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

  #1 (permalink)
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Trading spot fx euro using price action

I started system trading in 2010 but I want to learn to trade by hand and eye too. So I'm going to launch headlong into it - price action will be my method and the spot Euro will be my market.

As a mechanical trader, I thought previously that discretionary traders were missing out and holding themselves back and just hadn't seen the true advantages of mechanised trading. I mean, with mechanical systems you can deploy your system against multiple markets with finely tuned money management settings derived from careful analysis of backtested results. You can remove emotion from the equation and your system will do exactly what you intended to do with no psychological hang-ups. You don't even have to sit in front of the screen watching it all the time either, it carries on 24 hours a day.

So mechanical trading has got to be a better option that disretionary, right?

Then I read more and more about trading, trying to glean ideas that I could turn into systems. What I do essentially when writing a system is to find patterns in the market that repeat themselves, but of course they've got to be patterns that can be easily programmed. All these discretionary traders with their screenfuls of indicators could be mechanised quite successfully because the rules were relatively objective.

But every month or perhaps six months even I was told or heard someone say, just watch the market and it will start to reveal itself to you as you build up screentime. This just didn't compute - literally

So I realised that the mind was really doing way more than a simple computer program could ever do for these traders. I read stuff like Blink by Malcolm Gladwell, Zen in the Markets by Toppel and the Tao of Trading by Koppel. It made sense that the mind assimilates huge amounts of information and recognises things that the traders actually aren't even necessarily conciously aware of which allows them to turn a profit between their entries and exits. They might say "I did this because the market did that" but their version of events I think is a heavily edited down version, without mention of 2, 3 or perhaps even half a dozen other events.

That's the theory I'm working on and I hope that my experience in mechanical trading will help me learning price action trading, and hopefully assuming I get any good at it, I hope my price action trading will help my mechanical trading.

I decided on Al Brooks' Price Action Bar by Bar, and the Lance Beggs/Your Trading Coach as my source of teaching.

I settled on spot forex EUR/USD as my target market since I'm based in London and so it gives me the choice of sessions to trade in and generally a really tight spread and minimum slippage because of the volume.

Looking over this forum I guess it's fair to say I'll be in a minority trading PA on forex, since Crude and the emini S&P are so popular, but I figure the diversity can only be beneficial.

I already got some good advice from my first thread asking about price action and I read every post on both the Elusive Price Action and the Price Action Bar by Bar book threads. It's also interesting reading other people's journals and I hope I can pay something forward whenever I get the chance, assuming I've got at least a quantum of good advice to give.

I figured maintaining a journal is a top priority and I'll be posting my charts here daily. I'd also like to make use of @Bacon's idea about using a decision matrix as a tool to keep track of the success or failure of any particular trading technique - see "alternative journaling tool decision matrix", although now that I've started putting in some screentime, I realise I've a way to go before I can define any technique that I want to use rigidly enough.

I'm starting out with Al Brooks's H1s and L1s in trends and the amount of decision-making for what is to my knowledge the simplest price action approach, well it's phenonemal. My first session today (not even trading sim, just looking at potential trades) resulted in 4 pages of notes, most of which I can hardly understand now afterwards.

So I hope I can make this interesting for everybody who decides to have a read of this journal so that it's not purely a cut-and-dried record of my struggle to make sense of price action and the gyrations of the currency market. Feel free to post your comments and questions - I'm only keeping this journal publicly for one reason, and that so that people will read it and knowing that will hopefully help keep me on the straight and narrow.

Just one more thing - a huge thank-you to Big Mike for putting this whole community together in the first place.

You can discover what your enemy fears most by observing the means he uses to frighten you.
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  #2 (permalink)
Quick Summary
Quick Summary Post

I started this thread concentrating on H1/L1 patterns as my primary price action tool. It's right out of Al Brooks's Reading Price Charts Bar by Bar.

If you have a trend, say upwards, then it retraces back down, at that point as soon as you've got a bar which doesn't have a higher high, then you've got a retrace, even if mini in size. Then you watch for the H1 which is the 1st bar where the high is higher than the previous bar. You also get H2 for the second, H3 for the third etc.

Since August 2011, I picked up the YTC Price Action Trader programme from Lance Beggs and immediately found what I'd been badly missing in my trading: a structured plan and a clear path. YTC PAT is a big programme, but most of it is about structuring yourself, your life, your schedule around your trading. The basic trading strategies provided in the programme are actually only a part of the material.

In October 2011 I started sim trading using the YTC PAT strategy. The learning is a slow process - no short-cuts, no sign-posts (or too many sign-posts, depending on how you look at it), and no-one to fall back on.

The money ran out (not for trading, just for paying the rent and putting bread on the table) in April 2012 at roughly the same time my second child arrived on the scene, so I took a job and that has replenished the war coffers.

As of today, Jan 2013, I'm back in the saddle and ready to go again. My main goal is still simply to build up my sim account equity to the point where it's obvious I'm not kidding anyone about my ability to trade - at least in sim.

Here are the indicators I'm developing and using:

Chart Trader Extra

Forex Asian and European sessions highs and lows

Support and resistance lines

Bar Numbering


Last edited by Adamus; September 4th, 2013 at 04:55 AM.
 
  #3 (permalink)
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First chart mark-up


This is the chart I marked up for today.

I actually didn't watch that much of it coming over the wire live, I started this afternoon and had to stop at 5:30GMT+1

I stepped through it bar by bar and managed to spot about 5 trades I could have made using the simple H1s after a retrace in a bull trend or L1s after a retrace in a bear trend.

I've marked the entries at the signal bar - the H1 or the L1 - although I would have entered on a stop a pip beyond the bar's high or low.

I think I discovered way more questions than I found answers to in this session (if any at all) - hopefully tomorrow will help me focus on what I need to know most so I can aim towards getting some kind of decision matrix going.

If the chart is too wide then just shout - my laptop has that screen size so it makes sense for me, but I guess not everyone is going to be able to see it all.

I see people embedding their charts in their text - would somebody be good enough to tell me how you do that?

Thanks

You can discover what your enemy fears most by observing the means he uses to frighten you.
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Trading spot fx euro using price action-eurusd-5-min-2011-05-03.jpg  

Last edited by Adamus; May 4th, 2011 at 09:15 AM.
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  #4 (permalink)
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Congratulations on creating the journal, I look forward to reading it.

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  #5 (permalink)
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You can embed your charts using photobucket or any image uploading service.
Use the
Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).
supplied in photobucket and paste it here.

Looking forward to your journal!

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  #6 (permalink)
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Day 2 - a hundred questions

I sat down in front of the chart at 12pm today and ended at 3.

The first question I asked myself was how to start. I figured I'd go back to the beginning of the session (10:00pm yesterday London time) and step through the bars. It would definitely be interesting to find out whether there's any kind of 'opening range' behaviour in the EUR/USD as is talked about for the S&P. I guess I need to look through the Lance Beggs material for that.

Second question was, how do I know whether it's trending? I'm just looking at the EMA(20) so I figure I'll use that until I see reason to change. I guess a rule to be consistent by would be to say that it is trending when there are three consecutive trend bars in the same direction totally clear of the EMA, i.e. not touching it.

Then came the question of how big to make the stop. Yesterday I was using 10 points and it seemed too small - but yesterday was a range day really in my simple assessment. Whatever. I'll use 15 points today. Following Brooks, I'll put my initial stop a tick below the signal bar at entry. The signal bar is massive, then I'll put the stop at most 15 points from the entry.

I'll also use 15 points for the target.

I toyed with the idea of going in against the trend if the H2 or L2 fail, because a failure seems to be a good signal in Brooks's methodology. I think it's a bit beyond me right now though, so I'd best stick to with-trend only trades.

But then if H2 or L2 fail, do I want to look for H3 and L3? Or shall I conclude that it's descended into chop and wait for another push and retrace to create a new H1/L1? Perhaps if it's a long way from the trend line then I should consider the trend to be strong still and I should look for an H3 or L3.

The H1/L1 failures are insteresting just one their own - I think the best way to identify an H1/L1 failure is to see whether the potential entry bar puts in a tail below the low of the signal bar. Or just to say the signal bar must be a trend bar in the right direction. Not a doji. But then how big is a doji body allowed to be in forex?

I couldn't decide whether to use targets or trailing stops because I didn't want to get whipsawed too much, hence targets would be good, but I don't want to miss any runners, so I want to use trailing stops - so I decided to use both, which is definitely part of the Brooks methodology anyway, so that suits me.

But the big question with the runner trade is when to exit. Do I put a trailing stop on it from break-even? Or let it run until I finish for the day? Or just until the next swing / end of intraday trend? And what's that? A reversal bar? A microtrend line in the opposite direction? Or do I stay in until it hits the EMA again? Or until I get an opposing entry signal? I guess I'll find out what's best soon enough.

Moving the initial stop up to break-even wasn't as obvious a no-brainer as I thought it would be. If the entry bar is a bull bar then great, the market will be a way away from break-even at the close of the bar. But if it isn't so clear cut. I decided it was bad news to try to move the stop to b/e if b/e was anywhere inside the bar that was closing when I would do it if it was a big bull bar (for a long).

I'm also very tempted to take multiple signals and add to positions but I think that's being a bit optimistic. I figure I should better wait until I can handle single positions efficiently - even if 5 mins sometimes seem quite a long time.

A question the mechanical trader in me keeps asking is, how long is the market going to stay in one type or mode before it sheds that behaviour and starts acting differently? With my systems I'd say it's a two week cycle.

Enough for now.

You can discover what your enemy fears most by observing the means he uses to frighten you.
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  #7 (permalink)
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I thought yesterday the EUR/USD trended up the whole time I was watching - obviously a trend day I thought compared to the day before which seemed to be more chop. But I just opened up the chart today and saw that the Euro trended all the way back down again after I finished yesterday and formed a doji on the daily chart.

On the daily chart, both Tuesday and Wednesday have the same sort of doji, but behaved differently. Or maybe it's my perception. A complete beginner's perception compared to someone with a day's experience.

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Day 3, chart and comments

Just completed my watching-the-Euro London morning session and found that Big Mike has posted a great video showing the application of range bars and higher highs and lower lows (HHs and LLs) to yesterday's Euro, on the Elusive Price Action thread - this is a major alternative approach to using 5 min bars and H1s and L1s and perhaps I should run NinjaTrader's market replay of the day's chart at the end of the day for a while, learning the two methods in parallel to see if I develop a preference for one or the other.

I need to get my day planner working better if I'm going to trade 4 hours a day because at the moment I'm letting too much other stuff take priority and every day so far I've done more stepping thro the chart quickly to catch up than actual chart watching live.

I think the most I learnt today was how to annotate my chart better in NinjaTrader, and I discovered I shouldn't do it live while NinjaTrader is auto-scaling the y-axis. It got badly messed up when the Euro tumbled badly today (pretty much right on cue as Bike Mike forecast in his video, barring a retrace first - kudos! From 1.4900 to 1.4600) - but I rejigged all the boxes and here it is.

One of the issues that coloured my thinking the whole time was wishing I had got in earlier, feeling regret at seeing big bars develop and go by without being in. I guess tthat's normal though and hopefully it won't have any ill effects.

I did find it made me feel limited by all my rules, e.g. don't get in on a trend unless there are 3 consecutive trend bars in the right direction away from the EMA on the right side. But then that is pretty random - I made it up because I just haven't read anything yet in Brooks to tell me how to identify the trend. It doesn't have any of the convincing arguments about other traders, or bulls vs bears, it's just the number of bars that I thought would define a trend without filtering out too many opportunities.

The problem is with bars like the super-bear bar at 186 at the start of the NY session.

Bar 185 was a news bar. I don't know what was said but it was obviously US$-positive. Initially though the market shot up 20 points within a few seconds and then just stepped off a cliff only a few seconds after that.

I couldn't see any price action signals and I was wondering how to play the double bottom at 1.4805 and then the double zero at 1.4800 when the market made such thoughts irrelevant by ploughing through down to 1.4700. The market dithered around 1.4700 and then again at 1.4600 - I guess I'm just dreaming to think I could tackle action like that at my level of experience.

Positive from today?

I think using 15 points as a stop and target worked out OK. Probably got something to do with the average range of the 5 min bar which is around 10 points.

Otherwise actually I found it a bit frustrating and would have lost money if I'd actually been trading. I guess I made a few technical mistakes which is good to learn from.

You can discover what your enemy fears most by observing the means he uses to frighten you.
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Last edited by Adamus; May 6th, 2011 at 08:36 AM. Reason: just correcting some of the worst spelling
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  #9 (permalink)
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Using small stops and targets you'll miss a lot of big moves, at least that's my experience. But that's ok, don't need to catch them all. Position yourself to take advantage of what you can and try not to get discouraged when you get out and miss a larger move. To me that's just comes with the territory of using small stops. Although I have been working on staying in longer.

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Trankuility View Post
Using small stops and targets you'll miss a lot of big moves, at least that's my experience. But that's ok, don't need to catch them all. Position yourself to take advantage of what you can and try not to get discouraged when you get out and miss a larger move. To me that's just comes with the territory of using small stops. Although I have been working on staying in longer.

Yes I can see that, you're totally right. I'm trying to apply the dual exit methodology, one scalp and one runner. A 15 point target for the first half of the lots, and then a rnnner for the second half and it's that runner that I'm hoping will catch mammoth moves like that on the Euro yesterday afternoon (you can see the first bar on my chart there, but it carried on down all afternoon).

I have a ton of unknowns to fill in on running trades. Hitting targets is a no-brainer, but letting something run, well I know I know next to nothing about how to exit. At least they are known unknowns, I don't want to speculate on the unknown unknowns

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