Simulating (to) Success with VSA

Looks like the market is gapping lower without me. I don't want to chase it, so unless I see some clear setups develop after the open, I'm going to sit on my hands and wait for a pullback. I still think I was probably a tad premature in my analysis in terms of getting the highest probability trade anyways. On the bright side, it's a sign of progress that I noticed the background telegraphing the down move. I think my VSA journey is something like:

1. Have no idea what the background is and get frustrated because it's so vague
2. 'Understand' the background to mean 'any high volume bar'
3. Go back and forth between overemphasizing and underemphasizing the background as it pertains to current price action
4. Become more patient reading the background (but need more reps to ingrain the various patterns) <-- I am here
5. Learn the rules well enough that I know when to break them

On a somewhat related note, I feel more comfortable trading live on the Daily than backtesting. It could be that backtesting happens in a bubble, while in live trading, there are more variables that can color my impression of a setup. I am filtering down to the most promising charts along with cross-referencing the strength of the parent Index/S&P500/USD.

Although I've looked at charts daily, I haven't baktested consistently in months. Backtesting gets me more reps at a faster clip and is free, so I think I need to just grin and bear it. I plan on having a LOT of free time in 2023 so I will ramp things up for sure.

Sold 2 XLE contracts going into yesterday's close. Got 3 remaining but might close them out EOD today

Markets are showing some short-term strength today. If the best case scenario occurs, I might load up on some SPY puts:


Stalking CAT again also:

Trading is a skill you learn just like anything else. Make sure that the way that you learn/retain info/practice is in line with current research papers to optimize your results.

Variability, not repetition, is the key to mastery - Scott H. Young Podcast

This podcast is focused on meta-learning (learning about learning) and this short episode was a good one so I figured I'd share. He digs through research papers and distills them into advice in his podcast.

Also, the host wrote a book that has created structure around my trading practice. The book's called Ultralearning, it should be available for free at your local library. In my spare time, I use the free software Anki to review flashcards I've created about VSA, and I apply multiple technical analysis methods to each flashcard to prepare for the randomness of the markets. Work smarter, not harder by figuring out the most efficient path to success before you start your journey.

My XLE postion lost money again today. Still profitable overall and I've locked in 80% of the position for profit already. If XLE retests the trendline, then I'll look to add to the position, but otherwise, I'll just keep an eye on it:

XOM
XLE looks great, but I am stalking the Oil/Gas sector in general and came across this: It's also hovering near overbought territory within a trend channel but it would've added too much clutter to the chart imo:



Another sector of interest is the financial sector:

It's a liquid sector ETF like XLE so I thought about trading it, but it's not as close to the resistance level as I'd like. I decided to look at its most popular holdings and came across this:

JPM

Attached Image (click to enlarge)

Also on my Watch List
The markets in general look weak so most sectors are fair game
S&P 500
Contemplating a short if we see some more tepid price action tomorrow:

PFE
TSM
Maybe a tad greedy here. I want another No Demand bar nearer the support-turned-resistance level before I enter:

Not a fan of today's close. There's no volume to the downside so there's not a lot of supply to push the markets lower. It's possible that there's a stronger move lower tomorrow, but what I think is more likely is a low volume rally or chop until the new year.

On the bright side, in the past I would've ignored it and tried to will the markets higher. For JPM, I tightened my stop a bit to minimize risk but still give myself some wiggle room. With XLE & XOM, they still look moderately bearish (especially the directly related Crude Oil Futures) so I'm going to let those trades play out.

Was stopped out of XOM and closed out my JPM trade prematurely.

In terms of my open positions, I do wish I added to my XLE position though thanks to today's selloff:


Today, I made a purchase on CVX puts as well. Feel like the stop could've been tighter in retrospect, but it beats having the stop too tight :


Gonna try and re-enter JPM tomorrow

Also have an entry order on UNP:

No new fills.

My existing trades expired, but I set up new trades just now.

With JPM, I am trying to enter on an upthrust. Definitely not my typical MO as I'd much rather prefer a No Demand bar, but this is the 3rd time price is testing this area and it is once again showing sellers present. I think the more tests that happen, the less time price will distribute, so it has greater odds of selling off in a hurry imo. I think the reward potential is sizable so I'm OK with the wider stop too.

UNP has (imo) much cleaner/clearer distribution in the background and is flush against the high of a downtrending channel + a resistance level. I thought about doubling my size a la XLE, but I only do that when I have conviction that the sector is doomed or the company is trash. I don't know diddly about UNP outside of it being freight. Yes, freight can be negatively affected by the recession but so would 95% of any publicly traded companies . I'll stick to my normal size for now:

Stopped out of CVX today. I mentally checked out and didn't manage the position as well as I could've

I also tried my hand at XLE again and was stopped out of that as well. On the sidelines licking my wounds for now. Energy is stronger than I anticipated, and this was clearly evident w/ a shakeout on the Weekly but I overlooked it. Going to reset and get back on the grind this week.

Speaking of resetting & getting back on the grind, I put in my two weeks notice w/ my job and plan on throwing myself 100% into trading the markets.

I just want to state that this is not a decision on a whim. I have been saving my money for a while and have enough $$$ earmarked for trading to take a break from working. This is a plan I've had for years, but I finally have the capital to give myself the time. Additionally, I have set aside time for professional development in my down-time. That way, if I come up short in my attempt to master the markets, I can re-enter the workforce w/ a skillset that demands a higher salary.

My last day is Jan 27th. I am currently in the process of building a tracking system in Notion which is a larger task than I anticipated, but it will give me some much-needed structure around my trading.

All the best mate.

Thanks Pranith.

On another note, I took another bet on XLE. I'm like a dog with a bone but I like the price action early on. My stop is beyond the last lower high to the left:

I made an out-of-the-money bet via March $85 puts. I rarely go out-of-the-money with my trades but the implied volatility and the historical volatility suggest that the market is too relaxed and overdue for a strong directional movements.

FYI Implied volatility does not forecast direction, but rather shows the market's opinion of the stock's potential moves (thanks ChatGPT)

Volatility Cheatsheet
Green line = Implied Volatility
Blue line = Historical Volatility

Green line in lower portion of chart = People don't expect a large move to happen
Blue line in lower portion of chart = Price hasn't had a large move in a while
Green line in upper portion of chart = People expect a large move to happen (typically will spike during Earnings Reports for example)
Blue line in upper portion of chart = Price has had a large move recently
Green Below Blue: Options are underpriced relative to the recent price action
Blue Below Green: Options are overpriced relative to the recent price action

With XLE, the historical volatility is low AND the implied volatility is low. That means that the price can get moving in a hurry, but if/when it does, the price of options will increase so it is a good idea to tackle net debit strategies (long puts for example) instead of net credit strategies. Don't want to go too deep in the weeds since is this is a forex forum first and foremost but ideally, if there is a selloff, the volatility acts as a multiplier, and so if I risk $1 and gain $3, it might actually turn into $4 thanks to volatility padding the price of the options.

Ehhh. Too much strength still, and the S&P500 is putting in a test bar on the daily also.


Closed out my position but will keep an eye out to see if there's a lack of full follow-through tomorrow via a ND bar.

D'oh! Looks like we might see a failed test play out today. FWIW, I feel like I'm getting the background right which is the part w/ the most ambiguity, so now I just need to work on the timing.

On a different note, I am building out my trading journal. It's much more comprehensive and streamlined than my prior Excel spreadsheet format so I'm looking forward to using it. I plan on diving head first into backtesting on 2/1.

I've pivoted strongly towards backtesting within the last week. I realized that there's a difference between understanding VSA versus executing VSA profitably . I want to use this journal a lot more to have others hold me accountable and chime in with any insights or tips.

One humbling realization is that I've had to go back and tackle the basics. My entries in VSA were lacking and this lead to some mediocre trading results. I pinpointed the issue as a misunderstanding of market structure, so I'm currently working on reading higher highs/lower lows, with the goal to have a stronger foundation with which to prop up my VSA knowledge.

Speaking of knowledge, I've been tackling metalearning (learning about learning) in a major way and I think it's starting to have positive effects. I watched this video and started using a Daily Report Card to track my progress towards my daily trading goal. I check in every 25 minutes to reset/confirm that I'm on the right track.

I am also viewing myself as my own trading coach, so I have worked to figure out what is the best way to teach a skillset via this book:
https://www.amazon.com/Coachs-Guide-...7172548&sr=8-1

So far one of the biggest mindset changes is that I am more realistic with my progress. Even if the goal is to get twice as good as my current levels, the process will be more incremental, so my mentality is just to get 1% better per day and let the gains compound over time.

In my Notion trading journal, I add an entry to my Daily Report Card every Pomodoro (25 minutes). Here are the metrics that I capture:

1. The first 8 metrics are out of 10 altho if I have a really great showing in a metric, I might occasionally give it an 11 . I sum up this # (The max score is 80)
2. The next two metrics are how many times I got distracted or interrupted from the task which took me out of flow. I subtract this # from the summed number in #1
3. This number divided by 8 gives me my Overall Score

Right now, I do 3-4 blocks of 25-minute studying per day. Using Notion, I have rolled things up to get my daily average. Here it is plotted across last week for example:

The tasks are obviously random AF to anyone outside of me, but the overall setup is easy to grasp. I want to figure out how to roll up my Overall Score across the entire day as well so that I can plot my scores over time.

I believe I have the beginnings of a solid strategy and I officially started backtesting last week but I'm going to pump the brakes a lil this upcoming week to revisit fundamentals yet again lol. I have gotten much better at determining who is in control, but my setup occurs too infrequently during sim.

I did some thinking and I believe that although I've made progress around market structure via HHs and LLs, I need to brush up on my structuring/segmenting of price action (especially intraday). Because I don't have any key price levels, I am making it harder for myself to anticipate key price levels for high probability trades. I am struggling to see the forest for the trees intraday as a result and so I can sim an entire day without seeing any trades and then when I review the day as a whole, I see potential trades that I missed.

I am revisiting SRT (support, resistance and trendlines) and in spite of flirting w/ markets for over a decade, it was within the last month that I understood the idea of reestablishing trendlines only when price makes a HH (or LL) to have a loose framework on the strength/weakness of the trend.

Yesterday I started rereading the relevant chapters in Trades About To Happen to get a better framework. My ultimate goal is to highlight key price levels so that I can better anticipate areas of interest. I do want to stay within the confines of my setup tho, so I don't want to start trading every single bounce off of an SRT level. On a related note, I will also revisit the Wyckoff concept off lengthening/shortening of thrusts to get a better feel for who is in control during intraday price action. Jako has a great video on it that I will rewatch

Two steps forward and one step back is the name of the game w/ trading.

For the second time in a month, I transitioned away from trading drills and towards backtesting and was met w/ some harsh realities. The best analogy that I can think of is that I've gotten a lot better at set pieces like corners and free kicks, but I still struggle to find structure and consistency in open play. (I'm the trading equivalent of Southampton in the Premier league lol)

I've surmised that the way that I practice (flashcards that involve charts at key inflection points, reading slow moving daily charts) allow me to create 'dead ball' structure easily but I have not exposed myself to a lot of 'open play' structure (ie: an intraday chart that is not at a key inflection point).

My theory is that the main way to bridge the gap between the two is to create a 'dead ball' context while in 'open play' by analyzing the slower moving medium-term-timeframe and developing some biases there as a result. This potentially turns a lot of the 'noise' on the short-term timeframe into 'signal'... instead of 'the last 100 bars on 5m are all over the place', that turns into 'the last 100 bars on the 30m suggest the bears are in control, so my bias should be lower'.

It is simple multiple-timeframe analysis but I think the context is what seems most promising in resolving my issue. The goal is to set key levels to start the day and then just focus on the short-term timeframe intraday.

Here is quick mock-up:


In terms of implementation, as of late, I'm a big proponent of the idea that 'how you practice is how you play', so instead of instantly taking a process live (or even initially backtesting it), I now follow these steps:

1. Look for the pattern in existing Flashcards
2. Create a Playbook full of examples

- Spell out nuances/fakeouts to get a more granular understanding

3. Internalize the new setup by reading the Playbook daily
4. Tie the pre-setup PA w/ the setup by:

- Simulating through charts to find the setup in the wild

- Back-stepping through the setup, paying attention to the background & any pre-setup cues

- Add takeaways to the Playbook?

5. Forward-step through charts to find the pre-setup + setup combo to confirm your current understanding
6. Speed up the process to ramp up the difficulty so that live markets seem tame by comparison

- Be sure not to lock in any poor habits tho

7. Backtest
8. Go live.
9. Increase size

The goal of this structure is to slowly increase difficulty in a way that I can see progress w/o feeling overwhelmed. If I struggle with any steps, then the solution is easily to get more reps of the prior step(s).

Stuck w/ VSA? One underutilized option is to leverage Large Language Models (LLMs) like ChatGPT to assist. Here's a ChatGPT response that I shared w/ in a separate VSA chat to answer a question:

I can provide you with guidance on identifying No Demand bars on a trading chart. No Demand bars are an essential concept in VSA, indicating a lack of buying interest and potentially signaling a reversal or a pause in the upward movement of a stock. Here are some detailed guidelines to help you recognize No Demand bars and differentiate them from temporary pauses:

Volume Analysis: The first step in identifying No Demand bars is to analyze the volume associated with the price bar. Look for a significant decrease in volume compared to the preceding bars. No Demand bars typically exhibit below-average or relatively low volume levels. The decline in volume suggests a lack of participation from buyers, indicating a potential loss of upward momentum.

Narrow Range: No Demand bars often have a narrow price range, indicating a lack of price volatility. The bar may appear relatively smaller compared to previous bars on the chart. This suggests that there is little price movement and no clear direction.

Closing Price: Pay attention to the closing price of the bar. No Demand bars typically close near the high or in the upper range of the bar. This indicates that although the price made an attempt to move higher, it encountered selling pressure and closed lower than its high point. This failure to close near the high suggests weakness and lack of buying interest.

Absence of Buying Climax: Look for the absence of a preceding buying climax. A buying climax is characterized by high volume and a wide range bar that closes near the high. If a No Demand bar follows a buying climax, it signifies exhaustion of buying interest and a potential reversal.

Background Context: Analyze the overall background of the chart. Look for signs of a weakening trend or potential resistance levels nearby. If the stock has been rising for an extended period and encounters a No Demand bar near a resistance zone or a key moving average, it increases the likelihood of a reversal or a temporary pause in the upward movement.

Confirmation: It's essential to seek confirmation from other technical indicators or VSA principles. Look for additional signs of weakness, such as bearish divergence in momentum indicators, bearish candlestick patterns, or signs of supply coming into the market.

Remember that the interpretation of No Demand bars should be done in the context of the broader market and other factors influencing the stock's price. It's always prudent to use No Demand bars as a piece of the puzzle and consider other elements of technical analysis before making trading decisions. Continuously practice and refine your skills in identifying these patterns to improve your accuracy over time.



Understanding the concepts are only the first steps in the journey, but they are vital to building up a strategy nonetheless

Completed a series of 30 trades backtesting and I'm happy w/ my results. I do want to work on improving my winning % for my ego, but it's hard to complain too much when I'm up 20R after 31 trades.

The plan is to start live trading in September. I will post an update before then to flesh out my strategy and goals a bit more.

One random rule I will implement is that I will only trade instruments that I've backtested with at least 10R in profit... Kinda gamification because the more I practice, the more opportunities I can 'unlock' in real life. Also, while I'm just starting my live trading, I will have to focus exclusively on one pair