Yearly Archives: 2015

False Breakout Trap Review

 

I received an email last week from a student of the YTC Price Action Trader, which I ABSOLUTELY LOVE.

Actually, I receive a lot of email which I absolutely love. But sometimes they just stand out immediately as something really special.

It was a simple email, containing just one image (shown below).

And the only text was in the subject line: Thank You

Yeah, that made my day! 🙂

False Breakout Trap

Let's look at the trade, using this 1 minute timeframe as the Trading Timeframe (noting that this is more a YTC Scalper timeframe than YTC Price Action Trader). If you use a higher timeframe, that's fine. Don't discount the lesson. Look to the ideas and concepts and apply them to your own trading timeframe.

What I love is the simple fact that to most newbies, or most traders of simple text-book style technical analysis, there is no obvious reason to short.

The newbies have a limited view of price movement and opportunity

Let's look at how I see this price movement.

What immediately excited me was WHEN this trade occurred. So we'll start with that.

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Retesting the Point of Structural Change

 

I posted the following on social media a few weeks ago…

  • The first pullback after a strong and decisive break from an obvious structural pattern, should be considered a MUST-TRADE scenario.

 

Retesting the point of structural change

There was a comment made to the post which I absolutely love. I've copied it here:

Social media comment

Now, I don't advocate trading just one pattern.

But this one… should definitely be in your trading arsenal.

Note the three points displayed in the social media post above. The key is ensuring you have these in place.

  1. An obvious structure!
  2. A decisive break!
  3. A pullback towards the point of breakout!

 

From a metagame perspective...

Let's look at this idea play out in a few other charts.

And why not mix it up a little as well… with a completely different market and timeframe.

Here's the AUD/USD spot forex pair on a four hour chart.

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If I Could Only Take One Trade

 

This is a VERY useful question to ask yourself as a trade is setting up:

  • If I could only take one trade this hour, would I be happy to make it this one?

Of course, adjust the time to suit your style of trading. One trade per half-hour, per 4 hours, per day, per week… whatever suits your trade frequency is fine!

This question forces you to step back away from the excitement of the price action and the nervous tension associated with entry, and to briefly consider the quality of the trade.

If I could only take one trade this hour, would I be happy to make it this one?

If the answer is an obvious YES… take the entry.

But if there is any doubt… consider passing or waiting for more information.

You don't have to take every trade. A question like this can be useful in filtering out the lower quality trades. Give it a try!

If I could only take one trade this hour, would I be happy to make it this one?

If I could only take one trade this hour, would I be happy to make it this one?

YTC Price Action Trader references:

So would I take this trade?

If I could only take one trade this hour, would I be happy to make it this one?

ABSOLUTELY YES… EVERY TIME!!!

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You’ve GOT to Target Multiple-R Winners

 

Most trades will typically fall in the range from -1R to +1R… hopefully more on the positive side of that range.

But for most of us this does not mean you should be targeting 1:1 trades all day, every day.

By all means take them if you assess them as being a higher probability play. But you'll need to maintain a 70% or more win-rate if you want to achieve any decent long-term profits with ONLY 1:1 trades.

That's a tough ask!

It's far better, in my opinion, to aim to break up that stream of -1R to +1R trades with the occasional large multiple-R profit.

When market structure and price action suggest the potential for a multiple-R trade, target those higher returns.

 

You've got to target multiple-R winners

You've got to target multiple-R winners

You've got to target multiple-R winners

 

So the obvious question is, "When should we be more patient with a trade and hold it for a larger runner?"

There is a recent amendment to my pre-session routine which can help answer this question.

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It’s Time to Fight to Get to the Next Level – Examples

 

Last week we added some structure to our growth and development as a trader, exploring how we could use our review process to drive our progress along the development pathway.

Check it out here if you missed it – http://yourtradingcoach.com/trading-business/its-time-to-fight-to-get-to-the-next-level/

It's Time to Fight to Get to the Next Level

The summary version of the plan was as follows:

(1) Find where you currently reside on the above pathway.

(2) Determine the Win%, Loss%, Average Win and Average Loss stats for your most recent trades (20 trade group… minimum).

(3) Identify the next level you hope to achieve.

(4) Determine how your step (2) stats will need to change in order to place you within the next level of the pathway.

(5) Immerse yourself into a review of the trades making up your most recent sample, to identify the reasons for failing to achieve the required statistical outcome, and the changes necessary to take you to that next level.

(6) Implement the changes and apply them as you trade your next group of trades (20 trade group… minimum).

(7) Repeat

 

Let's work through a couple of hypothetical examples, in order to make the process clearer.

Example 1:

(1) Find where you currently reside on the pathway.

You already know this. You're stuck at the very first stage. Sim trading with spot forex mini-lots… and still losing. Not losing badly mind you. But just slowly grinding your way to a smaller and smaller account.

No problems. That's absolutely fine. We all start there and build our way higher.

First things first though, you recognise that you need to quantify the problem and get some useable stats. So you document your plan as best you can and complete a sample of 20 trades.

The P&L clearly shows a negative result, down 100 pips ($100) over the sample of trades. So yes… it's confirmed… we're in stage one. It's all upside from here! 🙂

(2) Determine the Win%, Loss%, Average Win and Average Loss stats for your most recent trades.

Let's examine the stats a little closer though.

Win% = 55%

Loss% = 45%

Average win = 10.91

Average loss = -24.44

Expectancy = (Win% x Average Win) – (Loss% x Average Loss)

Expectancy = (0.55 x 10.91) – (0.45 x 24.4) = -4.98

You're losing almost five dollars per trade!

Ok this is not the end of the world. This is something you can work with.

(3) Identify the next level you hope to achieve.

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It’s Time to Fight to Get to the Next Level

 

Feedback from a recent article has been so incredibly positive, with a number of emails coming through saying that this was EXACTLY what these people needed to hear right now. It seems one of the most popular articles of the last 12 months.

Check it out here if you missed it – Are You Closer To Profitability Than You Thought?

So let's explore an idea expressed in my favourite line of the article.

And that's the following:

  • "… right now it's time to end the mediocrity. It's time to fight to get to the next level."

There are various levels to pass through on the way to consistent and increasing profitability.

It's Time to Fight to Get to the Next Level

For most of us, there are no short cuts!

There are no Game Cheats that can jump you straight to the end goal.

It's Time to Fight to Get to the Next Level

It's a step by step process of growth and development.

It's Time to Fight to Get to the Next Level

Progress will be slowed (or completely non-existent) if you're plan for progression is unstructured and random.

Here's how to provide some structure.

(1) Find where you currently reside on the above pathway.

Look at results over a recent sample of trades. What you did three years ago is irrelevant. We want to see what you're achieving NOW.

Take a recent sample… 20 trades minimum. And look at the P&L. Where does that place you on the above pathway? (Note: the sample chosen must also represent "typical" current results. If you fluked a massive winner through poor practice (and if you're honest with yourself you'll know if you did that) then exclude that trade. You'll only be cheating yourself if you include it.)

Wherever you are… accept it. There's no point denying it. This is your starting place. You build from here.

(2) Determine the Win%, Loss%, Average Win and Average Loss stats for your most recent trades (20 trade group… minimum).

If you don't have sufficient stats to determine these… you need to keep better stats. Start again with a new 20 trade group and keep better stats.

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Market Structure and Price Action Journal Categories

 

I've long been an advocate of the importance of a Market Structure and Price Action Journal. There is no shortage of material on this topic if you want to search the YTC article archives. The best place to start might be with anything tagged "journals", which you'll find here.

So I'm pleased to have received this email question from a YTC reader.

  • "Sir, I have started a market structure journal but would be most grateful for some suggestion for topics or categories for journal entries."

 

No problems at all.  🙂

Some people prefer to make their journals completely free-form. That is, no categories at all. Just finding one item of interest each trading day and studying it in depth. That's great.

Others will prefer to pick a topic or two for intense study. Each day they'll find and study a market structure or price action sequence related to that topic. This will allow for quicker discovery of "rules of thumb" regarding how to identify and manage these particular market structure features or price action sequences. And when you're "done"… move on to a new category.

Just pick whichever approach you want. There is no right or wrong.

Ok… so the email question assumes you've chosen the second approach and want to focus on one particular category of journal entry at a time.

What should you chose?

Again, there is no right or wrong. Just make sure it's something relevant to your own approach to trading.

But let's list some categories to help you get started if you're new to journaling. Or if you already have a journal underway, perhaps the list will help you identify a new area for future exploration.

Support & Resistance Structure

This is the obvious starting point – the S/R Structure. Print examples and study them in detail. What makes a good level? When do they lose relevance? How does price interact with the level?

  • Level Definition – Which Levels Remain Valid For Further Touches?
  • Level Definition – When Do Levels Lose Relevance?
  • Resistance – Successful Break
  • Resistance – Failed Break
  • Resistance – Tested But Not Broken
  • Resistance – Becomes Support
  • Support – Successful Break
  • Support – Failed Break
  • Support – Tested But Not Broken
  • Support – Becomes Resistance

 

Specific Key Levels

You may wish to expand upon the basic S/R structure and study some specific levels in a little more detail.

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There Are Days When You Should Not Trade

 

Last Monday was the US Labor Day public holiday.

So I was surprised to see an email on Tuesday from a trader who was caught unaware by the low volume.

Here's an excerpt from the email:

  • "Today was some USA holidays (I did not even know it) and most of the markets were completely dead and made small range during whole day."

 

You absolutely MUST be aware of the holiday schedule, as it relates to your market.

Any decent economic calendar should show them.

I use this one (due to my trading journey coming through the forex markets a few years back) – http://www.forexfactory.com/calendar.php. It's not the only one. Search around for some alternates and find the one that best suits your market and your circumstances.

It's a holiday... take a long weekend.

Some people like to trade every day. That's cool. We all get to make our own decisions; and alongside that have to accept responsibility for the outcome. If you're net profitable on holiday sessions… good on you. I just don't think the risk is worth the effort.

There are days when you should NOT trade.

For me, these days are:

  • All US holidays
  • Any other holiday relevant to the instrument being traded (eg. UK holidays for GBP/USD)

 

And there are days when you should trade cautiously (and even consider not trading). For me these are:

  • A couple of hours prior to any significant news release (such as NFP or FOMC… or market specific releases such as the Crude Oil Inventories report for CL)
  • The day before holidays or long-weekends (or at least just the afternoon of these sessions)
  • Rollover day (for futures)

 

There may be others applicable to your markets. Options expiry days are one that some people avoid.

Take some time out this weekend to update your trading plan to (a) check the economic calendar on the weekend (for the upcoming week) and again pre-session (for the upcoming session), and (b) document which days you will avoid, and which you will trade cautiously.

Happy trading (or not… on certain lower probability days),

Lance Beggs

 


 

You Don’t Have To Catch The Absolute Top

 

You don't have to catch the absolute top. If you miss it, or can't see it occurring till it's over, be patient. There is often opportunity available on a retest.

Let's start by looking at two images shared a few weeks back on YTC Facebook and Twitter, and then expanding upon this idea with a further example.

First, from the 3rd of August, 2015, we have two separate examples both shown via Trading Timeframe chart sequences:

You don't have to catch the absolute top - example 1 and 2

And then again the very next day… one single example shown here via both Trading Timeframe and Lower Timeframe charts:

You don't have to catch the absolute top - example 3

I see too many traders get frustrated by missing a trade entry. And more often than not this puts them into a negative mindset that creates further problems as the session goes on.

So it's important to discuss this idea – you don't have to catch every opportunity.

In fact… you won't catch every opportunity… so it's essential that you get used to this idea.

I probably miss more than I catch. And that's absolutely fine. Brush it off. Keep focused. The next opportunity might be just around the corner.

That's why I love these examples. A retest can come around quite quickly. If you miss an entry at a top… relax and maintain focus… there is quite often a retest.

Let's check out one more example, this time from the 13th of August, 2015, in the Emini Dow.

Let's start by taking a "big picture" look at the 30 minute chart… and we'll follow that by zooming in to the actual Higher Timeframe chart:

You don't have to catch the absolute top - bigger picture

You don't have to catch the absolute top - higher timeframe

The Trading Timeframe chart displays price shortly after commencing this rally towards resistance, and discusses my expectations for the likely future-path and areas of trade opportunity.

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