Before you place a single trade.

Read this entire book.

Ok, it’s not really a book, more like a booklet considering it’s mostly pictures and a 12 point font, but great information none-the-less.

I can’t stress enough the idea of trading in small sizes with a lot of reserve capital so you can take advantage of a more attractive price even if you are already in a trade.  Also, take your time when planning and executing a trade, if you “miss” the opportunity, don’t rush the next one, just be ready earlier. Patience will turn into $$’s faster than rushing.

I am constantly surprised by how many traders can gain/lose 30% of their account in 5 pips or less. Such large swings have to stressful or euphoric and will make it nearly impossible to remove emotion from the decision-making.  When I gain or lose 1% on a trade, sure, I am happy or disappointed, but it won’t affect my decision to open or close the next trade.

I have a post in the works that talks about probability and the uselessness of a 3:1 risk/reward ratio, I think it’s brilliant, but then again I also have a degree in Commercial Art and not Statistics and Probability.

Enjoy your weekend everyone! Oh and follow me on Twitter.

Drop All of Your Preconceived Ideas of … everything?

Ok, I am not saying that Bear or Bull markets don’t exist or that they don’t have a distinct look to them.  I am saying this, “IT DOESN’T MATTER.”

I have been a self-proclaimed “bear” since, at least, January this year and from about 1.3100 on the E/U.  What’s funny about this is we spent the majority of 2011 above the 1.40 mark.  All I can do is laugh.  Another example is I have initiated 237 short trades and only 23 long trades this year.  How am I not broke you ask?

Simple. Bears make money in Bull markets and Bulls make money in Bear markets.  This is one of the reasons I don’t listen to market commentators or take trading advice from other traders or the recommendations of OANDA or live my life according to a set of rules established my others.  A lot of people would have you believe that you have to be a Bear in a Bear market or a Bull in a Bull market, otherwise, you’ll get caught with your pants down as well as your account balance.

I guess what I am trying to say is this, it’s not the fact that you correctly “read” the trend or deciphered the chart so well that the side you picked was the right one. (When you stop caring if you are right, you’ll know you are on the right track.) The fact of the matter is this, if you get in at the right time and out at the righter time while not letting the market keep any of your money, it doesn’t matter what direction the last 1,500 bars were moving.

I started out as a very “by the books,” money management, risk/reward ratio nut job. I would argue that technical analysis was the only true was to make a dime in this industry, those fundies could go jump off a bridge for all I cared. Then I started listening to what was going on in the world from sources OTHER than traders and news anchors.  I slowly started shifting to a hybrid-method, adapting micro and macro economics into my trade plan.  I would beat the dead horse of having to have a stop-loss and take-profit in place with a 1:3 risk/reward ratio…then I would lose 2% of my account every trade.  I listened to everyone when they said a Martingale approach is suicide.  I listened to people when they said “trade with the trend, it’s the only way to make money.”  I lost money hand over fist for a year and a half.  I couldn’t give it away fast enough.

I gave up trading. I started observing. I really don’t know how to explain it.  A blogging buddy (@andrewunknown) just started a new blog about minimalism trading and he has a much better way with words so I’ll let him describe the theory of it.

Sometimes it is better to do something then nothing.  In other words, stop over-analyzing the situation and make a decision.  Stick with that decision until you see a reason it isn’t valid any more.

What I am trying to say is this, (and I have been beating a dead horse) don’t listen to anyone when it comes to your trading.  Trade what you see based on a system that you have developed.  And if you do start to take any advice at all, take this guys advice first.

AUD/USD Outlook.

Below is a brief snapshot of what I am looking at with the Aussie.

A lot going on here, but it really all comes down to how strong you think the US Dollar will perform over the next few months.  My bias is bullish on the Dollar…

Confirmation

So I am long EUR/JPY.  I started to doubt that, but after some study and charting (yes, by hand), I picked out a few reasons why.  See the charts below first.

They should progress from Weekly on your left, Daily in the middle, and 4 Hour on your right.  On all of these, what can you see? Divergence on the MACD?  Me too, excellent long-term divergence that signals some really nice reversals.   Also, on the 1 Hour chart (not shown) decent support and 65 EMA @ 110.00.

My plan is to work off of my initial long (1/4 Lot) @ 110.55 and set the TP to 126.00.  If price moves against me, I will double my exposure at the following points (add 1/2 Lot) 109.20, (add 1 Lot) 108.00, and then last-ditch effort (panic mode) @ (add 2 Lots) 103.00. Each time move the new Positions TP to the BE Point.

If price moves in my favor, I will add half of my initial position on a breach and retest of (add 1/8 Lot) 112.00 and again @ (add 1/16 Lot) 120.00.   Each time move the new Positions SL to the BE Point.

I expect this trade (depending on what direction it moves first) to last any where between 2 weeks to 2 months.

Hopefully this quick post will let you see into my method on a more practical standpoint and show you exactly how I prepare and plan for a trade.  Like always, take what I say with a grain of salt as my method is VERY risky and should not be attempted without a helmet.

Good Day!

Answer to Comment in last post

I am not seeing these setups and trends on my charts.

And as you point out, EURJPY has gone short a lot since June 28 0800 EET or so.

What chart time frame shows you the range you describe? I don’t see it. Thank you

Thank you for the comment and question Dave, I am excited to be able to explain what I mean. However, please take a look at the 2 charts I have posted as they are instrumental in my explanation.  In fact, you may want to open them in a new screen or print them out so you can refer to them.

Ok, so the first chart you see (should be the EJ Daily) shows that the EJ has been in a free fall since the end of  October 2009.  That is a bit longer than since June 28th like you mentioned.  The reason I show this is because I am a medium term swing trader, I don’t sell in the middle of a down trend unless I can get a REALLY great deal and an obvious area of resistance.  What excites me about being long right now is that we have been short for so long.  The blue lines on the chart are the areas of  Support and Resistance that I feel are important.  Between the S&R lines of 113.20 (R) and 108.00 (S) is a great deal of “congestion,” even in the middle of the range – if I am going to sell a pair, I am going to do it at 113, but most certainly not at 108.

The next chart should be the EJ 1 hour chart.  The grey part is the range I had mentioned in my previous post – I tried to buy at the bottom of it, but unfortunately for me, price decided to pay it no mind.  So I am in a losing trade, what should I do?  Close it and take it on the chin?  Or find my next area of support that I feel is strong enough to cause a retracement and add to my position (scaling in of course at the pace of doubling my position size).

I hope this helps and I would be more than happy to answer any other questions you might have about my style of trading.  Thanks for stopping by!

Weekly Plan 6/28

On the EURJPY, we are in a range.  Since the beginning of last week we have gone from 111.00 to 109.50 consistently.  We are currently at the bottom of the range @ 109.50 and I am a buyer (again.) I know that I had said I would like to join the short party, but for some reason I just can’t find many opportunities (real great opportunities) to get in on the short side of things.

My current positions:

Current Positions –

Open Trades –
1/4 Lot (Long) @ 112.28, TP @ 115.37, No SL
1/2 Lot (Long) @ 11.10, TP @ 112.00, No SL
1 Lot (Long) @ 109.60, TP @ 110.25, No SL

Closed Trades –
1 Lot (Long) @ 110.70, TP @ 112.60 (Hit), No SL

No Open Orders

Wait, draw on my charts by hand?!? YES!

So, I’ve been thinking of FINALLY joining in on EURO short party.  The music’s louder, the drinks are made just a bit stronger, I can hear people laughing…yes, I think I will join the party.

So, I’ve discovered that blogging with any frequency is difficult when I set up weekly (monthly) trading plans and wait for them to trigger.  Not to mention that once my plan is initiated, it doesn’t change much.  What should I write about??!!?? I don’t know, but I will write on here as best I can…I am trying to at least once a week.

I’ll give you another peek into my thought process as I am looking at the week(s) to come.

Check out the Chart first, print it out…get a ruler and a protractor.  That’s right, it is time to do some hand charting, I don’t do this every time, but it really helps me connect to the charts – removes the complexity of the computer, the clicking of the mouse, and the distractions of Facebook and twitter.  If you are losing money and feel out of tune with the markets, print them out and draw on them, even if it’s nonsense, it will help – I promise.

First,I  identify the areas of Support and Resistance on the weekly chart – S&R can be anything from where price stops and turns several times or where there is excess congestion before a breach of a certain line or price.  Whole numbers are important, but I find in the JPY crosses that the xxx.50’s are important too.  Then I check for Divergence between Price and the MACD.  Did Price make a new low but the MACD didn’t, if so then I qualify if and then quantify the discrepancy.  I draw my trend lines and my “anticipated” movement for the following week.  I always take into account the Fundamentals that are upcoming as well as what kind of correlation the 65 EMA is giving me with my S&R and Trendlines.

The only missing piece is how I draw my FIBs – I use Fib Retracement and Fib Fan.  I will explain these later since I don’t do them by hand and the way I draw them is extremely difficult to explain with a keyboard and mouse.  I will try, but tonight it is late and I am off to bed.

Print out the charts (or your own) and draw on them – I’d love to see what some people come up with.  Send me a comment if you will share them me, it would be much appreciated.  Also, let me know your experience with hand charting – I am sure it will open your eyes!