Key Concepts to Correct Trading Behavior - by FibStalker

Welcome to the "Key Concepts to Correct Trading Behavior" Thread

I am fibstalker, and you may have seen one of my posts on FF (especially on the EUR/USD-related threads). I welcome you to my thread and I am pleased to meet you.

This is the first post of this thread and it is structured as follows:
- INTRODUCTION & OBJECTIVES
- TRADING SUCCESS IN MODERN MARKETS
- RULES OF THE THREAD

In every thread I will anticipate what I will publish next and this is usually discussed at the end of the thread post (it's a bit like that famous series 'the world round-trip in 80 days', where the main character would know in one episode what material and tools they needed in the next one... ).
Let's get started... hope you enjoy the journey.


INTRODUCTION & OBJECTIVES

I created this thread to publish on the key principles and concepts that, in my personal view and experience in trading (since 2001), can back a correct trading behavior. My hope is that a healthy discussion can spring up from what I write and from your own thinking and answers, so that we can all learn something.

I can guarantee you that what I will write will be though-provoking. Some of the views will not be accepted by the majority and this is what, in my idea, will make the content of this thread very interesting. I think that - when dealing with markets - the fact that the majority does not accept an idea is always an important warning sign. Yes, when that happens it means you are on the right path in your search...

As you will learn, I also write a bilingual blog which I called "Elite 5". Why that name? Well, I believe up to 5% of traders and market players are ever right and make consistently money out of the markets. The remaining 95% of participants or more keep losing money or staying at break-even. So, now you see it, is the majority right? The majority is not, and when the majority opposes and idea, you have to take the 'other side of the trade' so to speak.

I will be sharing the main principles I use everyday in my trading since now a few years and those concepts will generate controversy and, potentially harsh discussions. I think having opposing ideas is good because that generates healthy thinking, discussions and, eventually, growth. Provided you are able to put your ego aside (when needed, not always) and able to listen and, most importantly, to show integrity, intellectual honesty and respect for others, controversy can and will be handled positively. I will make every sensitive, intellectual effort to consider your views, when they are different from mine. I will use respect at all times and when I will not be able to reconcile your views with mine I will tell you and there will be a known difference. That's it. I ask you to do the same.

My content posts and interventions will not be improvised but will be extracted from the research work I do on my blog, the feedback of traders I talk to and, mainly, from my first e-Book that I am going to distribute freely on my blog starting from next week. That book is called: "Key Concepts to Correct Trading Behavior - A guide to relevant concepts for trading success in a market governed by High Frequency Trading (HFT) and Program Trading" (find more info here: http://elitefive.wordpress.com/2012/...behavior-ebook)


TRADING SUCCESS IN MODERN MARKETS

The subtitle of the eBook makes reference to High Frequency Trading (HFT) and Program Trading. These are two classes of modern Algorithmic Trading (AT) that has an overwhelming presence is today's markets. While HFT can hardly be relevant for retail traders (like us!) because it's too fast to allow a reaction (so I suggest you don't even try to trade during BCE or FED days, unless you know what you are doing), Program Trading is a more silent, less visible but very powerful class of automated trading. It is very important to know what Program Trading is doing on different timeframes as I will try to explain in the posts of this thread.

Relatively few people care about the right trading behavior that we all should carefully study and adopt, in a world where 30% to 75% of trading volume is generated by High Frequency Trading (HFT), and probably even more if we consider the totality of Algorithmic Trading (AT) techniques and systems. Not caring is always a mistake. Learning price behavior and the price structure induced by Program Trading, for instance, can be very beneficial to our trading.

It is definitely beneficial to me as my trading edge is based on observing the effects of Program Trading, and in that way I can generate trading plans that have clear entry, stop and targets levels, and have a very limited risk. The main reason for this is that the entry levels I target usually show strong participation by professional traders and Program Trading. So you will often see price reacting from such levels (and you can find the proof in several of my posts on FF), and this also allows advanced risk/money management strategies, like the so called 'free trades'.

And it is not our job as traders that of managing risk? Generally my trading plans are created in a way that when stops are hit I know that the trend (in the weekly, daily and/or 4-hour charts) has failed and it is about to change. Interwining such behavior and price explanation on different timeframes, on which several program trading algorithms work together - often trading one against the other - you can get closer to a better explanation of price structure and as of the why price very often 'reacts' in unexpected ways. More about this in this thread.


RULES OF THE THREAD

We all have different views about what price move means on different timeframes, how trading should be done, what the market should or will do next. What I ask you is to express those views and share our knowledge in truly mature and respectful way. It is up to us all what will happen with this place and the potential help that other people could get if we call work to not alienate them – please remember that before you post your comment.

I will not be there with my button ready to take people to the door. I start from the belief that the majority of us will know when a behavior is too extreme and when enough is enough. Please be mature and respectful and I suggest you follow the rules hereunder:

 

1. Respect other members, their trading style and market views.
2. If you have a problem with somebody or strongly disagree – private message him/her about it, don't bring your personal divergence to us all.
3. Post only comments about trading and thread-related topics
4. If you publish your calls and/or make comments on others' charts do it with a reasoning behind it.
5. Fights between members are forbidden.

We all are creating this thread and it is ours. Anybody can participate. New (and low vouched) traders are very welcome as they are those who can learn the most from this thread, and maybe get a start with the right foot. But I believe also seasoned traders will find highly provoking thoughts having the potential to initiate an important mind shift, deeply connected to a significant change to their approach or trading results. This is what almost invariably everyone is looking for, and my wish is that you can find it here.

Participate to this thread with an open mind and always asking "if that was the truth?". Fight the information that will be disclosed and, maybe, you may lose an important opportunity to grow, at least a bit, your trading experience. It's up to you to choose and make your own future. I hope you are among those who will benefit from reading and participating this thread.

Please private message me if you have any ideas, suggestions or questions related to the thread.

In the next posts I will talk about:

THREAD ORGANIZATION and

EDUCATION FOR NEW AND INEXPERIENCED TRADERS

Thank you
Good luck to you all.

Giuseppe Basile (-fibstalker)

Great read Giuseppe.. Look forward to following your very informed comments on the FX market.. Best Dan

hi Fibs.
interesting topic. subscribed and will follow the continuation.

Regards

@danc and @frz thanks for your interest and support.
I will resume posting by the end of the week as I will explain the in following post.

Thank you
Chat to you soon
-fibstalker

Dear all,
thanks for stopping by and reading the intro to the new thread. I hope I can make it work for you and we can all learn something.

I will resume posting by the end of the week. Reason is that I am going to present at the IT Forum in Rimini (Italy). This is the largest Investment & Trading Forum in Italy and major banks, institutions and trading/investing associations will be present.
Unfortunately the information is in Italian language only (apologize for that) and you can have a quick look here: http://www.itforum.it

I will be presenting for SIAT (Italian Society of Technical Analysis, http://www.siat.org) of which I am a member. For those who are curious SIAT is the local Italian chapter of the larger IFTA (International Federation of Technical Analysts, http://www.ifta.org). This organization has chapters in most of the countries in the world.

I will be presenting a work titled: "Innovative trading methods based on price structure in modern markets governed by Program Trading and High Frequency Trading (HFT)". Does that reminds you of something? Yes of course, the setup is the same that inspired this thread.

Hereunder you will find some information regarding the event.If you are in Italy on Friday you are invited. The event is free of charge.

Notably there will be John Bollinger at the event. Now I am not a fan of TA but you don't invent the Bollinger Bands indicator every other day. So I consider having my name close to his (due to alphabetical reason) an achievement by itself and I will try to steal a picture and publish it here.

 

1. Investment & Trading Forum di Rimini, 23 e 24 Maggio 2013 (link to event web-site)
2. Relatori presenti all’IT Forum di Rimini, sara’ presente anche John Bollinger (people presenting at the event, John Bollinger will also be there)
3. Descrizione del mio intervento: 24 Maggio 2013, ore 12:45-13:45, Sala della Vecchia Peschiera, Palacongressi Rimini (my intervention - description is in Italian, sorry)
4. Breve biografia del relatore (a brief biography in Italian, but can find a brief video in english here: http://elitefive.wordpress.com/bio-giuseppe-basile)

Thank you for your patience.
Have a great day.

Cheers
-fibstalker

PS: should I produce a video on EUR/USD or S&P500 e-mini (which is currently at a very interesting spot, as I may show) I will definitely share it here as well.

Sounds GREAT.. F..S

Hello all,
this is an up to date view of the S&P500. I think we are close to a reversal. But that does not mean the bulls has ended.

Let me show you my perspective. The setup long showing participation at 1530 in mid of April (see picture below) hit the first target in the 1623 area and then the 1671 second target. I don't anticipate higher prices straight away now and the S&P500 could see profit taking. Price could stretch as high as 1677 area before we see a move lower. The reason for the 1677 level is explained on the video in my blog.



These are the scenarios I could anticipate for the S&P500 going forward:

Scenario 1. Price corrects into the next support and long setup at the 1632 area (with a stop below 1622) and then continue higher into previous highs at 1670s or even continue into the first and second targets respectively at 1689 and 1719.

Scenario 2a. If participation on the long side does not show up at around the 1632 area and price dips below 1620, we could witness a swift move lower into the next area of support where Program Trading will pick up price. That is down at the 1454 area.

Scenario 2b. We could still see a bounce at the 1632 area and then current highs retested and then a swift move lower. The trigger, again, will be price piercing below the 1620 level.

You can find a better explanation of these scenarios in my last blog's post: http://elitefive.wordpress.com/2013/...lish-language/

Please let me have your ideas and suggestions.
Thank you

-fibstalker

fibs good luck at this presentation, have that Bollinger guy all drunk and get him to tell you how exactly does he trade his indicator, post here later (just kidding, present well bro)

Ah ah ah Sypher you made me laugh a lot. I will try to make it. There is going to be a social dinner tomorrow evening (Thursday) and I will put the exact question onto him if the guy enjoys jokes (but will ask that with a serious face too)...

Thanks Sypher, it will be fun anyway. Presenting, talking to colleagues and, hopefully, to the Big Bollinger... :-D

Will keep you informed and publish what I get...

Cheers
G.

Thanks for sharing! I used to trade this similar method on the ES but I had trouble determining which retracement is for trading or for confirmation. I look forward to learning more from you!

QQQ.. Day.. price pivot cluster at hi..reverse candle at hi..CCI..diverg.. similar on week and mth..in agreeance with F..S.. call..??

Hello all,
back from Rimini, awesome experience, but no picture with J. Bollinger. Apologize for that. I was getting interviewed by www.ilsole24ore.it when he was in the press room.

@biDc: Measured Moves are iffy with ES, but still practicable, at least on the daily chart.

@danc: yes, QQQ has a similar setup.



Plan: support in the 72.60-80 area with a stop below 72. Targets at 76 (1st target for a R/R=4) and 77.50 (2nd target for a R/R=5.8)

Have a great eve.
Good night!

Hello all,
this is to let you know that I have finally published my free eBook, as promised.
You can download it from my blog: http://elitefive.wordpress.com (left side on the home page, click on the book cover).

When you register to download the eBook, you will NOT be added to the newsletter/mailing list. For that you will need to subscribe the Newsletter.

Hope you enjoy the eBook and the discussion that will follow on this thread.

Ciao
-fibstalker

Thanks for announcing the thread , it loos interesting so far ... good luck with the presentation & i'm subscribing to it !

Vachus, Danc, biDC, SypherBG, welcome to the thread. I hope this will be interesting and useful.

Vachus, the presentation went well (it was last Friday) and there was a lot of interest. I also got interviewed by ilSole24ore, the major financial newspaper in Italy and I have got a mention this morning: http://www.ilsole24ore.com/art/notiz...?uuid=AbQjyUzH (apologize, article in Italian language).

Chat to you later
-fibstalker

No problem , Google page web translator is there ...

Hello all,
before starting with the new post related to the ORGANIZATION, here is a link to my latest review of the Euro-dollar. In the video (hosted on my blog) I review the Euro from the weekly chart, down to the daily and 4-hour chart.

Euro in a box trade so far, between 1.2910 and 1.3240, with a potential to re-test the 1.3020 area during the week.

As usual, let me know what you think: http://wp.me/p2oF7p-D3

Thanks.
-fibstalker

Hello all,
in this post I am going to tell a bit about this THREAD's ORGANIZATION and what I can recommend for the EDUCATION FOR NEW AND INEXPERIENCED TRADERS, based on my own experience.

First of all THREAD ORGANIZATION: simple. I will keep posting portions of my eBook on this thread and my reflections at the end of it, hoping to provoke a discussion. They key concepts discussed are the following:
- The Bandwagon Theory (the psychology of the markets)
- The Psychology of Trading: the Bandwagon Theory illustrated
- The Danger of Asking “Why?”
- Facts and “Truth” Do Not Make Money
- Professionals Trade People’s Psychology and Not the Markets


As per the EDUCATION FOR NEW AND INEXPERIENCED trader I make one paramount recommendation: try to limit the "UN-learning" you will need to make in the future. Why? Because what excites you today, i.e. the beauty and mechanics of indicators derived by price, the variety of Technical Analysis tools and that looming idea of "solving the markets" with your own means, more often than not only leads to problems (ask me why? ).

How can that be? With time and experience you will ultimately discover that Technical Analysis is fallacious (by the way I suggest you also read the 'Technical Analysis Fallacy' thread on FF). It works only because you are using it consistently with a strong discipline and strict money management. As a result you will start to "unlearn" a lot of TA tools and will dedicate more and more time to Psychology and Money/Risk Management.
Why not start with the right foot then?

This thread will help you with your Psychology and you will not see any traditional TA on the charts and analysis I am going to share. Not even simple stuff like trendlines or price action. You will only see price structure and support/resistance always with a clear trading plan (meaning entry, stop, exits and well defined R/R). If you haven't specialized in any TA tools just yet, you have an advantage on 90% of the other traders. Don't throw your advantage away. Make this advantage part of your edge in this competitive endeavor. What should you do? Find a valid mentor who can make money and can teach you price structure and learn how the market moves, versus trying to understand how badly TA models price.

If you take the other path, that of the majority, you will study a lot, try everything only to discover that you don't need the majority of what you have learned. The annoying thing is that it takes maybe more time to unlearn than what you need to learn a valid approach to the markets.

There is also another very important reason why you should not approach the markets with traditional TA: its tools often come too late or give misleading and wrong entries and exits. Why? Because such exit/entry points do not take into account price structure. And these days price structure is enforce by program trading on all timeframes (on highly traded instruments). In another thread in the future I will show how common TA tools and price patterns (i.e. triangles) can be debunked using price structure, but this is another story.

I think this is enough as a thought provoker, for now.

Chat to you later
-fibstalker

Hi fibstalker,


that is what I concluded so far and I agree 100%. There are/was many good traders in FF. What one can observe they are not right every time, however they have very good management risk and stick mostly to simple things. I personally favor PA (with momentum bars and S/R levels), timing and fibs. You have to learn what session times are and don't force your analysis through different sessions. Don't force does not mean it will not happen. You have to be just careful with that.
What is more important it all takes time, you cannot jump in with few months of experience. Studies need time and even the best posts will not make you expert in a year.

Hello tpsl.zero, welcome to the thread and thanks for sharing.

I think PA can be a very good tool, still can come late when compared to other tools. This does not mean it can't be used to make money. Provided money/risk management and the right psychology is put in place. Think of pin bars for example. They often come off a resistance/support area which can sometimes be anticipated with price structure.

Agree you should not jump with few months of experience. Not sure if it was a general statement or directed to the writer. Just to avoid misunderstandings I subscribed FF recently but trade since 2001. I have still things to learn though but happy with my analysis/trading.

Thanks and I hope you will stop by and have other comments to the thread.
Have a great eve.

-fibstalker