My current trade plan as at 31/10/2017 (possible revision)
Look at D1: Figure out Market Phases (Accumulation, Advancing, Distribution and Declining)
Look at H1: make sense whether it links to the Market Phases
Read Fundamentals + Analysis ideas that appear on Babypip’s forums
Use technical analysis + key points
Look at M5: to make an entry trade
MY AUD/USD whole market analysis
high probability that the market is in a distribution phase and will enter a declining phase.
high probability that the market is in a distribution stage and will enter a declining phase.
Fundamentals from Analyst
Both assume that the USD will strengthen in the coming days, AUD and EUR are leaning towards unfavourable to the US economy, therefore my trade has been to sell on both currencies.
EUR/USD - advancing stage heading to consolidation phase (possible consolidation stage with a bullish outlook with a possible increase in the middle of an advancing stage, dependent on economic news) (long temporary)
AUD/USD - accumulation stage that might be balancing itself, downward, dependent on economic news. (short)
Books I am currently reading and notes i find important
Adam Khoo - Profit from the Asian Recovery - “Stay invested, Just Rebalance your Portfolio”
He mentions that cash is important for security, however, the reality is cash is the worst investment. Inflation at a rate of 3% per annum will reduce it to two-thirds over a 20 year period.
Finding ways to allocate your money into alternative investments will at least allow to maintain the value of your money.
Jordan Belfort - Way of the Wolf
Without the ability to close the deal, it is really hard to make money; once you do have that ability, then everything becomes easy. Also, it doesn’t matter which excuse they give you. In the end, they’re basically the same; they’re smokescreen for uncertainty.
Jody Samuels - The Trader’s Pendulum
You can see how having a plan, putting your goals and plans down in writing, and getting external accountability can help you accomplish what you set out to achieve. Plan the trade and trade the plan.
Every man has his own courage, and is betrayed because he seeks in himself the courage of other persons.
The majority of people do not have the courage to make independent decisions.
Prepare 1 hour beforehand - Bloomberg radio for market sentiment and Bloomberg videos for news (Keep a market mentality).
Look at W1 – Figure out Market Phases (Accumulation, Advancing, Distribution and Declining)
Determine pattern psychology by reviewing technical pattern + support and resistance.
Make a comparison to D1 to W1 Market Phases.
Do the same with H1 by comparing my analysis on D1 and W1 market phases.
Acknowledge known Fundamentals + Analysis from sources such as Babypip’s forum and other analysis opinions.
Look at potential economic indicators that could affect future prices.
Gather known resources, make an entry point from my analysis.
Decide on a risk/reward ratio (1-2.5) for my analysis, potential holding on 3 days.
On Sundays create a trade plan based your findings and execute the plan.
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Trade plan
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Later this Thursday, US will announce their tax plan reform
a. In the first time since 2007, London is considering to increase their interest rates.
b. The Asian economy has hit highest peaks.
Current W1 graph indicates consolidating and is in its accumulation phase.
Current D1 graph indicates indecision.
Current H1 graph shows a huge spike in Nov 2nd and resistance at the 0.7725 level has been made.
Current technical aspect with AUD/USD is the resistance at 0.7650 and possible bullish engulfing pattern that is occurring.
Potential economic indicators – USD economic data comes out today.
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Analysis
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Consolidating (W1), indecision (D1) and huge spikes (H1) have occurred in different timeframes, basing on the fundamentals alone, if the tax reforms go through in the US, the US economy, especially the companies that already reside in US will have higher profits and bigger companies might be more incline to invest within their borders, resulting in a stronger US economy.
Before trading, understand the market sentiment and how the economy of each country is going (fundamentals) - Bloomberg radio for market sentiment and fundamentals and Bloomberg videos for news (Keep a market mentality). (Correct, consider the situation of bank of England and US tax reform) find high alert news that could change the currency and research the effects.
Create a thesis (analysis) on my findings, using babypip’s forums to gather other people’s opinions and internet sources such as Forexfactory, babypips, fxstreet and dailyfx.
Look at potential economic indicators and trading singals that could affect future prices, make bullish or bearish outlooks then decide high probability trades and good risk/reward ratio trades having a bearish or bullish outlook.
Trade on good or bad market sentiment indicators from news; decide which currency pair or other tradeables that have high volatility.
Look at W1 – Figure out how the sentiment or fundamentals have affected the price action on the market and what market phase exist (Accumulation, Advancing, Distribution and Declining). Find support and resistance to further expand on good entry points.
Narrow down to D1 – overview of technical analysis
Narrow down to H1 – Deeper technical analysis
Narrow down to M10 – Find entry, T/P, S/L and exit points that matches and links with the overview and deeper technical analysis I made on D1 & H1 and search for high probability trade + good risk/reward ratio.
Setup my market entry points considering the information I have gathered.
On Sunday create a trade plan based on my findings and execute the plan from the market sentiment, fundamentals and technical analysis.
MACD (trend) – At M5 there was a downtrend, irrelevant (indicates good time to put an entry point since the overall market sentiment is bearish), M15 slightly relevant (The downtrend might be moving upwards, better pries), H1 a trend is about to move, the overall market sentiment is a downtrend.
Bollinger bands (Volatility) – At M5 prices are ranging (consistent volatility), M15 the same, H1 indicates downtrend, same as D1.
Market Phase – M5 and M15 in an accumulation stage, whereas H1 and D1 is in a declining stage. Overall market, downtrend.
Good entry points are when it is in a temporary uptrend, due to the market’s nature of being heading towards a downtrend. This will create high probability trades, with positive win/loss ratio.
Because it is ranging, consolidating and accumulating, entering a possible downtrend entry point will allow me to take advantage of the overall market sentiment.
Loss -
The markets are quiet before 11Pm Aus, Syd time. Being patient and gathering information from the quiet period could lead to better decision making. As the market was consolidating from 4Nov 2:30 to Nov 6Nov 11, a slow uptrend started to appear onwards. Quote: learn support/resistance using line graph, trend line and channels. Also consider the bears and bulls momentum and exhaustion through price action. Implement the basic technical analysis in my next trade. The trade i made was during low volatility, absence of possible trend formation which made my entry point not a high probability trade. These formations occur in the M5 & M15 graphs consider crossover readings for MACD.
Market Sentiment (bullish or bearish, overall view)
Look at new candlestick formation (consider support/resistance, line graph, trend lines and channels.)
Question when bull and bear exhaustion has occurred from candle stick formation.
Think about what trader’s expectations are bullish or bearish. (Now moment)
Look at MACD for trend movement (M5, M15 H1 and D1), table created.
Bollinger Bands – measure a market’s Volatility
Market Phases – Accumulation, Advancing, Distribution and Declining.
Economic Calender
Execute Entry, S/L, T/P and exit point.
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Trade Journal + Analysis As at 7/11/17
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12:45AM
I went long because I thought the uptrend will continue (based on support/resistance, channel and line graph) and temporary trader’s view.
Technical analysis based on candle stick reading – An uptrend was proceeding but seems like the bulls were exhausted (limited), 3 visible dojis appeared in the timeframe M15. Possible trend reversal, there was resistance.
MACD on M15 indicates that crossover has shown a downtrend.
Bollinger bands – widening
Market phase remains the same.
At 12:25PM
(Profit)
My first assumption was price action was leading to an uptrend and market sentiment was bullish temporary, especially on the trader’s view. Support/Resistance, no channel but higher lows and higher highs exist (An ascending channel).
Whereas, the market sentiment overview was bearish on the AUD/USD, I went for the temporary trade view with a bullish view.
At 12:40PM
Enter a trade with this view
MACD on M15 indicates that a crossover is heading downwards, MACD on the H1 indicators there is an uptrend, D1 indicators that the overview of AUS/USD is a downtrend.
Used the line graph to draw support/resistance and found that support has turn into resistance
Bollinger bands – contracting.
Market Phase remains the same.
I took a short trade, based on the MACD crossover indicating a new trend forming. Based on the orange line where the resistance was met with a huge decline at 3/11/17 12:30. My belief is that price has been overvalued and same goes with the trader’s perspective that price has a high probability of heading downwards.
(Loss)
The support/resistance acted as a major support, where the resistance turned into a support level. (It was actually a major support level on the M15). Consider the market situation. Also, the economic event with the RBA interest rate was involved leading to unexpected price movement
Think about what trader’s expectations are bullish or bearish (eyeballing). (Now moment, through price action, your opinion)
Question when bull and bear exhaustion has occurred from candlestick formation.
Check whether the market is ranging or trending.
Use Bollinger bands + stochastic for a ranging market. (set lower S/L + T/P, risk/reward ratio)
Use RSI + MACD for a trending market (set higher S/L + T/P, risk/reward ratio)
Look at new candlestick formation (consider support/resistance, line graph, trend lines and channels.)
Execute Entry, S/L, T/P and exit point.
Trade Executed with plan (analysis)
Aus time - At 3:50AM
Market sentiment – Bearish from dailyfx & Fxstreet
Trader’s expectation (also, my opinion) – there is a major resistance level at 0.76820. I will put a stop loss just above and an entry point just below, as I assume this is a major resistance level making it a high probability trade considering the overall market sentiment bearish. Good risk/reward ratio for entry level.
The bull looks like they have exhausted
Market ranging but a high probability that it’ll go downwards due to bull exhaustion where a minor resistance is at roughly 0.7685.
I’ll set my entry point at 0.7677, S/L at 0.76850 and 0.7655.
Pip reward/risk 22 for 8 = 2.75 to 1
My stop loss was very close, made the correct judgement that the bulls were exhausting and the resistance level was in that zone, and the price was consolidating and waiting for a little downtrend to occur.
The mistake I made was I was too concern about my risk/reward ratio being in the bracket of 2.5 to 3 – 1. I should deviate and be happy to even take 2.4 to 1 if need be. But overall, practising money and risk management strategies has its benefits. I should overall, not concern myself with having the highest risk/reward ratio but potentially a good win rate ratio also. Pleased with my analysis, or was my analysis wrong due to the economic event in which there was scepticism in the housing finance economic event that resulted in the consolidating + bull exhaustion to happen, which seems to be the more correct explanation due to price action.
This is a really important learning point. Very few traders posting about R:R ratios actually understand the full implications of what they are saying. I suspect most are simply parroting the ‘received wisdom’ of certain online gurus.
Yeah pretty much, it is easier to imitate then think for yourself. I am always self analytical in how I approach things. I haven’t gotten to the full basis of risk and money management combined but will eventually work it out to suit my trading style.
An attempt to trade after an economic event with better than expected results which was a US medium impact event.
AUD/USD
Trade based on an economic event (medium impact), speculating and testing an idea.
I entered a trade based on an economic event that had a medium impact plus the forecast beat expected, however, the significant drop IMO is just an overreaction of the market and hence, a steady increase will gradually occur balancing the AUD vs USD eventually heading back up.
Also, Note: Previously, price action was consolidating where the lowest support was at roughly 0.76644 and believe the price should be above it while price rises to reconsolidate again.
Long @ 0.76753, S/L at 0.7646 and T/P at 0.7678. With a risk/reward ratio of 1.83 to 1 this time.
As I practice risk/reward and money management strategies, my losses have become lower whereas my profits have become higher. This allows me to take chances at high probability trades and exponentially increase my chances of being profitable. I have also been noticing that economic events stimulate consolidated markets. The markets tend to be quiet before an economic event and readjust itself to their original belief of where the price should be if the market is consolidating. As I thought technical analysis could help understand the markets, but self-analysis of the market creates better opportunities and higher rewards on pips, hence advocating a price action approach. Technical analysis should only be used to see how prices react previously or to be substitutes to confirm your ideas; they should not validate your reason to enter a trade but to validate the idea you are trading in the first place. Fundamental analysis should give you an overall idea of why you are trading whereas sentiment analysis will probably be the most advantageous in understanding the market.
I am also noticing that economic events are a must know because of its ability to increase volatility. Open trades shouldn’t be made before an economic event but after. There are so many of them every month and therefore should not be disregarded and can really impact your decision in a trade.
For instance, my MACD lagging trend indicator will tell me a trend is occurring. However, it will not tell me what caused that direction of the trend, a crossover could mean either upwards or downwards, but understanding the overall market movement will tell me a lot more, allowing me to make a more accurate decision. Hence, a price action mindset is starting to set in as the most logical and profitable choice of trading.
Combine the above two, and best interpret how it’ll affect the trade and only trade after the events, also think about the fundamentals.
Look at past candlestick formations and try to interpret what the market was doing beforehand, through the trader’s and fundamental perspectives, what news would have affected the price that way.
a. Also look at price action and ask why trader’s thought the currency was worth that much. Create support/resistance using a line graph, trend lines and channels.
Think about what trader’s expectations are bullish or bearish (eyeballing). (Now moment, through price action, your opinion)
Question whether the bulls or bears are exhausted, determine this through price action and candlestick formation
Check whether the market is consolidating, trending and strength of the trend.
Use Bollinger bands + stochastic for a ranging market. (set lower S/L + T/P, risk-reward ratio)
Use RSI + MACD for a trending market (set higher S/L + T/P, risk-reward ratio)
Use ADX to determine strength of trend
