Monthly Archives: August 2012

Fast Trend Shallow Pullback

Expectations should change with a change in environment. In a slow, wide-swinging trend, your better off waiting for a deep pullback. Don't be too quick to enter. But in a fast trend, if you hesitate you may just miss the entry.

Here's two fast-trend shallow pullback entry examples. There's no waiting for a 38.2% retracement here!

The shallow pullbacks are evidence of demand balancing supply; likely a mix of new longs hoping to catch a reversal and shorts covering for a profit. But on balance we are probably safe to say that there is not a lot of support (pun intended) for a potential reversal rally, otherwise we would see orderflow driving price higher.

So we watch our lower timeframe for signs of potential failure of the long "lower timeframe" trades. Their failure point is our entry short, in the hope that the orderflow from this trigger will drive price far enough to again break to new lows and trigger more shorts, reigniting the trend for another strong leg down.

As always our trade concept remains the same… find the loser and trade against their position!

And in a fast trend, the loser is almost always the guy trying to fade the trend.

fast trend 1

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When to Doubt a Pullback

I find the "grey areas" on a chart fascinating; the areas where our bias or premise start to show signs of breaking down and our decisions are clouded by the uncertainty that prevails at the hard right edge of our screen.

This is where real learning happens! Where your knowledge, skills and attitude are pushed just beyond their limits.

downtrend pullback

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Advanced Trade Management Options

Active Trade Management for most people simply involves trailing of the stop loss order, first to breakeven and then behind significant price features as the market moves on its path towards the target.

However there are other options available for those who wish to explore further.

It can also involve scaling in and out of trade parts; adding risk or removing risk in response to your perception of ongoing trade potential.

There are MANY ways that this can be achieved. The following shows one simple option, in which risk is reduced at intermediate levels of short-term S/R and added again only if price breaks that level.

advanced trade management

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How To Make a Strategy Your Own – 2

Several months ago I presented an article titled "How to Make a Strategy Your Own" which discussed the need to take your learning and development through a graduated process from post-session learning to simulation to live environment (minimum size) and then a gradual increase in risk.

I presented an email and charts from a YTC Price Action Trader (YTC PAT) reader who was progressing well through this journey, in particular demonstrating his great work in post-session reviews.

You can see that article here: http://yourtradingcoach.com/trading-process-and-strategy/how-to-make-a-strategy-your-own/

Today I'd like to present another email from a student of the YTC PAT which also demonstrates another aspect of making a strategy your own.

You'll note that RV has made a number of significant changes to how I trade. This is EXACTLY what is necessary; and what I expect people to do. Not everyone seems to understand that.

Making a strategy your own involves blending the new approach with your prior knowledge and skills, in order to create a new enhanced approach to trading the markets. This will necessitate a process of test and evaluation, along with a process of identifying challenges and implementing solutions to avoid them or overcome them.

RV has done exactly that. And the end result is… well he's now trading for a living! That is so great.

In particular you'll see this as it relates to timeframes, as RV has reduced my triple timeframe approach down to just one. Just because I use three timeframes does not mean that is the best way for you. One of the most common pieces of advice I give people who are overwhelmed, is to remove the lower timeframe and trade solely off the trading timeframe. And as to the higher timeframe, well I can personally operate quite comfortably without that. I think most traders once they get a little experience, can see the higher timeframe S/R within their trading timeframe chart.

So if you prefer one timeframe only, I fully support that idea. Simplicity is always the best.

Anyway… enough from me. Here's an extract of RV's email (personal details removed):

Hi Lance,

Firstly forgive me for this rather long email but it's been 2 years since I first purchased your course on its launch and I thought I'd take this opportunity to update you on my progress.

Due to my full-time job until recently I've been trading US stocks on weekly timeframe for obvious reasons with good results.

Anywhoo I've now moved to full time trading mainly focusing on ES (Emini S&P) which trades at 9.30pm here in my timezone, which gives me plenty of time to groove my golf swing and spend quality time with my daughter.

There have been some challenges that I faced along the way but these were mainly due to my personality rather than the method, thus I made some adjustments. Some of these include:

1. Like you I love the CPB setup and every time I scratch a PB setup I'd be rubbing my hands for a CPB setup. In most cases I'd benefit from the trapped orderflow but sometimes the 2nd swing wouldn't quite make it to the prior swing low in an uptrend and vice versa, to get the trap setup, and price would move on without me. This led to 1st change – get on board with 2nd entry if a trap is not set. Al Brooks has mentioned this in his book. Alternatively leave the initial stop where it was, but I couldn't watch the drawdown.

2. Second change I had to make was getting rid of the lower timeframe chart as my attention was getting too focused on this timeframe and I was jumping in on every possible spring or upthrust setup leading to a string of losses.

3. Because I now had to focus on the trading timeframe, time based charts were getting me in too late into a trade so I replaced it with tick charts. So a 5min chart would be 1500 ticks and 60 mins would be around 15000 ticks. This worked like a charm as overnight data was compressed and S/R could be used next day. With a little experience the higher timeframe had to go too. My trading was getting better and why wouldn't it, I gave my brain very little to focus on.

4. My attention was now toward my exits and to try to balance my emotions of greed and fear. I changed my OSO orders to 3 targets and a stop. 1st exit – 6 ticks for a scalp, stop moves to breakeven plus one automatically. 2nd exit – swing high/low and 3rd exit- runner with trailing stop. However market conditions dictate whether I'd take my runner off at the swing high too. This works incredibly well with my personality as I've fed all the monkeys on my shoulder.

I was loving this adaptation to the beast, however the nature of the game is that sometimes the trapper gets trapped so I added failed PB, CPB, TST, BOF and BPB to my arsenal. They say its not a game of perfect – my response is – why not? If my search for perfection leads me to more time staring at charts then I've already been rewarded. As for the trading journal I've setup a workspace on my platform just for notes and trades taken or missed, so I just scroll back to review whenever I'm out of sync, and this happens every now and then. The review quickly jolts back my confidence and rhythm.

Anywhoo this is becoming an essay. In closing I want you to know how grateful I am for your unselfish contribution to the trading community. God bless, and if you're ever in the country be sure to hook up for a drink and a game of golf. I'll re-phrase that – a game of golf followed by a few drinks. Wink!

Best Regards,

RV

PS. I've attached 2 sessions of e-mini to highlight some of the changes.

'Cos I'd rather be trading for a living'

Click on the images to open a larger version in your browser

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If I Wanted to Limit Myself to ONE Setup Only!

I get asked from time to time which of my setups is my favourite, or which I would choose to trade if I had to limit myself to one setup only.

I really hesitate to answer this question, because I'm a firm believer that the setup chosen at any particular time needs to be the one most suited to the market environment.

It reminds me of the saying, "If the only tool you have is a hammer, then you'll treat every situation as if it's a nail".

If the only setup you have is the "xyz setup" then you'll attempt to apply it all the time, whether appropriate or not.

On the other hand there is some validity to the idea of learning to use one tool at a time.

A YTC Newsletter reader, William, has convinced me to share the setup I would choose if I wanted to limit myself to one setup only. But I will caution you, as I did with William, that the most critical aspect is NOT in learning to see the setup but rather in first learning to see the right environment for application of the setup. You need to be prepared to sit through complete sessions with no trades, if that environment is unsuited to your preferred setup.

Which would I choose?

The complex pullback! (AKA the 3-swing retrace)

complex pullback

Why?

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Defining the Market Environment

Have you considered how you should classify the market environment? If not, it's well worth doing so. The nature of the current market environment will determine the game plan that you bring to your trading session.

There are numerous ways to classify it.

  • Trending vs Ranging! 
  • Accumulation, Mark-Up, Distribution, Mark-Down!
  • Trending Volatile, Trending Non-Volatile, Ranging Volatile, Ranging Non-Volatile! (example below)
  • At Major S/R; In-between Major S/R!

 

There are of course others as well. It's not so important which you choose. Rather that you've defined the different ways you see the market and considered:

  • How you'll trade that environment; and
  • How you'll identify the end of that environment and the transition to a new environment.

 

market environment - trending non-volatile

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How Could I Have Analysed This Better?

Here's an example of someone who's coming along quite nicely with their development as a trader.

The following two images are from a YTC Price Action Trader reader who sent an email, asking the following:

I'm not sure if this method of thinking can be used to go against my premise in the future? What I was really wanting to see was a spring bear trap to go long.

Thank you Lance

B.M.

reader analysis - image 1

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Is Forex a Casino?

EMAIL RECEIVED AT YTC (Subject: Is Forex a (f…ing) Casino?)

Hi Lance,

As I said in the subject of my e-mail, did you ever have the feeling that all this trading business is only a f… casino?

Time and time again I lose all my money in these damned markets. I get only a few wins and a lot more and bigger loses, till finally I'm running out of money.

Is this not the same way a casino is operating, I mean stealing your money bit by bit?

Except that I feel that Forex is a dirty game, just like the dirty tricks on a casino: running stops, false breaks, traps etc etc.

Do you have any suggestion for me? Except that thank you very much for all the content of your website.

Cheers,

M.

REPLY

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Climactic Break Above Grind

Grind:

  • Low volatility
  • Significant candle overlap
  • Weak price extensions
  • Pullbacks that just refuse to break lower
  • And it just goes on and on, well beyond when you expect it to stop.

Unless you're comfortable scalping within such a low-volatility environment, your best game plan is often to just stand aside until signs of failure.

Of course, this then raises the obvious question… is there any way we can anticipate the end of the grind?

One way is through watching for a climactic break above the upper channel line. To a novice this will look like strength, but like all climactic reversal patterns the failure of the breakout can reveal hidden underlying weakness. The last of the bulls have bought and there is insufficient buying pressure to continue the rally.

climactic break above grind

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