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Pitbull Three Strategy


Here is a strategy which I did not originate. Perhaps some of you have seen or heard about various forms of this. It was taught to me by a self proclaimed “old Timer” who I happened to meet about 5-7 years ago in a commodity site chat room. This was before Paltalk and Hotcomm was popular. I present it here mostly as it was taught to me for free. I “watched” him trade this for about 9 months in real time. It was designed for the big S&P contract so I have modified it slightly for the emini. The man who taught this was gruff, sometimes abusive ( especially when the future vendor Kingfish came in the room) but always answered questions…

Originally I thought he was going to turn out like the Army Sargent played by Lou Gosset Jr. in “Officer and a gentleman” but this mentor just disappeared and I never found him again. Perhaps he started his own service and markets this but I haven’t seen it. His idea on stops was the following….”You can either take the loss and try again or trade your way out”. He always tried to trade his way out and would sometimes lose on trend days… as it is a counter – trend strategy……a few other things….he would call in for the official opening range…( it is not the one minute high or low as some think but we can use that for exits)..I am using the opening price on the emini to set the levels . He would trade up to 50 contracts if he needed to so he was at times adding to a “losing trade” as some might say……he always took a 1.5 point profit target…….he didn’t alter this….I’ll think of other things as we go. He also thought that if the rumors where true and the floor traders where moving to screen trading then this strategy would become less effective…….it is only traded in the first hour and he only broke this rule if he was trying to “trade out”…..keep in mind this was designed when volatility was higher and 5 minute bar could have a range of 5 points…unlike today's markets……I think the levels are most important and although I don’t snap them on my own personal charts I have them written down on paper after the opening….He believed that at 10:30 EST you should close your business up and end for the day…unless he was trying to recover... ok enough of the history

Click image for original size
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ok first we take the opening price and add and subtract the following numbers
The strategy tends to capitalize on the floors ability to push the market in one direction to sucker in the public for it to then only snap back towards the opening range…I have noticed that it works best when the market is pushed to an extreme of either an overnight high or low or the previous days high or low…so we can relate this to an “open-test-reject” as per Market profile concepts……
+- 2.5
+- 4.0
+-5.5
+-8.0
This sets up our WINDOW of trade entry points….For today Friday January 5th I have the opening price at 1424 so the downside numbers would be 1421.50, 1420, 1418.50 and 1416..and here are the rules.



1) If we open and drop down to the minus 2.5 number then rally to the open you buy
2) If we open and drop down to the minus 4 you then buy at the minus 2.5 on the way back up
3) If we drop down to the minus 5.5 you buy the minus 4 number
4) If we drop to the minus 8 you buy the minus 5.5
This is all reversed for the upside.
Anything beyond a plus or minus 8 meant the market was too risky too initiate from down or up from the opening so he avoided it…in general he believed that the further out into the WINDOW you went then the riskier it became…so buying a minus 2.5 after a hit on minus 4 is a safer trade then buying a minus 4 number after a minus 5.5…He didn’t use stops but his target was always 1.5 off the window number ..not your fill price...



You would stop trading if the markets dropped 2.5 points below the opening and then traded 2.5 above the opening…..this would be called a COMPLETED WINDOW RUN and the floor was done doing it’s business…you would be finished also…just one or two good trades a day……for now think about how you can incorporate the Pitbull One and II thread ideas into this……did you see the singles band with the first and second one minute bar today

The Market opens at 1424 and drops down to slightly below the minus 2.5 number at 1421.50…since we didn’t trade back to the opening at 1424 there is no long trade…..The market then drops further and goes to the minus 4 number at 1420 so we are a buyer at 1421.50……which is the minus 2.5…If you use stops then this trade would not have hit 1.5 points of profit and you lose if you are using stops….The market drops further to the minus 5.5 number to the tick at 1418.50..so you are a buyer at the minus 4 which is 1420….this achieves it’s target and rallies up to test the band..see pitbull thread II at the first and second one minute bars…not shown on this chart. ok...this is a lot so I will work on trying to clarify what needs to be clear…the second long was better because we had Tick divergence to support the trade…may seem complicated but it’s not..I’ll highlight the important stuff…..and ask questions...it helps me too to get this stuff in words

Bruce
Mon and Tue went fine. Made 1.5pts easy.
Today I messed up. Mkt opened at 1061.50, went to 1064.75. Instead of thinking that was close enough to the +4, which would have been 1065.50, I thought it was closer to the +2.5.
I sold the Opening price, which stopped me out.
If I'd sold the +2.5 price at 1064 as it went back down, I'd have made money.
Not too tricky to grasp, and I'll remember that one.
Glad I'm in SIM.
Today I messed up again. Open was 1081.75. Price went to 1079.50. - ALMOST enough for the first target of minus 2.5pts, or 1079.25, but not quite. I put in an order to BUY the opening price at 9:35EST, but alas, price wasn't ready and I got stopped out with my 1.5pt Stop Loss.
Price THEN moved to exactly 1079.25, which is exactly the minus 2.5 price, and THEN moved up to the open and 1.5pts beyond.
Since I lost on the first trade, I doubled my contracts, made back my loss, and ended the "Window" trade with a profit of 1.5pts.
I'm learning.
piper
Thats great....most days the market will come back for a retest of the open print...even more so when we open inside the previous days range and value area


when we open out side of the previous days range we are more likely to possibly form some kind of a trend so fades are a bit riskier...

Of course the 10 am EST reports can also spoil the party for the "Pitbull". Thanks for keeping us posted
Thanks for the info Bruce.
Not sure what I did wrong today, other than the Mkt opened way above yesterdays range.
Stay out?
Opening print was 1099.75, Price went to 1104.50, so I sold the +2.50 price of 1102.25. Mkt hit it, went back up to 1104, which stopped me out on the 1.5 Stop Loss. Then, Price broke down 4pts in just 2 1min bars.
Did I play this wrong?
Any suggestions?
piper
I think it's important to keep in mind a few things about the Pitbull methodology as mentioned here in the begining of the thread.

1)It originated from the floor traders usuing the Full size contract - I have adapted it for the emini

2)The person who taught me this would phone in for the opening range of the big contract and get the high of the range and the low of the range. The numbers would be added to the opening range high and subtracted from the opening range low. Using just the open of the emini is just a quick reference point...some will use the opening minute high or low

3)The originator used no stops....professional suicide to some..

4)There was a 10 am EST report so trading in front of those is equivalent to gambling. I usually only try to hold runner contracts in front of those and if I already have a profit to work with. Sometimes it's " fun" to take a gamble as long as you can admit that it is just "chance".

Best to use the numbers with some confluence - Lorn mentioned this today in the daytrading thread and it's a common theme we all should embrace. Nobody has perfect numbers and there are so many ways to trade.

The O/N high was 1103.75 and the plus 4 was also 1103.75..so you'd want to try selling above there anyway.....I suggest using thge Pitbull numbers as a frame work in the context of other things

The method tries to capitalize on the breakout traders. Those folks who try to buy or sell the markets after it first pushes out in a direction....Like an opening range breakout....The method will lose when they win...The method wants to capitalize on the markets ATTEMPT to get back to the opening range......We don't need it to go all the way back to make money...but it does need to try and get back...

Hope some of that helps
That does help in seeing the larger picture.
What's also going to help is using a 1 point Type II Range chart.
piper
Fading the first move has produced extraordinary results when the Stretch calculation and/or the Fibonacci ratios for the Stretch calculation were applied. There are many more examples ... here is one:
1 September 2010, Wednesday at 7:32am Fading the first move has produced extraordinary results. Here is one example: ymu0 (Sept $5 Dow) trading note: Open 10135, rallied to 10188 (Stretch calculation:53=X) ... reversed to 10120 (10188-53=10135) and bounced 125 pts to the current high 10245. (2.618X = 138... 10120+138=10258.) This news driven price rally has pulled back 20 pts. Just an interesting note Open +X ... high (1st high 10188 ...-X reversal to B session high... Open +X, - X, + 2.618X nearly.See More
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can u get us a picture and an explaination of this type of chart withthe pitbull?
Originally posted by piperian

That does help in seeing the larger picture.
What's also going to help is using a 1 point Type II Range chart.
piper
Great idea Bruce!

1 point Range Chart, but not a Type II. Too many losers.
First circled bar is the open, 2nd is the "trigger" to go short at the opening price, 3rd is the "fill", 4th is the Profit.




Click image for original size
1pt Range Chart


I don't know how to change the size.
This might work better. (I hope)

Standard 1 point Range Chart. NOT a Type II- too many losers.
From Left to Right:
1st circled bar is the open, 2nd is the "Trigger" to short the opening price, 3rd is the "Fill", 4th is the "Profit Target".
Hope this helps.
Click image for original size
pitbulliiirangechart
Originally posted by BruceM

big mike...is this one of bitmans ideas u r using on weeklies

http://community.livevol.com/index.php/articles.html/_/options-trading/spx-weekly-credit-spread-strategy-r3205


Yes it is.