Flag trading the trend

i went live today and took 42.30 long & 42.36 short ... bad start

both those trades happened with in a ledge/consolidation area

It's SO tough, but it almost always seems to happen this way. I always remember Douglas' exercise which is to truly commit to a series of 20 trades before reviewing performance. No rule changes allowed during this period & monitor % correct, ie. how many execution errors made (failing to see and take a live trade counts as one type of execution error).

And although I've said this before, even though I have had some stellar winning streaks over the years (my best quarter remains 84% wins on 116 trades - back around 2008), I ALWAYS stress any approach with the following simple analysis/assumptions :

One third full winners of 2R or more.
One third b/e
One third (1R) losers

So with a 120 trade month (WHEN am I going to slow down.... !?), risking 0.5% per trade that's a 20% return.

Seems so simple, right (not just talking to you, 'ras, but anyone who cares to read) ?

NO, IT'S NOT (at least if you're me ).

Why ? Because it is so easy to screw up that seemingly easy 20% / month by poor execution, lack of discipline, trying too many new twists and turns, turning the 2R winners into 1R winners (SO many ways to do that), etc etc ETCETERA... This is one reason why although I think backtesting is important, the results must be taken with a large pinch of salt, as duplicating them over time in live trading is impossible except for the very best traders (I am not one).

Capisce !?

(Rant over - oh, yeah, that feels good... )

thanks for this jt .. i'm putting together a table of what i should have traded and what i actually traded over last couple of weeks and there's a big difference between the two. I like the sounds of that 20 trades rule ... will try and stick to it

If you haven't read Douglas' "Trading in the Zone", which includes the 20 trade exercise, it's a must-read (... and if you search carefully the whole book has been posted here at FF - shhhhhh, don't tell anyone...).

Good to make the comparison you mention : if you see you typically trade at, say, 60% of ideal, then that gives you a realistic idea of what is possible NOW and a yardstick against which to measure improvement. As you know from my post above, my stress test yardstick is set very low at 33.33% winners : if I have a month with Harold-like 70%+ winners, I get to feel really good about myself .

As the song goes JT and I am feeling GOOD!

Oh, yeah !

extremely important message JT. I too after trading for 14 yrs drift from my system when things get a little slow and try and tweak this and that therefore leaving the trading zone. When I stick to the plan and execute the rules I am in the zone and because of your reminder I am returning to the trading zone. My trading has always been trading pullbacks in the trend so even though I tweaked a few things it has always remained the same so I can continue to make money. you also triggered a thought when you showed me the 9 tick rb chart and since my stop is 10 I would look at a 10 rb chart. then I assessed where I was have trouble in my setups and all of a sudden things got clear so here is my final trading plan with setups and money management., 10 tick range bar chart set to a line chart. My goal is 30 ticks a day trading 3 lots. 10 tick stop 15 tick target. when up 7 or 8 move to +1 up 12 lock in 5 up 13 lock in 10. I don't care if it takes me 3 trades making 30 ticks a day with 3 lots generates a lot of money per month. ok now the determining the trend remains the same we will take 2b and 123 s back into the trend. if set up is small let it go and wait for price to give more space. tight areas cause problems. there is no more taking 2b reversals at top or bottom of the market. we will take only 123s at top and bottom of market but heres the twist. we have a 123 we will wait till price breaks pt 2 and then we get 2 closes above pt 2 we will enter at pt2 if it comes back. say it doesnt come back and forms a 123 well that would be a setup back into the trend right. say it doesn't pullback and hit pt 2 we will enter where price made high and pulled back and missed our entry well this is my final PLAN no more deviation. I spent a long time backtesting this and this is the blue print to making great money all that's left to do is the execution I will show you the 123 setup so you can understand it better you know the other setups

Thanks Divergence. Am looking into it. Are you still trading the 2 or 3 bars same colour and pin bar pull back?

no that's where i shifted from zone. I don't like using other tools at same time it can't take your eye off of the plan. They work not ad many trades

I too found Douglas's books (both Disciplined Trader and In the Zone have the 20 trade exercise). I'd recommend buying them as hard copies. This way you can read them away from the computer, you can underline and write margin notes and highlight and scribble question marks and all kinds of things that will allow you to experience these books and make their lessons your own in a way that will likely not be possible simply scanning them line by line on a computer screen.

And for anyone who does decide to make a serious and committed attempt to study Douglas and to develop the necessary trader's mindset, I urge you to keep a daily trading journal: note everyday what did I do right, what did I do wrong, what did I study that day, what books, trading forum threads, blogs, twitter accounts, etc. have I read and where did I find an interesting idea or two for future exploration and so on. I've been trading for a long time now. It was hit or miss for many years. Two things happened to bring it together for me: I found Douglas, learned to teach myself to think in probabilities and to thrive in an uncertain environment, and then I applied his 20 trade exercise to a system that was based largely on price action around support and resistance levels and to my great delight I found out that you can make a living day trading so long as you focus on edge, rick, and reward, and stop trying to figure out how to avoid losing trades.

Divergence's system has a real edge, based on price action. It will last forever (or at least so long as there are highly liquid, freely traded public markets in which to trade). It truly pains me when I see tweaking creep into a good trading thread, whether here at FF or any one of the trading forums/blogs I occasionally read. We all have heard the saying "if it ain't broke,don't fix it." Well, one thing that often happens to retail traders, both complete newbs and us old veteran's alike is that we mistake a losing trade, or a short string (even as few as 3) losing trades as a sign that out system is broke, and we start to try to "fix" it. However, even the best system, even a system with an 80% win rate over time will have periods of 3 or 5 or even (though I have never seen it) 10 losses in a row (I have never seen it, but it is statistically possible). My advice to anyone following divergence's thread here would be to pick a market (it does not have to be crude - it can be treasury notes or bonds, any of the emini's, or any of the forex pair futures contracts. I think it is probably not a good idea to use this with a spot forex broker as the house can manipulate price too easily to stop you into and then right out of a position. Get yourself into exchange traded futures to really reap the benefits of this system.


You and I would likely agree on the basic price action texts that have been the greatest influence on our trading. In addition to Victor Sperandeo's books (the 123 and 2B) I too found Ross's Law of Charts, the Ross Hook, and the Trader's Trick Entry highly instructive. I would also add Stanley Kroll's Futures Trading Strategy to that list. Support and resistance, highs and higher highs, lows and lower lows, and most important: buy pullbacks in uptrends and sell rallies in down trends. The longer I trade and the older I get I realize just how complex is the matrix of experiences and materials from which I have learned to trade price action, but some of the basic building blocks are, in hindsight, very easy for me to identify. Again, kudos on a nice thread, divergence.

thanks DD folks this is an important read. That is the reason I returned to the line chart. It wasnt broken

Great posts from D & dd ...

... and I also feel we have to occasionally allow ourselves just a little space for "variations on a theme", because this in turn makes room for positive evolution of a method, even if that positive evolution comes mainly in the form of confirming what we already know & do.

If that makes any sense at all....

I am a little bit confused about which point 2 you mean on your pics, because the entry point is not at the point 2...in the first pic. ​

are there any other setups...hats etc? looking forward to more examples. I just want to make sure I'm looking at the same thing.

...btw, I'm now charting both candlesticks and line on close - on separate charts :



(and don't ask me what the paintbar is - something to do with volume-weighted ADX, but I can't remember and I just liked the template's colour scheme )

Nice jt I am using 10 tick rb

Since we have countdown indicator if price double tops or bottoms at 2 pt let it go like the 2b at 62

Hi Divergence,

I have following for a while now. I am trading live CL futures. I had always used the 13 range bar - I see that the rules have changed..

Forgive me for feeling sceptical about the change. But since you are the teacher -

Q) would you mind reassuring me that the new rules have seen better back test results than the original?

As of now I believe the rules to be a trend between 0500 to 0830 followed by your previous post.

Also - when would be best to sit on our hands? I have had a few losses on trades that in hindsight did not seem to be trending much. It starts of trending then starts ranging after new york open.

Q) Do we have a criteria that warns us of a possible ranging situation followed by a trending EU session?

Q) Can we take multiple continuation patterns within a wave? What I mean is,
if we are in a downtrend then
can we take 2 or 3 patterns back in line with the trend before a low gets taken out? or is it one pattern trade per low that is taken out

13 tick range bar is fine if price double top or bottom on setup let it go all rules the same

One more question, so we are not taking single candle formations? As in 2b's or 123's formed by single candles..