Did You Begin Day Trading As An Indicator Only Trader


Day Trading Method Setup Concepts

What is a trade setup?
When is that setup executed as a trade?

Consider the line drawing break2 AND the 2 charts - which one[s] of the dots are break2 entries?

Trading Considerations

A question asking which of the dots are break2 entries like the line drawing, doesn't even consider whether there was a base trade setup for which this would be an entry.

Consider that the answer is yes, each dot was a break2 BUT was there also a trade setup-trigger that this is the entry for? What are the various market condition considerations? What are the base setup components - are they left side-right side and related to the market conditions, or is there simply just a pattern break? A pattern break in the absence of defined base setup components is not a trade.

Consider 2 basic trading issues before entering a trade - in contrast to indicator trading and/or right side pattern trading only:

do you have a method setup that is related to previous trading and price action on the left side?
do you have a method setup that is related to the market conditions and market type that you will be trading?


Chart1

IF the yellow dot1 was sold - what would the setup be besides a right side pattern break - I could additionally ask the same question at the yellow dot2. Is any trade setup relevant both to market direction AND market conditions - where IF the setup occurred it could also be said to trigger?

market direction-swing direction: when r1 hits the market is up over 4 points which came from a left side swing break -vs- a gap open. There is a buy that is being trailed which got an extended 2x partial of 17 ticks on each contract from being long into the breakout that occurred.

market conditions: directional strength WITH consolidation between the highs at r1 AND 2 important price specifics - the blue centerline which was the overnight high AND the yellow line which was the previous day's high.

Any trade that was done at the red dot OR the yellow dot would have been a pivot entry that was counter AND inside of consolidation. This is not a base consolidation trade - a centerline shift-reject into a triple consolidation range break.

IF the yellow line-blue dot had occurred - this would have been a base consolidation setup that triggered at the dark blue line - into/through the 2 dark blue dots which would be the triple range break setup.

Chart2

green dot: pmd-swing reverse WITH mex flow on the retrace to the higher low [see the dark blue dot-circle synch] AND the directional trade. not a break2 entry BUT a base setup that is done on the initial trigger.

yellow dot: consolidation between r1 and the highs AND the blue line trying to shift to support. this is a break2 entry - it's also counter in consolidation AND note the channel to the left which was the higher low on the retest of the blue line to support on the buy swing move to r1.

i won't say that the yellow dot isn't a centerline break2 WITH mex flow - nor will i say that i am not 'looking' for a sell. i will say that it's a counter pivot entry at a support area AND i am first trying to hold the buy AND wanted to see additional price action before going short.

red dot: when this trade was done i did still have mex flow down AND i additional had a triple break setup at the dark blue dots that was being traded into/through - i was able to add a continuation break component to the setup before trading.

Trading Method Concepts

Right Side - Left Side

When you read a book, would you ignore each line except for the last couple of words AND even if these words made sense to the extent that you could grasp the general meaning, could you possibly really understand the full story?

This is what the right side only trader is doing, they are trading without a full understanding - in this case of the chart and of the 'things' that have already occurred. You may be able to 'see' immediate timing and price movement BUT you aren't seeing this in the context of what has already happened - the story if you will.

Integral to the Tactical Trading method, is the trading of the right side as it is relevant to the left side AND thus where the trade decisions that are made are a combination of right side timing and left side significance.

Consider: something that traders either forget OR don't consider is the continuity of the markets - from day to day, day to hour, hour to minute. Just because you are a day trader, day trading isn't the prime mover of price. AND just because you are flat at the last bar of the chart, certainly doesn't mean that other people aren't managing an open trade. Are you entering in synch or against their decisions - the 'price action' from which they entered their trade, and the relevant prices being used to manage their trade?

The most typical issue that I see is the misread, where a trader does a right side entry at support or resistance to a left side open trade, a trade that quickly loses. The situation at issue here isn't whether there was a right side setup - it's that it is 'against' the left side.

Trade Setup

Keeping mind the differences between a trading system and/or indicator only trading - a trading method setup consists of the defined method components that have to occur before a trade is taken. This definition is particularly important for real time decision making, where the trader is always going to be better prepared IF they are specifically looking for something that they have defined -vs- trying to make decisions when something occurs to them.

Tactical Trading uses the term base setup - a concept which refers to setup components including price, pattern, and indicator information - relevant to the market conditions and market type being traded.

Consider two types of traders: (1) continuous trader (2) selective trader - the difference being the frequency of trading, and the number of setup components that are defined in the base setup before a trade will be taken. The continuous trader is tends to usually be in a trading, taking each 'next' setup which will include the same setups that the selective trader uses, but also will include 'lesser' setups such as pivot entries during times of sideways movement.

The more setup components that you add to your setup, the more selectively you are trading. You will be taking fewer trades, which will obviously include 'missing' some winning trades, but your selectivity will also have the trades that you do take be of higher 'odds'. The case that should NOT occur - is that of a supposedly selective trader taking the 'lesser' setup BUT not the more selective setups - for instance I would not expect to see a more selective trader doing pivot trades in congestion.

Trade Setup Trigger

If a trade setup is the defined components that are being traded, then the trade setup trigger is the timing when the setup is executed as a trade. We consider these independently because although there is a defined setup, this may only be right side only AND when considered 'across' the chart, there is left side and/or market condition 'reasons' not to take the trade when it 'breaks', hence there is a trade setup but no trade setup trigger.

Trade Setup Misread
resource: trade setup misread

The concept of trade setup-trade setup trigger is specifically intended to attempt to avoid-eliminate trades that move a 'couple' of ticks BUT then reverse-resume the previous direction.

Left side: strong up move - known prices are the shift reject of the dark cyan line after the purple line higher low break through the line - consider that the green dot was the entry.

Right side: dark cyan line is brought to the right - at the yellow dot this line is then shorted as a break2 entry - do note this is a centerline trade.

Left-right issues: (1) is the yellow dot a base setup (2) is the dark cyan line setup to fail (3) has the purple line been ignored?

The yellow dot sell breaks through by a few ticks BUT to a higher low above the purple line AND then resumes at the purple line-purple dot - an addon setup for the left side IF they were still trailing.

The blue dot which didn't occur is the sell setup that synchs left-right - it is a shift of the centerline to resistance AND it is through a diagonal to setup a hit-break of the purple line. This is a setup where I would say that the left side swing has failed.

Trading the right side in the context of the left side is more than 'saying' things like: this is a counter trade so I am not going to do it AND it's certainly not - I am flat after missing the 'big' trade so I am entering on the initial setup trigger so this doesn't happen again.

IF the left side is going to continue - you want to trade that direction BUT IF the left side is going to fail - you want to reverse directions. This is the basic decision-thought process of left-right synch trading. In the case of the scenario above, you have a right side base setup that triggers, however it is at left side support as a centerline. This line is setup to break, but it's not setup to fail as support and shift to resistance - the issue at this time considering the left side swing. Furthermore, you have an additional support point to consider, how are you going to reach this point and even break through it?

Trading Method Concepts

Price Failure - Price Continuation
trade concept - failure continuation

The only way that we can gain a profit on a trade is if there is enough additional movement after the trade setup triggers to reach our initial partial target - in other words there must be continuation in the direction of our trade.

The 'best' way for that continuation to occur, is when the left side support or resistance that is being traded into/through fails AND then shifts - for instance support fails when it breaks and shifts to resistance, resistance fails when it breaks and shift to support.

Shift - Failure Combination
Triple Diagonal

However, support-resistance failure alone is not enough for continuation, there must be a combination of failure AND a break through the high-low price that 'setup' of the failure. In the trade misread scenario above, failure wouldn't occur after the yellow dot broke the dark cyan line AND it shifted to resistance when it held the line on retrace. It would have failed at the blue dot AND a break of the low before the retrace, coupled with the break of the diagonal line.

This is what we refer to as a triple diagonal - consider the visual: the yellow line is diagonal -vs- horizontal AND there are 2 existing points on the line at the start point and the midpoint - thus the blue dot is the 3rd point. The triple diagonal is one of our primary failure-continuation combination patterns.

Consider the line drawing AND trading decisions in the context of the left side AND the dots to the left of the vertical line:

The price line fails as support at the yellow dot on break2 of the line BUT you do not have a shift-failure combination until the blue dot AND the triple diagonal break.

blue dot: if price starts here, then the yellow dot is a failure of support AND this can be traded IF mex flow is down, indicating that another shift had occurred - that of the lower high -vs- the purple line.

dark blue dot: the identical characteristics of the blue dot exist on the right side, however this is support for a left side buy 'trying' to hold. So in this case we are concerned with support shifting to resistance -vs- the lower high holding the purple line as resistance - continuation coming from the shift-failure combination.

purple dot: in the case of a 2way market OR a trading range that is wide enough to get a partial profit on the test of either range extreme, centerline trading is a viable tact because the left side direction is not at issue. Providing that mex flow is down on the retrace to the lower high, the yellow dot could be sold as what we refer to as a pivot entry.

Trade Setup Selectivity

The list below are trade setup components - as you add components AND add them in the context of the left side and market conditions, your setup has become continually more selective.


Right Side Indicator + Entry Pattern

Indicator setup - 3 components triggering in synch. This would be referred to as an initial indicator reverse.
There is a pattern that occurs with the indicators triggering - for instance a break2 entry pattern.

Add Momentum Continuation + Price Relevance

There is mex flow in the direction of the trade setup on a retrace inside the pattern - for instance there is a retrace to a lower high BUT mex continues to flow down.
The pattern and indicator setup occurs at a key price line.

Add Price Failure

The pattern and indicator AND key price line break is a triple break - made additionally stronger when there is a lower high or higher low into the break -vs- coming from a double hold.


Left Side + Across The Chart Components

The pattern and indicator AND key price line break ALSO breaks a diagonal line.
The setup starts from the hold-reject of a significant price point - resistance into a sell OR support into a buy.
The setup occurs with a pmd failure - significant because it is a mixed method trade failure.