Going Through the Proper Channels - A Price Action Journal

Welcome! I will use this space to write my thoughts, learn from others/my mistakes. Everyone's insights are welcome/warranted.

With charts, my main goal is to create a context of what happened in the past to better guess what is will happen in the future. Primarily, I will use channels/trendlines to create a personal context, and occasionally I will plot the VWAP (Volume-Weighted-Average-Price) around key price areas.

EURUSD
Short Term Trend - 4H
Yellow line = 5 Day Moving Average
Blue Line = VWAP

1. Since the September 1st high, the average trade is approximately breakeven (the closing price of the last candle is near the blue line)
2. The buyers are having trouble pushing the price through above the control price (dotted line in the middle of the channel). This symbolizes that the bears are asserting power on price and increase the odds that the price will break below its current channel.
3. Contrarian View: On 9/16, there was a strong attempt by the bears to push price beyond a recent support area and it was met by buyers who created a strong doji candle & forced price back into the trading channel. This might make bears less optimistic and they may let price retrace all the way back to the Value Area High (aka: the top of the channel)

Long Term Trend - Monthly

1. Price is near the Value Area High which means that it is most likely to bounce and reverse but there is a chance it can either breakout with strength or drift outside the channel, only to return inside the channel with force

Weekly Gameplan

1. Bearish Trade: Wait for a breakdown and short any test of support:
   1. Attached Image (click to enlarge)

      
      
      1. I like that it is in line with the monthly chart and the inter-channel price action.

   
   

2. Bullish trade: Play for a move to the top of the Short Term trendline:
   1. Attached Image (click to enlarge)

      
      
      1. Counter to the bearish Monthly trend & the bearish price action in the channel which makes it less ideal. I don't think I would take this trade because of the mediocre Risk:Reward Ratio.

   
   

About Me/My Strategy
I have swing traded stock/options with limited success this summer, thanks primarily to a lot of what I've learned through the trader Brian Shannon (Book) on trend trading & the VWAP. With that said, I personally believe that the S&P 500 is due for a deeper Covid-related pullback which will take most of the stock market with it. If this happens, this will limit my ability to swing trade efficiently since shorting stock is harder (brokers often don't have short stock available), riskier (larger price swings), and, in terms of Put Options purchasing, often more costly due to higher implied volatility.

To hedge my strategy, I looked for alternative financial markets that were not heavily correlated with the S&P 500. Eventually I settled on learning more around price action forex trading, specifically through Laurentiu Damir's books.

I have had success trading Brian Shannon's techniques in a bullish market, but I am not doing so great with Damir's strategy at the moment. I think that the following factors play a part in it:

1. I am implementing a new trading strategy on new financial instruments. There is still room to build up more confidence and more rules around the strategy
2. I am practicing a new trading strategy at a time when the US stock market is volatile/indecisive. A lot of the majors involve USD and have correlation to the S&P 500 (in the short term at least) and so they are also a little frothy as well. Lastly, directional stock trades are less likely to string together continual gains than if it were a trending market, so swing trading those will result in more stop outs as well too.

Currently the circle that I'm trying to square is entries between the two traders' trading strategies. Brian Shannon's technique is to enter when buyers show strength, while Laurentiu Damir's technique is to enter when sellers show weakness. They sound like the same thing, but Shannon is advocating for entering when buyers are clearly in control of the stock (ie putting in higher highs), while Damir advocates for entries when fear pushes price beyond agreed upon value areas (testing Value Area Lows/Highs). My takeaway is that Damir's trading strategy is more counter-trend trading on the short term with an expectation for price to revert to the longer term trend.

I'm still in the early stages but I am working to mesh the two strategies together. I think it could work by using different timeframes. For example, I could use Damir's strategy on the longer term timeframe to show when price has moved away from value, and Shannon's strategy to time short term entries when buyers exude strength. I will try to utilize that this week with EURUSD

NZDUSD
I am getting mixed signals with this trade. I'm leaning towards bearish, but I am waiting for the price action to tell me what to do.

Short Term Trend - 2H

1. Price is flush against the VAH (aka Value Area High) and might get smacked down
2. Current price action doesn't suggest that the bears are regaining control in a meaningful way yet:
   1. Price above the 5 day moving average (yellow line)
   2. VWAP holding as support (blue line)

   
   

Long Term Trend - Weekly

1. As I mentioned before, price is at the Value Area High and might be due for a retracement
2. There has been some real strength shown for price to move from 0.546 to 0.67, so I don't want to go short prematurely and step in front of a moving train, but the trend might show signs of exhaustion and head lower.

Weekly Plan
Bearish Trade

1. At the very least, price needs to exit the blue channel and remain outside of it.
   1. Preferably, price would consolidate sideways so that I can take advantage of a trade that is still near the key price level on the longer term timeframe:
   Attached Image (click to enlarge)

   
   
   
   

Bullish Trade

1. A pullback to the support level below the channel is the primary reason I would go long as its the only opportunity that provides a solid Risk:Reward opportunity:

AUDUSD
Short Term Trend - 2H

Attached Image (click to enlarge)

 

1. VWAP across various key price levels is holding as support currently
2. Price is holding above the consolidation area between $0.726 and $0.730
3. If price manages to break away from the current price level, I think that it can eventually make it to the Value Area High
4. Contrarian View: Price is hugging the VAL (Value Area Low) which is a bearish sign and shows the Bears are giving the Bulls a run for their money

Long Term Trend - Monthly

1. Price broke above a key trendline which is bullish
2. After moving higher unabated for five months, it might encounter a deeper pullback in September

Weekly Plan
Bullish Trade

 

1. If price moves higher today/tomorrow, I will shoot for this 4R trade

Bearish Trade

1. I'm pretty bullish on AUD here, so I'm not really interested in going short. Gun to my head, something like the chart above would have to play out

Watching the retracement as an opportunity to go short:

EUR/USD Entry:

1. Short trade with an expectation that the channel has been broken and price will fall off of a cliff.
2. Might get out at breakeven. Just noticing EUR/USD is at a prior support level from late July & early August

USD/JPY Entry

1. Playing a bounce off VAL to the VAH. Since the channel is trending lower, there is a greater chance for a reversal.
   1. If/when price reaches the Control price, I will tighten my stop on half of my position.

   
   

EURJPY
Long Term Trend - Monthly

1. Price is currently in the middle of a channel. There is a wedge forming which I think will lead to a continuation of price lower but that will take years to develop.

Short Term Trend - 2H

1. Continuation Pattern after some sideways consolidation

Trade Plan
Bullish

1. Cons: Against the current trend which is lower. It is likely to be faded by buyers given that they are in control of the pair right now. I'm unlikely to take this trade but we shall see.

Bearish

1. Trade would line up with the current trend.
2. I am rooting for this trade since it also has more room to run.

GBPJPY
Long Term Trend - Monthly

1. The market is near the Control Price. The long term trend is lower.

Short Term Trend - 4h

1. Price has broken below the value area around $136 and is searching for support around the 133.5 area.

Trade Plan
Bullish

1. Less likely to occur. There is a chance that price can get back to the channel though possibly I suppose.

Bearish

1. Drilling in using the 15m, there was an attempted sell-off on 9/22 that was faded by Bulls, the VWAP since then is ~133.87 (blue line), so the average purchase since the low is losing $$$. This suggests the bears are regaining control which means the bulls might look to offload their positions if the markets test lows.

Random AF, but as a testament to how new I am to forex, I have been using a position calculator to determine my position sizing and I was mistyping in my pip size for pairs where GBP was the base currency to the point that I thought all pairs involving the pound were too expensive for me too trade lol.

I'm getting the hang of things slowly but surely. I like the fact that there are very few gaps compared to the stock market. I've yet to experience some of the extreme volatility that I know is possible in forex yet though, so I'm not looking forward to that (unless it is in my favor of course lol)

GBPUSD
Long Term Trend - Weekly

1. Price has been in a range for a few years. Currently it has broken down from an uptrending channel and could have more downside momentum

Short Term Trend - 2H

1. Bulls failed to get price back into the channel earlier today
2. Price has been consolidating for a few hours

Trade Plan
Bullish

1. Unlikely to take this trade if it were to set up given that it is against the prevailing trend. I have plotted some potential resistance areas that will be hard to fight through if price attempts to push higher

Bearish

1. Initially when price was consolidating, buyers were able to push price consistently near the value area high, suggesting that they were in control and could rebound quickly. Since then, price has struggle to get back above the control price, suggesting the bears have reasserted control.
2. The path of least resistance is down.
3. The consolidation provides for a tight stop and larger position sizing.

So far, my results have been pretty poor. Still getting the hang of currency trading so I won't beat myself up too much. I will post a more in-depth breakdown sometime soon. One of my issues was that I was implementing a new mean reversion strategy but I didn't fully understand/execute the entry criteria. Since then, I haven't had a plethora of winners, but I have had a few trades that I was able to stay in for over a day which is progress since previously price was almost immediately moving against me.

Another potential realization is that VWAP on currency may not be as effective as VWAP on stocks. It makes sense given that trade size isn't captured in Currency, but I don't want to give up on it just yet.

Baby steps but I will get to profitability eventually once I run out of mistakes to make. Just have to keep my losers small until I figure things out..

September 2020 Review
Woof



Thoughts
Nothing like kicking things off with a few L's lol. Well the bright side is that there are quite a few things I can tighten up, so things can only get better from here.

Crunching the #s
Being right ~25% of the time is about what I've come to expect from my recent equities trading. Of course, that win rate is only sustainable if my winners are sizeably larger than my losses. I usually don't take a trade unless I can make at least 3x what I risk, but with Forex, I have started taking 2.5R trades as well. I need to work on reading candlestick bars a little better and finding more confluence areas that have a higher probability of being profitable. I have made some adjustments in October, but we'll have to wait and see if the stats show this at the end of the month.

My average hold time for my losers is a lot longer than I'm used to when I trade equities. I think with equities, I know pretty quickly whether price is going in my direction, or if I need to tighten my stops because there isn't a lot of follow through. I still need to get a feel for Forex, but I feel like in September, my entries weren't stellar and so my exits were more out of necessity than from hitting profit targets.

The Worst Laid Plans
My foray into forex has aligned with learning Laurentiu Damir's trading strategy. I am pretty green with both of them. Over the last few days, this really showed, because I decided to reread the book and realized that I wasn't even close to using the suggested entry strategy in the book. So basically for the past month, I was unconsciously winging my entries. I'm not sure if that is 100% to blame for my lackluster start, but I'm not as downtrodden about my losses in part due to that realization.

Strategy
Don't hate the Pair, hate the game
I don't want too much exposure to the USD because I already have exposure via my equities trading account. My current watchlist includes ~10 of the most liquid pairs out there and most of them unsurprisingly have USD exposure. I have stuck to using liquidity to determine what charts are worth keeping an eye on since that is the general advice I've read, but now I'm starting to second guess that. I've traded illiquid instruments before (penny stock/options) so I know all about additional slippage (within reason) and needing to set stops in advance, so I may delve into some more exotic pairs down the road, but for now, I'm definitely looking to expand to some additional minors that exclude the USD.

Connecting the dots candlesticks
I think Nietzsche said something about life being like a sailor that is constantly adjusting the rudders? I still have a long way to go, but October has started off better than September which is progress. I haven't discovered the holy grail or anything, but I don't feel like I'm swinging in the dark as much. I feel like I'm starting to see the forest for the trees and putting the pieces of a potentially sustainable strategy together.

Closed out a profitable trade in AUDUSD and I've been in USDCAD for about 24 hours. I broke even with USDJPY but it was a profitable trade until the bulls popped up yesterday evening (CST). I thought that a key price level would hold as resistance so I doubled down on my trade and ended up getting stopped out. Did that twice before I closed out my entire position. Can't win em all #NoRagrets

USDCHF
I have a buy order if this breaks higher. It has been trading in a range but I think the ascending triangle has the potential to push it up to the recent resistance level:

Here is the long term view showing that the area was once support but likely resistance so I will look to tighten my stop in the area:

My profit target is 4R

I feel like I turned a corner this week.

Welp. I had a handful of good trades in a row followed by a bunch of not so great ones lol. I'm getting better at a lot of things incrementally but I need to drill down on the parts that aren't working in a clearer manner.

Since my last post, I changed my brokerage to Oanda for better spreads. I have also sync'd my Trade Explorer for transparency.

Currently, seeing my trade explorer spell out the size of my average loss, I think that I am perhaps trading on too small of a timeframe and so the noise might be whipsawing me around.

I'm going to include more thoughts and reflections in this journal moving forward. Partially for better readability, and also so that when I do eventually become successful, I (and others) can read through the journey.

Quick Update

1. I traded Stock/Options all summer and jumped into Forex in September.
2. Things became overwhelming and I reached my breaking point at the end of October.
   1. Since Forex is open 24/6, there were numerous times I would wake up randomly at 3am CST and watch the rest of the Europe/US sessions and then stay up for the rest of the day.
   2. I was getting less and less sleep and I was becoming unsure of myself and my goals (which were non-existent outside of 'make money')
   3. It got to the point where I couldn't tell up from down in the markets and was in a haze generally since I was investing so much time into it and not seeing results
   4. Leading up to the elections, I took 1-2 weeks away from trading to get some clarity

Takeaways

1. In the 2.5 months trading Forex, the negative balance in my trading account felt ominous but when I take a step back, my total losses equal one paycheck. In those 2.5 months, I have managed to save 3 paychecks for my trading account. So, even though my trading isn't profitable, my net value is still going up at a (hopefully temporarily) slower rate.
2. I have dabbled in financial markets for years but never as intently as in 2020. People can be unprofitable their entire trading careers, so I think it was my personal vanity that had me disheartened for not raking in the dough by now. I have persevered through other tasks in life that have seemed bleak, so this is just one more life-defining task that I can undertake.
3. My main focus is trading, but I do want to spread my focus a little wider so I don't get burnt out and/or determine my self worth on such a volatile sport.
4. There is an often cited stat that 95% of people fail at trading financial markets. That stat made me think of a test to increase the effort I exert when I'm faced with an obstacle. I call it the 5% test.
   1. When there is an obstacle ahead, what path will the traders who eventually fail take... and what path will the successful minority take? I am modeling my decision making based on what a confident, determined, successful trader would do, which, I think will aid in me becoming successful also as long as I am willing to accept the costs.

5. If I don't get enough sleep, my life quickly unravels

11/23 Goals
After 3 months of doing whatever, whenever, it is no surprise that I've developed some bad habits. My main goal this week is to slowly reinforce some structure in my life. I have the entire week off, so it will be a good dry run for when I'm juggling my job and my personal goals.

Main Goals

1. Create a daily schedule that I can plan my day around. It should include:
   1. Daily meditations and affirmations
   2. Scheduling tasks for the day
   3. Periodic breaks throughout the day
   4. R&R in the last few hours of the day

2. Clean up my Trading Journal
   1. I have a weekly journal for documenting my day-to-day thoughts and it has become unruly. A lot of the notes in the document are from prior trading weeks and the document has becomes too large to manage. I will clean up the document this week

3. Revisit and document the trading books I've recently read
   1. The majority of traders might read a book and hope that the important parts stick with with them for an eternity. I plan on taking my trading notes, turning them into flashcards and reviewing those flashcards on a daily basis. I think that this repetition will decrease the time it takes for my pattern recognition skills to become second nature.

4. Read for at least an hour and a half per day. Currently I am reading:
   1. 'The Nature of Risk' - Justin Mamis (Main focus)
   2. Zen and The Art of Poker - Larry Phillips
   3. Grit - Angela Duckworth (Library Loan/Not Started)

Tasks

1. Revisit key candlestick patterns in 'Technical Analysis of Financial Markets' book
2. Finish a chapter from the Pomodoro audiobook

I had last week off and dedicated a lot more time towards regaining some structure in my approach to trading. Below are my time-tracking metrics:




I finished The Nature of Risk by Justin Mamis. I've owned it for years but never got around to completing it thanks to life. One analogy that Mamis uses frequently to describe risk is playing tennis... There are people that play their very first point the same way that they play their last point. It doesn't matter if they are down 4 games or if they are attempting a second serve during match point. On the other hand, there are people that play 'not to lose', and they often are more prone to unforced errors and giving up their lead by switching their gameplan in the middle of the game.

To put it much less eloquently than Mamis, the people who truly accept risk are the ones who understand what is at stake, yet still strive to give their very best performance. I am not conveying it well, but it made me restructure my thought process around entering trades which is much needed.

In terms of learning, I have been digging into getting a better understanding of Supply & Demand. I feel like the concept is widely used among forex traders but very rarely did I come across it in the world of equities. Normally I would buy a book for trading-related learning but this time I went on Udemy and came across Market Stalkers' courses. As it turns out, the course is taught by doggette and has been helpful so far. I have skimmed her book on Amazon too, as well as her YouTube channel for weekly updates. I am using her S&D approach to supplement how I currently view the market, and although it's still early, I think it will prove to be helpful in the long run.

Also, in terms of strategies, I did jump into the wayback machine and revisited some old FXLester posts to remind myself about the importance of confluence and how it can be a sustainable trading strategy by itself.

I'm getting better at managing risk. I'm still trying to figure out when I am too tight with my stop versus too loose. I think the answer that worked best for me when trading equities was to reduce size and open up my stop loss. That way, I'm locking in profits if the position reverses, but I can still participate if it continues movement to the upside.

I have started reading the text 'Grit' by Angela Ducksworth. It is a book on perseverance because I've often gotten sidetracked while pursuing goals in my life and trading is no exception. Reading the book has made me more aware of how I subconsciously lose interest in tasks that go from thought-provoking -> frustrating. I think that the book will help me stick to trading long enough to have a successful strategy implemented and (eventually) quit my day job and focus on trading for a living.

Lastly, in terms of actual trading specifically, I am working on my patience and waiting for price rejection via candlestick action + changes in swing highs/lows prior to entering. I feel like I am hanging in trades longer, but on the flipside, there have been quite a few trades that got moving without me. C'est la vie. I linked my account to a trade explorer so you can view my results there. This past week has been good although I did one boneheaded traded today on GBPZAR where I ended up with 5x the size that I wanted and ended up stopping myself out with a 1.5-2R loss instead of 1R smh.

i was reading this page from Damir’s Price Action Breakdown : Exclusive book page 70 and i did not get this, if there is a misprint, please correct me.
also please suggest me straight forward books like this, for understanding more price action.

I haven't used LD's analysis regularly as of late, but I had always been confused by this chart too.

It finally made complete sense to me for the first time today. Here are my notes (kudos for the detailed notes btw, it encouraged me to look w/ a bit more depth):

1. The start of the chart shows only a bit of an existing value area. LD draws the VAL, but I also included a potential VAH on the chart
2. Price confirms a break of value via an initiative move lower (explained in the long paragraph under Figure 19) and eventually creates a new value
3. The price action is a shifting value area (similar to Figure 18), which suggests a somewhat responsive rally/that the bulls are not extremely strong
4. Price manages to break out of the lower value area, but doesn't have the momentum to stay outside of the lower value in a meaningful way
5. Bears have the opportunity to take complete control but the bulls show up (9/16) and lead to a strong rejection of lower prices, moving back inside value w/ conviction
6. Price rallies outside of value again and shows more strength here but is rejected but the top VAL yet again. This time, the failed rally appears more like the 'huge excess' charts (Figures 32 & 36 in the book). This means that the bears have a greater chance of breaking down price further.

An unsolicited suggestion from me is also to read the pages explaining Figures 32-34. A lot of the book looks at random unrelated examples, but these charts are the richest imo, because it shows updates snapshots of how price unfolds, and the framework LD uses to anticipate those adjustments.

As per book recommendations, I would actually suggest just trying to use Price Action Breakdown for a few months using Mark Douglas' trading exercise. If that doesn't work, then once you determine where it is falling short, you can look for specific price action ideas that supplement your weak spots. I'm biased towards Volume Spread Analysis... IMO, it has a similar perspective of having a logical narrative behind price action trading instead of taking arbitrary patterns/Fibs/moving averages. and has books like 'Undeclared Secrets of the Stock Market' or 'Master the Markets' (both by Tom Williams) floating around the internet