My Trading Log

Trading Discussion Trade Journals
1373

I’ve been thinking to do this post for a week but never got around to it. Until now.

Last Friday was the NFP release and many traders like to try to trade these big news releases as they offer a lot of volatility. I’m not one of those traders mind you.

I observed something that I’ve learned, can’t remember where though. It’s a small phenomenon that hints at the direction price is likely to take when the release is made public.

The idea behind it is that there will always be some traders that, by way of connections etc, learn slightly ahead of the release what the actual number will be. These traders will not be you or I, but BIG traders with BIG accounts.

When these traders start positioning themselves ahead of the release this causes price to drift up if they’re buying or down if they’re selling.

Get the idea?

Good, let’s have a look at the 1min chart from last Friday:

100806 nfp eurusd.jpg700×336 15.8 KB

Notice what price starts doing from 14.55 and onwards? (On the chart’s time zone the NFP release was 15.30)
Notice especially how price actually gaps up at 15.12 - that sort of gap up to me suggests a BIG trader trying to fill a BIG buy order.
These traders have all kinds of tricks to try to conceal their trading but as we can see here there are sometimes ways of spotting their intentions.

At 15.30 price shot up. Did I trade this? No, it’s not part of my trading plan and nor am I quite confident enough in the concept. Take that as a disclaimer - this is just my observation and it doesn’t mean it’ll work next time, or for that matter, ever again. But it might be something worth being aware of huh.

1374

Review on “Fooled by Randomness” by Nassim Nicholas Taleb.

This book is a study and a lesson in the fact that randomness accounts for much more of life/history etc than people are generally aware.
The writer makes a list of the random side and the skill side and then goes on to show how randomness is often mistaken for skill, such as how luck/chance is commonly mistaken for skill in all areas of life.

The first chapter is a story of two neighbors. The main character Nero and his neighbor John.
They are both traders but John is the superstar who makes unbelievable amounts of money and Nero does well year after year but he never makes enough to impress people.
Since Nero trades with a high level of risk aversion he is virtually bulletproof as far as blowing up his trading goes.
John thinks he is trading safely as well when in fact he is not and one day he does indeed blow up.

This is later linked to the law of averages. Put simply, this means that if Nero could live his life one million times, on the vast majority he would do about as well as he did. If John could live his life one million times he would instead be likely to fail on the great majority and in most of these possible lives he might more likely be a janitor and only in some very few lives does he become the star trader and in even fewer of those lives does he actually also die as a star trader.

He goes on to point out the fact that luck is mistaken for skill or even destiny down through history. Many think that it was “meant to be” the way things happened in our history books but this is not so. It is the same with history - we can’t know if our history is the lucky/unlikely of the many ones we could have had or if our world’s history is that which was the most likely to happen, like Nero’s.

Anyway I could make this review extremely long but I think you get the idea of what sorts of things Taleb discusses.

It’s not primarily a trading book, it is rather a philosophical book written by a trader and mathematician. Much of it is very valuable reading for a trader. For instance, like Nero, after reading this book you will no longer be impressed by the John’s in your life.

Read it is my advise, you won’t be sorry.

1375

It’s about time to write something about Count Back Lines, CBLs, as I’ve mentioned them before and as I intend to use them in my intraday demo trading.

Tymen has already explained the concept in his thread, see this post and several onwards: 301 Moved Permanently

I see little point in trying to repeat something already explained so well by Tymen. The only difference is that as time went by Tymen adapted the CBL to only a single candle. I will use the original CBL with three bars/candles. This is also how the CBL was created by it’s developer, Darryl Guppy.

What makes this concept so clever is that in order for the trade to be triggered price has to overcome three bar highs or lows and each of these bar highs or lows naturally represents a swing high or swing low. Depending on where the CBL bars have their highs or lows these swing levels can represent everything from weak to very strong S/R levels.

Another smart thing about it is that the CBL adapts itself to volatility. A sharp drop means long bars and a long pip distance to travel before the CBL is triggered. This keeps you from for instance entering on a small pin bar after a very heavy drop - aka trying to catch a falling chainsaw.

Yet another nice quality of the CBL is that it is much less dependent on what your time zone is than if you’re looking at candle/bar formations. As we all know, what looks like a perfect bar setup on a GMT chart might look like nothing much on a GMT+5 chart.
This problem of course does not completely disappear by using CBLs, but due to the nature of the CBL it actually becomes smaller, in my limited experience.
Most likely this is because CBLs will often involve more bars than a bar formation will and more bars will tend to dissipate the effect of the time zone.

Darryl Guppy uses a close beyond the CBL to enter, this is the only difference I will have from his use of CBL entries - I will enter at the break of the CBL line.

I’ve read Darryl Guppy’s book “Trend Trading” and found it a pretty good read. I learned from his thoughts on trends and their probabilities, his sections on CBL applications and some other things. Then there were parts I could not agree with, especially his fondness of the GMMA (Guppy Multiple Moving Average) was problematic to me. I took what I found to be useful and left the rest behind.

I do think the book is worth reading though, not least for his insight into how a small trader, such as we are, should view and approach the markets.
I also had a look at his book “Better Trading” which concerns itself with money management but I found there was little new material there for me.

This was a slight detour but since Guppy created the CBL I thought I’d include my thoughts on his other work here.

In conclusion, I find the CBL concept to be very useful and it is something that demo trading will enlighten me on further.

1376

I’ve set up a myfxbook system to track my performance on the intraday demo trading.

I wittily named the system “Intraday Phoenix Foundation Demo System”

1377

When I’m at work I won’t be able to use the built in tool in Oanda to figure out correct position sizing, hence I’ll use this online tool instead which is always available through my hightech phone :smiley:

Position Size Calculator: Free Online Forex Position Sizing Calculator

1378

I decided to take this chance and perform another forward test that I’ve been thinking about for some time.

Consequently I’ve created another myfxbook account to connect to a new demo sub-account I’ve also created.

I will place the exact same trades as on the other demo account with one difference - I will use the Kelly formula for position sizing. Now I realize that the big issue with Kelly - psychology - will be absent on demo, but I am very interested in the concept and if the results are good I may create a small live sub-account and take it from there.

1379

Hello Magnus!

I really hope you did enjoy your vacation, and I see your going to be back to trading from now on!

Soldier on as Tymen say haha and you know already you are more than capable to go back on track to right trading.

By the way I’m reading “Fooled by randomness” and it’s being a great addition to not only trading education, but to think outside of the box in everyday life. Nice approach by Nassem.

Forget my stupidity but I didn’t found the post we were discussing about dentistry differences between our countries, just wanted to say I read your insight on the matter and I really appreciate you for that.

I wish you the best for you and your entire family Magnus

:slight_smile:

1380

I wish you the same!

http://forums.babypips.com/melting-pot/34874-dentistry-forex-odd-match.html

1381

Kelly settings will be 1:1 R:R and 60% win rate, this is roughly the same as a 50% win rate with 1.75 R:R. In other words the risk per trade in the Kelly demo will be 20%. Since the risk on the standard demo will be 2% this makes it easy to calculate position size.

1382

Just a short post on the topic of scammers.

Over at another somewhat bigger forex forum there’s apparently some pretty interesting stuff going on.
The guru of one of the most viewed and celebrated threads has recently been exposed as a scammer, rumor has it he has stolen more than 3M USD from people, many of them forum members who invested in his “fund” due to his extremely good reputation (past tense…)

It is a perfect lesson, much like the illustrious James we had here on BP for a long time, that teaches us to NEVER give your hard earned money to a faceless person from a forum…

So obvious really that it feels like a big Duh! to most of us, but obviously not for everyone.

How to avoid this ever happening to yourself? Easy, learn to trade for yourself, aka, lose your money yourself. :stuck_out_tongue:

It all starts around post 11200 and then goes on and on. It’s very educational to read through it and see the drama play out - see how people react as they go from defending Jacko to denial to despair and rage.
Mind you that this guy used to be one of the top three most respected members on that forum… Food for thought… Don’t ever be one of those poor people!
Jacko’s Forex House of Pleasure and Pain @ Forex Factory

1385

I’m not surprised that something like that happened either, it’s bound to happen now and then. I wonder where the next spectacular blow-up will occur?

I never really cared for his thread or teachings and so I only learned of it when I saw a post on another thread about it(Silent Service).

For instance - his anti-hedge technique…? Sorry, come again? No, never cared for his material. The good parts could be found elsewhere, presented better and in a friendlier atmosphere.

In other news I’m still working on that trading plan but a reality check suggests that it won’t be done until the weekend. I am currently taking a close look at what/which setups I’ll be trading. I’m having a hard time deciding whether to include counter trend setups or not.
After all, many if not most Pring/J16 setups have to classify as counter trend. I mean, a perfect J16 setup would be for instance a steady trend up (no traffic/ranging) that hits a major PPZ and forms a pinbar or other reversal formation. Unless the higher high/higher low pattern is breached and confirmed that setup must classify as counter trend. That’s why J16 traders like to use “confluence” such as fibs, MAs etc - to find a reason why price should turn at that point. This is something I’ve always had difficulty accepting as the smartest way to look at things.
Then again, with well chosen S/R zones it does often work.

I’m looking at three different types of setups and thinking about which to include and exclude:

  1. Entry on retracements in a trend (this one is a given - it will be included)
  2. Entry on retests of breakouts
  3. Entry on reversals at strong levels - these will often be counter trend and therefore the quality of the level will be paramount if they’re to be included. Most times, if the trend does indeed reverse, there will be type 1 setups forming after a while.

Yeah, I’m having trouble deciding on type 3. Then again this kind of setup is what I’m used to and it would feel strange excluding it, especially as I’d trade it on my live account on the dailies.
I’m leaning towards including all three and mixing some common sense in there.

1386

Very funny, and very true :smiley:

1389

Yes, that’s right - he does. But J16 himself and many other real seniors frequently show what I view as counter trend trades and mark them as A+. Rac comes to mind of course.

I have two criticisms of the J16 thread and the lack of focus on trading with the trend is one, the other is the fact that R:R is viewed as unimportant. Mike does seem to trade with the trend and being very picky, but the trend part isn’t something I’ve seen taught very much in the thread. Nonetheless it’s still pretty much the best thread around.

Of course CT does work, especially with very tight stops and a willingness to get out early if things don’t look good.

Anyway, as the poorly skilled excuse of a trader that I am :D, having the trend on my side can’t hurt.

1391

Ahh, yes I agree. The thread moves way too fast for me to keep up. It would also have been nice to be able to hide all posts except for those users that you want to view.

Agree 100%

Yep, it’s all true. I guess I’ve been influenced a bit by Guppy and his thoughts on the probability of trading with the trend vs trading against it. But as you say, by doing only that one will never catch a new trend in it’s infancy.
As usual some discretion sneaks into the equation, seems impossible to get rid of that huh.

1392

A very interesting debate, with trend vs. counter trend. I trade several timeframes and often I’ll be taking a counter trend trade on the 4H that is with the trend of the daily. Say daily trend is up and 4H trend is down. My entry then is on the break upward of the 4H down trend line, which is really a resumption of the prevailing daily up trend. It’s a very simple entry made by drawing the down trend line on the 4H and waiting for the resumption of the prevailing up trend signaled by the upward break of the 4H down trendline.

My point is, while this looks like a 4H counter trend trade in the beginning, it is really just a resumption of the prevailing daily trend. There are some advantages to this type of trade. First, you can confirm the 4H down trend is broken as soon as the 4H fails to make a lower high and makes a higher high instead. That will usually happen as the 4H downtrend line is broken. Second, using a confluence at this point, like fundamental data or s/r lines, pin bar candle top and bottom formations, a Tymen CBL, etc., greatly improves results, but you only have to look for confluence when the down trend line breaks, since that’s the trigger. Otherwise, all other s/r lines, candle formations, etc. are ignored. My favorite part about this trade is if I am wrong and the retracement trend line (a retracement from the daily point of view) is not broken and runs on to form a major reversal of daily trend, I do not enter the trade, so I have no risk.

I have tried to show this technique to others with little success so I can’t hope to explain it any better. It’s hard to boil down into a series of logical if then statements. I can say that a confluence of at least two other good reasons to enter the trade, just for example say fundamental data change and an s/r line or pin bar bottom, in conjunction with the retracement trend line break, has produced very good results for me on the 1H, 4H and daily timeframes. I get several of these trades each week and some run for several days. I do however have some additional rules to enter these trades. One of the main rules is I don’t enter a counter trend trade (counter trend from the 4H chart, with trend of the daily) if the 4H 20SMA or BB Midband is angled against me steeper than 2 O’clock up for a down entry, or falling faster than 4 O’clock down for an up entry. I just judge it by eye and if I can’t tell, I don’t enter the trade.

Just some of my own personal observations about counter trend trading and entering on retracement trend line breaks. Take what you like and toss the rest. Happy trading :slight_smile:

1393

Good advise and I think I understand what you mean.

I tend to find that the 4H and the daily trends will usually move in the same direction, at least the way I look at it: I look at the pattern of higher highs higher lows or vice versa to determine trend or lack of and by zooming out slightly on the charts this usually becomes very clear.

In other words, if the daily is trending up I would view the 4H trend as up as well unless it actually manages to make a lower high/lower low and this rarely occurs in my experience without the daily trend being broken as well.

I seem to understand that you mean that if the daily is up and the 4H is down you look to get in if/when the retracement trendline breaks, along with two other confluences. I fully agree that this is excellent trading, about as good as it gets really. So, I guess we mean the same thing but what you call a 4H CT trade against the daily trend I call a retracement entry, potato potato huh :slight_smile:

1394

Yes, potato potato. It’s only counter trend in the sense that the daily is retracing part of the main trend move, establishing a clear retracement trend line on the 4H chart, and I enter on the breaking of that retracement trend line, which is a resumption of the longer time frame trend of the daily chart. Those trades are cheap entries as I can place the stop just on the other side of the recently broken retracement trend line, and some run for a very long time generating great r/r ratios. As I said, if the retracement trend line isn’t broken, then I haven’t entered, so I’ve risked nothing. It’s the best set-up I’ve found.

1395

I agree wholly with what you write here. Can you believe that it took me close to two years to acquire the knowledge and understanding to actually [I]get[/I] this!

Now it’s so obvious that it makes me wonder what I’ve been doing all this time…

1396

Weekend passed by fast again. Yesterday was spent at a mind-numbingly boring party and today I helped the folks with some stuff.

That’s not all I managed though, and one of the other things I’ve worked on is the 4H demo trading plan and the good news is it’s almost finished. I promise myself and anyone else who cares to post it this week.

Most of the other things needed are already set up and ready to go. I really just want to update my S/R lines as well. The adjusted plan is to have everything ready and done for the start of next week.

Other than that I can share some personal experience from today: bee-stings hurt. :stuck_out_tongue:

1397

Got this article in my inbox and I liked this section:

At the end of the day, no one cares about all the emails that you exchanged, the social club meetings you attended, or the chronological filing of folders in your cabinet. Multitasking constantly prevents individuals from giving their best on the few critical deliverables their employers really expect from them.

Do the important, difficult, urgent and highest-value action items first. Success in finance can involve simplicity in methods on how you approach your tasks. This may seem brutally simple for the well read and uninitiated recent graduate, but do one thing at a time and do not stop until it has been completed. If your tasks relate to a long-term project, chop it up into shorter-term milestones and finish [I]ahead of time[/I]. As Henry Ford said, “Nothing is particularly hard if you divide it into small jobs.” Doing things from start to finish eliminates costly inefficiencies because you’ll avoid having to constantly start over and recalibrate on different, unrelated items.

I know there are thousands of lists full of words of wisdom floating around the web. I do like this one though and I constantly try to keep myself on that track, usually with success and sometimes with utter failure.

Source: Time Management Tips For Financial Professionals