Price Action That Matters

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488

The one thing I didn’t like about that flag are that the candles didn’t fill up the flag as much as I would like. It can be hard getting a full flag, it’s just ones of those dynamics you have to consider when trading that pattern. The percent of flags and pennants that pullback after breakout is really high, so while you may miss out on a trade here or there, you may end up filtering out more losing setups. It just comes down to the risk you are willing to take. Flags aren’t confirmed until the break of the flagpole but for the extra risky trade you can trade them as soon as the flag is broken, which gets you a better RR. I have traded them both ways. In my trading style I tend to go more risky when entering trades I.E. entering on candle retracements, or entering PA patterns quickly, but I follow it up with a defensive style of management that tries to get out of trades is they are firing off warnings, and not letting go off too much profit if my trades turn on me.

In a set it and forget it style trade I got out of a EURGBP trade with a 1:2 RR, what ended up happening was a flag formed and continued on for about another 4 rewards of my risk. I missed out on significant profit from not managing the trade live. If the market context is right, I will try and not to do a set it and forget it. My other style of trading is taking profit, and if a pattern forms, re-entering the trade. There are a lot of ways to skin the cat when it comes to trade management.

Although you haven’t formally introduced yourself we are glad to have you here! You have some great input and I look forward to seeing you around here more.

489

When patterns like this go past 2/3 the way to where the trendlines cross the tend to have really weak breakouts. You can see in this case it has traveled about 80% of the way or more and hasn’t broken out yet. Statistically it has a higher chance of a weak breakout and higher chance of a false breakout.

490

Is this a pattern to go long or short ? I know you haven’t covered patterns yet but just so I understand a bit what we are discussing here :smiley:

491

Here is the current version of my trading plan as it is today, I am very likely to update it as I grow and I am planning to update it here also just in case anyone is interested in using it and/or adapting it to his/her needs.

Please feel free to criticize comment on it etc… as I am trying to improve it.

The idea is to copy this trading plan and fill it for each trade I am about to take and then keep it as part of my trading journal.

As Aaron said it looks like a contract and that’s exactly how I designed it so I am fully aware of what I am getting into and that I have done all the analysis I had planned when I was totally objective and how I am going to play the trade from entry to exit.

A word version of the plan is available for download here if you would like to have it

Trading Plan
Version 1.1 - Last updated October 14th 2013

Read me first
• I will not enter a trade unless I have followed my trading plan and the outcome says I should enter it, It is the only way not to feel any guilt if I lost the trade and make objective decisions
• Before entering each trade I will copy and complete this trading plan and the file will serve me as trading journal
• After I am in a trade I will not move my Stop Loss unless it is in my favor
• I will never trade over my risk threshold and will stick to my pre-determined xx USD/trade
• I will not edit or change my trading plan while I am in a trade or within 24 hours after I exit a trade (winning or losing one)

Before entering the trade
Date and pair
I can trade any pair offered by my broker as long as, taking into consideration the spread, my R/R ratio is still within range
☐Today’s date: ________________
☐Pair I am looking at: _______________
☐Spread of this pair: ________________
☐Broker: _____________________

Timeframe
I will only enter trades using the Daily or weekly timeframes. I will not use any lower time than daily for the time being
☐The trade I am interested in is on the ____________ timeframe.

Identifying Trending / ranging markets
Reference
• 301 Moved Permanently

[B]Trending[/B]
• In trending markets I will not trade against the trend
• When trading with the trend I can use fibo retracement of 50% and EMA 21

[B]Ranging [/B]
If a market is not trending than it is ranging. In ranging markets I will only sell at the top of the range or buy at the bottom

☐The pair is trending and I am looking to trade with the trend
☐The pair is ranging and my entry is at the top or the bottom of the range

Identifying S/R areas
References:
• 301 Moved Permanently

[B]Horizontal S/R[/B]
☐I have plotted my horizontal S/R using the daily timeframe

[B]Fibonacci[/B]
The Fibonacci tool is not to be used when trending counter trend.
☐ I am trading with the trend and I have drawn my fibo retracements
☐ I am trading against the trend or in ranging markets and fibo is not relevant

[B]Diagonals (Trend lines)[/B]
☐I have no knowledge about trend-lines or how to draw them for that reason I will not be using them for now

[B]EMA[/B]
I will use only EMA 8 for short-term S/R and EMA 21 for medium term S/R. The EMA tool can only be used when trading with the trend
☐I am trading with the trend and I have plotted EMA 8 in red and EMA 21 in blue on my chart
☐I am trading against the trend or in ranging markets and EMA is not relevant

Price Action Signals
References:
http://forums.babypips.com/free-forex-trading-systems/42378-forex-price-action-1396.html#post545767

I will only trade the following price action signals that I am comfortable with

[B]Reversal Pin bar[/B]
☐It happened as a reversal sign
☐Wick is at least 3 times the body
☐Pin bar closed within the body of the previous candle
☐The nose of the pin bar is small or inexistent
☐The pin bar stands out from all other candles
☐The wick crosses a S/R area showing clear price rejection
☐A plus is if the body color is favorable to the trade (i.e. green body for long / red body for short)

[B]Engulfing bars[/B]
☐It happened as a reversal sign
☐The bar is totally engulfing the previous bar
☐The engulfing bar must stand out from other bars in the setup
☐The bars cross S/R areas showing clear price rejection

[B]2 bar reversal[/B]
☐It happened as a reversal sign
☐ The 2 bars are almost the same size
☐ The bars cross S/R areas showing clear price rejection

[B]Fakey setup[/B]
☐It happened with the same direction as the trend
☐It happened on a relevant S/R area:

☐The setup represents the Price Action _________ listed above and has completed successfully the checklist

Additional consideration
☐ There is no or little noise on the left.
☐ There is no Very Big Round Number in the path of the trade
☐ The price has enough place to move

Entry, Stop Loss and Take profit Points
[B]Entry Point[/B]
• Entry point can be set at the break of the PA signal with a buffer of 10 pips for daily signals or 30 pips for weekly signals
• Entry point can be set at 50% retracement of the PA signal to have a better R:R ration. This can be done only after the PA signal was confirmed with the breaking of the PA signal with the buffer specified in above point.

☐ Entry point was set to the break of the PA signal with a ______ pips buffer for the weekly/daily signal
☐ PA signal was validate by the break of the PA signal, an entry point was set at 50% retracement of the PA signal
☐ Entry point price: ___________

[B]Stop Loss[/B]
• The stop loss should be set to above the PA signal with a buffer of 10 pips
☐ Stop Loss price: _____________

[B]Take Profit[/B]
• A trade can have multiple take profit areas, each TP price should be set at the next major S/R area with a buffer of 5 pips.
☐ Take Profit price: _____________

Position sizing
☐ What is the Stop Loss in terms of pips: __________
☐ What is the amount of risk per trade allowed on this trading plan: _____
☐ Based on the above 2 points the number of lots for this trade is: ________
☐ My risk in US amount is: _________

[B]Risk Reward Ration[/B]
I have no strict rules about the risk reward ratio of a trade as long as it has an edge of high probability
☐ The profit for this trade in terms of pips: _______
☐ The profit for this trade in terms of Dollar amount: ________
☐ The risk reward ratio for this trade is: ___________

Trade chart
Paste a chart for the trade before

While in the trade
[B]First Target Area[/B]
I will not touch the trade before the first Take Profit or the stop loss is reached.

[B]After FTA is reached[/B]
When the FTA is reached I will move the SL to the entry point and let the rest of the trade play out

After exiting the trade
☐ The trade was exited on _____________
☐ Outcome of the trade (Winner/Loose)
☐ Profit & Loss of the trade
☐ Exit method of the trade (TP / SL / Manual closure)

Trade Chart
Paste a trade chart of after the trade

492

Price tends to break out in the direction that price was moving leading up to the pennant. In this case up. Pennants have the highest chances of breaking out in random direction, the lowest chance of reaching it’s price target and the greatest chance of a false breakout. This is why I don’t have them on my list of approved patterns. I do personally trade them, but for the sake of this thread, I want to stick with the best quality patterns. I may introduce pennants sometime down the road.

493

Thanks eternal, I added it to the quick nav on both threads.

494

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Just closed and AUDUSD trade for a win of 1:2 RR. I entered a retrace of the pinbar off of 8EMA. I would give this trade a 4 out of 5 stars as there was very little not to like about this trade. My biggest complain was major resistance was so close, which is why a retrace for this trade was required for a decent RR.

495

Yup, I took some profit too, but using different entry signal which I had mentioned before.

496

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Hey Aaron,

CADJPY D1 , can this counted as inside bar? since it fail to breakout the mother candle.
How do u plan to manage this pair??

497

No, the entire candle w/ wick must be inside the mother bar. Since it didn’t form an inside bar I won’t be taking the trade. I am still watching for retracements if they happen to get in on the weekly candle.

498

Same here, I just woke up to know my equity grew 2.5%
However my R:R was lower 1:1.4

499

Hi all,

I saw a setup on the USDJPY d1 that met most of my plans criteria. Price is in a short term trend since 11.09.2013. It went down from 100.4 to 96.7 and retraced to 98.6 and rejected the level with a Pinbar. However, I won’t take this trade as Pinbar is on the 4hr chart and it is way to small to qualify according to plan rules on signal size for the various timeframe. I would have trusted such a Pinbar on the weekly. Just to give you an idea on how I use the plan I posted recently.

Have a good day or night !

Yves

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500

Good trade. Aussie and kiwi are relatively strong across board. Took the trade on NzdSgd instead because the pin was more defined and formed at a very good level. Trade almost approaching 1:2

501

Excellent ! If this is followed carefully, you can only be profitable, mate ! But now, the hardest part is left, discipline ! All the best to you ! You deserve it !

502

Muahahahaha… I’m hoping that you won’t be [U]consumed by the lust of power[/U] yourself in the future, Krugman. No plan to turn evil in the future, don’t you? Suddenly we have something about the newest post from[B] Supreme Master Aaron Kruger, your best and only the right one and the chosen one in Forex evil overlord[/B][B]. All hail Grandmaster Krugman!!![/B] :smiley:

The joke aside, I like to think that you do have minimalist approach for Price Action. In my personal understanding, there are two main paradigms for Price Action analysis:
[B]1) Purist approach[/B]. The one with only 100% candlestick chart + important S/R at Key Horizontal Level. Clean chart is the purists’ signature move. The other thread focuses in purist approach. Win rate is extremely high (more than 90% if you really are faithful to its best of the best setup), but RRR is so so.
[B]2) Minimalist approach[/B]. Basically Purist approach + additional geometrical analysis (flags, triangles, channels, rectangles, etc) + supplemental indicator (mostly MAs). ‘Minimalist’ refers to the fact that this school of thought allows the application of simple -but minimum- indicators to supplement their analysis in their chart. This is your approach. Chart is definitely messier than the one in purist approach. Win rate is nothing extraordinary (yup, I still remember our coin flipping discussion), but RRR is ridiculously high if you can identify the best of the best setup.

At least that’s what I’ve learned from reading all your posts from the other thread. And that’s what I always do if I want to know about the kind of teaching I want to learn from the ‘Master’. For me, it always comes down to RRR vs Win Rate, and how I can incorporate it to my personal strategy. :wink:

503

I gain 4% on this trade too ;]

504

That’s awesome, Yves! [B]Business is business![/B] :smiley:

Now, making a plan is the easy part. Sticking to it is the real challenge. Please let us know how your business plan serves you in about a year from now. Oh, and also good luck with your Forex contest in Switzerland national television. :wink:

505

Agree 100000000% on this, mate. Can’t be written any better. :wink:

506

Thanks mate ! It’s not on TV, and it’s equities and derivatives. I haven’t managed to get back the commisions paid for each share. I started with 10K paid 300Chf commision and I am making 50Chf profit. I don’t like stocks, it’s not fun at all :frowning:

Yves

507

Morning all

Did anyone else take the EURNZD from yesterday? It worked out very nicely in the end. Just taken my 90 plus pips off the table as I believe it is now at a strong level of resistance but who knows? It’s moving very quickly and has momentum on its side.

Thanks for all of the feedback guys!

BA