I am very skeptical about TA and PA on their own for choosing entry and exits. I guess it is quite obvious to say that everything would depend on how you manage your risk.
Maybe I’m wrong, but I don’t think that is something that is talked about enough on here: the best approaches to risk management that is, although I did have a conversation about a pyramid system recently that sounded quite interesting. I think something like that would be useful if you are looking for sharp breakouts or spikes in one direction or the other.
True… however when you chart hypothetical support/resistance levels yourself and days or weeks later price bounces off exactly those levels then you know that TA is not all pie in the sky, that price does show repetitive behaviour at certain levels for some time and so it is then our job to be able to profit from entering trades near those levels…
I cannot comment on options as I do not have any knowledge in that area, but it sounds like you have a plan!
Thanks for the post. I have tried the Pivot Cross support and resistance before. I built an EA around entering trades based on those levels although the levels were determined using the standard formulas rather than human input. I tested the model to try to find the predictive quality but the results were not encouraging.
I also tried using the Pivot and R1 & S1 etc… intraday levels from research analysts; I stored their daily research on the support and resistance levels across the majors for a year and analysed ways to trade around the prescribed bias and also for the event the market went in the opposite direction.
You would think that a team of research analysts with more human capital, collective experience, technology and market site resource that make a living out of selling trade ideas would do a better job: Nope.
The evidence pointed to only the most fractional edge. If you could turn a 1:1 trade into a 1:2 whilst retaining the same edge, or the same probability of winning or losing on the other hand, then yes you could use those tools to assist with deciding which way to go for each trade, I think that makes sense.
I prefer shorter term trades despite the fact that I think longer term trading the fundamentals has more edge potential.
If you automate then short-term may be an option but for hand-trader wannabes like me, with limited time, it is all about the swings or trend…waiting to catch (some/most of) the larger moves with the higher profit probability.
I like that you tried automating set-ups based on analysts’ pivots/levels and it provided very little edge, because at least you sought to put that information to the test yourself.
I think I agree with you on the swings and trend. I am trying to introduce that into the mix of trading that I do. Trend following is potentially very profitable whilst also being relatively easy to do, but the problem as always is gauging the reliability of the setup at any given time.
Most of the time as u know the setups break formation and the trend or swing doesn’t materialise. I found short term trend trading political news to be the best so far for reliability - US Elections, Italian Referendum etc…
Volumes as well increase reliability as u know so i prefer to use a VWAP rather than SMA. I had a quick look at the auto correlations for the change in VWAP compared to SMA and it was 20 times higher SMA came in at under 4% in most cases - that was SMA 14 on the H1 candle.
The auto correlations for SMA 50 or above is usually about 80% or more, but then what does that really ell you. It would make sense that an SMA 50, changing from one period to another would correlate better than SMA 14 as the price that is introduced is just 1/50 of the input for the calculation, so is it really a better predictor.
A surprising number of successful, professional traders (both institutional and retail, and however much you might disagree with then, they’re not fools) would disagree with this comment.
For myself, I happen to agree with you, so I’m not trying to suggest that you’re mistaken, just that you might want to be aware that you’re giving opinion, there (yours and mine!) and by no means making an objectively proven statement.
Me too.
But I’d suggest that you do make sure, if using volume, that you’re using it to trade something for which meaningful volume figures are available. Spot forex isn’t one of those things. Don’t imagine that your own broker’s “volume” has anything to do with the interbank market: that really would be a mistake. Futures are another matter, obviously.
I don’t know. I don’t ever try to predict. I gave that up about 5 years in to my trading career. That helped me.
NZDUSD has been in a wonderful uptrend on the H4 for some time, which now seems to be reversing, I got in short at just the right time it seems, where the change in the moving average 50 bars was at a turning point and the price broke our of the 3 sigma.
I tried to hedge the downside till March 14. So far so good, but we will have to see. Do you breakout trade? I am looking for new entries on this method. So far I have:
Indicator with the change in the MA 50 - when the change crosses zero so there is a trend direction change or if you’re unlucky just an inflection point.
Short term confirmation with the Stochastic at 15,8,8.
Breakout from sigma 3 on the price action
I’m going to spend the next couple of months putting together better signals for the breakout. a lot of testing to do. I am looking for ways to predict the magnitude of the move as compared the to 14 bar ATR in between trending periods.
I am sure there most be a property to determine that as ATR usually correlates pretty well and this is the ATR effectively with the only difference being that the time intervals are not fixed to single bar units.
There is precision, depth, complexity and statistical thinking in your approach, but it is all a bit of an unknown to me (sigma, delta, options, etc.) so I really have nothing more to contribute here, and
I do not trade breakouts either.
However, I will check into this thread from time to time, and I look forward to seeing what you have posted.
I got into institutional trading in the late 1980’s (when it was much easier than it is now!).
I made the mistake of retiring early with almost no hobbies (and very little family) and am bored. I trade forex futures (and some spot forex, still) from home, so I’m a “retail trader” like most here.
