Zhu's Forex Thoughts

An Example: European Session 28 December 2015 Pre-Market Preparation

Pre-Market Checklist
Myself

1. Am I sufficiently hydrated?
   1. Yes.

   
   
   
   

2. Am I fatigued from the night before?
   1. No. Had more than 7 hours of rest in total.

   
   
   
   

3. How should I respond if I am?
   1. Breathing.

   
   
   
   

4. Check previous day journal. What are my trading goals for today? For this month?
   1. Monthly goal: To react positively and constructively to conditions leading up to tilt.
   2. Daily goal: Do proper pre-market preparation and post-trading review.

   
   
   
   

News

1. Check Twitter & EUR/USD news alerts.
   1. No news on the horizon.
   2. Asia markets are doing well -> EUR/USD slight bearish tone.

   
   
   
   

2. Check FF for recent news and upcoming news.
   1. No news on the horizon.

   
   
   
   

3. Form fundamental hypotheses/bias.
   1. Maybe a 1-2% bias towards downside.

   
   
   
   

4. What are some upcoming news and do I want to trade them?
   1. N/A

   
   
   
   

Technical Big Picture

1. Check technicals. What is the 4H trend? What is the 1H trend? What is the 15 min trend?
   1. 4H Trend is up. 1H trend is up. 15 min trend is up (?)

   
   
   
   

2. What are the levels that I should pay attention to?
   1. 1.09646(S) -> Key 4H level/ point of inflection.
   2. VWAP: 1.097(S)
   3. Last week's high: 1.0984(R)
   4. Today's high: 1.09788(R)
   5. 1.10304(R) -> Next 4H key level/point of inflection
   6. 1.09329(S) -> Key 4H level of support
   7. 1.094(S) -> Asia Open/Low
   8. 1.1(R) -> Whole number

   
   
   
   

3. Are there any specific technical patterns or facets that are appearing?
   1. No.

   
   
   
   

4. Form technical hypothesis/bias.
   1. Given the trend-trend-trend-level prognosis, this at least adds 40% to the base rate.
   2. Giving back/trading below VWAP would hugely erode this to maybe about 15-20%

   
   
   
   

5. Check base rate: What is the range of the pair during these hours in the past 60 days?
   1. Assume base rate is 40%.

   
   
   
   

6. Synthesize different point of views into primary trading hypothesis.
   1. There's a 78% chance price will hit 1.1010 in the next 4 hours of trading.

   
   
   
   

7. Mark out position initiating levels.
   1. Daily VWAP
   2. Session VWAP
   3. 1.09646
   4. 1.09593

   
   
   
   

8. Form secondary hypotheses about these levels.
   1. There is a 85% chance price will hit 1.09646 before hitting 1.1010.
   2. There's a 65% chance price will hit 1.09593 before hitting 1.1010.

   
   
   
   

9. Mark out intermediate levels. Form tertiary hypotheses about these levels.
   1. 1.09788: There's a 50% chance price will either consolidate or reverse at/below this level before hitting the next level at 1.0845.
   2. 1.09845: There's a 90% chance price will either consolidate or reverse at/below this level before hitting the next level at 1.100

   
   
   
   

10. Determine how to make adjustments at various levels.
    1. Exit 30% above 1.09788 on supply appearing.
    2. Exit 50% at 1.09845 and above.

    
    
    
    

11. Determine how to adjust for time decay and price movements.
    1. Not really relevant here because price is in a very tight range. If it breaks below the key levels and if the trend changes then many things are nullified.
    2. But generally, rough adjustments can and should be made. i.e. 30 minutes + adverse price movements -> 3%, 5%, 5%, 8%, etc.

    
    
    
    

Trade Ideas

1. Determine lot sizing for the various trade scenarios.
   1. The main trade thesis is a trend-trend-trend-level trade. This is a A+ sort of set-up and deserves at least Tier 4+ sizing. Therefore size of 0.07 lot is appropriate on a 50SGD account.

   
   
   
   

2. Finalise trade ideas.
   1. Long at support above VWAP on 1 minute.
   2. LONG ONLY until 15 minute trend changes.
   3. Long at 1.09646. (Hit out half as level breaks, get back to full on recovery above VWAP and holding.)
   4. Long at 1.09593. (Hit out half as level breaks, get back to full on recovery above VWAP and holding.)
   5. When long, look to cover risk at 1.09788 and 1.09845 and add back risk on ~40% retraces or when appropriate consolidation pattern appears.
   6. If 15 minute trend changes, and price holds below daily VWAP. It becomes a tier 1 scalp environment with downside bias. Look to capture 7-10 pip swings in the market.

   
   
   
   

3. Visualise trade ideas.
   1. Check.

   
   
   
   

4. Review goal.
   1. To react positively to conditions leading up to tilt.
   2. To do proper pre-market preparation and post-trading review.

   
   
   
   

5. Review entry methods and remind myself of fundamental demand and supply rules in the market.
   1. retraceddss
   2. vanilla
   3. falsebreakout
   4. Add on tight consolidations and breakouts with minimal risk.
   5. demand: support + emotional sellers.
   6. supply: resistance + emotional buyers.

   
   
   
   

An Example: European Session 28 December 2015 During Trading thoughts (Update 1)

What is the bias? Am I trying to go long or short today? Or am I scalping?
H+15: There's a 70% chance price will hit 1.1010 in the next 4 hours of trading.
H+30: There's a 40% chance price will hit 1.1010 in the next 4 hours of trading. There's a 55% chance price will hit 1.09329 within the next 4 hours of trading.

Update 2

H+15: There's a 70% chance price will hit 1.1010 in the next 4 hours of trading.
H+30: There's a 40% chance price will hit 1.1010 in the next 4 hours of trading. There's a 55% chance price will hit 1.09329 within the next 4 hours of trading.
H+45: There's a 40% chance price will hit 1.1010 in the next 3 hours of trading. There's a 55% chance price will hit 1.09329 within the next 3 hours of trading.
H+60: There's a 40% chance price will hit 1.1010 in the next 3 hours of trading. There's a 45% chance price will hit 1.09329 within the next 3 hours of trading.
H+75: There's a 43% chance price will hit 1.1010 in the next 3 hours of trading. There's a 40% chance price will hit 1.09329 within the next 3 hours of trading.
H+90: There's a 53% chance price will hit 1.1010 in the next 3 hours of trading. There's a 30% chance price will hit 1.09329 within the next 3 hours of trading.
H+105: There's a 55% chance price will hit 1.1010 in the next 3 hours of trading. There's a 30% chance price will hit 1.09329 within the next 3 hours of trading.
H+120: There's a 50% chance price will hit 1.1010 in the next 2 hours of trading. There's a 28% chance price will hit 1.09329 within the next 2 hours of trading.
H+135: There's a 75% chance price will hit 1.1010 in the next 2 hours of trading. There's a 10% chance price will hit 1.09329 within the next 2 hours of trading.

Update 3

H+150: There's a 70% chance price will hit 1.1010 in the next 2 hours of trading. There's a 13% chance price will hit 1.09329 within the next 2 hours of trading.
H+165: There's a 60% chance price will hit 1.1010 in the next 1 hour of trading. There's a 6% chance price will hit 1.09329 within the next 2 hours of trading.
H+180: There's a 57% chance price will hit 1.1010 in the next 1 hour of trading. There's a 3% chance price will hit 1.09329 within the next 1 hours of trading.
H+195: There's a 40% chance price will hit 1.1010 in the next 45 mins of trading. There's a 2% chance price will hit 1.09329 within the next 45 mins of trading.
H+210: There's a 10% chance price will hit 1.1010 in the next 30 mins of trading. There's a 0% chance price will hit 1.09329 within the next 30 mins of trading.
H+225: There's a 1% chance price will hit 1.1010 in the next 15 mins of trading. There's a 0% chance price will hit 1.09329 within the next 15 mins of trading.

Update 4 (FINAL):

Prognosis:
Price will hit 1.1010 within the trading session. - FALSE
Price will hit 1.09329 within the trading session. - FALSE
Price will hit 1.09646 before hitting 1.1010. - TRUE
Price will hit 1.09593 before hitting 1.1010. - TRUE
1.09788: Price will either consolidate or reverse at/below this level before hitting the next level at 1.0845. - TRUE
1.09845: Price will either consolidate or reverse at/below this level before hitting the next level at 1.100. - TRUE

Trade Reviews:

Trade idea 1: http://www.tradervue.com/shared/trades/4088160
Trade idea 2: http://www.tradervue.com/shared/trades/4088161
Trade idea 3: http://www.tradervue.com/shared/trades/4088162



This pretty much sums up the work I do for each of my trading session. Now all that's left is to document the session's Playbook trade.

Kinda like holding a royal flush?

"I'll make it quick.

Only speculate if you can make it a full time job.

Don't take tips of any kind, no matter where they come from.

Don't worry about catching the tops or bottoms, that's fool's play.

Keep the number of stocks you own to a controllable number. It's hard to herd cats, and it's hard to track a lot of securities.

Take your losses quickly and don't brood about them.

Try to learn from them, but mistakes are as inevitable as death.

And only make a big move, a real big plunge, when the majority of factors are in your favour."

"Kinda like holding a royal flush?" Ed Bradley smiled

"In the market you rarely get a sure thing. The market always keeps you on the edge."

Jesse Livermore

Emotion
Consistency
Belief
.........................
Trading secrets....

intuition?

Holiday Trading

Very interesting set of moves on the EUR/USD this week. Trend plays have not been working well when they should be. Moves are straightforward without much retrace. Wonder if it's due to the low volume/participation.

Methinks this current upmove is trying to go back to the 7x area again and await the new year for a high volume break-out.

This is not what normally happens in these scenarios. 1H and 15 min are in downtrend and there seems to be a clean break on 4H.

But I've learnt from Monday and Tuesday sessions to not expect anything normal this week.

Normally during NY session, price would turn and make a new low. But this week's trading isn't normal by any means.

What's abnormal is seeing 6 green 1 hour bars in a row bring price back to 7x area but I highly suspect that'd be the case.

Royal Flush continued.

Scenario:

If price pressures the 8x area again for a breakout, retraces slightly again, pressures it again, and NFP comes by next week with a news catalyst, that would be a royal flush trade (daily/4H/1H/15min all trend up, key swing high level broken, news catalyst) to the top of the range around 1.17 on the monthly chart for EUR/USD.

If we break it sooner than NFP, then not so much fun but still a great trade!

agree with that. eu is acting somewhat chaotic lately and i can't get into sync with it. i had 2 failing trades with this pair today. au and uc has been good for trend trading so far.

they are all children of one mother - experience and one father - skill.
experience is the wide range of practical knowledge, data. skill is the application of this data in a successful way.

I'm thinking it's just the holiday volume leaving algos to wreck havoc.

The general trading principles still work but any measure of trend is basically useless. lol. As long as you spot a move, get onboard and keep riding it until a major level then wait for it to turn and switch again; works all the time this week.

Profitable trading is as simple as take breakfast.....
Or have a cup of coffee.
We make it like as complicated like brain surgery..
What is your opinion...

Yes. In fact, profitable trading is literally having a cup of coffee while doing something relaxing while your winners continue to win without your interference.

After all, winning trades are big enough to take care of themselves.

Royal flush trade back in spotlight.

If China tanks tomorrow it'll be added catalyst. May see 400 pip day on eur/usd again soon.

When all variables align and point towards a single direction, traders are merely waiting for chart patterns to appear to give them a reason to act in that direction. This makes all trading set-ups work, as long as you are trading them in the direction of least resistance.

There is no price too high to buy or too low to sell. It's all relative.

The more I trade, the more I realise the object of trading is to learn how to spot those conditions and put on as large a size as possible while controlling downside. If we trade to make a living, we have to take all trades that present some edge. This will smooth our equity curve. But the big money, the ones that make our month or year, is made when we bet the farm on those Royal Flush trades.

What are your Royal Flush trades? If you do not know, you will never succeed in this game. Being humans we will definitely make mistakes, and failing to capture the bulk of the reward on our A+ set-ups will leave us doomed to failure. The margin of error is simply too small. On the other hand, you can fuck up so badly on every trade but as long as you capture those A+ set-ups with size, you will end up making money overall.

The reason why most traders lose money is because there simply isn't that many opportunities in the market. The great opportunities are scarce even for intraday traders. Royal flush set-ups come by maybe once or twice month for EUR/USD and that is if I am watching the markets 4 hours everyday. The next tier of trades are more frequent but even then they are RARE. Most traders simply trade too much and fail to discriminate between set-ups. The margin of error is TOO SMALL when you are trading the same size for every set-up you see.

For example, when I see a royal flush set-up, I might want to risk 5 times of my smallest tier size.

Let's say I trade with a 30,000 sgd account (reset at the end of each trading session),

Tier 1: when conditions are mixed, when I am scalping: 6 lots.
Tier 2: When conditions are better, can capture some larger moves: 15 lots
Tier 3: When conditions are good: 30 lots
Tier 4: when conditions are excellent: 45 lots.
Tier 5: When conditions are ROYAL FLUSH: 60 lots.

A scalp trade would be 6 pip risk for maybe 15-20 pip gain: 530$ risk for 1k gain.

A typical royal flush trade could be 6 pip risk for 30-40 pip gain. A 6 pip loss on 60 lots would be around 5.3k risk for 30 pip reward: ~30k gain.

Majority of the days, around 80+% of sessions are Tier 1 - 2.
15% of sessions are Tier 3.
4% of sessions are Tier 4.
1% of sessions are Tier 5.

Kinda seems like the Pareto Principle (80-20) rule at work here eh? No shit. 20% of the sessions should make you more than 80% of the profits.

It sounds damn easy, BUT it is incredibly hard to execute.

Most traders have NO IDEA what are their best set-ups in the market. They haven't even bothered documenting them and learning the variables that go into a good set-up.

Even after one does, conviction is not easy to come by. You can UNDERSTAND that all factors are in your favour BUT can you really put on a trade of such large size and not freak out? Especially when you take a loss. Are you going to go on tilt? Are you going to be able to execute on another trade again when a new opportunity appears? Will you be able to hold the trade when it's showing a large profit?

The market doesn't really give a damn about why you put on a trade. These are reason we give ourselves so that we can stay convicted and focused and stick to our plan. If we do not truly experience taking these trades, we will never be able to do them in real time. Seeing them in historical charts or even demo trading IS NOT ENOUGH.

The big money is to be made in capturing the middle 60% of the move

Really think about how to do this.

Too many traders put on too much size and way too much risk trying to capture the first 20% of the move. This is a huge cause for failure.

On an intraday basis. Price may hit into a support level and start bouncing. It may penetrate the level quite deeply and eventually bounce. It bounces, holds higher, hits a resistance, comes down, makes a higher low, comes to the resistance, makes another slightly higher low, goes above the resistance. Now we have reason to believe the level has held. It moves higher and shows more strength.

That's when we want to start thinking about how to add size. We may have scalped a little on the bounces, but until the move is confirmed, size is unwarranted.

So then you enter with size while managing risk.

Price starts shooting up. DON"T take profit unless you have a reason to do so. Let the chart tell you when it's time to take profit. Price can often travel further than you think. Be prepared to lose the last 20% of the move when price reverses to tell you to exit. But don't end up capturing only 30% of the move because you were hasty to take profits.

Example

yesterday's NFP

The first 3 red crosses are where losing traders will try to go long at only to get wiped.

And this is only an example of a Tier 2 trade. Tier 4/5 trades will not be so choppy...



Later in the session however, there was a tier 4 trade.