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Trading spot fx euro using price action
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Trading spot fx euro using price action

  #691 (permalink)
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Missing out

Paraphrased from Jonah Lehrer's book "How We Decide":


Quoting 
Neuroscientist Read Montague and others in 2007 looked at investment decisions in non-experts. They discovered that the dopamine neurons in the ventral caudate and elsewhere were encoding fictive-error learning - learning from "what-if" scenarios which resulted in massive over-investment during stock market bubbles.

Initially the subjects of his experimental stock market game would start sensibly, investing only 10%. Using example data from crashes e.g. Wall St 1929, NASDAQ 1998, the rising markets caused the subjects to fixate upon the profits they had missed by not being fully invested.

The dopamine pathway computed the difference between the best possible return and the actual return and fired regret signals into the brain. This led directly to increased levels of investment and eventually to 100% investment at the top of the markets. When the markets started heading down swiftly, all the investors disinvested as the brain tried to avoid feelings of regret about staying invested.

Basically what this is telling me is that I need to (a) deliberately suppress my consideration of how nice, big and desirable a trend is and (b) disregard any feeling of regret over missing it.

I also got this from Lance Beggs @yourtradingcoach.com a while back (I'm sure he won't mind me posting it):


Quoting 
My intent there was based on my thoughts that regret at missing a large move outside of your planned trading session, suggests a potential lack of belief in your ability to profit during your actual planned session times.

If you believe your strategy is valid, and the planned timings are sufficiently suitable to offer profits over time, and your ability to trade it is sufficiently advanced to produce profits over time, then missed opportunity outside of your trading session should not be of any concern.

Absolutely take note of it... if it becomes a regular occurrence for the market to trend really well at another time, then maybe you should see if it's possible to adjust your trading session to incorporate those times. But missing the move shouldn't cause any negative "fear of missing out" impact upon your actual trading. If it does, then there are some lack of belief issues that need to be confronted... either with regards the strategy itself, the opportunity available during your planned session, and/or your abilities. This is what I want people to consider.

Hmm. Self-belief is not strong enough. Not much I can do about that except work at it....

You can discover what your enemy fears most by observing the means he uses to frighten you.
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  #692 (permalink)
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The Tao of Al (Page 407, Reading Price Charts BBB)
25. Those who talk don't know and those who know don't talk. Don't
watch TV or read any news. The traders who are making the most
money trading are too busy to be on TV. Ask yourself, if you are netting
even just two points in the Emini a day on large positions, do you
really want to bother with going on TV? So why are you listening for
trading ideas from someone who can't even make a couple points a
day? Trading is a business, not a religion, so don't look for a trading
savior.

Lesson Learnt Last Session

Beware "what-if" & fear of missing out & ensuing frustration. Ignore the missed opportunities. Concentrate on trying to catch them properly.

Goal today

Psych. goals - don't get frustrated.
- ignore how points a trend makes
- even in a position, ignore the profit, concentrate on the position.

Risk Management

Account - sim: GBP 95,236
Position size: 2 x US$50K
Max risk per trade: $200
Daily time-out: -$400
Daily full stop: -$600

Session Details

Normal Friday, holiday mid-week probably has no effect now. Starting 12:30, ending 16:30.


forexfactory.com
 
Code
09:30 	GBP 		Services PMI
10:00 	EUR 		EU Economic Forecasts
	EUR 		PPI m/m
13:30 	USD 		Non-Farm Employment Change
	USD 		Unemployment Rate
	USD 		Average Hourly Earnings m/m
15:00 	USD 		ISM Non-Manufacturing PMI
	USD 		Factory Orders m/m
17:30 	USD 		FOMC Member Tarullo Speaks

Higher Time-frame

A double top or consolidation? It's an ugly double top, but then the consolidation isn't so pretty either.

Or will there be a show of strength from the bears to put in a down-up candlestick reversal? The bearish up-down reversal mid-month did little for the chart.

Not very helpful. Currently below the 60-min 50SMA.

Volatility

20 day volatility 108 (10 year max 287)
20 hour volatility 27.5 (10 year max 96)
Yesterday was bullish for the volatility levels. The daily high wasn't that long ago at 119 and the hourly high was at the same time, but was relatively higher at 35

Asian Session

Range 27, volatility 2.5 and that was only the tail end of yesterday's volatility.

Flat, slightly bullish. No discernible life.

London Session

Failed to reverse the Asian session before shooting up to 1.3100, past R at 1.3120/25 and then went quiet. A bit spikey, nice trend, sharp swing points, relatively high volatility, generally OK interplay at S/R

Trader State

Physical: in peak condition. No environmental concerns, well fed, just late.
Mental: late again. Inability to stop myself putting extra time in to finishing tasks.
Fatigue: reasonable. Yesterday too exciting to get tired.
Motivation: “All warfare is based on deception. Hence, when able to attack, we must seem unable; when using our forces, we must seem inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.” ... Sun Tzu (might be a bit advanced for me )

Session Notes and Review

Made a load of notes today - couldn't see any trades but I could see a whole load wrong with my procedures. Held on quite well through all the adrenalin-inducing market moves today, but still had problems at the end.

Quite unlucky with the trades, and totally hacked off at the end of the session, took a while to sort my head out again to get back to writing this up. 10 set-ups.

Spent a lot of time using the 30-second chart instead of the 1-min chart because it breaks down the big bars much better so I can get more of an idea of what's going on, although it's always too fast for me to deal with. I'm still undecided if it is worth the extra effort of flicking between 3 charts and sometimes having to work out what the levels are that I'm looking at because I only have them on the 3-min chart. Definitely need to sort out my S/R indicator but it's so time-consuming I just haven't had a chance. Maybe this week-end.


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Today's Result

Equity down to £95,070 now, must have been -40 points.

Lessons Learnt

Need to have a list of my psych tips printed out on a card. Need to review them all before every session, or even during each session.

My entry procedure really needs modifying now that I've tried it out for a while (and still managed to goof up set-ups that I should have handled better)

I'm going to ditch the London AM session high and low from my chart because it's only important when it is a swing point and then it's obvious anyway.

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

Last edited by Adamus; May 3rd, 2013 at 07:09 PM.
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  #693 (permalink)
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Week 18 Review


Checklist - basically the one I made last week and have used for 8 trading sessions has proven its worth - as crap. I had 12 points on it which was too much, so I've revised it. I'm ditching the visualisation stuff since I can't do any more than the most basic visualisation of what I can foresee happening anyway.

So now I've got 8 points:
  1. Identify set-up
  2. Higher time-frame trend
  3. Market state
  4. Trap
  5. Match stop to volatility and PA
  6. Cost to account equity
  7. Targets and R:R
  8. Confirm the weakness

The last one is just to make sure I double check that the PA signalling the entry is real and not just a mirage brought on by any number of psych issues.

Starting Time - crucial - I need to learn to drop what I'm doing when it's time to start, and to concentrate on doing the prep work, and only the prep work and not anything that for whatever reason seems relevant at the time - I should just note whatever else it is and come back to it after the session. Also need to factor in some time for food before the session.

Stop placement - I place the stop based on PA around the set-up, but I need to take into account volatility too, and not just stick the stop within 1.5 ticks of the nearest bar.

Morning reversal - if the London start turns the Asian session round, then it signals the direction, but if it fails, then it signals the other direction for a trend for the day.

Entries too quick - looking at my entries on Friday, I was just insanely quick. Way too eager to get in on trades, without waiting for any supporting PA on the 1-min time-frame. Fear of missing out!

Made up a psychological dangers list:
  1. Be certain about the plan! Uncertainty = errors.
  2. Stick to the plan, don't think about anybody else's way of doing things.
  3. Be biased but not certain! Always consider both directions. (Certainty makes you ignore things).
  4. Beware of standing aside due to risk aversion following previous trading disasters (a normal human reaction)
  5. Forget about missing out on an entry – to consider the missed profit is to start regretting it (leading to increased risk taking)
  6. Work out the equity loss from full stops and accept it as gone before entering (to neutralise the fear)
  7. Don't consider the profit from the target before it is hit! (or you will ignore the risks that it won't get hit)

No stand-out set-ups that I could see - probably the poor performance last week was colouring my judgement

Actually no, I found one - at least I was in the right direction, although my timing was seriously flawed

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Last edited by Adamus; May 6th, 2013 at 08:32 AM.
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  #694 (permalink)
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@Adamus Do you also consider overall drawdowns? This is part of the R:R examination of longer term trends.
Just asking for some input where you integrate in overall strategy.
Matt

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  #695 (permalink)
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mattz View Post
@Adamus Do you also consider overall drawdowns? This is part of the R:R examination of longer term trends.
Just asking for some input where you integrate in overall strategy.
Matt

Hi Matt,

what do you mean? I have the ability to record pretty much the whole range of performance stats, but it doesn't make sense when I'm not even able to implement the strategy effectively, as on Friday when I was totally under the control of the 'missing out' bug. Four trades and total impatience demonstrated on every entry. Still. I recognise the problem, and I guess the exits were good practice.

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  #696 (permalink)
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2013-05-06 Monday sim trading session


The Tao of Al (Page 407, Reading Price Charts BBB)
26. Every bar and every series of bars is either a trend or a trading range.
Pick one. Throughout the day and especially around 8:30A.M. PST, you
need to be deciding whether or not the day resembles any trend pattern
described in this book. If it does and you are looking to take any
trade, you must take every With Trend trade. Never consider taking
a Countertrend trade if you haven't been taking all of the With Trend
trades.

Fair enough.

Lesson Learnt Last Session

See above - lots learnt. New smarter procedure in place.

Goal today

Sticking to the new procedure - otherwise refining it - I don't want another 8 days of agony messing with something that doesn't work for me.

Risk Management

Account - sim: GBP 95,075
Position size: 2 x US$50K
Max risk per trade: $200
Daily time-out: -$400
Daily full stop: -$600

Session Details

UK Holiday - thin markets.


forexfactory.com
 
Code
08:00 	EUR 	Med	Spanish Unemployment Change
 	GBP 		Bank Holiday 					
08:15 	EUR 	Med	Spanish Services PMI 		
08:45 	EUR 	Med	Italian Services PMI 		
09:00 	EUR 	Low	Final Services PMI 		
09:30 	EUR 	Low	Sentix Investor Confidence
10:00 	EUR 	Med	Retail Sales m/m
14:00 	EUR 	High	ECB President Draghi Speaks

Higher Time-frame

Inconclusive - either establishing a range with 1.3200 as the ceiling, or re-establishing the rally but having a few engine problems.

Volatility

20 day volatility 109 (10 year max 287)
20 hour volatility 29.5 (10 year max 96)

Hourly is leaping back up with the potential to make a new year high 6 points up, but the daily is more sedate, requiring a good run to make a new high this year - and today's holiday won't help.

Asian Session

31 point range. Relatively quiet for a Monday - volatility at 3.5. Rallied from the start with two good pushes up but failed to make '50 and fell back to mid-range really quietly.

London Session

No sign of a morning reversal, pushed straight on down very bearishly from the open. Swinging slightly irregularly but looking bearish. Low of the day looks trend-like, but could just be stuck at '00 and the hourly 50SMA by the thin market. No rounded swings, all abrupt, no tails to speak of, not looking choppy, just going sideways. Although there's some barbwire in there to watch out for. Overlap not too much though otherwise.

Trader State

Physical: good - not cold, not hungry. The only thing to complain about is being inside on a bank holiday.
Mental: OK.
Fatigue: Better again. The little man in our house is sleeping better, therefore so are my partner & I.
Motivation: "If you have talent, you will receive some measure of success, but only if you persist!" Isaac Asimov.

Session Notes and Review

Just goes to show how difficult it is to gauge my own energy levels. I had a wave of tiredness that I battled with for about 45 mins, I'm sure it affected my judgement and effectiveness. No proof of that since I didn't do anything but it's pretty obvious. And before the session I had guessed my fatigue levels were quite low.

It's weird trying to work/trade when you know the rest of the country has got the day off, it all seemed a bit like being in a battle but nobody was shooting back. Obviously just my imagination. I almost gave up thinking nothing was going to happen at about 15:00, but then I double checked and sure enough, the volatility was rising, there was more price action and absolutely no reason to stop.

Glad I didn't stop so I could see that BAB come out of nowhere. It was actually a reasonable set-up too except that it started mid-range and so I told myself I had no business trading the set-up since it wasn't at the range boundary.

But despite being an apparently quiet day, I counted 5 potential set-ups.

Set-up 1 was a short at the upper range boundary, I totally missed it, I thought it looked bullish, I thought it would provide more PA higher up, and I just watched it without recognition as it sold off back down to the '00 boundary. That's where a crude comparison with earlier price action would have helped. It was relatively quick though, so I'm excused on this count. Should have thought about it though. It was quite obvious PA.

I was aware of Set-up 2 and had figured it looked bearish, but it's not within my plan to take a mid-range set-up despite decent PA on the 3-min and the 1-min. Obviously I never figured it would tank 50 points. Would be nice to know what caused it.

Set-up 3 was a simple PB and it was good to make a perfect entry, although not so good to see it then carry on to target after bailing. I should have switched back to the 3-min chart and had a bit more patience - my exit was related more to my entry than to the PA. Sometimes I turn the NT7 chart trader off so I can't see the entry point and it give me a clearer picture. Should have done that here but of course it wasn't cluttered and I was already thinking about scratching the trade for B/E being preferable to a stop-out, instead of thinking that I should check the PA on the 3-min chart before bailing since it didn't look as bad as on the 1-min. Lesson? Get off the 1-min chart when not strictly necessary. PA for exit judgement should come from the 3-min chart.

Set-up 4 was a test of the '50 level and was so perfect that I missed it - it was invisible on the 1-min chart and that obviously where I was again, yet it's so clear on the 3-min now, with a nice little entry signal and all.

Set-up 5 was going to be a pull-back for me, a short, a bounce of the 20EMA but it never got to my entry stop, it just hovered one tick away until I fell asleep (bar 367 or 3 1-min, 1-tick candles).

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Today's Result

Set-up 3: 1 & 1 point
Total: 2
New equity level: £95,075

Lessons Learnt

Get off the 1-min chart! Especially on a day like today.

Also, why should I worry about getting B/E trades? My exits should be pulled past my entry price at some point during the trade going from market level to market level, not to B/E just because.

I need to work out what to expect at 13:00 except an increase in volatility?

The best set-up today?

No 2, purely due to the nice BAB that it produced - well, actually also because I need to think more whether mid-range set-ups are no-go set-ups or not when the PA looks good.

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

Last edited by Adamus; May 6th, 2013 at 06:46 PM.
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  #697 (permalink)
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@Adamus, have you ever noticed that if price is above the 50 SMA (hourly) at the beginning of the London session, more often than not, it tends to test the previous days' high during the session? Conversely, if it is below it seems to test the previous days' low. I don't want to mess with your plan or anything; just wanted to see if you've noticed that as well. Of course there is always the chance that this is nothing but a figment of my imagination! I don't wake up early enough to utilize the information, though, as it is 1am local time.

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  #698 (permalink)
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Hadn't got that far with the 50SMA. That'd be easily testable though. Just looking over some history and there are many days where it also starts above / below the previous days high / low anyway, so I didn't get far.

I've been paying a lot of attention to the hourly time-frame PA, especially the tendency to revert to the SMA near the end of the bar when it's close enough, and I think I should test out the theory before I start building it into my plan.

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  #699 (permalink)
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Ah, it could be a function of my session times. I'm running a 24 hour session that runs from 5pm-5pm EST (which would be 11pm-11pm BST) so possibly my highs for the prior day are different. Anyhow, yeah I've sworn off of coding until I can trade successfully first

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SammyD View Post
Ah, it could be a function of my session times. I'm running a 24 hour session that runs from 5pm-5pm EST (which would be 11pm-11pm BST) so possibly my highs for the prior day are different. Anyhow, yeah I've sworn off of coding until I can trade successfully first

Don't your session times start an hour earlier than that on Sunday evenings? Mine does. I wouldn't give up on it for that reason, it was a very quick check I did.

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