Nill's log - VSA & PA on the 1D

[Steady_Rich]

Ah yes, I started out in his old thread and then moved on to his newer one. And one of the PA links that I listed is by Forex School Online (Johnathan Fox).

Pete talks about accumulation and distribution, is that what you’re referring to when you mention order flow trading? I read Master the Markets and they discuss accumulation, re-accumulation, distribution, and re-distribution.

I haven’t taken the quiz yet, but my philosophy on trading is simply based on common sense. I don’t find indicators useful because they overcomplicate what’s already on the screen. The volume of a bar tells me if there was a struggle and the position of the bars give me an indication of what I like to call “choke points.” Unlike most traders and investors, I believe that economics and forex are two completely separate things, which is why I almost always disregard the news. The only time I check the news is to determine when there will be the most volatility in the forex market. I’m just looking for the perfect balance between VSA, PA, common sense, and traders’ psychology.

When I say back testing, I don’t mean pulling data from a broker and inputting it into an excel spreadsheet and running all the numbers through an algorithm; I’m simply talking about testing out different strategies on the charts manually. After learning about a strong probability of a reversal on a pin bar forming on a high swing, I opened up the fxdd demo platform and started to go through all the pairs on the 4hr and daily timeframe manually to see how many wins/losses I would’ve had if i took every single pin on a swing high at resistance or swing low at a support.

I have done some front end programming like web design and simple javascript and php coding and it took a lot of time to learn and even longer to implement. I don’t want to go through the same thing learning mt4. At the moment I’m focusing on trading, school, and work, in that order.

From what I’ve seen so far, the NY markets are news driven and a lot of times the short term trend is reversed. After 12pm EST, the liquidity dies down and the market continues in a normal fashion prior to the big news unless there is an FOMC meeting at 2pm. After 5pm EST, the short term trend tends to reverse again and slowly drifts in the opposite direction occasionally. There’s some volatility during the Asia open, but most of the time it’s just noise. The most important hour by far is 6am EST and that seems to be when some trends are established or confirmed.

[Nill]

Sounds like your heading in the same direction I have taken. It has been a hard road, but by trading with real money I think you’ve learned a few things faster and stopped from building bad habits quicker as well. I would compare it to playing poker with your buddies, when there is no buy in guys tend to go all in very quickly, but with a 100$ buy in, no one goes all in unless they’re holding an amazing hand…

Here 301 Moved Permanently is the order flow trading breakdown made very simple. I would read through it a few times, don’t get caught up in the use of order flow information, so much as how he breaks the market down. I have read many books by floor traders and large equity firm managers, the way they use their money is very much in line with a majority of the things you will read in that thread. Good piece of insight.

I stopped manually back testing ideas after I noticed myself ignoring how many times and idea didn’t work… I would only focus on when it did. I would love to learn to write some simple EAs to test some things… That might be my next adventure. I trade full time, but I want to take my game to the next level, and breaking away from the herd is the only way to ever get there (in my opinion) I don’t focus too much on the nitty gritty details of other successful peoples ideas anymore, I look more at WHY they do things the way they do, why does this work for them?

My goal is to look at a naked chart and forecast future moves with at least a 60-70% success rate this coupled with the proper risk:reward ratios is almost a fool proof way to win big. I am finding that this is possible but being plugged into fundamentals is going to be a part of this as well. Gotta pay to play they say, and since time is money, my time will most likely be spent reading a bit more news than I was willing to before. Not so much to trade the news, but to see how the markets react to the news (true market sentiment). To many these are not new ideas, but for lazy me, it has taken me some time to really open my eyes to the bigger picture.

Let me know what you think about different ideas you come across and find interesting, we can break them down and learn together! That goes for anyone else out there…

[Steady_Rich]

In the process of reading the order flow trading thread now. By the way, I don’t know how proficient you are at VSA, but I always wondered what it means when price retraces back to previous levels with lower volume. On one hand, it seems like the smart money is less interested the second time around and price might not break through the level. On the other hand, though, it could also be a test by smart money to see if anyone besides them is willing to drive the market away in either direction at that point. What’s your take on that?
Also, feel free to not answer this, are you making a steady living off of trading? It seems to me that it can definitely be done, but at times I get discouraged. It’s something that I enjoy doing and hope to turn into a full source of income and then some, but it seems to me that there aren’t too many people who are successful with it. Even some of the “gurus” here are not as successful as they claim they are and still have to rely on subscribers on their site to make a living.

[Nill]

In response to your first question about retraces on lower volume; I have a quick question for you: Do you look at multiple timeframes? I will give you my take on it, and you will see why I asked this…

Big money movers need liquidity to enter and exit positions. How do they do this? Well retraces can be a point of liquidity (think Stop hunting). Many large money movers will “Scale in” and “Scale out” of their positions. This is because they require liquidity to get into such a large position. If you see volume increasing at the bottom/top of a move, this is most likely big money taking advantage of the liquidity provided during that move.

On a smaller timeframes you could see these as mini trends, sometimes they last for 1 hour sometimes 4 hours etc. These moves don’t appear to be real trends when you ‘zoom out’ to a larger timeframe; say the daily, weekly, etc. When large money is playing, they must rely on a more long term market sentiment to provide them with a guide as to which way to trade. This will give them time to scale in or out of a position. Think of a firm with billions in riding a single direction with an intent for profit…

When large volume is seen at the end of a move, I ask myself who is buying the other end of this? and why? when there is no real volume coming in to meet a move I just ignore it (to an extent).

I hope this gave you a better idea of how I look at things.

In response to your second question; I have not traded spot FX with a live account as of yet. I will be very shortly though. I do trade other instruments and I have been realizing positive returns to a point I am willing to no longer rely on someone else for my livelihood (working for a paycheck). In life things are what we make them. If you want something bad enough, you will (consciously or subconsciously) figure out a way to make it happen. Some people call it hard work, others a self fulfilling prophecy, others luck…
Do I drive a Maserati and live in a 5 million dollar house? No, not yet but I do fare well enough to enjoy my life on my terms. And I will continue to because I will become better and better at this game. Learn from the things you do that don’t give you want you want. You can only control yourself, so when you become discourage ask yourself if this negativity will help you realize your goal, or if it is simply impeding it. I think a lot of people fail at trading because they have an idea in their minds of what it should be, and when that doesn’t happen instead of looking at themselves for a better answer, they blame the game. The key to success in any aspect of life is consistency. If you can bring this to your game you will realize your goal. It takes longer for some than others, but it comes down to perspective and actions taken to determine the timeline. OK I’ll get off my soapbox now

What else can we talk about to further our trading game? I am connecting some mental dots about trading while I answer your questions, so this is fun!

Lets talk about the EU short trade you took. I read your reasoning, but lets explore it more deeply. Did you look at any other timeframes before entering this trade? If not what was your reasoning for that? Did you rely solely on PA and VSA or did you look at the news leading up to that trade?

[Steady_Rich]

I look for larger time frames when I see liquidity increasing or decreasing at major s&r levels. Sometimes it seems to me that it’s a hit or miss because pete described it both ways; the lower liquidity on a double or triple top could fall back down because there aren’t any big bulls to push it through to the upside, or there aren’t any big bears to short it to the downside. He likes to see steady medium volume, whatever that may be since tick volume is subjective across brokers and during different markets.

As for the EURUSD short I took it for the reasons I listed above. A couple of more things helped me confirm that it was a good trade. The euro is obviously on a negative bias right now with all the mixed news coming out, especially with emerging markets. Analysts believe that the euro is overvalued and fair price is around $1.25-$1.30, which I agree with. The trend almost seems to be ranging for the past decade, which is to be expected with the biggest currency pair. It’s also ranging for over 3 months between 1.387 and 1.33, a fairly tight range considering all the volatility with both of these currencies. Oanda’s currency ratios indicate that most of their users are on the short side as well and there are a lot more short orders below the 1.35 than there are long above the 1.38. This, to me, isn’t very significant since it’s only a small portion of retail traders, which as we both know don’t know the markets too well. But it does tell me one important thing: if smart money or Oanda were to go for a squeeze, it would be hard to push it under the 1.35 area and bring it back up quickly due to the volume of retail traders betting that it will go down. Their only choice would be to push it higher, which I don’t see happening any time soon, especially with the fed announcing that they will taper QE by another 10b.

The PA analysis portion of this trade lies with the fact that there are many pins appearing at the top around major support levels. The biggest pin, which I missed because I wasn’t big on PA back then formed on the 4 hour chart on 12/27/13 at 12:00 (if you’re using the NY market close as the 0:00 mark). This means that it happened right after christmas during the time when asia markets and europe markets begin to overlap. Around the end of the year the volume is lower because people are on vacation or wrapping up their year and locking in profits, so for a big pin to form like that and get quickly rejected is a big sign for me. This then set in motion the 4hr downtrend with lower highs and lower lows, so naturally I would look for a big pull back to go short off of. If you look at the charts, you’ll notice that 1.3700 becomes a fairly strong resistance level once the trend goes below it. The pin that I took as confirmation formed right around that level, but it failed to close above it. And since then, even with high volatility and 50 pip swings, the bulls can’t manage to break past that level.

As for the VSA portion of this trade, the 4 hour pin that I entered on formed at a much higher volume than the previous pin, which was formed on 12/27/13. This already tells me that the pin formed wasn’t just noise created by the markets under low liquidity.

Bringing it all together, although this isn’t the textbook 5 star trade that we would like, it is close to it. The pin is in the right place for a pullback on a downtrend. VSA confirmed downward momentum. And common sense dictates that this trade should at the very least retest the 61.8 fib that was created from the swing low on 11/7/13 to swing high of 12/27/13.

On a side note, something has been bugging me for months about fib retracements. Have you ever noticed that certain levels like the 38.2, 50.0, and 61.8 act as a resistance BEFORE the two points are created? The fib that I have on my screen is drawn from 11/7/13 to 12/27/13 and the 61.8 level is 1.35230, not a particularly special level, but price on 11/26, 12/4, and 12/5 tested this level before moving higher and completing this swing. Prior to the swing high of 12/27/13, I would have never been able to draw the fib retracements because I had the low point but not the high point. But in hindsight, it seems almost as if smart money had these moves planned and knew where the 61.8 levels were before the move even ended. And it’s not just this chart, the same has happened with a lot of charts that I looked at in the past.

I attached a picture so you can see what I’m talking about. Look to the left of the screen at the 61.8 and compare it the right; they’re almost identical moves.

[Nill]

Sorry for the late response got swamped in another project toady. Anyway, I’m going to play devils advocate a bit so don’t think I’m attacking you. I see you’re trading PA spot on meaning you run with the candles as they show themselves according to the rules of PA. I have always been weary of this cause it seems like it’s too good to be true (too easy) lately I have been dissecting what that price action is actually doing within that candles time frame… It has stopped me from taking many trades that would have been a waste of time. I am not holding any positions in the EU at the moment because it’s accumulating in a tight range. Even with all the bearish news out there on both sides of the pond it hasn’t dropped out yet or rallied. I’m waiting to see what happens before I jump in either way. On a weekly chart we’ve been riding an up channel for a bit. I think with all the volatility this pair has shown, big money is waiting so see how the market reacts to the big news picture. Many times at a true reversal on any time frame we get a lot of volume, and some awesome ups and downs as selling/buying climaxes. You posted a 1h chart but entered on the 4h? Are you managing this only on the 4h? I’m posting from my iPad so bear with me here… On one chart you can see its a weekly and I threw a line showing the uptrend… That’s a pretty significant trend to ignore. It’s also a bigger time frame which bigger money will most likely be following. I say this because you’re forecasting a rather drastic drop… I’ve also marked your SL, entry and TP (not exact) on both charts (the second is 4h) and you can see the last time price was back at this level. I don’t think big money is ready for that kind of drop off yet, they will need much liquidity to exit before we see anything like this. I think your stop is outside of immediate danger, but if price does come down, I would expect an up thrust before it begins a drop of that magnitude. I use the netdania app on my iPad to play around with things, it has an option to set alerts at certain price levels, I’ve setup some so I can get a heads up if this pair does start making moves… In my opinion, I wouldn’t be in this pair at the moment, at least until something happens. Being patient is one thing I am getting better at. I used to always want to be in a trade when I first started out, but nowadays, I wait for the money to come to me instead of chasing it. Feel free to play devils advocate to what I have said now! This is how we learn the most

Holy cow hindsight! Looking at the weekly volume on my app for a few weeks ago shows some serious activity… I wonder if big money is already out of the position? What do you think? You see the spikes? I need to check another source for volume. I wonder who/where netdania is pulling this feed from. Also ignore the times on my charts they are set to my local time I’m lazy.

[Steady_Rich]

Just got out of the EU short with about 50 pips banked. I don’t like the look of this trade anymore to be honest. There were a ton of inside bars on the 5 minute after the fed announced the taper. I wasn’t expecting the market to pretty much ignore this news, especially since we’ve been trading in such a tight range. I know that whatever move occurs next will be big. Really big, but I lost too many trades consecutively to risk this, so 50 pips is okay by me for now. I’m still short on the AUDUSD and hopefully we’ll see some big moves out of that soon. A bullish engulfing bar formed on the 4hr and quite a few bullish engulfing bars formed on the 1hr, so it seems to be a safe bet for now. Also, there is a strong downtrend without any true stopping volume or pins present. And the break of the 0.88260 level is a big milestone since it’s been a major S/R for just over 4 years now.

By the way, the chart that I posted was a 4hr chart. I like to zoom into the 1hr chart to see where the bulk of the move occurred, mainly for VSA purposes, because pete says a lot can be lost in the 4hr chart, which is true. The daily trend is very important and I actually overlooked the strong uptrend the fact that price was approaching the trendline again - oops! I’m just glad that it worked out for me, but it seems that there are a lot of buyers lined up just below the 1.36 level, which is not something that I want to risk at the moment with a tight stop loss.

I would prefer if you played devil’s advocate, because I’d rather be proven wrong by you for free rather than the market for a fee haha. Did you/do you apply PA to trading the other markets that have allowed you to make a living or is this something new that you’re trying out with forex? Also, if you had the choice to trade multiple markets or just the forex market, which would you choose? Forex seems very attractive to me because of the leverage involved and the sheer size of the market. I like a market that isn’t as easily manipulated and has a lot of liquidity.

Edit: Our volumes are miles apart because I have completely different numbers on Oanda and FXDD. Would you mind downloading both of them and compare volumes against the broker that you’re using? It might help one of us fine tune our VSA entries better.

[Nill]

Congrats on the pips. Any pips you get to bank are great in my opinion! I really want to see what happens to the EU pair.

I’m getting wrapped up in another project right now, so my focus will just be the EU for a bit, but if you see something of interest shout it out, I’m always game for a learning adventure.

As far as the use of PA, yes I have used it heavily in my trading, but not always in the traditional “this candle means this, this candle means that” sense. I was taught time frames and price moves on stocks by an uncle. He is an intraday trader, and does well for himself, his teaching methods were a bit rough, and he would always say learn it yourself and don’t take his word for gospel… After not understanding it to an extent I did my own research to get a better understanding of why a hammer or pin bar is so great… That knowledge in my opinion is priceless. He also introduced me to Wyckoff and VSA… I have been hooked ever since, but I have also made plenty of mistakes (and still do). I’ve been poking around this site for a few months now, lurked like you and did the same after I started reading a thread by someone else. Have you done the school of pips? It truly is an amazing resource. Plenty of solid information in there. I still go looking for things in there all the time.

I’ll get a few more charts pulled up with volume feeds from different brokers, I sent an email to netdania asking where their feed is coming from, still waiting on a response. They are not a broker but they offer free charts and news via their app…

I’m off to bed, safe trading brother.

Edit: Looks like the EU is about to take a dive. I wonder if it’ll hit your original target or hit resistance at the 1.356 area?

[Steady_Rich]

Got stopped out of the AUDUSD trade, but still up from the EURUSD trade by around 10 pips. Entered short EURGBP on a 4hr at 0.82350 because of a bearish engulfing bar with a solid downtrend on the daily and 4hr chart. Up 10 pips as of now. Double bar reversal on 1/22-1/23, which isn’t something that I’d like to see, but it was immediately followed by a 2 bar reversal in the direction of the trend. Falling star forming on the daily and the bearish engulfing bar had the highest volume in 6 days and next candle is staying below it. I would give this trade a 3/5 because it is resting on minor support and this trade wasn’t taken on a swing high with a bigger signal, but a 45 pip engulfing bar on a EURGBP pair is actually pretty significant. We’ll see how it plays out in the next couple of business trading days. I have official t/p and s/l set, but hard to say how much it could fall if this level gives. S/L 0.82724 & T/P 0.80471

Finishing logging my AUDUSD loss:

Reason: 1hr 41.5 pip bearish engulfing bar (0.87683 to 0.87268) at 1/29/14 15:00; highest volume in 14 days; failed to close over 0.87566 resistance; downtrend; entered at close of candle
Time in trade: 1 day
Things learned: Do not enter a long term trade on a 1hr with such a weak PA. Trend was right, but price is retracing back to a previous swing high. Trade was not entered on a swing high either. Although there is an overall bearish bias of AUD and was supposed to be a bearish bias of the USD, something didn’t seem right because market disregarded FOMC meeting and tapering of QE.

I’ve noticed that ever since I started logging these trades, I’m less likely to trade because I would have to convince myself to take the trade and then I would have to write out a mini argument as if I’m trying to convince someone else to take the trade. Definitely helps to have a trading journal. I’m interested to see how much this will improve my trading.

[Steady_Rich]

You mentioned that you take certain news into account, but the last couple of days of EUR and US news have been almost fully overlooked by traders. Just thought that I would point out some of the “big news” that are supposed to be market movers.

1/28/14 10:00 AM US Consumer confidence 80.7 (last poll was at 78.3 and 77.5 was expected this time). In the past people supposedly panicked when consumer reports missed expectations by a tenth of a percent, this time it overshot expectations by 3.2%, which should’ve rallied the USD, yet the euro fell and had a mini rally against the dollar and stayed above its previous low for quite some time.
1/29/14 2:00 EST US FOMC statement about 10bln QE taper - EURUSD ranged.
1/30/14 8:30 EST US Advance GDP q/q 3.2% (last q/q was 3.3 and 4.1% was expected this time). This by itself would’ve dragged the dollar at least 50-100 pips. EU market was barely fazed. Matter of fact, it helped the Euro tumble against the dollar, so it was definitely a squeeze and a way for smart money to accumulate a big position. Remember that big that I mentioned? Might be well on its way.
1/30/14 8:30 EST US Unemployment claims at 348K, higher than the expected 329k and 331k posted the last time. Once again, this news alone would’ve rallied the euro against the dollar.
1/30/14 10:00 EST US home sales m/m -8.7%, last month it fell by 0.1% and this month it was expected to only fall by 0.3%. It’s like beating a dead horse, but once again this news during any other time should have rallied every single currency against dollar.

It’s a tough market to trade and I’m just glad I got out of there before all this happened. This might be a big drop, possibly the biggest drop in months or years, or it might blow over around the low 1.35s, but at least I have a decent understanding of what happened now and that’s always a win in my book.

[Nill]

Was sitting at the computer all day but never looked at the charts until now. Looks like that move hit a nice s/r level… Only the weekly it didn’t prove to be much of a killer, we’ll see how next week plays out, I wouldn’t be surprised to see a slow up-move start again.

I always look at major news events and listen with interest, but I never trade the news, unless it is something of severe significance. There was some volume behind that move, but not anything crazy. I’m going to look at my charts now, I’ll report my findings in a bit.

[Steady_Rich]

I try not to look at the charts too much to prevent overtrading, but I definitely like to check around important times (i.e. 8:30am, 9am, 10am, 2pm, 7-8pm, 4am, 6 am). EURGBP trade still ranging in a tight range. Around the 0.81630 level is a 50 fib and 61.8 fib retracement, which is the only problem with the trade at the moment. If we break below that, it’s a freefall, so look into it that chart in particular. Also, when do you plan on starting your live account? I learn best when I have something to lose, which is why I didn’t take demo trading too seriously and got lazy after having 5 profitable months on a live account.

The AUDJPY chart looks good right now on the daily. It just broke below the 92.230 support line, which it hasn’t been able to do in almost 10 months. On the 29th it fell through and managed to close below the s/r after testing the upside one last time and failing. Today was a bullish bar attempt, but they couldn’t manage to drive up the price. And right now it’s stuck in a tight range between 92.230 and 91.160, which is a major s/r level from on 1/17,1/18, 2/21, 2/22, 3/1, 3/4, 3/5, 3/6, and again at 4/2 before shooting up.

[Nill]

Haha not try to look too much eh?! I think I look about once a day, and sometimes I don’t look at all if I have positions open. I just let them run their course. That’s why I swing trade. I only take stuff on the 4 hour if it presents itself with a good r:r ratio. I like upside of 1:3 these days. I found Meihua’s results from random entry and only 20% successful trades still proved to be profitable but only after a 1:3 or higher ratio… The thread is tagged in one of my earlier posts. I trade a bit more risky with options, but I’m much more confident in other markets. I think this is going to become something of more interest for me as I progress with learning more about the market and it’s structure. I plan to go live in early march. What broker are you running with?

Looking at the EG on a daily there is some resistance just below, looking at traffic above, I don’t know if I would jump in just yet. That S/R I dropped in is going back a bit, you’ll have to zoom out or go to a weekly to see what I’m talking about. Anyway I dunno if I would jump in just yet, at least not on the daily… You could try a stop just above the prior day close, but I’m not sure if that going to keep you in before it goes lower. I’m going to set an alert on this to see what happens just for fun.

You could try a lower timeframe to get in on that pair, I’m going to see if anything looks good. Be right back…

[Steady_Rich]

Here’s the picture of the CADJPY chart

I use Oanda to trade and haven’t had any problems with them as of yet. Give them a shot. With a 50:1 leverage you can open up a microlot with $20, but I’m sure you wouldn’t waste your time with such small entries, but it’s nice to have the option to start small. Minimum deposit is $1 and they accept credit cards, bank accounts, and paypal.

Edit: EG didn’t move much after the initial fall and it’s not worth risking it any further. Pulled out with a 17 pip profit. I’ll definitely reenter it once it goes below the fib retracement around 0.81580 (below the 0.81000 handle just to be on the safe side). But now that I pulled out, watch it fall another 50 pips overnight haha.

[Nill]

Haha looks like that s/r level I called out landed on your fib level, I never really use that thing, just seems funny to me for some reason. I guess I’ve developed a decent eye for levels over the years.

Edit: can you set alerts? You could get up if price moves outside that range… Just a thought, I’m lazy I always look for the best ways to manage trades without having to stare at the screen biting my nails…

[Steady_Rich]

I’m not a big fan of fib retracements, but a lot of retail traders are, which makes them a self-fulfilling prophecies and smart money definitely uses that to hunt stops and to trap people in positions. How would you enter that CADJPY trade? Wait for level to break and retrace back up to the lowest S/R or enter the trade on a break? Seems to me like a break of that level can end up a runaway train that may not retrace for a while and a retracement back up to that level might actually move the pair back above it.

[Nill]

I don’t like the stop hunting term, I feel it is a misused and pessimistic view of the market. I think smart money understands where many novice traders place stops, and they exercise them to generate the liquidity they provide in order to establish their desired positions. Scale in and scale out. Let me look at the CJ and I’ll get back to you in a sec.

Edit: I would take that short you’ve got a bit of wiggle room for a stop and a decent drop for profit… Not a bad R:R ratio… I posted som quick levels so you can see… Volume looks like it is still in favor of a drop…

[Steady_Rich]

I’ll enter a short position at the break of 91.100 with a s/l at 92.35 and t/p of 88.8. I figure if the price breaks below that, it’s bound to trigger stops below it and run out of the steam around the Feb 2013 lows of 88.5. I use the term stop hunting not in the way that most people bitterly use it to explain why they were stopped out of their position during times of high volatility; stop hunting to me is just smart money gunning for an area of clustered stops to trigger a cascade effect and see how far they can move the price while at the same time expanding their position. A short squeeze or fake breakout is basically a stop hunt. Whenever a pinbar is formed, more often than not a stop hunt has occurred to a certain extent. It’s all just jargon with the same meaning, really.

[Nill]

Haha no worries I just giving you my take on what what I hear many people gripe about. I always wait till a candle close on my management TF before I take trades. I set alerts at those levels so I can keep abreast of it too. Best of luck!

[Steady_Rich]

Of course the EURGBP and EURUSD fall overnight and I miss out of more potential profits, but it’s alright. CADJPY fell to test the lower portion of that tight range that I pointed out yesterday and it went just low enough to put me into the trade before triggering a ton of buy orders, so I’m down around 55 pips on that trade but had a big enough s/l to stay in the trade (came within 10 pips of kicking me out of it). We’ll see what happens next week. EJ support levels were taken out and a daily bearish engulfing bar was formed, which should send out a ripple effect next week.