Reading Charts in Real Time

[MidKnight 12]

. .

Edited January 18, 2010 by MidKnight

[BlowFish 10]

Hi Thales,

 

I feel we haven't really made any progress on original discussion that all trend changes are preceded by a 123 and that 123s are an edge. To me, you seem to be mixing varying levels of degree to assert your statement, were as, I am saying that all trends do not reverse with a 123 of the same degree as the trend. I am also baffled how you can say 123s are an edge but you would not advocate trading all of them across their varying degrees. For if it was a true edge, one would want to be trading all of them unless one had extra filtering to enhance the edge.

 

 

I guess it's partly how you define 'a trend'. BTW all trends are delimited by a 123 of similar magnitude. Not all 123's delimit trends. Maybe that is causing some confusion. Lets leave aside whether trading every single 123 provides an edge it is irrelevant as TT's approach has never been about taking them all anyway. 'Context' is every bit as important, probably more so. If it helps you could quite simply think of the trade setup as the 'context' component (where is price compared to longer term S/R) and the 123 bit simply as the trigger. As with many approaches to trading you should not be looking for triggers if the context does not support it.

[BlowFish 10]

so I contacted a local NLP consultant to guide me through the process. We did a few sessions together before I started doing it on my own.

 

I went to see an NLP practitioner to try and improve my self discipline. Sadly I was not disciplined enough to stick with the exercises True story actually. I dunno whether I 'believe in' NLP, deep down I knew that the only person that could make the changes was me and that once I decided to make them they would simply happen. I believe it was Ekhardt that said "Every one gets what they want from the market" I think that may be true.

[Marko23 10]

I went to see an NLP practitioner to try and improve my self discipline. Sadly I was not disciplined enough to stick with the exercises True story actually. I dunno whether I 'believe in' NLP, deep down I knew that the only person that could make the changes was me and that once I decided to make them they would simply happen. I believe it was Ekhardt that said "Every one gets what they want from the market" I think that may be true.

 

I went thru similar experiences, but decided to solve it on my own. For me the main problem was that I am a successful programmer. As blowfish already wrote, this is a curse.

 

Programmers who want to become traders must be brainwashed until they no longer want to be in control of the market during trading.

Edited January 18, 2010 by Marko23

[Marko23 10]

EUR/USD remains undecided.

[thalestrader 14]

GBPUSD looked as though it were willing to go either way last night. Once it broke the area marked by the blue lines, it went to target. There were downside targes as well, but at the time I thought that the likely direction was up, so those were the targets I marked off in greem. I wasn't making a call - just following price along and responding to what it was showing us.

 

Neither I nor my daughter traded this. We were just having fun watching.

 

 

 

Best Wishes,

 

Thales

[rigel 10]

Interesting and accurate Thales

Looks like lots of folks in these markets are employing fib numbers.

 

BTW are the exit targets (green lines) fib values i.e 1.68, 2.68 of the range between the 2 blue lines?

If you had traded this, where would be your entry and stop loss?

[Cory2679 11]

Current (little late, sorry) look at the GU...

 

-----

 

Update: I know there hasn't been a lower low, but I'm playing it "safe" and moving the stop...I may regret it...who knows...

Edited January 18, 2010 by Cory2679
Updates

[MightyMouse 12]

Interesting and accurate Thales

Looks like lots of folks in these markets are employing fib numbers.

 

BTW are the exit targets (green lines) fib values i.e 1.68, 2.68 of the range between the 2 blue lines?

If you had traded this, where would be your entry and stop loss?

 

 

Fibs work great. But so do the ratio of syllables in the second phrase and second to last phrase that your wife utters to you every day.

[thalestrader 14]

Here is the current look at the EURJPY. What is clear to me is that price has made a low, price has rallied off that low in an impulsive manner, and price is now pulling back from the rally high .... Nothing ... is guaranteed.

 

As nothing is guaranteed, there is always risk. As there is always risk, we need to be aware of how to manage that risk. We all know that every trade one takes with this approach, if applied how I have presented it, has a stop loss and has at least one, usually two, and sometimes three profit targets. This is, of course, part of managing your risk. However, I have mentioned position sizing, and I have been sharing Van Tharp's articles here in an attempt to show how one might use bet sizing to maximize the benefits of minimizing one's risk. Let's look at two trades, both long sequences from last night, on the EURJPY to see what I am geting at with respect to position sizing and how it can help your equity curve.

 

This first long sequence did trigger, and the result, assuming an either 1st target or full stop loss management, would have been a -33 pip loss.

 

The second long sequence also triggered, and this trade hit both targets, +24 and +53, for a +38.5 tick profit. So a net profit in pips of 5.5. Not a bad night, but certainly nothing to write home about, right?

 

Here is the chart showing both of the trade sequences:

 

 

 

Now, here is what is interesting. I have been trying to introduce the subject of money management through position sizing here, and in other threads kiwi and Blowfish have been discussing expectancy and risk of ruin. Let's look at how position sizing/bet sizing can help smooth your equity curve while helping to minimize your risk of ruin by looking at how position sizeing would have affected your result last night.

 

In trade #1, the initial risk was -33 pips, the two profit targets, averaged together (50%PT1 + 50%PT2) was 49.5 pips ([(29+70)/2]). In this case, had you placed the trade and not moved your stop, your loss was -33 pips. Now, applying position sizing to the trade, assuming a $500 micro fx account and a 2% max bet size, here is how the trade plan would have looked:

 

 

You would bought 3 micro lots (3K) and your risk would have been $9.90 and the potential reward $14.85. The result, of course, was a $9.90 loss. Let's note that the leverage, in this case, would have been 5x's equity ($3000 trade size/$500 account).

 

In the second trade, the intial risk was 19 pips, and the two profit targets, averaged together, were 38.5 pips ([24 + 53]/200. Using the same assumptions, we'd be trading an account equity of $490 (after taking the 2% loss on the first trade. Againb risking 2% of current equity, here is what the trade plan would look like:

 

 

 

In this case, you would have gone long 5 micro lots (5K) and your risk would have been $9.50, the potential reward $19.25, with the result being a $19.25 profit. Let's also note that the leverage in this case would have been 10.2 ($5000 trade size/$490 account size).

While leverage increased, risk, as managed through psoition sizing, remained identical with respect to %equity at risk. Leverage, divorced from considerations of position size, kills. Leverage, controlled through position sizing, is a blessing to your equity.

 

So, while you only netted 5.5 pips out of the two trades, you managed to finish the night up almost 2% on your starting equity after having suffered a 2% drawdown on the first trade.

 

Using position sizing for your money management regime can be made even more powerful if you were to filter your trades so that you'd only take trades where price going to the second target would result in a 2R trade. In such a case, the first trade would not have been taken, as the potenital reward was only 1.5R assuming both targets were hit. If you trade only for 2R rewards while always keeping your bet size as a % of equity the same, you will have a mechanism in place to increase bet size while keeping risk stable as measured as a % of equity.

 

There are other considerations, as well. For example, is 2% of equity too much (or even too little) to maximize the results of your trading appraoch. And while position sizing will slow the bleeding of a negative expectancy system, it will not prevent the inevitable ruin that comes with negative expectancy. I'll leave any discussion of expectancy to those such as Kiwi and Blowfish - and I welcome those discussions here - this thread should be a "total package" discussion. By this, I do not mean that this approach can be "all things to all traders." Rather, I mean that I would like for it to offer a comprehensive view of a trading approach - and that means money management and psychology in addition to the technical considerations of identifying trade sequences and placing stops and targets. I will keep bringing up position sizing as I think it is a crucial element to a well managed trading account, regardless of the size.

 

It is also a tremendous psychological tool - do you recall Larry Hite's interview in Market Wizards where he says all his trades are the same to him: Each is a 2% bet. There is no need to get excessively nervous or to put too much emotional stake in any one trade if each trade is a 2% bet. Every trade should be the same, whether it has a 10 tick stop loss or an eighty tick stop loss. If the required stop loss would result in an unfavorable risk reward profile (greater than 2% risk at the smallest available size, less than a 2R reward if full targets achieved) then you skip that opporuntiy. If you can make it so that all your trades carry the same risk, then, as you experience losses and see no long term damage to your account as a result of thsoe losses, losses come to matter less and less.

 

I could go on, but that is enough to get folks thinking about this a little more than perhaps some here have.

 

Best Wishes,

 

Thales

Edited January 18, 2010 by thalestrader

[Cory2679 11]

EJ has taken off...

 

I had written off everything except the GU as dying and going sideways (the holiday was on my mind)...I guess I was wrong.

 

I've also attached a zoomed out EJ chart...showing what could be a potential long opportunity trading off a larger degree of trend.

 

I should mention that I'm not in this trade...I saw it too late unfortunately...

 

-----

 

Update: Looks like the EJ found resistance at the last breakdown point. It has offered a second opportunity to get in.

 

Update2: I've moved my stop. I may be being too aggresive with my stops today...

Edited January 18, 2010 by Cory2679

[thalestrader 14]

BTW are the exit targets (green lines) fib values i.e 1.68, 2.68 of the range between the 2 blue lines?

If you had traded this, where would be your entry and stop loss?

 

 

The targets are usually 1.618 and 2.618 of the Low to High as measured from the Higher Low. I will often place my actual target 1-5 ticks inside the fib level, and of course, actual S/R always trumps fib levels for me. For that reason, the targets applied in this example were the 1.27 and the 1.618.

 

Entry would have been a buy stop at 1.6293 basis the spot, stop loss 1.6247, with targets at 1.6347 (+54 ticks) and 1.6376 (+83 ticks) for an profit on the trade of 65 ticks versus a risk of 46 ticks. I usually only take a trade if the first target offers at least a 1R profit.

 

Best Wishes,

 

Thales

[thalestrader 14]

Current look of the EURUSD ...

 

 

Best Wishes,

 

Thales

[Cory2679 11]

Current (little late, sorry) look at the GU...

 

-----

 

Update: I know there hasn't been a lower low, but I'm playing it "safe" and moving the stop...I may regret it...who knows...

 

Oh well.

 

We eventually got that lower low I was looking for...

 

I realize there may have been a long opportunity in there...didn't catch it though...went for a quick jog on the treadmill while I was waiting! :o

(Although, I'd probably hesitate to go long just a few ticks below that breakdown point like that...)

EDIT: Looks like the long would have been a good decision, though. Oh well, I'll live.

Edited January 18, 2010 by Cory2679

[thalestrader 14]

EJ has taken off....

 

It's still taking off for you Cory!

 

Best Wishes,

 

Thales

[Marko23 10]

EUR/USD: almost nothing happens when there is no trading in the U.S.

 

Edited January 18, 2010 by Marko23

[patrader 10]

[patrader 10]

[Cory2679 11]

EJ has taken off...

 

I had written off everything except the GU as dying and going sideways (the holiday was on my mind)...I guess I was wrong.

 

I've also attached a zoomed out EJ chart...showing what could be a potential long opportunity trading off a larger degree of trend.

 

I should mention that I'm not in this trade...I saw it too late unfortunately...

 

-----

 

Update: Looks like the EJ found resistance at the last breakdown point. It has offered a second opportunity to get in.

 

Update2: I've moved my stop. I may be being too aggresive with my stops today...

 

Oh well...stopped out...maybe I moved my stop prematurely. We'll see.

 

I realize I'm basically entering on one swing degree, then moving my stops based on a smaller one...might be something I should work on...

 

-Cory

Edited January 18, 2010 by Cory2679

[mblack246 10]

I was in exactly the same trade as you Cory, and got stopped out in exactly the same place!

[Cory2679 11]

I realize there may have been a long opportunity in there...didn't catch it though...went for a quick jog on the treadmill while I was waiting! :o

(Although, I'd probably hesitate to go long just a few ticks below that breakdown point like that...)

EDIT: Looks like the long would have been a good decision, though. Oh well, I'll live.

 

Like I said, didn't take this, but it looks like I didn't miss out on much. I probably would have been stopped around BE.

 

I have a feeling that's it for me today. I'll be monitoring the charts for a little while longer, though.

 

-Cory

[Cory2679 11]

Like I said, didn't take this, but it looks like I didn't miss out on much. I probably would have been stopped around BE.

 

I have a feeling that's it for me today. I'll be monitoring the charts for a little while longer, though.

 

-Cory

 

Maybe a second chance GU long...?

[markot 10]

hmmm ...15 min chart ? better look more higher time frames

[Cory2679 11]

Maybe a second chance GU long...?

 

Haha. Maybe not...

 

I've attached the 30 second chart as well, to illustrate how sudden this downmove was...

[Cory2679 11]

hmmm ...15 min chart ? better look more higher time frames

 

Why? What do you see?