[S&R Levels] Rule of 10

[brownsfan019]

If you've taken a look at the ES Journal at ET, you may have seen the 'rule of 10' mentioned. Someone decided to start a journal about it. This idea has always interested me, but I've never done any research into it. Hopefully the journal will keep up and not die down.

It's an interesting premise for anyone wanting to look into it.

The premise is rather simple - from a reaction high/low when price goes 10 pts from that level, look for a reversal.

Here's how I saw today using the OP's chart:




circles = possible reaction zones
arrows = actual trades

The OP is making the assumption of a 3 pt stop and 10 pt profit target. So the risk/reward is rather handsome. Of course, now the winning % will be the next issue at hand.

For today, 8/6/08, I personally saw 2 possible short trades = one failure and one winner. Depending on entries and exits, the day could be a scratch if out at MOC or better if held overnight.

This idea has always interested me, so it will be neat to see the OP carry the journal through.

[BlowFish]

Many years ago I bought a rather expensive course that had this as one of its premises. That was based on 1 point stops and 10 point targets. A partial was taken at a point/point and a half if memory serves. ES was a little less volaitile at the time.

I cant help feeling that using market structure is a better approach. For example when the ES is averaging 30 points a day, swing size is different to when its averaging 10. Taking account of what swing sizes actually are is likely to help.

Are you going to sit through 5 6 7 8 and even 9 point retraces to get your 10 points? If you are why limit yourself to 10 points? I always see risk as a dynamic thing (un booked profits is money at risk). Getting stopped after being up 9 must be a bitch. Especially if say 8 points into the trade you notice you are at major S/R.

Alternatively (imo) measuring previous swings to get rough targets is likely to yield better results (AB = CD type of stuff). Or simply using next higher time frame S/R for exits. I guess you could 'optimise' (curve fit!) the 10 point target with some sort of back testing.

I guess the appeal is simplicity. You might be interested in Eddie Toppel's stuff too. Even simpler, trade a fixed portion of the day (when trends are likely to develop) enter in a random direction with a fixed number of points stop and reverse, its an always in approach. You could probably improve things with a simple directional bias (e.g. enter long if above the open short below). Essentially a trend following system so lots of smaller losses to get the big win. Benefits from adding contracts to winners.

I never understood why people do all the 'clever stuff' on entries only, personally I would rather trade a random entry with a good market structure based exit than a market structure based set up with fixed target exit. (I think). Obviously things tend to improve with both.

[brownsfan019]

It's an interesting idea. We'll see if the journal gets a little substance or not.

[speres]

Quite a few years ago I used to trade the ES using a simple breakout strategy that did rather well. Once a week I would get a 'home run' or 10 points, this is when I would close the position. Had a look at fading the run but I recall not really seeing much into it and it seemed like trying to catch a top or bottom which is a mugs game in my opinion.

[mitsubishi]

My view is that any 'system' requires an experienced trader to use a certain amount of discretion.This is why teaching a system to a new trader is merely a step in the right direction (hopefully) on a journey that has many steps.Another problem is that so many of the trading 'truths' - trend is your friend etc, are right but also often wrong.Personally, i think the most vital thing to know at any given point is,are the smart money buying or selling? and to trade in the same direction as them.Not an easy question to answer a lot of the time,so another question you could ask at any given point is,who stands to get hurt the most,bulls or bears? The market is designed to take out your stop and then reverse- wider stops and a lot more patience before entering a trade would serve most struggling traders well (imo)
As to the rule of 10 i am new to this but was reading about it on a journal on another forum and decided to apply it mostly on ohlc rather than attempting to decipher every wiggle.A check on recent ohlc historical data (sp500 cash) looked promising for an add on to my usual strategies.Ohlc are mostly fib ratios so the 2 systems can fit well together (except when they dont!)

[speres]

	Quote:	mitsubishi
	My view is that any 'system' requires an experienced trader to use a certain amount of discretion.This is why teaching a system to a new trader is merely a step in the right direction (hopefully) on a journey that has many steps.Another problem is that so many of the trading 'truths' - trend is your friend etc, are right but also often wrong.Personally, i think the most vital thing to know at any given point is,are the smart money buying or selling? and to trade in the same direction as them.Not an easy question to answer a lot of the time,so another question you could ask at any given point is,who stands to get hurt the most,bulls or bears? The market is designed to take out your stop and then reverse- wider stops and a lot more patience before entering a trade would serve most struggling traders well (imo) As to the rule of 10 i am new to this but was reading about it on a journal on another forum and decided to apply it mostly on ohlc rather than attempting to decipher every wiggle.A check on recent ohlc historical data (sp500 cash) looked promising for an add on to my usual strategies.Ohlc are mostly fib ratios so the 2 systems can fit well together (except when they dont!)

Good point, It all sounds quite easy really... whats the smart money doing are they buying or selling? accumulating or distributing, who's fueling the rally? know this and you;ve cracked it.. We all know it is'nt easy tho..