But as I’ve come to understand the CBL, it’s actually very clever. Each of the three bars that make up the CBL will represent a swing high or low (of varying strength but still), aka S/R level, so if price actually reaches the CBL line this means that it has not only reversed x pips from a S/R level, but it has also taken out three swing levels to do it.
For this reason I’m thinking that CBLs are more than just; go long if price retraces 150 pips from the PPZ.
This is also why I’m not experimenting with one or two bar CBLs, I’m currently sticking to the original concept as it makes a lot of sense to me.
I’m going to go into this in more detail, if not before at least when I get my real Internet connection back. I just wanted to briefly respond to your thoughts.
I’ve been away on vacation (lovely and expensive I’m realizing that my wife has a black belt in shopping :p) and as mentioned earlier, I’ve been without a phone line for a while but now everything works again.
I have quite a list of things to do, it just seems to keep growing somehow. Anyway, while traveling I killed some time reading what turned out to be a great read: [I]Fooled by Randomness[/I] by Nassim Nicholas Taleb.
In a sentence: in it he explains how many things that are pure chance are misinterpreted as something else, like skill for instance.
I have actually not finished it completely yet, but when I have I’ll try to post a short review.
I also have to post a trade analysis for the EURUSD trade that stopped out for a loss in early July (July’s only trade so far) and I need to continue with my work on making the CBL concept part of my trading. I’ve also promised to post more in detail on CBLs and why I think this concept is useful.
Currently I’m planning to start demo trading the CBL method either on September 1 or when I get back to work after the summer vacation in mid August. Once I start demoing it I’ll follow the J16 guidelines and not trade it live until I can show a track record of at least 3 consecutive profitable months.
More on that later. Tomorrow I’ll be helping some friends of my wife with a big move (my back hurts just thinking about it… gym equipment… ouch) and Sunday might be tight for time as well but I feel a strong desire to finally get to work on this! I feel that my focus hasn’t been that sharp for the last two months but now I feel rested and ready to focus again.
In spite of it being summer in the markets, what with slow and unpredictable moves etc, I’m going to watch the markets like a hawk again starting Monday.
Welcome back! I’ve been following your thread. I also trade daily charts and think you will find the cbl a good addition to your tool kit. My trading plan requires always having 3 good reasons to enter a trade, with one being direct price action confirmation of the entry. The cbl counts nicely as one possible direct price action confirmation.
My explanation of the EUR/USD reversal is fundamental. I believe very long term trends, like those that run 6 months or more are driven by lasting fundamental factors. At the end of November 2009 the problems with Euro countries debts were widely covered in the press. The Euro crashed until July 2010 when the ECB pledged trillions to paper it over if necessary. Then, the much higher interest paid on the euro over the dollar made borrowing dollars at very low interest and trading them for euros to buy much higher interest paying euro debt a scheme like printing money. The euro reversed it’s slide and is likely to increase in value until some of these fundamentals change. That’s my opinion anyway.
Fooled by Randomness is an excellent book because it is so readable. There are many books on statistics that cover the same subjects, but they are a real pain to read. This book contains many good examples of common misconceptions that people have about stats and in the end, if you haven’t studied statistics, you’ll look at your results (and importantly others results) in trading completely differently. A favorite example of mine is if you take 1000 people and pair them up and let them flip coins against each other until their are only two people left, are they really good coin flippers? Another is, if I toss a penny into my yard and it lands on 1 blade of grass out of 10,000, so there was a one in 10,000 chance the coin would land on that very blade of grass, am I a really good coin tosser? Taleb really explains how to look at these common events and not believe in superstitious explanations of random events. Though there was that time that 136 people won the full payout of the second prize in a power ball drawing, since second prize amounts are not shared. That’s something like a one in a billion probability. Turns out, they had all picked the same numbers, printed on a Chinese fortune Cookie passed out at restaurants.
Yes, I’ve been very quiet of late, here as well as FF. I guess vacation has gotten the better of me so far.
I was supposed to start watching the markets again this week but that plan failed miserably. Hopefully tomorrow… Right now I’m reading Daryl Guppy’s “Trend Trading” and after that I’m getting into another of his books: “Better Trading - Money and Risk Management”.
I saw what you meant on the AUDUSD - absolutely beautiful setup at the major downtrendline starting 2009-11-16 with touches at 2010-01-14 and 2010-03-17.
A 4H CBL would have given a 1R at very least and if 0.89 Support breaks it could be much more than that… or it could bounce and become a BE. Anyhow, I haven’t looked at charts at all this week so it passed me by but hopefully it rewarded you with some pips.
Hey o990l6mh! Hope you had a great vacation - sometimes its good to take a break that clears out mind from the charts. Looking forward to seeing your future trades.
Hey there MattW2009 - do you know where I could get more information about the “risk profile” you speak of? I trade a few JPY pairs and have noticed that they seem to be correlated somewhat, and thus it feels like I am exposing myself to more than necessary risk, since they tend to give trade signals according to my Trade Plan a few candles within each other.
I’ve held off answering your post as I wanted to do it only when I had proper time and a focused mind.
I have to ask, what are the other two reasons you look for before entering a trade?
You’re probably right. My problem is that I have a hard time figuring out what specific fundamentals is driving the market at a certain point in time.
One can make a case for USD weakness as this certainly seems to be what did happen as per your analysis above, but I could also easily make a case for why the EUR should have remained weak against the USD. I admit, fundamentals is an area I do not master enough - in the there and then I would not have been able to decide which of the two scenarios that would turn out to be the right one.
What I’d like to learn is how to “read” the crowd’s longer term reaction to fundamentals. I’m not interested in why traders suddenly decide that buying EUR against the USD is now a good idea, (just weeks after headlines about the possible failure of the EUR as a currency.) I’m only interested in a way to “read” that change in view of the traders as that is what allows me to tag along for the ride.
So far I haven’t learned how to free myself of the fundamentals jungle and climb that rock to see what the others are up to. As a result I’m trying my best to ignore fundamentals and simply trade what the charts a showing.
Thoughts on this are most welcome.
I agree with all the above. I once took university math, Discrete mathematics and its applications, and understood most of it - I’d say I’m not a lost cause in math but I’m not a math genius.
This book however is, as you say, very straightforward and clearly written with an intent to make it accessible for the general reader.
Although I’ve been subconsciously aware of many of the things explained in the book I haven’t been consciously aware of several of them. Randomness becomes quite scary when you fully realize what a profound impact it has on our destinies. For instance - How unfair is it not when you do everything right and then randomness causes you to fail and instead a less deserving person prevails!
The situation with the careful and excellent driver being hit and killed by a drunk driver that survives unharmed is a good illustration of the unfairness in life that can be caused by randomness.
I’ll save the rest for a more comprehensive review of the book.
Late Friday night right now, working to get some stuff done. One long overdue task is the analysis of the latest closed trade I’ve taken, the EURUSD short from the post above.
I had an established down trend on the pair, a retracement, a bounce off of the 1.2450 level which had acted as resistance back on May 28. And to top it off, the bar setup offered a small doji followed by a strong bearish outside bar.
Things looked promising for a short:
The trade triggered on June 22 and formed a three weak daily bullish bars, a known bearish formation and quite as in the textbook price then dropped for two days. At the most I had 130 pips of unrealized profit and perhaps I should have moved to BE at that point. If I made an error in trade management then not moving to BE would be it. I never reached the 1R though, which is where I will typically be looking to move to BE.
Shortly after this point the market reversed sharply and took me out. This is what the charts looked like on the day of my SL being hit:
In conclusion, perhaps I should have been more wary due to the nature of the markets during the summer but I’m not certain that I should be beating myself up over this loss.
When you say 1R as many others have, is that to mean 1:1 for risk reward? So in other words, when your profit reached a 1:1 point, you move to BE. Is that right?
You’re trading a Daily view. If that’s your default & you trade naked (no hedging or short term defense back up) then are you sure you’re looking the right way if you’re being driven by technicals?
Euro rolled over v/s the buck on the failure confirmation on 17 Jan if you believe the story your charts are telling you & its balls began to twitch on 1 July as it broke back (technically) above its last lower high.
Wasn’t that the first signs that its balls (the shorts) were being gently squeezed?
If you’re a technician, then 1.2670 was the first real shot at flexing its muscle, followed by this area right here at the 1.31. If shorts fail to reassert their stranglehold here, they’ll get their danglies squeezed even harder up to 1.3250-3320.
What’s your definition of longer term?
This crowd you speak of have different agenda’s half the time.
If you believe all the talk then one influential camp are calling Dollar strength, another camp are neutral/bullish, another set are neutral/bearish, yet another crew are adopting an aggressively weak Dollar outlook.
Which crowd are you going to stand with?
They also employ a varied array of strategy tools to assist in their objectives.
They got algo’s purring away merrily in the background matched up with hedging defense mechanisms.
They got aggressive short term models in place to take advantage of range contractions & changeable market cycles.
They got whole teams of Ivy leaguers spewing out reams & reams of statistical data that would make your eyes water.
Not that I’m saying that counts for a whole lot, but their bases are usually well covered.
I’m not suggesting either that you can’t make money. And I’m not saying you can’t make money trading part-time, but you’re going to need to be flexible, nimble & nail these higher probability levels with pretty reasonable accuracy if you’re restricting your game plan to a specific timeframe, unless of course this is simply a hobby or you’re in no hurry to make headway.
Naked as can be.
I fully agree with your view on Fiber rolling over Jan 17 and then breaking the lower low lower high pattern on July 1 - the same day my trade was stopped out…
I think my short bias was still healthy on June 22 when I entered the trade but obviously things changed on July 1.
Any thoughts on this? Was there something you could see on June 22 that hinted to you that another short play wasn’t high probability?
Agree again.
Exactly, that was my point - I don’t know which camp to join. Ergo, I try to ignore it entirely and just trade the charts. I try but it’s hard to keep all the chatter out completely and I’m sure it does sneak into my biases and reasoning at times as unwanted as that is.
By longer term I meant in this instance crowd emotion that lasts for weeks or more. In other words, trends that are visible on a daily or even weekly chart.
True, but I have one advantage that they do not - I don’t have to trade 24/6, only when I find something that warrants a trade.
I know, just trading dailies does require that I manage to catch the high probability plays when they do happen to come around.
As for hurry, both yes and no. This is certainly not a hobby for me, I’m doing it to make money. My two motivators for trading is; 1. Make money and, 2. The challenge of mastering something I started out knowing nothing about.
I’m also becoming aware that it takes time to learn how to trade properly and I’m not going to push that process to the point of failure. As a retail trader I’m beginning to accept that it’s going to take 2-3 years to develop enough skill.
I guess you could say that I’m certainly motivated to make headway, but I’m also patient.
Last, thank you for stopping by. I very much value your thoughts.
Stateside deflationary chatter, further quant easing & double dip fears were beginning to do the rounds on the wires & information sheets from the beginning of June onwards, & it wasn’t confined to simply one-off print outs.
Reports were also being released talking up much firmer economic sentiment forecasts for eurozone & far eastern markets going forward v/s the US outlook. Chatter of possible inflationary measures coming back on the agenda was also doing the rounds.
Add to the mix the reluctance of some of the big fish to continue running Dollar positions beyond 1.20, & instead unwinding & squaring off large positions, & you had a recipe for some pretty heavy duty reversal potential.
When these guys begin nattering & jawboning, the market tends to sit up & listen.
Market doesn’t like to think its being caught overweight or imbalanced. If in doubt, it will square off & hit reverse gear.
Techs were confirming the risk-on bias if you take a look at Dollar index hitting a wall @ 86.50, usdjpy failing to gain traction @ 91.0 & eurusd holding 2150.
Just look at that fulcrum line on that eurusd level around mid June.
eurusd has shifted up over 9 handles since that spin in risk appetite. That’s what I’m saying about flexibility & nimbleness.
It’s a fast track world we trade in nowadays. 2 weeks is considered long term in some of these wild west saloons.
Markets nerves are stretched & desperate for the next round of data/news & conjecture so players can justify their stance.
If they begin to smell a rat or get unnecessarily spooked, they’ll run prices through a layer or two of stops in a heartbeat.
Momentum can be hard to stop when it gets its tail up.
Having a firm grasp of the flow of fundamentals and not least the rumors is one of the things that traders inside the business have as an advantage.
By the time I hear about things it will already have been out and been traded on.
Someday I’ll get a better grasp on those things.
It certainly is a fast track world now, not just in trading but everywhere. My wife has a cousin that works for one of the big European banks trading operations in Japan. If the high-frequency trading computers act up… well he’s happy to not be one of the computer guys.
Summer is now officially over as far as I’m concerned as it’s back to work tomorrow for me. Today’s been nothing but rain so it’s just as well.
As a result the summer slumber is coming off and I’m going to restart trading on Monday morning which will also see the premiere of my 4H trading.
There will be a few posts coming over the next few days as I’ve lagged behind quite a bit. It was worth it though, getting a good rest! I’ve been reading a bit, Darryl Guppy had some interesting points to make although I don’t like everything he writes. More on that later.
I’m realizing that my wife has a black belt in shopping :p) and as mentioned earlier, I’ve been without a phone line for a while but now everything works again.
