Monday, 3 May 2010

Context, the Context and Nothing but the Context

Is a buy setup for ES 1 point below a valid resistance level as good as one 1 point above a support? It's this assessment that is part of the thought process when considering whether to trigger a setup. But what if the momentum is abnormally strong on the buy side and the volume delta is very much above the zero line? Does that change things? Do we ignore the resistance? Or do we take the trade and watch what happens at resistance? Is it normal for it to hit resistance the first time and pullback or should it go straight through?

What this post is saying that a setup can be more than one setup depending upon the context or maybe in a certain context the setup is not a setup at all.

These considerations were too difficult to address in a blog but reverse engineer the trades and comparing them, doing the back testing, many of you found the answer to these questions. Many of you have also created chart signals from these setups and have gone on and created autotrading robots.

While this is discretionary trading at it's purest, many of us like to structure our setups to make it more mechanical in search of the ability to make repeatable trades in order to achieve a consistent outcome.

This can and is being done, but at a price. The price of a lower performance. But perhaps the certainty that comes from consistency allows trade size to be increased above what otherwise would be achievable by a trader and thus increase nett monthly dollar performance.

Starting point for me is creating the setups. In the training I'll be able to do what I can't do in the blog, show the step byhow I find these and use all my own setups as examples. As I said, the setups are important but the magic is learning how to evaluate them against the context and then to decide whether or not to trigger them or not. This is discretionary.

Today is the May Day holiday in the U.K. In olden times they used to dance around the maypole but I haven't see that at all since I've lived here. No trading for us.


  1. Tom: Over the past month, I have noticed that many of your trades are labelled with the type of setup that was used. I have noticed the following labels:
    - Delta (meaning Delta Divergence)
    - TR (meaning Trend or 30 EMA cross??)
    - SL (not sure what it means)
    - S&A (not sure what it means. I notice these are High Frequency Trades)
    - No label (simply Buy or Sell with no label when other trades on the same chart are labelled).

    Would you be able to tell us what these labels stand for? Even if you cannot provide us with insight into each of the specific setups, it would help to know their names as it may give me a clue when I try to "reverse engineer" your thinking.


  2. Hi EL,

    I've enjoyed your blog for several months now and I'm signed up for the training. I've gotten much better at selecting entry points, but my struggle right now is managing the trade after I'm in it. Sometimes I have a hard time staying in a trade because I'm not sure what's normal heat and what's a real change in market direction. I'm hoping you cover this in the training.

    Thanks again for your excellent blog.

  3. "the setups are important but the magic is learning how to evaluate them against the context"
    How true. How do you learn someone to "think right"? I can't wait to see how you plan to convey that knowledge. You've obviously succeeded before, at least with Kiki. Common trading lore has it that it can only take place through thousands of hours of screen time - and that is if you are lucky. By the way, it would be nice with a Kiki update. How's she been doing lately?

  4. Mr. ELocal ..Will your videos of the entire training be available for sale at a later date without mentoring?