BPA trading room Q&A: August 17, 2015
About the 15-minute chart, I find watching the inside bar breakup to be reasonable with a 15-minute chart, what do you think?
Audio duration: 8min 54secs
A perfect trade setup on the 15min chart?
So he’s saying, like, bar 6, maybe it’s a reasonable buy. Bar 17. I think it doesn’t matter what chart you trade, and if I get rid of the session breaks and the time scale and the price scale, you will not be able to tell whether this is a 15-minute chart or a 5-minute chart. I guess you would because of the gaps down, you just count and say, “Oh, okay, every 26 bars is a 15-minute bar.
But in general, the price action is the same on the 5-minute chart, the 10, the 15, the 14-minute chart, the 27-minute chart, the 31-minute chart — pick any timeframe — a tick chart, a volume chart. The price action is the same on all of them, and some computers are trading them. Some timeframes, others are on others — one-minute chart. It doesn’t matter, right? And sometimes, it will seem like for several days in a row one particular pattern will work very well on one particular timeframe, and then it will stop working and you start losing money all the time. And then you’ll see that pattern working well on another timeframe — an hour chart or a 5-minute chart.
Everyone’s in search of a God, everyone wants to believe, everyone is in search of hope and they’re in search of perfection. They want that perfect trade where they know if they take this trade, they’re going to make a lot of money, and everyone wants that, and if it were true — if a perfect trade did exist, every institution would quickly discover it, and then no institution would take the other side, and all of a sudden the perfect trade would not work.
For you to be able to buy above 6, or to buy above 17, there has to be an institution willing to sell to you. If that institution knows the odds are really high he’s going to lose money, he’s not going to sell to you. And if there are no sellers at this price, your perfect trade is not going to work. There would be no one willing to sell. They’ll be willing to sell up here [above 24 higher high], but you have to buy it to get it up there, and there aren’t going to be any sellers here so it’s not going to go up there.
But perfect trade setups are out there—right?
Basically your question is a variation of the perfect trade setup: does the inside bar pattern work well, especially while on the 15-minute chart? And my belief is that it does not work any better on the 15-minute chart than it does in any other timeframe — although sometimes for several days in a row, it will work really well on a certain chart — 5-minute chart, 15-minute chart. Remember, all the high-frequency trading firms use their algorithms for two days, five days, and then they switch to a different algorithm because whatever was working for the past two, three, or four days is working less well now, and something else is working more well now. So at times, it seems like a particular pattern works very well, and it does, and it might work very well for another day or two, but that will probably be the extent of it. It will stop working. The computers will detect that something’s working really well and eventually, they will not take the other side of the trade, and too many of them will start taking the same side that you’re taking, and the trade cannot work unless someone is willing to do the opposite, and it will quickly stop working.
The Golden Goose syndrome
So I would not think about “Did I find a goose laying golden eggs? Did I find something really special that nobody else knows?” I wouldn’t think of it like that. I would think, “Is the context good? Is the setup good? Can I structure a trade with a good stop and a good profit target?” Doesn’t matter [about] the timeframe. Can I structure a trade where the math makes sense and not worry about finding one particular setup that is really reliable — because you will not find it. You might find it for a day or two, but then you trade it on the third day and the fourth day, and you lose money and you gave back more than what you won on day one and day two, and you wonder “How could that possibly be? It was such a great setup.” And it was a great setup for a day or two, and then it stopped being a great setup and some other setup was great, like doing the opposite of what you’re doing. So instead of buying above that great-looking, 15-minute inside bar, it became more profitable to sell above that great looking, 15-minute inside bar.
Perfect trade setups—a sure way to lose money!
So the takeaway is: Don’t worry about perfect trades and don’t go thinking that something works especially well on one timeframe. It doesn’t. It will work well on any timeframe some of the time. But you never know in advance when it will, nor do you know how long it will. So I would not be thinking in terms of perfect setups. I think that is a sure way to lose money, looking around for that perfect setup. I still occasionally see articles and websites that basically talk about perfect setups and perfect trades, and whenever I see that I know the person who wrote it is either dishonest or stupid. And since there are so many dishonest people out there, in general, I assume the person is dishonest.
Making money is hard work. Everyone wants it to be easy. They want a savior, or protector, right? A perfect setup, right, where they know that, yeah, they might lose sometimes, but they’re never going to lose much and they’re never going to lose often, but they will win a lot and they’ll win often. And they’ll have something that will work, not just for today and tomorrow, but forever. They want a perfect setup. And what they’re saying is, “I’m afraid of all of this. This is hard work. I don’t know that I can do the work. It’s hard to do it every minute of every day for year, after year, after year,” but that’s what you got to do. And you can do it, right?
Just do the work—that’s all it needs
If you put the work in — there’s nothing magical to trading — there’s nothing magical to making money trading, right? You just got to do the work, and — I occasionally get e-mails from people who are doing extremely well. When I say “extremely well,” I mean you can just put the number of zeros that you want after the number. The trader’s doing extremely well. They often ask me, “What do I do next?” and I say, “Nothing. You’re doing what you’re supposed to be doing. You’re consistently making money,” and it can get boring, but the key is to stay in the zone, continue to do what you’re doing and not worry about doing a whole bunch of other things, making a lot of changes, right? If you’re Tiger Woods and you got a great swing, don’t change it six times. If you’re Usain Bolt and you’re running whatever — 9.59, 100 meters — I would not be out there changing a lot of things. I would just try to continue to do what I’m doing as well as I possibly can do it and not worry about going to another level.
And that’s life as a trader. You get a bunch of tools and they work reasonably well, and if you’re one of those people who sends me an e-mail telling me, “Al, I made $4,000 yesterday,” or “I made $25,000 yesterday,” or “I made $15,000 this week,” and you ask me, “Al, what do I do to make more?” I’m telling you right now what the answer is: Just keep doing what you’re doing, stay humble, don’t start thinking that you can overpower the market and outsmart the market. Just continue what you’re doing, and don’t get greedy, and stay comfortable, and have fun, and be happy. And it’s magical. It can totally change your life. But don’t get bigger than yourself. Be humble. Say, “Hey, I’m just a guy or I’m just a gal, and I’m doing it, and it’s working, and I don’t have to go to some next level. I can just keep doing what I’m doing day after day. I like doing it year after year, and that’s my career.” And that’s the reality. There’s nothing beyond that, so it’s not as if you can keep adding, and adding, and adding, and adding, and getting greater, and greater, and greater, and richer, and richer, and richer. You don’t have to. All you have to do is — you have a basic set of tools and use them consistently well. You don’t have to be hitting homeruns. All you have to do is get up there and just put the ball in play. Just try to keep hitting singles, and that’s all you have to do. And if you’re able to do that, you’ll do just fine.
So that is the end of my long answer to the question about a perfect setup, or an especially good setup. Okay, I hope everybody has a good night.
Information on Al’s Online day trading room
It is the truth and the way you explain it just makes it perfect….I just kept re-reading it.
First of all I wish to say thank you for your work and contribution. I wish to say your work is seminal to my own future and I thank you very much !. I think other traders should acknowledge this as well. Someone mentioned your name, so I investigated. I ended up buying all of your books. When I delved into the books (I am going to be honest I have not read them all, I go into them here and there: I have mostly done my own back-testing and forward testing based on some of things said in your books). I am still transitioning into live trading with real money. I have traded via a simulation account and have traded live money as well and have been away from trading for a while due to outside circumstances. My experience told that if these circumstances (having a routine, regular time frames, your own space and focus, and capital) are not right then my mind is not right and I should not trade. Things have settled down now and I am ready to go onto my trading path once again. I have found it’s not about a perfect system that is right all of the time but, a very important collection of information and ideas based on your own experience and knowledge of the markets. I think it is also about your mind and attitude. It’s the ability to abstain from doing stupid things and adhering to your trading plan (Discipline). I think it’s not so much the institutions as they comprise the market but, really it’s about me- the dumb things I do as me !. Price is as far as I know the purest indicator of a security. All the other indicators are based on mathematical averages and algorithms that turn, plot or draw something on a screen once this information has been obtained by the computer for example, a simple moving average.
I have now bought the course and I am so happy for it !. I am making my way through it slowly. Everything in the post you said makes sense and I do believe what you say to be the truth. Trading is hard work, it does take time and energy and persistence. I wish to have new skills and knowledge to earn and provide for my family and have been pursuing this for a while. I am an Australian, so I have decided to go with my bio-rhythm (I like to go to bed early and wake up early: so this means in my timezone early morning trading (last couple or three hours or four hours of the US market) this will enable me function normally at work during the day time with no glitches. I know the close is not as good as the open but, it’s the only thing I have to work with to balance work and family. Vesides my mind is nice and fresh and I feel alert (after the coffee !!). I have some good opportunities at the close of the market or the last part of the day 2pm-4pm New York Time.
In your book: “Reading Price Charts Bar by Bar: The Technical Analysis of Price Action For The Serious Trader” on page 142 you note something that has cost me a lot of anguish and now I stay away from and can spot (do I still caught from time to time: not so much these days): “BARB WIRE: Read this carefully because it is the most important piece of information in this book. It helps you to avoid one of the biggest sources of losses in trading.” I have zeroed in on this type of activity due to that little piece of information and I am greatful !.
Anyway, I just really wanted to say thank you to you AL !.
Excellent post! It sounds like your comments are a variation of the “markets are infinitely fractal” theme.
And that begs a question: In your trading room, you talk about the importance of the 5 minute close, 60 minute close and what happens in the final seconds of the bar. Don’t these comments then somehow contradict the infinitely fractal theme and imply that those time frames are somehow more important than some other time frame not divisible by 5 like the 3 minute, etc.?
I think that every time frame is important and that all markets are fractal. The end of every bar of every kind of chart is being manipulated by some institution, but more widely followed time frames, like 1, 3, 5, 15, and 60 minute charts have more computers watching them and are more reliably making big moves just before the bar closes.
Fantastic article al one of the best i have read, if any trader wants to do well they will have to understand every word you have said.