Price-Structure-Order flow

update on EUR/USD - Short:

As price has moved toward the lows again, I have moved my stop down a little further to capture approximately 180 pips on the aggregate position. I forgot to note at the beginning of the day, that today is a US holiday, and thus the US session will be muted and lack liquidity, especially after London closes. I'm seeing this on the Futures side as well...sideways ranging markets, the death trap!!

Hello Again Friends,

I've been thinking about this and have had a few people contact me wanting to know "why" I enter trades or what is the reason I enter or exit. Some have contacted here others through PM. I really didn't start this thread to discuss my methodology or "why" exactly I enter positions. This thread was more geared toward documenting my decisions as I make them. I have found that having a journal with small screen shots is very helpful to later analyze my trading decisions and I wanted to share that all with you. When you document the good, the bad, and the ugly you begin to see a pattern of behavior...personal behavior that is either beneficial or detrimental to your trading.

Once that pattern of behavior is recognized you can take steps to (1) keep and enhance the beneficial behaviors and (2) get rid of the detrimental behaviors. Again, my trading methodology isn't all that complicated, but if you wish we can start a new thread to discuss the ideas of entering and exiting (or as I put it, "engaging") the markets. I'm afraid you will find it exceedingly boring however, as it is as simple as it gets. However, let me know....post a small message here and I will see what you want to do, then we can start a new thread, if you like.

Again, the focus here is on documentation of your trades. I have found that this exercise is far more productive and helpful than simply learning when and where to engage the market.

OK...last post before I turn off the computer for the week end. As you may recall, I started this log to see how reasonable a 20% annual return would be on my savings account. With only 4 trades completed, and considering the stop out value of all open trades, I am happy to report that I already have a 13% booked value on the account. Admittedly the "Trump train" helped with the volatility we've seen lately but I think I will change the original goal to 50%. I am finding so far (yes I know its early yet) that trading in a very similar way to my day trading techniques will work AS LONG AS I can be patient, and not be so aggressive with my positioning.

The timing aspect between longer term charts and intraday tick charts is WAY different - DUH!! So I need to be able to wait for a signal to generate over the daily chart before jumping into a trade, as I usually do on the futures side. The tick charts are so quick that if you don't jump in you might miss the move, however, on the daily chart I think we can wait for a trade signal to mature a little bit more before setting orders...I will watch this in the weeks to come. for Now I leave you with this equity curve.

Good Job DP, appreciate it..

Could you also please explain about the trades you place in a pair? for example, you have more than one 0.05 lot size trades in a pair. How do you define it and when you calculate the risk for a pair while placing trades? thanks in advance...

Generally speaking I place the orders at the top and bottom of an area where I anticipate the order flow to change. I call it the "shallow" and "deep" entry. I'm sure you've seen time when price will just tap a price area and reverse and never give you a chance to enter. And of course other times where it will penetrate deeply making you think the area is negated as support (or resistance) but then turns and reverses...usually just about the time I stop out. I call it the "flush", because my trade is flushed down the toilet.

So now I try to take advantage of that by setting another pending order where I think they might "flush" me. I keep the initial stop off the broker platform and have another piece of software that independently closes the trade should it actually push through my entry area and negate my trade. Once I am able to move the stop to break even or better, I turn off that software, keep the limit and stop on the broker's platform...this just keeps everyone "honest"

So I break up my position into smaller entries that constitute a TOTAL 1-2% risk overall. Then do not allow anymore than 6-8% risk overall in open trades. Once a trade has become break even or better, I allow myself to place another position on...assuming an entry is available.

Again these little rules are just standard operating procedure learned from years of doing it the wrong way. They kind of go with out saying...save 92-94% of your account for next month...and don't over leverage by placing big stops, or big positions on...finally don't over trade..."your first loss is usually your best loss."

Gold Daily Chart

Reasons:

 

1. Price is at support Zone
2. Pin bar/ Bullish rejection bar
3. Price over-extended from mean

See what my mentor says about it

AUDCAD Weekly

Inverse Head & Shoulder, waiting for price to retrace back towards neckline.

The following is my take on this trading thesis. It is not meant to tell you that your are right or wrong on your analysis, or to tell you when or where to trade. I am simply telling you about areas where I have personally had problems in the past and how I have been able to overcome these issues.

Price at support or resistance:
This is a good observation. While I do not personally call it that, it is a level where you expect buyers to step in and possibly reverse the order flow...the question is this: What is your basis to think this? Simply using "support" as a basis to take a trade is a mistake I used to make often, and quite frankly still do. Using this concept needs more than just an observation, you also need to start thinking what is going on with the order flow as price moves into this area and so far I don't see that change happening....

Having said all the above I too entered a long in this area which is essentially an add in to my prior logs from above. But I am basing that decision on something much different, which I will explain further down...as an aside, I think I was premature about this entry and as I mentioned in a previous post, I need to let the signals mature a bit more before jumping into a trade...these are daily charts not tick charts....there is lots of time, and that takes some getting used to.

Price action signals (ie. Pin bar, or inverted hammer, or what ever else you call them)
Try to avoid getting "suckered" in by the promise of price action signals, and the lure of some "ancient Japanese secret" to trading. Nothing like this exists. The idea of "price action trading" is not in the formation of the candle but in learning to read and "see" the order flow that is forming that candle. It is essential to understand what is happening behind that "price action" or what price action actually is. Price action is simply the graphical representation of orders coming into the market...buys and sells...and how those order balance each other or stay unbalanced. Thus a simple formation of one or two candles, indicates virtually nothing about the order flow unless you are able to see changes from balanced to unbalanced in the formation of that candle.

Again, this being said, if you do decide to use candle formations as signals to trade, you MUST wait for the said candle to finish forming. To declare a Pin bar, or inverse hammer...or a piercing line, or star...or any of the other popular formations, these candles have to have completed and moved on to the next candle...or they will change through out the formation period...ie daily, 4 hrs, etc. Thus your observation of a pin bar is premature and not actionable.

Trade with the prevailing Trend...use Multiple Time frames:
If you want to save yourself a lot of grief and anguish, I suggest you lean to read the trend in as simple terms as possible and learn to see that same trend across as many time frames as you can. The larger the time frame the better, as this will keep you on the right side of the market through out the majority of your trades. Of course trends change and reverse, or ranges develop...and of course you may get traapped by when these changes occur but that may be your first clue of a change in the over all order flow.

As you have only presented a single view of the markets your are looking at, I will say this; you must use the trend on the chart your are trading if you are not going to use multiple time frames to analyze the market. Thus, your chart shows lower highs, and lower lows and that is the very definition of a bearish trend. In which case the expectation is for lower lows to come. The place where you've entered is a critical location, as noted above, but as of this point, there is no sign to suggest, price will rise except that price rose last time it was in this area....back in MAY 2016.

I think you may get a stall here or even a rise in price...but not for the reasons you are sighting above...I will follow up with my own evaluation in the next post.

Price "over extended" from mean:
What exactly does this mean? What is the "mean"? Is it because you have place an x-period moving average...what if you have a 200 period moving average? Is price still over extended? What if you have a 5 period moving average? Which average is the correct one? A moving average has absolutely NOTHING to do with the order flow of the market...remember it is people (or computers) placing orders that create price movements up and down. "Measuring" these movements with averages, or math formulas, is a fools errand, and will only lead to a dead end and disappointment. Try not to base your trading decisions on "technical analysis". Base it instead on value, and order flow.

it is the same concept as going to the market. Will you buy apples for $50/lb? Of course not!! But its price is above the average!! Why would you do that? Wouldn't you wait for a sale on apples and buy them at $1/lb...but then its below the average!! Do you even consider the average when you go the the market? NO!! you know what you need, and you know where the prices usually are, and you know what the value is that you want to buy. If its too expensive you don't buy it or you go somewhere else that has a better price.

Conclusions:
I think you are learning and will do well, if you start to learn about and understand order flow, and how that effects the price action you think you are trading. Don't get suckered into the hype of "price action signals" or the promise of "naked chart" trading. Keep things simple and straight forward. Don't try to "outsmart" the market. Make rational observations based on the TRUTH of the market not some exaggerated hype from the promise of fortune just around the corner.

Update on Gold - Long:

In keeping with my previous post, I will move through this step by step as to understand:
Trend:
The larger charts are showing the start of a bullish trend. The Monthly chart has produced a higher high, and I am anticipating a higher low to form some where int he area where price currently is.

Supply vs demand:
Price is currently in a critical area where the demand overcame the supply back in May-June, 2016. The order flow turned net bid and higher prices ensued. Sellers have pushed price into this area again, but I have not seen any indication (on the charts seen here) of added demand. At best prices are stalling and this perhaps indicates a potential balance in the order flow between buyers and sellers.

Engagement:
I have entered positions in this market which are now at risk for stopping out. I was premature in my entries as I didn't wait for a good signal development before setting orders. I did what many here have done...place an order out in space, where some "support/resistance" line has been identified and then "hoped" it will work. That was a mistake.

While this approach often works well when trading tick charts (because price movements are quick) on larger charts this approach is not advantageous. While this trade still may work out, I will not continue to trade these markets in this manner. I will wait for further signal development before placing orders.

Thus this trade...even if it ends up being profitable, is a loser. I will need to add another rule to my rule set for trading larger time frames.

Of note I made this same mistake on my oil trade...so I will be more vigilant in my trading from now on .

Side note;
It is much more difficult than I thought to transition from trading small charts (tick charts) to larger charts for longer term trading. While you must be aggressive or die, when day trading, that same mentality will kill you in swing or position trading. Therefore I must find a way to mentally separate my trading activities from day-to-day to "switch gears" between my swing positions and my "job" when day trading.

Update on EUR/USD - Short:

Sellers continued over the start of Monday Asian session to take out the first target on this trade giving a 310 pip profit. The last 1/3 of the trade is still pending with a stop that locks 175 pips. Target for this trade is set near the 20 year low of this market and looks to be moving strongly in that direction...There is no evidence of demand entering the market and shorts appear to be selling any uptick in intraday prices.

Profit on this trade has pushed the overall profit on account over 20%. Thus meeting the original goal...I am confident that 50% annual return is reasonable and achievable.

A Bundle of thanks, teacher, for explaining in detail every aspect why and where I was wrong and then example of Gold to support all you said. I'm your fan now

Hope I will be getting such doses in future too. May you bless.

Aaz

I am happy that you found value in my opinion, and am flattered that you call me "teacher". I am happy to help if I can, but please understand you will be your own best teacher, IF you stay honest with yourself, and keep your observations about the markets, free of emotional attachments of any kind. Think of this as you would any other business...do what is best for the business, not your ego. If something doesn't work out as you planned, let go of it and try to find your mistakes...

You will ultimately find (as I am finding right now), that mistakes have NOTHING to do with the market. They are all simply behaviors that need to be modified to produce better results. Kind of like training a dog, or a horse...you have to find and reward the behaviors you want to keep and discipline that behaviors that cause problems.

Good luck and let me know of your progress.

I will keep posting here, and your commentary in spare time will help me to identify my mistakes/areas of improvement. I would choose now the best setups keeping in view your guidance. Thanks once again.

Update on EUR/USD - Short:

Price is currently only 163 pips away from its ultimate target with the remaining portion of the position. As well, price rose and fell overnight giving me a good area to roll the stop to. The stop is now protecting 282 pip of a 400 pip open trade profit.

The mid week reversal is looming in the next couple of days, so I may want to start thinking about tightening the stops to preserve as much profit as possible.

Update on WTI crude - Long:

This position is turning positive as the markets now start to normalize. As stated in an earlier post this position was entered a bit prematurely, but is starting to work now and on the close of this week I will reasses where or IF to change the current stops...not seen on this chart. It is readily apparent now that buyers have stepped in to this market and the big question market now remains, will the monthly chart register a new higher high? If that happens, then this market will have changed from bearish to bullish. However, that is still at least two maybe three months away.

We'll just have to see what happens when/if price returns to the highs of the year.

USDJPY Chart

1. Price has retraced back to previous order flow level and market became indecisive (Monthly Chart). Then, price came out of that range and now trading outside that range (Weekly Chart). Now, expecting price to retrace back again to this area to attract more buyers and price will go to sky

2. Monthly chart is also showing higher highs and higher lows. (Trend Direction).

Correct me Sir where I am wrong.

Once again, there is no right or wrong here, just what you see and how you engage. Is that a higher low on the monthly chart? I think we could line up several traders that could debate that...

The weekly chart shows several levels that might reverse price and in so doing create a lower high on that monthly chart. However, this weekly chart has now put in a higher low AND a higher high, thus waiting for a retest of the last bearish push down might be a good strategy. However, price is showing absolutely no sign of slowing to come back and do that retest.

What you have here is a classic capitulation of the shorts. Everyone who was short from the highs on the monthly chart has been stopped out. All those stop amount to a great deal of buying which pushes the price higher and higher. With each level (seen best on the weekly chart), there is a new wave of stops that might be triggered. And add to that any of the retailers who are jumping on thinking this is a "new" resumption of the overarching bullish trend from the last two years.

I am watching this pair as well, but it has now climbed to a point where I might be interested in taking it short, as it might form a new lower high, on the monthly chart. I'll have to wait and see how far this liquidation move goes, and what the price looks like at the end of this move. For now its gone parabolic and if it keeps climbing, it will start running into new stops in the 111.50 area, and again in the 114.40 area.

I think patience is the key here

Again, you're not wrong, as long as you consider BOTH sides of the market. If want to buy, think about who will be (theoretically) on the other side of your transaction. If you are buying while the market makers are selling, you will lose...but if you are buying when the retail crowd is selling, you will most likely win. So if all the retailers have jumped on this move, think about the other side of the market, because that is what the market makers are doing.

Edit: Judging from FF's accounts loging trades...the retail crowd is still trying to short this beast...and they are getting their heads handed to them.

Thanks a lot sir. It makes sense. I will keep it in mind next time while analyzing.

While practicing, I found this EURUSD weekly chart same like last USDJPY monthly chart. I applied what I learnt from your previous reply and it really worked.
EU chart is somehow different but logic really worked. Profit booking stop orders and retail traders logic of trend resumption create liquidity and hence, larger candles at significant levels produce but when market makers show their cards, order flow traders find those blueprints and winning probability increases. Thank you again sir!

This is an important realization and I am happy you have been able to find it so quickly. Congratulations!! This concept took me years to learn and "see". It has taken me several more years to master and I encourage you to continue looking at the market in this way. As well this concept can also be applied to ANY time frame and should be applied to ALL time frames...indeed the order flow is present on each and every candle.

You can see the order flow balance in unbalance in a single candle, and then apply that same realization to groups of candle on varying time frames to finally "see" the market as a whole, and understand where buyers and sellers are taking their positions, where they might have their stops, and how to take advantage of that.

In the end in really comes down to human nature, and logic (in the human sense). No one enters a trade thinking, "this is where I'll lose..." It is just the opposite. Everyone enters in a place where they think they will win. So the clue is to find where they will have their stop placed and watch what happens in those areas. As you've noted, these area will develop large order flow and produce "big candles".

So here is a challenge to you...what pattern do you see developing in price AFTER those large candles form? Not "price action pattern" but what seems to happen in price AFTER those liquidation candles have played out? Look specifically 1-5 candles AFTER those big candles are done.

Lets see what your answer will be...take your time and respond when you think you have it figured out.