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Back in the newbie days when things where nice and simple the way I understood it was you would enter at the VWAP with a stop at the PVP? (or was it a couple of ticks the other side perhaps?). |
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Yes. Simple trade simple stop. Only 1 complication. Profit target was arbitrary.
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You then introduced us to SD's With options of taking a trade there. At this time the stop would still be the PVP with the option of adding to your position at the VWAP. In fact a Whole section was devoted to risk tolerance. Again if I understand this correctly we decide what the maximum amount is we are ever to risk (based on account size) and then use market statistics (VWAP,SD) to enter and the PVP for a stop? |
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Correct. Still reasonably straight forward. I probably should have introduced the Shapiro Effect at this time to help eliminate bad entries.
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All well and good to this point however when you introduced breakout trades and counter trend trades I think a couple of different styles of trade management where also introduced. With BO's you would move the stop to BE as soon as possible? As an aside because BO's break and go you would consider entering these aggresively without waiting for the Shapiro effect? Also the way I understand it you would only do this at a BO of the SD band. A BO through the VWAP would be managed normally? |
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Yes this is essentially correct. Break outs are difficult to trade under any circumstances. It's still possible to use the Shapiro Effect if you get a retrace. If not, tough luck.
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With countertrend trades (symmetric distribution) you offer a couple of choices for stops - add 1 at the SD2 for a return to SD. -or- Stop and reverse if your trade moves against you for a journey to SD2 (I guess you are switching from counter trend to BO) Does this sound correct? Things are certainly a bit more complex than when newbie started out!? |
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Correct again. As you are seeing, the trade threads get more and more complicated and more difficult to manage. This does not mean you have to expose yourself to these more difficult trade setups, but you should be aware they exist.
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One other thing you mentioned briefly (can't remember where) I seem to recall you mentioning those with low risk tolerance could put the stop behind the Shapiro bar? Maybe I dreamt that. |
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I did say that, for those who feel queasy about risk tolerance trading.
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I also recall you saying you where 'conservative'. I wonder how you reconcile that with wide action points (I hesitate to use the word stops) particularly those introduced for 'newbie'? Especially in light of the paragraph that follows :- |
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Not sure what you mean by wide action points. If you are referring to days when the
SD is very large, don't trade those days if the
SD is near your risk tolerance. (We have had a bunch of those lately)
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Another thing about the Shapiro effect - if the tigger bar (the bar that touches the band) is of a wide range, we can end up giving away a lot of potential profit and adding to our risk (as your stop must be further). For example for a short at the VWAP if the bar comes from halfway between the SD1 & VWAP we give up half the potential profit and our stop is correspondingly further away while we wait for the low of this bar to be broken. Do you pass those trades or maybe not use Shapiro, or maybe drop down a timeframe for a more precise entry? |
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The Shapiro effect is a two edged sword. You don't get something for nothing here. If you use it, as you point out, you will decrease your profit potential and increase your risk. And yes, you can drop down a time frame to find a better entry point.
Sounds like you've got the statistics down pat, NICK. Now all you have to do is trade it and see how it works out for you.