Learner Thread

[BlowFish 10]

DB I certainly don't disagree (if you pardon the double negative).

 

Another thing I have been considering is whether understanding (as opposed to simply recognising) is necessary for success. I do think that the paradigm shift you mention else where is critical and that's probably more likely to come around with fuller understanding.

 

Ive traded FX without volume information for a couple of months now. I feel less comfortable and don't think I get nearly as good a read without it (volume). You might say I have less understanding. Price action is still price action though and a strong rejection at a key level is stil observable (and tradeable). So far my results are pretty much the same as on the indexes which I found surprising tbh. I haven't really reached any hard and fast conclusions but your comments about understanding seemed pertinent.

[DbPhoenix 42]

If you're trading live, you have the volume information, even though it may not be represented by a bar.

 

On the other hand, if one has mechanical setups, perhaps recognition is all that's required, though one might argue that understanding is required for creating the setup in the first place.

[icecool 10]

Here is the long trade taken by me in the real time. Instead of later on cursing myself as to “what the hell I was thinking there”, I decided to take screenshot of the chart as real-time as possible and to note my thoughts at that exact point of time. This was beneficial to analyse the trade after it was closed. Further noting the thoughts in real-time avoided that “curve fitting” exercise, which otherwise would be there, if one tries to analyse the chart in hindsight.

 

As always, your comments are really valuable. Kindly see whether my thinking is going in the right direction and see whether I am making any progress at all. If you feel that I have missed something, then kindly feel free to tell them.

[icecool 10]

Here is the long trade thought off on 23/12/2008. Stock is Crompton Greaves. Only available yahoo charts are used. Yahoo ticker symbol of this stock is CROMPGREA.NS

 

First 5 day intraday chart for the context.

 

 

Price has been moving down from 145 level and found support at 126 level. It again bounced up to near about 145 level and found resistance there virtually confirming it as double top. Thereafter, it began moving down and it has reached the earlier support level of 126 today at the time when this screenshot was taken. So on the upside 145 level is found to be the resistance and on the downside 126 found to be the support. So I reckon that the possibilities are

 

1. Developing a large range between 145 and 126. In that case, buying near 126 and selling near 145 would be prudent strategy.

 

2. Moving down 126, as 145 has proven itself to be resistance and the market will try to find the path of least resistance, which after finding resistance at 145 seems to be to the downside. In that case, selling on the break down of 126 level would be a prudent strategy. If that opportunity is missed, then it can be shorted on a retracement to the breakout level

 

3. Extremely less likely situation would be breaking 145 level and moving up. I am not concentrating on this right now as this seems a remote possibility on this chart

[icecool 10]

Here is the intraday chart of today showing activity upto nearly 11.10 A. M.

 

 

As it is, I see what could be a selling climax candle just before 11.00 A. M. followed by a low volume Doji candle. When compared this intraday chart with the support level found in the five day intraday chart (first chart given above), it is clear that this selling climax has occurred close to the support level of 126 noted above, which is significant. Doji candle implies indecision. What could this indecision be? Most probably either to break that support at 126 or to reverse from close to that support level to the upside resistance to 132 to 135 range (indicated in two parallel horizontal lines in the first chart) initially and if able to break this resistance area then to go all the way to 145 area.

 

The next two candles after doji candle are showing that attempted selling to take the stock below support of 126 is probably not going to materialize. Last candle shows the rejection of the low very close to the support level of 126. So all available evidence gives a long trade setup.

 

Trade plan

 

Entry

 

One method of entry is to place a stoploss buy order above the high of last candle, which would be quite aggressive. Better entry would be to draw a supply line as indicated in the following chart and to enter long either upon the break of the supply line, if missed that opportunity, then upon the pullback after the break of this supply line. I call it better entry because, by the time all this happens, I shall get ample confirmation as to how the price has moved around the lows. But this information will come at a price. If indeed the lows are rejected, then I will be missing the lowest price for long entry and my stoploss would be slightly at more lower level. What is my motive? To catch the lows or to catch as much trend as possible with least risk? I prefer to take the second route. I will have to survive another day to fight another battle. Bragging about my one success in catching the low will be counter productive in the long run. If this habit left unchecked, I shall do the same thing again and again and sooner or later I will go broke.

 

 

Stoploss and trade management and exit

 

In any case, stop would be below 126 and since 125 looks a nice number, my stop would be at 124.70. Initial target would be that area of 132 to 135 indicated in the first chart. Once the trade moves in to profit and if the stock makes higher high – higher low pattern, then stop is to be moved upward. If the price hits initial target, I will sell half of my holdings and hold the remaining with trailing stoploss just under prior pivot low until it is hit and I am kicked out by the market.

 

In nut shell, as of now, my entry seems to be around 127 with stop at 124.25 to an initial target of 132 to 135. I am taking a risk of Rs.2.25/- to a potential minimum profit of Rs.5/- Risk reward ratio is close to 1:2. Let us see what happened next.

[icecool 10]

 

 

Hmmmm… It appears that when that last screenshot was taken, the last candle had not closed at that time. There is difference between static chart and dynamic chart. I am using only static chart for the time being. The lowest low candle (which happened around 11.10 A. M. in the above chart) and the next candle taken together convey one clear message. A high volume, high voltage drama of rejection of the low of 126 level. Interestingly, if that incomplete candle screenshot and this screenshot (with that candle having lowest low completed and its next candle also completed) are compared, this rejection of low of 126 level becomes very clear. In the initial incomplete candle chart one attempt has already been made to break 126 and it was unsuccessful. In this last chart, I see that another attempt was made to break 126 and that was also unsuccessful. All this is happening right at support level of 126. Next candle is having huge volume, wide range and it closes on the high. Do I need any more telephone calls to inform me that low of 126 has been rejected and now the price is going to move upwards? So I entered long on the break of the supply line right there around 128. Stop initially as planned was placed at 124.75.

 

I notice that a nice trading range has developed after breaking that supply line. Once the price moved above this trading range, I moved my stop up just below that trading range and my present stop rests at 127.50/-.

 

Before moving further, a review of what I had thought initially and what has happened so far. Aggressive plan was to enter long upon the break of the high of lowest low candle, which I did not. Conservative plan was to enter upon the break of the supply line, which I did around 128. Result, entry with a stop at 124.70 (i.e. Rs.3.30/- risk) for a potential minimum target of 132 (i.e. profit of Rs.4/-). Risk reward ratio is slightly better than 1:1. Is it the best risk reward ratio? Certainly not. Was there any provision for slippages and commission in my trading plan? None. If those are also taken in to account, what would be the risk reward ratio? Negative. Aha.. Here are the few things that I missed. I must plan better next time.

 

Question is, in order to have a favourable risk reward ratio, should I have entered long right there at the support at 126 or at least below 127? I must note that when that lowest low candle completed, it had high volume (in fact highest volume at that point of time) and it closed at the lows and very close to 126 level. Entering long would have been a pure gamble.

[icecool 10]

Later on ……….

 

 

The above screenshot was taken around 2.00 P. M. Now I note that move up from 126.50 level so far has been quite laboured one. I also note that price has hit my minimum initial target of 132. So I sold half of my holding and for the remaining half, stop has been moved up just below the small congestion area right above 130, which happened in between 1.15 P. M. and 1.45 P. M.

 

Questions are

 

Has the stop been placed at the right place? Would it not have been better if it were to be placed at the break of the latest demandline drawn in the chart? If I am placing my stop under that latest demandline, am I not deviating from my original trade plan, where the idea was to move the stop along with the higher pivot lows? So I prefer to go along with the original plan and that is why I place my stop just below 130.

[icecool 10]

I was shown door

 

This is how my stop placed just below 130 triggered

 

 

In hindsight, that candle where my stop for the remaining half triggered, appears to be a perfect shakeout. But discipline is discipline. Stop has to be revised only upwards and not downwards, since this is a long trade. I notice that there was a valid 1 – 2 – 3 pattern when my stop was hit. Plus this pattern took place right after hitting the area which I had noted earlier at the start of the day as probable resistance area. Plus, there was a break of that demandline as well. Once I see these things in realtime, I shall certainly close my long trade rather than guessing as to whether this candle will be a shakeout or not.

 

That is how my trade ended.

 

Lessons learned are

1. I have to learn much more as to trade selection, especially risk reward ratio.

2. I have omitted accounting for slippages and commission at the time of planning the trade.

3. Whether my stop placement technique could have been managed in a better way is still to be examined and if necessary, fine tuning is to be done.

4. On trade management side, I have not considered adding on to my position (i.e. pyramiding my position) once the trade moves in my favour. Since, I am yet to study this aspect, I did not dare to attempt to do it in this trade.

 

This is how the chart looked just 9 minutes before the close of the market. Just for curiosity and to for record purpose

 

[DbPhoenix 42]

Why Crompton Greaves? Whatever happened to ICICIBANK?

[icecool 10]

Why Crompton Greaves? Whatever happened to ICICIBANK?

 

I have not stopped following ICICIBank. While going through charts in the morning, I just came across Crompton Greaves chart and found interesting. This trade was just accidental and also to test whether I can form and execute any trade plan at all. Blowfish had pointed out that I must have a proper trade plan and I am lacking there.

Edited December 23, 2008 by icecool

[DbPhoenix 42]

I have not stopped following ICICIBank. While going through charts in the morning, I just came across Crompton Greaves chart and found interesting. This trade was just accidental and also to test whether I can form and execute any trade plan at all. Blowfish had pointed out that I must have a proper trade plan and I am lacking there.

 

Not sure what you mean by "trading plan". I may have missed this, but what are your reasons for selecting these stocks in the first place? What is your primary trading goal (preferably something more specific than "to make money")?

Edited December 23, 2008 by DbPhoenix

[icecool 10]

Not sure what you mean by "trading plan". I may have missed this, but what are your reasons for selecting these stocks in the first place? What is your primary trading goal (preferably something more specific than "to make money")?

 

Db,

Very insightful questions. Thanks.

 

Honestly, all that I could gather and believe by "trading plan" is how to select stock for trading (i.e. identifying trading opportunity), devising an entry method, due attention to risk, management of trade (if entry is made) and exit.

 

Money making is one of my goal, though not the most important goal. Right now I am trying to read the charts correctly and to devise a "trade plan" as I have understood that concept and as I have explained earlier. I am concentrating more on survival, i.e. preserving capital even after having several trades and to learn lessons from each and every trade I take in this process. I am not aiming for any homerun. I have noticed that there is vast difference between paper trades and real trades. I am also trying to control my emotions by taking real trades.

 

What are things that I have missed?

[DbPhoenix 42]

Db,

Very insightful questions. Thanks.

 

Honestly, all that I could gather and believe by "trading plan" is how to select stock for trading (i.e. identifying trading opportunity), devising an entry method, due attention to risk, management of trade (if entry is made) and exit.

 

Money making is one of my goal, though not the most important goal. Right now I am trying to read the charts correctly and to devise a "trade plan" as I have understood that concept and as I have explained earlier. I am concentrating more on survival, i.e. preserving capital even after having several trades and to learn lessons from each and every trade I take in this process. I am not aiming for any homerun. I have noticed that there is vast difference between paper trades and real trades. I am also trying to control my emotions by taking real trades.

 

What are things that I have missed?

 

A trading plan encompasses far more than just selecting a stock and trading it, i.e., strategy and tactics, just as opening a restaurant is much more than just calling your supplier and ordering $2000 worth of "food". You say you are trying to "read the charts correctly", but to what purpose? Why stocks? Are you looking for something to hold for days? weeks? months? years? Or are you interested in daytrading? What kind of daytrading? Swing trading? Scalping? Trend trading? I ask because unless you answer these most basic questions for yourself, you will very likely end up trading the wrong stocks at the wrong time and thus lose your capital.

 

Using your first choice, you selected a bank. Why? You also took a macro view, from monthly to weekly to daily to intraday, which is all well and good, but, after all this analysis, you seemed prepared to settle for only a few points profit. Why? You also acknowledge that when I reflect back, I notice that there was no definite trade plan in my mind at the time of entering the trade. I tried to develop one as and when the chart developed. There was no definite holding period (i.e. whether to take intraday trade or delivery trade) nor the exit method was fully satisfactory. Now I am asking myself why did not I wait for the break of the trendline or for the formation of lower high pivot? These are all good questions, and I suggest that you stop trading with real money until they are answered. There are traders who can take a trade simply because it seems like a good idea, and you could very well be one of them. Only your brokerage statement will tell. But if you fear that you are not, then developing, testing, and implementing a consistently profitable trading strategy will be a necessary prerequisite to putting your money at risk with "real" trades and real money.

[icecool 10]

Db,

 

Thanks for the valuable inputs. Yes. Now I notice that there are many many more things that I have to answer before developing a trading plan. In fact, I had never thought of these questions earlier. Now I realise that I must answer them for my own good and for my own survival.

 

Now I am back to drawing board. I shall try to find answers to the questions raised in your post.

[DbPhoenix 42]

Db,

 

Thanks for the valuable inputs. Yes. Now I notice that there are many many more things that I have to answer before developing a trading plan. In fact, I had never thought of these questions earlier. Now I realise that I must answer them for my own good and for my own survival.

 

Now I am back to drawing board. I shall try to find answers to the questions raised in your post.

 

Those who are new to this often have a natural sensitivity to the thrusts that price makes on its way through the day, and since they have not yet racked up the losses that will interfere with their judgement later on, they can be much more likely to act on what that sensitivity is suggesting they do. After they read all the books, take the courses and seminars, watch the DVDs, etc, they'll second and third and fourth-guess themselves so much that they'll forget they ever possessed that sensitivity in the first place and turn to something else less natural to guide them, e.g., a canned "approach", or an indicator or two or six.

 

Therefore, though thinking about these questions may be beneficial, don't start doubting yourself. You may, for example, have had perfectly sound reasons for choosing a bank. You may have had perfectly sound reasons for choosing this particular bank. But you should get them out there and acknowledge them so that if all of this works for you, you will stand a better chance of finding something else that works as well once this particular stock goes into hibernation.

[samhollander 10]

ICI, To discribe what is going on with Charting & explaining is a big help for someone switching from indicators to Wyckoff.

keep up the post.Along with Dbphoenix,Blowfish,etc. I am starting to see the ebb & flow.

[icecool 10]

ICI, To discribe what is going on with Charting & explaining is a big help for someone switching from indicators to Wyckoff.

keep up the post.Along with Dbphoenix,Blowfish,etc. I am starting to see the ebb & flow.

 

 

Sam,

You are welcome. I conciously decided to take this route (i.e. interpreting chart on price, volume and time data alone) after finding of the uselessness of indicators. Anyway, a huge debate has already taken place elsewhere in this forum as to whether indicators are useful or not. I donot wish to start another one in this thread.

 

As you rightly said, there are many veteran traders here. They are the leading lights. We shall try to learn from them as much as we could grasp. Only on going through the posts here, I have realised some of my mistakes. Sure, there will be many more from my side. But as and when I get new information and opportunity to correct myself, I shall try to incorporate them and post them.

[taq 10]

good thread icecool

 

i m also learning to trade only on price & volume from quite some time & i am trading only in Index future (nifty).

May be we can learn together & share .

 

Happy Trading

TAQ

[samhollander 10]

:)Sounds good.Had a fair amount of success using indicators,then went to inside bars & stochastics [Win at trading] Not very successful.But I believe the way to go is Wyckoff, VSA.

[icecool 10]

Very long time since I made last post. Thought about posting one chart. Stock name is masked intentionally as I am having position. My views may be biased. My way of viewing chart. Chart is self explanatory