Category Archives: Trading Process and Strategy

Trading Process and Strategy – In this category we discuss all aspects of the trading process, including: (a) Technical analysis, (b) Trade Strategy, (c) Identification of trade opportunity, (d) Trade entry, (e) Trade management and exit.

Nothing “Always” Happens

 

One of the essential breakthroughs we need to make in our journey involves learning to think in probabilities.

It's something that all traders say they understand. But, for most new traders, their behaviour and decision-making shows that it has not been accepted.

This came to mind when I received the following email question:

– – – start of email excerpt – – –

I’ve circled the “Spike Low”. You can see from the Volume that it spiked as well…. my understanding is that this is a “test” for higher prices. When I’ve observed this very thing (over several years) Price Action “always” moves HIGHER… Today, it Moved LOWER and wanted to educate myself on WHY…

Else, maybe I have the whole thing wrong…

If you can comment and/or direct me to something on your site, that would be great.

<image: The email chart...>

– – – end of email excerpt – – –

Here's the chart using my usual display format. I've added a higher timeframe support level and positioned the spike at the right hand side.

<image: The context...>

And zooming in to the spike itself…

<image: The spike pattern...>

The question again – "When I’ve observed this very thing (over several years) Price Action “always” moves HIGHER… Today, it Moved LOWER and wanted to educate myself on WHY…"

My big problem is with the word "always". Yes, it's in quotes. But it still concerns me.

Here's an excerpt from my reply (noting that at this stage I had no idea of the market or timeframe and was replying based upon the original black-background chart image above).

– – – excerpt from my email reply – – –

I can't really answer as to why this move went lower, being unsure of which market and timeframe and whether this price move coincided with any news event (planned or unplanned).

Typically we can't ever know with complete certainty the reasons for any price movement. Price moves where it does based upon the orders that hit the market. Why did it go lower? Because the net effect of all the orders was bearish. Any discussion as to why trade decisions were net bearish, is simply speculation.

The error in your thought process is when you use the word "always" in this sentence – "When I've observed this very thing (over several years) Price Action "always" moves HIGHER."

Does it really always move higher? Or were there actually some occurrences where it moved lower?

We're dealing with probabilities, not certainties. Nothing "always" happens.

Even if this was a 99% probability of moving higher (which it's not because nothing is that close to certain) then there would still be 1 out of 100 cases where it moves lower. This example was that 1 occurrence.

Let's say the pattern has actually 55% probability of moving higher, which might be more realistic. This example then simply sits on the 45% side.

So it's nothing unusual. And nothing that needs understanding "why".

What is important is firstly that you shift your thinking away from certainties to probabilities. And secondly, that if you're trading something like this and take a position LONG in expectation of movement higher, that you recognise as quickly as possible that this occurrence is falling on the losing side of the probabilities, and you adapt quickly and get out.

"Why" is not important. Recognising and adapting is important.

– – – end of reply – – –

Subsequent discussions confirmed the market as EURUSD, 1 minute chart, on 26th November 2018.

So let's finish up with two additional important points:

1. Knowing the market, date and time, I was then able to confirm that the price spike occurred just two minutes after 09:00 US Eastern Time (two minutes after midnight my time). Two minutes prior to that spike there was a scheduled speech by the ECB President. Given the high-impact potential for such an event (especially given the current Brexit negotiations) it's reasonable to expect that such an event could completely shift the sentiment in the market, rendering any prior analysis and levels as irrelevant. Just something to consider!

You have to be aware of scheduled news events. You can find the economic calendar I currently use on my Resources Page – http://yourtradingcoach.com/resources/

2. For those interested, I actually have no problems with someone entering LONG from that spike. The following are my thoughts regarding the price movement following the spike, looking purely from a price action perspective.

<image: My thoughts on the trade...>

<image: My thoughts on the trade...>

<image: My thoughts on the trade...>

Happy trading,

Lance Beggs

 


 

Trading the Edges of a Sideways Market

 

When the market is stuck in a sideways trading range, the primary place to look for opportunity is at the upper and lower edges.

<image: Trading the edges of a Sideways Market>

<image: Trading the edges of a Sideways Market>

<image: Trading the edges of a Sideways Market>

<image: Trading the edges of a Sideways Market>

<image: Trading the edges of a Sideways Market>

<image: Trading the edges of a Sideways Market>

<image: Trading the edges of a Sideways Market>

<image: Trading the edges of a Sideways Market>

When the market is stuck in a sideways trading range, the primary place to look for opportunity is at the upper and lower edges.

Important References:

Sideways Trend definition: Volume 2, Chapter 3, Pages 99-102

3rd & 4th Principles of Future Trend Direction: Volume 2, Chapter 3, Pages 145, 149, 150

BOF Setup: Volume 3, Chapter 4, Pages 28-31

LTF Pattern entry: Volume 3, Chapter 4, Pages 86-93

Happy trading,

Lance Beggs

 


 

Find Your A+ Trades

 

Let's continue this recent theme…

  • Focus on the areas of the market structure that jump out at you. The sequences that are so obvious, so easy, that you'd be kicking yourself if you missed the trade.
  • Identify them. Study them. Learn from them.
  • And then trade ONLY them… until you've got a proven edge.

 

These are potentially your A+ Trades. The ones you will aim to master.

In last weeks article, I shared what I consider to be one of my A+ trades – http://yourtradingcoach.com/trading-process-and-strategy/focus-on-catching-these-trades-first/

This was followed up with a social media post on Tuesday, comparing the trade sequence from that article with another from a previous article.

Note the similarity…

<image: Your favourite trades should all look the same>

The key point, repeated for emphasis:

These trades come easy to me. The ones that come easy to you might differ from this. Your job is to find YOUR OWN A+ opportunity and get to know it in detail. There are more trades coming soon. You need to be ready.

Do you want another one?

<image: Your favourite trades should all look the same>

<image: Your favourite trades should all look the same>

<image: Your favourite trades should all look the same>

Note again how similar it looks in structure to the prior two trades. Your favourite trades will all share similar qualities.

And this first pullback after a change in structure IS one of my favourites.

It might not be one of your favourites. And that's fine. The idea is not that you should start trading these setups.

You need to find your own.

  • Focus on the areas of the market structure that jump out at you. The sequences that are so obvious, so easy, that you'd be kicking yourself if you missed the trade.
  • Identify them. Study them. Learn from them.
  • And then trade ONLY them… until you've got a proven edge.

 

If you're struggling, then please note that this could be the key insight you need. 

I received some great feedback from a YTC reader, TK, in response to last weeks article. Here's an excerpt from his email:

Hi Lance,

I just wanted to thank you for the last Friday's article and let you know that I find articles on this theme of great value.

This is exactly what makes all the difference for me. The shift in mindset that made me focus on the moves that I find obvious and easy has greatly improved my trading. I regularly come back to the article "Focus on the obvious moves first" that was the first article that made me review my trading and think about whether I take mostly the obvious trades or not. This has helped me to get rid of many marginal trades.

Last week's article reinforced this practice for me. I think that this may be a key thing that developing traders need to focus on. If I may, I would suggest that you follow up with more articles like this, that would be great.

This is the article he referred to, as being originally responsible for the new and better understanding – http://yourtradingcoach.com/trading-process-and-strategy/focus-on-the-obvious-moves-first/

Be sure to read it.

Why?

Repeating the key point from the email: "This is exactly what makes all the difference for me. The shift in mindset that made me focus on the moves that I find obvious and easy has greatly improved my trading."

Could this be the difference you need as well?

Happy trading,

Lance Beggs

 


 

Focus on Catching These Trades First

 

There are some trade ideas you look at with hindsight which are quite complex and which may have been difficult to execute.

And there are others which jump out at you as being really simple.

If you're not yet profitable, then focus on the SIMPLE trade ideas.

Identify them. Study them. Learn from them. And then trade ONLY them… until you've got a proven edge.

What you see as simple may be different to what I see as simple. But essentially, we're talking about those you would call your A+ trades.

Look at any historical chart. They're the trades which your eyes go straight to. The ones that are immediately obvious. The ones that you'd be kicking yourself if you missed.

They're the simple ones.

They're the ones you need to focus on first.

For me… one of my favourites is the first pullback following a significant change in structure.

<image: Focus on catching these trades first>

This trade… and every trade like it… jumps out of the chart at me.

If there is a "first pullback after a change of structure" trade that I miss, I'm seriously not impressed with myself.

Here's what I was seeing as it unfolded:

<image: Focus on catching these trades first>

<image: Focus on catching these trades first>

<image: Focus on catching these trades first>

<image: Focus on catching these trades first>

<image: Focus on catching these trades first>

<image: Focus on catching these trades first>

<image: Focus on catching these trades first>

What trade opportunities jump out of the chart to you?

Identify them. Study them. Learn from them. And then trade ONLY them… until you've got a proven edge.

They're the simple ones.

They're the ones you need to focus on first.

Happy trading,

Lance Beggs

Additional Notes:

1. YTC Price Action Trader readers – From the YTC PAT perspective the trade is simply the first PB opportunity after a transition from uptrend to downtrend. The classification of uptrend is not immediately obvious due to the lack of structure this early in the session. In the absence of any pre-session data, I will usually make use of any opening gap and also an opening range bias. With both being bullish in this case, I'm happy to call an uptrend.

2. Note the similarity with the trade in this post. Even though it's pattern sets up on the higher timeframe chart, the concept is exactly the same. You'll start to notice that after a while – all your good trades share similar qualities.

3. The reference to 11:30 is of course my timezone (UTC+10). The time at the exchange is 09:30. This is the time that stocks commence trading on the Hong Kong Stock Exchange.

 


 

Order Entry Error – Again

 

I seem to average an order entry error maybe once every two months. That's not too bad considering entry is via a single click. But it's something I will continue to work at improving.

In the meantime, it's an opportunity to again present my ideas on how to best manage those times when you somehow find yourself trading in the wrong direction.

Those times when order entry gives way to confusion, as things just don't look right, and then to shock as you realise you're short when you expected to be long (or vice versa).

Common advice is to IMMEDIATELY hit the CLOSE button. Accept any loss (or bonus profit). It's not part of your edge so you have no business trading it. Then try to get back in; this time in the right direction.

If you want to do that – fine. There are no problems with this.

I prefer something a little different. Maybe the idea will appeal to you as well.

The general idea is to use your skill to make a real-time contextual risk management decision. You can do this. Your brain is better at pattern recognition than you realise.

  • Is the position in immediate threat? (ie. Is price likely to continue to move against you?)
  • If so, then exit immediately
  • If not, then see if you can actively work a better exit, or even turn it into a profitable trade.

 

Think of it this way. What percentage of your trade ideas lose?

50%, 40%, 30%?

Whatever it is, there's a reasonable chance that this trade idea could fall on the losing side.

Which means, now that you're trading in the wrong direction, you might actually be able to get a profit.

Low odds perhaps. But you've found yourself in this situation. So why not try to turn it into a positive.

Don't jump straight for the CLOSE button if there is no immediate threat.

Pause. Assess the situation. And allow yourself to make a real-time decision as to whether to close or whether to manage any further risk and opportunity.

Here's the trade idea:

<image: Order entry error - and how I manage it...>

Reference for CPB setup: YTC Price Action Trader Vol 3 Ch 4 P38

<image: Order entry error - and how I manage it...>

<image: Order entry error - and how I manage it...>

<image: Order entry error - and how I manage it...>

<image: Order entry error - and how I manage it...>

<image: Order entry error - and how I manage it...>

<image: Order entry error - and how I manage it...>

<image: Order entry error - and how I manage it...>

<image: Order entry error - and how I manage it...>

<image: Order entry error - and how I manage it...>

Use your skill to make a real-time contextual risk management decision.

  • Is the position in immediate threat? (ie. Is price likely to continue to move against you?)
  • If so, then exit immediately
  • If not, then see if you can actively work a better exit, or even turn it into a profitable trade.

 

Happy trading,

Lance Beggs

 


 

Chasing Performance

 

Here's a little post-session exercise which may help stretch your performance to "never-before-reached" profit levels.

Pick a target just above your all-time-high for a trading session. Whatever that is – $100, $500, $1000, $5000 or more.

And ask yourself the following.

Looking at the chart for today's session, with the benefit of hindsight, how could I have achieved an all-time high in profits?

It's not about beating yourself up for having failed to reach new highs. Most days you won't reach them.

But it's about pushing yourself. Never settling for mediocrity. Always stretching to achieve more.

Look at the chart. Look at your trades.

Were there were price sequences which you failed to see? Is there some way you could you have captured them?

Were there price sequences in which you underperformed? Could you have taken more out of the move? Could you have increased size somehow? Could you have re-entered if stopped out? Could you have extended the targets or trailed price differently?

If you somehow did manage to squeeze all the profits out of your strategy that day, then ask if there were other ways could you have viewed price and profited? Operate from an assumption that there WAS some way to have achieved new all-time highs today. NOW FIND IT.

And just maybe… next time… you'll take the lessons learnt and actually push through to achieve these new levels of performance.

<image: Chasing Performance>

<image: Chasing Performance>

<image: Chasing Performance>

<image: Chasing Performance>

<image: Chasing Performance>

LWP Reference (for those who want to review the concept) – Vol 3, Ch 4, pp 72-77

<image: Chasing Performance>

<image: Chasing Performance>

<image: Chasing Performance>

<image: Chasing Performance>

Post-session:

Consider your outcome. And compare it with your all-time high.

Review the charts and find ways you could have stretched yourself to never-before achieved levels of performance.

Perhaps next time, this exercise might just help you reach the new target.

Happy trading,

Lance Beggs

 


 

What Puts You In Sync (or Out of Sync) With Price Flow?

 

I sent out the following post via social media earlier this week. It's a theme I've pushed quite a bit over the last few years because I feel it's incredibly important.

No matter what markets you trade. No matter what timeframe you trade. No matter what strategy you trade.

There will be price sequences where you are in sync with the movement and smashing it out of the ballpark.

And there will be price sequences where you are out of sync and just nothing seems to ever go right.

Here's the post:

<image: Not all conditions are equal>

Why is this important?

The quicker you can recognise change to favourable or unfavourable conditions, the quicker you can adapt tactics to suit.

In response to the post, I received the following question on twitter:

  • What are some things one can do to put together a framework for identifying these transitions?

 

Great question!

Here's one thing that you can do…

Before you can study the transitions, you need to know what type of price sequences lead to you underperforming. And which lead to exceptional performance. From that foundation, you can study the transitions in and out of these sequences.

So here is the plan…

Something you might want to consider post-session…

Examine the price sequences where you just couldn't read the market bias!

These are the sequences where you have no idea what is going on. "It's bullish. No… it's bearish. No… wait.. hang on…it's going… damn it! I have no idea at all."

The sooner you can recognise this (and accept it) the sooner you can stand aside and limit damage, waiting until some clarity returns to the market.

Post-Session:

1. Take note of any price sequences which resulted in complete uncertainty about the directional bias.

2. Review the conditions – market structure, price action and human performance factors – which may have influenced your decision making.

3. Document your findings.

4. Over time, you'll start to identify those conditions which have the potential to put you out of sync with the market, allowing you to recognise and adapt more quickly in future.

Examine the price sequences in which you found yourself fighting the bias for multiple trades!

These are the sequences in which you were confident that you had picked a market direction, but then got stopped out of one trade… and then another… and maybe more… as you fought what was in reality a completely opposite bias. Hindsight is a beautiful thing. But it's also where we learn. Study these sequences and learn what puts you 180 degrees out of sync.

Post-Session:

1. Take note of any price sequences which resulted in multiple attempts to trade the market from the wrong side.

2. Review the conditions – market structure, price action and human performance factors – which may have influenced your decision making.

3. Document your findings.

4. Over time, you'll start to identify those conditions which have the potential to put you out of sync with the market, allowing you to recognise and adapt more quickly in future.

Examine the price sequences in which you read the market bias well but just couldn't execute in sync with the market!

These are the sequences in which were 100% spot-on regarding the market bias, but just couldn't get those trades going. Choppy price action leading to hesitation. Or maybe tripping stops and leaving you watch from the sidelines while it goes to the target without you.

Post-Session:

1. Take note of any price sequences which resulted in a correct bias but a complete inability to profit from your market read.

2. Review the conditions – market structure, price action and human performance factors – which may have influenced your decision making.

3. Document your findings.

4. Over time, you'll start to identify those conditions which have the potential to put you out of sync with the market, allowing you to recognise and adapt more quickly in future.

Examine the price sequences in which you read the market bias well AND executed well.

These are the sequences in which you just smash it out of the ballpark. Not only can you see the market bias, but every fibre of your being senses it as well. And your timing just fits perfectly.

Post-Session:

1. Take note of any price sequences which resulted in A+ trading and clear outperformance.

2. Review the conditions – market structure, price action and human performance factors – which may have influenced your decision making.

3. Document your findings.

4. Over time, you'll start to identify those conditions which have the potential to put you quickly in sync with the market, allowing you to recognise and exploit the situation more quickly in future.

A whole lot of work, but it will pay you back a thousand-fold.

Happy trading,

Lance Beggs

 


 

Traps Immediately After the Open

 

The open can be a time of great opportunity. But you need to be prepared.

My default option is to always wait for the Trading Timeframe (TTF) to develop some structure. To wait until the initial trend is clear and obvious.

But there are some times when I'll trade earlier, before the TTF settles into the day's trend.

Like here…

<image: Traps Immediately After the Open>

There are generally three situations where I'll take an early trade.

The only way I can catch them is to be prepared. BEFORE THE OPEN!

I will ask some questions:

(1) Is there some exceptional pre-session structure to trade off?

<image: Traps Immediately After the Open>

(2) If price drives strongly, will it be driving into clear space that offers good potential for continuation?

<image: Traps Immediately After the Open>

(3) If price offers a trap immediately after the open, would the structure offer a multiple-R potential?

<image: Traps Immediately After the Open>

If none of these three questions suggest good trade opportunity, then I will happily sit back and relax until there is some structure in play.

But if the answer to any of these questions is YES, then I will pre-consider how the price action will need to set up. And I will prepare myself for potential opportunity very quickly after the open.

Today I will remain alert and ready for a possible trap opportunity.

<image: Traps Immediately After the Open>

<image: Traps Immediately After the Open>

<image: Traps Immediately After the Open>

<image: Traps Immediately After the Open>

See here for more on PB Setups.

<image: Traps Immediately After the Open>

<image: Traps Immediately After the Open>

<image: Traps Immediately After the Open>

(1) Is there some exceptional pre-session structure to trade off?

(2) If price drives strongly, will it be driving into clear space that offers good potential for continuation?

(3) If price offers a trap immediately after the open, would the structure offer a multiple-R potential?

If the answer to any of these is YES, then pre-consider how the price action will need to set up. You might just find some opportunity very quickly after the open.

But if the answer to all three is NO, then sit back and relax. Let the open play out and wait until some new structure develops.

Happy trading,

Lance Beggs

 


 

It’s All About Real-Time Contextual Decision Making

 

You've learnt the pattern or setup. Great. But that's not trading.

Now work on the real-time contextual decision making around that pattern or setup.

Look beyond the pattern itself to the wider context.

Where is the pattern occurring within the larger timeframe market structure? What structure will suggest avoiding this particular setup? What structure might suggest caution, or reduced position sizing? What structure might suggest increased odds and the potential to really press the trade for a larger gain?

Where is the pattern occurring within time? Are there news influences which suggest passing on the trade? Are their time-of-day / week / month factors which might suggest standing aside?

Consider the behaviour of price movement – the pace, the volatility, smooth vs choppy price action.

What conditions might suggest adjustments to the default plan? All-in vs scaling in? All-out vs scaling out? Closer stops vs wider stops? Closer targets vs extended targets?

Consider the real-time decision making once in a trade.

What signs might suggest a loss of edge? How will you react to this new information?

What signs might suggest greater potential than originally perceived? How will you react to this new information?

What conditions suggest a re-entry attempt should be taken, if stopped out of the position? And how many re-entry attempts are appropriate?

Trading is not about simplistic patterns. It's about real-time contextual decision making.

If you've been on the wrong path then it's time to make a change. It's time to do the real work.

Best of luck,

Lance Beggs