action provides a potential opportunity to parlay a winning trade in EU into something much bigger, given that the D1 and W1 trends are very much in synch, and with price hitting a two-year low today.

While D1 showed a breakeven trade today, M15 showed a number of winners (see attached), one or more of which might be the basis for something much larger in the days/weeks to come.

I see that I last posted in this thread exactly 4 years ago: here here here and here.

Back then I was trying to figure out the pieces of the puzzle that Peter Crowns had intentionally omitted.

Four years on, I believe that I understand much better where he was coming from. The underlying concepts of DIBS are:
(1) finding low risk intraday opportunities,
(2) keeping losses trivial, and then
(3) allowing those trades that survive to play out for several days, weeks, even months, as huge RR winners. (as California points out)

DIBS uses inside hourly bars as its modus operandi, for establishing the low risk entries. The millipede approach, which likewise embraces the same 'infinite yield' concept, utilizes a number of different entry setups. I used S/R confluences for my low risk entries when I was trading actively back in 2010, with great success (by my humble standards ).

There were two posts in the 'No Free Lunch' thread where Peter talked about trading the "hot hand". Here they are:

I didn't realize it at the time, but he'd posted in black and white exactly what he meant: pair the strongest currency against the weakest to maximize your probability of catching the strongest, cleanest moves. During my 2010 stint I used a strength indy to do exactly that. That's different to the approach that Peter describes, but the concept, and objectives, are much the same.

In the screenshot below, EUR (pink line) and CHF (yellow) are weak, and AUD (green) is strong. The W1 plot shows that this has been the case since mid-April. Finding low risk sells on EURAUD over the last couple of months would have resulted in some huge RR wins. Pyramiding by adding suitable, evenly spaced entries all along the downtrend creates a massive compounding effect. The EURAUD downtrend may still be far from over.

IMHO consistently successful trading requires a robust edge; there are so many "profitable today, gone tomorrow" types of systems. That macroeconomic factors tend to play themselves out over several weeks, even months, is the best edge that I know of.

Infinite yield is the best concept that I've found in my 5 years of studying forex, provided that you can stomach the high number of tiny losses and breakeven trades.

To answer fartist's question about exits, I pick a timeframe (daily/weekly/monthly) and when the curves in the strength indy start to reverse, then I start scaling out, and looking for opportunities in other pairs. There is no absolutely right or wrong way to do this. For me, that highlights the benefit inherent in robustness of concept: there is plenty of margin for error, no matter which way you play it. Joel Rensink discusses his approach to exits here.

I apologize if I've repeated ideas that have already been done to death in this thread. I've no wish to read 10,000+ posts merely to find out whether I have, or not.

David

Very interesting post!

Hanover! I cannot express how much my thoughts and yours are in sync!!

Thats my exact sentiments too, the secret ingredient is all in the relative strength of the currencies!

The rest is all mental.. but the thought of suffering many string of losses for the few big wins that come later on.. is really psychologically draining.

By employing DIBS method, i have seen trades running up to more than 1 to 10 in the last 3 weeks itself, and mind you not 1 but 2 trades hit more than 1 to 10.

If one can actually stomach the BE and losses and aim for big home runs, im sure his account will be really fat year in and out.

And again, relative strength is key!!

David

Great post, as are all of yours. Your strength indi looks nice, and I like it more than what i use, which is the futures contracts for the eight major pairs displayed in mini-charts on my screen.

Regarding criteria Peter may use to determine the choicest setups:

1) an especially narrow range IB (with the caveat that one will get stopped out more often), including the NR7/NR4 concept of Crabel's, of whom Joel is a big fan.

2) seeing a setup occur early in a new trading day

3) seeing price close in the upper quartile of the IB's range (for longs)

4) having a trend of above-average strength precede the IB.

Peter noted that the strategy is applicable on other TFs besides H1. M15 setups I have found to be abundant on EU and GU, which are the only pairs on which I focus. Thanks again for your efforts in contributing to this approach.

Best trading to all.

Using Peter's entry rules and trading only the first EU setup each day on H1 during London session with a 1:1 r:r yields a solid edge in recent months. While it does remove the potential for large gains of Peter's approach, it nonetheless shows that the edge is there.

anyone have any more Joel Rensink material from TradersExpo to share ??? that would be nice

can any one help me and give me the last update of this method

The M15 approach I use is similar to if not exactly the same as “DIBS,” but it is profitable and it is consistent. The entry and stop are the same, but instead of using the 6 a.m. GMT price as the buy/sell line for the day, I use the 10sma. I prefer this due to my seeking higher sensitivity when using a smaller TF like M15. Long entries occur above 10sma, short entries are below 10sma. The other difference is that instead of targeting large R-multiple wins, I target from 1:1 to 2:1 (in most cases), exit, and then wait for the next opportunity.

When the trend is especially steep on M15 such that there is not a pullback, e.g. during Thursday’s session, I drop down to M5 or M1. One or both of these usually shows a pullback, and I then wait for an IB or other entry with an edge. However, M15 is the preferred TF. The attached file shows the four signal bars today on M15, all 2.5R+ wins, though of course not every day is like this. Besides MAs, I use no indi’s other than an ATR, which tells me the temperature of the water.

When used in a solid trend, IBs offer the trader a substantial edge, in my opinion. IB setups on M15 and H1, combined with simple pullback setups, some of which are described in the Buy/Sell Line Trading thread, provide an ample number of opps over the course of a week. No fuss, no muss.

From the Land of K.I.S.S.

California

David there is a reason why you are one of the greater, clear thinking minds on this site. DIBS was never intended to be traded as every inside bar that occured however it is recommended during the start out phase to identify and learn the better set ups. I have been using DIBs for sometime now as part of my approach, I use a counter theory with Pin/IBs that has a pretty strong success factor.

You broke down what Peter spoke about in a logical manner. The combination of the millipede strategy that Graham incorporates with his Flying Buddahs etc with a hot hand is why his PF's were higher than those backtested by people who just factored in all IB's. Looking at specific markets like the EUR/AUD, trades taken early in the piece today, had people held them would have netted them phenomenal returns.

In answer to the question posted last month about taking DIBs in the different directions, the idea is that taking 1/2 off at 1:1 would net a free trade and the idea is that the strongest will survive. Your equity over time will smooth out and increase provided the market moves in the direction of your basket of winners, ie the hot hands. Geting involved in choppy markets will lead to ragged curves (in which case they will not be curves at all)

Thanks David, another great post to add to the collection.

Razor, many thanks for your reply and your kind words.

I'd value your view on the same question that I asked 4 years ago. Why do DIBS folk recommend obtaining a free trade by taking 1/2 off at 1:1, instead of moving the SL to breakeven at 1:1? Both achieve a free trade, while the former gives the remaining position more room to move. But if the philosophy behind DIBS strongly prioritizes the long-tail returns (as in Joel's post here), surely it's better to have the whole position make (say) 200:1 than just half the position? Over time that's going to make a huge difference. Hence I would have thought that it would outweigh the "room to move" consideration by a significant degree.

I'd be very interested to hear your thoughts (and anybody else's) on this point.

Many thanks,
David

@California: very interesting post (#10231), many thanks for sharing.

The reason behind taking half at 1 to 1 not only gives more room to breath but also results in a smoother equity curve.

I believe TRT has mentioned it before in one of the post he wrote.
However if you are able to stomach huge swings in your equity curve, then by all means setting the entire position to BE and let it run would be the optimal choice.

I believe if the entire position is set to BE, you will face many trades going from very profitable to exiting at BE which can be psychologically frustrating! Couple with the fact that you will also face losses over time, the equity curve will be heading downwards till a big win comes.

But prior to the big win, would one be able to take the mental challenge?
Thus i believe the reason for taking profit at half position as it helps 'replenish' the account while waiting for the big win.

Thats my thought on it, hope it helps!

Hi guys. Some thoughts on Crowns/Dibs/Rensink.

As described it fits into the mechanical camp but with one/two provisos… there was no exit given, also no definition of the hot hand. So…
ENTRY as defined, rule based.
MoneyManagement STOP as defined, rule based.

EXIT not given. It is here that if you remove all lines from the charts and just have either the 72sma or the 96sma that you would find that exit point (for all positions).

TheHotHand will I think always be a contentious issue. The Turtles used strong & weak correlation, but that was for the purpose of minimizing the number of open trades. Wilder came up with relative strength, again to minimize open trades due to capital constraints. Both of these were at the threshold of computing power. These guys calculated by hand. They manually placed each & every trade. Entry, stop & exit. Very, very, very gut wrenchingly time consuming. TheHotHand is NOT, I think, a method to pick a winner. Too much discretion.

Then the question becomes how good is your concentration? How good is your discipline to get up at 3am in the morning for those H1 bars? I’m asleep. I’m not getting up. Tried that, the family didn’t like it.

If we have a defined entry, moneymanagement stop and exit then we have a mechanical system. If we have a mechanical system then we have the logic for a machine. That machine, in Metatrader speak an expert advisor (EA), operating on a VirtualPrivateServer (VPS) means we become mechanic. We don’t have to be awake or at the computer screen. Family likes that.

On the question of how many positions to take, whether to go to break even or not, the talk of room, the fear of loss, the itch of greed. There are some practical considerations. The biggest one here being RiskCapital.

This is what makes ME feel comfortable, and the why of it.

I have machines do my entry & stop, every signal (a portfolio of signals), every market that I choose (guess how many that is). No profit exit (see below). I use a percent of RiskCapital defined as the Balance of the trading account + (yes PLUS) the balance in an at call account, as I don’t like all my trading capital to be in the broker account AT risk.

I will have the machine exit ½ of the position at 1R:1R, effectively a FreeTrade. Why do this? Well, I return some RiskCapital to the Balance in the trading account. I can use this for margin on the next trade. This then does NOT become a losing trade. I then don’t care what becomes of it.

What about taking a full position to 1R:200R? I don’t concentrate on any one position. Consider this… You have 9 machines each operating on a different currency pair. That one position fits into a global ProfitLoss. That one position becomes part of that bigger pool, and as such is not important.

How does this deal with TheHotHand? It ignores the concept. Over the years I have discovered (by being insulted often enough that I am not right) that my guess (or any method I have tried) to try and read the tea leaves of the future meant that I inevitably miss out on the move of the year. Did that happen once? NO, but it happened enough times for me to ditch that filter.

A word about the MoneyManagement stop. I don’t ever move it. The stop logic originally placed it there for a reason, moving the stop to an arbitrary point, BreakEven, means I change the MoneyManagement stop logic. Over the years this has gone the way of TheHotHand.

A final thought about your business… trading 9 currency pairs. Look at the global ProfitLoss position at or near Friday NewYork close (or at any arbitrarily chosen time to define weeks end as it makes NO difference, although a good liquidity time is better). Cover losses for the week first. Secondly take some money in the form of Profit by exiting some of the near to close positions. Leave the rest and let your god treat them kindly or not.

Thanks for listening.

I have backtested AND forward tested the DIBS idea, with many different filters. I have tried different TF.

What finally suits me was the daily and i conducted a manuel backtest in different years on 26 pairs with 2 different EMA's as a filter.
Risk 1R : The inside bar + 5 pips on both side of the IB..
Target = 2R
Move to BE when 1R is achieved, but only after the first daily bar has closed.


2011:
419 Trades total
208 went to -1R
91 BE = 0R
120 reached my target of 2R.

Results 32R

2006:
459 Total Trades
199 = -R
117 = 0R
143 = 2R

Result = 87R

I like Hanovers/crowns idea of The hot hands, and using that as a filter would be very interesting also regarding pure PA.

Fartist,

Thanks for your reply. I didn't see it at first, but I think I 'get it' now. I didn't understand why creating a free trade by taking 1/2 profit at 1:1 would necessarily create a smoother equity curve, than moving the SL to breakeven. Why? Because both methods create a free trade; if the (rest of the) trade stops out, then the P/L is zero in both cases. Hence the number of losses would be the same, no matter which method is used.

The trade-off, as I see it, is that giving the twice the breathing room is going to result in less breakeven trades, and more winners, but the winners will be half size only. However, now I see how these winners would help offset some of the losses (i.e. where a trade gets stopped out before the 1:1 point is reached).

Hence I guess the key question becomes: at what point does one close out a profitable trade? If the answer tends toward the 'infinite yield' side of the equation, and one is trading the hot hand (strongest v weakest) which should improve the probability of catching some of the best daily/weekly trends, then I still believe letting the maximum part of the position ride is, mathematically, the optimum way to go about it.
e.g. one 100:1 win on a full size position compensates for 100 losses;
whereas, one 100:1 win on a half size position compensates for 'only' 50 losses.

I would need to perform some significant testing to prove my hypothesis, but my gut feel is that the 'SL to BE' would deliver more in the long term, especially if one has a good 'hot hand' determinant.

David

Why restrict yourself to one way of managing your risk until the trade is open.... you can be flexible with your money management based on the momentum once in the trade (and other factors if you wish). If you visually study the best entry locations (where higher tf s/r is in effect) then price will rarely come back to the entry anyway, so removing half at 1/1 in those instances would not be wise or necessary....
I have 2 or 3 different money management approaches based on these factors that only become clear once the trade is live and in progress... i.e wait for more info...

I totally agree on what you've said.. in strong trending markets with little retracement... letting a trade run to inifinity would be optimum.

However would one be able to stomach having most trades being in the money only having to exit at BE? That is the question!

One idea for letting your trades run with the trend would be something like this...

When a trade hits a daily ATR, refer to the 1hr chart and look at the structure, break of higher low (assuming uptrend) would warrant a manual exit.

When hit a weekly ATR, we use the 4hr chart... repeat as above.

When hit a monthly ATR, we use a daily chart... repeat as above.

Thats one way i see about going in.. but then again, can one handle the mental psychology?

[quote=lehmann;5884958]I have backtested AND forward tested the DIBS idea, with many different filters. I have tried different TF.

What finally suits me was the daily and i conducted a manuel backtest in different years on 26 pairs with 2 different EMA's as a filter.
Risk 1R : The inside bar + 5 pips on both side of the IB..
Target = 2R
Move to BE when 1R is achieved, but only after the first daily bar has closed.


2011:
419 Trades total
208 went to -1R
91 BE = 0R
120 reached my target of 2R.

Results 32R

2006:
459 Total Trades
199 = -R
117 = 0R
143 = 2R

Result = 87R

I like Hanovers/crowns idea of The hot hands, and using that as a filter would be very interesting also regarding pure PA.[/QUOTE

Are you placing entry order on the both side of the inside bar? Whichever getz hits.
or Based on moving average filter if its below moving average you sell or if its above moving average you buy?


Regards,
Bedayan.