Archive for October 5th, 2009

Harmonic Trading

Posted on the October 5th, 2009 under Trading by berny

If you’ve ever wanted to learn more about a trading strategy called Harmonic Trading, which uses techniques like the AB=CD pattern, the Gartley pattern, and the Butterfly pattern, and much more — you should subscribe and participate in the new thread by George on the forum.

Here is the link to the thread:
http://forum.bigmiketrading.com/traders-hideout/898-harmonic-trading.html

The method assumes that trading patterns, like patterns in life, will repeat themselves.  Here are a few examples of some patterns, courtesy of HarmonicTrader.com:

The AB=CD pattern is a price structure where each price leg is equivalent. The Fibonacci numbers in the pattern must occur at specific points. In an ideal AB=CD, the C point must retrace to either a 0.618 or 0.786. This retracement sets up the BC projection that should converge at the completion of the AB=CD and be either a 1.27 or 1.618. It is important to note that a .618 retracement at the C point will result in a 1.618 BC projection. A .786 retracement at the C point will result in a 1.27 projection. The most important consideration to remember is that the BC projection should converge closely with the completion of the AB=CD.
The structure of the Butterfly pattern was discovered by Bryce Gilmore. In my experience, I believe an Ideal Butterfly Pattern, which requires specific Fibonacci ratio to define the structure – including a mandatory 0.786 retracement of the XA leg as the B point – offers more precise Potential Reversal Zones (PRZ) and more significant trading opportunities.  Also, the Butterfly pattern must include an AB=CD pattern to be a valid signal. Frequently, the AB=CD pattern will possess an extended CD leg that is 1.27 or 1.618 of the AB leg. Although this is an important requirement for a valid trade signal, the most critical number in the pattern is the 1.27 XA leg.  The XA calculation is usually complemented by an extreme (2.00, 2.24, 2.618) BC projection. These numbers create a specific Potential Reversal Zone (PRZ) that can yield powerful reversals, especially when the pattern is in all-time (new highs/new lows) price levels.
The Gartley pattern was outlined by H.M. Gartley in his book Profits in the Stock Market, published in 1935. Although the pattern is named “The Gartley,” the book did not discuss specific Fibonacci retracements! It was not until “The Harmonic Trader” was released that the specific retracements of the B point at a .618 and the D point at a .786 were assigned to the pattern. There are others who have assigned Fibonacci retracements to this framework. However, they use a variety of Fibonacci numbers at the B and D points. Despite these variations, the Fibonacci retracements that yield the most reliable reversals are the .618 at the B point and the .786 at the D point. Furthermore, the pattern should possess a distinct AB=CD pattern that converges in the same area as the 0.786 XA retracement and the BC projection (either 1.27 or 1.618). The most critical aspect of the Gartley is the B point retracement, which must be at a 0.618 of the XA leg. 

The thread is just getting started.  Come join us!
http://forum.bigmiketrading.com/traders-hideout/898-harmonic-trading.html

Mike

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Al Brooks fan? Want to learn how to trade without indicators?

Posted on the October 5th, 2009 under Trading by berny

Looking back, it is easy for me to now say that indicators are more of a hindrance than a blessing.  For new traders indicators are the devil.  They are like an addictive drug, you can never get enough.  Worse, they are teaching you all the wrong things about trading.  They are teaching you to rely on a squiggly line on a chart instead of learning to read true price action and understand what is driving the move.

If you are experienced and profitable trader, then indicators are useful tools.  But if you “grow up” on indicators, the lessons you thought you learned are almost all entirely wrong and need to be completely un-learned so you can make room for price action.  Indicator-less trading with nothing more than trend lines and support and resistance lines that you’ve manually plotted on your chart.

Whether you agree or disagree is not important.  There is much to be learned by viewing and understanding both sides of the argument, and few would dispute that Al Brooks is the definitive source for bar-by-bar pure price action analysis.

There is a great discussion going on the forum about Al Brooks and many other highly recommended authros and books that focus on trading without indicators.  Come check it out, and join in the discussion — but only if you want to improve your trading.

Link:
http://forum.bigmiketrading.com/general-discussion/734-book-discussion-reading-price-charts-bar-bar.html

Mike

How to correctly use volume in your trading

Posted on the October 5th, 2009 under Trading by berny

First, if you are looking for a nice volume indicator that identifies key turning points in the market, check out the work from cory on the forum.  He has created the “VolumeStop” indicator, and in about one months time his v2 and v3 of the indicator have received about 500 downloads.  It’s popular because it works well :)

Download link:
http://forum.bigmiketrading.com/free_downloads/ninjatrader/indicators/147-download.html?view

Second, whether you’re looking for hand holding and are just getting started with Volume, or you want a deep insight and analysis of applying volume to your trading, you should check out the thread by cunparis.  Cunparis is trading with a minimal set of indicators, and let me tell you — that is the best way to trade.  You can learn a lot from this thread, so go check it out and get involved today.

Here are a couple of screen shots from his thread:

Here is the link to the thread.  Get involved today and learn something incredibly useful:
http://forum.bigmiketrading.com/general-discussion/634-how-use-volume-your-trading.html

Mike

Need 5+ years of historical ES tick data?

Posted on the October 5th, 2009 under Trading by berny

If you are in the market for over five years of historical tick data for the ES (S&P 500 e-mini), then head over to our VIP section on the forum.  You can download it there for free (if you are a VIP member).

On a side note, if you’re wanting to split the cost of some historical tick data for CL (Crude Oil futures), drop me a line on the VIP forum.  We’re looking for people to split the cost.  I only have about six months worth and am looking for a few years.

http://forum.bigmiketrading.com/elite-circle/

Mike

Creating a successful automated trading strategy

Posted on the October 5th, 2009 under Trading by berny

I have my opinions on how to create a successful automated trading strategy. My experiences form my opinions.

But I’d like to once again invite you to share your opinions and experiences. I say once again, because back on my blog a few months ago there was a lively discussing on this topic, but now that the forum is in-place this is a much better way to share our ideas and theories on the subject.

So here is my list of initial questions. Please share your thoughts. Some of these questions are generalized. Some are specific. I think all are important.

—

  1. How many strategies have you created?
  2. Of those, how many would you classify as profitable?
  3. Of the ones you classified as profitable, how do you define profitability? How long of a period did you trade it cash before deciding it was profitable?
  4. How many strategies have you created in which you initially thought they were very profitable, but later discovered they were not (ie: curve fitted).
  5. Do you prefer to trade discretionary, mechanical, or automated?
  6. How many trades do you require in a backtest in order to feel the results are not curve fitted? (ie: 500 trades)
  7. How much historical data do you require in order to feel the results are not curve fitted? (ie: 3 months, or 3 years, etc)
  8. Percentage wise, how much of a draw down is acceptable when compared to total net profit? (ie: if net profit is 1,000 and draw down is 100 that would be 10%)
  9. What other criteria do your strategies need to meet in order for you to feel they are not curve fitted?
  10. Do your strategies rely on traditional indicators such as Moving Averages, Stochastics, CCI, Bollinger Bands, etc?
  11. Do your strategies rely on price action such as higher highs, lower lows, double tops/bottoms, pivots, day highs/lows, opening range breakouts, etc?
  12. Do your strategies have pre-defined stops in targets (ie: 8 ticks)? Or do they use a variable dynamic such as ATR or Standard Deviation? Or do you have no pre-defined limit and you exit a trade solely based on something from item #10 or #11 telling you to do so?

–

For my answers to the above, you’ll need to read the forum post.  I’d also like to hear from you, so please reply on the forum!

The discussion begins here:
http://forum.bigmiketrading.com/general-discussion/683-creating-successful-automated-trading-strategy.html

Mike