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Trading spot fx euro using price action

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  #31 (permalink)
 Adamus 
London, UK
 
Experience: Beginner
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Using raw H1/L1 patterns means not using an EMA to define the trend but instead, doing it by eye. It's interesting to observe myself and my decision making process as I move through the data. I generally ask myself the following in order:

(1) is there an undeniable, strong trend with a series of consecutive trend bars?

(2) is there an obvious series of higher high and higher lows (or lower highs and lower lows)?

(3) which way has the market moved in the last two hours?

(4) from the most recent highest high or lowest low today, has it obviously reversed from there, i.e. 100 points?

(5) failing all that, and unless I can truly say the market is going nowhere, I generally just take the first signal, whether it's an H1 or an L1, and expect lots of chop.

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  #32 (permalink)
 Adamus 
London, UK
 
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Adamus View Post
Using raw H1/L1 patterns means not using an EMA to define the trend but instead, doing it by eye. It's interesting to observe myself and my decision making process as I move through the data. I generally ask myself the following in order:

(1) is there an undeniable, strong trend with a series of consecutive trend bars?

(2) is there an obvious series of higher high and higher lows (or lower highs and lower lows)?

(3) which way has the market moved in the last two hours?

(4) from the most recent highest high or lowest low today, has it obviously reversed from there, i.e. 100 points?

(5) failing all that, and unless I can truly say the market is going nowhere, I generally just take the first signal, whether it's an H1 or an L1, and expect lots of chop.

I've just invented an even simpler method for detecting the trend, so this can go in at number (5), bumping the current rule (5) down to (6).

(5) with the chart set to auto-scale, is the price in the top half of the screen or the bottom half of the screen?

Sometimes I wonder when my family and friends think I do really clever stuff, if I told them the truth, they probably wouldn't believe me.

Just in case any readers here are wondering, I am also making a bit of progress beyond this bull trend / bear trend question. More soon, for sure - although I might start a new competition thread to teach the world how to spot H1s and L1s.

This is definitely the emoticon for this situation:

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  #33 (permalink)
 Adamus 
London, UK
 
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As part of my training in Price Action Trading, I'm going through a program of sim trading using the last year of data from EUR/USD. The first step is to sim trade my primary PA pattern totally naked - so that is the H1 / L1 entry pattern.

I'm using fixed 15 pip targets and stops and no runners or other MM strategy to give me my P'n'L.

The definition of H1 and L1 requires you know where the trend is going, which is why I defined the 6 points in a previous post which identify the trend direction.

In Al Brooks's Reading Price Charts Bar by Bar, he talks about H1 and L1 a lot, but I have to admit I still haven't managed to read even half the book so I know there is more in there than I've found out so far.

Getting around to doing stuff is my Achilles heel.

I'm good at going over the charts. I sit down and mark up a week at a time before I allow myself a break - it takes about an hour and a half.

The first result is that it makes me good at deciding whether we're in a bull or a bear market. Following my 6 rules above is no more than a guide - if I did the same period again tomorrow, I might make the exact opposite decisions about market direction. It's incredibly subjective. That for me as a computer programmer whose mindset is boolean - everything is black or white - is hard training.

While I think it's good in a big way in one respect, this is also potentially counter-productive because I never decide that the market is sideways, since the whole exercise is to identify H1s or L1s, and there's no pressure in this bit of the exercise to abstain from trading or even make a profit.

Hopefully though when I decide I need to identify sideways markets, it will just slot in to the decision making without throwing a spanner in the works.

Now I'm picking out the H1 and L1 signals quickly, and not getting 'analysis paralysis' trying to judge the market direction, I'm asking myself more and more questions about the actual H1 and L1s. Like whether just half a tick difference is enough to count, or small enough to ignore. And like a sudden doubling of volatility, or the time of day, or the frequency that they appear - sometimes it's every other bar 10 times in a row.

Next Monday is a bank holiday in the UK and we're going down to the coast - if the weather is anything like it is now (thunderstorm), hopefully but don't tell my other half - I'll get through a lot of Al Brooks.

And I need to. There's a lot more to H1 and L1 than just being the first bar back in the direction of the trend.

I keep using "H1 and L1" but of course if you have an H1 and it's not taken out, then you get an H2, and an H3. I believe Al Brooks counts right up to H5 and gives them different meaning, but that is something buried deep in Reading Price Charts that I haven't got to yet.

Here's a chart I'm putting up just for the record. Green dots are H1s, red diamonds are L1s. This was not 'perfect trading' - this was done against the right-hand side bar by bar, so I'm looking for a continuation of a bull all the way down that bear at the start of the session. Learning learning learning.

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  #34 (permalink)
 Adamus 
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The best way to learn a new language is total immersion - you pick up the words and the accent and the sentence construction just by osmosis.

I think the testing I'm doing is similar - total immersion while testing H1/L1 - but I'm worried because the process is totally subjective. Picking the H1s and L1s isn't at all subjective - it's deciding whether it's in a bull or a bear that is so tricky. I only want H1s in a bull, and in a bear I'm only looking for L1s, and it's the bull/bear decision that's so subjective.

I know I've defined how I'm going to identify the trend, but each of my six trend definitions is open to interpretation and putting them all together often makes me feel like a blindfolded monkey with a dart in my hand.

For instance, I think the variable y axis scaling could easily be influencing my decisions, so I'm going to turn that off and adjust my chart axes by hand from now on.

I'm accumulating a stroke for each win or loss on a simplified decision matrix. Up until now I have only recorded wins or losses for entered trades, so the 'avoided' and 'misshapen' parts of the decision matrix haven't come into the mix yet. This is probably just as well with the uncertainty I've got over ID'ing the trend. I doubt it's worth recording this stuff until I'm happier about my consistency re the trend.

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  #35 (permalink)
 Adamus 
London, UK
 
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I've been allowing myself too much leeway when it comes to deciding if the market's heading up or down. I guess I thought it was a lot simpler than it was, but it's really difficult being consistent when deciding if the market has just started going sideways, or maybe has started up or started down.

Since my profit targets and stops are rigid at 15 points away from entry each, that more or less defines the distance I need to look back to work out which direction the market is heading.

I think there's got to be a magic number for how far the market has come before I can trust it to give me a good shot at going another 15 points. At this point, I have no real idea. I guess it's knowledge that only comes with experience and varies from day to day, with the volatility, how quiet the market is, that kind of thing.

So right now, I'm refining my set of rules on trend direction like a primitive flow chart - if you answer yes, that's your trend identified:

(1) is there a series of consecutive trend bars trailblazing the trend up and down the screen?

(2) is there an obvious series of swings, higher highs and higher lows (or lower highs and lower lows)? For now I'll be content to take the swings in the direction of the trend, not the retraces.

(3) from the highest high or lowest low on the chart (I see about 20 hours on the 5 min bars but that's a random choice which I need to justify), has it obviously reversed from there, e.g. 100 points?

(4) is the market obviously up or down in the last two hours?

(5) with the chart set to auto-scale, is the price in the top half of the screen or the bottom half of the screen?

(6) failing all that, it looks like the market is going nowhere, so just take the first signal, whether it's an H1 or an L1, and expect lots of chop.

I'm going to concentrate on applying this more consistently.

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  #36 (permalink)
 Adamus 
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Adamus View Post
(4) is the market obviously up or down in the last two hours?

I'm removing this step. It's not helpful. It's covered by (1) and (2) anyway.

I don't feel happy judging anything on 2 hours, it has to be at least 4 hours to make a trend obvious, unless it's obvious already because of a large number of big trend bars have appeared - or even just one massive trend bar with 10 times the 5 mins ATR - basically a big 2% move will do it.

I keep looking for breaks of trend channels (I think that's what Al Brooks calls them) to judge whether a new direction is established or not. I don't know whether I should be doing this or whether it's something I should be doing without having to think about it - otherwise it would have to be a step to put in my flow chart.

Another thing I notice is when I decide to go with a new trend, the first trade (H1 or L1 entry) usually fails, and it's better to carry on and take one last trade in the old direction despite the appearance of the new trend. It's a weird feeling to fade the new trend right after making a decision on its new direction. I guess it's a function of uncertainty that all market participants are feeling, leading to volatility that takes out my stop. And then the trend carries on as I correctly identified.

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  #37 (permalink)
 Adamus 
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Just wondering what to do after exiting a trade. Sometimes there is a signal bar on the previous bar and I could use it to enter another trade.

At what point though do I consider that the signal failed?

My obvious options are either (a) the signal never fails, it stands until superceded by a better signal, or (b) it fails when the price moves the wrong way past its opposite extreme.

e.g. on the attached chart, all red diamonds are L1s. I would have entered short on bar 163 after the previous L1 signal.

Just a few ticks below the stop, another L1 is formed (bar 175).

On bar 177, price breaks above the high of the L1, so I could say it failed.

If I keep it though, after getting stopped out of the ongoing trade at bar 177, the market plunges down past the signal which I could take as an entry.

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  #38 (permalink)
 Mickey Caine 
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Forgive me if you have already covered this, I have only briefly scanned your recent posts. However I do recall that Mr Brooks did recommend that new traders stick to H2 and L2 entries as these have a higher probability of succes.

By the way Camp Freddie sends his regards

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  #39 (permalink)
 Adamus 
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Mickey Caine View Post
Forgive me if you have already covered this, I have only briefly scanned your recent posts. However I do recall that Mr Brooks did recommend that new traders stick to H2 and L2 entries as these have a higher probability of succes.

By the way Camp Freddie sends his regards


He probably does, but somehow I settled on H1s and L1s - and forex, not the Emini. So some of his setups probably aren't the best for me due to the forex / emini differences.

I'm not actually trading the H1 / L1 setup right now - I'm practicing on past data, going over 2010 at the moment. So far with the hardcore pure H1 or L1 setups and nothing else, it looks like you get 50/50 win rate using fixed targets and stops - which are also not Brooks - he recommends stops a tick under the signal bar and I don't recall his a favoured exit method.

I picked up a lot of Brooks stuff reading the threads here on futures.io (formerly BMT), watching the webinars and reading his Futures Mag articles and while I'm seriously sticking to the book, I don't remember well where or when I picked up the different setups or patterns.

For instance in one of the first charts in your first PDF, he says beginners should stick to trading failed breakouts of microtrendlines which are H1s and L1s - although I assume he means you trade the first tick of the failure rather than waiting an extra bar to take the H1 or L1 signal.

So that's something I'm going to add, as well as the H2 and L2 setups you mention.

I figured I would read more about H1s and L1s in the book, but I haven't got past chapter 1 yet. Tell you the truth it's difficult keeping focus, something I'm working on extra besides this price action business.

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  #40 (permalink)
 Adamus 
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Every day almost 99% of the time the EUR/USD turns into the twilight zone when the NY session starts to wind down. It shuffles backwards and forwards making a whole ton of H1s and H2s (or Ls) right through until about 6:00AM London time.

I guess technically they go H1, H2, H3, H4, H5 but I'm not sure about the official Al Brooks approach yet. Must be buried somewhere later in the book.

I'll never be trading this but it's interesting. If a signal actually turns into an entry, the trade can last for ever, often with the market bumbling along just above the stop for bar after bar, or under the target and then swinging back to take out the opposing exit.

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