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So I have had some more good thoughts over the weekend as I continue to think through my plan and trading process. One thing I did of significance on Friday was to print out checklists for each of my strategies. I got the idea from Steenbarger's traderfeed blog as a great way to simplify the process, which reduces decision fatigue, and keeps me consistent in my approach. So I have a morning prep checklist that gets me in tune with what happened overnight, and where we are when I first log on, and then checklists for my setups as the day progresses. So far so good.
Another idea I had was to use the direction of my shorter term VWAP in regards to the hourly rolling VWAP, to help target trade location and my general approach. For example: If we are in a nice uptrend on the hourly chart, but price is pulling back, then more than likely I will have a downward moving daily VWAP, and I should be targeting trades to go long somewhere below the VWAP depending on price action. But I am basically looking to establish a new position between the bottom 1st and 2nd VWAP SD bands. But if both VWAP are pointed higher, then I need to be more aggressive in looking for entries, and anything below the daily VWAP is a gift and should be quickly rejected higher. I can then use price action and my system to get entry and feel a little more confident of a much better than average trade location.
I am also using the area between the hourly 44%-62% retracement to target trades within the VWAP bands. So if something is not looking right at the upper end of those levels then I know we might be looking at a reversal in trend.
I used all of this information to structure my trade this morning and it worked very well. Plus I was able to wrap my head around the price action of overnight very quickly and effectively.
So now I will break down this morning's trade which was almost great.
The dollar is an area of previous congestion so trying to pick any kind of longer term direction right now is pretty futile in my opinion. So just letting the hourly chart lead my decision making. So the first chart is my hourly chart, and you can see we made a new lower low and was in the middle of a pretty good retracement when I first logged on. As a matter of fact we were at the upper end of 62% retracement indicated by the blue box on the 5 minute chart. The hourly VWAP has rolled over, and my first thoughts are looking for signs of failure on the 5 minute chart to continue the downtrend.
The hourly squeeze had fired short, but usually this is accompanied by strong momentum and so the pull back is a little suspicious. So my other line of thinking was that since we were consolidating above the developing VAH, any breakouts to the upside would probably result in a strong reversal.
Well we tested the previous 5 minute high, and I was watching the 1 minute chart for sign of continuation or failure and ended up setting a buy order at the highs. I was filled and we continued to cruise higher and then consolidate for fifteen minutes or so. I considered this very bullish and so I started to add into my full position in this area. The volume profile had built out a pretty obvious mini value area(not pictured as it got filled in) and so I was trying to determine where to draw a line in the sand as the market started a deeper pullback into the breakout area.
Well after I got stopped out at the lows, I realized that I should have placed much more emphasis on the fact that the market action of focus was all happening well above the DVAH AND the 1st SD VWAP band. Which was obviously screaming hold. I decided I would stick to my convictions and not re-enter in fear of a double loss. We had also moved below the black and yellow line which were hourly resistance and previous day low(which wasn't helping with my stop placement decision). If I had just held my stop at the previous lows I would have gotten a couple of scale outs and a profitable trade.
Now I am happy with the fact that my emotion and gut stayed in check, and I was very objective throughout the entire process. I am going to create another checklist for trade management as soon as I publish this post. Overall things came together very well for me this morning, and I am happy with the way things are progressing even though the money isn't rolling in yet Staying focused on the process and hopefully profits will follow.
@Private Banker I was hoping you could read over this post(and any others if you wish) if you have the time, and give me an outsiders perspective, and anything of value you might be able to add to my processes. It would mean a lot. Thanks in advance.
Can you help answer these questions from other members on NexusFi?
Still struggling with execution, the last two days have given huge opportunities that I did not take advantage of. Both were with the larger trend. Yesterday was a simple setup execution error with not pulling the trigger, and then the momentum of the move allowed no second entry. Today the volatility was very big, and I did not have a gameplan to adjust to those circumstances.
So Yesterday I dealt with the psychology aspect and my failure to put on the trade. I realized that I didn't like my rules, and that limiting my specific squeeze trades to only the direction of the larger trend, along with reducing size to make up for increased volatility put me back in the drivers seat. This will provide me less signals, but a higher risk/reward.
Today I looked back over the last year's worth of charts for similar situations and factored that into my gameplan, again with reduced size for larger swings, and specific entry criteria for explosive moves.
I am reading The New Market Wizards by Jack Swager right now, and I see myself in a lot of the traders(some more than others) and particularly one trader mentioned something that I believe applies to my struggle recently.
He said that when the market seems the most chaotic to most participants, that this is where the greatest inefficiencies in the market come from. And I believe keeping the big picture in perspective helps you exploit those inefficiencies the best. Also the most prepared trader I believe has the best chance for success. Another trader mentioned how hard it is for most to pull the trigger on a runaway market, but often times these offer great reward, as I have seen exactly that during these last two huge up days get away from me.
Tomorrow is another day, and I am determined to grind this learning curve out.
Well if you are like me, then you might be wondering how in the hell could you have so many missed trades on an obviously trending market? Well I'm out to explain that one today the best I can.
First although this chart looks pretty good now that it is completed, it is not one of my best days to trade. The slow grinder. I am a momentum trader at heart, and a day like today grinds the weaknesses of my psychology to the bone.
Talk about failure after every single breakout except for the last one I didn't/wouldn't take. Although I hate having another losing day, this chart provides so much important information to my survival, and I am glad it happened.
I have to remember that it's just another day, I didn't take any big losses today(even as a whole), I did do some things right, and I must learn from the mistakes. It's the only way to grow.
I'm gonna make this brief as I think it will help me go over previous posts more efficiently if I don't go into too much detail.
At the end of last week, the overall price action led me to be bearish in the near term. The daily chart had rolled over and the hourly chart is in a down trend. But there were some bullish developments this morning.
The yellow and purple lines indicate that we were trending above Friday's high and VWAP close. The red line is pretty strong hourly resistance, and the thin black line was the previous high. As you can see there were no significant pullbacks to try to enter with any reasonable risk:reward.
After being stopped out of a small position when the market made a lower low, I fooled myself into thinking I had enough information to take a short near the hourly resistance on pullback. Well once that failed I got long at the new highs expecting a strong trend reversal as any reason to be bearish was now gone. Well after an ugly complex pullback after the breakout, I was stopped out as the market reversed higher. Only because I was getting nervous on the position I tightened my stop even though that is not part of my plan. I took one more half position on the new breakout, and quickly got out once the market started to immediately pull back. At that point I was done for the day.
So today I am happy that execution was not the problem, and executed all trade ideas correctly.(minus moving the stop)
Today's two main problems were moving my stop which was not part of my plan, and not having a clear explanation of what constituted as a failure/reversal.
This afternoon I am out to do just that. On a day like today, patience is of the utmost importance, and it really should have been an easy day. My pullback entries got me a decent risk avg, and really should have ended today with a profit.
For the most part, what I have noticed is that the market does not reverse on a dime, but is a fairly obvious development that occurs over the short term price swings(absent any news events). So I need to be patient and get rid of the mindset that I need to hurry up and get in, or be anxious that I am going to miss the reversal. As long as I am patient and paying attention, I should have no problem getting entry.
Amen, brother. I thought the strength of move up without a larger correction was a fairly low probability event but looking back at it, it does look clearer I'm guessing it was driven by some Greece news, although I haven't actually checked.
Nice job staying away from the revenge trading and temptation to keep selling higher.
Well what truly sucks is that I only took one short trade, and three longs! I am trying to understand and learn to let the market develop without getting too anxious, or trying to impose what I think should happen, and then make an illogical decision like moving my stop. Cause it always seems to reverse as soon as i think it shouldn't go any lower lol.
I truly believe that if I hadn't moved my stop, I would have caught the subsequent move higher and been in tune with the rest of the uptrend. Which trended beautifully for the rest of the day. It seems as though when I try to place my stop within the current swing using value areas in the volume profile, it bites me in the ass. So I will do my best to avoid that temptation in the future, and stick to market structure.
It will be interesting over the next few weeks as I'm sure we will get some surprise news events during the trading day. I just hope they are surprises in our favor if we have a trade on!
I have come across another important detail regarding the hourly trend and market structure. I will try to explain it the best I can simply.
So the idea is that I generally define the hourly trend by the usual HH, HL, LL, LH. And I expect the areas of HL's and LH's to be rejected in the case of trend continuation. But the truth is, besides using that and watching the larger charts for how the hourly chart falls into the bigger picture, I didn't have any way to identify possible turning points without being surprised by them. Now I think I have a fairly reliable filter.
So the idea is that if the market closes above yesterday's VWAP and today's VWAP then the trend is strong and should continue higher. The opposite is also true for the downside. Large moves result from this scenario.
Now if we close above yesterday's VWAP, but close below today's VWAP, then expect the market to test the trend support level, along with any market support levels along the way, like yesterday's high/low or VWAP. If the market test's yesterday VWAP, but doesn't break the trend, then this can be a sign of a healthy pullback, and the trend can continue higher/lower. Again same is true for the downside.
What this does is it gives me a couple of new scenarios that I can attack with different mindsets, instead of just guessing what the market might do. Now I can see whether I should be aggressive or a little more cautious.
So I made a quick chart to show some examples.
The first arrow shows how the day closed above the previous and current day VWAP, tested the previous day VWAP and then launched higher. The next day moved even higher without pullback.
The 2nd, 3rd, and 4th arrows show how the trend support was slightly broken, closed below the current day VWAP, and then fully broke the trend. It was also rejected higher from the previous day VWAP, to the current day's. From value to value.
The 5th arrow shows rejection at the previous day VWAP considerably lower.
This happens with enough consistency to make it noteworthy. Hopefully it adds to the bottom line.
Today's trade was pretty simple. Execution was good, got one scale out, just didn't quite anticipate the reaction from yesterday's VWAP. Well as I explained in the post above, next time I will. And would probably have taken off another scale right at it. But the most important thing is that I stuck to the plan.
Entered a partial position as the market broke to the downside, and then scaled in and watched it work my way. Missed the second scale out by 4 pips.
Pretty happy with today's trade for what I had to work with.
Pretty good area of confluence: Yday VWAP(purple line), Hourly trend support(red line), and Yday High(dashed orange). So as we got a market squeeze(area of compression on current time frame), I anticipated it breaking out to the upside. Unfortunately I got some mixed signals pointed out by the arrows. The initial thrust shows 3 rejections at the 5 minute trend resistance, along with the 15 minute momentum rolling over in the lower panel(middle line).
Well my rules dictate that I must exit the trade when 15 minute momentum rolls over against trade direction. So with some initial hesitation I exited as the 5 minute trend had not fully reversed, and continuation to the downside was still a possibility. Well after looking over this later in the day I realized that the rule does not take into account mixed signals, and a reduced consistency when the line is flat. So after going over the last few months of data with similar situations, my best adjustment going forward is to reduce my position by half and enter again with a new breakout.
So I did re-enter but only half position as I was looking to add on a pullback. I exited half the first position at the upper 1st SD band and DVAH. So as we got a pullback to the VWAP, which also lined up with the 44% fib level I re-entered back to a full position. With the distance of the original stop I should not have gone all the way to full position size, but I was expecting continuation based on previous price action.
Ended up with a stop out and decided to be done for the day. Not having the full position on going into the breakout kept me from ending with a profit, as I would have gotten a couple of scale outs. Perhaps break even with the stop out.
Happy overall again today with reading the chart correctly and executing trade ideas well.
Staying focused on the process and hopefully profits will follow.
I'm guessing it was driven by some Greece news, although I haven't actually checked.