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Trading spot fx euro using price action

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  #351 (permalink)
 Adamus 
London, UK
 
Experience: Beginner
Platform: NinjaTrader, home-grown Java
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Trading: EUR/USD
 
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I need to bear in mind at every setup whether the market's choppy, or trending.

So I have to define what a choppy market is, and what a trending market is, but I figure from the basics that I know, there are no hard and fast rules about what is what - I'm not going to get the rules for a mechanical trading system out of this definition.

First problem - chop is not the opposite of trend. There's choppy trends.

The way I look at it though, if I have to say if it's one or the other, then if it's a choppy trend, then it's chop. Chop always trumps trend.

Chop for me is basically where the market volatility is still there, but the progress has gone. I've seen price move between two S/R levels in the course of 5 bars in beautiful symmetry over the course of 15 mins and I've also seen price fail to make it more than halfway over 3 hours. Same volatility. The first is a trend, the second is chop.

But it's like weather. If chop is like fog, you can't see where you're going, and trend is like sunshine, you can see clearly for miles - at least to the next S/R. You can get a patch of fog on an otherwise sunny day, and you can get clear sunlight appearing on a foggy day. And you can get foggy days with no sun and vice-versa.

Second problem - a trend can be sideways as well as up or down without being too choppy. For me this depends on the swings highs and swing lows. A market that makes 4 swing highs or lows without making a higher high or a lower low is officially a sideways market and is probably consolidating into a range with an obvious ceiling and floor. So that doesn't mean it's choppy.

In fact, the swing count is probably the best way to define chop vs trend.

A good swing count which increments regularly is the ideal trend. Put that at one end of the chop vs trend spectrum. The more you have to ignore irregular swing highs or swing lows to keep the swing count going, the further you are to the choppy side. If you can't get beyond 2 on the swing count even when you're trying to give it a chance and be a bit lenient, that's when the dial's hard over to the chop side of the meter.

Somehow I'm going to have to judge which side of the VU meter the needle is pointing, even when it's flicking around the middle. Maybe there's a clever way of trading when it's right in the middle that would make it a 3-way choice instead of just black or white.

That's going to be my definition for next week - I'll just have to see how it goes and maybe refine that a bit more if I have to.

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  #352 (permalink)
 Adamus 
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The official break-out at S/R entry methodology from the YTC PAT programme is this:

  1. Wait for the pull-back
  2. Either go with the BO failure and reversal setup or the follow-through and continuation setup, or both
  3. Judge where you think the new order flow is going to kick in when trapped traders will bail out because they realise they're wrong and where the crowd of entry order will pile in
  4. Put an entry stop there
  5. Judge where the exit stop loss will go, based on a price where you do not want to be in the trade anymore if it gets back there
  6. If worthwhile, work a limit order (OCO with the stop) to get in at a great price & low risk closer to the opposite side to where you think it will go if you have a bias with confidence
  7. Alternatively enter on a trigger of some sort, e.g. a candlestick pattern or a failed move in the other direction
  8. Wait for a fill
I should try to trade this way mechanically, without worrying about it, but just like Friday gone, it can end in whipsaws.

This is pretty painful if I have big stops relative to the post-break-out and pull-back consolidation range, e.g. 10 pips like on the huge extended pre-NFP stall on Friday (dumb move trying to trade that, I agree in hindsight).

So I bend my own rules. The YTC PAT programme says "put the stop where you definitely want to be out of the trade if it reached that price". Lots of scope for subjective judgement. I think - today, I want to be out when it's retraced 3 pips into the consolidation range and obviously isn't actually breaking out of the consolidation range after all.

The problem with that is the frequency that the market does that little retrace only to switch back again and carry on off into the distance after eating the stop.

What happens is that Lance Beggs bails out of many of his trades in the YTC PAT examples when he sees something he doesn't like, e.g. tails on the candles or triggers in the opposite direction.

So I figure what I need to do is to try to learn to bail out of a trade sensibly before it hits my full stop at 10 pips, rather than just bail out because it just pushed 3 pips up sharply and triggered my knee-jerk exit @mkt. When I say 'sensibly' I mean I'm going to leave it to hit the stop until I start seeing sensible exits.*

* although I wonder how much more often price will just move directly to the stop without flipping the bird first.

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  #353 (permalink)
 Adamus 
London, UK
 
Experience: Beginner
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I've traded a few channel break-outs where price has been in a clear channel, looking like chop but aiming up or down towards the next S/R level, and in sim trading here I've traded the break-out of that a few times successfully.

The channel is just a rough ceiling and floor by eye around choppy price action over the last 2 or 3 hours - nothing fancy, but it needs enough action along the range boundaries to make it appear to enough traders so that it works.

It breaks at some random point after the leading edge of the channel hits S/R - although it might not need S/R, that's probably just me always looking for interaction at S/R. The break though is always right at a stall, and as things go flat for about 30 seconds, you realise that price is stalling right at the edge of this channel, and you hear the whole trading world think "oh, EUR/USD is breaking out of this kind of channel thing" and then everyone piles in.

Once the trade is on, it won't come back to the BO point again if it works but it shouldn't require tight stops, and should make it to the next S/R.

Saw that happening today on EUR/USD at 11:50 and then again at 13:00 (the same channel re-established).

The first time (on charts attached) was the textbook "Adamus Choppy Channel Break-out" and the second one was slower - I guess half the market couldn't believe it would happen again so there wasn't such a sharp obvious move....

Didn't know what rules to follow since it wasn't a YTC PAT setup so inevitably I missed the first setup and got stopped out on the second, so I'm going to add this to the setups I trade, with rules nailing down how to trade it.

It was only good for 10 pips today but that should be 10 easy pips, no heat. I totally missed it first time around trying to work out how it fitted into my plan (answer - it didn't).

By the second time round, I had messed up several trades and had given up strict trading and was experimenting - that's another story though. I tried entering the move using the 1sec chart but it was no good, won't do that again.

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  #354 (permalink)
 Adamus 
London, UK
 
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Late start doing some prep work I hadn't managed over the weekend.

Had a new rule in place not to trade S/R setups in choppy markets, but in my eagerness to trade, I decided that the choppiness was over and I piled in as if it was a normal day. Mistake.

Just too eager to make subjective decisions to allow myself in on trades. Flakey decisions are a consequence of rushing the procedure. What I need to focus on is carrying out the procedure step-by-step and not the actual entry, which I almost always try to rush to get to. My success should be measured by when I stick to the procedure, regardless of the entries.

So I have to crush this urge to trade somehow. The entries must be just part of the procedure.

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  #355 (permalink)
 Adamus 
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Confession time again.

3 amateur mistakes and about 5 professional mistakes.

I count amateur mistakes as obvious rookie errors and errors caused by loss of discipline and focus, and failure to stick to procedures, mostly for me this is just diving in on trades without due process.

I did pretty well until the last 1/2 hour of the session. I spent the whole time suppressing the desire to dive in with some badly thought-out entry for the thrill of the trade, but at the end of the session I guess my concentration was lapsing and those big trend bars on the chart were working their black magic on my subconcious.

I dived in on pull-back trades right at the top of a push, twice - lack of discipline, loss of focus. Of course they both cost me sim dollars.

If I had managed to avoid that, I would have made 1 trade only today for break-even.

Don't know exactly how many pips were on the table, haven't done the market replay / hindsight review yet.

I'm pretty disappointed but I figure the problem with the compulsion to make bad entries is something that will take a while to sort out.

Internalising my procedures for trading will also take a while to get right and get quick, but that's not a killer like the amateur errors.

I think if I can sort out these 'amateur errors' I'm made. The professional errors will deny me pips mostly rather than cost me money.

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  #356 (permalink)
 Adamus 
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Started off badly leaving an ancient support line on the chart from six weeks ago but actually in the end it seemed to be causing interaction - at 1.3280.

Someone told me to leave out the notes and mark-up I make referring to the "Principles of Future Trend Direction" stuff from YTC PAT since it's too obscure and doesn't tell anyone what's going on.

I pretty much agree since I was only including the comments to help me figure out and remember what it was all about.

Since I've pretty much internalised what they're about (the Trend Principles) I'll just write up stuff without it.

Hope it makes more sense. Would be a bonus if it does actually make more people interested in what I'm trying to do.

Today's results - another losing day, but only reasonable errors and not total amateur errors. I said yesterday that the amateur errors cost me 5 pips (a full stop) and 'professional errors' only deny me pips available - but it's more complex than that. I made errors today that I'm happy to be making at this stage that are still costing me 5 pips. At least I didn't make random entries that cost me an extra 5 pips each time that I shouldn't be losing.

You can discover what your enemy fears most by observing the means he uses to frighten you.
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  #357 (permalink)
 Adamus 
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It was 2 days rolled into one today.

Slow but not too choppy in the London session which went well but then wild after the US opened.

I was doing well with the slower action and sticking to the rules and making good decisions, but then I let things slip when the volatility hit - I didn't go nuts but again, I wasn't sure what I was doing and I paid the price.

I had the old clichee floating around my head that "you've got to make the most of big days" like today. That is such an over-generalisation I can't believe I used it as an excuse to trade too much. I let my Trader Bozo take control and he took a bunch of dumb trades. I'm too kind to him, considering he's an idiot whose only purpose in life is to give other traders my money.

I should have regrouped and refocused after the first full stop loss but those big bars on the screen had locked my radar tracking system and it was only after 4 or 5 that I regained focus and started applying some rules again.

I think it was more problematic because the trades entries were not that bad, it was just the exits that stank, and everything was moving too fast - so instead of letting the setups go, Trader Bozo went on pressing the buttons.

If I'd applied the last 1/4 of the procedure - stop location, exit management & post-trade re-focus - then I would have survived. Last thing I wrote in my notes before it all started moving too fast was "getting emotional - want some ticks! Be careful". When will I start listening to myself?

On another subject, I decided that the Brooks price action patterns up/down twins, down/up twins, and H1,H2,H.... and L1, L2, L... etc don't work on the Euro.

The up/down twins don't work, but what often does work is when the pattern is formed already halfway through the down candle, i.e. it's still got half its time to go and it's already put in a matching down bar next to a big up bar. It's a low risk entry - if price doesn't charge on, then bail. Entering on a stop should be the only way to get in - if you have time to enter manually, the pattern's probably going to fail. You need 10 pips on the up candle body already. Sometimes it doesn't go far after passing the up candle's open & low, but often it's a good move. Same applies to down/up twins except vice-versa obviously.

I've marked up the US session with what I should have done and roughly speaking it was a great day (if Trader Adamus was trading and not Trader Bozo) - if anyone reckons it's just fantasy, tell me - it seems realistic to me.

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  #358 (permalink)
 Adamus 
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Trying to analyse what price action is going to do next leads to funny conclusions when I'm just sitting there waiting for something to happen.

One definition of a sideways market is that it's made 4 consecutive significant swing highs or lows without making a higher high or a lower low and without making a triangle pattern. Or maybe just this: no matter how you count it, your swing count is still broken.

Looking at the swing reversals, it seems that the market finds a new place to reverse with each swing.

Another law of sideways markets: a strong push might mean strength, but when it's over, it's not a PB, and it won't happen again for a while.

You can discover what your enemy fears most by observing the means he uses to frighten you.
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  #359 (permalink)
 Adamus 
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Can't report any great change in my performace today but definitely reached some conclusions about what might help the problems.

Concentration and focus is the main thing.

After 3 hours or so I just cave in. Admittedly it might have something to do with the market - the Euro is more volatile once the US session starts. I'm pretty sure though that that's nothing to do with it. I lose the ability to keep myself out of trades, and I go for any trades and not just at setups.

I dive in on low risk trades where I think I see a logical stop loss point a couple of pips away. I think the big wins will make up for the little losses but my stops are so tight I get stopped out of all the wins as well as the losers. Somehow I don't care about losing little amounts and I end up taking loads of small losses with several near-misses at the entry points for good trades that I should be catching.

Of course low risk trade = low probability trade.

I lose the discipline to stop myself going for a trade to get that junkie dose of action, even though I know objectively that this is not my plan, these are not my trades.

What I'm going to do next week is stop after 3 hours - so I'll trade the London session from 08:30 to 11:30 and then stop. If I get that trading session logged and reviewed in an hour or so and have a break, I'll also trade from 13:15 to 15:15 to catch the US session opening which is often good.

I also really need to take the trades that my little commander gives me - sometimes he's wrong, but sometimes he's right on the button - and today I missed the only big move by ignoring that auto-command. Admittedly there were 3 opportunities or more but I missed other ones through coffees, emails and so on.

Part of the problem is that I don't know how to recognise when I've got screen fatigue. Like air traffic controllers, you can't do this job for too long, even if you think you can. I sat down at the laptop after a quick break earlier today, ready to trade, thinking I was focused and ready to go, but my eyes just stared unfocused at the screen. Now that's exactly what it means when your body is trying to tell you something. Despite thinking I was focused, my eyes actually weren't.

Sure I can force my eyes to focus but they should do it on their own when I'm 100% alert.

Maybe keeping check on my eyes is the way to recognise my levels of concentration.

I'm used to sitting in front of a computer 14 hours a day from my work as a software developer. It's not quite as crucial then to be 100% alert when you're coding something - or better said, it's a different type of concentration.

Actually it's not just when I've lost concentration that I avoid stops greater than 5 pips. I need to take those hits and get happy with it, because the winners won't come any other way - at least not with the Euro.

Funny also how loss of concentration might be influenced by taking hits in the market - I'm beginning to wonder whether the big near-misses - or lost opportunities where my trade is stopped out just before a 30 pip move - take a toll on my concentration and focus during the rest of the session.

After this week I've realised that it's not an all-or-nothing state. Concentration wanes. I need to manage it much better. And cut the coffee breaks and emails when I've got it.

You can discover what your enemy fears most by observing the means he uses to frighten you.
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  #360 (permalink)
 Adamus 
London, UK
 
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Put a new daily plan into action today, getting up at 6:00am to prep my trading session (find the S/R levels, look at the long term timeframe trend, etc) and then try to start at 08:30 and trade 3 hours only to 11:30.

Mostly did that except yesterday being a Sunday meant the usual weekend chaos around here made everyone late for bed so I was seriously tired and no-one else got up when they normally do so I ended up starting half an hour late.

So probably about 30 pips on offer (including failed trades) altogether of which I net'ed about minus 5.

Main problem today is entering late and exiting late. Entering late can be cured by using a stop sometimes, although half the time is that the good entry is the one I see before it would hit the entry stop. The late exits should be easier to sort out

The other problem is some of the setups offering good trades were entries I can only dream of at the moment.

The charts are marked up. I'm trying to use the 3min chart which I watch between setups for adding mark-up about market structure, and about the ideal setups that I should be taking or avoid or whatever. The 1min chart has the actual trades and a lot of comments about what I thought was going on.

You can discover what your enemy fears most by observing the means he uses to frighten you.
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