The "You can't be serious" system

This was an interesting day and a good opportunity for some more observations. Let’s stick to 15m, for some continuity.

Let's start with the SMS.
What happened to our portfolio? NOTE: let me remind you taht we can use any instrument we want. I have decided to focus on a sample of 6 instruments to keep things simple and to avoid accusations f cherry picking.
Sometimes I like to call the SMS "stupid" because it is really looks.....stupid? It does not do any analysis, it does not consider the oh so many nuances that a trained eye can easily spot. It just look at 2 Histograms and, like a trained animal, sells if it see red and buys if it sees blue.
Well, sometimes the SMS looks back at me at the end of the day with a smirk and loads of smugness and goes: "how about that big clever boy?"
Today it was one of those times.
FX:

Equity indices:



Gold:

Not bad, considering that you could achieve this with “zero effort” and virtually no brain power and agony! What if we applied the PA “magic” instead?

This would have been a very frustrating day for our "superior knowledge"! A lesson in humility.
I have made the charts as self explaining as possible:
GBPUSD:

USDCAD:

EURAUD:

DOW:


DAX:

Gold:

So, where does all this leave us?
Sometimes we have too much information and we may create “our own noise.” Sitting in front of charts is much more painful and it may not be worth its while. Perhaps we are not as clever as we think we are. Perhaps this is another example of the “trader’s unhappiness syndrome.” etc. etc. Take your pick.

The most important point, IMO, is that we need to learn to live with uncertainty, and humans hate uncertainty. That’s one reason why it so difficult!. We need to identify the level of uncertainty we are less uncomfortable with.

And there is something quite important we can do: measuring, journaling, collecting data and see what works better for us.

So, I am still convinced that I can get better results by applying my own PA analysis. I have some nice statistical evidence of it. But statistical evidence is no guarantee that I will never see days like these, where the contrary is true.
Ok, enough for a day. If you have comments or questions, please shoot! I usually do not bite!

capm, I saw your posted chart on GBPUSD.

Today I only took one trade and it was GBPUSD. But still I managed to mess it up. I wanted to be quick so I entered the stop order with TP at 1.400. After the entry was triggered, I decided to change TP to 1.3998 in case it does not go to 1.4000 exactly. However, instead of 1.3998, I changed it to 1.3980.
I only realized it when price reached R1 and I wanted to move SL to BE, that the trade was already closed with a profit of around 5 points....

Although I was out of the trade, I pretended I was still in the trade and went through the exact way I would trade it. After SL to BE, I off the computer and decided not to look for any more trade as I could not get rid of the stupid feeling.

So, just to be clear, even though this trade got closed prematurely, I am going to post the charts for sharing.

GBPUSD 5MIN (NY)

Overview / Plan
There was no signal on 15min timeframe. But there was a nice PA at the S/R zone. There was R1 above, I anticipated that by the time 15min TF formed a long signal it would be too close to R1 for entry.

Dropped down to 5min TF. In 5min TF, both histograms are blue, long signal. Entry above high as shown in the chart. This would give sufficient distance before hitting R1, the 1st obstacle.

Progress
Price stopped at R1. Also there is upcoming USD news. SL moved to BE+1. This was where I realized my trade was already closed at +5 due to typo error for take profit level...


End of Day
It eventually went to 1.4000 exactly. Would have hit TP instead of BE.

Notes to myself: Today's USD news did not cause wild movement in GU.

capm, I've some questions regarding EURAUD. I was watching this pair today as well, but I did not trade it.
I used your chart and asked my questions in there.

OK, nitethinker, my favourite student! Careful, though: competition is fierce!

Let's start with GBPUSD. Here are my comments:

1) Yes, fiddling with trades is always dangerous and tricky. One the one hand, you are modifying the trade plan. On the other hand, you are adjusting your plan to new information you have from the markets. Sometimes you feel like a genius, sometimes like an idiot. Usually trading the plan as closely as possible is the better option.
I would add a little “trick” I usually adopt: if the target is BRN, say 1,400, I will set my target directly at 1.3995, or 97 or 98. One or 3 points less than the target is not a big deal and usually lines of defence are not exactly one spot, but across one area (hence my long green rectangles.) I hope this makes sense.

2) Very well done using the 5m chart to see if you could get out of that range without having to wait for the 15m signal. The latter would have been too late, whilst on 5 min it presented a high probability trade. We discussed this last time, so I won’t repeat myself.

3) I like the way you take notes on your charts and also outside. Also, make sure your notes are kept in a systematic way so they are easily traceable and analysed. This will speed up the learning curve exponentially.

Now let's move to your EURAUD. I will comment on each of the points on your chart.

1) It depends if you entered on the “bad place” or not. If you did not, surely you have a better entry point below that Doji. Or do you? tricky: on the negative side, it is an entry right on BRN. On the positive side, you now know that BRN has been violated and that the bulls are defending an area below it, distant enough that if there is a second test you could have a nice trade shorting below the doji. It depends on your preferences and your level of expertise. The “conservative” option you highlighted is less appealing from this point of view.

2) This is basically the same concept. If you are flat, your point 2 would be the right place to short. Yes, it is close to S1, but S1 was already violated , etc.

3) Again, same here. However, notice how after your point 2 the bears did not manage to test the Daily low, bouncing several times at S1, so this short may have had a lower probability than 2. This is one of the reasons why I proposed "my" short where it is: a Break below S1, even if it was close to Daily Low.

4) Definitely the best opportunity. If I was not short already I would have used that Doji on the rejection of S1 as a short entry opportunity. It was not too late in the session, it was 2:15pm London time. However, there were some big news at 2:45 London time: US PMI. They are US, but they can still have an effect on EUR and on AUD. Still, I would have probably chanced it, as the overall trend was down and it was a nice R:R for a re-test of a relatively significant range. As it happened, the momentum (probably because of the US PMI news) pushed the market down to S2.

I hope all this makes sense. These are fine examples of PA. Keep asking.

I do not have much time today. I will focus on one example. Gold 15m.


SMS: it could have been a good day. One trade, long from about London open. However, look at how, in basically 2 bars, we would have given up all our profit and end up with a scratch trade (for the uninitiated, that means a breakeven.) Unfortunately with one rule to get in and out this happens frequently. It makes sense, as we enter when the trend is confirmed, so when we get out the counter-trend has to be confirmed, which usually means giving back the profit or the original trade, unless the original trend has continued for a long period. Incidentally, this is one of the reasons why it is much easier to focus on entries than on exits, and why many, many strategies are good at entries but suck at exits. But this is a much more complex topic.

The natural solution would be to take profit at some points. As always, in trading as in life, you have to compromise. Taking profit means, by definition, going against the old wisdom “let your profit run”. So by taking profit you are giving up the possibility of being in the market if the trend continues. There are several solutions to this: taking profit on only a part of your trade, or playing with re-entries, for example. Keep in mind that for every solution you create a new compromise. You have to live with that notion.

Now let’s have a look at what would have happened if we introduced the basic PA levels we use here.


Immediately you would see that the first burst from the buyers encountered resistance at ...where? You bet, the Pivot Point (PP).

Options:
1) Take profit there. Money in the pocket and think about re-entering later.
2) Take partial profit there and leave the other part of your position in case the trend continues. I will talk a bit about taking partial profit one day.
3) Do not have a fixed target there. Your target could be 2:1 or whatever the price is a 12 noon, or whatever else your plan is based on. But you observe the PA there: the PP is indeed a tough cookie and your confidence in your long can be a bit lower now. You can go back to option 1 or 2. You can start protecting your trade by moving the stop to breakeven. Or you may still be a stoic and stay long, ignoring the message.

Similarly, after the PP is broken, you have many options. No time to discuss them all, but I would like to make one observation. Could we have done anything to get out at what turned out to be the High of the day?

After the break from the PP, the next basic target would be R1, which was never reached. Can we identify any “obstacles" that the bulls may find on their way to R1?
My advice is always to look left.



And if you train your eyes, you could find that, apart from a couple of breaks almost immediately rejected, the green area I have drawn looks like a place of interest. In addition, by now your R:R would be about 3:1 and there is no need to be greedy. If you are interested, notice also how you would have had 3 chances to take profit after the High, if you go down to a 5m chart, or several on a 1m chart.

I admit that it would take a bit more experience to pull off this "trick". I am just using examples to show a bit more advanced PA techniques.

Still, the easy-peasy stuff today would have been 1 trade to PP for about 40 points, and one re-entry after the PP was broken that, in the worse case, would not have resulted in any loss.

Have a good evening.

Today I traded EURUSD and took a loss. Since I started posting, this is the only 2nd loss, the last one was in Post #228. I knew this type of losses will happen eventually, where the entry got triggered and price goes the opposite direction immediately. In fact, I actually wanted to have some losing trades to see how I would handle it trading this strategy. Maybe even consecutive losses and see if I would continue analyzing and planning the trades they same way.

First, it hit SL because my greed took over and I place SL at a level which, when I am reviewing now, was very ridiculous.

As for the entry, I felt I would still take it, because of the PA that had happen, and the setup which was according to my plan derived in early Asian session. But of course with a proper SL. If there were something I missed in my analysis, please let me know.

EURUSD 15min

Overview / Plan
See chart, #1, on the 2nd bounce, I wrote the red note to remind myself not to trade until price closed below support or close above PP. Histograms were red between 2nd and 3rd bounces, so no trade. At #3, histograms become blue, long signal, entry above this signal candle would be 'bad' because PP was too near. London open and then candle closed above PP (see #4). When this happen, my planned setup was ready, so I placed the entry.

Due to my bad SL level, I got stopped out pretty soon. But I think the setup was pretty valid.

Review
With a proper SL, I might have a chance to see some positives at NY open. Not sure how I would manage the trade, as it was at most 13+ points in profit. Maybe it would end up breakeven, or if I was greedy again, it would eventually end up negative.

Tomorrow I might be busy and so I may not trade. So probably no charts. Also, I want to re-read everything again and also digest capm's comments on my trades, as well as his recent chart posts.

Nitethinker. First of all, thank you very much for showing your losses too. It takes courage to do so and it is a pity that most people do not do it, as I find that we can learn much more from losses than from wins.

There are so many things that can be learnt from your post. I will try to be brief!

First, a few words about losses.
Losses happen and it is important to analyse them from a number of perspectives.

From the technical side, as you did. Was the SL in a justifiable place? Was this a High probability trade? Did I miss some major obstacles on the way to target? Did I miss any information the market was giving me? Was everything OK and this one just did not work? Did I follow my rules? Etc. It is important to take as many notes as you can, so that you can create statistics. These will reveal an enormous amount of information you may miss in the heat of the moment, or that is purged from our brain by our biases.

Equally important: the emotional side: how do I feel about this loss? What really hurts me more? Losing money? Doing something “wrong” or “stupid”? admitting defeat? And did this loss affect my subsequent trades? Did I want to get back in as soon as possible to offset the loss? Did I stop and walked away in despair? Did I freeze for the rest of the day? Did I think “the system is broken”. Did I look for a new, different strategy? Etc. etc. Keeping an emotional diary is as important as keeping a trading journal.

In my experience there are two main types of traders (well, more precisely, trading “students”): those who get the points above and do keep journals and those who don’t. No prize to guess who is winning and who is still looking for a “magic strategy that finally works!”

I have a busy schedule today and I am not sure I will be able to post again in the afternoon, but your posts prompts so many comments! So I will try to squeeze as much “wisdom” as possible now.

I will now comment on your specific charts.

Ew! That looks like an ugly chart. If I look at it at the end of the day I would be very happy if I find that the strategy did not lose money. So, first thing: If we use a system that needs clear moves, we are in trouble when there is none. It’s like sailing: we can have the perfect gear and boat, but if there is no wind, there is nothing we can do. Actually, we are better off going playing golf! Alas, there is no real “weather forecast” for trading.
BTW, the opposite is true too: sometimes there is too much wind, or the ”wrong type” of wind.

Anyway, you have identified the break of the PP as a possible entry point. That is correct, in principle. Your analysis was OK and I would say it’s justified. However, it was also basic. (look, this is no criticism, I am using examples to progress in the PA analysis.)
Notice how on Frankfurt open the EURUSD started going up and up with no retracement. By the time it reached PP it was already in a rally of about 20 points. Then you have to add some more to allow for a buffer over the PP, so that is, say, 25-27 points. The average daily range of EU is about 70 points these days (and we have seen some moves this week: it is usually lower.) This would make me think about the SL placement. All considering, I am entering on an already developed rally, with no retracement, needing a stop of about 30-32 points, which is half the ADR. Even if there is nothing wrong with your analysis, this, to me, would look like a lower probability trade.

I could even guess that you may have sensed some of this. Perhaps placing the SL where you did was an admission that with a wide SL the “regular” trade would have been a bit of a push?

What I would, indeed, question is your SL choice, which you have analysed yourself already. The point now is to ask yourself a a deeper level why did you put the SL there. You do not have to answer to me, but you may try to answer to yourself. (hey! there we go! Stop losses and Freudian/Youngian theories. What a subject for a PhD!)

Anyway, in cases like these I prefer to give it a miss. Yes, FOMO, yes, I may miss the trade of the day, but I do not care. The quick and dirty rule should be: if you have to think too much about a trade, it is a lower probability trade.

Incidentally, this is one of the many reasons why I prefer a portfolio of instruments. If you are focused on one instrument only it may be harder to give it a miss. Actually, nice example, again, if you focus on one instrument you are bound to look for reasons to trade, rather than reasons not to trade. Shall I guess what even an experience trader would have done in this case? He/she would have looked at 5 min chart, spotted a little retracement in the rally and decided that that was a good enough spot to place the SL. Clever, but dangerous. If it worked , he/she would feel like a genius and boast about his/her “superior abilities”. If, like in this case, it would not have worked, he/she would not say anything and nobody would know how much of an “idiot” he/she was.

Traps
So, I would have waited to see what happened at PP and where are the sellers. Even so, sure enough, the sellers prepared a typical trap (in our trading room we used to call these “fishing expeditions”.) What a fascinating subject!

I am sorry, but I need to do some explaining. Never mind, twitter addicts and those with the attention span of a sparrow have already gone before the first line.


What are traps? professionals (in the past; probably algos now?) expect (in this case) that buyers will be lured in by the break of the PP and they lay out their nets. Once the nets are filled with buyers, they start selling, pushing the market down (not too difficult in this case, as buyers are a bit exhausted). But where do they start hauling the nets? Where they think the buyers’ stops are. A first check will be at the previous lower low, and that is indeed a bit far, but in this case they do not need to do that, because they know that many buyers may have entered at the break of the range just before Frankfurt open. At the very least there must be a lot of break-even stops there. And in fact that is what they did.
Going deeper with the analysis, I think that their plans were partially ruined by the 9am news of German IFO, but they certainly made sure to flush out many more remaining long (including you) just after the news. Some survivors of the first haul may have moved the SL a bit higher, below the last low, and they would have been fished out too.
Admittedly, this was a bit of a convoluted example, complicated by the news, so no clear cut. For a better and clearer example, look at the trap the bulls prepared on Frankfurt open. Range, False break-out on the downside, push up and take out all the sellers that placed their stop above the range.
there is much more to say about traps, but it is enough for today. Once again, apologies to the more expert traders here for the trivialisation of some concepts.

Traps are one of our worse enemy when trading these kinds of systems. We need to learn how to recognise them, but sometimes there is nothing we can do.

Let’s have a look at the afternoon.


You could have gone long on the next break out of PP. The stop would still have been quite far and I would not have particularly fancied this trade. I would have passed it or, if not, took a BE.
After that, more info come in. You see for example how at 1pm the PP has held as support. There is an interesting bar, a kind of Doji, where the sellers have tried to break the PP but they did not manage to hold. That may be a decent sign for a long (the histograms are blue.) One could have tried a scalp to previous high with a view of targeting R1. R1 was not reached and it would have possibly been a small win or a breakeven, or even a loss if, in spite of everything, one was still heavily biased on the long narrative.

Notice how waiting for a break out of the high would have put you in the same situation as you were in the morning: a SL far away.

Finally, notice that in the afternoon you have yet again the same situation as the morning, but upside down: a short signal after a deep drop. It did test the morning support, but it would have been yet another Low probability trade.

I would like to say something about the choice of instruments, but I have gone on for long enough. Some other time.

capm, I totally understand it was not criticism, so no worries. In fact, I was grateful for that comment, so I know those chart readings I made so far were basic. I am open to all opinions, as I want to aware of what I am lacking and what I need to practise more. That's why I am here posting charts.

Regarding choice of instruments... Before posting in this thread, I generally look at GU, EU, EJ and AJ. They are probably correlated in some ways. Then I read your posts so I added EA and UC. 6 charts seemed too much for now. Sometime there were multiple signals, sometime there were conflicting signals, sometime I chose 1 pair to trade but the other pairs performed better. No good for my emotion.

So from today, I would reduce to 3 currencies, GU, EA and UC. Partly it is to follow instruments discussed in this thread, in order to reduce confusion for myself, and I think it would allow me to identify what I missed (or got right) when capm post charts (of the same pairs) for discussion. Another things I gonna work on was going back historical charts and see how many time my analysis ended up getting me trapped and if I could reduce the chances of getting slaughtered by these traps somehow...

Nite, looking back at historical charts to re-analyse and test some concepts is always a good plan. If you took notes it is even better as you can see what you were thinking and looking at, at that time.
Another thing I liked about your post is the admission that 6 charts may be too many and the acknowledgment that these are confusing and emotionally complex. As I always say, one has to trade what he/she is comfortable with. Your disciplined approach will make you progress at a much higher speed than most, I expect.

The choice of instruments is another tricky subject and I could, unsurprisingly, talk about it for hours.

But first, I should clarify that my choice of pairs is not mandatory. Anyone can choose the pairs they like and fit their purposes. I will be happy to comment on any pair and any time frame. Remember, I have adopted those 6 markets for simplicity and continuity, not as a recommendation.

Also, I come from a futures background, so, culturally, I would always prefer the “main pairs”, those where you have a proper futures contract on. These are AU, EU, GU, UY, UC, UCH (let’s forget about the CHF, for historical reasons). But that is just me.