031111
Although stops can present some
difficulty in DAX, particularly for inexperienced traders, the
following may be helpful to consider. One useful way to look at this, is terms
of risk/reward. For anyone who has traded the DAX and studied its
tendencies for a period of time, patterns of behaviour will emerge which
can be capitalised upon to reduce risk and extend potential reward. For
example, the DAX's has a natural tendency to move in or around 10
point increments, once momentum finds direction. For example, once the
market begins to move, then it usually does so in 10 point
increments (10, pts - 20 pts - 30 pts), etc. This is why RB1 in the
DAX is such a good trade, as momentum brakes either side of the 1st 30
min bar, then statistically, there is a high probability that 10 points will be
made.
If the market continues its direction,
then it is likely that the 20 point area will be reached and so forth. I do not
know why the number "10" (10 Pts) is important in the DAX, but
the astute observer will notice that it is. So now, since the RB1 trade
is statistically valid, the tendency of movement in 10 point increments
can be utilized for logical stop placement. If the trader is using a
previous 30 bar to pivot off for entry and is only willing to risk 10 pts, then
this can be a useful stop, if operated with a clear trading plan to maximise
the tendency of 10.
One example of this would be to enter
at the brake of a previous 30 min bar, say RB1. If the market follows through,
then wonderful, you have a winning trade, however, if it does not and you get
stopped out, other aspects of one's trading plan can come into play.
If you are stopped-out, then the market decides to continue in the
original direction, a stop can be place to re-enter where you originally got in
(there is a high probability here that you will recover your 10 pts and if
the market continues to 20 pts, that you will come out on top). If on the other
hand, the market has clearly reversed, the trader can also reverse and enter
from the opposite end of the reference bar on a stop. Again, there are high
odds that the market will continue in this direction, with either recovery of
loss or additional gain.
Occasionally, the market is in
consolidation and this will not work and loss will be double. If you are
risking only 10 pts, then this loss is kept very much under control. If the
trade works 80% of the time, then these are good odds and the trader will not
mind the inevitable time that this will fail. For the trader with a bigger
account, then 20 pts stops may be more appropriate as the risk/reward is moved
into slightly higher gearing. As with all trading plans, the market must be
analyzed correctly or qualified before entering a trade.
031108
Ron, your messages are great!
I note they contain great insights.
Would
you like to share them with those who follow FuturesTalk?
We could name it Music if you like...
like "music for the trader's ears... and we ugly Americans will
graciously accept your funny spelling.
By all means, post the email comments if
you so wish under Ron Lister if you feel they will be helpful to others.
You may wish to correct any of the typo mistakes, since these
were unchecked notes. To be very honest with you, I have little
interest in participating in the traders' chat room, since when I am
trading I wish to remain focussed. There is a great tendency these days for
trading chit-chat and more often than not, it is of little real
value. This is not meant to suggest your chat-room has no value, I'm sure it
has and performs a valuable service. It is more that I take the
view, if I trade, it should be unbiased and based on my own
observations of the market. I have learned over the years not to put myself in
the position of being influenced by other traders and their views.
This is distracting at best and at
worst you can end up taking positions based on others' opinions which are
invariably wrong. In short, If I trade, then I choose to do so without any kind
of distraction, following my own train of thought and market
view. I chose to respond initially (since your were persistent) to
express a view which I though you may find helpful in respect of
your trading of the DAX. Just giving you possible alternative
ways to look at some of the characteristics of this market, which may or
may not help eliminate some of the risk and increase potential reward.
Last year there was a noticeable lag
between the S&P and the DAX (in main hours) which could be capitalised
upon. This year the lag, if any, is almost imperceptible; the European traders
have wised-up and will hang the DAX newbie out to dry. In fact, a case could be
made that the smarter Euro Day-Traders are already taking money out of the
pockets of people in the US who are cross-trading the DAX &
S&P. It is their market, they know it better than you or me,
they see clearly that the DAX market, at certain times can lead
the S&P. Guess, what happens? ......the lag becomes reversed and
they can have a feeding frenzy off the good-old-boys in the
USA!
031108
Richard, if one is patient
and can anticipate possible momentum set-ups in the DAX , then 20 points
can often be bagged, without difficulty as a realistic target. However, as
you point out, to play for 10 points on RB1 is a good strategy, that
is, trading off this 1st 30 min bar. If there is greater than normal
buying/selling pressure forcing the brake of the 1st 30 min bar and your
trade is triggered quickly, this indicates there is likely to be a sustained
push in this direction. Often this is news or sentiment driven.
You may not know what the news is
(remember early morning is Europe's turn to be boss), but this is
irrelevant for you as the trader in this scenario. You are simply noticing
momentum increase in one direction and want to capitalize on this opportunity.
You have your trading-plan already, which is trading the brake of the 1
DAX 30 min bar. So, all you have to do is note momentum or the buying and
selling pressure of the brake. Time to brake the bar is also important. If this
is greater than normal and you can see a sustained push in the brake direction,
there is a high probability of 20 pts instead of the normal 10 pts. You can
also, apply additional strategy to lower risk.
If the set-up is there, place your
limit order to close out the trade at 20 pts, instead of the normal 10 pts. If
all goes well and you are near to or 10 points from entry in your favor,
then bring your protective stop to brake-even. This then becomes a no-risk
trade. you may get some retracing back but stay with the trade as long as
your stop is not hit, if it is still looks good. If however, say, you
are at or have exceeded the 10 pts and you begin to see hesitation (for
example at 15 or 18 pts), with clear bottoming/topping patterns
on the eMini and NQ, you may wish to bag your profit, by canceling the Limit
Order and exit at Market, hopefully with at least your 10 pts intact. Use the
smaller time-frames on ES and NQ to see any bottoming patterns occurring.
Please note though, the DAX is the Big Boss and will lead other markets at this
time, so again it is a question of being able to read the tape correctly.
I have pointed out other filters in
previous email to you, which are helpful to lower risk in the DAX RB1 trade.
031105
After a "trend day" (meaning
a big push in one direction or the other), it is good to be cautious the
following day and as you say, maybe a good day to play golf! Usually,
after the market has extended itself it needs to consolidated, which is why
there is generally a lot of "chop" following a trend day. This
makes for a bad trading environment and probabilities become lower of
successful trades. Whether you follow a system, plan or method is not the
issue here, as one needs to qualify your trading environment before entering
the market. In short, it is excellent you have the discipline to follow your
"trading plan" and feel good for doing so, however, I suggest you add
to this by introducing filters. Specifically, in this instance, your
filter would be - after a trend day where the market has extended itself,
be cautious about entry the following day, as there will be a high
probability of market consolidation (Chop).
Save these days for the golf or other
jobs you need to get done and take a brake. Think this will improve your
bottom-line! Another good example of filtering your trading plan, would be a
day on which Greenspan is to speak, since markets tend to be unpredictable at
such times and can knock trading methods out of kilter. You could of course
also profit by Greenspan announcements, but this would be by applying a
strategy designed for trading against news and not your normal trading plan.
The trend day is also an inverse of the classic narrow range day, so the
patterns are easily identified. The narrow range day (NR7) or narrowest day of
the past 7 days, will often lead to a trend day, since the market has undergone
contraction. The trend day itself (particularly where the range has been
extended past the norm), then leads to further consolidation, as the market
catches its breath. Applying this knowledge is useful and will flag for
you potential bad environment trading days or those "golf
days"!.
031022
As I live in the UK, the DAX is ideal
to trade. If I lived in your part of the world it would be a different story.
One thing I've learned in trading is that you need to be very focused, if
you're tired its easy to make mistakes. It is one of my rules not to trade if
tired or not relaxed in mind. I've learned this rule the hard way. The DAX
is wonderful to trade and has many characteristics which I feel are
advantageous for trading.
It tends to be smoother than the
S&P. Meaning when it moves, it does so in a more determined fashion and is
likely to yield 10 points or more in any swing. Ten points is a number to
watch in the DAX as it tends to move in these increments in general. The
daily range of the S&P is around 16 to 20 pts, the DAX is around 100, so
there is greater potential for profit. The risk reward is much better than the
S&P for my style of trading. Also I will not need me to point out that you
have to know or understand the personality of the market you are trading. It is
sometimes obvious which way the DAX will go, if you observe the buying or
selling pressure, relative to the NQ and S&P. The DAX will often lead these
days and point to the general direction of the markets It is helpful to
be looking at the DAX, NQ and S&P charts together (the roadmap is good
for this) on a 30 min frame.
I will then filter down to smaller
frames on my TradeStation to feel the pulse of the main markets, such as 210
tick,3 and 9 min charts, etc. Trading perceptions are difficult to
quantify and as I said in my previous email, this is usually the some total of
experience. One literally becomes intuitive about general tone and
direction. There are many other obvious things when trading the DAX, like
if the S&P and NQ have inside bars on a 30 min frame and the DAX brakes its
previous 30 min bar, it would not be a high probability trade entry. It is
better to see all braking previous 30 min bars or setting up to do so. If there
are several close by 30 min bars, with high or lows close by, this will
also increase risk as the nearby highs and lows are the immediate support
or resistance and the market can easily turn at these points. If you see the
DAX continuously "pushing" slowly in once direction, while the
S&P and NQ seem undecided, the DAX will usually be indicating the
true direction they will follow.
031021
Yes, in general I would say the DTI
course was informative and instructive. We all have differing trading
personalities and therefore one methodology does not fit all. My own style is a
highbred of many different techniques which I have learned over the years
and certainly DTI augmented this and has been helpful. Most notably, the
introduction to the DAX market and applying reference bar parameters. The
DAX is favored by me over the eMini and I trade this daily. I
find the risk reward better, the DAX has smother and wider movement than the
eMini and of late has even been leading the NQ and S&P. I believe in
trading, the only real thing that counts is experience and,
unfortunately: only time, effort and study will bring this about, not
necessarily a course or system, of which there are as may as stars in the sky.
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