My open book trading plan - Two month test

[Chorlton]

My system testing clearly shows that taking a trade during low volatility periods greatly increase the risk/reward benefits of a trade. As an example, if you measure the distance between an entry and initial protective stop level, then only take trades below X$, then you will find that the results will be a lot better. As an example, calculate the dollar difference between a channel breakout and its stop; assume 50-day entry and 13-day exit. If that amount is less than X$, then take the trade. If it's more then forego the trade.

Hi Nick,

Just for my clarification, given the difference in price for each potential trade, wouldn't you want to ensure that trades taken were below x %, as opposed to an actual x$ amount?? eg. If the entry was $100 and stop $95then = 5% difference.

Also, would this exercise be carried out in place of calculating your R:R ratio or in addition to it? ie. as a final step before commiting to the trade.

Thanks.....

PS. As another poster has commented, I'm also learning a lot from this one thread!!!

 

[tech/a]

Nick.

Yes I do remember that presentation.
It was at that or the other one that I had MY AHHHHA!! moment.
Courtesy of yours truley.

 

[motorway]

ok guys here is MRE. I had posted about it in the potential breakout thread where Can suggested me to discuss it here along with my R/R and profit target. I liked his idea so here it is.

Now provided I buy it (on paper) at tomorrow's open at $7.69 my first target and expected resistance is $8.61 and stop loss trigger is at $7.02. Now this is 9%, but I generally use 3% as stop loss. The 7.02 is based on the support line.
Based on the support line stop loss, the R/R would be 1.33:1 , not good enough. but if using a 3% stop loss the R/R is 4:1 . Is my calculations correct ?

Also the volume is speaking another story...

What story is the volume speaking
I guess from the context you mean weakness ?

But what about the context of the action on the chart ????

I will come back to this
But You tell Me ?

What do the high volume bars starting with the first red arrow
indicate ?
What happens to the price action from that point
ie what story do the bars reveal ?

The second and third arrows "Kiss and tell "

The last arrow is narrow spread and low volume..
What is it's position . To be where it is what does it reveal ?

All that puts the last bar in context and qualifies that low volume as Not that low...

I mentioned waiting for clarity

This chart has a high level of clarity...

motorway

 

[motorway]

Ok, well to be honest, since i've started using Fibb on triangles to calculate R/R, i can't really to get too excited over anything less than 3:1.

On triangles, i'm putting my stop usually just below the apex, i can't get any closer than that realistically.

The chart i posted, MCR, has a decent R/R to the secondary target (6.8:1)...i guess i'm looking for some advice....a bit unsure, but at the moment i think i'm needing 3:1 to enter a trade...provided i've used the proper stop level etc.

Thoughts?

Cheers,

Just taking the "character of the action"

Esp comparing the last bar to the action at and from the high

How much demand do You think is evident

JUST RIGHT NOW ?

motorway

 

[CanOz]

Just taking the "character of the action"

Esp comparing the last bar to the action at and from the high

How much demand do You think is evident

JUST RIGHT NOW ?

motorway

Sweet bugger all.

 

[R0n1n]

Motorway
volume wise I ment: buying volume has been high but not above average for today, probably not enough sellers ??

The context of the chart action for today is positive. Buyers controlled the price action from the first trade to the last trade, so should I read this as what ever was offered today was taken by buyers ?

I understood today's action (atleast I think so) but can u explain the red arrow you have drawn and your interpretation.

Also would this qualify as a low risk entry with a 2% or 3% stop loss ? If it does then my scan is doing a good job, if not I need to work on it more ... hmmm...

 

[motorway]

First arrow
Is preliminary support

The down move was in full swing
If all the following had been on that down move

It would have been look out below

But We get a very high volume bar
And from that point the price does skid to a stop
The vol remains high
but the stride lessons
There is significant accumulation
occurring as the last distressed sellers reach for the bids

Those sellers have to reach less and less

The second arrow
is very low volume.. running out of sellers
narrow range.... demand keener to meet supply
close in the middle.... demand even reached UP

From here bars are more ordered
In the small range they clearly trend
The third arrow is where the downside line in the sand is given a good test
Price breaks that low
Some supply is shaken out

But look at the range and the close
demand must have absorbed and chased supply all the way back to the top of the bar...... This is a spring.

The last arrow shows the price action coming to a dead centre

volume is low,, range is narrow even the close is in the centre of the bar..
A hairs weight of demand will have prices moving UP

We already can see that there is No more supply..

The stride down has completely stopped
volume has subsided

So the last BAR While is not such high vol
shows demand willing to reach to a good extent

the only way to get more volume
Was for the buyers to reach even higher
and make things even harder for themselves

The last BAR suggests a supply vacuum cause by real accumulation
some of which was accomplished in the trend down..

Today would have been a good entry early
and maybe You could have got a good R/R

Buying tomorrow
You could work off an hourly chart ( or less )
and that would give You clear support at $7.55

Short term buy points
were at or after the spring
and at or after dead centre

This stock started to outperform the mkt
from the 21st



Now You are chasing the move somewhat
Keep an eye on the tide of the mkt
watch for the depth of any reaction and the volume

here is another look
first stop $8.60 ?


motorway

 

[nomore4s]

Motorway, thanks for your patience.

I think the penny is starting to drop but it may take a while longer yet to fully sink in.
I know you've just explained it but I will try in my own words to see if I actually understand.

The block between the first arrow and the second arrow shows prices edgeing lower with wide rangeing days and very high volume for the whole block. I take it this an example of strength in price weakness? With the strength slowly soaking up the supply.

It's amazing how suddenly the vol just drops off and the ranges tighten up.

The 2 red circle days with the higher vol look to be the final thrust of the remaining sellers again with the demand soaking it up and then the following days vol dropping off again with narrow range days.

The 3rd arrow day stands out like a sore thumb when I know what to look for.

Now I've got to try to learn to apply this in my trading, lol.

 

[motorway]

Now I've got to try to learn to apply this in my trading, lol.

Like any skill You can learn it with
sound principles and consistent practice..

The Mkt will give You good feedback...

Think Of price seeking volume
and when it finds it fleeing volume

The problem at first
is seeing enough context

If prices move UP and find volume
There is some supply some element of distribution
If prices move down and find volume
There is some demand and some element of accumulation

When price finds volume
What happens then

Does strength or weakness develop ?

Always be interested when a range forms
There is equilibrium that will only last so long..

look at bars
But look as You have done at groups of bars

Think of each rally
and each reaction
as bars

Look for where the current close is
Where is it positioned
How did it arrive there

In context of a bar
a group of bars
a rally
highs and lows
across different time frames and magnitude of moves

What is the trend

Up
down
sideways

defined by highs and lows of a certain magnitude

And then what is the current position in that trend
and what is price doing right NOW..


half way points are the measure of all things
the close in relation to the halfway point of the bar, rally, reaction , wave,
etc you are only seeing waves of buying and selling really

note the halfway points on the charts above

Always look at the opposite side of the action and the chart
looking to go long look esp at the reactions
looking to go short look esp at the rallies
look at the ease of the movement
look for change in behaviour

catch moves early
By recognizing the strength in weakness
and the weakness in strength

Without trying to bring a mystical overlay

Think of the Yin/Yang Symbol

You know the one

The "Grand Ultimate"

Of two forces
demand and supply
each containing the seeds of the opposite
an excess of demand moves prices Up but will create supply
an excess of supply moves prices down but will create demand

Between demand and supply is the flow of price a wavy line a wave
following a cycle of accumulation markup distribution markdown
a wave swinging between overbought and oversold

Did You know that a liquid efficient mkt is deemed to be efficient
if price is not less then 50% of value nor more than 200% !!!!

No wonder smart money has so much to work with

principle is something always correct
it only needs correct application

Principles are timeless
and hence things discovered



sound principle
thorough application &
practise practise practise

And the charts will end up speaking to you
You will grasp them intuitively

like riding a bike..

A reader of the tape

mastery is a journey not a destination

You will always get better..


Think of every movement of price and volume
as both a response and a future test



cheers
motorway

 

[CanOz]

Well, i've made an exec. decision to buy MRE at market this morning..provided it doesn't GAP up. If it does, there may be another opportunity.

Also, Motorway, further to lack of followup volume on MCR (sweet bugger all), are we looking for confirmation of the confirmation? The breakout of the triangle was confirmed, we simple had to purchase at market the following day. That day turned out to be a fizzer, but also to note that with the lack of demand, there was also lack of supply.

Your thoughts on this?

Cheers,

 

[R0n1n]

Motorway, once again THANKYOU

I guess I should have reacted yesterday when I saw MRE, but it will take me more time to full grasp the charts as you do.

And thanx to Can for starting this thread and asking questions.. I will post more charts as and when I think I have found a good candidate.

 

[Nick Radge]

Chorlton,
Yes percentage of share price is ok in this context. My dollar value came from risk on account. If the trade risk did not fit my own risk, then rather take an artificial stop loss level, I'd stand aside completely.

 

[CanOz]

heres an update on how we're doing:

 

[vert]

First i would like to thank can for starting this thread and all the others for their knowledge. i am finally starting to get my head around how to read price and volume which should stop me from entering trades to early.

After looking at a few of the charts posted ealier i also liked the look of MGX and that it is an iron ore play which is running hot at the moment.

first it is in an up trend channel and has bounced well off the support line twice with sideways consolidation in between.

currently looks to forming a pennant as it is nearing the support line again
volume suggests that profits have been taken and now there are buyers coming in
yesterday i put a buy in at 1.27 and got filled at the end of the day, probably a bit early still on the entry if i wanted a better R/R set up but i have a set amount that i wanted to put in (very small capital on cfd)
initial stop at 1.17 then trailing stop a close below channel support line
no real target just when it gets to the top of channel anywhere between 1.50 to 1.70 if it goes the right way of course.

any other views greatly appreciated

 

[motorway]

Well, i've made an exec. decision to buy MRE at market this morning..provided it doesn't GAP up. If it does, there may be another opportunity.

Also, Motorway, further to lack of followup volume on MCR (sweet bugger all), are we looking for confirmation of the confirmation? The breakout of the triangle was confirmed, we simple had to purchase at market the following day. That day turned out to be a fizzer, but also to note that with the lack of demand, there was also lack of supply.

Your thoughts on this?

Cheers,

If there is a lack of demand ( where We were looking for some to turn up ? )
What happens when the supply does turn up ?

Review the context . From the "Top"
What is
The compelling argument
for taking a long or for taking a short and when
There are two sides to a story

Giving both proper due..

What is the verdict. IS it possible to have one atm ?

motorway

 

[tech/a]

If there is a lack of demand ( where We were looking for some to turn up ? )
What happens when the supply does turn up ?

Review the context . From the "Top"
What is
The compelling argument
for taking a long or for taking a short and when
There are two sides to a story

Giving both proper due..

What is the verdict. IS it possible to have one atm ?

motorway

Beat me to it.
I was going to say from those bars shown on this chart relating them to volume and Range,tell a story about what its telling us.
From the build up to the last high until now.
With the view of answering Motorways question.

What is the verdict. IS it possible to have one atm ?

 

[CanOz]

With the view of answering Motorways question.

Sellers, then no demand, looking more like a descending triangle...bearish for now.


Cheers,

 

[vert]

ok tech/a i will try to answer this, i might not have a clue yet but here goes.

demand was met with supply up to 26/06 above ave vol short range
supply took over 27/06 wider range larger vol
supply searched searched 28/06 same range as 27/06 low vol
demand searched 29/06 same range a bit more vol
supply won the day 2/07 same range huge vol which means it was met with alot of demand as well
3/07 supply met with demand low vol
4/07 supply almost met with same amount of demand on more vol

so overal the supply is runing out and the demand is coming in?

and todays action not finished yet but looks positive, more vol would be better.

chart a bit delayed but while typing this the sp is at 1.315(green line )

 

[motorway]

ok tech/a i will try to answer this, i might not have a clue yet but here goes.

demand was met with supply up to 26/06 above ave vol short range
supply took over 27/06 wider range larger vol
supply searched searched 28/06 same range as 27/06 low vol
demand searched 29/06 same range a bit more vol
supply won the day 2/07 same range huge vol which means it was met with alot of demand as well
3/07 supply met with demand low vol
4/07 supply almost met with same amount of demand on more vol

so overal the supply is runing out and the demand is coming in?

and todays action not finished yet but looks positive, more vol would be better.

chart a bit delayed but while typing this the sp is at 1.315(green line )

supply won the day 2/07 same range huge vol which means it was met with alot of demand as well

compare this "supply day" with the one on the 27th

Should tell You a lot
about the dynamics

What Can You see ?


Also keep the context of a significant move already
It is OK that someone wants to take profits

An issue here is readiness to move



motorway

 

[vert]

both days 27/6 and 2/7 closed at 1.28 with the later having more 1 1/2 times the vol of the first

so demand is still strong and willing to keep paying that and above?

the move (from 13/6) already has been on ave vol with some wide range up days closing on their highs - demand seeking supply?