High Quality forex trading end-of-day by michal9

I started trading in 2011 and I am still in the business :-)
I invite you to join me on my learning journey towards being a consitently profitable forex trader.

To help me and hopefully others achieve this goal I decided to create a blogwhere I will post my key learnings from top trading books, forums, insights from traders. And here on forex factory I am starting a journal.

I plan to start posting my trades here to aid my discipline to follow my codified trading plan and to get your comments.

I will start in a few weeks, with the strategy description, and then trades.
My plan is take time to trade best setups only, with the right mindset, in line with the well-documented plan, i.e. high quality forex trading.

I plan to trade two strategies. One is inspired by james16 and the other one, based on Supply and Demand concept, inspired by Sam Seiden, Kenneth Lee, Alfonso Moreno, thomaas and others. I wanted to thank you to these people.

I have a full time corporate job, which I do not plan to quit ;-), so I trade in the evenings of CET timezone. I look at the markets once per day.

I will trade D1 bars end-of-day (for james16 - inspired price action strategy) and for Suppy & Demand I will use "set & forget" limit orders, with SL and TP, based on levels on a H1 timeframe.

More to come and you are very welcome to comment or subscribe.
Thanks and please wish me luck in sharing here something valuable for others! Let's see where this goes.

Edit March 2nd, 2014:
The demo testing period ended profitably on Feb 15th, 2014, and I moved to micro live account and here is the link to My Fx Book of the live account as of mid Feb. Next planned checkpoint is on May 15th, i.e. after 3 months.

Edit May 18th, 2014:
After trading the SDH1 system live for 3 months, with quality, end-of-day, the result is 2% loss. I put the system on hold. Here is the summary.

will follow with interest!

Looking forward with deep interest.

Thanks 4xplosion and aje6767 for encouraging comments.

OK, the work continues. I am working on a strategy description and charts collection. I call it a 'setups catalogue', it will be my own list of occurences of the setup, on historical charts, prepared to learn the system really well, to help my brain remember how the good setup looks like, both logically and intuitively. I will start with Supply & Demand H1 strategy becasue it offers more trading opportunities, while still enables a trading end-of-day. Will share when ready.

In the meantime, I wrote down my Top Trading Rules, rules that I found to be consistently presented in 50+ trading books, and stated hundreds of times by exprienced traders. I posted them here as the list is quite long. Experiened traders will find no innovation there, but I invite everyone to have a look.

Things like manage you risk, use stop loss, treat it like a business, follow your trading plan, journal your trades, have the right mindset, etc, etc.
I saw value in putting this all together, as rules that I am going to follow. I am also OK to adjust the list based on your comments.

I will be back ;-) On my blog, always no ads, no selling, no affiliate, pure free learning, there is also my list of top trading books you may want to check out. Thanks!

My Supply & Demand trading system using H1 charts and traded end of day - part 1
I call this SDH1 system, one of two systems I trade.

Disclaimer: you will see no big innovation or "magic formula" here.

I present a system that I believe is solid, offers a trading edge, and can carve profits if executed with quality.
It is all about "high quality forex trading", as my blog is titled.

Credits
I developed this system based on the following resources, here I'd like to give credit and say thank you to people who shared their knowledge and materials for free:

Sam Seiden from Online Trading Academy. He is featured on fx street education here.
His very good webinar on Supply and Demand here.

Kenneth Lee member of forex factory.
His thread with free supply & demand ebook with tens of charts examples (exactly how trading courses and system descriptions should be), here on his thread.

Alfonso Moreno member of forex factory.
His thread on supply & demand set & forget trading, which was an inspiration for my method for trading end-of-day as I have a full time job, can be found here.

There are many others who directly or indirectly contributed to my trading system development, including Mike and others from james16 thread and others. Thank you.


SDH1 Trading System

First, let me clarify what I mean by a 'trading system'. I could also call it a trading method, or approach, or strategy, or "my way". It is not a mechanical algorithmic system. It is a system (method) that requires discretion and flexibility. I will continue calling it a "system".

The flexibility is primarily with an assessment whether or not to trade the setup.
The hard-coded non-discretionary elements of my system include initial stop loss placement, position sizing method, entry method (order type), entry setup (what triggers the order entry and order fill).

System foundation
I am using the Supply & Demand zones. These are places where there was a supply vs. demand imbalance, which we see on chart by the price moving away fast and far from the level, after a brief consolidation. (I will not repeat others who explained it very well, please refer to links in the credits section)

I trade after hours, EOD (end-of-day) only. I spend 1-2 hours on forex between 20.00 and 23.00 CET (Central European Time, i.e. 6 hours later than U.S. EST, a NY close at 6 pm local time is my midnight). This EOD-only approach, and an aspiration to become consistently profitable trader trading EOD only, is something different in most other threads I have seen on Supply & Demand.

I identify supply and demand zones on D1 chart and on H1 chart. Please refer to Supply & Demand materials to learn more on how to do this. I plan to provide chart examples, too.

I trade forex majors. About top 10 pairs.

Risk management principles. I always set a hard stop loss order at a broker. Stop loss distance is driven by the setup chart structure (more on that later).
Position size is driven by how much money I am willing to lose on this trade (about 1% of my trading account).
I never move the stop loss against my position. I never average, i.e. never add to a losing trade. I never hedge my positions. m not saying these things are bad. I know people claim to be successful using them. But I choose not to.

Two trades were triggerd and closed today.

One loser GBPUSD and one winner EURAUD. Winners are two times bigger than losers in this system.

I am still working on a 'part 2' system description, but felt like sharing today's trades already now.

I will be posting both winners and losers and I intend to post all trades and I will post charts as I actually traded them, not how I theoretically could.

Disclaimer: the trades shared today are from a demo account. I am trading D1 price action live and for H1 SD zones trading I am still in a phase of demo trading untill I am profitable for 3 consecutive months, as described by james16 minimum requirements. I am in a month 2 with good profits so far.

Note, the orders I placed yesterday around 22 pm CET, they got filled today during the day (I was not looking at the market), and they got closed (at either predefined SL or TP) also today.

I know the description so far and two charts are not making it all clear yet, but please treat this as just a a pre-view :-) More to come!

One losing trade closed today, EURGBP.

The orange arrow shows the entry and exit point. It was a limit order at a low of the zone, and a stop loss just above the zone.
Zone was market previously, grey box. Was it a high quality trade? I'd grade it B. There was another zone above, and it looked like it worked.

Yesterday I was also thinking about setting a EURJPY short order; this one would have been a winner already, but I did not place it (Murphy's law ;-)
I did not place it becasue to get a 2R profit, I needed the price to test exactly last low, while I prefer to have more "buffer".

I accept losing traders as a normal cost of doing business. I almost "do not care" about single trade result. I care a lot about the result of the last 20 or more trade trades. I will also become concerned if I have a streak of 5-7 losing trades. In such case I will perform a thorough review of my trading journal.

This is a part 2 of my Supply & Demand trading system on H1 charts traded End Of Day - part 2
In part 1 I covered foundation: way of chart analysis, approach to markets, what markets I trade, risk management rules.

In this part I share specifics to offer a complete trading system: entry setup (what exactly needs to be printed on chart for me to enter my orders), entry method (order type and placement), initial stop loss, way to manage the trade, and other considerations such as news, higher timeframes, confluence with other factors, etc.)

Entry setup
Supply or demand zone is the setup I want to see on the chart to consider placing orders.
I draw SD zones on H1 chart. I need a 'fresh' zone, i.e. level not yet tested (I will clarify in future posts).

How I draw the zones:
For Supply zone, I use the highest high of the consolidation bars and the open of the last bullish candle, typically the one that was engulfed by a bearish candle on a way down.

For Demand zone, the low of the zone is the lowest low of the consolidation and the zone high is the open of the engulfed bearish candle. Please refer to free materials referenced in the credits section of part 1 for more.

I use discretion in the way I draw zones. Sometimes I will use high or low instead of the open of engulfed candle. This will become clear as I will share more charts.
I mark the zone if there was a brief consolidation and then a fast and significant move in one direction.

Entry method and stop loss placement
I use limit orders to enter. I place orders in the evening, before midnight in CET timezone.

If I trade a supply zone, I place a sell limit order just below the low of the supply zone. "just below" means a couple of pips, it is discretionary. My stop loss is a few pips above the high of the zone.

If I trade a demand zone, I place a buy limit order just above the high of the demand zone. My stop loss is a few pips below the low of the zone.


Continued in part 3....

Subcribed as I am also interested in EOD trading with pending orders because of my time zone (PST) and full time job. Good Luck.

...this is a part 3 of my Supply & Demand trading system on H1 charts traded End Of Day system description - part 3

Trade management and take profit placement

I use set & forget trade management. There is no 'active' trade management. Once the trade is triggered (i.e. my order is filled), I do not touch the trade. I will be closed either at SL or TP level.


TP level is roughly at 2 times the SL distance, e.g. if SL is 20 pips, then the TP will be 40 pips. ( I know many people believe this is not logical because the market does not 'know' what is my R and TP level should be in a logical place based on market structure not my SL, but this method works for me and usually TP level derived like this happens to be in a quite a logical place) (I know many believe we should 'let the profits run' and trail the stop, but this method works for me because I have the result fast, it is SIMPLE, and if the market gives me 2R, I take it )

Deleting unfilled orders. If the market goes really far away from my limit entry and there is another level tht justfies placing a trade (a new setup), then I will delete unfilled order (e.g. a buy limit at a demand zone below) and place a new order (e.g. a buy limit at a new demand zone above the previously used).


Other considerations and conditions

News. I ignore the news. News have no impact on my trading decisions. I read the news because I am curious, but I do not use news for decisions. (I know many advise to refrain from trading before high impact news. It seems that for me and for this method, it is OK to have orders in place even before big news. Often the news will trigger the move that will fill our pending order )


Higher timeframes. I look at D1 bars and D1 supply and demand zones (I mark them red and green on charts, while the H1 zones I mark grey). I do not trade long just below daily supply. I do not trade short just above daily demand. I like trading long right above daily demand. I like trading short right below daily supply (but I still trade H1 levels).


Confluence. Things sometimes I look at include: fibo retracement, support / resistance, previous levels. I trade fresh levels only (i.e. not tested, nothing on the right on the chart after the zone). I also look at trends (but this method is essentially counter trend at a lower timeframe, however I will avoid trades that are evidently counter-trend on a higher timeframe).


Other criteria. My planned TP level at 2R (2 times SL distance from entry) should not be beyond next demand/suppy or S/R, e.g. if I go long, and my planned TP level is at or above a supply level, I do not take the trade. In other words, I do not want my trade to need to break through a "trouble area" such as another SD or S/R level.


Best setups only. The essence of high quality trading. I intend to trade best setups only. More on that soon, with examples of best and not best setups.


Weekend. SDH1 positions usually get closed, at SL or TP, within 1 or 2 days. But what if it is Friday and I have the trade still open? I have no set rule here. If it is at almost SL, I may close it manually, because with weekend spread widening, chances are it will anyway be stopped out. And I do not want to risk a gap opening against my position. If it is very close to a TP, I can also close it and move SL to break even or to 1R TP level. If it is around 1R, I move SL to BE or close.


Time stop. In general you can consider using a time stop for the setup. In SD H1 system, the price "should" do what we expect within a day or two. If instead, the price is consolidating between your SL and TP... looks like our setup is not valid anymore, so it is a good idea to be disciplined to close it manually vs. hoping or gambling it would reach a TP. Of course, sometimes it will happen that we closed a position at a small loss while, had we waited, it would be a winner.


Exotic currency pairs. For H1 system the spread is a significant cost. I stick to top 10 majors. For D1 systems, where spread is less important , you can look for more trading opportunities among pairs like CADCHF or NOK/SEK, but spreads will be higher and remember often the pairs are correlated.


Correlated pairs. This is a risk management issue in fact. USDJPY and EURJPY are highly positively correlated. There are many other combinations. If you open a position on both pairs, should it reach SL, likely both will hit SL, so you are doubling your risk. My reco: avoid correlated pairs, trade just one where the setup looks to be higher quality. Alternatively, you can trade half the position on both pairs (because if you choose one, often you "would have" a winner on the one you did not trade while no fill or even a loss on the one you traded... again, cost of doing business... better accept than get frustrated... and always take best setups only.


High quality trade. Take high quality trades only. Trades where the trading plan criteria are really met. With the right position size, SL placement, TP placement. After each trade, do the quality assessment. This is independent from a monetary outcome. You can have a poor quality winning trade and high quality losing trade. Whether it is a loss or win, it is almost "random", whether at this instance of our trading edge it paid or not. Whether it is a quality trade, is a reflection of our decisions. So, review each trade in the journal and grade its quality. Review, especially poor quality ones and think how to eliminate them (i.e. do not over trade).

Summary

This describes a complete trading system I use: entry, setup, risk management rules, stop placement and position sizing, and other considerations.


In the future posts I will cover some other important factors such as trading journal, tools used, logistics, effective mindset and beliefs, etc. For complete understanding of the method please also refer to Sam Seiden video referred to in part 1.



Happy to take your questions or comments. Feel free to share with your friends.

Check out the my blog post on high quality Trading End-of-Day... why, benefits, constraints and how I manage them.

What's next?

I am still working on a "setups catalogue", a document with historical instances of my SDH1 system setups, I will post it here when ready. It will show some idealized setups for learning purposes, and also setups that did not pay but were still a high quality trades.

I placed a couple of orders today, I will post them once closed, whether they are losers or winners, or deleted unfilled. I don't care. I care about net outcome of the last 20 trades.

Have a good week!

One losing trade today. GBPUSD long. Stopped out. That's Ok.
I traded half the position becasue I also had a EURUSD order opened, on a correlated pair, it did not get filled.
Learning and post trade analysis... was it a valid setup? My initial assessment is yes, although not A+ quality, and I will do one more review in a few weeks.

Losing trades are OK part of doing this business. I will get concerned if I have 7+ losers in a row OR net negative total results of last 20 trades. In such case I will stop trading this method, do the quality review, improve and restart.

How to read the chart... the orange line shows entry and exit place. It is within one bar, this bearish marubozu candle. You also see a previous losing trade there. Profitable trades are in green ;-)

Losing trade today on EURJPY. That's OK.
It looked like a OK trade to take, although I will review it once again to asses. Before the trade the daily demand was taken, so this justified a short trade. The zone was there, with a fast departure, alrhough it was Drop Base Drop (while Rally Base Drop is stronger).

Let's see the outcome of the next 16 trades (4 done, I am going for 20 total to assess how I am doing with this method), like in the "trading in the zone" book exercise.

Two more losers on AUSUSD long trades. That's OK.

Frustrating of course, especially that, just before I started the journal I took more than 20 trades following exactly this method, and I turned 10k demo dollars into 13k using a stop loss and equal dollar amount per trade position size model (so it was not a luck from one trade), and the worst losing streak was three. Now I started a journal and have four losses.

Well, I am learning and definitely still in the business, and far from giving up or changing the system because I had a couple of losses.

I'd better take the next trade a high quality trade and not a revenge trade!
That's my comittment. And I will post it here. Let's see.

Again, I will do twenty trades this method no matter what. If end result is poor, I will very carefully analyze each trade from the journal, find what to improve, and restart.

A losing trade today, EURUSD long.
I traded the demand zone, marked grey box, with limit order a bit above the box, stop loss below the box, take profit was at 2 times the SL distance.
TP was missed by 10 pips or so. My exit method is "set & forget" so I did not touch the trade.

No closed trades today. A couple of open orders in place. One limit entry was missed by 1 pip and now the price is a few pips below a planned take profit.
I will be back once any trade is closed. The exercise continues. Stay with me ;-)

One winning trade today, USDJPY short.
This was a 2R winner, so it "erased" last two losses.

I am happy to see a losing streak broken ;-)
Obviously I am aware next number of trades can be losers, too. That's OK. I have a plan for either way. I take time.


Performance so far is 20% up on the account, 6% drawdown, since Nov'13, after 45 executed trades, equal approx risk per trade ~ $250 demo dollars.
I added myfxbook, and below is the analysis screenshot.

To avoid any doubts, again, let me state this is a DEMO account for now. I also have a signifincant experience of trading live, but...

I am new to this SDH1 system that I designed, and I am forward testing it and learning it now, which is a purpose of this journal.
If I am profitable at a checkpoint I have set (Feb 15th or 20-40 trades since this journal started, whichever comes later), I will move to live micro account.

I will welcome any comments. I hope you can also find some value in posts on my blog, the link is in the first post and here. I recently posted about End-of-Day trading and on Trading Journal.

I am perfectly aware that results of the trades posted in this journal are not impressive (yet ;-). That's OK, it is a learning path. I am happy I do follow my system and rules and plan so far.

One winner and three losers today.
My error: correlated orders on EUR pairs.
One winner was 2R, so today net result is minus 1R.

I realized I also missed two setups which would-be-winners today.
And one of my order missed its entry by a few pips, would be a winner, too.

Ok, moving on. I will review the trades on weekend, to get some insights on what to improve.

No closed trades today.

One trade is open and almost at TP level. I will post it once closed, one way or another, it may still reverse to a stop.

Two other trades - believe it or not - missed the entry by 2 pips today and both would be winners already! (2R each would be)
That's OK, it happens.

Will I now start placing my limit orders closer to the market? No, I will stick to the system.
If, as a result of the review which I will do after Feb 15th, I see I should adjust, then I will.

One loser and one winner today.
EURAUD loss, EURCAD winner.

Winners are 2R in my system, so this is a net plus day, however, unfortunately, loser was 250 and winnder just 318. Why? likely position was smaller becasue a bigger one, with a stop placement defined by the system, would be too big.

One open trade, seven pending limit orders, 18 more days till Feb 15th, 2014 checkpoint.
Performance to date +19%, drawdown -6%, 51 trades since Nov'13.