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Spot FX Day Trading: The Jigsaw
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Spot FX Day Trading: The Jigsaw

  #161 (permalink)
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Hi Mokodo, tough day yesterday for you. Hope you get something out of it. I wanted to ask about your entry rules because I'm still not definitely clear what triggers your entry. Your first entry was volume-based, right? I know what no-demand waves are, but I'm not sure what you mean by effort - is that purely high volume you're referring to?

Just my 2 British pence worth as well, I recognise (but might be wrong) a kind of over-compensation in you that I suffer from all the time. I focus on something too much (I'm thinking of your focus on not meddling with positions) and then I find that causes subconscious damage when I take losses but think 'that's good, because at least I'm not doing X'. The subconscious damage comes out as fear and excessive nervousness later on in different situations.

So I try to (and am not good at) reining in my enthusiasm to implement a new psych approach, to find the right balance from the word go. It's a masterstroke if you can get it right and more often than not I find myself lurching from one extreme to another. I don't know what your Inner Chimp says about it, but I'd love to know. I don't think there's an easy solution.

Thanks for the questions and input. On the entry rules..

1. I do my pre-session prep and decide where my bands will go. These are typically (but not always) at yesterday's high/low or close or at other SR levels. I want to do business around these levels. The only exception is where I think we are in a trend and I'll try to get in on a retracement.

2. I have 3 set-ups. i) The retracement I mentioned is simply a rolling over of my 3/10/16 MACD histogram (in an uptrend where the red histogram drops from light to dark red or in a downtrend from light to dark green); ii) a spring or upthrust. This is a penetration of a previous SR and a strong move away and weak secondary test, iii) a pull back to ice or creek, this is a break out from a range and pull back to the previous extreme of the range and a move away. Depending on the context ii) and iii) can be trend continuation or reversal set-ups.

3. My actual trigger for getting in once the criteria are set-up in most cases is the MACD histogram as previously described, although I will also get in on a no demand or no supply wave too.

4. There is a layer of context that I overlay to the mechanical entry rules which is Wyckoff/David Weiss based. The effort vs reward concept you asked about is one such element. This is usually seen as price bars struggling to make progress on high volume/trade activity. Usually gives the price wave a shallow angle and the duration of such waves can be relatively long . So the interpretation of lots of effort and no reward is that there is active selling in that up wave (or vice versa for a down wave). And is a sign of weakness which may lead to a turning point in price. It will take me many years I think to get all the nuances of Wyckoff but the approach makes sense to me so far.

Hope that answers your question about the entries.

On the psych side of things, yes we are all guilty I'm sure of being generals fighting the last battle. My situation is that this episode of trading - if it shows no tangible progress - is likely to be my last. After 3 years of serious (albeit part-time) study and false starts I have a year full time to get some traction or stop.

I looked back through my various stats and if I had just set targets and stop and left the trades alone I would be a profitable trader, actually doing fairly well. So for me this is the key thing to address, obviously it isn't as cut and dried as that. I'm hoping the losses will not effect me as I am trying to get back to a brutally disciplined and patient approach. (I did manage this before for a spell, but after getting enough stats together, came to the view I was being disciplined and patient with a losing system!).

So I am focusing as far as I possibly can on the process and thinking about the results as little as I can. I think the set and forget approach is a good one as:
  • you have to be discerning in trade selection, as with guaranteed full stop losses when you are wrong you'll get to daily/weekly loss limit quicker
  • you have to completely accept the risk in the trade. The more likely outcome is that you will lose your stake, so get use to accepting the risk
  • not having to agonise over every wiggle means you can get away from the screen. I am taking the view with the test that my job finishes when I put the trade on. All the trade management is in the ATM.
  • not having a time based or 'just scratch the trade' exit means there are fewer opportunities to consider which may inhibit negative trading cycles (as long as you can overcome boredom trades).
  • by setting a profit target you are saying this is the reward I want for my idea being correct. By not managing (meddling) with the trade you will not get in the habit of 'discounting' your ideas. I want to sell my ideas for the price I wanted when I put the trade on, discounters fight on tighter and tighter margins and need volume for the model to work. Position yourself in the premium market with the best margins.
That all said I do think there is a place for trade management, time based stops etc., but in my case I will only attend to this once I know I can consistently apply the set and forget approach.

And yes my inner chimp is boxed up right now. He and I have been having words and he agrees with me we would both be happier when we see some improvement, so will do his best not to sabotage our efforts.

Thank you once more for your questions, answering them really does help me clarify things in my our mind. Happy trading to you.

know thyself

Last edited by mokodo; July 18th, 2013 at 08:48 AM.
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  #162 (permalink)
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Yes, very informative, I'll be able to read your entries better knowing that.

Re: the managing positions, my main thought was that I would still allow myself to pull out of a trade if I identified a mistake mid-trade, where the mistake was crass enough to invalidate the entry premise. I figured that might have been what happened to you in your first trade yesterday, but you didn't say at what point you realised your error, or if you even thought it was an error.

The most cut and dried example would be entering because I accidentally dropped an entry order where it shouldn't go on the Ninja Chart Trader - it has happened to me. I have a whole list of errors that I log ranging from fat fingered human unco-ordination to technical problems to decision-making mistakes.

You can discover what your enemy fears most by observing the means he uses to frighten you.
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  #163 (permalink)
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Adamus View Post
Yes, very informative, I'll be able to read your entries better knowing that.

Re: the managing positions, my main thought was that I would still allow myself to pull out of a trade if I identified a mistake mid-trade, where the mistake was crass enough to invalidate the entry premise. I figured that might have been what happened to you in your first trade yesterday, but you didn't say at what point you realised your error, or if you even thought it was an error.

The most cut and dried example would be entering because I accidentally dropped an entry order where it shouldn't go on the Ninja Chart Trader - it has happened to me. I have a whole list of errors that I log ranging from fat fingered human unco-ordination to technical problems to decision-making mistakes.

Yes, I would get out of a trade where it is erroneous/fat-fingered. But for this test set if I take the trade in good faith believing it is a valid set-up (at the time I entered), then I will let it run - even if new information comes into the market which overturns my original premise. The reason for this (in addition to those I mentioned in my previous post) is that my approached can only be profitable if I get a decent swing in the day and occasionally a chunk of a trend day. To do that I need to develop my understanding of context, which is what Wyckoff is all about. So if I have the context right the trade is more likely to work out.

Regarding the trade yesterday, at the time I took it I believed it was a valid set-up, hindsight brought clarity that told me it wasn't. And by letting it run to a full stop I guess I am building up a picture of what doesn't work. See today's trade I'll post up shortly to watch the whole, thing happen again!

know thyself
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  #164 (permalink)
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1 Loser

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Is it yesterday again today? I was looking for a short off of my upper band at the end of the London open, but didn't get a signal and then in the US open I did exactly the same as I did yesterday. I was looking for a (and this is going in capitals so I can remember it) CLEAR BREAK OF THE LEVEL AND AN OBVIOUS PULL BACK.

What we had was chop suey at the lows and the weakest interpretation of my set-up 'pull back to ice'. This was clearly a low activity day, and I had already written in my game plan that any set-up would have to be compelling to convince me a directional move was a realistic possibility.

So I 'saw' a break of the lows with a pull back and took the trade. This is an hour before news; an unlikely time to see movement given the progress of the day so far. 5 minutes prior to news I came out with a -0.75R loss.

So what have I learned from yesterday and today? On low volatility days such as yesterday and especially today I need to see obvious wave structure and price doing something definite around the key levels. Other than that it is just noise. I spent too much time watching the PA and was seeing information that didn't exist. Trade noise get spanked!

know thyself
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  #165 (permalink)
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2 Losers

At times like these I am glad I have a money management plan.

I've taken the approach I have to earn the right to trade live and then earn the right to increase size. I had earned the right to trade live in July as I had a profitable previous month on SIM. At the end of last week a circuit breaker kicked in as I had a run of 7 trades that showed an overall loss. That rule puts me back in SIM until I can have two runs of 7 which both show a profit.

The 2 losers today completes the first set of seven for an overall loss. Clearly I am not yet in the groove with my amended set-ups. I have been chasing, seeing set-ups that are not there, I think of the seven trades this week only 2 or 3 were valid as per my rule set. So the issue is with me.

I'll do some reviewing over the weekend and see else what comes to light.

Even though it has not been a great run I have stuck to my plan to let price take out my target or stop and feel there has been real progress there. I also have been guilty in the later half of the week of making a fairly accurate assessment of the market environment in my pre-session prep and game plan - and then conveniently ignoring it; just so I could place trades. Very clear in hindsight, just not at the time.

know thyself
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  #166 (permalink)
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Join the club (apparently it's a big one)

Have a good weekend, and good luck finding some answers...

You can discover what your enemy fears most by observing the means he uses to frighten you.
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  #167 (permalink)
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Chart set-up

Someone asked me to breakdown my chart set-up, indis etc. So here it is, attached as a screen shot of the NT indicator window.

Price panel:
EURUSD
350 tick chart
anaPivotsDailyv37 to pick out yesterday's high, low and close
SwingRays to highlight SR levels
PriceActionSwingPro to time duration of each wave (same settings as the histogram in panel 3)
Key reversals; up and down
ColourTime region to highlight London and US opens.

Panel 2:
Background is an indi I coded to give me a snapshot of the broader market environment: chop, ADX low and high volatility, trending. TE60v2 is based of 60 minute bar data
Oscillator is a remnant of a system I bought years back. It is actually MACD with 3,10,16 settings (same as the LBR settings).

Panel 3:
Background is the market environment indi as above but referencing 30 min bar data
Histogram on top is PriceActionSwingOscillator. This is based on tick volume, an attempt to mimic the Weis Wave.

Panel 4:
Range

I've had to tweak the PriceActionSwing indi at deal with the way MB Trading report live vs historic tick data (thus the suffix '2').

know thyself
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  #168 (permalink)
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Stop, Review, Reset

Last few days I've had a healthy step back to review and see what I could prioritise. It really was a cold hard look at my progress and current situation. And overall I am very happy where I am and grateful for the loses which prompted this 'stop and think'.

I believe I jumped in too soon trading cash with my amended set-ups. That is why (I think) I was scratching trades, over-thinking and generally getting in a fog. I had not built up enough of a track record to believe the system or trust myself.

So starting tomorrow I am taking a different tack. Ordinarily I define my set-ups in terms of criteria and then trade that rule set. This may be putting the cart before the horse as I am making assumptions that these set-ups are 'going to work'. Just because they are well-know or others report success does not mean they will work for me.

Much of the Wyckoff approach is about understanding context and whether there is strength or weakness in the background. The aim of the Wyckoff course(s), as I understand it, is to develop traders' intuition and judgement, not to spoon feed set-ups.

So in that spirit I am going back a step and spending some time in SIM keeping a running commentary on the trading day which will categorise price behaviour as either signs of strength or signs of weakness. At certain points the scales will tip and a change of behaviour will occur (long to short or vice versa) at which point I'll place trades if they occur at good R:R locations and in line with my daily game plan.

So rather than follow mechanical rules I'll try to understand whether bulls or bears have the upper hand and trade that way. I guess it is a way to 'speed date' a load of set-ups and see which ones I chime with. Hopefully out of the process and the stats the next step will become clear.

know thyself
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Getting The Sample Set Together

Good week last week, I did the 'set-up speed dating' and went back through historic charts to apply the same process. All very worthwhile. I have feed in anything relevant to my trading plan and am now embarking on building up a decent sample size of trades in SIM.

I expect 2 months or more of this full time. My aim at the end of the process to i) build confidence and experience with the set-ups, ii) establish if I have an edge at all, iii) have a decent length of time applying the same rules and routines to test out my discipline of applying the trading plan.

What I am actually doing is accepting that there are no short cuts! On reviewing my journals and past episodes of trading I know I can be extremely disciplined in my routines, rules and execution. But this only tends to happen after building up a decent run of consistent process execution. And by process execution I mean limiting as many trading variables as possible so that the trades which are taken have more statistical value. For me this means working to an exact (and inflexible) daily/weekly timetable governed by tick lists and extending that into each and every trade. Without the evidence of live forward testing with the grey world of doubt and discretion all around I will not break the cycle of good trading / poor trading /tweaking / starting over.

I have always had a daily tick list, trade cards with a per trade checklist. I undertake a pre-session prep and write a game plan. I fill out a trade card per trade with metrics and emotional reactions and journal nearly continually every trading day. And do a battery of excel summary statistics. So the practical and tactical tools are there, but it is the rigor to stick unerring to the trading plan that slips and undermines the evidential value of the trades I do take.

I really do not care what the P&L outcome of the trades are for this exercise. I am attempting to focus purely on process execution.

know thyself
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1st Trade in Sample


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Game plan was range bound between 1.3295-1.3240. I would take range fades (upthrusts or springs), or breakouts/downs on pullbacks to these levels after a clear break. Max stop today was 15 pips as daily 14 period ATR is now <100 for EURUSD.

Upper band (yesterday's high) was pierced just as the US open was coming up. Even though this looked like a committed break of the level (wide range bars going boldly through), it looked climatic and my read was the trade activity would stop the move. I entered on the first no demand signal once I saw supply coming in. The entry looks late as the wave volume indi that I use actually repaints. The stop is 15 pips, I am using a 2R target, 30 pips away which is just inside earlier daily low. After a spell of distribution (in the protracted upwave after my entry - which lasted an hour and came within 2 pips of my stop) the breakdown came and ran to target in under an hour.

Here's a 5 pip renko chart of the current range which shows some interesting activity levels..

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The blue band I've added picks out the high tick volume bricks from the last three days. At these levels yesterday and today there has been distribution, with sellers taking all that the buyers would supply in the 1.3280-90 range. Of course it 's only clear that this is case once the breakout/down has occurred! But with news flow in the rest of the week I'll be interested to see what happens at this level (if we get back there)

And most importantly completed the first trade in the sample sticking rigidly to all my rules. Well done me.

know thyself
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