Trading Ideas/Trading Journal - Daily Charts

[Scoutsgtmkoll]

Hi there, I guess I should really introduce myself as this is the first (or one of the first) posts on babypips. I’ve actually been a member for a while and regularly browse this forum for trading ideas and for the news tool etc. Popping in on occasion to see if any good threads in the forum.

Anyway I have been trading quite a while. I finished A-Levels a few years ago and took a gap year before starting university. My interest in Forex really started then; I had a full-time job but I wanted to make my money to work for me… I wanted to go travelling and generally have much more freedom that an additional money supply would give me.

I originally started off trading with systems (as I suppose most people do). I must have easily spent around £200-£300 on systems. I did start demoing these systems and as usually happens I had a bit of luck for the first month or so… so then I moved on to a live account. I’m sure most of you know the end to that story. Luckily I didn’t kill any accounts but I did lose a sum of money (~£180) which was just over a quarter of my account. It was at this point that I stopped and decided that it wasn’t worth the risk and that the money I had wasted on this could’ve been used much better saving from that travelling trip.

My interest in Forex never really wavered though. I carried on a part-time job at university and the next summer decided to spend some of that learning a different method of trading. I paid for a course from an online firm who used a mentoring system. I know some will probably disagree with that… but I did my due diligence and the first month was only £30. Anyway it worked out very well. I learnt alot about support and resistance and price action. What I was taught was based on 15 minute charts. Although they have examples on 30 min and 1H & 4H charts. Most of this was used for a system based on breakout trading. This was my first encounter with price action.

I actually did very well with this strategy (not a system - a strategy… and there is a difference for anyone wondering). I managed to trade well over summer and my confidence grew. After 2 months of mentoring I was quite confident I had the strategy down to a tee and as the bill every month after the first was around £120 I decided that I couldn’t justify the cost (I was paying more than I was earning). However when I went back to University I found that the strategy didn’t work quite as well… I was taking trades in a rush as I couldn’t spend more time with the charts. Or that I would miss lots of entries and generally my overall trading attitude changed from taking only those great trades to whatever I could find. I was over-trading!!

Anyway again luckily enough my common sense intervened before any irreparable damage was caused. However I was stuck trying to find trades on 4H and 1H charts. This wasn’t very successful. As as you can imagine most of my other activities (sports, work, exams) took up much of my time. Finally I found the James16 group. I had a membership there for a couple of months (not being able to afford much more at this point). Anyway I didn’t learn anything totally new… but it definitely took what I already new and improved it.

So here we are now. It’s a little bit along the road but I’ve finally built up enough money to start trading again. I’ve tried keeping a trading diary but for me its very non-interactive and I almost never read back over. I don’t really explain things to myself (why would I?.. It’s me) and hence it isn’t a great help to me. However I was thinking a couple of weeks ago that I should make one on here. I used to use the meetpips.com site for logging my trades but I still never really used to read back through my old trades. Nobody questioned my trades and so I lost interest very quickly. However keeping a journal on here is much more pro-active. I’m hoping people will question why? and ask for explanations… There is no better way to learn something than teaching it to someone else…

And so… to the purpose of this thread.

This will be my trading diary or at least a collection of all the trade ideas I have… and why I took them. I’m going to approach this like a project report… The way we’re taught to approach this (at least in Physics) is to have an Aim, an Introduction, a Method (which includes any changes or improvements if you’re results aren’t meeting your aim) Results (Obviously) and a Conclusion (which I hope to be somewhere quite far down the line).

Again I’m hoping this thread will help others that are interested in Forex. It is very hard to keep trying at something and failing and who knows someday somebody might come across this and have that epiphany that makes them a profitable trader. But this isn’t about everyone else… I’m getting something out of this too and that’s how I like it to be… it’s a trade. Others get to learn and share in the experiences I have… but also it gives me somewhere to learn new things and assemble ideas and get constructive criticism.

Anyway onto the start… I will take a quick break after this and try and finish the beginning of the thread. However first I will state my aim. It’s always good to have an aim to refer back to… sometimes I often find a drift from whatever interests me to the next interesting thing. An aim has a way of clarifying and focussing on what you want to achieve. Everyone will have a different aim and for different reasons. I still want to have that extra freedom that a second income would allow me. However my aim has evolved a bit. I actually am extremely interested in the Forex market (or any dynamic market). And although my aim is still on making money I want to say that I believe I will still learn and take an interest even if I work out I can’t make any money from this in the end. Therefore my aim is as follows:
[B]
“My aim is to ensure my method of trading is profitable. To increase it’s efficiency if possible and to create a strategy that can generate a secure income with as little risk as possible”[/B]

And now for that break I was talking about

P.S. Moderators please feel free to move the thread to a different section of the forums if you feel it is more appropriate there…

[Scoutsgtmkoll]

Well onto the next part of my ‘project’ then… the introduction. Now the Forex market is complicated… technically in physics we’d call it a non-linear system. I could go into all the definitions of that but generally what it means it that it’s a system that exhibits chaos.

Now for those of you who don’t really care about anything technical feel free to skip this paragraph or so… But this is where I want to clear my head. You see the Forex market is all about supply and demand and the price reacts to price and demand. High demand and low supply lead to higher prices and low demand and high supply lead to lower prices. This in the business world is called ‘Price Elasticity of Demand’. It applies to pretty much anything you can buy as well. Oil, Gold, Bread, Cushions, House Prices. Literally anything that can be bought and sold has this concept built into it.
Now you can make money from these markets too… you can buy bread at a cheap price at the supermarket and then sell it for a profit to people who have a higher demand. However I’d prefer not to carry loads of loaves of bread around with me. The Forex market is a lot easier to trade on… and we get a much higher leverage thanks to brokers so we can increase our earnings significantly with only a small investment. Here is where it gets tricky though. Unlike usual markets where there is a generally a set demand and price and hence the prices of normal goods or services are set at an equilibrium position the Forex market (and markets similar to it - stocks & shares etc.) also has another force acting on it…
Speculators… i.e. me and you (if you want to trade forex). We are anticipating the market moves and are trying to make money off of the market. This means that we are artificially moving price. Effectively we’re another force acting on the market. However we’re ‘coupled’ to the initial forces on the market (the general demand and supply) as we are trying to anticipate the market moves or the supply and demand. Then it gets even more complicated. There are other people speculating on speculators… i.e. they’re trading the market based on what they think speculators are going to buy and sell at. Anyway this process carries in onto infinity… with a smaller and smaller number of people. In physics we’d discount any further terms as the influence on the system (or equations of motion) was extremely small. It is the same idea we can use for forex though… it’s non-linear because of these extra terms i.e. those that are trading the market.

Anyway if you want to disagree with me feel free. I can’t prove my theory… and it’s only that… a theory.

Moving on… now in reality the best way to trade the Forex market is to create a strategy that maximises the chances of you winning. Now I am going to be using some ideas from game theory here… But! if you are trading Forex you should[B]NOT[/B] treat it as a game… It is an investment. The definition of an investment is:

“The action or process of investing money for profit or material result.”

And of a game:

“an amusement or pastime”

If you’re using Forex for the second of the above… either be prepared to lose money or change your thinking.

Getting back to topic… now the way I approach trading is that I want to create a situation where my expectation value is profitable. I.e. when all outcomes are considered on average I should be making a profit. On a side note this is actually a term from poker and quantum mechanics… The definition of expectation value (from google - using poker as the subject) is:

“The average profit (or loss) a bet would return, if the same or closely similar hand was played in the same way each time.”

In Forex terms this is that we want to create a situation where if we set an order for a certain setup over and over again on averaging all the results we make a profit. In simpler terms: we always want the odds in our favour… it is a very simple idea but most people (including me) often get it wrong. I really want to put an example in here but I think I will leave that for when I am explaining my strategy or when I am giving trade examples. Then at least it has some application for people and may make more sense.

Anyway since we have already decided that the Forex market overall is chaotic and un-predictable (reliably anyway) we have to accept that not 100% of our trades will profit. We [B]WILL[/B] have losing trades. Unless you have been forwards in time and come back to trade (and even that that may not work as you have perturbed the system) you will lose trades. The way to win at Forex is the way you win at poker… you maximise your winnings and minimise your losses. This is either through good play (i.e. good trading) or good betting (good money management).

Anyway I hope I haven’t lost too many of you. And next up will be my method! Although it’s getting quite late and I have a lecture on ‘Advanced Quantum Mechanics’ in the morning and so I shall leave that for you tomorrow.

[Scoutsgtmkoll]

The Method

Here we go; I have tried to minimise the number of indicators on my charts. However I still have a couple the reasons of which I hope to make clear in this section. So my indicator list:
[ul]
[li]Stochastic (14,3,3)
[/li][li]365 EMA (Applied to close)
[/li][li]150 EMA (Applied to close)
[/li][li]25 EMA (Applied to close)
[/li][li]
[/li][/ul]

The stochastic is my oscillator indicator. I use this to look for overbought/oversold conditions and and divergences. I of course use this in conjunction with S&R levels. The stochastic is also useful when price actions extends beyond recent highs and lows (as we are seeing on quite a few currency crosses at the moment).

The 3 EMA’s are used effectively as support and resistance lines. The 365 Being the strongest and followed by the 150 EMA. It also gives us a general trend direction. Obviously the newest price action is obviously the most important… hence why they are EMA’s. The 25 EMA is used as a confirmation of current short-term trends.

Now virtually all trades use price action as the initial signal. I use Alpari as my broker so all daily bars end at midnight GMT for me. There are a few candlestick patterns that I use as price action setups:
[ul]
[li]Pin Bar
[/li][li]Inside Bar
[/li][li]Double Bar Highs/Lows
[/li][li]Bullish/Bearish Outside Bar
[/li][li]
[/li][/ul]
Most of these are in the babypips school under candlestick trading. I will hopefully update this at a later point with diagrams of the candlesticks.

Now everyone has a method of drawing Support and Resistance. I also believe that trendlines can be used as support and resistance; however… The more horizontal the S&R/Trendline the stronger it is. I also only use S&R where I can see price respecting it at least twice and preferably three times (i.e. it ‘touches’ the line 2 or 3 times). Please don’t think this means it must exactly touch the line, but must come into the area of influence of the line to count as a ‘touch’.

Fibonacci levels. This is another version of S&R that I use. Again babypips has a good section on this. Please read.

For the actual method. As keeping with my earlier explanation. I want to maximise the chances of winning. Therefore I always look for 2 or 3 signals to trade. Now I use a points system based on The above methods to judge whether I should take a trade. Ideally I want to only take the best trades. But we can also find profitable trades that could be considered weaker than the best trades. I will go through the point scoring system and then explain how this would effect my trades.

Positive Position Points
[ul]
[li]Price Action ( +2 Point)
[/li][li]Strong Support and Resistance Protecting Stop (+1 Point)
[/li][li]Weak Support and Resistance protecting stop (+0.5 Points)
[/li][li]Fibbonacci Levels [61.8% 50% 38.2%] (+1 Point)
[/li][li]Fibonacci Levels [23.6% 76.4%] (+0.5 Points)
[/li][li]Stochastic Oversold/Overbought - In Direction of Trade (+1)
[/li][li]Stochastic Divergence - In Direction of Trade (+0.5 Points)
[/li][li]365/150 EMA Between entry and Stop (+1 Point)
[/li][li]25 EMA in direction of trade (+0.5 Point)
[/li][/ul]

Negative Position Points
[ul]
[li]Strong Support and Resistance near entry in direction of trade (-1 Point)
[/li][li]Weak Support and Resistance near entry in direction of trade (-0.5 Point)
[/li][li]Fibonacci Levels [61.8% 50% 38.2%] near entry (-0.5 point)
[/li][li]Stochastic Oversold/Overbought - In Opposite Direction to Trade (-0.5)
[/li][li]Stochastic Divergence - In Opposite Direction of Trade (-0.5 Points)
[/li][li]365/150 EMA Near entry (-1)
[/li][/ul]

When we notice a price action setup we check the signals and add up the points for and against. Most of this is usually natural when you are looking for a trade. You look for your positive signals to trade and once you have a few you take a trade. However sometimes (especially me) I tend to overlook or discount some of the negative signals of the trade (I’m naturally quite excited if I see a positive trade). This strategy means that each time you trade you physically go through each list and hence end up with a total points number. It is this that we base our acceptance of a trade on.

[ul]
[li]Position Points = 2 - Weak Trade - 0.5%-1% Risk
[/li][li]Position Points = 2.5-3 - Good Trade - 1%-1.5% Risk
[/li][li]Position Points > 3 - Great Trade - 1.5%-3% Risk
[/li][li]
[/li][/ul]

An example is below:

Ok so we can see above the GBP/USD we had a pin bar on the 29th Sept. (I will add examples of the various price action bars at some point). Using the point scoring system as explained above;

Price Action ( +2 Point)
Weak Support and Resistance Protecting Stop (+0.5 Point)
Fibonacci Levels [23.6% 76.4%] (+0.5 Points)
25 EMA in direction of trade (+0.5 Point)
Weak Support and Resistance near entry in direction of trade (-0.5 Point)

Total Points = 3

Which makes it a good trade. Now the entry and exit: For price action trades I have my entry at 10 pips below/above the high/low of the price action (depending whether you’re going long/shorting) and the stop set 10 pips below/above the low/high of the price action (again depending on direction). This is pretty standard. The stop loss is there because if price breaks above the price action (PA from now on) then the PA signal was invalid. The long/short is there because we want to catch the breakout of the price action (i.e. make sure it’s a confirmed signal). This doesn’t mean we won’t get fakeouts but hopefully we’ll reduce them.

The exit is really the only weakness of my strategy and hopefully something I will work on. Generally I try and target the nearest support and resistance level (or one of the strong Fibonacci levels depending on setup). Also usually the nearest lows/highs are also good targets and sometimes price can stall around this area. Ideally I would like to take 60-80% of the position out at this point and leave the rest to run.

I’m gradually hoping to build this up and neaten up some of the above. But if you have any questions please ask. I will be posting any possible set-ups and trades as I see them. Cheers. L

[jimpees]

hi, sounds interesting but this thread so old… you still in here scott?

[Scoutsgtmkoll]

Nice long Pin Bar on the Daily GBP/USD. Strong Support in front of stop. But Weak resistance just before entry and Fibonacci 50% Level near entry as well. If we place the entry 10 pips above resistance hopefully this should negate the effect these have (i.e. trade will only be triggered if it breaks out of these resistance levels).

Price Action = +2
Strong Support = +1
Weak Resistance near entry = -0.5
Fibonacci Level near entry = -0.5

Position Points - 2 - Weak Trade