Outcome is not important at all, but correct technique is what only matters
- #563
- Apr 11, 2012 2:19pm Apr 11, 2012 2:19pm
- | Commercial User | Joined Nov 2010 | 1,178 Posts
Nothing personal,just business
- #564
- Apr 14, 2012 12:35pm Apr 14, 2012 12:35pm
- | Joined Aug 2010 | Status: Roaring in a cave near you | 237 Posts
I wish to thank you for participating in this first test experiment.
As some have guessed, the test was a about a trade trap, for several reasons.
Solution #1
This is very easy to spot.
I purposedly hinted about "Also notice how dates are very important".
I visibly put a day cross hair indicator in the daily graph (look at the bottom right).
Now, as you probably recall from several posts including my "Step by step version of the Method as I understand it", it's very important to have the higher time frames candle bars close before you start a trade.
You may find this sentence:
With these elements at hand, let's look at the graph. The highlighted date is July 28, 2006. That date was a Friday.
This means the weekly bar was not complete and the trade should never happened in that date.
You may still trade of course but then you will miss one of the two winner mechanics of this method: trade after candles closed and trade on confirmed retracements.
Let's look at what happened in the method suggested trade day (after week closed, that is the next day), see attachment 1.
There's a very suspicious gap with a small bullish candle. It means there's something brewing up. Only way to place a sell stop order would be to put it below it and then you get an huge stop loss => No trade.
Then the next days you see what happens: the market swings up and would have taken the stop loss (SL).
Even if you followed another SL strategy and put the SL above the swing (July 24 candle), the last candle closed above the super strong BRN 2.3, which means troubles!
In fact if you look at the attachment 2, you see what happened next: very strong bullish rally that in the next days would have taken you out.
Above blurb in a nutshell: make sure you trade after the higher time frame bars have closed.
Solution #1 Appendix #1
This is more tied to practice than this method's rules. Fridays in general and end of months are the days where very big positions are closed, market loses liquidity and is choppier. As a personal rule I rarely start a trade on Friday and never in the last 2 days of the month. This holds expecially true considering it overlaps with Appendix #2 (this made me dobious even beyond the "2 last days" advice, in fact I skipped at 3 days to end of month).
Finally, there are an handful of super-market impacting news and events (futures contracts expiration days) when trading is riskier even for a daily bars trader.
Solution #1 Appendix #2
Whole second half of July and August and Christmas holidays are bad days to trade at. August is the month when liquidity is the lowest (many are in vacation) and very large funds commit their capital creating some large oscillations.
Solution #2
As FXGroup and I stated several times, you always need to consider WPD. The overall scenario hints about what the market is about to do, situation awareness is a key factor into succesful trading.
Look at the weekly chart again and figure out the RM "flavour".
The RM is not absolutely random, it shows two bullish flags.
See Attachment 3 for a modest attempt of mine to graphic art
.
Once you get practiced at charts reading you'll instinctively see these things. The blue rectangles are not any kind of pattern but are what my eyes "see" as I glance at the graph.
I have drawn some trend lines too. The first bullish flag attempted to break up but it failed and formed that Feb 20 exhaustion BEOB / 2D PB. It failed because buyers started gathering liquidity from the middle.
The second time price went all the way down to the support and this gave it a bigger momentum.
As some have guessed, the test was a about a trade trap, for several reasons.
Solution #1
This is very easy to spot.
I purposedly hinted about "Also notice how dates are very important".
I visibly put a day cross hair indicator in the daily graph (look at the bottom right).
Now, as you probably recall from several posts including my "Step by step version of the Method as I understand it", it's very important to have the higher time frames candle bars close before you start a trade.
You may find this sentence:
Notice how in this method the candles MUST HAVE CLOSED before you can declare that you found a pattern
This means the weekly bar was not complete and the trade should never happened in that date.
You may still trade of course but then you will miss one of the two winner mechanics of this method: trade after candles closed and trade on confirmed retracements.
Let's look at what happened in the method suggested trade day (after week closed, that is the next day), see attachment 1.
There's a very suspicious gap with a small bullish candle. It means there's something brewing up. Only way to place a sell stop order would be to put it below it and then you get an huge stop loss => No trade.
Then the next days you see what happens: the market swings up and would have taken the stop loss (SL).
Even if you followed another SL strategy and put the SL above the swing (July 24 candle), the last candle closed above the super strong BRN 2.3, which means troubles!
In fact if you look at the attachment 2, you see what happened next: very strong bullish rally that in the next days would have taken you out.
Above blurb in a nutshell: make sure you trade after the higher time frame bars have closed.
Solution #1 Appendix #1
This is more tied to practice than this method's rules. Fridays in general and end of months are the days where very big positions are closed, market loses liquidity and is choppier. As a personal rule I rarely start a trade on Friday and never in the last 2 days of the month. This holds expecially true considering it overlaps with Appendix #2 (this made me dobious even beyond the "2 last days" advice, in fact I skipped at 3 days to end of month).
Finally, there are an handful of super-market impacting news and events (futures contracts expiration days) when trading is riskier even for a daily bars trader.
Solution #1 Appendix #2
Whole second half of July and August and Christmas holidays are bad days to trade at. August is the month when liquidity is the lowest (many are in vacation) and very large funds commit their capital creating some large oscillations.
Solution #2
As FXGroup and I stated several times, you always need to consider WPD. The overall scenario hints about what the market is about to do, situation awareness is a key factor into succesful trading.
Look at the weekly chart again and figure out the RM "flavour".
The RM is not absolutely random, it shows two bullish flags.
See Attachment 3 for a modest attempt of mine to graphic art
.Once you get practiced at charts reading you'll instinctively see these things. The blue rectangles are not any kind of pattern but are what my eyes "see" as I glance at the graph.
I have drawn some trend lines too. The first bullish flag attempted to break up but it failed and formed that Feb 20 exhaustion BEOB / 2D PB. It failed because buyers started gathering liquidity from the middle.
The second time price went all the way down to the support and this gave it a bigger momentum.
- #573
- Apr 21, 2012 2:46am Apr 21, 2012 2:46am
- | Commercial User | Joined Nov 2010 | 1,178 Posts
Nothing personal,just business
- #577
- Apr 23, 2012 2:56am Apr 23, 2012 2:56am
- | Commercial User | Joined Nov 2010 | 1,178 Posts
Nothing personal,just business
Hi 135 and thanks for your partecipation.
Since we identified WPD+WPG, all we have to do is to wait RET in order to get in till or MM/ targets levels....beeing carefully at important levels as 1.6170.
The software I use for capture the screenshots and work with them is JetScreenshot..is free and very easy to handle.
P.S. Don't be silent...pull your thoughts out http://www.forexfactory.com/images/icons/icon7.gif !
. I am dreaming to reach to your level in one day , then I will flood your thread with bundles of posts and pictures 
. Good day to you.
- #579
- Apr 23, 2012 9:01am Apr 23, 2012 9:01am
- | Commercial User | Joined Nov 2010 | 1,178 Posts
Nothing personal,just business
- #580
- Apr 23, 2012 4:16pm Apr 23, 2012 4:16pm
- | Joined Aug 2010 | Status: Roaring in a cave near you | 237 Posts
By the way what is image processing software you here are using to put arrow/text/shapes/... to make annotation to chart to post to the thread. Many thanks for your instruction.
Regards,
Exciter135.
I can say what I use: Paint.Net.
Hi fxgroup, great thanks for your reply and encouragement
