Sunday, August 26, 2012

Notting Hill Carnival!

I'm in London with the family for a few days to enjoy the Carnival and generally relax with family and friends. However, I just wanted to bring some closure to this week's trading as I was still in the market 10 mins before flying out the door to catch the plane on Friday and, therefore, didn't have the time to do my weekly wrap up (as much for freeing up my mind for the weekend as it is for data-keeping purposes!).

This week was a bit of a special one as it marked my return to live trading! 1 year, 7 months and 6 days after my last live trade at the beginning of 2011.

The week ended profitably overall as well as in each individual account (SIM and Live) albeit by a small amount.

It's a good thing I took my time building confidence and collecting the data because the transition from SIM to Live was as painless as it could be for me, given the fear I've experienced in the past. It was also a great idea to use the size that I intended to use when returning to the live account in SIM. An even better idea might be to use a larger size in SIM so you reduce the fear factor even more by seeing smaller numbers flashing around whilst using real funds.

Will be back in my office on Tuesday and, after wrapping up with this week's review, back to looking for my usual opportunities. Curious to see if my forward-tested results will continue to play out with live trades (I've already had a taste of the difference in fills when one of my trades had it's trailing stop triggered while the market was 15 pips away from the trigger price....two rogue trades with size were responsible for that one as the market re-opened after it's daily 15 min break- something that may not have happened with SIM.)

Monday, August 20, 2012

Appendix- Common Variation.

The recent post, "The Mighty Appendix!", goes through the basic attributes of the pattern- The Momo Reversal with failure, "V" turn off of Support/Resistance back into the Momo and then "sign of reversal" at the original action zone of the pattern. (see JPEG within that post.)

I call it the "Appendix" because the price deviates from it's path (in this case the Momo, but the concept can be applied to any pattern) before returning. The rogue price action is pinched in a way that makes it stand out from the established PA...much like an Appendix from the small intestine! But I digress...

Sometimes, this "pinched" PA can occur before the culmination of the Momo Reversal, as in the above example. I've drawn in the PA in yellow...

The same principles apply for both variations of the pattern. Regardless of where the deviation occurs, it either allows a Momo to eventually hold, despite a strong-paced move into S/R or tags an important S/R when the Momo forms "too early".

Recognising the pattern (takes practice!) isn't enough. You also have to look at the context of the pattern. Otherwise, you won't know whether to take the original Momo or wait for an Appendix/Pattern Fail (More on the latter...later).

Saturday, August 18, 2012

Two Thousand Words.

....any questions, just ask!

Thursday, August 16, 2012

The Mighty Appendix!

This is one of the three set-ups I use to trade the Eur/Usd  everyday. The First Post of this blog showed the beginnings of what would eventually become the "Appendix".

It's basically a combination of two patterns: Pipe Bottom and the Momo Reversal (of which you can find many examples here by using "Search This Blog" on the right. Then F3, type in "Momo Reversal", highlight text and then it will be easier to pick out amongst the posts).

  On the above 1 min chart of today's Eur/Usd action, the Momo Reversal is the three-legged move down- the last two are in the descending wedge. You can see pace turning bullish with each downside move. Then it breaks down, forming longer bars compared to the ones prior to the break and triggers stops as longs are caught by surprise and new shorts get on board.

Then price returns, and surpasses, the break down point just as quickly as it broke. Making a "flush" or "pipe bottom" formation. Now the people who are short are trapped and the final piece of the puzzle comes when a "sign of a reversal" appears where the original Momo Reversal should have held if it was going to be successful in the first place. It connects with prior price action as if the breakdown didn't even happen. Now the shorts liquidate and the old buyers get back in along with any new ones.

The above hourly chart shows where the original Momo was forming (thin yellow line) and where the Appendix exhausted itself into "significant support". The thick yellow line. This chart also shows the measured move 1-2 as compared to 3-4. It doesn't show the uptrend line that was providing support at 4, visible on a larger view of the hourly.

"But how do you know when to play the actual Momo or wait for a potential Appendix?" You may ask.

That's a (long) topic for future posts. :)

Tuesday, August 14, 2012

Discretionary Trading- A Different Set Of Rules.

We often hear that we should "trade the system", "take every trade"...that the last trade has no bearing on the prior trade etc etc.

But that isn't the case with Discretionary Trading.

"Discretionary-Available at one's discretion; able to be used as one chooses; left to or regulated by one's own discretion or judgement."

"Judgement" is the keyword. I'm pretty sure most would agree that our judgement is easily influenced by how we feel. Binge eating/drinking, driving under the influence, incidence of higher suicide rates around holidays...these are all examples of where people may feel they are making rational decisions but are, in fact, making judgements based on emotion rather than fact. 

So, it then follows that trading in a discretionary manner, even around a pretty objective framework, will always be subject to your feelings/emotions. If there is any room to maneuver within the approach, it will always be in the least favorable direction unless a close eye is kept on how you feel.

Here are some of the things I keep in mind when trading with regards to the discretion involved in the method:

1) The length of time spent thinking about an idea doesn't increase the value of an idea.
2) Increasing trade frequency doesn't translate to a proportional increase in profits- the edge inherent in each trade changes dependent on your state of mind. Even if the set-ups are "the same".
3) What are your emotional triggers? Do you get irritable before you're about to throw the baby out with the bath water?? Do you fight the market when you're tired?? etc. Know your triggers and act on them.
4) Are you seeking the truth or trying to avoid being wrong?

I wish I could explain how important number 4) has been to me!

There are many more ideas, but the goal is the same; to flat-line the waves of Personal Variance which always cancel any positive edge your analysis might have (and you don't need much of the latter in the absence of the former...).

Sunday, August 12, 2012

Consistent Profitability.

Years In The Making!
Wasn't sure when I'd be writing this post as a form of documentation for future reference but, here it is!

After my fall from grace in late 2007, and my subsequent short-lived period of success at the beginning of 2009 (captured in this blog's first posts..), it was a huge 3-year struggle to try and fit the pieces of the trading puzzle together.

Many helped along the way- both passively and actively- but a special mention must go to L & W . Aside from keeping me company and being a source of "optimistic practicality" , he helped me to realise the true importance of record keeping and reinforced the concept of "nudging probabilities" in your favour.

Now I, too, have a "security blanket" in the form of data! ;)

Finally, there's good reason to return to the live account, with personal expectations truly in check.

And a pretty solid plan.

Let's see how it goes in the coming months.