Sunday, January 27, 2008

Trading Q & A

Hi. I have subscibed for a few months in the past and am looking at your monitored trades stats. I am interested in your service, but need to understand it better. I have gone through your blog a couple of times.


1) I am interested in trading your buy and sell probe signals. There seems to be a delay from the date they are "justified" and the original date you say the position was taken. You allow 1-1/2 hours from signal to position taken. I am really confused how that happens.

My question is, when you give an IP or KP probe signal how do I know accurately and immediately that it has occured in order to trade that signal.

I'm looking for the red or green arrow as well as your commentary on the chart. Am I missing something else?

In order to know accurately that a “justified probe” has qualified for entry, one must first understand the basic concept of momentum divergence . In general, counter trend probes “justify” when momentum fails to confirm a fresh price extreme.

We have recently quantified how, where, and when to “pull-the-trigger” once this criteria is met. For the purposes of tracking signal performance, we have defined entry levels for counter trend probes at the opening price of the third (30-minute) price bar following the extreme against which the probe was justified.

In short, once a justified divergent extreme is observed, one would then closely monitor and confirm that the following two 30-minute price bars have traded in the desired direction, away from the extreme price print at the time of divergence.

Once confirmed, one would place their order “at the market” after an acceptable open of the third price bar following the observed print extreme. Obviously, one would not place an order if the third price bar gapped beyond the extreme from which the probe was justified. In such a case, the process would likely start all over again should the observed divergence persist.

Concurrently, one would then place a discretionary stop-loss order at least one tick beyond the extreme price print. Such an occurrence tells us to abandon the probe, and that the previously observed extreme, was NOT “the” absolute pivot extreme we were seeking.

Once elected, for performance tracking purposes, we determine profit exit-targets at the nearest available trade-trigger target - either existing, or established - after the counter-trend trade is on.

Obviously, exit targets are also discretionary, and one may wish to stay with a counter-trend probe position for a larger move – especially if the signal is of KP vs. IP in nature.

Should a specific probe fail - The moment price action moves against the trade and makes a new extreme (hitting our mechanical stop loss) we categorize that specific probe as a “loss” and record it as such – adding 15% to the loss for slippage/commission, and other associated transaction costs.

Bear in mind however, that quite often, shortly after one probe fails, another of the same order is in the making. When this occurs, we repeat the same process of observing divergence as described above, wait for the two bars following a perceived low to move in the desired direction, then place a market order concurrent with a new stop-loss order after the open of an acceptable third bar.

This type of rather common probe-failure speaks to your question relating to the time elapsed between the time in which a market begins to signal justification to “probe” - to the time in which it actually delivers a successful quantified entry and favorable outcome.

We have stated repeatedly that probes are rarely if ever one-shot deals. They require a steady and controlled campaign effort to capture favorable entry to a given absolute turn-pivot of merit.

There are also times, when such campaigns seemingly go on forever with a string of 4, or 5 losses prior to a pivotal counter-trend turn being captured.

Furthermore, it is critical to understand and monitor these dynamic conditions in real-time. The market may telegraph new information at any given point throughout the trading session.

As such, one must be cognizant of our pending justification for probes, relative to one’s current or pending positions in the market, and - if the current probe fails – how to correctly observe intraday divergence in order to prepare for the next probe justification and stated entry criteria.

It is not practical, for us to monitor and provide real-time notification via e-mail alerts as to each and every intraday probe-failure and reinstatement campaign.

Instead, on a daily basis - we alert traders as to when and where IP, or KP probes are justified, pending or elected, providing them with the heads-up to begin, hold, or continue campaigning for such moves if they are so inclined.

Those trading short-term triggers or IP probes, must watch the markets they trade ALL-THROUGHOUT the trading session.

As an aside, similar to probes failing and re-instating amid any given intraday session, smaller trade-trigger boundaries may also develop intraday.

After a week or more of observing where, why, and how we draw our trajectory lines, most if not all short-term traders should be able to spot these trigger-lines as they develop in real-time.

In most cases, though smaller trade-trigger trajectories may develop during the session, it is not too often that they elect in the same day.

Swing-Traders with a tad-longer time horizon must either allow more generous discretion in using wider stops (more-risk), or like the short-term trader, watch the markets ALL-THROUGHOUT the session for optimal entries, failures, and re-entry signals.

2) You mentioned you were working on parameters for trading short term and swing trading. As the expert, I would value your information greatly and maybe that would simplify things. I would love a manual or guide.

This is but one amongst a plethora of plans and projects we intend to eventually provide in order to enhance our subscriber services.

In the interim, we have recently expanded each of our reports to include informative introductory pages.

This, along with the Q&A information provided on the blog page – contain much of the information one may require relative to general trading strategies – albeit in a loosely organized and fragmented fashion.

3) The trading results you are compiling each week, are these all IP and KP probe signals? Or a combination of trendline break, etc. signals?

The performance monitor (trading results) is designed to track (without discretion) points lost or captured for ALL COLLECTIVE (combination) sell-side, buy-side, and counter-trend campaigns.

The results presented are based on each trade’s individual merit and ultimate outcome. We monitor each position through completion, and without regard for single-account offset implications.

The impartiality and volume of signals identified, provides traders with an abundance of non-biased discretionary trade selections from which to choose and monitor. Each trade or signal is tracked through fruition using proprietary (non-discretionary) mechanical stops and exit targets.

Obviously, at their individual discretion, traders are free to choose modified entry-points, exit-targets, and stop-management criteria to suit their various trading/account preferences, and tolerance for risk.

As such, depending on trade selection, single or multiple account strategies, along with discretionary stop and position management, one’s actual performance may be far-better, or far-worse than the cumulative (non-discretionary) performance statistics recorded.

Thank you for taking the time to answer my questions.

We hope that our above response has adequately addressed your questions.