My way of seeing the market

Interesting. From that perspective (if I'm going to keep trading the index) I need to skip the open altogether and focus more when it settles near 11 a.m. est. Also, probably should not trade while red event on calendar... Thanks for chiming in.

I am aproaching trading from the wrong angle... Trying to catch high volatile moves while there are probably more probable moves elsewhere.

Just to make sure I'm not misunderstood: A trade, i.e. a bet, has 3 components: Probability, risk and the possible profit. Which of these can you control? If you think you can control more than the loss, you are lying to yourself as a trader. If the win-loss ratio is good enough, you could theoretically flip a coin and go home with a bottom-line profit. This is not to say that you should do just that, but in this realisation lies the key to generating reliable profits from unreliable market movements. Those who permanently trade with the sword of Damocles hanging over their head (big losses) may achieve success for a while but are in fact playing Russian roulette.

Strictly speaking, however, we should be more precise than talking about volatility, namely liquidity. If this is missing, you can no longer properly limit your loss and you lose the last bit of reliability in the house of cards. Low liquidity causes some form of volatility but not all kinds of it - the word is a bit fuzzy IMO. It is the explosivity we need to avoid.

If I understand this correctly, the important part about trading is to build the strategy around something in the chart that allows to control the risk (loss)? i.e. A place where price is likely to turn one way or the other... ? Please correct me if I'm getting it wrong and/or interpreting to much.





i.e. "Volatility" caused by high sudden increase in liquidity is technically not the same as low volume volatility typical of sudden drop to the next limit price. (But both are explosive...)

Hi Jaymantos!

Don't you think it is a little strange? You have removed all the indicators and start drawing rectangles instead. I mean do you think your problem was about indicators on the chart? May be it is better to audit your trades to find whats the problem.

For me (I'm trading only 1m) bigger TF = smaller lot size = bigger DD = less profit = bigger losses = less opportunity to recover = too much time spent etc. Anyway if you feel comfortable to trade 1m why not. I know one trader who is pretty successful trading 30m and moving averages pullbacks. It seems to be crazy but it works. Once he started to learn RSI he start to lose. Then he returned to his initial setup and now he is good again.

Thank you for your input! You raise some good points about downside of trading "bigger tf" (longer trades).

Yes, exactly that. I trade reversal patterns, for example. Basically what venivedivici is talking about in his thread. When trading reversal patterns, e.g. along a support/resistance area or a channel (which is basically the same in diagonal anyway), or mean reversions, you can put a lot of effort into probability analysis, e.g. by studying the price action both in the reversal itself and in the previous leg. All of this isn't wrong, but it also shows something else, namely the sweet spot between probability and risk vs. reward (odds). Early entry means better odds, but less probability. Later in, the whole thing tilts in favour of probability, but the desired asymmetry of profit to loss is increasingly lost. This is ultimately what a simple, pattern-based strategy is all about: finding a pattern that works often enough and finding the sweet spot in it so that you don't have to be right improbably often to still walk out with a profit after many trades.

By the way, I also trade the 1m chart. I like the precision, which allows me to cut losses very early. I don't need longer candle timeframes for a sufficiently good profit ratio, instead, I base that on the patterns/previous leg as much as possible.

Sorry for late reply..

I found Veni's thread insanely good at first and I'll get back to it, in fact, just right now.

If I get this correct, by studying price action at both the actual reversal and previous leg I should be able to find the (my) sweet spot between enough confirmation and still nice potential gain... ?

Also, I connected a top and a bottom with a trend line. Is this the previous leg in this case?

USD/CAD

I think most "newbs" (including me... yes after 5 years i still consider myself a newb) see things incredibly backwards.

If I give 500$ to the average trader here on FF and tell him to come back after 100 (or even less) trades, most will come back on a margin call. And it will not be exclusively due to spread + commission. In other words, once we have a few months under our belt into this business, and especially if we follow the wrong advices, we are more likely to lose than to win! We have an inversed edge in my opinion.

Why is that? In my opinion it is a learned behavior. Once we "somewhat" understand the game at hands, we fall into predictable behavioral traps. We try to avoid losses at all costs and we try to avoid uncomfortable situations. In the very beginning, we stand a better probability of executing the next right action that is in our best interest than after 6 months into trading.

What JensG said about controlling only the risk rang a bell. Because usually it's the last thing we try to control! We focus on the profit and exit when our stop is hit.

So in other words, until we learn to treat actual SL like a TP and actual TP like a SL, we stand no chance. Probabilities are in fact stacked against us in this view of the market.

What do I mean by that?

-We go long when really we should go short. (We trade breakouts (and fail to realize they are breakouts) and fear trading reversals)
-We set a hard stop far away from actual market and hope it does not get hit (hint: it will get hit sooner than later).
-We take profit at minor bounces of S/R or trail it closely. (Same outcome on the results)
-Thus we spend more time under water than above and statistically speaking this is just not good, it is a question of time before an accident happens.

I am sure there's more to trading than just that but I am persuaded what I described above plays a huge role aswel.

If you can wait, wait longer you will get a daily picture.



.. and yesterday.


In my starting phase i was to impulsive and want draw all the chart. Price touched a level and run away. I feel i was too late, level never again is visit by price, but often it will come back, not in the next five minutes, but hours later. The problem is the waiting for a clear picture, for the revisit.

Interesting Michael. You are saying price comes back to these ranges later in the day? So one could technically load outside the range betting on revisiting the range again (or simply scalping in the general direction of the range providing better probabilities to the trades)? Here's a pic to illustrate what I mean :

I let the price make his work first. Means I wait for price is creating the important level for the day. Later in the day, I wait on these levels for the trades. I rarely have more as two lines in m1. If price do not touch my lines back, I am fine with it. In future it will be do it again. Today we have a range happen in eeurusd, so as you can see you can open an order to the other side or if break through take the revisit to trade the further moving. What is a range? Both sides are for the moment are happy leaving price at a place. Only invent if it make sense to bring price back. This goes on as long as one side want price move further. The range itself have not a mathematical fixed border, price can come a bit outside before again goes to the other side. Price gravitate around a level in the middle mostly. Price go from area to area.

Ok, what I understand is I need to filter my levels (as you already pointed out a few times) because not every level is worth trading. As a general rule, there should be 1-2 levels not more. I assume they are the bigger ones, where price has messed around the most during the day.

I saw there was a couple (many) GBP news this morning. Do you stay out of that for the entire day or just during the release ?

There are many aspects. For one thing, you are scratching at the core of the problem: trading is counterintuitive. In the general uninformed public, there is an enormous focus on target prices in financial market topics. This then leads to the common misconception that a trader's job is to forecast prices. The reality is that I make bets every day without looking at the start or end price. I had several bets today on or against GBP/USD, USD/CAD and other pairs. Please don't ask me where the pound or Canadian dollar is right now. I'd have to ask Google or look into my trading software. The common beginner sees every loss as something to be avoided. This is where the career already takes the wrong turn because far too much time is spent on probability or worse, complicating drawings on the chart. It's great to be right 9 out of 10 times. But if the 10th trade corresponds to a bullet before the firing pin, you still die.
With this obsessive focus on the hit rate, people not only forget the risk:reward of the bet as such, but also the clever use of stop-losses or techniques to milking a really good bet until the cow is dry and wrinkly. Consider for a moment the effect that increasing your profitable position has on the Risk:Reward of your trade. If you buy more out of the unrealised profit secured by a positive stop-loss, you no longer risk a single dollar of your equity. You increase the possible profit without risking more. Of course, nobody writes about that here. Better to have 10 indicators on the screen and the misguided belief of forecasting superpowers ;-)
As far as psychology is concerned: Read Trading in the Zone and I can also recommend the articles by Brett Steenbarger http://www.brettsteenbarger.com/articles.htm. Trading is psychologically demanding. The limbic system makes us fall precisely because we want to avoid individual losses at all costs. This is also the advantage of systematic traders: they don't have to exercise discipline to fight against a part of their brain, but only enough discipline to trade their system. A very practical recommendation is also to hide the monetary information on the screen and focus on pips instead.

As for the legs and the reversal pattern in the middle. As a leg, I understand a series of candles that more or less hold a core direction intact. By reversal, I mean the candle pattern that emerges between two of these legs. So, for example, an engulfing pattern or all the other patterns with the many creative names.
What does such a reversal pattern say? That the previous direction has lost steam. Not more, but also not less. To make money now we need indications that the new direction is likely to be maintained for a while. Please remember this: What is a reversal signal for one person may be an opportunity for another to buy a little cheaper or to get in late. The classic example would be a channel. I would never bet against a channel. It lives precisely from this buyer behaviour. If, on the other hand, I am in a range, the dynamics are completely different. Proven support & resistance ranges are so popular that I am certainly not the only one who is betting on a continuation of the initiated reversal. Similarly, the more undisturbed a leg developed in one direction, the less confirmation I need to bet on a continuation of a change in direction when it occurs. Often encountered as mean reversion.
By the way, I use this confirmation distance in practice by using pending orders, i.e. buy-stop or sell-stop orders. I almost never click buy or sell. I place a pending order when the direction loses steam, first with a wide gap and then readjust when the picture clears up or delete the order again if it does not. I hope that clears it up. I try to dig up some pictures tomorrow.

Thank you for the reply!


I think you hit the nail on its head speaking of the career taking a wrong turn from the get-go for so many people. To be honest I am a bit overwhelmed and feeling stuck right now. This is one of the reason I created this journal and I am glad so many pros jumped in to help.

I am a bit overwhelmed in the sense that I know and believe it's possible to generate "reliable income from unreliable market movements" (you guys are a proof of that, to me anyway). There's absolutely no doubt about that in my head. Where it gets complicated is I don't know for sure that it's possible for me because I would need to have a proof of that and it does not exist yet (as I am the only one who can produce such proof... And once it exists, it won't be necessary anymore). I think this makes me doubt myself and operating from a place of fear that what I'm doing is wrong.

How then can I develop trust in my process? How can I have a sense that I am working in the right direction? In other words... What were you doing in your early days as a trader that would provide you with a sense of moving forward? I know this question might seem insane...

I find that I am a little bit at a loss as to what should I exactly do every day to drill in real, good trading practices. To make sure I am on the right path or at least have a way of knowing when I'm not.



Alright, I think Veni had mentioned Brett in his thread too! I started reading his articles. I already read Trading in the zone some time ago. I will re-read it. What do you think of his "samples" approach?


Yes it does, thank you. Looking forward to those pictures!

This is a really nice journal, congratulations and thank you very much Jaymantos, MichaelSch, venividivici and JensG
i hope no ego spoils it
sorry for the interruption
go forward, please

regards

I'll start by using your pictures to point out a few things that I look out for during trading.

Let's take your chart from post #56.


I don't know where the arrows are coming from, but in principle, they are pretty close to it. These seem to be a couple of important levels where the price has often reversed so far and as far as the odds are concerned, it all looks quite decent. At the same time, the chart also shows something else: The price trend in the leg up to the reversal (2) was often not clear - the price trend was mixed with many small disturbances. In other words, the price often fell a tiny bit within the leg that I have numbered 3 here. New buyers emerged to keep the main direction intact though. So if you short at 2, you are betting that this previous behaviour (of the buyers) has stopped. If the level I've numbered 1 has delivered strong bounces so far, that's absolutely fine. If it didn't, I tend to leave a little more confirmational distance before going short. In other words, this is one situation where I trade my odds in for a little bit more probability. The sweet spot I was talking about.

By the way, your chart in #48 shows an upward channel.



Basically, the phenomenon in large that we have already observed in leg 3. Here it is advisable to exercise more care when betting against the main direction, or simply: just leave it and trade with the main direction. The probability simply tilts too much - channels live off buyers or sellers (depending on the main direction) to come up after a moment of weakness.
At the encircled position, you can see that a few people bet on the channel to be over and expected a range where there was none. Only very few and strong support & resistance areas are still relevant with a clear channel like in this chart. You can sometimes find them when scrolling further to the left but it is still a risky business.

Incidentally, a fairly well early sign for the formation of a channel is when the price after a reversal either no longer reaches or clearly falls below its starting point and the next leg clearly exceeds or falls below the penultimate turning point. In other words, the formation of a step. Experience shows that these patterns remain for a while and do not disappear again immediately. So it is possible that you lose out once or twice, but after that, you should have understood what's going on and use that to your advantage.

After a lot of time in front of the monitor, you recognise many more patterns that you can exploit quite easily. But I still prefer clear ranges with little disturbance in the legs. I don't need much distance there. Both the clarity of direction makes it likely that after a disruption the complete reversal will follow, as well as the gradually more tested support and resistance area.
I must add that I pay great attention to the live development of the candles. In my eyes, this live price action is precisely the great advantage in the very deep periods such as the 1m chart, but can hardly be explained on the basis of static pictures.

Good luck!

Just to make context from post #56 clearer : In the picture below, the red rectangle is all the price action contained within post #56 picture. My logic behind all the session was those purple trendlines.



Also, the steelblue arrows in post #56 simply highlight places in the chart where I messed up (I "played myself" and was too afraid to load, or simply ignored the action altogether). All three arrows highlight reversal candles at levels... Best trades (i.e. big odds and decently probable) are often the ones I want the least to load. It's loss avoidance kicking in. I need to work on taking all the "signals" and put fear aside.


I will start paying more attention to the dynamics you are highlighting here. I think it's a bit like a story i need to build in my head and betting on the possible outcomes. It puts things more into a perspective where I need to focus more on the details of price and way less on avoiding losses and loading a perfect setup.

For example, how price moved during previous leg (sharply or meandering, etc.). How many times we hit the level and how strong of a reaction. Reversal candles at levels. Double/triple bots, tops, head and shoulders (at current but also previous hit)... Also, odds v.s. probability and when it's worth waiting more confirmation before loading but also ensuring there's still a nice portion of leg to be caught. As I understand so far, as a general rule, the sharper the move the less "efficient" and likely to collapse. Complementarily, if the leg is "disturbed" and catching on every time, it's stronger. For example, the leg in "3" in post #59 is like a zoomed out channel where buyers stepped in at every "steps" ...

Another thing I overlook often is the fact it is not always worth trading a particular market right now... I know it's somehwat self-evident... But I tend to try to trade the NQ at 9:30 no matter what...

Before it's "game on" I need a clear picture of what's happening (Michael pointed it out before), and I often overlook this fact. If there's no battle between buyers and sellers, no range, no channel... If price is acting weird and unreliable, I need to recognize it and move on... It is something I often fail to realize then I try to fit in a level here and there and trade it anyway... I mean, there are many strategies out there, but I think for scalping it's better to focus on ranges and channels. Also, to start generating reliable income it's better to focus on one thing at a time..