MickD's 'Common Sense' journal.

Hi, my name is Mick and this is my - hopefully - 'common sense' trading journal. I will be trading on paper for a while untill I sort out and firm up my strategy and start producing some decent profits in demo mode.

I started it for a few reasons the main one being to keep me honest, it's just too easy to change your mind on what your strategy is half way through a trade . The other is I was starting to take up band width on capilist88's journal . Have a look over there as he has some interesting reading at his journal and web site.

A bit of background -
I'm 38 and have been studying stocks for a few years using daily charts, then I stumbled onto cfd's and now forex, there's a couple of reasons for this pattern, the first is I don't have a lot of money so finding a viable trading instrument where fees are less likely to encroach on profits with a small account was a major consideration. The other is that in Australia, it has only been recently that cfd's have come onto the market as well as other derivatives to the general masses. I have seen forex before but was a little bit overwhelmed by the fast day trading/high risk image it portrayed but now I know it's no different to any other market, it's just structured differently with a different behavior - one that I like!

Why do I want to trade?
Obviously there is trading for money, that's probably the driving force behind most traders, myself included, but there is also the challenge.
For instance, I also do a bit of programming. I started with vba and eventually got to assembler because I just had to know how it all worked! It was all just one big puzzle and the markets to me are very similar in that there's always something to study, learn and implement.
I don't program in assembler but I know how it works and it has helped my programming immensely. Learning about the markets is the same thing, while you might not use techniques that bankers do it still helps to know how it ticks.
Although I think I could play demo's forever really, it's great fun, if I start to turn out regular 'high scores' I will then start playing for real.

Why Common Sense?
While I don't have any real trades under my belt I have been around long enough to realise a few things about trading the markets:

- Price action is king, while historical patterns and support/resistance are no guarantee of a move in your favour, the price action before and 'at' these points is very important. After all, how many other people see the same patterns and act on them whether right or wrong?
I also like to see things in higher time frames and drill down to lower time frames to 'see' what has/is happening to give me a better look at which way I'll play it.

- Money management is paramount, not just risk (capital preservation) but money maximisation strategies as well. IOW, cut losses small and maximise profits. I seriously believe this is where to make money and will be my main focus over everything else, the market holds no guarantees as to direction but if I'm prepared with a good money strategy I'll be set for when it moves in my favour (IOW, when the market comes to me).

- Indicators are 'old news' (i.e. lagging) but are handy to perhaps confirm a move or to use simply as another way of looking at price action and 'help' determine entry and exits. I use mainly the stoch for OB/OS levels as a price direction indicator and CCI channels for entries and exits. I have only just started with CCI's but they look promising as a filter for better trades.
Have a look at bobblongs thread for some more info, it's a great thread.


Anyway, I'll write some of my strategy down with some other criteria for my trading decisions shortly, feel free to jump in if you have any questions or advice along the way, both are very welcome.
What I would ask though is that this is my journal, not a system and is subject to change as I see fit so please don't ask me to carve it in stone for you, besides I really believe you need to make your own, there is no use following something you don't completely and whole heartedly understand and believe in. It won't be your system and it won't work, just pick up bits and pieces from here and other threads and piece something together that works for you - and stick to it.

Cheers,
Mick.

I called the journal 'common sense' so that when I enter a trade here I think hard about what I'm doing and it does indeed make sense given current market conditions.

Ok, first trade figures attached below (note that profit column is in pips with total being cash amount), I have 2 units in so far, one in profit, the other a few pips behind still. Last night using this strategy (or part of, I missed the last half) I pulled 1288 pips from a 400 pip move and my last entry got stopped out -90 pips before the recent continuation I'm on now.
Let's hope it still has some room left!

Why?
using the 'Dr. Bob' gave me a confirmation signal in the 15m, CCI_8534 on the 4H still 'in the zone' (ie. well above 0).
Yen looks weak and pound looks strong with other pairs.

Strategy:
Buy in increments of 40 pips using buy stops with s/l at 70 pips each trailing at 65 pips. Nurse the first 2 units until 3rd unit in, if it looks like it's going bad in a hurry, cut losses short, the first unit may save some of the second unit.
If all units look set to go this afternoon, set up some more buy stops then set and leave uncovered overnight

Take profits:
if we made it past the first three units safely we should at least come out b/e or a bit of profit, if it keeps going the 65 pip t/s should lock in some decent profits for most units, if it's still going in the morning I'll nurse it until price action tells me we're done, tighten stops right up and wait leaving last in for the continuation or take it out depending on price action.

Well, that didn't work out how I had hoped results below.

I need to work with one time frame and stick to it I think, I'm using the 4h to decide which way I'll play it but watching the 15m all day only to see it go against me.
I also think I'm pulling the trigger too early, there are a couple of reasons for this, experience and lack thereof for one but I am beginning to think that the time of day I choose my trading set ups isn't helping either. If I can't be awake for the action I'm really going to have to play it long term, that is just stick to the 4h, set up my orders and let the market come to me.
The best trades I've had have all come from setting a trailing stop (quite wide) and leaving it overnight. I have picked up many hundreds of pips this way and it was only by knowing 'it's only a demo account' that I would have left a trade open like that - but it definitely works!

Another factor to consider is how many pips do I want? Obviously I plan to take heaps and it is possible, psychologically though it's quite hard when you watch the charts all day, it's a hard call to watch you gain 50+ pips quite quickly only to see it go back 200 then rise another 300 or so if all goes well.

Anyway, I've left my buy orders in from the previous trade, I'll set my initial stop loss at 2xATR from the 1h chart with the trailing stop at 1xATR from the 1h and see how that goes tonight.

Still waiting for the breakout with my long order on the 4h, though I did get bored (itchy trigger finger) yesterday and just started watching price action ofter the gap open on the 5 & 15m charts. The price started to head north but failed, I waited for the price to go back below lowest/low for the morning and went short to grab about 50 pips.

I sold once I saw the action changing by going flat, waited for some confirmation of the reversal and entered long @ 227.45, I give it some room for the sl and set a trailing stop of 75 and left it overnight to join the other orders if they come good.

So far I'm up about 75 pips and the trade still looks ok at this point for the longer term although the price is finding some good resistance at 228.20-40, I'll nurse this one this morning and I may take some profits just in case.

<edit> just closed for 68 pips, the price was heading south on the tick chart and the range was winding up very tight, somethings going to happen, good or bad for my long term trade but I wanted to keep this profit, we'll see.

Here's the chart for reference -

Ahh, now I see where you've gone off to! Good stuff; I'll add your journal to my subscription list.

Great, and you're welcome to chime in whenever you like, every bit helps .

Trading update:
Well, while waiting for my major move that I have put to bed for now I've been playing the 5m with pretty good success today. I went short after the close of my long position above and picked up another 30 pips. I've just re-entered long, I was probably a bit early but we'll see, the price was telling me I was starting to head the wrong way though and it was time for a change or to take stock of my position

Todays trades:
Yep, I'm only trading small as I'm concentrating on price action only and I'm just counting pips for and against, the profit is in us$ but I think it works out to about 150+ pips for the day which is pretty good seeing it's off hours and 7 pip spread had to come out of the six trades as well!

<edit> the empty boxes were buy/sell stops that I canceled.

After yesterdays more or less success I will be rethinking the strategy a bit, I will still be using the same MM strategy but my trade selection and direction will be based purely on 'current' price action.
After reading fti's enlightening Tecnical Analysis Fallacy thread, that was basically how I traded yesterday and I think I picked my entries and exits quite well. I was working the 5m charts as they were moving quick enough for me to 'see' the price action but slow enough for me to have a look and analyze what was happening - quite slow in fact but fun none the less.

I will be drifting back and forth between the 5 and 15m charts today to get better adjusted to the longer time frames hopefully working my way up to the hourly or even 4h where there are more pips per move with more of a chance for scaling in with more positions - there's also less work on the peepers

I'm also reading The Art of War at the moment (google it, there are many free versions on line/for download) and I am postponing any serious trading efforts until I get my head around my strategies to handle different price action situations as they occur. If there is a common theory amongst traders/commentators it's that no one can predict the market and like war, no matter how much you prepare your army based on historical or even breaking data, there is no guarantee that you can win the battle. You must be prepared to handle adverse situations as they arise and make the best of them - good or bad - when ever possible, don't rely on hope or old analysis and don't be indecisive in your actions, the market takes no prisoners!

Been a bit quiet with trading of late as I've been busy and also reading TAOW and trying to relate the meaning of the chapters to trading, the way I see it at least.
I've also starting using the Oanda demo so I've been playing around more than anything to see how it all ticks and I'm growing quite fond of it actually.
Last night I put on a trade with the A/J and this morning I was up over 120 od pips (I had 2 units in, one at 80 od pips the other at about 40 so far) I put another on this morning as well so we will see how it goes.

I've really just been watching price action and getting a feel for the current market, once in I then nurse the trade from the lower TF's up to say the 15/30m and monitor it there looking down on occasion to look for early signals of weakness/strength for further buy-ins/closing of trades. I also look at the larger time frames as well, all the time trying to relate what is happening from one TF to the others.

I'll start posting some serious trades again soon, I'm also keen to go live as It will 'make' me take it a bit more seriously and pay more attention, with play money I can always just 'set my stop and TP' and leave it leaving me open to bigger losing trades more than anything else. I do believe in SL's but I like to have them for emergencies only (ie. away from price action) to provide space for the action but if the market is telling me to run I do

Here's a couple of shots that gives an idea on how I would play price action to preserve capital. I actually posted them in the TA fallacy thread also but put them here to remind me of what my strategies are all about - ie. small losses, big winners and following the market, not fighting it.
I'm quite happy to jump on the bus going the other way as soon as I see it turn, I would only do this typically after I have been in that particular market for some time, else I would just stick to trades in the 4h/daily direction for hopefully some added safety.

A lot of traders aspire to the SL/position sizing method of MM, I agree in principal but I don't agree it's a set and forget strategy, IOW, cut the loss short if PA is telling you your on the wrong bus! I do use PS'ing for my initial entry and use the stop as my 'catastrophe' stop only, I think it can become obvious pretty quickly if you right or wrong, a sample below shows this.

I'm actually short again as the PA @97.79 is indicating some weakness, If I can nurse it through the 5m charts I'll start to anti up and stay in for as long as possible.

Patience!

Must....control....urge..to be in market...

Hi again mick,
I thought I would be neigbourly and come for a coffee at your house, I like what youve done with the place, new furnature?lol.

Im not saying I know any better, But try to only enter on 'Exploring bars' they are the main bars that are telling you the story, and if you can resist the urge then wait till it closes.

The reason I say this is because looking back on charts, I can see my set-ups, and how what im doing DOES work...... if I wait for the bar to close. I also jump the gun myself, But in even 1mins time(by the time the bar closes), it can look very different!

Anyways, the coffee was good, but next time can you have some shortbread ready for me?!hehe

Leon

It would be my pleasure Leon.
Yep, new furniture, I'm trying out Oanda and I like it so far I must say.

Thanks for the advice, luckily the price went in my favour (long) but I will be keeping a close eye in the lower charts to control exit signs or opportunities to increase my position.

Just saying 'thanks for the advice' was a bit curt Leon and wasn't my intention at all, sorry about that, what I meant to say was I will also take it into serious consideration.

When you say expolorer bar and act on the next candle, do you use the same theory for exiting a trade? Sometimes the move against you can be fast regardless of PA, waiting for the candle to stop could be quite scary!

That is actually something I should have mentioned before. What I said about waiting for bar closes I implament on Entry only.

I see it like this.....

ENTER ON THE FACT (the exploring bar, you know price is pushing further in that direction, which has increased your chance of success.
EXIT ON THE FEELING(when you smell the Off fish in the air, dont stick around and keep sniffing, you dont want to be there. There will be more chances to enter on something you feel confident about later)

Other people may not agree with me on my methodoligy, thats fine, whatever they find to work.....(for them)

Leon

EDIT: Obviously, taking in to consideration trend and TL's, Paterns and such is important aswell

Makes perfect sense to me

I left my positions open overnight with a SL that would have left me with a little profit. If I had have been trading live I would have nursed it a little further with a more profitable SL and further open positions, here's how I would have played it -

In again with the AJ, also bought GJ long by accident then bought another to bail me out as the pair were trending in my favour generally, we'll see.

just closed out the first 2 postions for 122 & 103 pips respectively, I may have been a bit quick at pulling the trigger though, price has just continued a bit on the 1m/5m, may be a bit of noise but I didn't like the PA so I did some banking

As we speak I still have 2 units in and they are now both positive, I will now be watchin closely for potential buy in or quick exit with small loss on this 'free' trades (ie. I'll give them some room for noise), if not I may hold them for a longer term given the trend is still strong.

UPDATE: closed out other 2 units for +3 and -14 for a small loss of 11 pips, PA is undesirable at this point and it seems like a correction may be around the corner, I will be looking for a re-entry if trend continues - patiently waiting
Not a bad trade overall +214 pips.