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Sorry Mike, conversation kinda transitioned from money management (which is integral to Ross Hook's) into this. I'd still be curious to hear about ikew's approach but perhaps that's a topic for a new thread.
So I've got a money management plan for trading 123's/Ross Hooks on 6B that I like. I'm still working on improving my skills in identifying valid 123's/Ross Hooks. Two things I'm working on right now are (1) deciding if I want to work on the 5 min chart or a different time frame (such as 10 min) and (2) incorporating volume analysis into my setups. The second issue, the volume analysis, I believe can help tremendously in selecting valid setups and avoiding some bad ones. One approach I've been looking at is using the VPA indicator. I'm curious if anyone has been using the VSA approach with any success and what there thoughts are. I'm not interested in whether the signals work blindly, that's a fools errand. However, I am interested in whether or not the VPA has been helpful in conjunction with interpreting price action. Beyond the VPA I'm also curious as to what other sorts of volume analysis people have been finding success with in conjunction with price action analysis.
Platform: Sierra Charts, Investor RT, Ninja Trader
Broker: VanKar
Trading: NQ
Posts: 520 since Sep 2009
Thanks Given: 583
Thanks Received: 1,248
Jugador
Thanks for the link. I downloaded the material and gave it a quick read through over the last couple of days. Well written, logical, and seems very useful. His style fits nicely with mine.
If anyone else read through this material and also any of Ross' other books, could you comment on whether or not it would be worthwhile purchasing the other books? I would specifically like to know about his Daytrading book and Trading as a Business.
Cunaparis, I would consider the S&P emini book with you.
Hope all had a very Merry Christmas and a Happy New Year
In the past I have traded a similar system. What I like about his book is the Slaughterhouse & TTE. I've already been testing it and that has changed my opinion about trading breakouts. I have bounced back and forth from range to minute/tick and the Slaughterhouse & TTE have me leaning towards minute charts.
I'm interested in his S&P book because I would like to get more current thoughts. In his book his cost covering was around $75 for 3 contracts. Today that'd be $15. So I'm curious what his first target is.
I like how he showed a losing trade in his book and said something like "Guess we haven't found the holy grail." That was funny. And very few authors show both good & bad outcomes.
When Joe wrote his book, costs were around $25/contract. For a 3 lot, he had $75 in costs. So he would take off the first two around 6 ticks, cover his costs, and give a 6 tick profit.
The goal of his method is to get free trades. Cover costs asap and then hope for a big breakout that doesn't look back. He says it happens 2/10 times.
At first my thinking was to pretend my costs were $25/contract and use the same setup. I even practiced it using a 5 tick target. But I'm running into issues which I think could indicate his original method may not apply to today's market with much more volatility compared to when he wrote the book.
I'm not saying trading ross hooks will not work, that is the very essence of trading based on price without indicators. So that will always work. I'm talking about his specific method of managing the trade, mainly the exits.
In the book he said, towards the end, "I won't let a trade go more than $50 against me." This right there says a lot. It must have been nice to trade back in the good old days when price wouldn't pull back more than $50 (4 ticks with Euro). But that's not the case now. A 4 tick stop loss will get you stopped out the majority of the time.
After covering costs he moves his stop to breakeven. In my practicing I can see that the market will often drop down, take out the stop, and then move on 50+ ticks. It's a shame to miss out on such moves just to have a breakeven stop. Here's an example:
So I keep thinking the trade management needs to be updated for current market conditions. He stresses covering costs. Our costs are around $5/contract compared to his $25. That means our costs are 20% of his. That's a huge difference. If he takes 2 setups that's 25*3*2 = $150 in commissions. Compared to $30 for me.
My experience is that costs should not be a factor in any profitable method aside from "scalping". So why cut a contract short? Well the other reason is to bank some profits. If you have a profitable method with an edge, banking early profits will reduce your performance.
Let's say you trade 1 contract and average 20 ticks for a risk of say 20 ticks. Then let's say you add a second contract and want to cash in at +10. On that contract you're risking 20 to make 10. Furthermore you'll make less than you would have had you done 2 contracts with a 20 target.
I've seen this countless times when doing backtesting of automated strategies. There is only one optimal target. Anything else is suboptimal. The only reason I would do it is this: If the first target results in a profitable system. In that case the 2nd target becomes a sort of runner. A bonus. This can add stability to a system and stabilize the equity curve.
Here's some testing I did yesterday:
second column is the 3rd contract which is stopped out.
total is $1060. (This is just hypothetical tests, it wasn't done bar-by-bar and you wouldn't get this in real trading).
the 3rd contract got 51-11 = 40 ticks. Now let's do a what if.. let's say you did 3 contracts but used the same target, that is a runner being stopped out eventually. 3*40 = 120 ticks. 120 * 12.50 = $1500.
So you'd do better without the 1st & 2nd targets!
Also notice the $427 loss. Getting stopped out, even with a small stop loss of 11 ticks, really hurts with 3 contracts. You need some winners to make up for that.
My idea is that we have essentially 0 costs when talking about 20-30 tick trades. So the whole thing can be simplified. In the 2nd column the 0's are when it hit a breakeven stop. In many of those cases, price when on to reach 20-30 ticks or more. So if we hadn't use the breakeven stop the results would have been even better.
Here's an example:
In this example there was an entry on the next pullback, but this is not often the case. Imagine that we didn't get that 2nd pullback, we would have missed a 51 tick trade just to have a be stop. On a trade where our risk was only 10 ticks. Managing the trade to prevent a 10 tick loss could have prevented a 51 tick gain. That 51 tick gain would pay for five 10 tick losses.
This is why I'm curious to buy his new S&P book to see what he has changed for the current market conditions. In the mean time, I'm not convinced on covering costs and I'm not convinced on moving the stop to BE too quickly.
I think this TTE and breakeven stop may not work on a 5min so I tried it on an hourly. I'm testing the first week of November.
I show 3 trades. The first two show a breakeven stop on the TTE would be taken out. The third would not and would have a big gain. Joe sais 8/10 will get stopped out. I guess I'm not used to that.
i'm convinced a be stop will not work. well not that it won't work but I think one can do better. Note that in most of those the swing pivot isn't taken out so if the stop was there one would have more winners.
Testing out the ross hook. I will not trade it as he has written in the book, I will adapt it and make it my own method.
This is also my first entry of 2010. Off to a good start. I say first entry cause I closed out a short ES trade this morning and took $500 profit on that. So off to a great start!
