[jonbig04]

Originally Posted by mezameo »

I think this is an excellent way of putting it, letting winners run is a question of risk tolerance. Perhaps even more important than our equity balance is our patience threshold.

Without patience to let a trade signal, or the market-- if you are a pure price action type of trader--take you out at a profit or a loss, your risk of being wrong will never even come in to play. And certainly when you look at historical charts of all the great trades in our lifetime, we can be sure that without question, all great trades have tested our patience.

Look at a monthly chart of the EURO for example. Right now the Monthly chart is in a massive phase of consolidation. The trend is clearly down however. But who among us has the patience to hold on to a winner for more than a few days or weeks to see it really pay off?

Good points. I'm not even advocating swing trading, I'm just advocating larger time frames and..well...fearless holding. You are absolutely right, the best trades are the ones that last all day long testing and trying us through every minute. People scale to avoid this, I think.

Another thing I am curious about is something I read here on TL. Its that we scale because the odds have changed, out of our favor. How does that work? If I enter on say a potential double-bottom, and price starts taking off, isn't that putting the odds more and more in my favor?

When we reach a profit, should our reaction be more along the lines of holding because it looks like the odds are more on our side as opposed to being scared that something might change and bailing out?

Another thing. I read in chat that some people exit when buyers ( if they are short) or sellers (if they are long) might step in. Makes sense, but let me submit this. If you enter a trade on NQ and you scale out at +5 because you think the other side "might step in", you should never have taken the trade in the first place. (Keep in mind that I'm referring to the way the majority of us trade. I'm sure there are scalpers who make bank by netting +5s all day, but it doesn't help anyone if we constantly advocate every kind of style). If there is a place where the other side might step in, i sure as hell am not going to enter 5NQ below it (or above it). Thats shitty R/R. We need to enter in places where our trades have room to move. If there isn't room, than maybe we shouldn't take the trade.

[atto]

From someone with a less than 50% accuracy, I mostly agree with what you're saying. However, I do disagree about scale outs. If you know much about Blackjack card counting, you know that your win rate is still under 50%; however, you simply increase your bet when you have the statistical advantage.

This is where concepts such as the Kelly criterion come from. This applies directly to trading: when your edge is greatest, trade the biggest size. Most simply, this is your entry: elsewhere, your edge is 0 or slightly negative. When you enter (with a statistical edge, of course), you've calculated that you have a positive edge, so you put on size.

The true idea behind scaling out is to manage your position with respect to your current edge. This assumes an important thing: you can roughly calculate your edge. For myself, I don't have the exact numbers; some do (Hlm probably has a very good idea of his actual edge). However, let's enter a hypothetical long that goes well. Eventually, we approach established resistance. Couldn't you argue that holding a long into resistance has a lower edge than, say, holding a long that just bounced off support?

Or, what if, during your long, price fails to make a higher high, and makes a lower low? That's the first sign of a trend reversal. Your edge is less.

[Hlm]

Originally Posted by jonbig04 »

Another thing. I read in chat that some people exit when buyers ( if they are short) or sellers (if they are long) might step in. Makes sense, but let me submit this. If you enter a trade on NQ and you scale out at +5 because you think the other side "might step in", you should never have taken the trade in the first place. (Keep in mind that I'm referring to the way the majority of us trade. I'm sure there are scalpers who make bank by netting +5s all day, but it doesn't help anyone if we constantly advocate every kind of style). If there is a place where the other side might step in, i sure as hell am not going to enter 5NQ below it (or above it). Thats shitty R/R. We need to enter in places where our trades have room to move. If there isn't room, than maybe we shouldn't take the trade.

I will reply since I am pretty sure you are talking about me.
Also atto already made some good points.

A few quick points.

• Market is made of up different sized trends/swings/etc (fractal "like")
• To create a high r:r one looking for least resistance through two or more of these.
• Potential S/R is the area where trends are tested.

It's a probabilities game...you don't "know" when the other side will step in. What you can estimate is the higher/lower areas along the way. You talk about one giving room for their trade to move, but don't you use very small stops and will take multiple ones until you hit that large trade (please correct me if I am wrong)? There are always smaller areas above and below your entries where the other side may step in (especially if you are entering on pullbacks). If someone has a very high r:r this is why they many times have to take a few stops before hitting a full target. Maybe an example of what you mean on a chart would be helpful. Odds move in similar waves as price. As price approaches an area of S/R (say an opposite direction trend that needs to fail in order for your trend to continue) the odds decrease that price will continue through. The further price gets on the other side of that area the probabilities increase that it will continue to the next area of S/R. One also has to remember that it's not necessarily a line in the sand. As you move into larger trends, the volatility and deviation increases.

For an example let's take the concepts of Value Areas or MP. In very simple terms, there is an 80% chance that price will rotate to the other side of a value area if there is lack of interest found outside the starting side. One can keep taking shorts at rejection outside the value area and potentially keep getting stopped out as price finds little interest back inside and tests outside again. Eventually price may fall to the other side and profit is made though it's not guaranteed by any means...it's just a probability. Another way it can be traded is to take the short at rejection, but take some off on the test back inside with rest at b/e. One will end in profit either way and multiple attempts can be made (profit made during the 20% time). One could also move their stop to net b/e (room for more tests outside w/out being stopped out) and walk away. None are necessarily wrong or right (though there will be differences), what's key is knowing the areas the market is speaking.

In my opinion, it's not so much about scaling out or not. It's about understanding the different sized trends you area dealing with and building your money management around them. It's about keeping everything dynamic and letting the market tell you what to do.

A few different MM examples...

• Trail stop (no scale out) based on these areas.
• Scale out a large portion at first area of S/R and move stop to net b/e (giving much more room).
• Scale out at every area along the way.
• A mixture of the above.

In the long run, many times the bottom line will be very similar. What's different is the draw down and shape of the PnL curve that creates that bottom line.

Good thread we have going here, hopefully it can stay clean and on track.

[Hlm]

Originally Posted by Hlm »

As price approaches an area of S/R (say an opposite direction trend that needs to fail in order for your trend to continue) the odds decrease that price will continue through.

After reading what I wrote, I realized that this sentence might not have been clear. The odds don't necessarily decrease at the area of S/R...it decrease at the current price as you get closer to the potential S/R. In other words there is a set gradient of probabilities that price moves along. I used the term "necessarily" above because depending on the price action in front of the S/R, there can be changes in the summation of probability at the potential S/R. Hopefully that is a little more clear.

[jonbig04]

Originally Posted by atto »

From someone with a less than 50% accuracy, I mostly agree with what you're saying. However, I do disagree about scale outs. If you know much about Blackjack card counting, you know that your win rate is still under 50%; however, you simply increase your bet when you have the statistical advantage. This is where concepts such as the Kelly criterion come from. This applies directly to trading: when your edge is greatest, trade the biggest size. Most simply, this is your entry: elsewhere, your edge is 0 or slightly negative. When you enter (with a statistical edge, of course), you've calculated that you have a positive edge, so you put on size.

You may have gone over my head here lol. I don't understand how, when PA is doing what you expect, your advantage decreases. Lets say you are playing a standard head and shoulders pattern. You enter at what you anticipate to by the forming of the next shoulder, your trade is now in the green by say 5NQ. Then the neckline breaks. Wouldn't your edge increase? If you are looking for X (in price action) and you begin to see it, aren't you in an improving position?

Originally Posted by atto »

The true idea behind scaling out is to manage your position with respect to your current edge. This assumes an important thing: you can roughly calculate your edge. For myself, I don't have the exact numbers; some do (Hlm probably has a very good idea of his actual edge). However, let's enter a hypothetical long that goes well. Eventually, we approach established resistance. Couldn't you argue that holding a long into resistance has a lower edge than, say, holding a long that just bounced off support?

IMO all R and S weren't created equal. I get my levels from a large time frame chart. lets say I enter a long based of a support level from that chart, it it runs into intraday R. I am betting that since my S is from a larger time frame, it is more significant and hopefully stronger than anything the intraday can throw at me. Now if by established R you mean R that was ALSO found on a large time frame chart, than absolutely scale or exit. But for me those levels are roughly 20-30NQ apart-so holding until then is the idea. I try not to let intraday p/a scare me.

Originally Posted by atto »

Or, what if, during your long, price fails to make a higher high, and makes a lower low? That's the first sign of a trend reversal. Your edge is less.

I think this depends on which chart you're looking at. For me personally, I dont trade between S/R (large time frame). Why? Because I'm not good enough. There are too many shakeouts and fakes. I trade the extremes and whatever happens in the middle is complete bs that I TRY not to pay attention to.

[jonbig04]

Originally Posted by Hlm »

I will reply since I am pretty sure you are talking about me.
Also atto already made some good points.

A few quick points.

• Market is made of up different sized trends/swings/etc (fractal "like")
• To create a high r:r one looking for least resistance through two or more of these.
• Potential S/R is the area where trends are tested.

It's a probabilities game...you don't "know" when the other side will step in. What you can estimate is the higher/lower areas along the way. You talk about one giving room for their trade to move, but don't you use very small stops and will take multiple ones until you hit that large trade (please correct me if I am wrong)? There are always smaller areas above and below your entries where the other side may step in (especially if you are entering on pullbacks). If someone has a very high r:r this is why they many times have to take a few stops before hitting a full target. Maybe an example of what you mean on a chart would be helpful. Odds move in similar waves as price. As price approaches an area of S/R (say an opposite direction trend that needs to fail in order for your trend to continue) the odds decrease that price will continue through. The further price gets on the other side of that area the probabilities increase that it will continue to the next area of S/R. One also has to remember that it's not necessarily a line in the sand. As you move into larger trends, the volatility and deviation increases.

For an example let's take the concepts of Value Areas or MP. In very simple terms, there is an 80% chance that price will rotate to the other side of a value area if there is lack of interest found outside the starting side. One can keep taking shorts at rejection outside the value area and potentially keep getting stopped out as price finds little interest back inside and tests outside again. Eventually price may fall to the other side and profit is made though it's not guaranteed by any means...it's just a probability. Another way it can be traded is to take the short at rejection, but take some off on the test back inside with rest at b/e. One will end in profit either way and multiple attempts can be made (profit made during the 20% time). One could also move their stop to net b/e (room for more tests outside w/out being stopped out) and walk away. None are necessarily wrong or right (though there will be differences), what's key is knowing the areas the market is speaking.

In my opinion, it's not so much about scaling out or not. It's about understanding the different sized trends you area dealing with and building your money management around them. It's about keeping everything dynamic and letting the market tell you what to do.

A few different MM examples...

• Trail stop (no scale out) based on these areas.
• Scale out a large portion at first area of S/R and move stop to net b/e (giving much more room).
• Scale out at every area along the way.
• A mixture of the above.

In the long run, many times the bottom line will be very similar. What's different is the draw down and shape of the PnL curve that creates that bottom line.

Good thread we have going here, hopefully it can stay clean and on track.

Great post. I personally don't take multiple shots at entries. I try to nail it on the 5 sec and if I don't, I pay the price. But I see your point. I think it comes down to what you said near the end and what I mentioned in the above posts. Its about time frames. Instead of watching the shaky intraday I try to locate the larger trend and catch a small part of that. About the lines in the sand, I somewhat disagree. To me NQ seems to bend and move s/r much more than ES. I don't know why, but there are hardly any lines in the sand on NQ. ES though has lines in the sand to some degree. I'm actually doing a study on it right now and will post my results, but many times ES respects a level to the point, eg 836. To me 836 on ES is better than sex. yea, I said it lol. The other day you took a long from 836. I missed the boat on the 5 sec, but was glad to see you caught it. With 836 such an important level to me there is a decent chance that it will win the fight with intraday R, where you scaled out. So why not push it? With worst case a BE and best case a +15ES and the knowledge that it happens fairly often, I grab my balls and hold it. A typical bounce off of that important of a level ( i dont know it off the top of my head), is quite a bit more than 4ES or 5ES. So why not just exit when the larger time frame makes a new HH or LL, or you reach what you think to be an equally important level. If the market moves quickly from S to R then the small psychological damage you receive from watching a +3ES turn into a b/e will be nothing compared to the couple times you book the +10 or +15ES. Thats just my opinion though.

You guys know way more about this stuff than me of course. From reading the chat though I notice that some people aren't yet profitable in SIM, so I'm just offering my $0.02 to them as well as anyone else.

[Hlm]

This is another thread that one must not assume that everyone is on the same page.

Much of it depends on...

• How you define your S/R
• Expectations at S/R
• How you define your "time frames"
• How many "time frames" go into your analysis

Originally Posted by jonbig04

To me NQ seems to bend and move s/r much more than ES. I don't know why, but there are hardly any lines in the sand on NQ.

I don't really see where you are coming from with this comment. Maybe you are trying to force the same sized trends/tfs seen on the ES onto the NQ in a cookie cutter way? You mention that you are doing a study on it right now, I am very interested to see what you come up with. Please let us know.

Originally Posted by jonbig04

...so I'm just offering my $0.02 to them as well as anyone else.

As you should...it's always good to see other peoples views. Not only to help others, but also to help ones self. I have learned so much from having to analyze and answer questions asked about certain aspects of my trading.

The one point where everyone should be on the same page is that if one chooses to scale out, it should not be based on emotion. Though it may work for the short-term, it will more than likely hurt you in the long-term.

[jonbig04]

Originally Posted by Hlm »

This is another thread that one must not assume that everyone is on the same page.

Much of it depends on...

• How you define your S/R
• Expectations at S/R
• How you define your "time frames"
• How many "time frames" go into your analysis

I don't really see where you are coming from with this comment. Maybe you are trying to force the same sized trends/tfs seen on the ES onto the NQ in a cookie cutter way? You mention that you are doing a study on it right now, I am very interested to see what you come up with. Please let us know.

As you should...it's always good to see other peoples views. Not only to help others, but also to help ones self. I have learned so much from having to analyze and answer questions asked about certain aspects of my trading.

The one point where everyone should be on the same page is that if one chooses to scale out, it should not be based on emotion. Though it may work for the short-term, it will more than likely hurt you in the long-term.

What I meant about NQ is that it seems to bend s/r much more than ES. in part because of the small tick size. If I pulled up morning reversals at globex, NQ would likely reverse sometimes at ghigh (or glow), but usually it will be 2-6 points above it, where as ES will stop dead in its tracks more often. If I see level I want on ES, I can place a limit there and still have a decent chance, its tough to do that on NQ.

Your last point is really what its all about. I'm just advocating looking at larger trends, as they tend to chop MUCH less than trying to make sense out of the intraday charts (1 min etc) and basing your targets accordingly. Enter at important levels on the larger chart so that your stop is protected (ideally) AND you can target the next level on the chart which will be a good number of points away (you dont have to worry about buyers or sellers stepping, because you are trading something bigger). IMO you can do this with the same size stops that i see people using everyday in chat when they are trading intraday charts. So why not increase your reward? The only hard part is actually holding through the sometimes scary intraday action, and no I don't mean necessarily swing trading (I close all my trades at EOD).