The transition to Futures trading

[kid hustlr]

I'm finding that with the breakout ones. I've narrowed it down to 3 main setups for me. I've been deceived many times with false breakouts and have wised up to this a little.

If I get time ill post a few charts explaining what I mean.

Interested to hear TH thoughts also.

How did you go last night?

didn't take a trade. was looking for the long and the set up was there but I was a little gun shy so passed on it. Didn't feel it was a slam dunk at the time. As tech said a lot of noise last night. nothing wrong with sitting my hands

 

[pavilion103]

didn't take a trade. was looking for the long and the set up was there but I was a little gun shy so passed on it. Didn't feel it was a slam dunk at the time. As tech said a lot of noise last night. nothing wrong with sitting my hands

Very good decision.

 

[havaiana]

...

Are there any occasions when obvious break out trades should be taken or do you find the best 'break out' trades come from identifying the chance they will break BEFORE they do and getting on them BEFORE HAND.

I'm not Tech or TH, but I reckon determining likelyhood and the strength of a break, besides time of day and fundamental factors, is just to determine the likely positioning of the other short term traders and technical traders in the market. Some obvious ones like:

- The more times a level has been hit without being broken, the more stop orders that are building up on the other side
- If there is a false breakout on one side of a range it increases the number of stop orders on the other side of the range
- As a trend is slowing down, there are less and less people prepared to enter with it late or they are already in and then (picture a trend line becoming less and less steep) the closer the stops under the lows/highs are coming to eachother the more likelyhood of a self feeding stop cascade

Just principles of where people in the market will be entering and exiting and where it may be causing liquidity gaps or one sided orderflow in the market (or a lack thereof)

IMO a way of determining a successful breakout is simply that the further it breaks out and more time the less likelyhood of it coming back.

Edit: I actually try to make a story of what is happening by looking at the market from 4 perspectives as it's unfolding
-If I'm long where are the spots I would be exiting, and then the same for short (where are the take profits, where are the panic points)
-If I had a massive market moving buy order to work into the market how would I do it cheaply, and then the same for a sell

 

[kid hustlr]

Really good thoughts hav, printing now

 

[peter2]

Another classic newbie mistake: Thinking you know what is going to happen next.

" ... the set up was there but I was a little gun shy so passed on it. .... nothing wrong with sitting on my hands

" Very good decision."

If you see your setup and don't take it. That is a big trading mistake. It is most definitely a bad decision and wrong. Now that you see the trade would have been a loser you convince yourself that you know what's going to happen next. You think you can spot the setups that will and wont work out. I bet you can't.

Obviously "your" setup isn't yours or more likely you don't have the confidence to take "your" setup. If there was something about that setup that you didn't like then make it a part of the guidelines for a perfect setup. You mentioned a lot of noise. It might be that your setup works best in situations with low volatility. Find out (research) and if that's right you have learned an important confirmation filter. Add it to your setup checklist.

You won't get any better relying on your emotional responses. Search for the facts and base your decisions on them.

 

[pavilion103]

I meant good decision not to place any trades in a choppy market last night if it didn't look like there was much there.

Better to take fewer good setups than looking to make a setup out of everything.

 

[kid hustlr]

The trade would have been a 20 tick winner fwiw.

I didn't take the trade as I had not seen this particular set up in that context before.

EDIT: I do recognise the confirmation bias or results orientated thinking you are getting at.

 

[tech/a]

I meant good decision not to place any trades in a choppy market last night if it didn't look like there was much there.

Better to take fewer good setups than looking to make a setup out of everything.

There are setup's in all timeframes.
Even in noise.
Point Peter is making is its not a good habit of getting into.
Seeing setups and not pulling the trigger due to fear of loss.

If a setup appears and you would normally take it but you don't.---its not good judgement its fear.

However if you've perfected your discretionary filter of setups to return 100% accuracy then ignore my babble!

 

[Caveroute]

Another classic newbie mistake: Thinking you know what is going to happen next.

" ... the set up was there but I was a little gun shy so passed on it. .... nothing wrong with sitting on my hands

" Very good decision."

If you see your setup and don't take it. That is a big trading mistake. It is most definitely a bad decision and wrong. Now that you see the trade would have been a loser you convince yourself that you know what's going to happen next. You think you can spot the setups that will and wont work out. I bet you can't.

Obviously "your" setup isn't yours or more likely you don't have the confidence to take "your" setup. If there was something about that setup that you didn't like then make it a part of the guidelines for a perfect setup. You mentioned a lot of noise. It might be that your setup works best in situations with low volatility. Find out (research) and if that's right you have learned an important confirmation filter. Add it to your setup checklist.

You won't get any better relying on your emotional responses. Search for the facts and base your decisions on them.

Yep.

The problem with cherry picking is you always pick the bad cherries.

It's a game of probabilities after all.

 

[pavilion103]

Of course. If its a setup in terms of the context of the chart that you have decided you will always take as part of your trading plan, then it's a bad idea to pick and choose when you will take it. It's predetermined that you will always take these when they appear.

 

[tech/a]

Long 50
Same DAX 81

 

[pavilion103]

Only one decent trade that wasn't stopped near BE.

Short 6473
Out 6455

 

[tech/a]

Stopped at B/E on both

 

[kid hustlr]

FTSE finally popped that 6480 level, ran up to 6500 then got turned around pretty quickly.

Kind of just bouncing around in a range the last few days. Question is which way will it break

 

[Trembling Hand]

I get the impression (especially from you TH) and also reading the FX thread(s) that most typical 'break out' trades simply don't work often enough to be +EV. Would you agree with this comment? TH you obviously have the most experience with this and I feel like whenever an obvious break out trade is apparent you feel its a 'retail sucker play' and it will just get reversed pretty quickly.

Yes, successful break out trades are the least common set up in futures markets. I think newbies struggle with this when they come from a stock picking back ground and expect Index futures to act the same way. When you trade stocks you look for momentum setups and play the carry on from that momentum. Indexes rarely work the same way. That is because of the constituents that make up the Index. To have a true break you basically need at least 50% of the constituents to be behaving as break outs and then going on with it. Its very rare to have that setup.

You do get very big pushes in directions but my guess (I'll get to this later) is that 80% of the time you will have some reversion back to the mean after a certain time. That is because even if the strong stocks that keep going the weaker ones will start to fail and pull the index back robbing the overall index of momentum.

I find the best set ups for me are the ones where I fade the highs/lows (because of various factors/reasons) or I identify some good continuation patterns and am able to jump on board.

So do I. in part because you can have a stop that is very/relatively tight and more importantly you get so many more setups. A small edge repeated 20 times a day is much better than one that appears once a week.

Are there any occasions when obvious break out trades should be taken or do you find the best 'break out' trades come from identifying the chance they will break BEFORE they do and getting on them BEFORE HAND.

As to my 80% chance of a break failing I have some time ago tested the times when you have a large range day that starts at one end and ends at the other. There usually is only 2 or 3 per month. If that is your setup and you only win 50% of them thats going to leave you with either not much to do all month or getting cut to bits playing a setup that hardly ever turns up.

With that said it obviously can make a huge advantage if you can recognise when to play that way. To catch a 2% move in an index or greater and hang on with some size can make the diff between long term success or failure. Especially if instead of riding it you fight it all the way and smash your account.

So with intraday this is really the essence of long term success. Learning to read what "type" of market we have and how long that will stick. Whenever I hear good traders talk about their upcoming trades or their approach to the day I rarely hear them talking specific TA "patterns"...... they talk in themes.

 

[5oclock]

Great post TH, thanks

 

[kid hustlr]

 

[CanOz]

More GOLD there TH...file away for a big reference thread one day....

 

[pavilion103]

Yeh, Learning a lot from TH in here.

 

[tech/a]

I'm hopeful we can get some good discussion around this topic

Yes, successful break out trades are the least common set up in futures markets. I think newbies struggle with this when they come from a stock picking back ground and expect Index futures to act the same way. When you trade stocks you look for momentum setups and play the carry on from that momentum. Indexes rarely work the same way. That is because of the constituents that make up the Index. To have a true break you basically need at least 50% of the constituents to be behaving as break outs and then going on with it. Its very rare to have that setup.

Breakouts occur all the time in all timeframes. Id argue that pretty well all trades are looking for a move in the direction of the trade taken. This will involve either a break up or down or a continuation from a reversion of a break in a lesser time frame.
I would argue that a PROLONGED and SUSTAINED breakout either long or short wont occur in INDEXES unless
something on the Macro economic front occurs in and around the bourse being traded.

You do get very big pushes in directions but my guess (I'll get to this later) is that 80% of the time you will have some reversion back to the mean after a certain time. That is because even if the strong stocks that keep going the weaker ones will start to fail and pull the index back robbing the overall index of momentum.

Yes this does happen--really then trading away from the Daily, Weekly, Monthly range and the mean on a timeframe basis Daily, Weekly, Monthly should be part of any analysis. Similar to that which Frank is involved in.
Add that to Current support and Resistance levels in all timeframes and we have analysis which should be more likely to indicate direction.

So do I. in part because you can have a stop that is very/relatively tight and more importantly you get so many more setups. A small edge repeated 20 times a day is much better than one that appears once a week.

Fading Breakouts works --- a given until it doesn't. Even fades fall back into losing positions if the trend is continuing and not reverting---again analysis at that point in time and in that timeframe.
Last nights FTSE traded well for 5 ticks on some fades (Other than the open) and continued often to lengthen the current trend. Personally I think fades are as subject to movement back to the mean in both range and time as breakouts.

As to my 80% chance of a break failing I have some time ago tested the times when you have a large range day that starts at one end and ends at the other. There usually is only 2 or 3 per month. If that is your setup and you only win 50% of them thats going to leave you with either not much to do all month or getting cut to bits playing a setup that hardly ever turns up.

There are many stats Id love to know--this being one. How long a trend stays in motion once its moves X in Ticks and/or in Time Y is another.
Literally 100s of what if's---shortly Kris and I will be able to answer these questions.

With that said it obviously can make a huge advantage if you can recognise when to play that way. To catch a 2% move in an index or greater and hang on with some size can make the diff between long term success or failure. Especially if instead of riding it you fight it all the way and smash your account.

There are many ways to index trade and often seemingly contrary to each other.
Positions can be held both long and short at the same time. I agree not enough is done on trade landscape by myself when it comes to plotting a strategy on the indexes. I would suggest that many are like me who see a setup in isolation and take it---without consideration or analysis of Time/Mean or Range.

So with intraday this is really the essence of long term success. Learning to read what "type" of market we have and how long that will stick. Whenever I hear good traders talk about their upcoming trades or their approach to the day I rarely hear them talking specific TA "patterns"...... they talk in themes.

Type--yes and then the current landscape of the index relative to where it is in time and mean will determine trading---well it should!

Lot more work here around 500 hrs. I reckon.
Looking at Multicharts and fortunately Kris is conversant in C# and C++
I look forward to this leg in my journey.

Interested to see what others have found.
If anyone has spent time investigating Todd Kreuger (Wyckoff Based)
His trade setups are strongly based around the likes of that being discussed.