Tag Archives: Finding Your Niche

Price Action Principles – Timeframe Independent

I just want to take the opportunity here to remind those on higher timeframes that almost everything I write should be thought of as largely timeframe independent.

Most of the examples I provide will come from very low timeframe charts. Why? Because that’s what I trade!

But while the chart images I show in newsletter articles may be from a timeframe that is vastly different from your own trading business, this does not mean there is not value in my writing.

Look beyond the charts to find the ideas, concepts or principles that are relevant to price action traders across all timeframes.

It’s about the principles… it’s not about the timeframe!

The YTC Price Action Trader analysis and trading plan is adaptable to all markets and all timeframes.

The YTC Newsletter articles also have application across all markets and all timeframes.

You just need to think a little to see where it may fit within your own business plan.

We’ve talked higher timeframes on occasion… both through my own examples and through those provided by readers:

But this is clearly not evident to all traders.

Following last weeks article on the first pullback following a structural change, I received a notice of an “unsubscribe” from one trader, who stated the following: “I am into end of day trading. Each week you seem to start off with a 1 minute chart and that is not for me… thanks”.

I have no problems with unsubscribes. I’m happy for people to leave if they’re not getting value or not liking my writing style. But to leave because the timeframe is different to your own… it’s just a shame they couldn’t see the principles beyond the chart. The first pullback following structural change is a concept relevant to all markets and all timeframes.

Interestingly, I also got two emails from other traders discussing higher timeframes. Both these guys get it!

First from RL.

G’day Lance,

Its been a few years since I emailed you, but I continue to read and learn from your weekly updates. Thanks again for taking the time to do that.

I am a longer term trend trader, so I use the weekly charts for my trend identification and the daily for entries. I was reviewing my entries this past Friday morning in the States (before I got your email), and noticed once again that the 1st pullback after a breakout is really the best place for me to enter a trade.

I use stochastics to help identify the pullbacks as my brain tends to get overloaded just looking at a price chart, but that’s just me. I also like pullbacks to the major moving averages (like the 50D), knowing that many traders are looking at this too.

I was excited when I saw your email later in the day about the 1st pullback after a “structure change”. For me, a structure change is something like a Higher High or a new 20D High. And on many of those situations, I now realize that trading the breakout isn’t the optimal play, but waiting for that 1st pullback (if it happens) is really the highest return for $ risk I can make.

I thought it was great that you would write about this on the same day that I re-discovered it and (perhaps) will finally accept it and build it into my trading plan.

Hope all is well, and happy trading

RL

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It's about the principles... not the timeframe

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Fitting Trading Into Life

This doesn't sound too appealing, does it:

  • 10:30pm – Trading Preparation
  • 11:30pm – Market Opens – Commence Trading
  • 01:00am – Stop Trading – Commence Post Session Review
  • 02:00am – Wind-down
  • 03:00am – Bed
  • 07:00am – Up to get the kids ready for school
  • (etc)

Late to bed; and a serious lack of sleep.

And it’s even worse during the six months of US daylight savings, when the market opens an hour later at 12:30am my time. Not nice at all.

Yet it’s part of my current routine. And it’s quite likely a similar routine to many traders across the world, in particular those in the same timezone as I who choose to trade the US markets.

And unless I can convince my wife to move to the US (not likely) or convince the CME to move to Australia (probably more likely than the first option), I’m stuck with this routine.

I recently took a couple of weeks break from this gruelling schedule to trade the Hang Seng Index Futures, instead of the E-mini Russell. It’s a planned move, approximately every quarter, to allow me to repay some sleep debt. But it only lasts a couple of weeks and then I’m back into the daily grind (or should I say nightly grind).

This prompted a request from a reader of my blog to discuss my thoughts on managing trading in a timezone such as we have here, the east coast of Australia (GMT+10).

This is of course just a part of a wider issue, that affects traders all across the world, in particular during their development phase where they have to juggle learning to trade alongside a job and other family responsibilities… how can we best fit trading into life?

How does one best determine their preferred market, timeframe and trading hours, and manage this while still allowing time for work, rest and play.

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Sports and Trading – Finding Your Forté

Your trading timeframe, market and strategy MUST be matched with who you are as a person.

Until it does, I believe it’s impossible for you to achieve consistent success.

This is discussed below in a great email exchange with one of the YTC readers…

Email:

Hi Lance,

I actually read the three parts of “The Importance of Exit Strategy” before I signed up for your news letter and listened to your videos.

I have to say that I am quite taken with your altruistic approach to your website and your presentations. It is indeed refreshing and assuming your continuation along this vein, you are one in a million!

I do have a couple of comments but first I also want to tell you that I am an older man who has founded six high technology companies in Silicon Valley, so I understand looking at making money as a business. I also have been trading on and off for longer than I can remember but somewhere from the early 1980s.

I have never achieved any great or consistent success mostly because I have never had time to devote to trading as a real business as being an entrepreneur takes up most of a 24 hour day. Having said that however, I am now getting to a place where I intend to transition to full time trading and am getting very serious.

I was intrigued with your 12 elements of success especially about the question of identifying who one is and what kind of trading ultimately resonates with one. While I have not asked myself that question regarding trading, I have recognized the answer over my lifetime because I do react to my life in a very specific way.

When I listened to your 12 elements, I was struck that one way to equate or identify one’s style is to look at what sports one is drawn to and why. The answer for me is basketball! Why? Because it takes very sophisticated and unique personal skills, it is a fast game, the rewards or failures happen each time you move from one end of the court to the other, you have to be in superb mental and physical shape, you have to have a very high level of confidence in your own skills, you have to be quick, nimble, perceptive, cunning and etc. Contrast that to the very snail game of golf, baseball, even football etc. Not that those games don’t require some of the same attributes but nonetheless, they are SLOW and I don’t have the patience for them. I am totally bored with golf. I would rather search for lost golf balls than play the game!

Translating to the markets, you can see that a fast game has to be day trading, scalping, moving in and out in fast markets rather than trend trading, or investing, or option strategies such as iron condors, calendar spreads etc. where it takes a month to know if one wins or loses. etc.

I also like to create so I have written a plethora of indicators for Trade Station in an effort to understand the mathematics of the markets and the rhythm of how they move.

All in all, when I roll the “who I am” into what kind of markets make sense for me to trade, I know where I must go.

I just wanted to share the sports metaphor as I felt it may be a trigger for some of your readers in answering their own questions.

Thanks for a great site. I will continue to enjoy reading and listening to some of the terrific, psychological, Zen, strategic and well considered philosophies that you put forth.

Thanks for reading this far. I think I need to write a book! Just kidding.

Warm Regards,
LY

Reply:

Hi LY,

Thank you for your great email. You’ve made my day. You’re understanding of the concept is spot on.

One of the fundamental truths of trading is that you will not achieve consistent success if your trading approach is not a right match for your personality. Unfortunately most traders aren’t aware of this; and many will ultimately fail, leaving the game disillusioned after having struggled for so long in a game that just does not suit them.

You see this in so many people who apply themselves to sport, arts, university studies or careers, simply because it’s what their parents want or expect. Having ignored their own passions, they ultimately fail; or if they do achieve some measure of success it’s a hollow victory underscored by a feeling of emptiness and depression.

Common advice in the trading world is to avoid the lower timeframes because it’s too fast. They say that you should learn on daily charts first; their theory being that if you can’t trade the daily charts then you won’t be able to trade the faster intra-day charts.

Rubbish!

I’m terrible at daily charts.

It’s too slow for my personality. I over-analyze. I second-guess, constantly. I have no patience, and I get incredibly bored. It’s just not fun.

Low timeframes fit my personality – I like the fact that I’m required to make fast decisions, take action, and then get almost immediate feedback. It’s how I work best.

Timeframe, markets and strategy MUST be matched with who we are.

I’m glad you’ve found signs pointing towards your preferred trading style through the sports analogy. Well done. Quite likely though you’ll also find similar patterns through other areas of your life as well. Perhaps in business. I imagine the personality type required to be involved in six startup high tech companies is very different from the personality required to manage a family business over a 40+ year working life. What characteristics of personality have led to your business success, and which trading approach does that point to?

Thanks again for your email, and all the best for your future trading,

Lance Beggs

 

Are Short Timeframes Just Noise?

Are Short Timeframes Just Noise? (And Other Scalping Feedback)

Thanks to everyone who provided feedback on the Scalping article last week – http://yourtradingcoach.com/trading-process-and-strategy/scalping/

It appears this is a market approach that interests quite a few people. Expect to hear more in future. For those of you not interested though, do not despair. There will be lots of other content. And the concepts will often apply to larger timeframes as well.

Today though, let’s address a couple of the key points discussed via email feedback during the last week.

(1) Ensure Liquidity

These strategies absolutely must be executed only in liquid markets. You need to have the confidence that you’ll get into or out of the market at, or close to, the planned price. Essentially, you’re looking to ensure that the market still provides smooth price action. If the chart is filled with stop-and-go price action, or gaps all over the place, avoid it or stick to higher timeframe trading. If the market results in too much adverse slippage, find another market.

I’ll be sticking to the emini indices and the fx futures, during their peak volume periods only.

(2) Minimize Costs

Costs MUST be minimized or you’ll bleed your account to death. As I said above, I’ll be sticking to the emini futures and the fx futures. I don’t plan to attempt this on spot forex at all. That being said, ForexBird seems to scalp the spot forex EUR/USD and EUR/JPY contracts quite successfully.

If you want to try it on spot forex, test on a demo platform first. But I’d be limiting scalping to pairs with 2 pips or less spread, possibly 3 as an absolute maximum for some of the larger range pairs such as GBP/USD.

(Actually, that’s good advice regardless of the chosen market – practice and prove success on a demo first.)

(3) Bias is dangerous

Great comment from a reader. I absolutely agree – but only when the trader is unwilling to change their bias.

While I believe you need to have some view of future market direction, you must be absolutely ready and willing to dump that bias as soon as new information comes to light that opposes your view.

Success on these timeframes is about reacting to what the market is showing you. Be prepared. Be focused. And be flexible. If you’re not willing to be proven wrong, you don’t belong in this timeframe (actually, you don’t yet belong in the markets, full stop!)

(4) Are Short Timeframes Just Noise?

Thanks to those who tried to tell me that short timeframes are just random noise, so scalping just won’t work. Love it! I appreciate your concern. 🙂

Seriously, this is a common view that I read all over the internet – "short term price action is just all random noise".

Traders who operate on daily charts believe that hourly charts are just noise and contain no edge. Hourly chart traders believe that the 5 minute chart is noise. 5 minute chart traders believe that the 1 minute chart is noise. And on and on.

Rubbish!

The reality is that they just can’t read it.

There is no noise – it’s all information.

Once again this will be best demonstrated by showing charts. Let’s look at a couple of trade opportunities from the last week, using standard price action based setups. All charts are 10 second charts. As you’ll see, THE SAME SUPPLY AND DEMAND PRINCIPLES WORK.

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Scalping

I’ve been following a great blog (http://forexbird.blogspot.com/) for a couple of months now and it’s inspired me to spend a week or two playing with a reduction in trading timeframe.

And I have to say that while trading is without doubt a serious business, I haven’t had so much FUN in years.

Despite his excellent performance, the strategy used by the ForexBird trader doesn’t appeal to me personally; in particular jumping on momentum moves. But I’ve found my normal approach adapts quite nicely to the lower timeframes.

My ‘normal’ trading involves what many already consider to be small timeframes, as follows:

  • 60 or 30 min chart – used to define an S/R structure to the market
  • 5 or 3 min chart – used to define the market environment and the trend which exists within the higher timeframe structure, and to develop a feel for bias
  • 1 min chart – used to fine-tune my analysis and bias and to work my entries and exits

For the last few nights, I’ve been operating on slightly quicker charts:

  • 3 min chart – used to define an S/R structure to the market
  • 1 min chart – used to define the market environment and the trend which exists within the higher timeframe structure, and to develop a feel for bias
  • 10 sec chart – used to fine-tune my analysis and bias and to work my entries and exits

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When is the Best Time to Trade Forex?

I often get asked, ‘when is the best time to trade forex intraday?’

Great question!

Just because the market trades 24 hours a day doesn’t mean that there are opportunities available all day every day. The market typically varies in range, and therefore opportunity, at various times throughout the 24 hour period. Some periods of time have a larger average range of price movement. Other periods of time have a more narrow range of price action. The best time to trade forex for you will depend on whether your strategy performs best in a wider range market, which has greater likelihood of extended trends, or whether it prefers a narrower range-bound market.

Let’s look at the various forex sessions.

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Are Short Timeframes Too Risky For Beginners?

The following is an extract from some great Q&A with one of the YourTradingCoach newsletter readers:

 

Question:

Lance,

I have been watching those videos on your website and the more I watch them, the more sense they make. They are great, but as you may have guessed I have questions.

Firstly, your style of trading would have to be deemed as “scalping”. I mean using the hourly chart to find S/R levels then picking your trades on the 1/5 minute charts is scalping surely. However most authors, experts, or whatever they call themselves do not advise this and warn especially against learner traders trying the faster time frames.

Do you think your style may be a little to risky for novice traders?

Thanks from Brian.

 

Answer:

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Which Market Should I Be Trading?

This is one of the most common questions I get from novice traders. They’re stuck at one of the first steps – deciding what market they want to specialize in.

If you’re stuck here as well, then there’s something I’d like you to think about which may make the decision easier…

You’re unlikely to get it right first time anyway.

No matter which market you choose, there’s a good chance it’ll change sometime in the future.

If you choose a market and it just happens to be the market that suits you, then that’s great. But don’t plan on it happening. The decision you make now is nothing more than a best guess as to the most suitable market – a best guess based on limited understand of the various choices available, and whether or not they will suit your personality and your lifestyle.

Of course, you should always research the markets to make the most informed choice possible. But the point is that you don’t know what you don’t know, and your belief as to the most suitable market will possibly change anyway, as you gain experience.

So don’t be paralyzed by indecision.

Don’t fear making the wrong decision.

And don’t be afraid to change markets in future.

Any experience you gain in one market will be transferable to other markets. And these days it’s easy to open new accounts.

Would you like an example?

I thought I was making the right decision in the year 2000, in selecting the stock market, trading from weekly charts. In a very short space of time I realized that I did not have the patience to wait weeks on end for trades to play out to their conclusion, so I had to adjust to daily charts.

In 2003 I changed to options (traded on ASX shares on a daily timeframe) in an effort to get more leverage. I suspect the decision was also influenced by a need for more excitement – a poor reason to trade, but nevertheless a major decision making factor for many traders.

In 2004 I changed to Contracts For Difference (CFDs), still trading ASX equity CFDs, but allowing ease of trading both long and short without the wider and unpredictable spreads that exist in the options market.

2005 saw a change to forex, with timeframe gradually dropping from daily charts down to 15 minute charts.

2006 saw an interest develop in equity index CFDs as well, with timeframes in both forex and indices dropping down to as low as the 1 min chart.

I’m comfortable where I am now, with forex and equity index CFDs, but foresee at some stage in the near future I’ll probably make a permanent change across to emini futures.

It took me a long time to find where I’m comfortable. And as I said I fully expect changes again in the future. I imagine one day I’ll possibly even reverse the timeframe trend and move back to longer timeframes, as I get nearer to retirement and try to minimize workload.

So, hopefully you’re now comfortable with the idea of just making a decision as best you can right now, and accepting that it’s ok for that decision to be incorrect. You can always change it later.

As success coach Mike Litman says, “You don’t have to get it right, just get it going!”

Ok, back to the question… which market should I trade? What are the options – no pun intended! Well, to really simplify the choices, you have essentially four markets to choose from:

  • Stocks – whether directly through the stock market or via some form of derivative such as CFDs.
  • Futures – whether commodities, bonds, stock index or FX futures.
  • Forex – spot FX.
  • Options – A derivative market based on an underlying instrument of stocks, futures or forex.

 

This article won’t go into each in detail. That’s perhaps a topic for future articles. In the meantime, a web search will bring up more information than you could read in a lifetime. The key thing we need at this stage is just a decision. The education will then follow, once you’ve chosen a market.

Here’s the way I’d approach it, if I was starting out again. Maybe this will work for you as well?

 

  1. In my opinion, the most important factor for a beginner in choosing their first market is to choose the one which you are most familiar with or feel most excited about.

    It’s that simple.

    If you have been to an introductory seminar on forex, and skimmed through a few forex books at your local bookstore, and are quite excited by the idea of trading forex, then that’s your starting point.

    If you’ve never heard of forex, futures or options before, but are comfortable with the fact that stocks are simply just a part ownership of a company, especially of the larger companies which are household names, then the stock market is your ideal starting point.

    If you’ve been following the Dow or S&P on the news each night for the last few years, and think it would be great to trade the whole market, then maybe you need to start with emini futures.

  1. Having chosen the market that you’re most familiar with or most excited about, select a timeframe which suits your current lifestyle. If you work during the market hours, then you can’t daytrade. Start off with a longer-term swing trading or position trading timeframe.

    If you want to daytrade, and the market hours and your lifestyle allow that, excellent. Otherwise, do not try to force daytrading into your schedule. It just doesn’t work. It’s very time intensive and if it disrupts your family, work or personal life, then you’re placing the odds of success very much against you.

    Make the timeframe fit your lifestyle. Don’t try to make your lifestyle fit the timeframe.

  2. Confirm through a broker the minimal capital requirements to operate in this market and timeframe. If you can’t afford this, then either set in place a plan to simply trade on a demo until you can save up further funds, or go back to step one or two and select an alternate market or timeframe.

    WARNING: Undercapitalization is one of the biggest killers of trading careers. Please note that even if you meet the brokers minimum capital requirements, it will rarely be enough to trade safely. The market and timeframe must be such that the normal stops should not risk more than 1% of your account. Anything more than this in the early days, and the stress from financial loss could well lead to the end of your trading career. If you can’t afford this, just learn while you save more money, or consider an alternate market or timeframe which allows less capital.

  3. Now learn your market and practice on a demo platform. Consider the use of the Traders Checklist to Success to guide you through the learning process. But under no circumstances should you risk capital in the live markets, until you have educated yourself on the market, understand the risks, and have demonstrated success on the demo platform.

 

That’s it. Simple!

What market are you most familiar with, or most excited about?

What timeframe fits your lifestyle?

Can you afford it?

Well done. You’ve now chosen your market and you’re ready to start your education.

Happy trading,

Lance Beggs

 

Transitioning from Part-Time to Full-Time Daytrading: Ensuring Sufficient Income

One of the toughest times of my life – that threatened my own psychological wellbeing as well as the potential safety and security of my family – was in early 2004, when I first made the leap from part-time to full-time trading.

I had the required knowledge. I had the required skills. I was a great technical analyst. And I had some demonstrated success in the markets.

But I was lacking in other areas. I was grossly undercapitalized. And despite my appearance as being someone with a positive and confident attitude, inside I was consumed with doubt and fear. Of course, I was unable to admit to either at the time.

Well, there’s nothing I know of that’s more effective for bringing all your fears out into the light, than quitting your full-time job to pursue a full-time career in market speculation.

With no other form of income available to support my family, it was all up to me to continue to generate the market returns that I ‘knew’ I was capable of achieving. Of course, almost instantly, my results failed to meet my expectations.

Thankfully, I still had the discipline to respect my stops, ensuring I did not have to face a single catastrophic loss. Although in some respects a single catastrophic loss could be seen as a blessing – at least it gets it over with quickly. Instead I spent the next few frustrating months grinding my way into a soul-destroying drawdown.

My mindset was a mess. I doubted my analysis, hesitating at entry until I got in way too late, or missed the trade entirely. And it seemed as if the only trades I did enter without hesitation were those entered out of frustration from missing the previous trade, rather than from good analysis. Typically, those trades do not provide the greatest edge.

I would take profits quickly; fearful that the market would snatch them back from me.

And I even ventured to depths I never thought I’d go – asking a broker for some trades. In his defense, his analysis may have been great. I just wasn’t in the right mindset to be profiting from any recommendations, no matter how great the trader or analyst.

Basically, fear of not being able to provide for my family led to doubt and indecision, which rendered me incapable of applying my trading plan in a consistent and disciplined manner, leading to realization of the very fear that it sought to avoid.

Fortunately, I was able to recognize the problem before the damage to our finances and my marital status was irreversible. Although I must admit, I took both right to the edge.

So, I took some time out to rethink my plans. I returned (with tail between my legs) to full-time work. And I set about preparing for my next assault on full-time trading.

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