Hello fellow traders, welcome to my trading journal.
I'll be posting my trades here so I (we) can learn from mistakes I have made. I lack consistency and discipline, so I thought why not try journaling all my trades here, maybe my mistakes will become more obvious. You're all welcome to comment and post your own trade ideas.
Some general rules of trading system I follow:
After a price breakout I look for:
Relative Strength Index RSI(14)
When RSI tags 70 or higher I have confirmed existence of an uptrend (impulse wave(s)),
IF then RSI in correction holds above 40 and turns up, I have possible confirmation of the end of corrective wave(s).
When RSI tags 30 or lower I have confirmed existence of downtrend (impulse wave(s)),
IF then RSI in correction holds below 60 and turns down, I have possible confirmation of the end of corrective wave(s).
I also pay attention to divergences between PA and RSI when RSI is in oversold (30) or overbought (70) territory. I can lead to meaningful correction or even reversal.
Fibonacci retracements and extensions
After you have confirmed trend (70 - uptrend, 30 - downtrend) and price action (PA) has established price bottom, I apply Fibonacci retracement levels then wait for PA retracement to 38.2 %, 50 %, 61.8 % or 78.6 % to enter a trade (50 and 61.8 % are my favorite levels of retracements. I only take trades at 38.2 % retracement if trend is VERY strong). Usually set stop loss above 78.6 % or 100 % retracement level.
Identifying which retracement level if any will hold is the most tricky part of Fibonacci trading. When you see trend line, support/resistance, 50, 100 or 200 simple moving average in proximity of Fibonacci level, there is good chance that level will hold (I usually wait for short consolidation around Fibonacci level or some candlestick reversal pattern at Fibonacci level before I take a trade).
After establishing legit entry point you have to establish possible take profit point(s), here Fibonacci extensions come into play:
If PA reverses at 38.2 % retracement there is good chance price will reach 138.2 % extension.
If PA reverses at 50 % or 61.8 % retracement there is good chance price will reach 161.8 % extension.
If PA reverses at 78.6 % retracement there is good chance price will test price top/bottom (0 %) again or reach 118.1 % extension.
Fibonacci extensions are only general guides where PA could consolidate or reverse. I also pay attention to resistance/support levels, 50, 100, 200 simple moving averages, round numbers and existing price patterns on the way.
Moving averages
Moving averages are very important trend verification indicators. They also tend to work as support/resistance, so we have to pay attention how PA behaves when it touches them (bouncing off or breaking through). I use 21 exponential moving average (EMA), 50, 100 and 200 simple moving averages (SMA).
I usually take only short trades when price is under 200 SMA, and long trades when price is over 200 SMA. PA corrections tend to find resistance near 21 EMA and 50 SMA in strong trends. If 50 SMA is broken, you could be looking at more meaningful correction or even reversal if PA breaks above/under 200 SMA.
The best trading setups are usually when PA enters a trend then retraces 50 or 61.8 % percent and you have a cluster of 50, 100 and 200 SMA behind these Fibonacci retracements.
Multiple time frames
I use daily chart and weekly chart to define longer term trends/consolidation ranges and take trades on 4-hour chart (I also look 1-hour chart for fine tuning entry point) only in agreement with higher TF.
Speculative Sentiment Index (SSI)
In addition to Fibonacci and RSI I follow long-short ratios graph to trade counter the crowds. Retail traders are usually wrong and institutional traders are usually right in the medium and long term run. So why not trade in the same direction as big boys do? I find free SSI at Dailyfx, Dukascopy (SWFX Sentiment index) and Oanda (forex open position ratios). CNN's fear & greed index is also very informative if we trade in risk on or risk off environment.
Strict risk/money management rules (MOST IMPORTANT PART OF MY TRADING SYSTEM)
I only take trades with reward/risk ratio 2:1 or higher (this is trend trading system).
I'm prepared to be wrong more often than not as long as my win/loss ratio is higher than 33 % (reward/risk ratio 2:1)
I never risk more than 1 % per trade and maximal 3 % on all open positions.
General accepted rule of thumb is: 3 % is maximum capital exposure on anyone trade and 6 % maximum exposure on all open positions but this is way to high for my trading style (cca 25 % drawdowns can be inflicted upon your balance account with just 10 trades losing streak - 40 % chance of that happening every 100 trades taken if your win/loss ratio is at 33 %).
__________________________
I'll be posting my trades here so I (we) can learn from mistakes I have made. I lack consistency and discipline, so I thought why not try journaling all my trades here, maybe my mistakes will become more obvious. You're all welcome to comment and post your own trade ideas.
Some general rules of trading system I follow:
After a price breakout I look for:
Relative Strength Index RSI(14)
When RSI tags 70 or higher I have confirmed existence of an uptrend (impulse wave(s)),
IF then RSI in correction holds above 40 and turns up, I have possible confirmation of the end of corrective wave(s).
When RSI tags 30 or lower I have confirmed existence of downtrend (impulse wave(s)),
IF then RSI in correction holds below 60 and turns down, I have possible confirmation of the end of corrective wave(s).
I also pay attention to divergences between PA and RSI when RSI is in oversold (30) or overbought (70) territory. I can lead to meaningful correction or even reversal.
Fibonacci retracements and extensions
After you have confirmed trend (70 - uptrend, 30 - downtrend) and price action (PA) has established price bottom, I apply Fibonacci retracement levels then wait for PA retracement to 38.2 %, 50 %, 61.8 % or 78.6 % to enter a trade (50 and 61.8 % are my favorite levels of retracements. I only take trades at 38.2 % retracement if trend is VERY strong). Usually set stop loss above 78.6 % or 100 % retracement level.
Identifying which retracement level if any will hold is the most tricky part of Fibonacci trading. When you see trend line, support/resistance, 50, 100 or 200 simple moving average in proximity of Fibonacci level, there is good chance that level will hold (I usually wait for short consolidation around Fibonacci level or some candlestick reversal pattern at Fibonacci level before I take a trade).
After establishing legit entry point you have to establish possible take profit point(s), here Fibonacci extensions come into play:
If PA reverses at 38.2 % retracement there is good chance price will reach 138.2 % extension.
If PA reverses at 50 % or 61.8 % retracement there is good chance price will reach 161.8 % extension.
If PA reverses at 78.6 % retracement there is good chance price will test price top/bottom (0 %) again or reach 118.1 % extension.
Fibonacci extensions are only general guides where PA could consolidate or reverse. I also pay attention to resistance/support levels, 50, 100, 200 simple moving averages, round numbers and existing price patterns on the way.
Moving averages
Moving averages are very important trend verification indicators. They also tend to work as support/resistance, so we have to pay attention how PA behaves when it touches them (bouncing off or breaking through). I use 21 exponential moving average (EMA), 50, 100 and 200 simple moving averages (SMA).
I usually take only short trades when price is under 200 SMA, and long trades when price is over 200 SMA. PA corrections tend to find resistance near 21 EMA and 50 SMA in strong trends. If 50 SMA is broken, you could be looking at more meaningful correction or even reversal if PA breaks above/under 200 SMA.
The best trading setups are usually when PA enters a trend then retraces 50 or 61.8 % percent and you have a cluster of 50, 100 and 200 SMA behind these Fibonacci retracements.
Multiple time frames
I use daily chart and weekly chart to define longer term trends/consolidation ranges and take trades on 4-hour chart (I also look 1-hour chart for fine tuning entry point) only in agreement with higher TF.
Speculative Sentiment Index (SSI)
In addition to Fibonacci and RSI I follow long-short ratios graph to trade counter the crowds. Retail traders are usually wrong and institutional traders are usually right in the medium and long term run. So why not trade in the same direction as big boys do? I find free SSI at Dailyfx, Dukascopy (SWFX Sentiment index) and Oanda (forex open position ratios). CNN's fear & greed index is also very informative if we trade in risk on or risk off environment.
Strict risk/money management rules (MOST IMPORTANT PART OF MY TRADING SYSTEM)
I only take trades with reward/risk ratio 2:1 or higher (this is trend trading system).
I'm prepared to be wrong more often than not as long as my win/loss ratio is higher than 33 % (reward/risk ratio 2:1)
I never risk more than 1 % per trade and maximal 3 % on all open positions.
General accepted rule of thumb is: 3 % is maximum capital exposure on anyone trade and 6 % maximum exposure on all open positions but this is way to high for my trading style (cca 25 % drawdowns can be inflicted upon your balance account with just 10 trades losing streak - 40 % chance of that happening every 100 trades taken if your win/loss ratio is at 33 %).
__________________________
QuoteDisliked"Success is a lousy teacher. It seduces smart people into thinking they can't lose." - Bill Gates
