Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
Yes, Bob, it does, and I have considered that. For two years I have been following a price action trader live in his trading room. There are ways I have learned to differentiate the likelihood of a sideways vs. a trending market. Sideways markets are likely to have overlapping bars, lots of tails, poor follow through, a lack of consecutive trend bars, and often occur when prices oscillate around the twenty-bar moving average. Even more pertinent is when two or more moving averages are close together. Once these conditions occur, the odds of successful breakouts diminish to about 20%. Reversals are 80% more likely, so scaling in once if the trade moves against me increases probability. Twice, maybe, but I am not comfortable allowing any more than that.
The problem is that these conditions are mostly based on price action, so placing them into the strategy for back testing is beyond my ability. Friday, for instance, I knew we we in a sideways market by midday, so I completed the strategy during the day and tested it, with good results.
If the day starts off with consecutive trend bars with minimal overlap, and breakouts are successful with follow through, and the 20-bar EMA provides support (as well as the 20-bar EMA on the 1 - min chart, I would not even attempt to use this strategy until breakouts begin to fail and there is evidence that limit order counter-trend traders are starting to make money.
Therefore, as you say, back testing is problematic because my determining market direction is based on price action with moving average verification. ADX also adds some value. I can't code for price action beyond bars closing above/below their median prices.
Thanks for the reply. I answered it above. If you have any suggestions for making the computer recognize price action, let me know. I'm not being facetious. I have struggled this. I'm trying to combine price action with automated trading. I can often recognize market type, but like many, I let emotion cloud the execution. My goal is to let the computer trade the way I would if I could act like a computer.
You mention:
Sideways markets are likely to have overlapping bars, lots of tails,
poor follow through
lack of consecutive trend bars
prices oscillate around the twenty-bar moving average.
two or more moving averages are close together.
All those things can be defined and coded (although defining "poor follow through" will be tough).
Let's just take one of those:
"lots of tails"
1. Define what exactly is and is not a tail bar
2. Define what "lots" is
Just break all those in pieces, and code each piece.
In my opinion, coding those will not be the hard part. What will be hard is, after you program, you realize that many of those sideways "tells" are not as good as you originally thought... if that is the case, that is a major blow to your strategy.
Sideways action is easy to pinpoint in hindsight, but much tougher to see in real time.
Instead of focusing on infrequent trading (larger time frame) and growing the size of contracts if the method works, most want to do the opposite, i.e. choose frequent trades with small profits not aware of all the pitfalls that @kevinkdog and @bobwest mentioned.
Matt Z
Optimus Futures
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
1 800 771 6748 local 561 367 8686 email [email protected]
These are good questions. By "lots of tails", what I mean is that, on time frames smaller than the trading time frame, bars are not breaking out, but are reversing at or just above prior highs/lows. In other words, there are signs that computers are betting on reversals. So there would be lots of doji's, small bodies, hanging men and hammers, engulfing patterns, etc. Also, tall candles closing on their highs and lows tend to be faded rather than following thriugh. And the best indication is that support and resistance levels are holding and reversing.
I suppose the only way I can know for sure that I can rocognize it real time is to paper trade the strategy live.
My intent is to combine this strategy with trend following strategies on the higher time frame (5-minute) on a different account.
Thanks for the reply. I'm not exactly sure what you are saying. Markets spend more time in trading ranges than trending. On most days there is some point in time where the market is range bound, usually in the middle third of the day. This strategy looks for a trading range to short the top of a prior high and buy near the prior low and scalp for roughly 1 x ATR, with a scale in 2 X ATR beyond the entry. The range needs to remains within 32 ticks of the entry to avoid a stop out. This is a pretty common pattern.
Yes, I agree that markets are range-bound, but one-minute signal based systems require hosting, direct API and exchange memberships to lower costs. They rarely work for regular retail.
Matt Z
Optimus Futures
There is a substantial risk of loss in futures trading. Past performance is not indicative of future results.
Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
1 800 771 6748 local 561 367 8686 email [email protected]