The "You can't be serious" system

DAX and Dow



Indices, with their higher volatility, their spikes and their crazy sensitivity to any kind of news are trickier customers. However, the rewards could be quite handsome. Again, these 2 are supposed to be quite correlated, but, especially on shorter time frames, the results could be rather uncorrelated. DAX was penalised more heavily than Dow from the sideways/spikey market. DAX was basically not affected from the FOMC event. They were both on the “right side” at the time of the event.

Gold



The moneyshot!
Some of you may remember that in previous posts I showed how Gold was not performing very well with this system. What about now? Short from Monday to Friday! OK, a bit of luck with the “not triggered” events, but even if one or two would have been caught, the overall result would have been positive.

This leads to another important observation. The margin for error in these "not triggered" events were so small that different traders may have experienced different outcome depending on the spreads applied by their brokers. So, remember: even SMS (no discretion!) can produce different results for different people!

Enough for a week-end. I have dwelled deep into SMS this time. I know many of you are more interested in PA. I will resume the PA examples next time. In the meantime, if you have questions, please ask.

EURAUD M15 (Asian session)
Sorry, this is outside of the recommended trading time. There were movement during Asian.

Chart #1
Price bounced strongly at S1 which is also an S/R if we zoom out.
Histogram turned blue, long only.
Aware of trading time.


Chart #2
Entry triggered

Chart #3
Progress


Chart #4
Progress after London open. Price slowed down previous high marked by grey line.


Trade still in progress. Price not yet breaking higher. Stop loss moved to breakeven and took partial profit.

Chart #5
Trade is done. Price came down and hit BE.

I went through EA chart. Using the SMS only it would be in profit.
But with human intervention, one would probably place SL at the usual swing low as shown in Option 1. I may consider consider placing SL at Option 2 for 1 mother candle worth of risk. Either option would be a loss, but that's ok.
capm, would you consider the tighter SL placement as it seemed like the stop order was trailed lower for better entry as the inside bars form?

Hi Nite, thank you very much for your great posts!

Excellent analysis on your charts.
I think I would have done exactly the same, based on hisots and PA. I like the idea of taking profit at that level. First you have a reference (last high); it is just one observation, but when you see that the rally stops there and especially after those wicks, it is a sign that the bulls may be tired. Perhaps a look at volumes would confirm that, but let’s keep things simple.
The assertive bear candle after the profit taking would have made me smug: I picked the top! It was followed (not in your chart) by another assertive bear candle that would have got you out at break-even. The market then went up and it may well keep going up (what do we know?) The important thing is that, whatever happened, you followed your plan.
I would add that yes, the Asian session has usually less volume and less volatility. I also tend to sleep during those hours. However, if this is the period that suits your schedule, and if you have tested the method properly and it still works, there is no reason not use your knowledge in any session.

Nite, on your second post (the chart of 1H SMS EA), you highlight an excellent point that I will never be tired to stress. Sometimes our "superior knowledge and analytical skills" will perform worse than the mechanical system. Actually some purists argue that in the long run it always performs worse than a well designed mechanical system, but I tend to disagree (still!)
In your example, perhaps we thought too much about what we know (or not enough, as I will explain in a moment). Taken at face value, our "superior knowledge" would have failed us in this instance, whether you used option 1 or 2. Let's take note (preferably in a well maintained journal) and move on.

Anyway, it is true that one does with discretion is really …..well… subjective, as he/she can take on much more information than a simple system. On your example the blue hisots were almost certainly generated by that long bull bar that happened in unusual circumstances (FOMC event.) The bar that confirmed the buy would have been the small doji that happened at midnight London time. These two facts only would have suggested that perhaps this was not the best trade you could possibly try. But much more importantly, we can't miss another fact: on the 17th June, at 1:30 and 2:30am London time you had some BIG scheduled announcements for the AUD: RBA Governor speech and unemployment figures. The system is blissfully unaware of all this, but I would not have been. If my job is to find reasons to prevent the system to take “silly” trades, I would certainly avoid this one.

And if you really can’t help, or you like to live dangerously or whatever, you would be advised to leave a big breathing space to your trade. The most obvious next place would have been a few points below the BRN 1.5700. But this has a bit of hindsight perhaps

Going back to your actual question, on the tighter SL placement, I am not sure I understand, but that is because it depends on what kind of risk management you use.
This is a good opportunity to talk a bit about risk and trade management.
I apologise if you already know these concepts, but it may be useful for less experienced traders.
If you use a fixed fractional risk (say 1% of account), it would not really matter (in some ways) what option you use, as with a tight stop you can trade more lots. Trivialising, if your 1% is 100$ and your SL is, say, 20 points (let's say option 1), you would trade 5 lots. If the SL is 50 points (let's say option 2) you would trade 2 lots. You are always risking 100$, which is 1%.
This may become more relevant in conjunction with your trade management. If your strategy is to take (partial or total) profit at, say 1:1 RR, you will "only" need 20 points to achieve that with option 1, but you will need 50 points with option 2. So, is option 1 better? Not necessarily, as the trade can go against you and you have only 20 points before you have a loss with option 1, where you have a much bigger breathing space of 50 points with option 2. the risk is 100$ in both cases.
It is, as it always is, a trade off.
Apologies if it this sounds like stating the obvious for most of you.

EURAUD M5 (NY)

#1
On 15min time frame, saw price trapped between grey support area and PP, around NY open.
Histograms red, short only. No signal to long.


#2
Go down to 5min to take a look. In 5min chart, new long signal, both histograms blue.



#3
Reaching 1st possible resistance.

#4
Price got rejected and came down.
5min chart histograms both turn red.
Stop loss moved up (to the level where short entry would be).

#5
Stop loss triggered -14.

Bad idea.

EURJPY M15 (NY)

Still in trade. Update later when trade ends.
Update: as expected... hit stop loss for +10.5pip...
Reflection: Poor trade management. Was not at computer when it approaches TP, otherwise I would close it manually.

#1
NY opened.
Both histograms still blue.
Price seemed supported.
There was PP and BRN in the area.
Entry on break of recent high. Conservative play.
This was a similar scenario where capm mentioned a better entry at lower price was possible, anticipating NY's new order would give energy to push through BRN.


#2
Entry triggered strongly.

#3
Touching R1 very soon

#4
Almost hit TP, but missed by < 2 pips. Price retraced to R1. SL moved below R1 to lock some profits.

Now wait and see either high SL for little profit or hit TP for original target.
Update: It decided not to hit TP.

Nitethinker, you always produce good points for discussion. Thank you.

The idea of using multiple time frames is a well known and well tested one. The problem is that it may be confusing as it could give contrasting signals. This is a nightmare for less experienced traders and I do not recommend it until much later in their journey.

In your case, the 15 min was showing a small range. This could be one of the instances where going down to LTF could help. Which side will it break? The 5m could give some earlier indication. Keep I mind that LTF could also mean more noise and more false Break out. But well done there.



What happens after that 5M buy signal is interesting. The market does not go up and forms a small range in the green area, where we have seen some S/R fight during the day. It then drops, and you are in trouble. But look at how it bounces at the Pivot (blue line.) That is a very good sign indeed.
Then the market goes up, it tests the previous high and forms 2 (3) spikes. Considering that:
a) that level could be indeed a strong resistance
b) there is still no buy signal on the 15m chart (if anything, your 15 m entry may well happen after the break-out of that resistance)
I would keep my powder dry and place a stop at BE. Keep in mind that this is just my preference, based on my personality and history. Keeping the stop were you kept it may be more suitable for your personality. There is no right or wrong.

One thing I would add though is that Lagarde was speaking at 3:15 London time. I do not like to be in a position (especially one containing EUR, and especially in LTF) when big fat cats are blurting their "wisdom"

Let's go to your second pair: EURJPY
This would have been one of the easiest trades today on 15M, right? One single trade, long from London open till basically now, for at least 61 points! That’s the moneyshot for today! Right?

Well, it would be if you started trading at 8 am London time. What if you are based in the US, or you do not have access to trading in the European morning?
This is a tricky situation and I remember the frustration of some US traders as they were trying to catch up after having missed a good trend.



Two main things here. One is that entering late in an established trend is always dangerous. It becomes more dangerous the longer the trend has gone on. For example, I happen to know that the 5 day average daily range of EURJPY is 96 points. If you start trading at “NYO” (the red vertical line) you would see that the rally has already clocked in about 100 points. That is an alarm bell. Should we forget and look elsewhere? Not necessarily. We just know that a stronger than usual momentum may be needed to push the market further up. Luckily for us, we could see that the rally stopped at a very convenient point: the confluence of Pivot point(PP) and BRN and not just any BRN: Look left and see how many times it has been respected.
Now, what could happen? The bulls may be rightly exhausted and start giving back some of their gains. But that does not happen. The bears are not really making any progress in pushing the market down, do they?. They try for a while around the PP, but the Bulls are having none of this. That is why it is still a good idea to jump on the re-entry long after they break the previous High after the BRN.

Now, that is an elegant and clever explanation. An easier and less chatty rule could simply be: when you are trying to re-enter in a strong trendy market (your histograms should be with you,) a clear break-out from an important point is a good place to use.

The only issue I would have with this is, as I explained before, that Lagarde would be speaking after 1 hour from that entry. This may be enough time, but I would certainly keep a very close eye at what happens to the trade. If it is quite close to entry 15 minutes or so before Lagarde speaks, I would get out. But that is just me. Notice that I would not have that problem if I started the long at London opening, as I would already be comfortably sitting on 45-ish points

First target is R1.

Thank capm for taking your time to mäke cleärity.
You are a wonderful being like few here.

I woke up this morning and the first thought was I probably making my post difficult to read and redundant with too many charts showing the trade progress. So today will attach less images.

GBPUSD M15 (LO)

Overview / Reason
Greenish/Blue zone is S/R drawn on H1 timeframe.
So I was on a look out for short signal.
Waited for LO, entry moved up as candle retraced, for better entry location. Using same idea as the NY open, maybe London open would also have energy to push price down.

Trade Review
Trade progressed well till 1.3866 area. There were reaction at this area yesterday before and after NY open. I thought price would pause and continue down but instead it seemed to find support. Closed partial when it pull back further and moved SL to BE+2. Trade eventually stopped out at BE+2. 17+2 / 2 = 9+ pip only.

USDCAD M15 (LO)

I'm also in a U/C trade since London open, but after entry triggered, it basically went sideway and stuck in a range. Signals started to get mixed. Update later when it either hit SL or go positive.

Overview
Price bounced at support. Entry above 1 candle before London open.


Trade Review
Price moved sideway from LO till NY. It then tested PP and got rejected. I close trade for profit when it re-tested PP the 2nd time.

Hey, Nitethinker, good stuff! I really have nothing to add to your analysis. Nothing more to teach you, I am afraid!

I would not worry about too many charts. As they say, a chart is worth more than 1,000 words (10,000 words in my case!)


Just for general educational purposes, I would note that the short was quite close to the pivot point (PP.) Depending on what kind of trader one is, there were various options, as usual:
1) Sit it out and wait for a breakout of the PP. In this case it would have probably ended up as a BE, as it entered a range of several bars and the safest option is to bail out at zero losses.
2) Enter anyway, but observing closely what happened when price tested PP. Drilling down to a 5m chart you will notice that breaking that PP was not really easy, and even once it was broken, the PP was re-tested. This would have ended up in a BE again.
3) Be more aggressive and biased toward the bearish mode and consider that London open* may carry some momentum, so the PP may not be massively important at that stage. The bearish mode would have been tested at the double bottom ** and it looks as if you caught that reversal in sentiment and exited with some profit. Very well done.

* Yes, London open has the same characteristics as NY open, as you pointed out, even more so, in my opinion.
** If someone likes it, they could have a look at the volume and see that the two bars of the double bottom had more volume than the average in the area. (ther eis also a volume pattern there, but let's not complicate things!)

Continuing in the afternoon, we had a Long signal right on BRN 1.3900. So we should wait and see what happens there. Price was rejected and bears had several attempt to break again the PP, but did not manage to do so. So, there is some reason to believe that the bulls may try to re-test yesterday high if they break the latest high and the BRN. Which they did. Unfortunately they did not manage to get to yesterday high, but close enough. Closing the position at 4 pm London time would have given around 17 points.

USDCAD
Nitethinker, I must say I am really impressed with this trade!
A look at that chart makes me sick! This is what a trend follower/breakouter does not want to see. I would have bailed out at BE long before the attempt to PP and BRN. I admire your patience and your guts!


Again, for general educational purposes on more aspects of PA, I will spend a few words on this chart. See how Nitethinker has drawn a trend line (TL) in his chart (BTW:I am chauvinistically assuming he is a male. Apologies if I am wrong!) I am not a great fan of TLs, although I do make use of them. The problem with TLs is that they are subjective (like Fibs and Elliot waves and so on.) As an exercise (and I invite those who are interested to try it themselves) I could draw at least 3 justifiable TLs there (in red) and 1 Trend Channel Line (TCL, in green.)
The important point about these lines, however drawn, is that they all point up, and this may be a valuable information. This may have given Nitethinker some re-assurance for staying in his long position and endure the pain until the market reached the target.
Well done to him.

Other posters, do not be shy!

That "ugly" USDCAD chart made me uneasy!
To finish the day on a good note, and also to reply to a question I usually get (although not necessarily on this forum) I leave you with an example of what could be a nice day at the office with a simple system and simple rules. Ah, yes, the question is : does it work on lower time frames? My typically self-harming, anti-marketing reply is: it is a trend/momentum system: it works in any time frame where there is trend/momentum! Duh!
Here is an example of a 5 minute chart. EURAUD today. Entry points: blue lines, Stop: red lines. See if you get why I would have got in and out where I did. Any question/comment, please ask.
OK, could not resist some self-destruction: going back on the question again, if you look at the 15m chart of EURAUD instead, you will see how it would have been a rather frustrating day. The reason? no trend/momentum on 15m!

Hi capm, I am still learning and I know there are more you have to offer. I'm posting charts so I can learn from your feedback, and maybe other traders when they start to participate. There were ideas and reminders in your comments and posts for the past weeks that I adapted and took notes of.

1. London / NY opens (energy?)
2. Pivots / S/R / BRN
3. Sitting on hands if entry is too near obstacles
4. PA
5. Avoid news (2 days ago you reminded about Lagarde speaking when commenting on my trade).

Before that, I watch charts from Asian to London to half of NY session. Now I draw the vertical Frankurt / London / NY open lines and break the each trading day into smaller portions. Felt like it becomes a map, and I focus on 1st two hours of each sessions. I often forget to check upcoming news, but I would start checking more actively.

And with regards to the trade feedback, I was surprised you seemed to be able to read minds.

This was a screenshot while the trade was in progress. Seeing the higher timeframe S/R and PA, I wanted to look for short opportunities.
During Asian session there was one renewed short signal (black bar where I marked LH). I did not take the trade as the candles seemed small (less movements). Then there this LH and LL thing.

At LO, I placed the entry knowing PP is just 10+ pips away. Short bias + red histograms + London open 'energy'? + BRN above entry (some kind of mini protection if price re-test it. Also the area marked 'L' (Low) bounced at BRN, then later it was broken. It's some kinds of breakout/pullback or support turned resistance) So I basically adopted your option #2 (to take it anyway) + #3 (aggressive short bias and use the energy thing).

capm, I am male.

I don't use TL as I find it too subjective (some traders can use TL well, but I can't). I only drew the TL when price bounced from the PP+BRN. It indeed too me a few click and drag before finally decided the TL's location. It was more to give me a general idea to see if price will bust through or have reaction near the TL. Lucky enough, it bounced, and I adjusted TP level -2 points lower which then got hit and I'm out of this draggy trade.

Something I tried before. I closed my eyes and randomly drew lines across the charts. Each one of them will look like valid ones, with price bouncing at various points.

"And with regards to the trade feedback, I was surprised you seemed to be able to read minds."

Nitethinker, I can’t read minds, unfortunately.
It’s just that I have been in this unforgiving business for so many years that I know what it is like. All the internal discussions in our brains before taking a trade, once we are in a trade and after we exited.
I understand that indicators and strategies are much more appealing, fun, and easy to adopt than addressing our own mind set. But at the end of the day, trading is all in our brains. Unfortunately, it is widely demonstrated that our brains are not wired to be good at trading.

Thank you for explaining your “routine.” Keep posting!