Here we go! A newbie trade and journey journal

It’s a new trading week. I am going to pretend that last week didn’t happen and approach these markets with cautious optimism. My plan this week is to keep it simple. I am going to trade pullbacks on the hourly chart using the 4-hour chart for directional bias. For example, if the 4-hour chart is bearish, I am only going to take short trades on the hourly chart, so I will need to wait until the market comes up to retest a resistance level before entering. Stops and targets will be based structure levels and each order will be sized to risk no more than $1.00 per trade.

My goal this week is to have 100% of my trades follow my rules exactly, and to video record each and every trade I take to post to my YouTube channel. This will force me to focus on process, not profits.

Currently, I have one open position that is 25 pips in the profit. USD/CAD long entry at 1.27638 with targets at 1.28045 and stop at 1.27517. As market put in new higher lows in this move I have been moving my stop to minimize risk. This trade was taken as a pullback trade and I am hoping the recent news about the Trump campaign weakens the dollar and pushes this trade to profit targets (assuming I am right that being long USD/CAD means I am short the USD).

Good luck everyone and may your trades always follow your rules! :slight_smile:

Hey Bud, you know this is thanksgiving week right?

The Risk Off VIPER

Yeah I know… I figure we still have at least two good trading days this week. Plus there should still be some activity in the Asian sessions in the later half of the week. As long as the markets are open, I want to trade them :slight_smile:

Usually a big drop in Volume and MOMo, so bee careful

The Ever Out With The Mules VIPER

Ok, so good opportunity to build strong risk control habits :slight_smile: Do you think that will be the case all week or just Wed-Fri leaving Monday and Tuesday relatively normal?

Well, from what I know, the higher level traders are already in vacy mode, unless there is some massive event, everyone is “Chillin”. The EURO, even with all of the theoretical happenings this weekend, with Oma Merkel, did not move, also, it is my observation that the rate hike is baked in, and unless the Fed comes right out and says no hike, it will not move this week, maybe we will get some more movement next week. As we head into Dec, there generally is a pickup in VOL, Momo, and Volatility, as some scramble to meet bonus goals at the end of the year. But, I doubt there will be three digit moves between the two weeks.

The Ever Advising VIPER

We’ve all been there. :grin:

While others may disagree, I’ve come to feel that it is better to focus on one particular setup, refining it over time until you have maximized the profit potential of that strategy. Don’t chase the market; wait for the conditions you have chosen that maximize your odds, and then take that trade.

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Oi…

So smaller moves will mean smaller targets, and with my 2:1 risk reward rule that means even smaller stops. Smaller stops mean higher probability of getting stopped out by market noise or maintaining larger stops to counter the market noise making me take on more risk. I don’t like taking on more risk, so I should expect very few trading opportunities this week and when I do get into a trade I need to expect it to take longer to complete as the market is moving slower.

Unless of course something drastic happens somewhere… So maybe you can help clarify something in my mind… when large institutional traders take a break, the market doesn’t move as much. As a retail trader, I need the market to move in order to make my profit because I am trading pennies compared to the big guys. A 5 pip move for me doesn’t mean as much as a 5 pip move for an institutional trader because my position size is way smaller. Therefore price movement is generally the result of the big boys fighting it out and I am just making bets on who wins the fight in a manner of speaking. So when the big boys aren’t doing much, there is not much reason for me to risk my capital because the upside isn’t there. Does that sound about right or am I messing something up somewhere?

Side note… just closed my USD/CAD trade 10 pips short of profit target because I got scared. Still made $1.20 (31 pips) on the trade which is a 12% return (based on my starting balance of $100), but that is irrelevant because I didn’t follow my process or rules.

I have kind of done that. I stopped trading double tops and bottoms and am now using pullback trades to catch trend movements and range trades for consolidating markets. Trying to trade pullbacks while in a range is a very risky game as price tends to be erratic within the range and especially as it approaches the mean of that range.

Justa quick note JMiester,
replace the (2:1) + Long Term (Low Quantity) / Lower Probability with
(1.3:1) + Short Term (High Quantity) / High Probability

See if it works out mathematically. Just something to think about, time factor, 3 to 4 hrs absolute max.

The Ever Quick Striking VIPER

That sounds like a good system for trading choppy markets. With 3-4 hours max time in trade, these trades would need to be either 1 (240 bars) or 5-minute (48 bars) charts (maybe 15 (16 bars) minutes) or range charts. Mathematically the system will be break even around 50%, with profitability increasing as win rate goes up. It almost feels like its designed to play on the erratic price movements within consolidating (ranging) markets.

If your tagline and username play into this, then it is designed for quick hits in the market. I am going to guess that it is a momentum based trade because those offer high win rates as the market is basically saying “Hey I am going to do this now…” and then does it. However, you have to strike quick, like a snake (viper), to get in and capture that move, then you are out again real quick with profits and looking for the next place to strike, rather than what I am doing by analyzing higher time frames to look for bigger moves.

Over the long run, this system may get 2-3 times more trades than my system would, so could potentially make more money. Now that I think of it, it sounds a lot like the @_bob box on range charts system.

If you’re long USD/CAD you’re long USD! You’re speculating that $1 will appreciate to afford you more Canadian dollars than you can currently.

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That’s a 1.2% return.

Please don’t think I’m being an ass (with these two comments). I don’t want to come across as one correcting your posts. I genuinely enjoy reading this thread, and can see you’ve come along way on your trading journey from when you started it. You have the passion, dedication and right mind set to be successful!

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Hehehe, he is just irrationally exuberant.

The Ever Remembering “El Viejo” Greenspan VIPER

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More like coffee impaired when I wrote that post.

$12.00 would have been a 12% return. (Just need to prove that I can do math!)

@robertfarnworth - don’t worry about correcting me if I get something fundamentally wrong. I am ok being told I am wrong when it is a matter of fact, but if you tell me my opinions are wrong then it’s debate time :slight_smile: I am still getting my head wrapped around how the currencies relate to each other in their pairs, and I obviously gotten it mixed up in my head. I had thought long EUR/USD would be long USD, short EUR, but based on what you tell me, long EUR/USD is actually long EUR, short USD.

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Correct. The first currency in the pair is always the base currency and the second is the quote currency.

When provided with an exchange rate, currency pairs indicate how much of the quote currency is needed to buy one unit of the provided base currency. For example, reading EUR/USD = 1.17 means that €1 is equal to $1.17. This directly says that in order to purchase €1, a buyer must pay $1.17.

Basically, if you’re long a pair, you want the base currency to appreciate and vice versa.

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Thanks! That is a bit more helpful. Up until this point, I just treated each pair the same as I would a stock or commodity in that I didn’t really care about the relationship, just if the price went up or down. I knew enough to know that if I was long I wanted the price to go up and if I was short then price needed to go down, but never really thought about what it meant in practical terms.

Also up until now I never bothered reading the headlines and articles in the newsfeed my broker provides. However, if I am going to start taking news into account, then I best be sure to understand how change in one currency affects the other :slight_smile:

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I didn’t do any trading last night. I got caught up in reading and learning that I didn’t even look at my charts. At this point, I feel like I have taken 5 steps backwards in that I have a lot more questions than answers.

First, can I actually make money trading simple patterns such as pullbacks and breakouts? It seems like since everybody is trading these patterns, and 95% of traders fail, the implication is that these simple patterns don’t actually make money. Of course, the high failure rate could be attributed to lack of trader discipline, but according to my data, simple patterns have a less than 40% win rate. So logically I want to get on the other side of that equation and grab that 60% win rate.

Second, do I need to find my own patterns in the market to be successful? This operates on the logic of teaching a man to fish versus giving a man a fish. If finding my own patterns will be more profitable, how do I go about researching new patterns? Do I just need hours in front of the chart and an attentive eye? Is there a structured, checklist like approach to this?

Third, a trader’s edge is simply a positive expectancy, which can be manipulated via win rate and risk/reward ratio, correct? I thought I had a good understanding of this, but clarity eludes me again.

Finally, is the advice in the Education section on building my own system worth following or is there more to it than what Babypips teaches?

At the end of the day, trading is about pattern recognition. Trading education is about understanding which patterns matter and which patterns don’t.

Although we like to act like a good trading system can be broken down into hard rules and fed into automating software, this just isn’t true. If it were, there would be more programs for sale that genuinely make a profit.

I did an experiment that really drove this home for me. I had been back-testing a 5/8 EMA crossover system on the D1 chart. I had seen multi-year threads on other forums of people making a profit on this system, and yet my back-testing didn’t show that profit. So I went back and looked a bunch of the failed setups, noted the date, and then went in search of the financial news for that day. In many, many cases, there were clear signals (such as major scheduled news releases) that made it obvious to any discretionary trader that signals generated on that day would be suspect. But there was nothing on the charts that would tell you that.

Take out those failed trades and, voila, you had a profitable system.

In my view - and I don’t hold myself out as a master trader by any means, so take all this with a grain of salt - any attempt to run a completely non-discretionary system is just turning yourself into a bad, slow, stupid algorithm. You can’t out algo the algos. They have a team of geniuses constantly tweaking them, and they operate at speeds we can’t properly conceive of. Don’t try to beat them at their own game.

Our ‘edge’ is human discretion. It is drawing in all those ill-defined intangibles and knowing when to say ‘no’ when all the rules are saying ‘yes’.

What does all this have to do with your question? Well, there is a scene I remember from the movie ‘City of Angels’ - a bad movie, don’t see it - where Nicholas Cage asks Meg Ryan what the peach tastes like. She says to him ‘You don’t know what a peach tastes like?’ He responds, ‘I don’t know what a peach tastes like to you.’ Our brains are all wired differently. We see different patterns, even when we are looking at the same charts. You must, must, must find the patterns that work for you.

Some guys are all into support and resistance, or Fibonacci levels. I tried that, and a bunch of other things that different people have sworn by, and it just didn’t work for me. It works for them, but not for me, because what they see and what I see are two different things. And I suspect that if a lot of those guys tried what seems to be working for me, it wouldn’t work very well for them.

So, yeah, you need to find your own patterns. That doesn’t mean they have to be unique - they have almost certainly been found and used and talked about by other people - but they do need to fit you, and the way your brain works.

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So basically I need to find my own patterns, but they can be the same patterns other people use. So a system based on entering on pullbacks and using 1 ATR stops and 127% Fibonacci extensions can potentially be profitable.

Based on your post, I can extrapolate this process.

  1. Create an idea for a trading system
  2. Backtest on a reasonable amount of data (say 100 trades)
  3. Examine failed trades for possible causes (such as news releases)
  4. Tweak system to reduce failed trades
  5. Retest

So to be a profitable trader, I don’t need to find the next animalistic harmonic pattern or develop some indicator or some other in-depth work like that. I just need to repeatedly test ideas, keep the best ones, and throw away the rest.