LJ Forex Group

A nice FTB on AU during Asia, I'm watching UJ H1 for a similar setup.

Also an example of a trap on CADJPY - price breaking the SR, traders thinking we have a breakout jump on board short straight into a close demand zone and price gets reversed back above the SR - it's a classic false breakout occurring but not in the mechanical setup sense - it's why learning to understand what price is doing and why will always trump mechanical setups i.e. setups which are only valid if they are picture perfect.

Lastly, I like this structure on Gold...

Any comments on this trade would be much appreciated.

Compression into demand zone - buy at 1.2579, stopped out.

Was discussing this setup earlier in the TR. Personally I don't like trading the crosses on VLTF and thus this FTB setup was a pass because the whole zone was a wide one and there was no value to the FLR.

In terms of compression it's not really how I like to trade compression. I mean that is compression but I prefer the pattern to be over a longer period and for it to be more obvious that (in this case) we have supply consumption - EAUD says to me this is both supply and demand consumption.

Therefore if I was looking to take a trade on EAUD I'd be looking for more confluence - some price action like a nice BUOB or a QM for example because on it's own that wouldn't be enough for me.

An example of the type of compression pattern I like to see is UJ from the other day and Gold M5 just now (this was a nice FTB at an SD zone within a daily SR - i.e. a setup in it's own right which became a no brainer when we had compression into the supply zone).

http://www.forexfactory.com/showthre...76#post5755876

A follow up on the Gold chart from above...where did price stall at a clear demand zone, after breaking the SR just above...another example of a big trap for the novice trading thinking this is a breakout when in fact it's merely a trap and a false breakout. Price went parabolic after this setup.

...and where did price stall...right at the supply zone edge on the FTB!

Shorted NU at 0.7860

LJ,
Thanks for the explanation.

Shorted GU at 1.5655

Closed the GU trade at 1.5647 for +8 pips and the NU trade at 0.7875 for -15 pips.

I don't like weekend uncertainties. Holding positions over the weekend is a NO for me. Finally ended this week with small but positive gains.

Took some wins on S&P500 and CADJPY longs this morning as per tweets, taking it easy though as struggling with the flu - there have been a ton of setups today (UCAD, UJ, Bund, Dax, CAC40, AJ to name a few).

Will post some charts later.

A mixture of FTB's and FB's today all over the place.

Had a few emails about how to play the USDJPY FTB setup that occurred earlier. (It actually highlights some other common traits in the retail space that is worth going into).

From my perspective there are two ways trade this setup, the first method is to take the setup and manage it on the TF that it occurred on i.e. H1.

In this case the entry would be around 79.15 (i.e. at the lower edge of the SR zone) and the obvious FLS is the 79 SR area - you can't ignore this area it IS the first potential area where price could find demand so we have to decide in advance how we react at this area. This all boils down to to an individual's trade management plan but the important point is acknowledging that it IS the FLS.

What about stop loss - the SL always goes where the setup is most likely invalidated i.e. where a lot more often than not if price moved above would signal that price is very likely to continue to move higher.

It is important to remember that SL placement has such a key role in determining win rate and %R. Of course the most efficient trade management plan will be the one that achieves the best 'balance' between win rate and %R and as the FLS and targets are independent of SL placement, it stands to reason that using the tightest SL possible that preserves win rate will produce the highest long term expectancy and we can achieve this by using our knowledge to place the SL where you can say with good probability that the setup is most likely invalidated.

What I see many people do is use needlessly wide SL's in order to preserve their win rate, all that expense of their %R and thus decreasing their long term expectancy. This is a very important point that is not well understood in the retail space. Efficient trade management is one that will achieve the highest long term expectancy.

But what the majority do is let the emotions take over and use illogical wide stops based on on the fear of taking a loss and thus wanting to preserve their win rate. Win rate as a standalone metric is completely meaningless.

Far too many traders I come across in the retail space trade scared, they lack confidence and struggle to commit to a trade and their trade management strategy is appalling - it's the biggest reason people fail to grasp what can be a relatively easy to understand strategy. A professional trader wakes up and sees the day ahead as an opportunity to make money, the average novice is scared to take a loss and is more concerned with capital preservation than actually making money - this leads to irrational emotional based decisions such as wide stops and getting scared when a trade doesn't move in their direction immediately etc.

Okay back to USDJPY...so where does the SL go, where the setups is most likely invalidated of course. Now here is the key part, where is this. This again is where a lot of people will fall down, why because they haven't done their due diligence and / or don't possess the required price action knowledge to be able to confidently conclude where the setup is likely invalidated.

There is one obvious logical place where this setup is invalidated...the annotated chart below explains where and why. This was the obvious way to trade the FTB, the expected order-flow at the SR was present and price reacted accordingly and moved to the FLS. The SL was placed in a logical location based on where the setup is most likely invalidated and gave circa 1R to the FLS.

What then happened is price moved up above the SR and above where our SL would have been, hit a supply zone and did nothing for a number of hours before moving down to a daily SR. Note that the reason price moved to the daily SR was not because of a reaction at our initial entry SR, this setup and the expected order-flow in the FTB has completely played out - it was price hitting the demand turned supply zone slightly higher that eventually resulted in price moving lower - i.e. a completely separate setup.

Now someone said to me they traded this with an entry @ 79.16 and a SL @ 79.55 based on H1 TF. They based their SL at this level because it seemed the 'safest option' - this goes back to the mindset I mentioned earlier and the eagerness to preserve win rate over expectancy and a lack of knowledge in being able to evaluate how price should move. Holding onto a setup where the initial reasoning has vanished in hope that price will move to your TP is illogical and will significantly damage your long term profitability. They ended up with a BE result as they moved to BE when price hit the FLS @ 79's - so they moved to BE and hoped that price would continue straight down to their TP of 78.80 i.e. because they used an illogical SL which was far too wide they 'needed' to essentially ignore the FLS in and pick a bigger target price in order to create any material value in the trade.

Now the second obvious option in terms of how to trade this setup was with the daily BEOB that formed on Friday in mind. This would mean looking at the H1 for discounted entry and SL in order to take advantage of the expected bearish price action that the BEOB is indicating is coming in the near future.

There are three obvious locations that price could reverse as per the chart below, with the top supply zone also being the top of the BEOB.

The potential options for trading this are:

1. Scale in at each of the 3 locations with a SL above the BEOB high and setting yourself a total risk exposure e.g. 1% at each location.

The problem with this approach is that we don't know exactly which location will hold e.g. price could react at the lowest SR level and not look back, in which case we only have a 1/3 of the exposure we wanted in play.

2. We could wait for the best 'value' location to be hit (i.e. the top supply zone) - obvious problem here is price might not reach this location and we would in effect miss out on the trade due to 'greed'.

3. We could trade just at the lower SR FTB with a SL above the daily BEOB and use daily targets instead of H1 targets.

The third option is what I saw a few people do, entry @ 15's SL @ 53's targeting a move into 85 for a +0.79R win.

There is a 4th option and it is the most logical option but one that I'll rarely see people do. Price could feasibly react at each of those 3 locations i.e. we do not know at which one price will react - we just know (partly because of the daily BEOB) that we are expecting a reaction at one of them.

All 3 of them are separate setups in their own right, so why not treat them as such? So here is how I would trade each setup individually:

1. SR FTB , entry @ 15's, SL @ 30
2. demand turned supply zone - entry @ 29's , SL @ 37's (especially given the close proximity of the TL).
3. Supply zone FTB - entry @ 38, SL @ 52

So what is the outcome of each trade if we exited @ the conservative target of 78.85.

1. +2R
2. +5.5R
3. +3.8R

So in the worse case scenario (trades 1 and 2 being 1R losses) we'd be left with a +1.8R win compared to the +0.79R win with 3rd option detailed above.

So why don't people seem to consider setups like this...common reasons I see are:

1. I don't want to be in an out of the market for the one overall setup.
2. I don't want to take what could be 3 losses in a row.

The first one is just laziness, the mindset you should have is what will achieve the highest profit potential, afterall we would conclude that price reacting at one of these 3 locations (given our daily bias and the individual setups themselves) as very high probability.

The second one is just fear, losses happen, I have consecutive losses all the time and it doesn't bother me, why because I'm trading according to what will bring me the highest expectancy over the medium / long term, not to what will satisfy my emotions - if you are not 100% confident in your trading ability the market will catch you out sooner or later.

Sold NU at 0.7946, SL @ 0.7955

Stopped out at 0.7955 for -11 pips (-22 pips in total).

Nice bulltrap setup on E/J,

Balhana, why .7946? I would have played it at .7938 if I was around, which played itself out on Monday afternoon/evening.

Sold GU at 1.5673

I've closed my sell already, sold cable on a FTB to cluster via a 20m-PB (also QM on the 1m-TF), good luck with your trade