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The 22 Days: A Price Action Trader shares his Journey
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The 22 Days: A Price Action Trader shares his Journey

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The 22 Days: A Price Action Trader shares his Journey

Plan

Any good journal, if it aspires to be instructive at all, MUST start with A PLAN.

Without a plan there is no ability to monitor performance, and with one there is a guaranteed destination at the end of this journey. Without a plan there is no singular definition of discipline – how can one break rules if there were none laid down in the first place?

Thus, the objective of this journal, foremost, is to narrate whether the plan described below was followed, explain why some things were done they were (ideal answer: they were done because they were planned for being executed as part of this plan), describe the quality of execution, and evaluate the performance of this plan not based on an equity curve but rather on how well the plan was executed.

As a bonus, and I say bonus because you need to make the assumption that I must already have done my homework and BACKTESTED the plan before posting it and hence I start with the mathematical knowledge that the plan is theoretically profitable - this narration will also reveal whether the plan is suitable for the chosen markets / instruments and whether it is suitable for the timeframes chosen for me to trade, and whether it is emotionally suitable for me.

Simply, this is the plan:

Goals of the Plan:

I am doing this activity but primarily (and I must not lose sight of this fact) for growing my pile of cash at whatever percentage the market offers me within reasonable risk which means that at no point in time will I risk more that 2% of my pile. Note that there is no hard goal defined to double my capital, or increase it to 1000% etc. – rather the plan centers around PROPER EXECUTION of my PREDEFINED STRATEGY.

To achieve this goal I will FOLLOW THIS PLAN completely, without questioning it since manual backtesting has proven that it is profitable.

Markets, Instruments to be traded and when:

I am currently based in India, hence I will be trading liquid stocks on the National Stock Exchange (NSE) i.e. stocks which are have futures / options and are preferably part of the NIFTY or the SENSEX.

I will allocate one-third of my pile to take NSE stock positions which will NOT be carried forward overnight. I will trade 5 minute charts.

I will allocate the second-third to take positions in NSE future contracts of the underlying for carrying one single position of one futures contract overnight. I will trade daily charts, but will try to gain best entries by basing them off 5 minute charts if they conform to the dailies.

I will allocate the remaining third to take positions in the Indian MCX-SX commodity markets.

The last two will be collectively referred to as the SWING CAPITAL.

My secondary objective of focusing on swing trading is to allow this activity to replace my current method of earning money which will finally allow me to spend more time with my family and enjoy the freedom of travelling and being able to trade from anywhere in the world.

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However the first part needs me to keep checking the market every five minutes but this is not a sacrifice by any means since swing entries are taken with a view to gaining the best entries based on 5 minute charts.

Additionally, I will paper trade the Forex market (EUR/USD or other pairs if there is a setup).

The Edge:

The edge is obtained through the hard work of studying AL BROOKS and applying his principles to the markets. All mistakes that can be made have been made. The key is to avoid making any of them again and record everything in this journal faithfully.


Set of Rules:

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The basis for all entries is a PINBAR.

There are only two rules which will always keep me in the market or on the sidelines after exiting:

Rule 1: I will only take WITH TREND trades till there is a break of a major trend line. If there is a break of a major trend line I will wait for a pullback to the extreme of the current trend and then take a position based on if there is a reversal signal during that test.

Rule 2: I will exit only when the above rule applies AGAIN once a position is taken or the trend is almost vertical and then only if there a reversal signal, especially if the reversal signal is a pinbar.


About Me:

Strengths:

Patience.

Ability to follow rules perfectly, except…: read below.

Weaknesses:

Since I tend to freeze when faced with losses, I have to get a position correct or exit at the extreme of the 5 minute bar which was used as the basis for taking the trade. This applies to swing trades as well as trades which will not be carried overnight. Thus the stop loss is two ticks above the extreme of the bar used to base the trade upon. If for some reason the stop loss does not trigger and the market puts me in red, EXIT.

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All these human errors that lead to improper execution – buy instead of sell, missing entries by not having discipline to make myself available to the market as decided upon, or if the market moves when II cannot make myself available (I’m asleep, or frustrated etc.) then taking second best and third best entries – i.e. patience again, rather the lack thereof.


Tools / Data Feeds:

Google finance charts
ChartNexus software
Netdania

If there is any problem with any of the above DO NOT TRADE.

Daily Pre-market Routine – or How to Start the Day before logging in to my broker’s terminal:

My daily pre-market routine comprises of:

1. To analyze yesterday’s trades.
2. To review any open positions and do a what-if analysis of targets and stops by assessing market conditions.
3. To make an initial selection of possible instruments to trade based on the above two factors.

Risk Management / Money Management:


The goal of my trading is NOT TO LOSE MONEY. Gaining money is a secondary objective.

Take a trade ONLY if the reward is 1.5 times the risk.

Every trade I take MUST have a stop loss order entered into the system.

I will not use tight trailing stops, stops can be moved to protect profits only based on rules 1 and 2.

I will stop trading for the day if I lose 2% of my total pile.

I will stop trading for the week if I lose 5% of my total pile.

The size of my position must never exceed the parameters defined above.

Finally, I will never let a winning trade turn into a losing trade i.e. I will move my stops to either breakeven or to a place which crossed refutes part of my idea.

After a winning trade I will not let ego takeover and still continue to abide by the above rules.

After a losing trade, I will verify that I followed my rules and remind myself that following the plan is more important that the outcome of a single trade.

In trading, as in life, I will strive to be impartial to the passing ebb and flow of emotions.

May DISCIPLINE be part of me for the next 22 days.


Last edited by iqgod; March 1st, 2012 at 07:44 AM. Reason: Images
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Learning the Method: Reference Links


To master Price Action trading countless hours of effort - both studying and screentime - are of paramount importance.

The following place on internet is a fountain of knowledge, so to say.



(S)/He seems to be a disciple who has attained a great level of mastery over this method who posts at:

ninetrans.blogspot.com

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Precepts from Al Brooks book 'Reading Price Charts Bar by Bar'

Important Precepts: (underline, read many many times, backtest till these get firmly embedded in your pysche):


Trends often end with a test of the extreme, and the test often has two legs, each reaching a greater extreme (a Higher High in a bull, or a Lower Low in a bear). The first extreme and then the two legs make Three Pushes, which is a well recognized reversal setup with many names.

Although the best reversals have strong momentum and go a long way they are often very slow to start and can have several small bars before the sharp moves begin.

Typically, entries in trend pullbacks look bad but are profitable, and entries in reversals look good but are losers.

Any series of strong trend bars (big bodies, small tails, and very little overlap) that is followed by a pullback almost always has a test of its extreme.

When price goes above a prior swing high and the momentum is not too strong, place an order to short the Higher High at one tick below of the prior bar on a stop. If the order is not filled by the time the bar closes, move the order up to one tick below the low of the bar that just closed. Continue to do this until the current leg gets so high and has so much momentum that you need more price action before shorting.

Failures are often excellent setups for trades in the opposite direction, since the traders who were just forced out will be hesitant to reenter in the same direction, making the market one-sided.

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Mistakes: And avoiding them with Discipline!

I am starting this entry with these series of rules because they are the guiding principles the journal will be based on:

You will make more money if you avoid certain types of trades.

If you can’t resist taking the less optimal trades and blame it on human nature it means that you are losing discipline and are not following your plan,

The most important thing to note is that trading counter-trend will result in missing the “with trend” trades. In his case money not gained is money lost.

Don’t do countertrend trading until after a major trendline break with momentum and a retest of the trend extreme.


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Last edited by iqgod; March 1st, 2012 at 08:27 AM.
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My Last 'Encyclopedia' Post: Use these resources for reference

Here are the resources that helped me most during trading:

Al Brooks, of course

The James16 Group thread on ForexFactory

dbphoenix - his posts on Wyckoff theory, same name on various forums

Various samaritans: clockwork71, thalestrader, dante_trader, Strat's Price Action Trading

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Trendline Touches as shorting opportunities

8:00 AM
Checked daily charts. Massive Pinbar on ABB hence will focus on ABB considering short only trades.

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9:15 AM
Market Open: ABB opened at 804.95 and started ticking up forming a high at 812.70.
9:25 AM
Since there was a minor trendline break of the previous day’s two legged fall in the final hour, I was looking for at least a scalp hence shorted below yesterday’s close at 810.
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9:50 AM
Closed position at 807 as this was only a scalp and stayed on the sidelines expecting market to tick up to test the major trendline. Placed a short limit order at 814.9 (I could have placed it exactly at the trendline at around 818 but did not want to lose an opportunity in case price did not tick that high).

11:15 AM
Short order filled at 814.90. Market tested 818.90 and then started pulling back.
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11:45 AM
A lower high was printed at 817.90, price reached 811.40 but formed a reversal bar, due to which I took profits in two parts at 813, 812.
01:25 PM
Market formed a almost double top by giving a high at 817.5 where it formed a reversal bar, but the prior high was not tested and hence stayed on the sidelines and did not short again.
02:05 PM
Took profit of remaining position at 810.1 seeing the big bar form on a 2-minute chart and 5-min chart.
03:20 PM
Utilized the SWING CAPITAL and sold a futures contract at 815 (stock price was 810.20), but market ticked back to 814 (hence futures contract is in the red closing price 821)

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Plan for the Day: A Wedge in the Plan

Being from India, I often get asked on social occasions - are you veg or non-veg :-).

Right now I am short ABB and am concerned about veg err Wedge that seems to be forming. I am hoping to exit at its climax profitably, or if the wedge immediately reverses, I will have a stop loss at cash 819.1 (futures 828).

Here is the daily chart to start today's journey:

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I hope my fear of three-push patterns is unfounded since we still have a strong case to stay short. If we do not take the pinbar spike into consideration then we still have not broken the bear trendline.

Regards,
iqgod

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Touchwood: Stop not hit by one tick.....

9:15 AM Market Open

My stop placement was 'correct' so to speak - it has not been hit yet.

The probability of this trade working out is very low however.

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Day 2: Complete Analysis and Commentary


This is today's 5-min chart of ABB stock of NSE:

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09:40 AM

There was a clear uptrend forming, and I was trying to cover my short swing position and go long, however FUMBLED during execution and by the time I had placed the order price ticked (shot up) upwards. Was still holding the shorts then.

10:25 AM

My ‘correct’ stop I had earlier prided myself upon i.e. at 819.1 was hit and price shot upwards. I KNEW this was going to happen, but FROZE (mistake number 1).

10:35 AM

Pinbar forms and price goes into a trading range.

11:00 AM

Price tested the trend extreme and started ticking downwards again. As per plan used my intraday part of the capital and sold at 829. I also used the swing part of capital and sold one futures contract to be held till March 15 or till price action is favorable.

01:15 PM

Covered the intraday shorts at 822. Observed price action for the rest of the day.


For tomorrow (this may sound like very much like a TV talking head, since price can only go UP, DOWN or SIDEWAYS, so hardly has PREDICTIVE value):

Both bears and bulls seem active in the market and it could go either way tomorrow.

In short, great discipline, poor execution today.

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