Here is an example of using a couple different levels of volume to confirm price action, and guide my thought process.
I forgot to add onto the chart that at the high, the market has already had two solid pushes with virtually no pullback to value indicating blowoff/exhaustion.
Any sustained move is generally confirmed with rejection of value at higher and higher(or lower levels). This vertical move is not sustainable and so profit taking at any sign of weakness is acceptable. Actually if you look at the spike in volume 5 bars beyond the high is a solid push to the downside, indicating bear strength. This is a perfect place to take final profits.
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Well, heading the Boston on Thursday then to Vermont for some snowboarding with the wife. Taking Monday through Wednesday off from anything trade related to spend time with my family before we drop the kiddo off with the grandparents.
I will start trading in the demo account the following Monday or Tuesday depending on how the market is setting up. It has looked like absolute crap lately, but hopefully I can get some good practice in and start documenting some live trades. Looking forward to hitting the reset button for a week. Peace.
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"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."
~ George Soros
Forgot that I need to actually have a specific set of rules to trade before I can sim the plan. Finishing that up this week. The focus will be on intraday trends, and getting on board larger trends that run through U.S. RTH.
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Still about a week out from having any kind of plan finalized, in fact I feel like I am constantly running a week behind.
This is an excerpt from my notes today. I would love to write out everything on this journal but I just can't pull myself away from the pen and paper. Maybe one day I will transfer all my notes over. I definitely plan on documenting everything here once I start trading again.
When to anticipate large, trade worthy, momentum type moves in the market: The largest trend type moves happen during range expansion, reversal, and rejection of S/R levels on the hourly time frame. So once again anticipating these areas and turning points is very important to my long term success. This is part of the reason why the squeeze as a stand alone system fails. This market reaction with larger time frame participants at high points of interest creates a spark in volatility, as where the squeeze needs time to consolidate, so that the market can re-enter a low volatility state.
Now on the other hand, a squeeze forming on a larger time frame such as the hourly, gives us an idea of when the market is ripe for range expansion. Therefore some sort of rejection or reversal right before or after a period of low volatility can give us a high probability expectation of direction and some sort of range expansion. Obviously we can never know exactly how far or long the market will move, but at least we know the conditions warrant this kind of market action.
Ideally the ATR should be at least 100 during the RTH daily session, and should be expanding. When contracting we know to be more conservative depending on the market structure.
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So after another month(wow that flew by) I am just about ready to publish my new trading plan. I had one drawn out and was pretty extensive at over six pages, but have edited it extensively with new knowledge and research. The only thing I have yet to do is read back through my journal over the last six months and make sure I haven't left out any small important details.
It amazes me how far I've come since I stopped trading last November. I just finished reading Markets in Profile and Enhancing Trader Performance. Two more killer books that continue to refine me as a trader. One of the things that has helped me understand the markets extremely better was looking at it as an auction process. I know this seems pretty obvious, and obviously that is exactly what all these markets are, but a couple of months ago it was another revolutionary step for me.
When I looked at it as a fairly standard auction process in the way it moves, it took a lot of the emotion out of it for me. Now I have simple answers and reasoning when things happen that used to cause me so much frustration. Also taking the time to truly dissect why trading as I saw it doesn't work, and then starting on a new course from there was very instrumental in my move towards a more realistic and professional outlook.
I am so much more calm, confident, and excited about this next part of my journey. And it is my mission to never cease learning about markets, psychology, and trading.
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So I officially will not be trading the YM anymore. I transferred the money out of my futures brokerage and will be transferring it back to my old FOREX account. I have done enough research to realize that I am too over-leveraged for futures, and will work to build my account size up through currencies. I can significantly de-leverage my account so that my stops will be in the right location and so that I can scale out.
I think I spent too much time trying to figure out a way to make the near impossible work, instead of just sucking it up and making the right decision for my career going forward. The EUR/USD seems to trade similar enough to the way I have been learning that it should be a quick transition. My previous experience in currencies will help expedite the process as well.
The dollar will pick a direction soon enough, so I will be able to take advantage of the next trend which I am excited about. FXCM's charting software is garbage, but I will be using Sierra chart so that works out as well indeed. I am glad that I took the trip down the futures path and I look forward to trading it again some day. The last year away from currencies has definitely been an awesome learning experience, and I will be able to apply most of what I have learned going forward.
If my money hits the account tomorrow I should be able to start trading Wednesday. I will post a daily recap and charts of the good and ugly of my trading so that I can hold myself to extremely high standards, and continue my current growth pattern.
I will be risking about 2% of my capital per trade.
I will be scaling out 2/3rds of my position, and holding the last third until the trend dies.
More to come......
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Nope, I actually really enjoy the way the YM moves compared to the ES. Risk was actually a bit smaller for my trading style as well. But I have made up my mind that I cannot correctly trade any futures instrument with my current account size. So it's time to start trading "correctly" as I view it, and then make another determination down the road.
I have briefly edited my plan from the YM so that it will apply to the EUR/USD, like I mentioned most things will stay the same.
What is the overall daily trend? What is the current daily market structure telling me? Are we near any hourly support/resistance? Is the hourly chart trending? Are we near its' ema? If we sell off/rally first thing counter trend, which S/R levels should I be targeting?
What is the expected daily range? Is the ATR expanding? Compare the previous day's range to the ATR to get a feel for the days movement. If the market is contracting, compare the previous day's range to the ATR to get a feel. Are we in balance or out of balance?
Draw red lines on 5 minute chart for hourly S/R, draw lines for previous day HL, and previous week close. Mark the open/gap, and keep it there till it's filled so you know to pay attention to it.
The sooner we can prepare for what type of day it might be, the better we can capture a higher percentage of the day's range in profits.
The point of focus needs to be on the highest time frame S/R, and its breakout/down points. It will often test these to confirm the move for continuation/rejection of trend.
Setup your alarms, and remain alert throughout the day as opportunity presents itself:
Overall trend direction
Larger time frame squeezes, and active fired squeezes (15m-hourly)
Breaks and re-tests of IB levels upper and lower, and also failures here on range days
Tests of hourly, 15 minute, and 5 minute support/resistance, and acceptance/rejection of these levels.
5 minute squeezes and how they relate to the bigger picture
Failed highs/lows, and then hard reversals at important areas of market structure.
I identify momentum conditions by the 10 period moving average moving outside of a 20 period keltner channel. What this means is that the average price has accelerated outside of a 1.5 standard deviation, and conditions favor accelerated movement. This is the same for all time frames.
You should also be aware that these momentum thrusts show up as a final wave of a trending move. Sometimes these moves extend long beyond most expect them to, and it is my objective to exploit that scenario as long and efficiently as possible.
We are looking for these to come from areas of strong S/R and important market structure, whether continuation or reversal. Days of balance will have targets at the previous extremes, and days of range expansion will have open targets. Profit will be taken as the market calls for it.
Our entry is either by limit order of new high/low, or by bar closing beyond previous bar in trend direction during pullback. Once a pullback begins(that is any closing bar in the opposite direction) then a limit order should be placed one point beyond the extreme high/low. The pullback should then be monitored for any chance to get in on the pullback with proper risk.
The first profit should be taken by volume/price action, the second profit should be taken out by official end of trend on the entry time frame.
The goal here was to design this as easy to identify and execute as possible, so that I can focus on the task at hand, versus trying to work through a complex set of conditions. I know we are working with probabilities here, so the objective is to get in the market as early as possible, and let the market work itself out. Then we can become an unbiased observer of the market, letting the market tell me whether the trade is, or isn't working. It should be easy and repeatable, so as to become second nature.
So as the market consolidates(squeezes) on different time frames, I will watch for signs of trend on the next lowest time frame. This will generally give you a heads up as to which direction the market will break out in, along with other factors. Once the lower time frame begins to trend our job is to get into the market on a pullback to value at the ema or keltner center line. You will generally get one small pullback as the market starts to trend, but if you do not get entry then you must enter with a limit order just beyond new highs/lows, as long as we are not at the extremes of market structure on a balanced/low volume day. Remember that new highs or lows should draw in significant buying/selling activity if the right conditions are present. We must be nimble here.
Once we have entry, our stop will be trailed by price action just below/above HL, LH. Watching where volume is coming in can give you a heads up as to how the market is accepting/rejecting the breakout and new highs/lows.
You need to know where the market is in relation to the next higher time frame's ema, from the squeeze you are looking at. If it is coming into contact with a higher time frame trending market's ema, you do not want to counter trend that move. Wait for confirmation to jump in the main trend here. This is only important if the higher time frame's price action has been respecting its ema, and momentum is consistent or picking up speed. We only want to counter a larger trend that is in excess, not as it is coming into value.
1) Reversals with/against trend at areas of important market structure.
2) Trending of the 5 minute chart during range expansion
3) Using 1 minute price action to enter early into 5 minute squeeze and/or trend once price action lines up.
Points of failure at important areas of support or resistance can lead to higher time frame market participants entering into the market. This can lead to significant trends and busts of momentum for us to trade. These areas on lower time frame trending charts will often fail as volume dries up on each successsive test of counter-trend direction. For example a new lower low and then hard reversal to a new higher high during a trend gives a good signal of market strength and continuation to trade around.
But overall our focus should be on the larger context of the market, and that is getting entry on the larger trend at hand.
These can stop the market on a dime, and you need to be aware if this happens at a key level of S/R. This may happen in a morning selloff for example, when the larger overall trend is up. These are footprints of the big guys, and you want to be tracking/following them. Price action around these bars are very insightul for making trade decisions.
Range days and non-squeeze trades:
These should really be kept to a minimum, and mainly only targeted areas from homework. But sometimes a great looking trade pops up from a re-test of previous S/R, and opportunities that arise should be taken advantage of.
Risk should be small, and targets should be prior support or resistance.
Range days you should be looking for trades at the extremes, usually around the IB High and low. High volume rejection bars should mark some good trades in these areas.
Remember that range in the morning can lead to breakout in the afternoon.
Things I should be watching while in a trade:
Set an alarm for volume spikes on the one minute chart every day. I always want to know when this happens. I also want to be watching for volume effort vs. reward on these candles. This gives insight into who is in current control of the market, and can paint a vivid picture as buying or selling wanes. The easiest way to describe this is, how far did the candle push and how strong was the bars close compared to the volume of the candle.
Extreme volume one minute candles. These can be either exhaustion or a large buyer/seller. You can figure out which by watching price action immediately after the candle. Price should not move more than 50% into a large buy/sell candle, and should not spend much time there before heading higher or lower. Price will have a hard time moving beyond an exhaustion bar, and should over take it fairly quickly. These are the differences between immediate continuation or reversal.
Should be watching the chart below the squeeze closely, while constantly referencing the larger charts. Patiently waiting for the lower trend to develop or give clues as to which direction it might move.
Should have your 5/15/1hr alarms set for the whole day.
Always be looking left to see where buyers/sellers could be stepping in. This also includes the time in which squeezes are being formed, we need to know if there is an obvious double bottom or top being formed/completed inside the squeeze. This will give us another early low risk entry to work with.
I mentioned looking left on the chart for S/R, but it's not only just at the immediate left. Sometimes you have to look beyond the current price structure, to the rally or selloff previous to the current range/trend. And sometimes days back when the market really gets going. These points are obvious on the hourly chart.
5 minute data points must be placed onto the one minute chart as the market develops. This gives me context to the noise of the one minute chart, and keeps me from placing too much importance on insignificant areas.
I should be checking the 4 hour chart daily for areas of strong S/R and market structure, and labeling them on the 5 minute chart. I have to know where to expect areas of congestion so I am not fighting it unknowingly.
Trending markets on all time frames I should be watching for length of trend legs and corrections to gauge trend strength. I always should know where in market structure is the trend taking place, which leg/correction we are in, and what volume has/is coming in.
Conviction of trade direction. Once I have analyzed current market structure and price action I should be able to quickly pick market direction and base trades around these conditions. I should also have a strong conviction of this direction so as to make smart entry decisions, and should not change trade direction unless something serious has shifted in price action/structure.
Hitting known levels of S/R while in a trade. Price action can cut right through these, bounce off them and continue trend, turn into chop and build value around them, or completely reverse. If we have not predetermined a specific level for profit taking, then no matter how strong the level of S/R is, the market should not violate the current trend structure if the move is valid and our trade execution should not change.
Journaling and goals:
Every day we will make entries into our journal and market metrics spreadsheet.
Our daily goal is to trade our plan exactly how we have researched and tested it. I have spent countless hours narrowing down the style of trading and time frame/s that work for us. There is absolutely no reason for straying off course or shooting from the hip. Our window of opportunity will be very limited most days, and so patience along with a high level of focus will be key. If I have a strong desire to trade outside of our plan in certain market conditions, then I should write that into my journal so as to quantify/research any possible edge when the market is closed. Then I can determine if it's something that should be written into the plan or discarded. Basically if I have a strong urge during market hours, write it out instead of trade it out.
Our overall goal and highest priority is to trade our plan exactly how we see the trading day after hours during review mode. Which boils down to; not trading when opportunity is not present, and taking full advantage of opportunity when it is.
Every day we should be looking for things to improve our process, as we continually gain more market knowledge and experience. This is the mark of a professional.
Every weekend we will review the previous week and do a write up of positives and negatives, and how we can improve our overall performance. Positive self coaching is key here. We should be focusing on and improving a small part of our process each week.
Expert status is the goal, and through learning, discipline, and experience we will achieve it.
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