The View DownRiver

Hello everyone. I have decided to try to start a journal of sorts here. I have found that I like to this from time to time although I have never done it here at the Forex Factory. I post because I enjoy discussing trading. I have tried this before on another fourm and it was fairly short lived. I made the mistake of posting my actual trading sizes, profits and losses. This was not a good idea. I was attacked by the all the posters with a lot of posts by their names as they thought I had some alterior motive. In hindsight, they were right. I should not have done this. It just is not a good idea on a public forum. I think many of the old timers have a tough time understanding how someone can trade with out of the ordinary risk and make a lot of money (or put themself in a postion to lose a lot of money).

So this time, I want to focus on improving my own trading and also helping others understand this business.

Take care and
Good Trading

DRT

EURUSD Discussion
USDJPY Discussion
GBPUSD Discussion
USDCHF Discussion
AUDUSD Discussion
USDCAD Discussion

Welcome to the Factory...I hope you'll find this forum enlightening, positive, and worthwhile..I have! Look forward to your posts.

Cheers,
Northpro

I trade the following currency pairs and also the corresponding futures. I will limit my discussions to the spot market since it seems that most folks are more comfortable with this. I created a thread for each of the pairs to keep things organized. We can discuss the trades in these threads and any questions that might take us off topic I will keep here in the journal. Not sure if this will work, but it seems like a good idea. So if you have a question that is not directly related to a certain trade, feel free to ask me here and I will do my best to answer it.

I put the links to the theads in the signature section

I thought it might be helpful to give you a little background on myself. I think this is important because many of you should be able to relate to my journey. I live in the United States, in Maryland near the Chesapeake Bay. I love the water and I especially like to fish so from time to time I might talk about the water and fishing. There are a lot of similarities in water, fishing and trading. I am a full-time trader. I started with a meager sum of money and took several years to finally make the transistion to full-time. I used to work for a major US corporation and started trading part-time.

The transistion I went through was a valuable learning lesson. Like many of you newer traders, I wanted to make trading my profession in the worst way. I finally began to reach my goals when I realized how important the mental side of the business is in success. More than anything else, the mental process is what I hope to instill in anyone who has not found the "secret".

Today I have all I will ever need, not so much in net worth, but more in self-image and accomplishment. I want to try to give back a little if possible so this is really the purpose of the journal.


A couple tidbits:

I have a trading office on the same property as my residence and I am 100% electronic.

I trade long term, intermediate and short term. I will generally discuss short term trading here otherwise we may all fall asleep.

I am of average intelligence and do not understand economics very well but I do understand human emotion which is what really drives the markets anyway. So do not ask me any opionions on GDP's, interest rates, trade deficits, etc.

I want to share some of my views on methodology and begin to give you an idea of how I trade.

First of all, my views are likely radically different than some of the textbook advice. I tried to follow some of this advice early on but it did not work for me. I began to ask myself..."If this advice is so good, then why is it that 95% or more of new traders fail and wipe out their accounts?" Certainly many of them did not follow the advice, but with all the material in print on strategy, risk, etc...why are so many failing at this business. The logicalness of this just made me have to figure it out on my own. I still do not know the entire answer.

To begin with methodology and strategy are two very different things in my opinion. I tend to think of methodology as "How I trade" and "strategy" as my overall business plan.

One of the first things you learn is that you should commit a methodology to the written form. This is good advice. Have you done this? if not, stop and do it now. Chances are many of you are not really sure what your trading plan is at this point. Get something in writing. Study it, improve it, change it, memorize it, execute it. If you have no idea what to do, then I certainly hope you are not risking real money on trading.

The scope of this forum and certainly not this one post won't teach you how to develop a methodology. I would certainly help you with developing a style, but ultimately it is your responsibility. Commit to it and do it. Maybe I can give you some ideas over time.

For those of you who have studied ideas on methodology, have you ever heard the advice that you should commit all parts of your plan to writing. The criteria for entry, exit, trade management, risk and others. I totally disagree with this concept. I warned you that my views may be a little different. I will explain what I mean by this in Part 2. I think it is foolish to think that I have the intelligence to write out a document in an ever changing marketplace, tick by tick, that defines exactly when I should enter and exit a trade. If you will really think about this it sounds foolish. Like I can predict the future or something.

Here is what I do for methodology. I have defined the one variable that I have the most control over. I do not have 100% control over it, but I have almost 100% control and that is all I can ask for. That variable is RISK. My entire methodology is written around the concept of risk and how to manage it. I even gave it a fancy name...I call it the FlexTrade Risk Control Methodology.

I developed an excel spreadsheet that calculates my position size based on the number of markets being traded, risk percentage and other important variables. I plug in my available account equity, the margins for the contracts, the tick values and I know exactly where my TOTAL risk is with each trade on a trade by trade basis.

Risk is all that matters. You may disagree and that's okay. But for me, risk is all that really matters and it is what I spend the bulk of my trading time on controlling. Not where to get in and out or when to add or take off. It's very simple and simplicity is the key for me. Does your methodology address risk? Or is there more emphasis on profit?

Anyone with average math skills and a search engine can learn to manage their trading equity. Do this and you will become a great trader with a great methodology. I determine a percentage of my available equity that I am willing to risk on any one trading idea or theme. For some it may be 2%. For some 5% or 20%. The key is you have to understand how to preserve your equity if things go wrong and they will go wrong. Count on it.

If you follow my trades at all, you may notice that I do not use hard fast stops. I do not believe in them. I use zones or areas which prove I am wrong once a contract trades successfully in this area. Using this concept, I may allow a little more or a little less risk on each trade then originally planned. Do I get burned occaissonally. Yes, but I know my limit. I always know where I stand.

Focus on risk first. Then focus on trade management.

If you have not read Part 1. Read it now Methodolgy - Part 1

So I do not have any written rules for entry, exit, or trade management and I do not use exact stop loss levels. Sounds like I am a mental case. Exactly.

What I am about to say is going to make you think I am crazy. Indulge me for a while. Give me the benefit of the doubt for now.

Do you think of your trading as a sort of art form? Do you belive in the power of the subconscious mind? I do and it does all my trading for me. I really don't do anything in the physical form except follow the advice. I trust my subconscious mind completely. Without question. I depend on it to act in my best long term interest. I do not question it. All I do is give it my goal and it works to help me achieve it.

Does this mean I just hap hazardly enter a trade? No of course not. I have guidelines and different styles. Have I ever just clicked my mouse because of a gut level feeling. Absolutely....in fact I do it all the time. I always have 50/50 odds know matter what. Think about this for a minute.

Maybe you are not like me, but I bet you are. I live my entire life around trading. I am constantly analyzing charts, reading, writing, thinking about where the six pairs that I trade are headed. I am feeding information into my subconscious mind on a constant basis. It is processing this information and returning ideas to me.

Do you ever get a "feeling" , a "hunch". What do you normally do with this feeling? If you are like most traders you discount it entirely. Why? Mainly because you have been taught (translated read in text books and learned on forums like this one) that a master trader does not make bets based on hunches and unconfirmed information. Or maybe you think it is not in your best interest to rely on yourself. You would rather seek out advice in a forum or pay a trading signal company to make you wealthy.

I am here to tell you that you should respect your own abilities, your hunches and your intuition and not listen to anyone else. If you are like me you are constantly feeding your mind with currency tidbits. It is processing all this information and returning to you ideas in the form of hunches. ACT ON THEM WITHOUT HESITATION. This is your edge!

I use various tools to help me determine good value, but if I want to enter a trade or exit a trade before my studies say I should........well I just do it. No paper or no line on a chart is going to trump my own thoughts.

Your only job is to control your risk once you are in a position. And that is easy because you have a written plan to guide you.

Well there you have it. You probably think I should be committed to an insane instutuion. We will talk some more about this in the future. For now, I want to finish this up with a more controversial Part 3.

Methodology - Part 1
Methodology - Part 2

I am going to say something here that may cause many of you to get angry with me. It's like your parents telling you that "it is for your own good". I am saying this with all due respect and I understand that it is not true for everyone.

If you want to be a successful trader and acquire wealth then you have to do one thing. REMOVE ALL INDICATORS FROM YOUR WORKSPACES. Get rid of your stochastics, get rid of your MA's, get rid of your CCI's and your Bollinger Bands. You do not need these. They are merely a reflection of price. Your subconscious mind does not need this type of archaic help to figure out what is going on. There is no computer in this world that can even come close to the power of your mind.

If your software program has the ability to plot in line form then give this a try. Use the same time frame that you use for your indicator. Now compare the pricing with your indicator lines. Do you notice anything? Maybe not.

Please stop and think about what the indicators are really telling you. Do you know what it is that they are saying? They are saying "I am a lazy, stupid trader that is not capable of making a judgement on my own". I know this is not really the case with you but an indicator is nothing more that something for someone who has no idea what else to do! This person has hopes and dreams of creating wealth for himself and his family and he thinks this squiggly line is going to be the ticket. Let's give ourselves more credit, we are intelligent human beings.

I guess there is a strong argument that they are self-fulfilling since millions of people watch them every day and make decisions based on the same patterns and information. Incredible when you think about it. Just an easy way to give someone a quick plan of some description for trading. I bet brokers and dealers love them. They make it easy for anyone with an extra $1000 to get started. By the time you react to the indicator, it is already priced in the market. There is no edge here.

Whenever you buy and sell something there is only one thing that is important if you want to make a profit. If you buy something, you are making a bet that someone will pay you more for it in the future. And vice versa. In order to make good decisions on buying and selling, you must understand value. Focus your efforts on determining what represents a good value in the market, not watching for the slow stochastics to cross in oversold territory. Always ask yourself, am I buying at a known level that is good value compared to some other level. It is not as hard as you think.

It boils down to simple supply and demand. Get all those danged squiggly lines off your charts and just begin to look at pure price action. Find those value areas for support and resistance. Buy and Sell like a mastertrader.

DownRiverTrader

I notice that you use Market Profile in your charts if I am not mistaken. I have read about it, but too confusing to understand. If you ever have the time, it would be much appreciated if you can explain how you use it.

Regards
ET

Hi DRT,

What do you mean when you talk of "building value" around a price point?

Thanks,
Randy

DRT

Thanks for posting your methodology thoughts, i found it very interesting and look forward to reading more about your trading technique and reasons for trades your are in on your separate currency threads.
I myself trade every now and again when i see a deal that i have a hunch about and the price action confirms it. I have been learning slowly about PA from stuff written on the James16 thread. I mainly base my trades on PA but do have other indicators on my charts such as trendlines, fibos and MAs as confluence of these just re-confirm the trade i have taken. Hope this makes sense.

Keep the work going!

HoZe

This may be a little hard to read, but I wanted to give you an idea of what my Risk Modeler looks like. A very simple spread sheet designed in MS Excel that I am sure most of you can do. I have tabs for each of my accounts. This example is for one of my futures acccounts. You certainly don't need a spreadsheet program to do this. You could just as easily calculate your risk by the old fashioned method. I have a rule that before I enter a trade, I must "model" the trade. I anticipate the entry well before the trade to get an idea of what the risk will look like. Then I adjust once I get an actual fill. It certainly isn't rocket science by any means but it keeps me aware of my risk at all times.

http://home.comcast.net/~downrivertr...k_Modeler2.png

ET,

I do not use Market Profile. What you are seeing in my charts in called "Price Distribution". On the surface it is very similar. It is the "dumbed down" version of market profile. PD does not take volume into consideration.

I use Price Distribution Analysis (PDA) more as a visual not as a specific technique. It is just another way of defining value for me. Understanding price distribution around fair value is absolutely essential in helping me understand where to buy and where to sell.

If you are a very short term trader, it is the best technique in my opinion for taking profits from the currency market. Understand the Bell Curve. All markets trade this way. Cars, Widgets, Food, you name it. Some are more reliable than others when placing bets though.

My advice would be embark on a study of understanding the Bell Curve. It is not an easy road and requires dedication but it is well worth it. Even if you only understand the basics, it will prove invaluable to you when trading currencies.

To get started, I would recommend purchasing this book by James Dalton. It is easier to understand then some of the more advanced works.
Mind Over Markets

There is also good information on the CBOT website.

Good luck.

Randy,

The answer to this can be found by studying the information I described to ET in the preceeding post.

Let me get you started. Refer to the chart below. Over the last two days of trading I would say traders thought the fair value of the EURUSD was right around 1.3135. The horizontal (Black Colored) plots represent the number of times that the EURUSD traded at a particular price. So the farther it extends to the right, the more times it was exchanged at this level. As we move above or below this level, not as many traders were buying or selling. Maybe these traders represented "MasterTraders" who new when to take advantage of a good bargain. As with any analysis, it is much easier to discuss it after it has happened. Hindsight is always close to 20/20. We certainly had a lot of clues from Thursday's action to guide us though. Trading around these value areas is usually done by locals (dealers).

Do you know what a Bell Curve looks like. Orderly flow aways from a mean price. Do you see any Bell Curve's here? You will always see them as value develops on every time frame.

Let me say this. If you like to short term trade the currency markets, you can always find good bargains after the price settles down prices move away from value. Late in the sessions for instance as dealers move to trap new traders into thinking price is headed one way or another. If there is no "other time frame big boy type traders" to come in and move the market at that time, price just might return to the "fair value" area for that time frame. Happens ALL THE TIME.

Hey and you might make money without any of those MACD, Stochastic thingys because YOU KNOW WHAT MOST OTHER NOVICE TRADERS DON'T KNOW.


http://home.comcast.net/~downrivertr...ding_Value.PNG

DRT:

Yes, welcome to the FF. You'll find very few big egos here, it's a good place to be with lots of good people. I look forward to digesting your musings on trading later. I need to update my own thread soon but I have some obligations for the next few days....Again, welcome.

HoZe,

Good luck. I have a hunch we will talk some more.

DRT

Thanks Palmer.

DRT,

Big THANKS for taking the time for you explanation(s).

Without the use of PDA (just using price), let me try to interpret what you're saying. We'll stick to the EUR/USD Daily chart.

- Since around the end of last November until now, am I right in saying that buyers and sellers have set a fair vaule on the Euro at somewhere between 1.3050 and 1.3100? I came to this conclusion buy looking at the range of prices that included the most Support/Resistance tags.

- Could it also be said that this range (provided I've even correctly identified it) represents the fattest part of the bell curve?

- Let's say I'm even in the ballpark here.....what do you (we) do with this information going forward?

As we sit here today I see two different scenarios developing.....

- Putting my Price Action knowledge to use, I see a Sell opportunity coming off of the 2-15-07 Pin Bar.

- However, if I'm following you correctly, it appears the Buyers have taken hold again as they have moved price up through the 1.3050-1.3100 "value zone" on 2-14-07 and scooped it up yesterday when it dipped back into this zone. This would make be think the Buyers are in control now and we are looking at a Buy opportunity.

Randy

Randy,

What time frame trader are you? Long Term, Intermediate or Short Term?

Short term to Intermediate I would guess. Not Intraday, but I also don't look at Weekly or Monthly charts. In a brand new Demo account I opened I've been following the 4hr as well as Daily chart setups.

Randy,

Just the fact that you are beginning to think this way and question where and why you are a buyer and seller is a good first step. In general you did a good job with this.

Based on your response to the "time frame" question, I would say you are a short term trader. Like any new task when you are first learning, try to keep things simple and focus in the present. Focus on what you definitely "know to be" and not what might happen.

It may help you to focus on weekly values or maybe monthly.

If you were able to look at the price distribution starting in January 2007 here is what you would see:

The longest line of the curve comes in around 1.2950/90. This is a critical level. I would definitely be a buyer in front of this area.

Further the curve shows an advancement to 3170. We reached this area late last week. The most probable scenario is a balancing move back down to the 3080 level and maybe back down to the 2950 area indicated above.

If the market settles above the 3170 area. This is a STRONG signal that a new uptrend is in place and levels near 3290, 3360 and 3450 are possible next.

On a very short term basis, I trade the daily action and use this knowledge as a guide only. Not a hard fast plan. I am going to try to discuss very short term trades here as I think many traders fall into this category. Especially if just starting out. It takes larger trading equity to trade the longer term.

If you looked at all the longer term distribtuions, you would see bullish distributions in control. Just look at a weekly chart, this is no revelation. The Long Term distributions indicate levels up near 1.5500 are possible.

I am going to post a sample candlestick chart and explain the levels on it. I will be posting it in all the threads. You can use it as a guide to keep studying value areas for each pair.

Nice job with your analysis. When I first started with all this, I just tracked value areas on paper. Keep looking at those candlesticks. Jot down areas you see where consolidation occurred. Mark up those charts. Soon it will come easier.

DRT