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

  #721 (permalink)
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New trading plan rule

Been bitten too many times now trading beyond the end of my planned session.

For the EUR/USD, the 24-hour day is divided into 4 distinct phases (UK time):
1. Asian session from start to 06:00 (or 07:00 during EU/US DST asynchrony in spring/autumn)
2. European session from 06:00 to 11:00
3. Midday quiet period
4. European / US session overlap from 12:30 to 16:00
5. Afternoon quiet period

I trade either 2 or 4.

My trading session finishes at the same time as 2 or 4 promptly, with the following rules:
  • no new trades after session end
  • any open trades are closed immediately at session end if not in profit
  • any open trades in profit are left unmanaged with the stop drawn in behind the most logical PA barrier to the market, which must be at break-even or better
  • failure to find a good logical B/E or better location for the stop requires exit from position

You can discover what your enemy fears most by observing the means he uses to frighten you.
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  #722 (permalink)
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2013-05-16 Thursday sim trading session


The Tao of Al (Page 407, Reading Price Charts BBB)
33. You will not make money long term until you know enough about your
personality to find a trading style that is compatible. You need to be
able to follow your rules comfortably, allowing you to enter and exit
trades with minimal or no uncertainty or anxiety. Once you have mastered
a method of trading, if you feel stress while trading, then either
you haven't yet found your style or yourself.


Lesson Learnt Last Session

The straight and narrow is so narrow it's invisible to normal perception, so you need constant checks to make sure it's there. Even with checks in place, there is always a point between making your last check and taking a trade, where the opportunity to stray off course presents itself.

I have revamped my entry checklist. I now print off a page and cut it into quarters, each quarter has a checklist on it with boxes to fill or check.

This is still all about conquering FOMO. If and when I can do that, there is another exit procedure I have to nail down as well.

Goal today

Complete every checklist sheet so that all potential set-up points have a perfect-looking checklist at the end of the day.

Risk Management

Account - sim: GBP 98,863
Position size: 2 x US$50K
Max risk per trade: $200
Daily time-out: -$400
Daily full stop: -$600


forexfactory.com
 
Code
03:00 	CNY 	Low	Foreign Direct Investment ytd/y 
07:45 	EUR 	Med	French Prelim Non-Farm Payrolls q/q
09:00 	EUR 	Low	Italian Trade Balance 	
10:00 	EUR 	Med	CPI y/y 	
	EUR 	Med	Core CPI y/y 
	EUR 	Low	Trade Balance 
10:39 	GBP 	Low	30-y Bond Auction 
12:45 	USD 	Med	FOMC Member Rosengren Speaks 					
13:30 	USD 	High	Building Permits 	
	USD 	High	Core CPI m/m 
	USD 	High	Unemployment Claims
	USD 	Med	CPI m/m 	
	USD 	Med	Housing Starts 
15:00 	USD 	High	Philly Fed Manufacturing Index
15:30 	USD 	Low	Natural Gas Storage
17:30 	USD 	Med	FOMC Member Raskin Speaks

Session Details

Normal session, normal day, normal week. 12:30 to 16:00 (new end of session rule in place)

Higher Time-frame

Still down

Volatility

20 day volatility 108 (10 year max 287)
20 hour volatility 22 (10 year max 96)

Unchanged from day before yesterday - heading up, possibly. Medium, off highs of March.

Asian Session

Small 25 point range with 3.5 volatility, but good swings, a bit bearish.

London Session

Carried on down from Asian session and put in some serious chop with lots of overlap to push down to bottom of support zone, then rallied slightly better back up and now heading to Asian high and then 1.2900 again with less chop but not great swing action. Still seeing overlap.

Trader State

Physical: starving, cold, tired. Peak condition
Mental: mental barrier pierced last night in terms of equity in sim account. But error was not fatal. Decided to draw a line at the end of the month and review whole approach then if no improvement as shown by equity.
Fatigue: yes still
Motivation: No matter what - afterwards is the time to look at the rules to see if they need changing. Equally if you don't have a rule about a decision, then don't take the trade - stop and make the rule.


Session Notes and Review

Concentrating so much on procedure today that I neglected to think about the actual trades - at least for the first 2 trades before I got my act together.

Carried on in the same vein as always with a complete disaster for my first trade. Again, caught out by something I'd left out of the plan. I saw the set-up, figured vaguely I'd be able to get in and out before the news event at 13:30 and so following procedure did everything perfectly and got a short entry at set-up 1 thinking it would put in a sell-off into the news. Instead of selling off, it stalled and I forgot to exit as I waited for the stall to break.

20 points slippage. How does IB calculate what slippage to apply to a sim trade? I never suffered 20 points slippage in over 2000 trades on my mechanical system in my live account. Not only did I get 20 points slippage, the fill took about 2 mins to arrive. Whatever. The equity in my sim account isn't going up right now anyway.

So - have to put something into the plan about being flat for news events.

This led straight into set-up 2 and the question of what to do / what it meant - was this a destablisation event or should I just carry on? I carried on, but it turns out there was a screw loose somewhere still since I completely ignored the big bearish tails on the 4 preceeding candles and took the rising lows as all the evidence I needed to get long.

I also had a short higher time-frame bias, and the feeling that dollar news was only going to kick off sell-offs at the moment, not rallies.

I let the market take out my full stops instead of bailing at the various PA signals on the way down. I think this was a case of risk-seeking behaviour after a loss / a case of what-the-hell.

In hindsight - it could have bounced back but on the 1-min chart it's clearly broken the micro up-trend-line on the candle after entry (should have automatically bailed then) and then it entered a new set-up, by which time it was so close to my stops I should have taken the set-up and reversed out. The set-up just met my 3rd candle entry rule on the 3-min chart.

Set-up 3 was a big triangle but I felt it was too close to the resistance above - not sure about this. I am looking at adjusting the S/R zones once the market has gone through them, as per the 3-min chart below. So I had to let the stall at the apex of the triangle go by, and tried to get on board as it crossed '00, although this time I remember the news event and that killed the set-up.

Set-up 4 came at the swing high that 15:00 news event created, but I missed it despite it looking like a good set-up in hindsight. Don't remember now why I passed it up. Looks like clear bearish PA there on the 1-min. I guess I was too bullish and didn't see it till too late.

Set-up 5 is a simple PB bounce off the 20EMA in what is now the new bull trend for the day. Went a little way my direction and again I should have bailed at least the 1st part when it broke the micro-trend-line. The stops were where part 2 only should have been.

The break of the doji on the 1-min chart was where the 1st stop should have exited, and maybe the 2nd stop was slightly too high - although any sensible stop would have got hit by that monster retrace.

Set-up 6 was the same thing, just later. Right before 16:00 cut-off point, so I tested the steps I'd just written in my trading plan for end-of-session position management. Got out at a slight loss. In fact looking back at it, I should have bailed on the entry candle which morphed from the bullish push into a bear candle that went right past the mid-point of the stall - another case of not having a definition in my rules of whether to wait for the candle to finish or not.

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Today's Result

Set-up 1: -30.5 & -30.5
Set-up 2: -16.5 & -16.5
Set-up 5: -1 & -1
Set-up 6: -1 & -1
Total: -97 points
New equity in sim account: £94,527

Lessons Learnt

Focused too much on procedure at the cost of simple analysis.

Need something in the plan about what to do with bad-looking PA before the end of the candle compared to at the end of the candle. Need to start cataloguing the PA I use, under Good and Bad heading in my plan, and relate it to entry/exit decisions.

Need a psych bullet point on my card to warn against risk-seeking behaviour after suffering a bad loss - there must be some way to check I'm not still risk-seeking. "Would you be interested in a game of Russian roullette at this point?"

Ignoring the hopeless full stop exit on set-up 2 which was a chain reaction from the entry error, I've still got some issues on the position management side but these aren't as dire as the entry-side problems.


The best set-up today?

I think set-up 2 is the best today.

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  #723 (permalink)
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I must be a psychologist's dream research subject


Just read this in "Willpower"


"Willpower" by Baumeister & Tierney
[Referring to one of their experiments on self-control in relation to diets] ... The dieters reacted predictably enough. Those who had just drunk the two giant milkshakes nibbled at the crackers and quickly filled out their ratings. Those who had drunk the one modest milkshakes ate more crackers. And those who were still hungry after not eating for hours went on to chomp through the better part of the cookies and crackers. All perfectly understandable.

But the dieters reacted in the opposite pattern. The ones who had downed the giant milkshakes actually ate more cookies and crackers than the ones who'd had nothing to eat for hours. The results stunned the researchers, who were led by Peter Herman at the University of Toronto. Incredulous, they conducted further experiments, with similar results, until they finally began to see why self-control in eating can fail even among people who are carefully regulating themselves.

The researches gave it a formal scientific term, counterregulatory eating, but in their lab and among colleagues it was known simply as the what-the-hell effect. Dieters have a fixed target in mind for their maximum daily calories, and when they exceed it for some unexpected reason, such as being given a pair of large milkshakes in an experiment, they regard their diet as blown for the day. That day is therefore mentally classified as a failure, regardless of what else happens. Virtue cannot resume until tomorrow. So they think, "what the hell, I might as well enjoy myself today" and the resulting binge often puts on far more weight than the original lapse. It's not rational, but dieters don't even seem to be aware of how much damage these binges do, as demonstrated in a follow-up experiment by Janet Polivy, Herman's longtime collaborator. Once again, hungry dieters and nondieters were brought into the lab, and some of the dieters were given food with enough calories to put them over their daily limit. Later, the entire group was served sandwiches cut into quarters. Afterward, and unexpectedly, everyone was asked how many sandwich quarters he or she had eaten.

Most of the poeple answered the question with no trouble - after all, they'd just finished eating, and they knew how many sandwiches they'd taken. But on group was notably clueless: the dieters who'd been given enough food to exceed their daily limit. Some of them overestimated, and some underestimated. As a result they were much further off the mark than either the nonndieters or the dieters who were still under their daily food limit. As long as the diet wasn't busted for the day, the dieters tracked what they were eating. But once they broke the diet and succumbed to the what-the-hell effect, they stopped counting and became even less aware than nondieters of what they were eating.

Two points to take away from that, assuming that this applies absolutely to trading mistakes just as it does to dieters:

- don't treat the trading session as successful or unsuccessful, treat each individual trade seperately and after blowing a trade badly, stop and wipe the slate clean before carrying on - and if you can't wipe the slate clean effectively, then stop for the day

- even entry and exit should be treated seperately: after making a bad entry, don't be tempted to try to manage your way out of it, just exit immediately.


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  #724 (permalink)
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2013-05-17 Friday sim trading session

Nobody has suggested that I stop trying to trade like this, and the view count keeps increasing at the top of the journal so I am going to take that as tacit encouragement and continue until the end of May, by which point I want to see some improvement in my performance from a completely objective review of my progress so far. I aiming for a considerable number of profitable days (yes I am still aware of what I said in the previous message), ideally at least half between now and then (10 trading days to go), to avoid the conclusion that something drastic has to be done.


The Tao of Al (Page 407, Reading Price Charts BBB)
34. Always look for two legs. Also, when the market tries to do something
twice and fails both times, that is a reliable signal that it will likely
succeed in doing the opposite.

I'm not sure about the two legs in the forex market - it's more like 3 legs but that is only a vague impression and not one I use in trading decisions.

Lesson Learnt Last Session

See previous message.

Goal today

Implementing the procedure as planned but also simultaneously being satisfied with the analysis.

Observe first trade and conditions carefully to see whether I have some kind of psych hang-up on getting started.

Risk Management

Account - sim: GBP 94,523
Position size: 2 x US$50K
Max risk per trade: $200
Daily time-out: -$400
Daily full stop: -$600


forexfactory.com
 
Code
03:00 	CNY 	Low	CB Leading Index m/m
10:30 	GBP 	Med	MPC Member Weale Speaks 					
14:55 	USD 	High	Prelim UoM Consumer Sentiment
	USD 	Low	Prelim UoM Inflation Expectations
15:00 	USD 	High	CB Leading Index m/m

Session Details

Normal session, Friday, normal week.

14:55 news event - have set alarm (no way I would remember that)

Higher Time-frame

The daily sell-off is looking ugly with 2 dojis now, but still quite impressive. The 20 day volatility is turning round and going back up after peaking at the end of March. Would love to see some volume analysis.

Hourly chart looks like it's decision time - bounce back up or break on through. The 50SMA is pushing in to the level today as well.

Volatility

20 day volatility 106 (10 year max 287)
20 hour volatility 20.5 (10 year max 96)
Dipped from late March but not as low as earlier, not appears to be on the rise again

Asian Session

35 point range, volatility 3 is average, quite good trending PA down from yesterday's close.

London Session

By contrast, this morning stuck pretty much within the Asian range, but not choppy with some nice slow flowing moves and interaction as S/R.

Trader State

Physical: fed, watered, left in peace to sleep - should be in optimal condition
Mental: yes issues but have a plan to tackle them
Fatigue: not so bad, will see.
Motivation: Once more unto the breach! (Henry V, Shakespeare)

Session Notes and Review

Was prepared for a very dull day as I started after the London AM session was so range bound. My set-up 1 is actually a set-up I should ignore since the mid-range range-bound day set-ups are low probability. I watched it without intending to take it, but even if I had the PA was just weird, looking at the 1-min chart. The chances of so many consecutive bull bars in a row is miniscule, and then loads of bear bars in the set-up too with just 1 bull bar.

The market also came back for a retrace and was a bit more normal before dropping off a cliff - not that I allowed myself to trade it.

I was monitoring my behaviour carefully.

Set-up 2 came unexpectedly after that 30 point candle. I wasn't monitoring myself so carefully now after the extra effort on set-up 1. But I avoided the first bear bar entry possibility on 307 because of the 3rd candle rule.

On the 1-min chart, on a pull-back short set-up you need a bear bar closing lower and during candle 309, it did that and my entry is fine except the previous bar put in a big bullish tail - not bullish enough to deter me though and I paid the price. The PA looked bad, not bullish, just confused. Could have bailed 5 points lower where the price hovered for 30 secs but couldn't force my fingers to hit the button in time.

Set-up 3 was the next pull-back where I'd identified a small down-trend with mini-cycles pushing down, and I wanted to try to get in at the top but failed miserably! I could have got in a couple of points higher but fluffed it and couldn't move my stop into position fast enough. Hesitation etc.

It then went my way well, but not all the way so I was left managing a PA-based exit - the 2 micro-trend-lines on the 3-min chart were what I was using. Neither would have saved my position because there was news at 14:55 which I would have had to be flat for.

Set-up 4 was a big triangle I saw which would have allowed me to trade the price action coming off the news, but I fluffed it again. The triangle's on the 1-min chart. Almost got in the wrong way, so hesitation has its benefits sometimes! Would have had to exit a short for -2 or -3 points, and then a long trade was also triggered at 15:30 on the same set-up, but I was running on fumes by that point. Might have got 5 or 6 points from it, exiting at the trend-line break just before the close.

Fortunately the monitoring went quite well.

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Today's Result

Set-up 2: -3 & -3
Set-up 3: +5.5 & +4
Total: +3.5
New sim account equity: £94,519

Can't really claim this as a profitable day since commissions wiped out the 3.5 points profit

Lessons Learnt

Need to re-vamp my "Mental:" log entries which are currently a waste of time. Discovered a headband EEG machine that runs with an iPhone app to display prefrontal cortex focus & concentration levels - Melon kickstarter project - might be worth a go. Also thinking of signing up to Lumosity for $25 a year.

Since I restarted trading in March this year, I've been allowing my stops to get hit on the full only as a last resort and/or I consider it an error in hindsight. My goal is to get out of a trade on bad price action or have my targets get hit. Letting the market move back onto my stops is always to see points go down the toilet.

Yet the strategy is to put the stops at a position behind the set-up zone where the market should never go if the S/R level is to hold or break or the pull-back is to revert into a trend or whatever the premise of the trade is. That allows for the initial trigger to fail, and when price stays in the set-up zone without hitting the stops, a second move or even a third can still be captured by the trade.

So I've got a conflict of purpose in my trading plan. OK, so I could say that the stops are not designed to allow me to leave a trade open to catch a second or third trigger if the first fails, but just to act as a last resort. But I look at past set-ups and I see how often I would have got my targets if I'd just left the set-ups to play out. That raises the question whether I should only be bailing on really bad PA and I should have more patience with PA where the price is just going the wrong way.

At this point I don't know but the important thing at the moment then is that I don't get confused and that I stick to the current plan, even though I haven't written it into the plan. Guess I'll have to do that now.

The best set-up today?

Set-up 1, the low probability trade that I didn't take because I'm such a beginner. Great price action signalling the entry, massive reward. I have a theory that the best price action and the biggest moves tends to come in the periods when the majority of traders are keeping out of the market, e.g. as in this case possibly because it was mid-range after a seriously range-bound morning session. Obviously just seeing the PA tells me nothing about the volume, it's just an assumption on my part.

V 30,200

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

Last edited by Adamus; May 17th, 2013 at 07:28 PM.
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  #725 (permalink)
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Hi @Adamus, I've been looking at legs as well. To me it's fairly subjective. After watching some of Al Brooks' videos I realized that although the legs might look clear to him, there seems to be a lot of subjectivity in the matter. The only thing I notice sometimes is in a trend, with-trend legs seem to come in 3s and counter-trend legs in sets of 2. Also, in tight trading ranges it is extremely difficult to count and everything is thrown off. Of course, as always, this could be extremely subjective. Also there is a question of how to count pullbacks. Say, for instance, we are in an uptrend. Now, if the current bar closes with a lower high than the previous, some people would count that. Others would say if the current bar closes with a lower low than the previous that's a pullback.

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SammyD View Post
I've been looking at legs as well. To me it's fairly subjective. After watching some of Al Brooks' videos I realized that although the legs might look clear to him, there seems to be a lot of subjectivity in the matter. The only thing I notice sometimes is in a trend, with-trend legs seem to come in 3s and counter-trend legs in sets of 2. Also, in tight trading ranges it is extremely difficult to count and everything is thrown off. Of course, as always, this could be extremely subjective. Also there is a question of how to count pullbacks. Say, for instance, we are in an uptrend. Now, if the current bar closes with a lower high than the previous, some people would count that. Others would say if the current bar closes with a lower low than the previous that's a pullback.

I only rarely count the legs in an intra-day trend but I'll look out for that counter-trend characteristic. Since I expect an intra-day trend to move from one S/R level to another, I already have my idea of where it's going to end - but that is highly fallible since counter-trend moves especially this last month tend to fail and come back to the same level. Maybe counting the legs would have been helpful, it always seems that counter-trend moves will put in a pull-back at the slightest hint of S/R from previous intra-day price action, and often without any S/R, MA or whatever at all.

On the subject of single bar pull-backs/retraces, I like Al Brooks's definition of H1, H2 etc or L1, L2 etc for entry points. Using a lower time-frame a la Lance Beggs, it means I can see a lot of these when the 3-min trading time-frame is just building a single candle that might have - like you said - just a higher high or just a higher low and not a double-ended 'complete' pull-back formation.

But to count the legs, I think you have to use pre-defined swing points with a swing high being surrounded on both sides by 1,2 or 3 or x lower highs and vice versa for swing lows.

The art of it is probably to know when to use pull-back counts and when to use swing counts, perhaps depending on current market type (trending / ranging or flowing / choppy or with-trend / counter-trend - I don't know). Any thoughts?

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  #727 (permalink)
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Yeah, I don't really count the swings per se. I simply count any leg as I see it on the 5 min chart. However, it can lead you astray so I'm not sure about the practicality. There will always be "nested legs"=smaller legs within smaller legs (ie legs within swings) because there are always smaller timeframes

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There's things that you will do / won't do after a certain count (3 with-trend / 2 counter-trend)?

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  #729 (permalink)
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In the past I tried to count legs to predict turning points but it was too random. It worked sometimes but not enough to give me an edge. I pay attention to it sometimes when I'm in a trade. For instance if I've been in a trade that's had three legs in my direction I will be alert for signs that I should exit. Conversely, if I'm in a trade that I believe is correctly with-trend but is going against me, sometimes I will try to hold for two legs- I will leave my initial stop loss in place but won't advance my stop. Who knows if there's any to this. At times it is spot on and others it is severely off. One of my favorite Al Brooks' quotes is," Nothing works all of the time but everything works some of the time."

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SammyD View Post
In the past I tried to count legs to predict turning points but it was too random. It worked sometimes but not enough to give me an edge. I pay attention to it sometimes when I'm in a trade. For instance if I've been in a trade that's had three legs in my direction I will be alert for signs that I should exit. Conversely, if I'm in a trade that I believe is correctly with-trend but is going against me, sometimes I will try to hold for two legs- I will leave my initial stop loss in place but won't advance my stop. Who knows if there's any to this. At times it is spot on and others it is severely off. One of my favorite Al Brooks' quotes is," Nothing works all of the time but everything works some of the time."

Haha, yes that could be one of ten axioms of trading.

In mechanical systems trading but hopefully / probably not to such a fine margin in discretionary trading, you only need a 51% probability in your favour.

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