[s&r levels] Rule of 10

[brownsfan019 17]

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.

Edited August 7, 2008 by brownsfan019

[BlowFish 10]

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 17]

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

[speres 10]

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.

[speres 10]

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..

[elovemer 10]

l 874.5 ... paper only ... 3 pnt stop

on 883.5

 

...stopped...

Edited July 8, 2009 by elovemer

[elovemer 10]

wow that was easy

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....

...

...

[elovemer 10]

...yesterday i had only one signal....

 

... the long at 921.75 from 930.75 during AH

 

...couple of other signals... but they were all short of 9 points....

=====================================================

 

...one note about the last signal.... from .. 925.75

... the short signal was 935.75

 

...just like the day before.... it blew thru it ... only to turn around and go below it....

... i took the short... and reversed long on the first retest of this level...

... however ... i did not take half off at plus 5 level... and ended up getting stopped out...

 

.... the lesson is... take half off... and make sure you have a tight stop at break even on the remainder....

Edited July 17, 2009 by elovemer

[elovemer 10]

today... from 940.75 ... the long was at 931.75

 

...currently... put in a pivot at 934.5

========================================

... this signal may not seem important now....

 

... but yesterday... the signal which came around this same time....

... was the only valid signal....

.... and was the only way to have been able to catch that huge up move... without any risk.... by trading the system....

[elovemer 10]

tried to short 41.75

 

...no fill

[elovemer 10]

... order to short 46 .... (st 49)

tried to short 41.75

...no fill

[elovemer 10]

....was waiting for you to start the journal ... but you never did....

 

... so i started posting here....

 

---------------------------------

you know what? It's funny you should say that,i have been mullin' over the idea for a while now.Might get it started this week-some foundation work,but am going away for 10 days from sat,so would probably begin trading it after that.

 

Using OHLC with R-10,todays low-940.9 close 951.1 so i am short 951.0 looking to close in early trading tues.The position went into a small loss at the high today (951.6) but futures are dropping overnight,so let's see..

[elovemer 10]

you talking about ES on monday ?

must not be talking about ES ..... are you ?

 

those prices sound non-existent

 

Using OHLC with R-10,todays low-940.9 close 951.1 so i am short 951.0 looking to close in early trading tues.

The position went into a small loss at the high today (951.6) but futures are dropping overnight,so let's see..

[elovemer 10]

....i was thinking more along the lines of a trade journal to record entries and exits using the rule of ten

 

....that way we could learn from each other and see how others are using it as well....

 

....at least for me .....i am prepared to offer up my entries and exits and the reasoning behind them....

 

00000000000000000000000000000000000000

With this technique you have 2 great enemies.A range breakout.The expiry of one contract.Sorry if this is a bit long winded,but a journal would probably be hard to follow in my case!

[elovemer 10]

....anyone interested in making a journal of rot .....

 

.... with only entries and exits and reasoning for those entries and exits ?

 

thanks

[elovemer 10]

no interest ?

 

......

.....

.....

[elovemer 10]

really ?

...

...

...

[elovemer 10]

Do you still have no interest in a journal of entries and exits... based on rule of ten ?

 

thanks

elo

 

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mitsubishi mitsubishi is offline

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oin Date: Oct 2006

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Re: Rule of 10

[elovemer 10]

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mitsubishi mitsubishi is offline

mitsubishi is in search of hidden gems

oin Date: Oct 2006

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Re: Rule of 10

[elovemer 10]

....i mean ACTUAL entries/exits.... not possible ones...

 

.... with stops as well....

 

any interest ?

 

thanks

elo

 

Sorry,didn't see your post.With futures up tonight we may get a repeat of fri..or we could get a high made first and a pullback.So a possible trade might be short 1036/7 (cash) since fri close and high was 1026.1 and 1027.5 respectively.Though shorting is against the current trend but might be worth a rection/gap play. Near term resistance is 1044. I am expecting a turn around the 31st,,if we are higher then,it could be a decent pullback or if we are lower,then a push from there to 1060 and towards 1100.

[elovemer 10]

...ES high was 1027

... for RTH signals only .... i don't take it unless there is no gap from the previous session....

 

.... if there is no gap on monday .... then the long would be at 1017 long ...stop 1015 .... or 1018 long .. stop 1015

---------------------------

 

...if there is a gap ... then would take a long ten points below the high after the gapped down opening....

.... in the same manner as above....

 

... i consider AH signals as separate from RTH signals....

 

short 1036/7 (cash) since fri high was 1027.5 ..

[elovemer 10]

.... how about this idea ?

 

...everyone contributes their own entries, exits, and stops...

 

....i mean ACTUAL entries/exits.... not possible ones...

.... with stops as well....

 

any interest ?

thanks

elo

[elovemer 10]

.... every time i talk about posting actual trades.... i get no response....

 

... why is this a bad idea ?

 

...the rule of ten is simple enough..... what's wrong with this ?

 

.... how about this idea ?

...everyone contributes their own entries, exits, and stops...

[elovemer 10]

...come on ... don't leave me hanging....

[elovemer 10]

.... if it is paper trading.... it doesn't matter.... just treat it as real trading....

.... that's the only way to learn anything is by doing.....

 

... AH trade.... i prefer RTH trades.... so only half size

... from 20.5 ... order to short 29.5 ... stop at 32.5

 

approximate time of order entry .... 4 am

 

.... i will be using 3 point stops... 9-10 pnt signals....

.... prefer doing half at 9 and half at 10 pnts.....

 

... ... i am using ES only.....

.... although NQ, TF, YM will also work....

 

Ok what the hell..

Short 1028 (cash) today 2 contracts

1st target 1018 2nd target 990

stop 1046.

The rally ended yesterday at 1037.7:cool: So 1038 1028 1018... 990 support.