Hi Mike,
I just spent the entire weekend finishing reading The Playbook and I just wanted to grovel at your feet a little bit.
I loved it. OGT was my favorite trading book ever, and this book is an absolutely perfect companion.
As a lonely trader doing it on my own, every time I read one of your books I just about dissolve with jealousy at the resources your traders have at SMB—the support and accountability from you and Steve, and the opportunity to draw on other brilliant traders whenever they want….it sounds like heaven. If there is ever an opportunity for me to join you, I will move mountains to get myself to NYC—mountains, aka my husband and kids 😉 ……
I trade FX intraday, and have designed my own method which backtested well. I can’t program/code, so I did it manually which means there is the possibility (probability) I made errors. This nibbles at my confidence when I have to sit through a bunch of losers. It’s a technical set-up, and in my testing I didn’t take price action into account at all. So my job now is to filter all the trades so I can see my A+ trades.
I’m yet to see the backtested results in my trading account, so I’m also working on being more aggressive in adding to winners. I never let my losses get big, so I think the key has to be reducing the size/frequency of the losers that fail off the bat, and working out what they look like so I can put them in a sort of anti-playbook 🙂
Anyway, questions….
…I had a question about how your traders use ATR in their trading. Currently I use it to gauge how far a pair might move in a given day, and set my targets toward the extreme based on how far price has moved from it’s intraday low. Is that pretty much on track with your traders? If price has already moved significantly intraday, would that make your traders think twice about entering a trade, or trade the set-up with smaller size? I imagine a 1:5 would be hard to come by late in the day, unless you’re fading a trend.
Once again, thanks so much for your book. It’s like trader-oxygen to me.
@mikebellafiore
First, let’s define ATR. ATR = average true range. This is how far on average a stock moves intraday (including gaps).
We trade Stocks In Play. When a stock is In Play it can move a multiple of its ATR. We then use ATR to see if it is worth our time to trade a stock. An ATR of .7 (the stock moves on average 70c intraday) is a standard minimum for choosing stocks.
As we are trading a stock we do notice how much it has moved based on its ATR. There are times when we will wonder how much further a stock can trade given its ATR. If the intraday trend is still intact we will most likely stay with the position but we might lighten up if the move feels overdone given its ATR. We very well may decide not to enter or enter will less size or enter but set a quicker stop if we notice an outsized move for a stock given its ATR.
We encourage our traders to build personal filters for their favorite trading setups. Most of the traders use ATR for their personal scans.
I hope that helps.
Related blog posts:
Playing the Range
Why Trade Stocks in Play?
You can be better tomorrow than you are today!
Mike Bellafiore
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