Trade & Trader Idea, Concept & Circumstances

First of all I would like to emphasize how proud I am to be a member of FF regardless of being able to post in the trading room forum.

Second I would like to start a wholly new idea and discussion about "Trade Circumstances". For those who are having discretion as a part of their decision making model, trade & trader circumstances are vital and very important.

Please feel free to join the discussion. What we shall be doing here is to pick up a certain trade (A winner or a loser whatever) and describe all the circumstances that accompanied that trade, how the trade developed versus the traders expectations and what was the final outcome of the trade versus the traders expectations as well.


Thanks,

Nader

I will start with myself and describe in details, as far as I can, one of my greatest trades. This was back in June 2006.

At that time I started to follow the grain markets, that is corn, wheat and soybeans and I noticed that all of them were merely in a major downtrend on the long term and in a silly sideways movement over the medium term.

And since I am trend trader in the first place, and since most of my analysis is based on a hybrid between technicals and fundamentals, I started to analyze the market from a larger perspective.

At that time, soybeans attracted me more than corn and wheat did as I noticed that soybeans tend to be more volatile. Consequently, if I said to myself that if I managed to find a low cost entry in that market, either long or short based on my analysis, the volatility will do the rest and enhance the risk/reward ratio of the trade.

The next step was to put the grain market into perspective according to the whole world markets conditions. I noticed that all commodities, especially gold have been in major up trends since 2001 and 2002, equity markets are in major up trends since 2002 and 2003 and inflation is up all over the world. The conclusion came to me that the grain markets are late to respond to the current inflationary pressures and I was surprised to see that they were late by a couple of years and even not moved yet.

This sparked to me that I have to wait for a technical signal from charts to tell me that an uptrend is about to start and the best signal in this case is a breakout from the current sideways movement.

The circumstances surrounding the trade were very strange. I kept waiting for the breakout to occur without touching the market at all. I even knew what my position size will be and where my entry should be. However, I never though of an exit since I was convinced that a market that was too late like that and signaled an uptrend will probably trend for a long time, probably months. That's why I postponed thinking of the exit till I get the entry and the trade develops in the first place.

Soybeans were trading at around 530-550 at that time and my entry was the breakout of 565. (That is 5 dollars and 65 cents per bushel).

I remember that I waited for around 3 weeks before I got the breakout. The stop loss was already set but was also flexible to be adjusted according to the way and the volume of the breakout. Anyway, the breakout occurred typically as I expected.

Calculating the stop loss was a myth. Real life proved to me that markets tend to comeback to the upper boundary of the sideways after breaking it especially at the beginning of new trends. They rarely do in continuations. And since this was (In my opinion) the beginning of a new trend, I assumed that the pull back can be violent and can even bring the price back into the sideways for a couple of sessions. The sideways was between 500 and 560, that's why I decided to place my stop loss just at the middle of the sideways at 530. It wasn't a low cost entry relative to my equity as I assumed at the beginning. It turned out to be a high cost entry, however, I was convinced that the market was late and ought to start moving and once it gets on moving, it might not look back and I don't want to miss the train at the first station in anticipation of getting the next one.

That's why I decided that the trade is still fine from a risk/reward point of view although the risk on my own equity is considered high per idea.

So finally I was long 1 soybeans Nov06 contract and was just waiting for the trade to develop as I expect, an uptrend.

The interesting thing is that all three markets, corn, wheat and soybeans gave the same technical signal almost at the same month. And suddenly the greed devil came to me and told me, look at corn, an excellent opportunity just like the one in soybeans, it's even less risky than soybeans.

I was actually at the verge of taking the same position in corn, however, at the very last moment, I told myself, what IF I turned out to be wrong from the very beginning and the market suddenly turned down and resumed the major downtrend, I would be losing on both Soybeans and Corn at the same time and I can't afford to lose that much on just 1 idea. So I skipped the corn trade and sticked with Soybeans.

The trade developed as expected and the market started to go up a little bit but also as expected it started to pull back quickly and headed towards the sideways area. I started to panic but sticked to the rules. The panic mainly came from the fact that as the market headed towards the sideways area I figured out that it is weak and that the probabilities of me being wrong are increasing.

Finally the market stopped the decline and headed north as fast as anyone can imagine. I got relieved.

The market passed through 600 swiftly and easily and I was sitting on profits, not too much, but fine. I started to think of trailing my stop and protect part of those profits. I decided to trail to 560, which was the upper boundary of the sideways since I believed that a market moving like this can't get back there and if it did it would be a disaster for longs and a bless for shorts.

During that time, news came out that Australia wheat crop would drop by 50% and all grains rallied especially wheat. Of course soybeans followed but not on the same day and this pissed me off.

I was almost following the market on a daily basis and following the price action of every session as I felt the importance of the trade to me since the profit potential in my expectations was large enough to give the trade much importance. This made me like hell as I was down emotionally while watching any minor sell off and cheered on any minor rally. However, I managed to hold tight.

After watching the trend while developing, I concluded that it was strong enough that I can build up more over my current position, so I waited for a pull back and added another contract at 610. The market went down slightly and then headed directly to 650. I felt as if I was the best trader in the world and trailed my stop loss to break even.

Of course volatility was on the rise and this was exactly what I was looking for. The market went up and closed around 660 and I was celebrating my smartness on that day. Until the next day came!

I was in front of my computer as usual waiting for the market to open to see how much I would be gaining today (Of course I didn't know that I should be taking profits if I think like that, nobody told me). The market opened higher and rallied 10 points towards 670 and all of a sudden a huge sell off started bringing it down 15 points to 655. This was not usual and I started to be frightened. 15 points of loss in less than an hour means $1,500 of profits going out of your pocket. I started to get real worried but I decided to wait until the session close. As far as I can remember, the market sold off another 5 points and closed at 653. I was astonished and speechless. This was a remarkable day for me. I wanted to get the hell out but I couldn't as the loss of profits in 1 hour froze me to death. I was feeling that I kept building a home for weeks and suddenly and in a few hours, 2 rooms were destroyed. I was still in profit, but I was doubting those profits now. They can go away in less than a session. I quickly went to the exchange website to assure that I really know the price limits of the Soybeans contracts and make sure that it's 50 points.

I was up all night thinking about the trade, what shall I do. Shall I hold, shall I liquidate or shall I reduce the position? I never thought of adding up...lol...

Finally the fear inside me won and I decided that I will liquidate the position completely at the beginning of the next session. What was supporting this idea is that I perceived this day as a typical shooting star on the chart and that shooting stars are strong enough to reverse or even stop the current direction.

The next session the market opened slightly lower, I thanked GOD that it didn't open deeply lower (Although this is a sign of strength against the previous violent bearish sentiment) and quickly liquidated my position at 654 only to see the market stage a great rally by the end of the session and regain all what was lost on the previous day.

At this point, the trade was over to me, however, I kept watching the market closely.

I discovered that I was correct in my original point of view. The grain markets were late to respond to the major inflationary pressures and when they responded they staged a huge major uptrend which is still intact until now. Soybeans (Which I sold earlier at 654) is now trading at 890, a lost profit potential of $23,600!!!! and I paniced when the market sold off 15 points).

Now and only now I am convinced that one can go broke taking profits.


Thanks,

Nader

Nader that was an awesome experience to share with us. And your last statement is so true. I remember a debate awhile ago on the main side where some were arguing no one ever goes broke taking profits.

Thank you for sharing, sounds like a blurb out of the market wizards book

For some time now I have been interested in W.D. Gann's writings. I must admit that my studies have not been organized but more of taking what I like from his generous smorgasboard.

As many may recall, I like to use the public library as much as possible rather than buy a book (then if I must add it to my library I will make the purchase).

Anyway herein lies my story.

From some Gann text, months ago, I gleaned the following information as it relates to the stock market. I have a 3 x 5 note card with these statements (but alas did not write down the text of origin (that's ok, I will find it when I need to) :

Important dates for Trend Change:

July 21 to 24
Aug 7 and 8 ..... 16 and 17 ..... 23 and 24 ...Long downtrend on Stocks. Big month for change.

Gann was not referring to any year in particular in these comments however those serious Gann followers may make mention of cycles in the ' 7 ' years.
I also have followed some of the Gann gurus comments on web sites. A couple of them were warning of a down move, if not trend change, prior to mid July, based on Gann and EW. So when I saw the turn starting to happen, on the months and days stated by Gann, I moved my mutual funds into cash reserve accounts. I have been sitting nice and safe during this market havoc.

Here is what is stated in my notes for the month of September:

September 16 and 17 bottom, top on 21 to 24

27 and 28 bottom of big downmove.

This will be interesting to track.

Lou

Nafara and all....

Great posts!
Brought to mind the trade that NEVER happened. The trade that HAUNTS my dreams!

It started for me on Aug 02, 2005.
The gpd/jpy had been in a 7 day uptrend after a large move down from 200.00ish to about 193.00 end of June to late July.
( these days that is close to a daily bar!! )
Price headed north for this pair and tested, slightly broke the 200sma on Aug 01, 2005. the following day...the 2nd , price was pushed back from the 200sma and which was also, at the time, the top of the Boll Band, closing around 197.50 area. This also created what I preceived to be a daily tweezer.

Now I wanted on board this pair, and was still considering to put on a position of 3 to 5 lots. BIG for me, as I am not a Position trader ( Long Term Type or Short Term ). I wanted the best "fire sale" price I could get, and at that time, in my mind/calculations....it was around 195.00 +/-. ( I did not avg. up in those days ) nor take a large, long term position.....avg down I would have....as part of my stategy to be on board.

So I decided on placing 3 buy orders....one at 195.50ish, 195.00ish, and 194.50ish. I was countin' my cash!!!!!!!!!

Well,, the tweezer was not confirmed the next day....nor the next, or the next....price finally broke 200sma solidly, than retested, and the 200sma became solid support. BUT I WANTED 195.00 and I was not going to
"pony up" for a pip more ( avg wise )!!!!

Well, all can look at a chart and know the rest of the story.....
Stubborness and Greed, with a dash of Fear has left me a Blue Collar working trader.....and I dare not think of that "potential profit" in $$ terms, for fear of my SANITY!!!

Fxj

What a fantastic read Nafara.

I had a similar experience on GBPUSD during the last huge rally up on June and July 07 when GBPUSD pushed up almost a 1000 pips throughout a one-month time span. I managed to get a fantastic entry based on the weekly chart at around 1.9850 if I remember correctly. I don't manage very well trades based off long time frames such as the weekly chart because I get impatient and I usually trail my stoploss too agressively.

In that particular trade, my trail stop got hit by a totally normal and expected pullback for +270 pips in profit, and then GBPUSD proceeded to continue it's stablished uptrend for another 500 pips, which I of course didnt profit from. I lost (or rather didnt gain) thousands of euros in that very trade.

The most valuable lesson I got from that trade is that a trader should stick to the time frames he feels more comfortable with. I trade best off the hourly and 4H time frame, and when I meddle with extreme time frames such as the weekly or 5-minute charts my trading decisions become much poorer.

Thanks a lot...This is the main aim of the thread...To share single trade experiences with all surrounding circumstances, conflicts and development..


Thanks,

Nader

One of my favorite currency pairs is the USD/CAD. I like it because of many factors. The volatility, the different personality than other pairs and the unique price action.

Volatility, just as I liked it in my Soybeans trade enhance risk/reward automatically IF and only IF one manages to find a low cost entry. The different personality of the pair dictates that the USD might be plunging against majors but rallying against the CAD, the fundamentals are completely different and isolated since most of the international trade of Canada is done through the US. And finally the unique price action is not seen as other pairs. The pair rarely responds to EU or British economic data violently.

Back in 2006, the USD/CAD was plunging like a rock and I kept watching. I was positioning myself to trade the main trend which was down. However, the pair kept going down without looking back so I couldn't find myself a good technical entry until the pair reached 1.0900 and started to pull up.

I started to re-analyze and assumed this to be a bottom till proved otherwise.

The pair kept trading choppy for around 3 months, however, it always made higher highs and lower highs, which is a textbook definition for an uptrend (I am not a fan of text book definitions as many of them are against reality).

Anyway, I started thinking that this will probably be an intermediate correction and will probably get the pair up towards the 1.1700 from a technical point of view. The pair was trading at the 1.1200 at that time.

So I decided not to go with the major trend as before since this would be a high cost entry, instead, I decided to go with the intermediate uptrend on the long side for a 1 month trade or something till the current up correction ends.

I started to look for the best possible entry. This is why I like medium and long term trading. They give you time to analyze and search for the best entry and exit points, you don't have to rush and jump into conclusions.

The pair has seen 2 minor tops at that time and was heading to making the third. After each top, the pair retraced between two thirds and four quarters of the previous move. That is, if the pair goes 100 pips up, it retraced around 66 to 75 pips each time before selling dried up and buying picked up once again to lift the pair and create another new high.

This was logic, the major trend is down and guys are shorting the hell of the correction. However, I saw this as a sign of strength in the pair. Shorters were not aggressive enough to push the pair lower and buyers were strong enough to lift it up immediately to make a new high.

At that time, the last high sat at 1.1340 or something like that. I decided that I shall be going long as soon as the pair closes above this level on a daily basis. My scenario was simple, the war was being back and forth and buyers were gaining new ground every time, so as soon as they win more ground at the third time, sellers would probably throw in the towel and surrender and the pair will probably extend the move upwards strongly.

The pair did what was expected and passed 1.1340 and closed above it. I went long at around 1.1360 or something like that.

My stop loss was defined below the previous 2 bottoms at around 1.1100. I thought, if sellers managed to get the pair there, breaking the 2 minor bottoms, they would have re-aligned their forces and counter attacked strongly enough to frighten buyers and gain more ground in less time. And the major trend is likely to continue.

The pair started to retreat back just after I bought and I figured out that I was wrong in my original analysis and that there would be another round between buyers and sellers and I started to worry as this was against the idea and concept in the first place. However, I held tight although I was sure that I am swimming against the main flow.

The pair retreated towards 1.1250 and started to head north and never looked back. I was finally relieved and felt that my scenario was correct but my timing and entry were bad.

And as I expected, after rallying to new highs, sellers dissappeared and the pair rallied strongly towards 1.1500. I immediately doubled my position and moved my stop loss to less than break even at around 1.1300 or something. I figured out that the current battle being won by buyers for the medium term won't pullback towards this number at all and if it did, it would encourage sellers to further attack.

The pair didn't stop at that level as the mystery of the chart was almost revealed to everyone, an medium term uptrend, so every one was going long for 50 or 100 pips of profit and seller and shorters were really having a tough time then.

The pair went straight to 1.1750 before stalling.

I started to play technically with the chart, find targets and project them and analyze the price action through the whole move.

Finally I found that the move is most probably ending and that the current correction is about to be over. The whole move was actually a counter attack from buyers against winning sellers from 3 years ago. Technically it was strong, however, it doesn't justify moving further up. Given the rush of short covering, the rally is bound to death rather than life.

So I decided that taking profits is mandatory. Risk of profits vanishing are higher and possibilities of resuming the major downtrend are high to prevent waves of new buyers to push the pair further up, plus the current area was a technical profit taking one as well as a strong resistance.

I waited for a couple of days to ensure that buyers are struggling to lift prices up and the pair actually went up slowly towards 1.1850 and then retreated back to 1.1750 again quickly and I immediately liquidated.

This price action proved to be a top or near the top. The pair flew between 1.1400 to 1.1750 in less than 3 weeks, however, it moved from 1.1750 to 1.1850 in 2 weeks. The resistance was clear and the major downtrend was revealing itself to the blind.

The next attempt to move upwards was even weaker and the next sell off was more aggressive and the pair sold off towards 1.1600.

The trade was over to me, however, the idea was not. I was now positioning myself to short the pair with the major trend and I was waiting for another technical signal confirming that the current up correction which I rode on the long side has ended so that I can place my short entry with the maximum probability and the least risk possible.

And this was another trade which I will describe in another post soon.

This long USD/CAD taught me that one can profit while trading against the major trend, however, you must be very very cautious when doing this and to keep in mind that timing is a very critical factor when doing this.

It also taught me that if one is trading the correction against the major trend, he/she must be sure that the correction will be large enough to be worth taking the risk of swimming against the flow. And one can anticipate the size of the move from the size of the previous major move.


Thanks,

Nader

I know SH happens. You miss a whole move because of some extra pips to be saved. This has always mazed me. If you sacrifice those few pips and you turn out to be correct and the trade goes in your favor, you consider yourself smart enough to act fast and not wait for the exact pip. And if you sacrifice those pips and you turn out to be wrong, you just increased your risk and lost more money whenever your stop loss got hit.

I know it's a puzzle and I passed through it several times. It's more than a puzzle if you can't trade multiple lots.

To be honest, I haven't figured out a solution for this till now, however, I will always think, would be the loss (Or the risk) acceptable to me relative to the reward if I sacrificed those pips. If I said yes, I pull the trigger immediately. If I said no, it won't be appealing, I stick with my numbers and wait for the market to say its' final word.


Thanks,

Nader

haha! awesome story man!!

thought i was reading market wizards4 for a minute there!!

no sane trader thinks about potential "lost" profits, because all of the ones who do are insane:

LOL...Not to that extent man...Those are just some thoughts and memories..


Thanks,

Nader

I think I have stated in an earlier post that I have been following the grain markets since mid-2006. The trade which will be mentioned in this post is currently still open.

While following the grain markets, I noticed a nice feature in IB platform which is the spread trader. This is a separate window in which one can view all calendar spreads for a specific underlying commodity. The pretty of this window is that it quotes the spreads between different calendar months as bids and asks where you can directly go long or short a certain spread through a combo order on your behalf. The more pretty thing is that you can chart a certain spread to see if it is trending upwards or downwards.

A couple of months ago I started watching the wheat spreads and I noticed a very strange phenomena. I know that physical commodities are usually trading at a premium as we watch distant delivery months. This is to account for warehousing and insurance costs mainly as well as price fluctuations risk. I rarely found a distant month which is trading at a discount to a previous month. However, in Wheat I found that a distant calendar spread was trading negatively (Having a negative spread), which means that the recent month is trading higher than the distant one. To be precise, I noticed that Mar08 wheat contract is trading at a premium to May08 wheat contract which is not logic as wheat is a physical commodity.

When putting things into perspective, one can find a logical explanation for this as the crop of May08 might not be yet planted or even planted but still does not have warehousing or insurance costs and thus the future contract does not need to trade at a premium against May08.

However, thinking in a different way lead me to another conclusion. This won't be the case forever, as the crop of May08 will soon include the warehousing and insurance costs when the harvest nears. This means that the spread should switch from negative to positive when the right time arrives, which shall be around Jan08 when the nearest delivery month be Mar08.

A little money management into the equation tells that sooner or later, the spread should turn up to at least zero where both contracts trade at the same price. At that time the spread was at -20 points.

Given that the marging requirements for spreads are very low compared to outright contracts and if one can withstand any possible drawdown against his/her account to a certain pre-defined limit, one can make a decent profit from trading what people don't want to trade now but are willing to trade within 3 or 4 months from now.

So I decided that it would be a good idea to start buying this spread and for the first time I allow averaging down in a trade. I knew that spreads are volatile especially if the underlying is strongly trending. That's why I limited the total number of spreads to be bought to 4 and pre-calculated the entry points for each spread to be bought.

So I already bought 1 spread (Mar08/May08, that is shorting Mar08 wheat and going long May08 wheat at the same time) and I decided to buy a 1 spread every 25 points against me.

To my astonishment, wheat trended strongly upwards for the previous couple of months and almost doubled which is a huge trend. The spread almost collapsed and went from -25 to almost -120. But as planned, I kept buying 1 spread every 25 points against me and finally I ended up long 4 spreads with an average of around -62.

When the spread reached -120 this represented the largest drawdown I have ever had against my account as my account was almost down by 20%. I knew that time was in my favor as I was waiting for the Dec07 contract to expire so that the spread between Mar08 and May08 corrects itself and heads towards the positive area.

I figured out that the huge drawdown as well as the collapse in the spread was due to the fact that the market trended up strongly and thus the nearest contracts went up strongly while the distant ones moved up slowly and I am short the near contract and long the distant one. This is why I got hurt deeply.

Finally, the spread is correcting itself now and is currently trading at around -90 which is considered a great improvement and a relief to my account. I am still expecting the spread to near the zero value as we go further into time, mostly by Dec07 and Jan08. This shall represent a huge jump in the equity curve just as it experienced a huge drop.

The main problem I faced with this trade is the timing. My timing for spread purchases was horrible. I could have enhanced the entry so that I minimize the drawdown dramatically and maximize the profit substantially, however, I never managed to correctly time the entries.

The main fault I did was analyzing the underlying after already having the position. I correctly analyzed the market and found the major top is currently forming at around 961. I should have done the homework earlier as this would have enhanced my entries substantially and saved me the drawdown. Since the underlying is expected to go into a major correction, the spread the set to improve and thus profit potentials are now higher than at the time I initiated the trade but lack of experience in trading spreads blinded me from those simple facts.

I will keep updating on this trade as it develops hoping that everyone gets a lesson from the faults I did


Thanks,

Nader

when i begin to trade my demo, i quickly amazed by swap, search the best broker in ff for swap, care less about the other detail. then i know it is called carry trade,, start on 7 November 2006 with $250 for testing this forex business first of all i believe the interest rate differential will cause a latent trend, erase gbp/usd from mainly traded pair on february because the trend is diffrent from the + swap , and has been heavily trade usd / jpy , imagine that 1.3 swap that is close to 1,5 pip a day will accumulate up to 365*1.5 = nearly 450 pip just for waiting 1 year (add some equity too).
on june , all position closed, and i became confident on this swap ability to drive the market, then i put the grid closer, it hold for few other month, but last month in august that mortgage worry strike in and the volatility just lure me out of the habbit, put some big lot for short trade and lost pretty big, big enough to remind me that the equity is now only able to hold that accumulated draw down for another few hundreds pip only, and in panic i start trying to add the lot i trade ,(just typical revenge) walla, the account blown away.

start again with another $250 and switching carry into more defensive position.

By the end of last week, the wheat trade spread narrowed by around 10 points from -82 to -72. This represents a good improvement.

Wheat sold off on Thursday and Friday and this was the main reason why the spread imporved substantially as the far contracts are correcting their prices to narrow the spread.


Thanks,

Nader

The wheat trade spread today narrowed further to reach -60 and thus improving around another 12 points. Wheat ended the open auction session on Monday at limit down and opened sharply lower during the electronic session.

The spread trade is currently at break even.


Thanks,

Nader

The wheat spread between Mar08 and May08 narrowed further to -45 points, a 15 points improvement.


Thanks,

Nader

The spread currently stands at -35 and improving. Hope that we will see it in the positive territory soon.


Thanks,

Nader

The spread is now standing at -17 and still improving...Finally, the trade is going the right way.


Thanks,

Nader

The spread is now standing at -4 and still improving...Since my original cost is around -62, I am adding more on dips towards -8.

Looking at the spread duing the month before Dec07 expiration, which is November, we can see that the spread rallied from -50 to almost -4 which represents a huge gain per contract.

Still waiting for the positive territory within a month of 2.


Thanks,

Nader