Reading Charts in Real Time

[DaKine 10]

Hi Thales,

 

I'm reading the thread from start to finish so I don't repeat questions that have been asked before and I did come across this prior post which is similar to the EURUSD trade setup posted earlier this week. I am wondering if this b/o trade from congestion is still valid in your eyes since we were close to the prior b/d level. In a prior post you said that you would have been off a similar trade since we were too close to the breakdown level... I don't mean to scrutinize everything I just want to make sure I clarify these concepts.

 

The difference I can see here is that prior to the congestion play we did get above the break down level found some R then came back down, the b/o play would have given you at least 1:1 to that R but not to the actual b/d level itself.

 

Thanks.

 

[thalestrader 14]

Hi Thales,

 

I'm reading the thread from start to finish so I don't repeat questions that have been asked before and I did come across this prior post which is similar to the EURUSD trade setup posted earlier this week. I am wondering if this b/o trade from congestion is still valid in your eyes since we were close to the prior b/d level. In a prior post you said that you would have been off a similar trade since we were too close to the breakdown level... I don't mean to scrutinize everything I just want to make sure I clarify these concepts.

 

The difference I can see here is that prior to the congestion play we did get above the break down level found some R then came back down, the b/o play would have given you at least 1:1 to that R but not to the actual b/d level itself.

 

 

Taking a break from assembling toys ... I really thought there were elves who would do such things! The most ridiculous experience this year for me is that I just spent 40 minutes taking a remote control dinosaur out its box. It took three minutes to assemble it once out. Who packs these things?

 

Anyway, the main difference is you do not want to enter as price is trading into S/R, especially a recent BO level, for the first time after the BO.

 

In the case of the older trade, I was asked by someone why not buy at that point, and my answer was that with only 7 ticks between the BO level and the buy stop just was not worth the risk. I probably should have added, though I assumed it was understood, that a first test of prior support as resistance is not a plce you want to be entering a long trade.

 

In the chart from this week, price had alread trade back to and through the BO level, and the buy point was at least 20 ticks below the last reaction high. I can work with 20 ticks, I can't work with 7 ticks.

 

Again, the real difference is this week's trade involved buying well below the highest level reached after the initial test of prior support as resistance, whereas the older trade would have been buying nearly right below prior support on the first test.

 

Best Wishes,

 

Thales

[thalestrader 14]

Weekend Reading

 

Hi Folks,

 

Another thread about favorite trading sayings led me to recall this "little" book by John Hill of Futures Truth with the modest title of The Ultimate Trading Guide. In the course of skimming through it looking for the two quotes I had in mind, I saw that this little book that I read so long ago seems to have had a far more profound impact on me than I had been aware. Some of these charts and concepts will look very familiar to readers of this thread. While it did influence me, it did not do so immediately. I remember reading this book a long time ago, perhaps a decade, maybe more (I'm not sure when this book was first published, and I am not at all certain that this .pdf file is the same edition I read as I had a hard copy, long since lost).

 

At any rate, I had the feeling as I quickly flipped through this book that it had been a missed opportunity on my part. Simple truths clearly presented, but laid aside by me in favor of a more complex (but less true) path. I feel almost as though I ended up right here in the pages of this book, but that I had to do so on my own, after taking the road more travelled, which is both long and winding.

 

The better part of this book, as in the absolute best part, ends on page 138 of the actual text (page 148 of the .pdf). If I could just post from the preface though the end of the first 6 chapters and elave out the rest, I would. Well, I can't. So here is the whole book, though my suggestion, at least for those looking to trade the approach I have been presenting here in this thread, would be to stop reading at the end of chapter 6.

 

 

You can download from this link at acrobat.com: https://acrobat.com/#d=zie2bGWiEJ9SN55KRnFR6g

 

Best Wishes,

 

Thales

Edited December 25, 2009 by thalestrader

[Kiwi 16]

Agreed Thales,

 

John's book is one I come back to over and over - my delay seems lower than yours on this one. It's a book I have recommended but see on few recommended lists so I guess it didn't sell all that well.

 

I came across John when I was researching end of day futures systems and discovered Futures Truth. I exchanged a number of emails with him and even though I ignored his advice on a couple of things was strongly influenced by him. For the record I would have been financially better off to have taken all of his advice!

 

Merry Xmas and Happy Holidays everyone.

[thalestrader 14]

John's book is one I come back to over and over - my delay seems lower than yours on this one. It's a book I have recommended but see on few recommended lists so I guess it didn't sell all that well.

 

There are a bunch of used copies available at Amazon for less than $40. I've been going over the first few chapters, and I have decided to pick up a used hard copy for my daughter (and I just might borrow it from time to time myself).

 

though I ignored his advice on a couple of things was strongly influenced by him. For the record I would have been financially better off to have taken all of his advice!

 

Reading through this book tonight, I can say that had I attempted to learn to trade price action based upon what he teaches in these pages, I'd have cut years of struggles away from my trading. I'd have saved thousands upon thousands of dollars buying software, books, seminars, etc. This is as solid a piece of trading instruction as I have seen.

 

I've attached some screen captures of a few gems from this book that ought to be familiar to anyone who has been following this thread. As I have always said, I am a very unoriginal trader. I am so unoriginal, that I apparently found a book very early in my trading career that had almost all of the answers I was looking for, but at the time I failed to see them.

 

How is that unoriginal?

 

Well, that seems to be the way most traders progress, is it not? I can sit here and bang out post after post and trade after trade and chart after chart, but many will read a few posts and scroll on by, continuing the search for the elusive grail, which each will readily admit does not exist, yet most continue to seek for anyway. Eventually, most will cease to seek when they cease to trade. Those who survive to trade, will likely have finally seen these simple truths with their own eyes; and though they will have been shown these truths countless times before, on that day that they finally see, it will be as though for the first time.

 

Merry Christmas to you and yours and everyone!

 

Best Wishes,

 

Thales

[forrestang 10]

Surely it can't be so simple? BTW I say that partially in jest.

 

Why do you think so many of us aspiring traders have a problem with this? Trouble identifying the price doing the types of things outlined in this thread? Money management? Inability to see the bigger picture? Lack of trust that the methodology works? Not spending enough time working and observing this happening?

Edited December 26, 2009 by forrestang

[thalestrader 14]

Surely it can't be so simple? BTW I say that partially in jest.

 

Why do you think so many of us aspiring traders have a problem with this? Trouble identifying the price doing the types of things outlined in this thread? Money management? Inability to see the bigger picture? Lack of trust that the methodology works? Not spending enough time working and observing this happening?

 

 

Some folks are struggling simply because of lack of experience. Like any skill, practice will improve one's abilities. Money management torpedos a lot of traders, but I do not know whether the difficulties experienced by folks here is due to money management.

 

In the end, I would think that most problems folks find with this approach is similar to what keeps most folks struggling regardless of the system/method/approach - there is bias, probably emotional, possibly intellectual, frequently both, that is standing between the trader and successful execution of a trading plan.

 

I have tried throughout this thread and through many of the Weekend Readings to keep the psychological/emotional issue in plain view. This approach is really based upon the very basic structure of how price moves in a freely traded, liquid, auction market. The fact that it is simple and basic does not make the fear and greed and hope with which we human creatures contend any less difficult and dangerous.

 

Best Wishes,

 

Thales

[srag&birdie2 10]

In the end, I would think that most problems folks find with this approach is similar to what keeps most folks struggling regardless of the system/method/approach - there is bias, probably emotional, possibly intellectual, frequently both, that is standing between the trader and successful execution of a trading plan.

 

 

I find that very difficult to agree with. Bias is never an issue to the professional trader. For novice trades & traders who haven't become profitable, then a lack of of simulated trading is. If you paper trade in a serious manner until you get it right, you will have little problem trading the markets. On the other hand, if you jump right in and then listen to the self-appointed 'gurus' who tell you your problem is other things and you believe it, then you've got a problem.

 

... just a-strumming da' blues an' a tradin' to my heart's content - oh my ...

 

Light 'in

[Tonkadad 10]

I find that very difficult to agree with. Bias is never an issue to the professional trader. For novice trades & traders who haven't become profitable, then a lack of of simulated trading is. If you paper trade in a serious manner until you get it right, you will have little problem trading the markets. On the other hand, if you jump right in and then listen to the self-appointed 'gurus' who tell you your problem is other things and you believe it, then you've got a problem.

 

... just a-strumming da' blues an' a tradin' to my heart's content - oh my ...

 

Light 'in

 

Bias is a term used to describe a tendency or preference towards a particular perspective, ideology or result, when the tendency interferes with the ability to be impartial, unprejudiced, or objective.[1]. In other words, bias is generally seen as a 'one-sided' perspective. The term biased refers to a person or group who is judged to exhibit bias. It is used to describe an attitude, judgment, or behavior that is influenced by a prejudice. Bias can be unconscious or conscious in awareness. Having a bias is part of a normal development. Labeling someone as biased in some regard implies they need a greater or more flexible perspective in that area, or that they need to consider more deeply the context.

 

This definition is from Wikipedia, I thought I would post this first and then ponder both thalestrader and srag&birdie's comments.

 

Definitely with you on the Blues s&b.

 

If you are putting thalestrader in the "self-appointed 'gurus'" category then I am definitely NOT with you on that one. I have not read all of his posts but from what I have read IMO, he is a straight shooter. If this is not your intent please disregard.

Edited December 26, 2009 by Tonkadad

[Tonkadad 10]

thales, thanks for posting the John Hill pdf.

Edited December 26, 2009 by Tonkadad
spelling correction

[Gabe2004 10]

.

 

In the end, I would think that most problems folks find with this approach is similar to what keeps most folks struggling regardless of the system/method/approach - there is bias, probably emotional, possibly intellectual, frequently both, that is standing between the trader and successful execution of a trading plan.

 

 

How would you suggest one to eliminate this bias?

 

Thanks

 

Gabe

[Tonkadad 10]

Here are my thoughts on the bias post. For me thales comments better align with what I am going thru right now. I can see logic in s&b's comment regarding sim trading "in a serious manner until you get it right" but there is more to the equation (at least for me) then serious sim trading.

 

I will say that sim trading does not elicit the same emotions that live trading does, with a live market I can use my simulated account and go long or short 20 contracts of gold (GC) and not get to caught up in the outcome, the same would not be true if it were real money on the line.

 

Having said that I don't mean to minimize the importance of sim trading and practice in general. But I think most of us come into trading with bias's regarding money, what it means to win/lose, fear of being wrong/right, etc... and to deny that is not the path to go down.

 

Obviously in the above paragraphs I have given some of my beliefs (biases) about trading and if anybody has any comments or insights that they would like to share that would be appreciated, who knows it might just give me a different way to look at trading and help me to the next level.

 

The last thing I want to share is something that happened to me about 20 years ago. I was on vacation in NY, Manhattan to be precise, visiting an old girlfriend. Her and I along with 2 of her male friends were walking down the street during the day and a group of about 10 young males were walking along the same side of the street and basically walked right thru our group, we got jostled abit but no worse for wear. My experience (bias) because I was in vacation mode was I actually found it kind of funny and didn't think twice about it, after we got back to the apartment of the 2 males (both gay) they both expressed frustration and anger about what had happened and it was awhile before they talked about anything else.

 

My point is that was the first time I had first hand experience with people basically having the same event happen to them but their experience being so different.

[Tonkadad 10]

How would you suggest one to eliminate this bias?

 

Thanks

 

Gabe

 

First, I would think each individual trader would need to ask themselves some questions to try and determine what their actual biases are, I would bet that they are the same biases that are present in our everyday life but we are just not consciously aware of them.

 

Be conscious of your thoughts when trading, keep a notepad handy and try to capture what dialogue you are having inside of your head.

 

Does the thought of trading get you excited or anxious?

 

When watching the market (not trading) and seeing a nice trending move up do you feel frustrated or angry because you weren't in on the move or do you realize that there are always more trading opportunities.

 

Lets say you place your stop at 1120.30 (GC) after a short entry and price moves initially in your favor and then price retraces and takes your stop out to the tick and proceeds to continue down, do you feel the market is out to get you or that is just how price responds sometimes?

 

The above questions might give you some idea's on how to start the process.

 

When you think about it, every time we trade if we were to keep a log of all of our thoughts about what transpires during the day (I am talking about our internal dialogue) we would have all we need to begin the process of exposing our biases.

 

Obviously the more honest and thurough you can be, the better and quicker the results will be.

[forrestang 10]

Some folks are struggling simply because of lack of experience. Like any skill, practice will improve one's abilities. Money management torpedos a lot of traders, but I do not know whether the difficulties experienced by folks here is due to money management.

 

In the end, I would think that most problems folks find with this approach is similar to what keeps most folks struggling regardless of the system/method/approach - there is bias, probably emotional, possibly intellectual, frequently both, that is standing between the trader and successful execution of a trading plan.

 

I have tried throughout this thread and through many of the Weekend Readings to keep the psychological/emotional issue in plain view. This approach is really based upon the very basic structure of how price moves in a freely traded, liquid, auction market. The fact that it is simple and basic does not make the fear and greed and hope with which we human creatures contend any less difficult and dangerous.

As you seem to imply above, I suppose everyone's problems are going to be different.

 

I think my problems for sure are money management. Particularly how many lots to divide a trade into, when and where to set targets and ISLs. Of course I have general ideas via nat. swing points, but not set in stone.... I.e. whether or not to exit all at once etc... things like that.

 

When to pull the 'rip cord' early vs. letting my stop getting hit, is price cooperating etc. Things like that. This might be more in the category of Trade Management instead of Money Management? Guess it depends on whos vocabulary we're referring to, but my description of what I still struggle with should be explanatory.

 

Recognizing things definitely is easier than anything I've outlined above.

[TrueBalance 10]

Reading through this book tonight, I can say that had I attempted to learn to trade price action based upon what he teaches in these pages, I'd have cut years of struggles away from my trading. I'd have saved thousands upon thousands of dollars buying software, books, seminars, etc.

 

I had a look at amazon and thought I recognized the book cover. Sure thing, I have it right here in my bookshelf. Have I ever read it? Nope. I probably bought it on recommendation years ago, when I was in a frenzy researching mech systems. How ironic isn't that.

 

Now for the real reason of this post: Happy holidays .

[thalestrader 14]

As you seem to imply above, I suppose everyone's problems are going to be different.

 

I think there are a small number of large difficulties that exist for human creatures who wish to trade well, and different individuals will be effected by these to different degrees. For example, some folks are paralyzed to the point of not being able to pull the trigger when they see an opportunity or one of their "defined set ups." Others have trouble taking a loss. Others may find themselves quick to exit with a few ticks profit the momentthe market looks as though it is going to have a small reaction against their position.

 

My own personal demon is revenge trading. I have on more than one occasion in my trading life burned through thousands (and I mean thousands) of dollars in just a few hours trying to "get back to even for the day." I still fight it, so I quit after two losses.

Other folks pretend they want to be technical traders, but they allow "fundamental" biases to prevent them from trading as the charts tell them they should be trading. ET and FF are full of posts that read like this: "I see the market going up every day, and my indicators are bulish, and price is making new momentum highs, but I think this thing is over bought, so I am not taking this buy signal, in fact, I'm going short."

 

I think my problems for sure are money management. Particularly how many lots to divide a trade into, when and where to set targets and ISLs. Of course I have general ideas via nat. swing points, but not set in stone.... I.e. whether or not to exit all at once etc... things like that..

 

You must have an entry point and an initial stop loss and at least some idea of an anticipated minimum profit level before you place the trade. If you do not have that, you have nothing. If you do have that, then position sizing as a % of account equity becomes relatively simple. For example, if you are trading a 100k account, and your risk is 1% of equity/trade, and you are trading the ES, and a particular opportunity has a 3 point stop loss, then on that trade you can trade 6 contracts. If the next trade has a 5 point stop loss, then you need to cut your position down to 4 contracts (three if you account for commish and possible slippage). Traders with smaller accounts will obviously have a higher % risk/trade in order to participate.

 

You have to work out how you define your trade opportunities. While the initial risk may be different on each trade, the manner in which it is determined should not vary. For example, my entry for a long trade is a tick or two beyond the last swing HH, and my stop loss is a tick or two below the HL. My stop loss goes to BE once price trades at a point greater than 127% of the first swing L to H or a 1R profit level, whichever is hit first, and my initial profit target is at the first S/R zone that coincides with a significant fib level or cluster of fib levels. This way, I can always say for any given trade "my first profit target is equal to 2.1 or 3.8 or 1.2 times my initial risk." Once you have that level of clarity in your trading plan, then you can concentrate on trade management, stop management, rip cord pulling, etc.

 

Best Wishes,

 

Thales

[thalestrader 14]

How would you suggest one to eliminate this bias?

 

First, you have to be aware that you have the biases, which is itself most difficult. That was the point of my submitting Plato's Cave for one of the weekend readings. Most of us live much or all of our lives viewing a world of shadows that we are convinced is real. The first step is to recognize that the shadows you have taken for what is real and true are in fact mere images of what is real, and often times false images of what is real.

 

Best Wishes,

 

Thales

[thalestrader 14]

Here are my thoughts on the bias post. For me thales comments better align with what I am going thru right now. I can see logic in ... sim trading "in a serious manner until you get it right" but there is more to the equation (at least for me) than serious sim trading.

 

I will say that sim trading does not elicit the same emotions that live trading does, with a live market I can use my simulated account and go long or short 20 contracts of gold (GC) and not get to caught up in the outcome, the same would not be true if it were real money on the line.

 

Having said that I don't mean to minimize the importance of sim trading and practice in general. But I think most of us come into trading with bias's regarding money, what it means to win/lose, fear of being wrong/right, etc... and to deny that is not the path to go down..

 

My own opinion is close to yours. I have often said here that I find sim trading to be of marginal usefulness. I believe it is useful to practice identifying your selected trade opportunities, practicing entering orders, setting stops and targets, and other mechanical aspects of trading. But once one is comfortable that he or she is identifying the opportunities, and is comfortable in his or her ability to enter the orders, etc. there is no substitute for live trading with money on the line. I myself have never once revenge traded while on a sim account. Ever. Yet I fight the urge to do it every time I have a few losses on my trading account. I know I shouldn't do it, so I wrote a mechanism into my trading plan that "pulls the rip cord" on me during the trading day so that I land safely to fly tomorrow.

 

Thank you for your contributions to this discussion here. I hope you continue to share with us.

 

Best Wishes,

 

Thales

Edited December 26, 2009 by thalestrader
typos, as always

[thalestrader 14]

thales, thanks for posting the John Hill pdf.

 

No problem! I hope you find it helpful.

 

Best Wishes,

 

Thales

[Gabe2004 10]

In the end, I would think that most problems folks find with this approach is similar to what keeps most folks struggling regardless of the system/method/approach - there is bias, probably emotional, possibly intellectual, frequently both, that is standing between the trader and successful execution of a trading plan.

 

 

From an online dictionary - definition of BIAS.

"a particular tendency or inclination, esp. one that prevents unprejudiced consideration of a question; prejudice."

 

Could you or anyone else give examples of BIASES.

 

Eventhough I understand the meaning of the word, I don't seem to be able to identify it in reality

 

Thanks

 

Gabe

Edited December 26, 2009 by Gabe2004

[Tonkadad 10]

From an online dictionary - definition of BIAS.

"a particular tendency or inclination, esp. one that prevents unprejudiced consideration of a question; prejudice."

 

Could you or anyone else give examples of BIASES.

 

Eventhough I understand the meaning of the word, I don't seem to be able to identify it in reality

 

Thanks

 

Gabe

 

For me a bias is a belief or expectation that a certain outcome will happen.

 

For me most of my knee jerk responses are what I will call "my biases", which after a little reflective thought I realign them.

 

Anytime I can't see both sides of the situation I think that is biased, obviously there are degree's of biasness (is that a word?)

 

More to come on the subject.

[Cory2679 11]

You must have an entry point and an initial stop loss and at least some idea of an anticipated minimum profit level before you place the trade. If you do not have that, you have nothing. If you do have that, then position sizing as a % of account equity becomes relatively simple. For example, if you are trading a 100k account, and your risk is 1% of equity/trade, and you are trading the ES, and a particular opportunity has a 3 point stop loss, then on that trade you can trade 6 contracts. If the next trade has a 5 point stop loss, then you need to cut your position down to 4 contracts (three if you account for commish and possible slippage). Traders with smaller accounts will obviously have a higher % risk/trade in order to participate.

 

Thales,

 

What % did your daughter use when she traded over the summer (and made roughly 40 times her money!)?...Or did she just trade x number of micro lots per x dollar amount of account equity?...Or...something else?

 

Just curious. Thanks.

[Cory2679 11]

Regarding the recent bias discussion, I think my little experience just last week is relevant...just in case anyone missed it...

 

(I didn't want to create a huge post of quotes for this, so here are essentially the "links" to the relevant posts.)

 

The first quote here is something that has been discussed more than once in the history of this thread...

 

I'm not sure if you have run across this or not in the past...

 

Great advice, Kiwi!...

[thalestrader 14]

Thales,

 

What % did your daughter use when she traded over the summer (and made roughly 40 times her money!)?...Or did she just trade x number of micro lots per x dollar amount of account equity?...Or...something else?

 

Just curious. Thanks.

 

Hi Cory,

 

She was trading "Super Crazy Rodeo Clown" leverage in the beginning. She started with $25, so even on a microlot trade with an initial risk of 50 ticks she was risking 20%. As the account has grown, her % risk has steadily decreased. She now risks a maximum 2% per trade. Our little account now has almost 1000 times the capital she had in the beginning, so 2% means our bet size is up to $400/trade. So we have a larger bet size than she had in the beginning, but much smaller risk as a percent of trading capital. I think for a small daytrading account 1-2% is a good risk parameter, though .5% is probably ideal. As I said in the post you quoted, the smaller the account, the larger your average risk/trade will be, especially if you are trading futures at $6.25 - $12.50/ tick on a single contract.

 

Best Wishes,

 

Thales

Edited December 26, 2009 by thalestrader

[thalestrader 14]

BIAS ... "a particular tendency or inclination ...'

 

Could you or anyone else give examples of BIASES.

 

1) The tendency to not enter a trade even when a defined opportunity presents itself out of fear of loss, lack of confidence, etc.,

 

2) The tendency to double up position size or increase leverage after losses to "get it all back" or "get back to even,"

 

3) The tendency not to wait for defined trade opportunities after a series of losses in a hurried attempt to get back to even,

 

4) The tendency to move or remove one's stop loss in order to avoid taking the loss,

 

5) The tendency to cut a profitable trade short out of fear that the open trade profit will be lost,

 

6) The tendency to add to a losing position (average down a long or average up a short) hoping that price will move favorably enough to let you out at even,

 

7) The tendency to allow a bearish opinion to lead one to skip technically sound and strong long trade opportunities or vice versa,

 

8) The tendency to believe that after a string of losing short trades, the nest trade must be w iner, or vice versa and its related tendency to believe "my luck has gotta turn soon" (it doesn't have to do any such thing) ...

 

Does that help at all, Gabe?

 

Best Wishes,

 

Thales