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



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

thanks for that chart. it also shows how a trader may use the plus 2.5 number.....in this case taking the short below the low of that high bar that hit the plus 2.5 was a good entry in hindsight.

The real point is that we all should realize that the market likes to try and get back to the open range on MOST days....so finding entries to capitalize on that concept is a good strategy to use in the first 90 minutes of trade.

hard to believe this thread is almost 6 years old...here is a quick summary of just the past 4 days

Always enjoyed your analysis Bruce! I was curious as to what role volatility plays in the Pitbull's success. The thread started when vol was near record lows and worked quite well. You later posted that you were taught the method under much higher vol conditions. Your most recent post was during relatively high vol and the Pitbull worked well.

Have you ever tried to filter the trade for vol levels? Say VIX above/below 15?

Thanks again Bruce, you certainly are one the most helpful traders out there!

thanks Big Mike......I have not tried to filter by volatility but it sure would make an interesting study....Like most things I think it's better to wait for some kind of signal bar to confirm the areas......like taking shorts off the low of the high bar of a swing etc if u were expecting a short to return to the OR high....this will help avoid getting stuck in the moonshot up off the open or those quick nasty drops.......In general I would expect the best signals to come at the plus 4 - 5.5 in low volatility and then I would go out to the plus 8 - 10 in high volatility.....although not an official pitbull area......my least favorite of the pitbull is bulling or selling the OR low or high after the plus or minus 2.5 hits.......


as an aside I did see your post two weeks ago on the ES daytrading threads but forgot to give ya a shout out "hello"...so consider this my apology and a delayed greeting....I remember your were working on trades off the IB last time you were active on the threads.....I hope all is well with you

Bruce and Big Mike,

From what I have seen, combining the pitbull strategy with charterjoe's 5 IB strategy in conjunction with gap close study would prove to be a good approach. Obviously I would combine it with the pre determined zones to operate it. The "v" or inverted "v" patterns in the first 5 mins on 1 min bars tend to present the best opportunities.

can u link charter joes 5 IB here ? I can't find it quickly.......

http://www.mypivots.com/board/topic/4032/-1/mini-i-b

it has discussion on both 5 IB and 30 IB. Look at the part where they discuss the high success rate with presence of the v pattern

Thanks Bruce. All is great, my personal situation has changed and I can day trade a bit more. Funny how I see a bit more option trading from you as that is some of what I've been doing in my absence from the forum. Specifically a Bittman 2 step weekly trade.

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

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.