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

  #51 (permalink)
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1 Winner 1 Loser

Tuesday 2nd October

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London open and price retested the low from the late Asian session. The red zigzag line shows 3 dips into that retest. Looks like price also accepted the parallel up channel support line. Horizontal lines 1,2,3,4 are stop, entry, target1, target2.

1:1 Risk:Reward on my first target would have put that 2 pips outside of yesterday's high, so I erred on the side of caution and pulled it inside by 1 pip. That's where the moved stalled out. I raised my stop to the swing low and waited to see if price would have another go at the high. It did but didn't break through. I then pulled my stop in tight below the local channel and was stopped out. +25 pips +0.86R. Risk was 0.3% of capital.

OK with this trade as it got going nice and early so not too much heat to sit through. I am trying to stretch out my trades by using a couple of targets and that is proving to be a challenge as I have become pretty good (and comfortable) with aiming for 1:1 risk:reward scalps. By going for more on a second portion I am having to work out if the trade idea is still valid for the runner, so a bit of adjustment. And I haven't called one right yet.

I am also in a trade on USDCAD and will post a chart later. Looks like it will come in a loser but it has 'til 17:30 BST to prove me wrong.

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The yellow and pink paint in panels 2 & 3 shows ADX on the next two time series up (60 & 30 minutes respectively) <12 for yellow <9 for pink. So I am tracking for a breakout of the Swing10 level. I get that but PA is horrible barbed wire and I have that sinking feeling almost immediately "I will have nurse this sick puppy"!. Rule set says let it run for 10 15 bars which I do, so great discipline there. Then I drill down to the 5 minute chart to see if I can get a price rotation and come at with the best loss I can. Greedy me, I could have come out at -6 pips and had my finger on the order. Market gets the last laugh and I close for -12 pips, -0.42R loser.

A net profitable day and I feel I traded my plan well. Also a new equity high, so that's welcome news too.

Until tomorrow...

know thyself

Last edited by mokodo; October 2nd, 2012 at 02:01 PM. Reason: trade update
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  #52 (permalink)
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1 Scratch

Wednesday 3rd October

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I'm not a woulda, coulda, shoudla type but boy was I close today!. First off is a beautiful breakout set up that breaks 1min before my trading session starts at 7.30 BST. Damn those rules! I was mulling that missed opportunity for the rest of the day.

Insult to injury, I was served up a consolation prize and manage to bodge it. The pull back from the breakout came back for an ABC set-up (my signal candle has a red dot over it). Trend lines looked good, MACDh showing strong hidden divergence. In short this is money waiting to be picked up and put in my trading account.

I get the entry and position size to the local swing high which is 18 pips, so I have a largish position on. I hold for my mandatory 5 candles and then - as ADP numbers come out - raise that stop too tight. And it gets pinged for a scratch. Red lines 1,2,3,4 are stop, entry, target1, target2.

Now proper trade management would have been to assess my risk and reward potential objectively and bring the stop in looser to above the local swing high. Max loss then would have been half it was at the outset of the trade so I would have been in a minimum 1:2 risk:reward scenario. Add to that the fact that price had a small rotation and when no higher then the original trade idea was stronger still.

So a good lesson learned today - "Commit To The Trade". And gratful it only cost me the opportunity not hard earned cash.

Until tomorrow...

know thyself
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  #53 (permalink)
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2 Scratched


Thursday 4th October

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Oh boy oh boy. I totally lost it today. 3hrs sleep was not a good start (working late then my 2 yr old wanted to play!). I got to my desk late and missed the attached entry on USDCHF for a breakout. I entered late but at the same level I would have if I was there ready and waiting. It was a rush to get the order in and I hadn't done any of my pre-trade checks. Be flexible I said to myself, but I felt very uncomfortable about it and the price action was reminiscent of the loser I had earlier in the week. I bailed before giving the trade a chance. 'If in doubt get out ' was ringing in my head. 2 pips loss there. My rules say I do not chase trades and I did here which is why I felt uncomfortable and why I puked it. I'm not sore I missed the big move down as I would have got out at my predetermined timed exit before it ran away. I am just mad as hell about my lapse in concentration.

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And then I go and do the whole thing again! I should have passed on this entry, for various reason it is not a good opportunity for me. But I take it, it ticks all the boxes for my mandatory rules but is weak in terms of context. I changed my stop level from my predetermined one to make it more 'appealing' and once again puked it out for a couple of pips loss. By this point I was totally confused. No poise or market feel at all.

I got out of both positions because the process for getting in was all wrong. I had not undertaken my morning routine, or pre-trade checks. I rushed and was in a fog. Then I thought "hey this is just how I used to trade" and took solace in the fact that I could at least make the distinction between a good process and poor one.

Saving grace is that I squeezed another drop of experience into the bucket. And still flat for the week/month so far after a truly dismal start! No trades 'til next week for me. Regroup and re-focus.

Until next week...

know thyself
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  #54 (permalink)
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Review Day

Taken a step back today to review and plan. My commitments outside of trading have increased and my current approach will not fit, so some changes to be made. Back to basic so I have summarised my beliefs about trading as a starting point. I've been keeping an unordered list of these since I started trading and have added to them as time went on. Today I reviewed and loosely categorised them. Whatever I do now will be built upon these beliefs.

I believe in probabilistic thinking:

Monthly performance is the minimum window to assess performance, no less than 20 trades

Remain balanced and objective – probability rules, not ‘this trade’. Belief in the probabilities and my money management will always keep me calm. No one trade matters.

The longer the trend line has been in place the stronger it is. Trade in accordance with the longer term trend lines.

Expect a sporadic profile, periods of no trades, flat trades, incremental improvements and, occasionally, spells of big opportunity or big steps forward - take more risk in the later cases.

Develop a mindset that stops attempting to avoid mistakes but, rather, becomes curious about learning from the mistake – this is the road to probability thinking.

London and US open are where the volatility is, statistically look to these sessions for LOD and HOD.


I believe in being balanced:

Don’t trust myself to make accurate intuitive predictions, they will be over-confident and extreme, vs Consistently formatted, long term chart time will contribute to effective intuitive decision making.

Getting into balance is paramount. Tune in calmly to the flow of the markets. Do not trade unless I am ‘in sync’.

Time away from active trading is essential. After a run of 7 losers taking a few days off to look at the past performance, and to highlight the good and the bad and set goals for the next phase of active trading.

Accept that trading is in shades of grey, not black and white. Good is usually good enough to trade it. Do not get paralysed by perfection.

15 minutes charts showing 10 days give me the best view for my set-ups.


I believe in having commitment, trust and patience

Back-testing is essential to gauge likely limits of loss, loss runs, profit potential, and to get to know the character of a strategy; but can not take into account the live environment.

Patience to wait for exactly the right trades. Wait for the trade to come and for it to end.

When you have your advantage (edge) vindicated by the market through winners press them for all they are worth. Know when to commit to greater risk. When I’m right 50% or more in a month increase risk and commitment.

5% of trades will deliver much of the profit. Get in position for these opportunities, commit and stay all the way.

Trades will either bore you out or scare you out, combat those and you have a better chance of staying with the trades.

Where there is no new news price tends to rotate in ranges and channels, in these instances I can wait for better exits. Identify those set-ups and entries which, when they do not work, offer the opportunity for price to rotate around to get out at a much better price. I do not want to ANY full stop losses.

I can trade out of draw downs


I believe in managing my risk

Stay out of the market as much as possible.
(End of month is weird (rebalancing etc)
Monday am and Friday pm observe
Big ups and downs = no direction, stay out
August, thin trading & outsized moves)

Protect my emotional capital – do not hold positions (past my time limits) unless they are risk free, do not hold positions through closed markets.

Position size is an important element of profitability (and is effectively free money if implemented correctly). Identify trades with position sizing in my favour.

Money management is the key

Focus efforts on making losing trades as small as possible. Use this as a primary metric of performance. I want very small average losers. That means only taking the best set-ups.

Traders’ equation should be assessed before and during a trade, is the reward still greater than the risk? Always ask this key question “How Can I Risk Less & Make More”


I believe in my independence and my ability to improve

Ignore conventional ideas about work and work ethics, trading is only about results. Do not feel compelled to conform to the norm.

Ignore, distrust or question all external advice and information.

Develop unconventional perspectives in conflict with other ‘typical’ traders.

Everything a trader does is to advance ‘their’ trading.

The more I observe the greater the chance I will achieve a perception shift that brings another layer of clarity

When making a new equity, high, best day or other new achievement (could be low MAE, or any metric) immediately set a new goal to better it.

Hunt out sources of new (market) information that can add to my edge, avoid cross over of information this will cause analysis paralysis.



I believe in my rules and my process

Consistent application of my rules is the only way to benchmark and therefore improve.

Engage with the market on my terms: trade my hours, my strategies, my targets.

I can only play for big moves once my scalps are in the bag, and for scalps big moves are irrelevant. I am not missing out on anything – it’s not in my plan.

Targets are key. This takes out an element of the unknown. Of all things that could happen I’m only interested in what happened from ‘here’ to ‘here’ and nothing before or after.

Novices look at the intra-day current price action, pros look at what’s come before.

Just do the next thing on the list – i.e. think about the process never the outcome. Thinking about the outcome invites anxiety.

Preparation & Readiness: know which set-ups are coming and get ready!

Do not underestimate the value of ‘ramp-up’ time after a holiday or days away from observing price. Daily and 15 minute charts have to be worked on to ‘tell the new story’. Only when this is done should trading start. 3 days after a 2 week break.

Only review forex news before a trading session or to help explained drastic price action (this is to reduce event risk). Do not refer to market commentary whilst trading. I am making the decisions according to my rule set.

When contemplating a trade ask myself open ended questions about it – say these aloud. Helps to keep the mind open.

  • Prepared, Ready & Alert
  • Committed & Confident
  • Do The Next Thing
  • Clear My Mind & Get In The Flow
  • Patience, Patience, Patience

know thyself
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  #55 (permalink)
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Review Day

Completed a review of all my live trades since May to see if I can unearth any patterns. Possibly have and it may potentially solve a problem for me. I have focused since May on my entries and setting 1:1 risk:reward targets. My thinking was do this first and then work on making the most of those trades which could keep going to get a decent payoff ratio. Of course another way to work towards a advantageous R:R is to keep the profit targets (which I seem to be able to identify and get hit) and just reduce the initial stop level and position size accordingly.

Well holy cow. I backtested with an arbitrary stop half my previous level and the results were far, far better.

So I'm looking at making this change for both my set-ups. I would only enter trades which offered only a 1:2 risk:reward or better. Looking at the screen shots of my live trades nearly all the profitable trades didn't pullback past the signal candle so I am confident this is a positive step to make. In practice I think my average stop loss would come down to the 10-20 pip range where it is currently twice that.

I'm proposing to cut my risk in half and trade this live approach live. I do have 5 minute charts up for the pairs I trade, so it may be a case of referring to those for entries. I'm still trawling through Al Brooks price action books so that could feed in here too.

One other change is that I am cutting down the number of pairs I will trade (from 10 to 4). Reviewed my stats and will only trade my best performers. So I can concentrate on the details of a few rather than the bigger picture for more.

This seems like a big change to me, although it really is just a small amendment to my trading plan.

Until tomorrow...

know thyself
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  #56 (permalink)
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1 Winner (SIM)

Tuesday 9th October

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After my 'revelation' (perhaps overdoing it a bit), I watched and soaked up the PA today. I have amended my trading plan to apply a tighter stop in efforts to target a consistently higher risk:reward per trade.

Now this is really a fairly minor amendment but it has so far hit me for six in how I assess trade opportunities. The trade above was on SIM, but I applied my amended stop rules to the letter. The set-up is the same as it has been for months, a turn in MACDh with price coming off a TL, and or (although not in this example) MACDh hidden or regular divergence on either the 15 or 5 minute chart. This set-up has a nice 3 dips and pop look about it and as the Asian session retrace bottoms into the London open - it could do the 'pop', which it did.

All that is different is that I placed my stop under the signal candle -1 pip and position sized accordingly, rather than the swing low. I set the first target at 2R and the second free for a runner. As you can see the runner was taken out as price dipped under the swing low as the first leg of the move retraced, so a 2R return.

I was going to trade live with half my usual risk% but chickened out. A day in SIM felt like the best way to 'try before you buy'. Happy with the change so far but can see it will take some work to get comfortable with.

Until tomorrow...

know thyself
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  #57 (permalink)
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Update

I haven't a ticket for any of these buses.

I have had no valid signals from my set-ups this week. Partly down to tracking fewer pairs and that PA has not been in sync with them. So I sit and wait and wonder as big fat moves take off across the forex markets - without me.

Do I fight the last battle and ditch my set-ups and go hunting for new ones. Hopefully I am just sitting in the long grass of an outlier week (or two), so no I'll stick with my old friends. But it does expose a potential weakness in that I only have set-ups that come into play for certain market environments and I don't plan to sit and wait and wonder endlessly. What if the world has changed and no one has told me? So out with the ninjascript and my new toy matlab to work up a few ideas.

Until...

know thyself
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1 Loser

Friday 19th October

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Breakout setup on EURJPY a 08:00BST. Red lines 1,2,3 show stop, entry and 1st profit target (I planned to leave a third of the position in the market for a runner). A nice looking set-up here. My bias was to the short side as price had rejected sloping support in the early Asian session and then pulledback to that line and accepted its resistance. No follow through after the break that triggered my short stop, but went again after the price rotation back up to resistance. Rule set says hold for 10 (15min) candles after entry and then hold only if bars are closing in the direction of the trade. I came out on the close of the 11th bar which was a bull bar. -4 pips 0.2R loser. That leaves me about flat for the month.

Fairly good analysis here as price did then proceed to my 2R profit target (although it only clipped it so not sure I would have filled if I was still in the trade). I have a time stop option on all my trades which I am comfortable with, but this has worked against me recently as I 'm closing trades that get going shortly after I'm out. So I will review the window I give them. Without a hard rule here I would stop trading and start hoping. So still better to work on my analysis and try to get in at the opportune moment rather than get in too early and ride my luck.

I've had a few curve balls come at me with my other work commitments recently which has soaked up time and distracted me from trading my normal routine. I've worked out I am not happy trading part-time. I need to be immersed to read the PA clearly and be confident in my decision making. So I will not be trading much in the run up to xmas. The spare time I do have I have been working on a new strategy/coding/back testing that may be fit more neatly with my other commitments.

This is real blow as I want to dedicate my time to becoming a better trader. An unwelcome delay to be sure, but I will keep trying to move my trading forward whatever the obstacles.

Until...

know thyself
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"Trading Improves Life" Shocker

No live trades from me since the 4th October. Other work commitments have come along and taken a great big bite of my time. This post may appear off topic but I think it has some worth.

I have been throwing myself at a project to help turn my father's business around. We've had to make most staff redundant, some with decades of loyalty. Totally rethink how things are done and get the new version of the company operational in under four weeks. It has been emotional and testing, tempers have frayed for others but to my surprise I stayed calm.

I think my trading experience has bled into other areas of my life - a totally unexpected and welcome consequence. A project like this would ordinarily drain me and I would be as frantic as everybody else. But, we had a plan and we executed it. I kept telling everyone 'just do the next thing on the list'. We kept everyone only focused on the next step in the plan, line by line without any emotion being invested in whether the plan would work, was this the best plan to adopt, none of that. And if my 2 years trading have taught me anything it is this - getting anxious of the outcome is pure wasted energy. If you believe your plan is sound, just stick it out line by line, assess it later when those steps have had a chance to amount to something.

I can't remember which webinar on futures.io (formerly BMT) it's in but there is a great analogy of a pair of scales with 'anxiety' on the one the side and 'energy' on the other. If you remove the anxiety you get 100% energy (and vice versa) and I can absolutely attest to that.

Another month or so working on this and then the plan is to come back to trade at least 3 days a week.

know thyself
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Getting Back On the Horse


Planned up my work schedules for the next six months and I will be back live trading in the new year Tuesdays, Wednesdays, Thursdays.

I've just re-read this thread after a good number of weeks away, bored myself silly - no one needs to read a run through of mechanical entries and exits time after time. So I'll be putting more psychological stuff in when I start up again in the new year. That should help me more (and probably be more interesting for anyone else who stops by).

A couple of recommendations for xmas reading if you are into the psycho side of things: 'Bounce' by Matthew Syed. The copy on the cover says it all 'the myth of talent and the power of practice'. Brilliant insight into the benefits of long term purposeful practice. I've taken a whole lot from this book and it explains how/why top performers perform better. The good news is anyone can follow the steps to reach those goals.

The other is by a British clinical psychologist Dr Steve Peters who works with top sports people, it's called The Chimp Paradox. The book lays out a framework for how your mind works and uses simplistic actors/agents to explain what is going on in there. The theory is that each person is actually two people: the chimp and the human. Understanding that your chimp is not actually you, just something you were born with and are responsible for offered an intriguing perspective and something that is 100% applicable to trading. I've started asking people 'and how is your monkey today' as a way of promoting the whole concept!

Merry Xmas and see you back in 2013 for the next chapter.

know thyself
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