Rage Against the Machine – Becoming a Renegade

Disclaimer: At no point is this article intended to downplay, attack or otherwise damage the excellent work of VP at NNFX. Without him and his videos my trading would not be at 1% of the level it is now. It is purely intended to provide an alternative angle to what he provides, and how to get the most out of these teachings.

Definition of Renegade
noun: a person who deserts and betrays an organization, country, or set of principles.
adjective: having treacherously changed allegiance.

Wow. The adjective definition of renegade seems very harsh. I don’t think I’ve “treacherously” changed allegiance, or, actually, changed allegiance at all. I’ve just adapted it. I still subscribe to the basic theory.

Either way, I’m a renegade. I don’t follow the rules. Here’s why.

Deutsche Bank, come out to plaaaayyyyy!

VP from NNFX has always stated that everyone trades in a different style, with a different approach. A system, theory or algorithim that works for one person certainly won’t work for everyone. In fact, it’s very likely it will only work for that person, or at least it won’t be as profitable for others. The person that invented and developed that strategy or system will know how each piece of their engine integrates together to create the desired result. Why do they take profit where they take it? Why do they set their stop loss that way? Why do the special rules they’ve applied work so well together? How have they taken their own trading style and applied it to the technical analysis they’ve put together?

There are so many different and complex variables.

When I started down the NNFX route, I immediately knew there was one element of the algorithmic process that I wouldn’t get on with – trading on a daily chart.

I am not someone who needs instant gratification, far from it, but I do need to see progression in my results. Trading on a daily chart naturally leads to bigger stops and longer waits to see how markets develop. It’s not something I can personally learn from. When you attempt to learn in a way that your brain doesn’t appreciate or respond to, you simply do not absorb and act on the information effectively.

I think back to my old school science lessons. In biology, I had a teacher who just lectured. Experiments were very minimal, and the lessons were all about disseminating information. It was not a particularly interesting or entertaining learning environment, and I am someone who has to learn by doing. Obviously, I can put a certain amount of blame on myself for not adapting my ability to learn, but as a qualified trainer myself today, I know that every good trainer MUST adapt their training method for their audience. You’re doing it for them, after all.

So to get back to my point – what is the point of me trading the daily timeframe? I am far more comfortable intraday trading where I can more immediately see mistakes and progress in action.

That leads me to my second consideration that I haven’t seen VP cover yet. Multi Timeframe Analysis.

I do not have the vocabulary to explain how important I think MTF Analysis is, across any timeframe, even the Daily where true students of NNFX trade. Not just in a single indicator either. In confirmation indicators, in volume indicators, in exit indicators, in price action – you can get a snapshot on your preferred timeframe, but you will never get the full picture.

Take the following set of screenshots as an example. We’re going to use a highly basic single 50-period MA with some very basic fundamentals to say if we should be going long or short. I know we don’t normally trade like this, but bear with me here.

The above is what our 15m trade looks like. Price has broken the 50-period MA to the long side after a period of consolidation. I think this is pretty tradable on paper.

The above is what happens after I’ve taken this trade north (the green line denotes where I’ve taken the trade). Naturally, it goes south. There’s little opportunity to take profit – I might be able to take break even I suppose, but it depends on what I’m using to say actually, no, this is a bum trade. If I don’t get out, within 48 hours, I’m down over 100 pips. Ouch.

I could have possibly averted this trade if I had checked the exact same indicators and fundamentals on a higher timeframe. Here’s the example on the 4H (screenshot below).

The green line represents the time when I would’ve taken the trade, but the previously closed bar is under the moving average, indicating a short rather than a long. Furthermore, there is such a low volume in the market – look at how comparatively minimal the movement is over the past few bars. There’s no indication of how the market is going to move in a fundamental sense – if anything, things are still consolidating. Sure enough, after a brief pullback above the 4H, the market travels down for another couple of weeks before finally reversing in our expected direction.

There are at least 3 signals – 2 fundamental and 1 technical – on the higher timeframe that should tell us that taking that trade on the 15M is complete insanity.

This was an incredibly basic analysis using a single indicator I don’t even personally use, but it shows that MTF is absolutely part of the game. I can’t tell which direction any market is travelling in without knowing what the timeframes above me are doing.

It would seem with such differences I’m not really a student of NNFX. That is not at all the case. NNFX taught me a couple of very important things, as follows:

  1. Confirmation indicators, and having at least 2 of them. Something that confirms your suspicions, and then reconfirms your suspicions of your suspicions.
  2. The importance of having all your ducks lining up before jumping into a trade
  3. The number of different things that you can use as a baseline, not just relying on moving averages that look good when you look left but never provide enough to the right
  4. Volume and Volatility. No one should trade when the smart money is out of the market, or when it’s being pulled out back into a consolidation.

Let’s look at VP’s algorithim shell. He believes there are 6 components to an algorithim.

  1. Baseline – You only trade in the direction your baseline tells you to
  2. Main Confirmation Indicator – The main source of entry signals
  3. 2nd Confirmation Indicator – Data that tells you your entry signals are valid or totally out of whack
  4. Exit Indicator – Your guide to telling you when to get the fuck out of dodge
  5. Volume Indicator – Shows you if there’s enough liquidity in the market to trade
  6. ATR – For trade management

Now, to break it down from my point of view, here’s what I’ve taken, and here’s what I’ve left on the shelf.

I don’t use a baseline, at least not in the traditional sense. On my chart, a baseline can’t possibly tell me which direction the market truly lies in. The only thing that can tell me that is Multi Timeframe Analysis, and if I am using entry and confirmation indicators anyway, they probably give me more accurate information of the market condition and direction.

I do use all of the confirmation indicators suggested and more. I have one which I classify as my entry indicator, as well as an higher timeframe version. I need the higher timeframe version to be pushing in the direction of the trade before I get the signal on the lower timeframe too. I have another which indicates price action across several timeframes too. Another which concentrates on the shorter term price cycles, and finally one which ONLY concentrates on the extreme higher timeframes.

In all, I count 4 confirmations, 3 of which run across higher timeframes. Do you see how important this element is? I think it’s probably true that the lower your timeframe is, too, the more confirmation you want that your entry signal is strong enough to trade.

My exit indicator is based on my price action indicator, and I also use that to set targets and stops – so I don’t need ATR, although I respect its value and importance. As for volume? Well, that’s the missing piece for me at the moment – I haven’t found one that works for me. Yet. My mind is constantly working and looking over the rest of my algorithim and seeing that MTF has worked for all other elements… well, maybe that’s something I should pursue next.

This isn’t a rocket launcher. It’s just my four confirmations.

Lots of words in that breakdown there, but I think it’s important to demonstrate just how extensively you can modify something for your own values if you’re struggling to use the original variant. NNFX taught me, above all, the value of strong confirmation, something I have really taken on with the lower timeframes in mind.

Being a renegade is no bad thing. Read the original source material and know that for many, it works. It might work for you. Know as well that if it doesn’t but it has such strong feedback, it might just be you and not the source material.

Open your mind, embrace the elements that work, and fashion them into something that replaces your own shortcomings and empowers your strengths further. If the original isn’t working, be a renegade.