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Gamera

Testing Times.

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After an eventful summer it is time to knuckle down and start testing the plan that I have been working with for the last few months. I had started this process in another place but circumstances outside of my control had my thoughts elsewhere.

 

The purpose of the journal is to track how the plan I will be trading stacks up through back testing to forward testing and eventually on to sim trading, should the results be consistent throughout each phase I will be able to move into live trading with confidence that I have a thoroughly tested and consistently profitable plan.:)

 

The backbone of my plan is the SLA/AMT so charts that are posted should look familiar, I will try to briefly explain reasoning for decisions on chart as I have a tendency to waffle.

 

I will be testing 2 strategies side by side (might get a little confusing at times) one is a safer strategy but a little restricting when it comes to maximising gains (2 lot entry with one off early to lock in gains) the other is a little more testing (2 in 2 out AIAO) but allows one to hold on to a trend to its conclusion thus maximising gains.

 

I will go in to more detail in the next post, regarding entry, management and exit rules along with a brief explanation of stats that were collected whilst studying certain price action behaviours.

 

I'm still learning so any input or questions welcome.

 

Gamera.

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Two strategies both of which will share the same entries, the management will differ slightly between the two.

 

1 Runner.

This strategy is set up as a safer strategy that might appeal more to a fearful trader (I have no idea how I will behave should I go live) The strategy is geared up to locking in profit early on half the position which may give one the freedom to let the other half work out a little and endure those pull backs that are to be expected in any move one might expect to see.

 

The numbers below give an idea as to how far a move can go prior to making a more substantial pull back. The first lot in the runner strategy will come off at the relevant number. The second lot will be managed using the trend break continuation number.

 

Trend break continuations: 3 points.

I expect a rally or drop to break its stride as it progresses, 3 points is the average the line can be pushed with the trend remaining intact.

 

The breaking of the stride by more than 3 points does not signify a change of trend, it is only more likely that a change will happen. Watch how price interacts with the swing points that constitute the break.

 

Trend break reversal entry leg: 7 points.

Price has now broken stride and has retraced forming a lower high or higher low, one takes the trade per entry criteria, how far can a trader expect price to move before it comes back on the entry. I plan on entering trades with 2 lots and taking the first off on the entry leg and managing the other, However I will be tracking the alternative of this versus an all in all out approach.

 

A traders entry is irrelevant the measurement is from swing point to swing point, depending in how one enters the trade the first contract might be taken off after 3 or 4 points or less. Even though a 7 point move might be expected it does not mean that it will, watch how price interacts with the previous swing points, price may range.

 

Range poke: 1.5 points.

How far can a range or swing point be pushed but hold, 1.5 points, beyond that and one moves into the territory of breakouts and continuations, an order to trade breakouts could be left 7-8 ticks beyond the range extremes to catch a breakout.

 

Very important to pay attention to what happens next, price can move beyond 2 points then stall and hang around sometimes for hours, however, when there is intent behind the move it does not. If price gets to an extreme the move away is often decisive, if it is not, one would have to question their participation in the trade.

 

Breakout entry leg post retrace: 11.5 points.

Had a harder time defining the MFE to a breakout, a lot of the breakouts would often BO by 1,2 or 3 points before making a retrace of some kind (rarely noticeable on a 5 minute chart) but seeing as entries would boil down to a 1 minute chart I felt I had to include the rets as part of the breakout.

 

It seems a large number but I guess it is a reflection of traders intent to move on and find value.

 

AIAO.

This strategy is more about maximising gains from trending days, there will be times one has to clench their teeth and endure the pull backs that are inevitable which may pose a challenge in its own right, it is more reliant on the AMT aspect and depends more on swing points being broken or holding for exits.

 

My thoughts have evolved as I have gotten more into this, when I started I would exit on the first line break and wait for a reversal that would never come as price continued on without me, this could happen multiple times, and each time I would be waiting for a reversal.

 

Eventually price would get to a level that meant something to enough traders that price would be turned back, but in the meantime I would only have a caught a small chunk of the move, how far can stride be pushed but leave the trend intact?

 

Stride is less relevant, it can be broken multiple times throughout the trend what do I expect to see from a trend? If it is still doing that what I expect and has not reached a point of interest why exit.

 

I will trade ranges via reversals at the extreme but the ranges must be at least 10 points wide, if they are not one will have to sit tight and wait for a breakout trade.

 

Whilst I will trade reversals and breakouts, there are other tactical sets that will need to be considered as the day unfolds, these will include DT, DB, hinges, dogs etc.

 

When it comes to stops, I will be using danger points (DB PDF) but also looking at behaviour, is price doing what I expect it to do?

 

I am forgetting something but I am sure it will get covered at some point soon. I will try and simplify my plan a little better later on.

 

Gamera.

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To start off with the market is in two states, it is either trending or ranging and this knowledge is important as the plan depends on being able to identify which is which, what is happening and how to take advantage of it. And yes, there are ranges with in trends and trends within ranges, but, the focus prior to placing any trades is to identify what the most immediate state of the market is.

 

Preparation.

As part of the preparation, one needs to have a general idea of what is happening, the weekly and daily might give a bias to price direction, what I mean by that is, if for example price has reached the upper extreme of the weekly/daily channel its most likely move is away from that extreme to the mean and onwards to the opposing extreme.

 

If the higher time frames are pointing down it would come as no surprise if a breakout to the upside of a 1 minute range fails to get anywhere and results in a losing trade. Even with this knowledge one has decide their own risk tolerance and understanding of the PA.

 

Context.

The little 1 minute range that a trader is trading might be a part of a larger range, when price breaks out and trends, context can give one a heads up as to where that trend could be reversed, larger swing points can impede progress as they mark a point that price could not get beyond, a point where one behaviour ended and another took over, just because price gets back there does not mean the reason has gone away, but, again the focus is the behaviour at that level.

 

The basics.

The barebones of the plan is to start off with finding the most immediate range, locating the extremes of said range and waiting for price to get to those extremes. Once there, there are two possibilities, if price reverses at the extremes short the upper limit and buy the lower limit (ranges <10 points will be left for breakouts). If however price breaks out, it shall be traded as a breakout into a trend.

 

Management.

The theory with ranges goes that once it has tagged one extreme it will most likely head to the other, with that in mind I will keep an eye on respective swing points and the mean, an exit is not based solely on price reaching the opposing extreme it is more on the behaviour. If price breaks out one is already positioned for it so pay attention to what price does there.

 

With a breakout, do not panic over a retrace after the BO, its normal, once the continuation is confirmed track it with a DL/SL. This is where context/(AMT) can give a target and the SLA manages the trade, the line will get broken occasionally but some breaks mean more than others. I collected stats on most likely outcomes with a note of discretion that explains my thinking, last post.

 

It is okay to scratch a trade that is not doing what is expected, and if what is happening makes no sense sit out and take notes.

 

This is barebones and basic, after all it is just a test. I will look to cover 100-200 trades, once this task is completed the next step will be replay untested days then move to sim, I have been taking my time with this process as I all to often rush back in then get disappointed when the results fail to follow.

 

Now that I have waffled for 3 posts I think I can start the actual testing.

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After the third trade price started ranging, any breakout to the downside had a lot of hurdles to overcome before it could get anywhere so I decided to sit out.

 

Gamera.

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Edited by Gamera

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After the second trade I felt a little lost, I considered a long on the double bottom but, with 2 failed trades I felt it best to watch.

 

Not the best start to the test, PA always seems to be a whole lot messier around the mean of any range.

 

Gamera.

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As I pointed out in the chart above I have started to make mistakes, I have revisited my journal and reread it to help get back on track and also gone through appendix F as I think I am over reacting in certain areas, i.e spandex tight DL or SL for instance.

 

Gamera.

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The chart above shows what happens when I get attached to an idea, after getting out of the short I was looking for a long, I had made myself unavailable to a short re-entry when price broke down again.

 

See also "A Final Note" at the end of Developing A Plan.

 

Went through it and realise I have gotten a little wrapped up on what I think and feel, the market will do what it does whether I am there or not, I need to remember that and focus on what price is doing and where it is doing it.

 

EDIT: I completed the above day prior to reading the final note.

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Went through it and realise I have gotten a little wrapped up on what I think and feel, the market will do what it does whether I am there or not, I need to remember that and focus on what price is doing and where it is doing it.

 

Not just that but also determining your criteria for failure rather than relying on your feelings. If, for example, price returns to the last swing low, is that a failure? This can easily be determined by testing. If price returns to the last swing low and drops below it, is that a failure? What are the odds that price will rally if it exceeds the LSL? If it reaches it but doesn't exceed it? If instead you entered at the LSL and are worried about your trade, then you are no longer focused on price but on yourself. If your criteria tell you to exit the trade because price has returned to the LSL, then exit. Otherwise, there's no reason to exit simply because you perceive that your trade is in "danger". If it's difficult to see the difference, just imagine that you're not in a trade at all.

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I have spent the last couple of weeks reading as I feel I have wandered into the weeds a little and find myself making mistakes that I thought I had moved beyond.

 

Some of the more apparent issues seem to revolve around losing sight of context, it can be tough not to get sucked into what is happening on a 1 minute timeframe and still bear in mind what traders are doing on the higher timeframes.

 

At times I am excessively rigid, I feel obligated to stick with the numbers and end up holding on far later than I should ignoring the change in behaviour, for example, waiting for a 3 point break of stride before exiting a trade, problem is that for a DL break of 2 points can lead to a DT or LH which could be cause for a short, but, waiting for the 3 point stride break will happen much later and increases the risk.

 

I will have to loosen up a little, keep my eye on the context and be a little more sensitive to what traders are doing.

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I was not so keen on taking shorts at the ONH as this was in an area the conflicted with the hourly break of the SL and subsequent retrace. However, given the daily LOLR being down towards the LL, and the hourly/LTF choking and chopping on the MP of the last HI/LO the secong long was perhaps questionable.

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Two quotes that I really need to bear in mind.

 

And if price keeps running over your stops like a rogue truck?

 

After you have traded for a while, if you find that your stops are being caught too frequently, it will mean that you are not careful enough in starting your trades. Thereafter decide to use more discrimination. Refuse all but the best opportunities. Wait for them. Take your positions as close as you can to the danger points, as shown on your charts or on the tape. Place your stops [at or just beyond the danger points]. Study your mistakes and profit by them. Know every minute why you are starting a trade, why you are holding it, and why you should close out. (Wyckoff)

 

One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people always have to be playing; they always have to be doing something. They can't just sit there and wait for something new to develop. I wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, 'I just lost my money, now I have to do something to make it back.' No, you don't. You should sit there until you find something.

 

-- Jim Rogers

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Breakdown of Security Tokens Security tokens function as digital versions of the assets they represent. Here’s a list of some popular security token representations: 1- Capital markets: Firms can convert their shares into tokens, allowing investors to own parts of the firm. In some cases, owners of tokens receive dividends and can execute votes on the affairs of the firm. 2- Equity funds: Equity funds can also tokenize their shares for sale. 3- Commodities: Commodities like gold, natural gas, coffee can be tokenized. 4- Real estate: The equity of this asset class can be tokenized, much like how REITs function. STOs do not change the underlying securities, instead, it makes these assets more readily accessible on a digital platform. Unlike other digital assets, security tokens can only be traded on certain regulated exchanges. Some exchanges require interested investors to meet some set qualifications. Advantages of STOs STOs are formulated with regulatory-compliance in mind, unlike ordinary token sales. Security tokens provide its owners with several legally binding rights. Some security tokens even bestow its owners with rights to dividends or other defined streams of income. Security tokens are also beneficial to their issuers. From the onset, the entities issuing the tokens are aware that their tokens are being purchased by accredited and verified investors and so, they don’t have to worry about the credibility of their investors. Other advantages of STOs include: 1- It is adequately regulated: Entities issuing security tokens must operate under the guidance of designated regulatory agencies in the region like SECs and FTCs. 2- You can rest assured that STOs won’t falter in the future: Unlike ICOs that cannot be guaranteed, STOs are sure to always deliver because it is properly regulated. 3- STOs offer great convenience: Procuring security tokens is easy, straightforward, and stress-free. All you need to do is to adhere to the STO requirement in your jurisdiction and you’re good to go. 4- It can be programmed: Security tokens are programmable and can be facilitated by smart contracts. 5- Automated dividend disbursement and voting: Some security tokens are structured to send dividends automatically through smart contracts. Also, some security tokens provide the bearer with exclusive voting rights in the affairs of the entity offering the tokens. 6- It is a globally accessible investment vehicle: Investors across the globe can procure security tokens regardless of their location. 7- It is not susceptible to manipulation: Considering the mode of operation STOs are run by, big players cannot manipulate its movements. 8- STOs are very liquid: It is a very promising investment option as it has an impressive liquidity quality and can be traded easily. With benefits like these, STOs are for sure transforming the fundamentals of the financial sphere. Disadvantages of STOs As with every other form of investment, security tokens has its limitations and shortcomings. Some of these limits are: 1- It is considerably more costly than utility tokens: STOs, unlike ICOs, hosts many organizations in their fundraising campaigns. Also, regulatory fees are not cheap which makes it more capital-intensive to host STOs. 2- Investor Qualifications: Countries like the US have certain qualifications an investor has to scale before becoming eligible to engage STOs. According to the SEC to be an “Accredited investor”, you must have an annual income rate of $200k and above or a minimum of $1 million in the bank. 3- Specific trading conditions: STOs can only be traded on certain designated exchanges. Also, these tokens are time-bound meaning that you are allowed to trade these tokens between investors for a set period after the STO. The Howey Test Usually, tokens are said to be securities, by law, when they pass certain thresholds. One such way to identify a security instrument is by applying the “Howey Test”. But first, let’s look at a piece of quick background information on how the Howey test came to be. In 1944, a citrus plantation called the Howey company of Florida leased out a large portion of its land to several investors in a bid to raise funds for much-needed developments. The buyers of the land were not skilled or versed in citrus farming in any way and decided instead to just be “speculators” and let the experts do their jobs. The lease was made on the premise that profits would be generated for the investors by the lessor. Not long after the business transaction the Howey company was sanctioned and accused by the United States SEC of failing to register the sale with the authority. The SEC maintained that the company was dealing with unregistered security. Howey denied the claims however, assuring that what it offered wasn’t a security. After much debate, the case ended up in the Supreme Court, which later ruled in favor of the SEC that Howey’s land leasing were undoubtedly securities. It remarked that investors were purchasing land mainly because they saw an opportunity to make a profit off the deal. Howey was then ordered to register the sale. This was the story of the enactment of the Howey test. Today, per the Howey test, anything is deemed to be a security if it satisfies the following criteria: 1- The investment included money. 2- The investment was made on an enterprise. 3- Profit will be made from the efforts of the providers of the investment. The Howey test has become a stronghold name in the crypto space. In 2017 and 2018 (during the “Heydey boom”), many ICO providers were completely consumed with scaling the Howey test as it was a major determinant used in ascertaining the legality of an ICO by the SEC. Failure to pass the test meant the offering was illegal and was sanctioned by the authorities. Some ICOs even advertised their tokens as investment instruments that had no value, describing their tokens as “utilities” used only for interactions on the platform. The Inception of STOs The very first STO was released by Blockchain Capital on the 10th of April 2017. The release pooled about $10 million in one day. Several STOs have been released following the first event including tZero, Sharespost, Aspen Coin, Quadrant Biosciences, and many more. STOs have since gained widespread acceptance and relevance in today’s market. Understanding the Distinction Between Security Tokens and Tokenized Security Confusing security token for tokenized securities is a common trap that people fall into. The main distinction between the two is that the former is usually a recently issued token that functions on a distributed ledger system while the latter is just a digital manifestation of pre-existing financial instruments. Apart from similarities in appearance and nomenclature, security tokens have absolutely nothing in common with tokenized securities. What Entities are Involved in an STO Issuance? Assuming a business entity plans on issuing security tokens as an embodiment of equity in its establishment, the next necessary step for that business would be to involve certain players and follow certain directives. It has to formally contact an issuance platform to serve as a medium for issuing the tokens. Popular issuance platforms include Polymath and Harbor, which consist of service providers like custodians, broker-dealers, and legal entities to carry out secure processes. Who Can Invest in STOs? STOs are available to the general public for the taking, regardless of location. However, as mentioned previously, the US has certain rules guiding STO investments. In the US, it is mandatory to be an “accredited investor” before you can invest in this instrument. An accredited investor is an individual with an annual cash flow of $200k and above for at least 2 years or a net worth of $1 million and above. More nations are starting to adopt the United States’ classification method and have begun restricting certain classes from investing in STOs. It is advisable to always research on the STO rules and regulations of the jurisdiction you’re planning on investing with. Final Word STOs provide businesses with the prospect of raising funds in an easy and regulated setting. It gives both investors and issuers a good deal of benefits, while also ensuring insurances against fraudulent or malicious practices, unlike ICOs. Issuers are not limited to any industry, they can vary from several sectors including real estate, VC firms, and small and medium enterprises. Moving forward, we will likely witness prominent firms venture into the STOs.   Source: https://learn2.trade 
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