So What... B-Side FLD strategy 2.0

Objective:To define Risk:Reward using the 2.5 wk FLD to enter trades at 4.5 year lows.

Using ES and $INDU

Assumptions:1. Correct phasing. 2. I don’t have dynamic FLDs programmed into tradestation at this time, mine are static.3. Price is entered at the level of the 2.5wk FLD. No slippage, no comission.

10/8/98

BUY 1118
STOP 1042.50
Risk 74.50 pts * 50 = $3,725

The 2.5wk was crossed at the same time as the 10 wk
Target 1192.25
Reward 74.25 * 50 = $3,712.50

RR 1:1

to get 1:2 need 1,266.5. This was achieved in the first 10 week cycle, just before and after the 5 wk low.

Using the 20 wk FLD target of 1363.50 R:R is 1:3.30 Target easily achieved.

3/6/2009

BUY 545
STOP 491
Risk 54 * 50 = $2,700

Target 741.5
Reward 196.5 * 50 = $9,825. This was achieved in the first 10 week cycle.

1:3.63 RR

10/31/02

BUY 777.5
STOP 713.00
Risk 64.5 * 50 $3,225

Reward 942.50

RR 1:2.56

Target failed to be achieved in the first 10 week cycle. Once the 10 week cycle low was in place, STOP can be moved 1 tick below the 10 week cycle low. Trade exited at 814.75. Profit 37.25*50 = $1,862.50
RR 1:0.58

Let’s look at the 2003 low as well

3/12/2003

BUY 773.75
STOP 735.25
Risk 38.5 * 50 $1,925

Target 821.25 (2.5/10 wk FLD very close together gives similar targets)
Reward 47.5

RR 1:1.2 Target easily achieved

To get 1:2 target 850.75. This was also achieved in the first 5 week cycle.

6/13/06

BUY 1163.75
STOP 1134.25
Risk 29.5 * 50 $1,475

Target 1241.25

RR 1:2.63

Target not even close, but STOP was not hit. Target was eventually achieved in the second 10 week cycle.

Double Bottom 7/18/06

BUY 1162.75
STOP 1136.25
Risk 26.5 * 50 = $1,325

Target (again 2.5/10 wk give very close targets) 1184
RR 1:0.8

For 1:2 need 1215.75 This was achieved in the first 10 week cycle if you take this low.

INDU 10-12/1974 Double Bottom

BUY 611.83
STOP 573.22
Risk 38.61 (6.3%)

Target 746.57 (134.75 pts)

RR 1:3.49

Target was not even close. Another double bottom. I think a prudent trader would have used the 10 wk FLD as the stop after priced crossed over it. EXIT. 624.92 + 13.09 pts

Buying the December low

BUY 591.11
STOP 570.01
Risk 21.1 (3.6%)

Target 668.86 (77.75 pts)

RR 1:3.68

Target achieved

The red bars on the bottom represent the capital at risk taken for LONG trades (calculated by taking the 2.5wk FLD and subtracting it from a recent low). Since there is no phasing, you have to do that yourself. I have placed the 10 week price filter for eyeballing the comparisons. This answers my original question of what is my expected risk in dollars.

Here is the SHORT trade risk.

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A look at the short term ES

Price is crossing the 1.25wk FLD. A low is expected soon. By my work the short term is up, with the very short term neutral. If the VST trend can turn down at the 1.25 wk low it would make it easier to turn the short term trend up (by my work) and with an FLD cross to the upside would by a setup to go long. I will check the RISK for using the 1.25 wk FLD as entry.

#2. The other scenario, is the VST trend stays neutral or down and after the 1.25 wk low fail to turn up, would be a sell.

On a daily basis (neutral trend) , price is approaching the 10 wk FLD where I am sure many are looking for some resistence.

Using the previous 1.25 wk FLD cross RISK is the tall RED bar @ $3743. Cross price was 2885 with a target of 2960. Price only made it to 2946.50.

Good trade, target hit all things considered. You would scale out of the trade with lower degree VTLs. The next trade you would not enter because you would be aware it is a ‘B’ category trade and the 80 day low had likely formed.

Price never turned down, trend stayed neutral. Cross back up through 1.25 FLD @2925.25 with a target of 2961.50. Not a confident cross, more like support. Price now needs to move higher to turn the VST trend up with the short term. The daily still being neutral.

Risk is $1815 Reward $1812 1:1.

I agree with David that the short trade should have been avoided. David as far as scaling out, I have 2 options. Take the profit during this cycle as you mentioned or hold. Thinking ahead… if price does rise, the daily trends could possibly turn up and that would extend the trade. On the other hand, price is near resistance.

Yes you must decide what your ‘trading cycle’ is really. Although nothing stopping you from entering an A category on the 10 day FLD and then switching up to targets on the 20 day FLD (80 day trading cycle).

ES Update

Target has been exceeded. Up against some resistance here from multiple views (Classic TA–Support becomes resistance and 10 wk FLD). Sell 2968.75. + 43.5 pts * 50 $2175.

I also think that it is helpful to know the price change from low - high and then high - low of whatever cycle you are trading.

The bottom plot is the price change from low- high / high - low of the 1.25wk cycle. This should also give an idea on what to expect for the next cycle.

You would be better off using smooth, curvelinear envelopes as specified in PM to anticipate the amplitude with the advantage of ‘nesting down’ etc

Thanks for the reminder David…I haven’t tackled envelopes yet for tradestation.

The short term trends were able to turn the daily trends back up as anticipated…sold a bit early. I’m not going to try and pick a top for this 10 wk cycle. I’ll by looking for a long entry setup to see if the highs can be tested.

ES

Buy setup off the 1.25 wk FLD…@2975.75. It appears the next 1.25 wk low may have occurred yesterday.

RISK 2957.25 or 18.75 pts ($938) Target 2994

RR ~ 1:1.

Target has been achieved. Rather than sell here. Stop moved to breakeven.
If the low has not occurred yet, stop will likely get hit and will evaluate trend at that time.

ES Update

Sundays opening is close enough for the half-cycle low of the 1.25 wk cycle.
Price is crawling up the 1.25 wk FLD and has broken the VTL. I have a trailing stop at each successive low 4hr bar to SELL. The most recent bar is an inside bar so the previous bar is used. Right now it is @ 2993. Stop will be moved to the low of this bar which completes at 21:00. Next low expected in a couple of days. Longer term trends are neutral at the moment.

What is the thin purple line enclosed by the white dotted line in your last chart?

The light purple is the 1.25 wk FLD, the upper dotted line represents the high, the lower is the low, and of course the line itself is the median. The dark purple is the 2.5wk FLD with its high/low.

Price tracking up underneath the 1.25wk FLD. Surprisingly STOP has yet to be hit. Moved to 2999.75 @ 21:00. Next low due in 1-2 days. Trend is neutral noted by the brown bars. Should see some red bars show up before the next low. Those red bars late in the cycle usually indicate a pending reversal.

9/19:SELL @ 9:00 bar as STOP hit. + 24 pts = $1,200 Initial risk of $938

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ES

Bit of a FLD mess here on the shorter time frame. The most recent 1.25 wk low was likely 9/18 FED day. Price crossing back above, then failed to turn the trend up, and then later 9/20 back below the FLD. The RISK based on the 1.25 wk FLD was $1,259. I did not take this trade. Price target @2974. Previous 1.25 wk low @2959 (support) and then the top of the consolidation range @2946 (support).

Depending on where one marks the most recent nest of daily cycles in August will determine your expectations of where the upcoming 5 wk low will be. For now I am using 8/14. This is the divergent low with the mcclellan osc. and the NYA. But I don’t mind being off by 1.25 wk.

So expectations are for price to remain below the 1.25 wk FLD, waiting for another opportunity for a LONG trade.