[joshdance]

Short summary: Betting Rules by Phantom of the Pits

http://www.wisetrader1.com/?page_id=19

Basically, PoP says in rule 1 that we are not to let the market prove us wrong, but rather it must prove us right, or we get out ourselves. I have not read the whole book yet so perhaps I will get to it later, but the problem here is it's very vague as to what is "right" and "wrong."

There are three primary metrics (and probably other derivatives) I can see to be proven right or wrong in a trade: price, time, and possibly volume.

1) If price moves beyond price X, I am "right" and will stay in the trade, and consider to add. However, if it moves to price Y, I am wrong, and will exit the trade (stop loss).

2) If I am in the trade for more than T minutes, yet price is not beyond price X, then I will close the trade, even if price Y was not reached.

3) If the volume is below some certain volume V in a given time or range since entering the trade, close early, but again, only if price X has not been reached.

In all three cases, IMO, price must validate the trade. That's what a trade is anyway, right? Buying and selling based on the traded price. So I am ONLY proven right by price, but I may consider that I'm wrong by price, time, or possibly some other metric like volume. If you disagree with this please let me know why; the logical seems pretty sound to me but perhaps I'm missing something.

As an example: I briefly considered closing the trade that I took around 1:10, the 76.75 long, after it stayed there for a half hour. But the market still had not traded below 76.25 during the later part of that range, so why should I exit? There are times when I will fade a down move, for example, and on the retrace up in my favor I notice the volume lowering, and after about 3 minutes I realize that I better exit now, because this is only a pullback good for a point or so. So, the market has not traded to my stop, but I would expect that if it goes back to my entry that it will drop further. This is a time when using a time-based stop makes sense IMO.

There are different ways to view the market and I find value in different paradigms. Volume, that is, transactions, actually cause the market to exist and for price change to be possible. Time does not. However, time is inextricably linked to the markets as well, inasmuch that we as humans are ruled by and live in the context of time. When the market price changes by 4 points in 1 minute, we perceive this as different as when it changes by 4 points in 1 hour, and volume is not a factor in how much the market moves; perhaps it was more over the hour cumulatively, but we notice the changes in time. This causes emotions to get involved (or bots programmed to act based on typical human emotion), and can create momentum and panic buying or selling that otherwise would not happen except that it happened so quickly. So, time is important.

Elsewhere on this forum one trader wrote: "Stay in the trade until your target is reached, you have an exit signal, or the reason for your entry is no longer valid." This last part, "reason for your entry is no longer valid," is the primary reason for this thread. Does passage of time alone constitute a reason that an entry would no longer be valid?

[mitsubishi]

Time for me is a very important factor.I only look at vol on a daily bar for confirmation of a reversal.If I am correct at my entry price,then the trade should move very quickly in my favour.This is what i call a S.W.O.O.P -small window of opportunity.These setups occur often in the 1st hour of trading and are ideally,for me, the H/L of the day.If i suspect that to be the case,i try to capture as much of the move of the day as possible.Either by just sitting tight or going in and out 2 or 3 times,It depends on what type of day it appears to be.The aim for me is as less trades as possible.
I have said before,that using simple observation,the very best trades are only available for a moment and appear at a time when the least amount of traders are willing to trade-usually near the open or just before the close.But can of course appear anywhere.Less willing near open because of the volatility/uncertainty and near close for fear of holding overnight.
In cases where i enter and price remains trapped-sideways,it's tougher since i use no internal market tools or very low time frame charts.Again time here is a factor.I tend to get out if price breaks out against me- i wont assume it's a false breakout,but the downside is getting shaken out of a good trade.
So actually time is what i look at for decision making because i already know in advance the price level i want to trade at.

[zdo]

This last part, "reason for your entry is no longer valid," is the primary reason for this thread. Does passage of time alone constitute a reason that an entry would no longer be valid?

It’s system dependent.

Without knowing either we can be pretty sure that the whole of PoP’s system is quite different from the “Stay in the trade until your target is reached” trader’s system. Very loosely, (and without really knowing ),it’s likely the first (PoP’s) guidance on exits is for ‘surprise side’ trades while the second guidance is about ‘surprise side trades NOT!’, etc etc.

Be careful of authors who, via ‘ass umptions’,etc., don’t bother to specify what the whole system is that justifies the exit criteria they are expousing. It does a huge disservice to many, if not all, readers.

Moving on ... re: “Does passage of time alone constitute a reason that an entry would no longer be valid?”
Again, it’s system specific! I have ‘breakout’ oriented systems where the passage of time alone literally strengthens a reason that an entry would be valid… and I have ‘reversion' based systems where the passage of time alone does constitute a reason that an entry would no longer be valid…

we always have to ask 'does this exit advice align with the essence of my whole system?'
hth

[MightyMouse]

Originally Posted by joshdance »

Short summary: Betting Rules by Phantom of the Pits

Betting Rules by Phantom of the Pits | Welcome to Wisetrader1.com

Basically, PoP says in rule 1 that we are not to let the market prove us wrong, but rather it must prove us right, or we get out ourselves. I have not read the whole book yet so perhaps I will get to it later, but the problem here is it's very vague as to what is "right" and "wrong."

There are three primary metrics (and probably other derivatives) I can see to be proven right or wrong in a trade: price, time, and possibly volume.

1) If price moves beyond price X, I am "right" and will stay in the trade, and consider to add. However, if it moves to price Y, I am wrong, and will exit the trade (stop loss).

2) If I am in the trade for more than T minutes, yet price is not beyond price X, then I will close the trade, even if price Y was not reached.

3) If the volume is below some certain volume V in a given time or range since entering the trade, close early, but again, only if price X has not been reached.

In all three cases, IMO, price must validate the trade. That's what a trade is anyway, right? Buying and selling based on the traded price. So I am ONLY proven right by price, but I may consider that I'm wrong by price, time, or possibly some other metric like volume. If you disagree with this please let me know why; the logical seems pretty sound to me but perhaps I'm missing something.

As an example: I briefly considered closing the trade that I took around 1:10, the 76.75 long, after it stayed there for a half hour. But the market still had not traded below 76.25 during the later part of that range, so why should I exit? There are times when I will fade a down move, for example, and on the retrace up in my favor I notice the volume lowering, and after about 3 minutes I realize that I better exit now, because this is only a pullback good for a point or so. So, the market has not traded to my stop, but I would expect that if it goes back to my entry that it will drop further. This is a time when using a time-based stop makes sense IMO.

There are different ways to view the market and I find value in different paradigms. Volume, that is, transactions, actually cause the market to exist and for price change to be possible. Time does not. However, time is inextricably linked to the markets as well, inasmuch that we as humans are ruled by and live in the context of time. When the market price changes by 4 points in 1 minute, we perceive this as different as when it changes by 4 points in 1 hour, and volume is not a factor in how much the market moves; perhaps it was more over the hour cumulatively, but we notice the changes in time. This causes emotions to get involved (or bots programmed to act based on typical human emotion), and can create momentum and panic buying or selling that otherwise would not happen except that it happened so quickly. So, time is important.

Elsewhere on this forum one trader wrote: "Stay in the trade until your target is reached, you have an exit signal, or the reason for your entry is no longer valid." This last part, "reason for your entry is no longer valid," is the primary reason for this thread. Does passage of time alone constitute a reason that an entry would no longer be valid?

Josh,

First, His description of rule 1 is vague.
Second, his rules are not for day trading. He is not a day trader.

My translation of his first rule is that your trade is wrong until it is proven right. if you are not right, volatility will eventually take price to your stop and since we measure volatility over a period of time, when that time is up, if price has not moved far enough away from your stop, then you should get out.

So if price was plus a few ticks and say the 15 minute true range was 10 ticks, and my stop was 10 ticks, i would get out if price had not moved far enough away from my stop to warrant staying in another 15 minutes. Price would have to be the 30 minute true range distance from price for me to stay in.

I have no idea if this was the right interpretation or not or not but it is how I traded my interpretation of it. Needless to say I moved on but implemented aspects of his ideas; such as, scaling contracts off my initial position before getting stopped out to get stopped with a smaller size than my entry when it was negative and adding to winners when my trade seems to be working. I suppose I go give POP credit for that.

I read it a few times and began to doubt whether this guy was a real trader or not. I suspected that the author and the POP were the same person and the rules were what this individual thought would be good rules. It was weird the way he then decided to have a third rule because the forum sort of demanded it.


MM

[TheNegotiator]

Time absolutely matters. The reason for this is that if you put on a trade, believing that the price and timing of your trade within certain error limits are going to ellicit a profitable response from the market and yet it doesn't happen this way, all bets are effectively off. Anything can potentially then happen, but what does happen is going to be outside the remit of your specific trade plan. Of course, there's also the scenario that the day is much slower than you felt it might be originally. In this case, time then needs to be adjusted as a volatility variable just as ATR is. Here, the trade is likely valid for a much longer period of time. The key factor might also end up being how close it is to close as then if it hasn't gone in your favour, there may well be other similarly positioned participants who want to exit their trades. So like most things in trading, viewed with context, time is important imho as a gauge of potential success in an individual trade.

[fxdummie]

Originally Posted by MightyMouse »

I read it a few times and began to doubt whether this guy was a real trader or not. I suspected that the author and the POP were the same person and the rules were what this individual thought would be good rules. It was weird the way he then decided to have a third rule because the forum sort of demanded it.


MM

If PoP ever existed he was a pit trader - they don't usually use charts and indicators but only price levels and how the price reacts around them influenced by supply/demand and/or news/rumors. You need diff set of tools and skills for pit trading. The book is more useful for giving you an idea of the herd psychology of the pit traders. And how to follow your "gut" feeling against the rumors and the pear pressure.

Another problem with this apocrypha is that whoever wrote it doesn't appear to be a professional trader. A lot of the interpretations are hard to understand and somewhat naive.

[fxdummie]

Originally Posted by TheNegotiator »

Of course, there's also the scenario that the day is much slower than you felt it might be originally. In this case, time then needs to be adjusted as a volatility variable just as ATR is. Here, the trade is likely valid for a much longer period of time.

One way of assessing a slow day besides the volatility variable is volume. When no range and light volume = the big guys are out golfing = take off or use modest targets. Different case is when narrow range but heavy volume - market is pressure cooking the next big move = volatility expansion. In this case either stay on the sidelines until clear direction or keep probing the market "until proven right".

For me "right" and "wrong" is about direction. Time, volatility and price proves you right or wrong. And it is not important to be right but to follow the market _which is always right.

[MightyMouse]

Originally Posted by fxdummie »

One way of assessing a slow day besides the volatility variable is volume. When no range and light volume = the big guys are out golfing = take off or use modest targets. Different case is when narrow range but heavy volume - market is pressure cooking the next big move = volatility expansion. In this case either stay on the sidelines until clear direction or keep probing the market "until proven right".

For me "right" and "wrong" is about direction. Time, volatility and price proves you right or wrong. And it is not important to be right but to follow the market _which is always right.

Right = green = you are aligned with market direction/orderflow.

Wrong = red = hopefully out quickly.