WaveRider - Back to Basics - S/R, Price Action, MM, Smart Exits, One Indicator, and patience...

[WaveRider]

Another two little wins total 24 pips, live account inc 1.1% - and a little analysis

EURUSD - Last night got a another 11 pips on choppy price action. The trade looked good on a 30 minute chart so I took it. It took 3 or so hours to hit the TP. Pretty sleepy yesterday. But I was expecting Asia to retrace some of yesterdays up thrust, which they did, thank you.

This a pin bar that formed on the 4h showing price rejection after reaching a 38.2, 78.6, old S/R and near 200EMA. I scalped 12 pips or so this morning on a sell postion on the 30 min chart. This 4h pin bar or shooting star would look better if there were more space between it and the last high. Still it looks like a head down to the next relevant S/R which is 1.3041 or 1.3010. Not in yet since I want the curret bar to close for a little confirmation. This is choppy indecisive PA. Hopefully it makes up its mind in accord with my position. This would not be a bad place to enter since the take would be about 100 pips and the SL could be pretty close at about 30 pips before the pattern was shown to be wrong. If I trade I'll update.

Supposed to be studying for an exam tomorrow but I keep fooling around with freakin' charts...

 

[WaveRider]

Statements: if Along can do it so can I

I don't don't like traders who claim to be successful but don't post statements. I read in a forum on trader who said he had been trading for a little less than three years but said he was super amazing was so good he had a winning streak of 693 trades at one point. But he wouldn't post a statement and he got seriously flamed for it.
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I funded a live account because of excitement off a big win in the demo. I had no plan, didn't understand why I won. The demo account overall was down a lot. But I thought I was ready.
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So here it is. The first two are two days in Oct 2011, the 5th and 6th. Very sad story. I was trading $1 pips on an account with $300-400 value. Really over leveraged. Notice how many trades are made - showing over trading. Notice how there are a million wins that are tiny and a few huge losers, showing fear, poor money management. I had no idea when to take profit or where to place a stop. Notice how few SL's there are. That's fun until the power goes out or internet connection drops. One loss was $53 because I was over leveraged AND trading against the trend. Double stupid. I was grumpy all day because of that. That was so discouraging. Even my wife was disappointed and said: "I thought you were supposed to make money doing this." OUCH!
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View attachment 5270View attachment 5271
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The next two include the beginning of the turn around in November, 2011. There is an $11 win in the beggining of Decemeber that was a real turning point. I was so discouraged and considering giving up at this point. Looking back, I put my TP and SL on psychological levels, pretty amaturish. But I got lucky. Don't remember the rationale for the trade but it was two positions and they both won big. So I got encouraged and read more. Notice a gap during the first three months of the year. I was trading demo only. I was positive but I don't know how much total. Probably 6-12% total or something like that. I didn't trade at all for about two months.
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You can see from the balance I'm not a wealthy guy, so don't stalk me!
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This is what I learned and am learning:
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1. Dropped position size. Literally just followed the advice of every successful trader. What's better: a busted account in 6 months or a 30% increase in one year? 30% is pretty boring but a busted account is really sucky. I chose boring.
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2. Developed a healthy fear of losing money. "Rule #1: Don't lose money." - a Warren Buffet mantra. "Loss of opportunity is preferable to a loss of capital." - Joe Dinapoli. This helps you wait for the right pitch. Preserve your capital and the account will grow.
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3. Got a mentor. Everyone should get a mentor. In my case, I have been following the trading principles of the James 16 group, but using knowledge from Joe Dinapoli's book, and Sive's trading method. Also, I almost completely reject everything I read from Raghee Horner's book. Basically choosing not to let her mentor me. Honestly don't know if she is successful in Forex or not but apparently she made money in commodities and stocks. Get a mentor, no need to reinvent the wheel.
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4. Stopped looking at indicators, worrying about EA's, moving averages. Stopped looking for anything else. Can I have those months back, please? The successful traders say you don't need all that stuff. Every commercial EA belongs in the scam folder, in my opinion. The working EA's aren't available commercially. If my EA worked I wouldn't tell anyone about it and I wouldn't sell it and hire a million people to manage it. I would make money while I sleep and go to the beach, like a real waverider. I don't have butterfly patterns or other gartley patterns on my console. I don't have ea's that highlight consolidation. Why do I need that crap? Can't you look at a screen and see consolidation?
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5. Wrote out my trading plan and strategies. Literally just followed the advice of every successful trader.
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6. Worked on weak spots like multiple entries, paying attention to news schedules, constantly correcting myself with regard to fear and doubt and greed, overtrading, ect.
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7. Trade with the trend. Literally just followed the advice of every successful trader.
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8. Don't let anyone tell me when to buy or sell or why. I have respect for Sive but he will not always be around to tell us what to do. Better to teach yourself how to fish. Sive has been wrong before. Because he uses a different method than I do and his method says no or wait and mine says go, I go. Or he says go and my method says wait, so I wait.
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9. Got studious and read about classic chart patterns and candlestick patterns. I keep a cheat sheet with me in the car and on the desk so I can keep reviewing.
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The biggest paradigm shift was realizing market psychology was herd mentality. You may not always agree with it but one individual can't change it. Also seeing that there are wolves in the heard. Stop grabbers and failure patterns are caused by predators, often. Also, understanding what confluence means and why it works - also part of herd mentality.
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What's missing in my trading is any real amount of money. It's easy to hang on when there is $6 at stake. What about $60 or $6000? Hopefully my positions will be so low compared to account size, it won't be too hard to handle.
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The opening size of this account was $600 in early September 2011. The lowest point was in late October, about 2 months later, at $167. In November I started trading a trusted method, one trade per day, small lot sizes, and decided to stop being stupid. It is now $222.43. That's a 33.1% increase over 6 months and 3 of those months I was only trading demo or not at all. No I don't feel bad about the loss or that I have to make it up. When I got serious I decided to forget the loss and start new. Every week or trading day is a new hand with a new probability and nothing else matters. 31% is lot better than I expected. And the purpose of a baby live account was to learn, not to make a million dollars. Hopefully I can keep honing my skills. I feel like I know very little still. Good luck everybody.

 

[WaveRider]

Well I lost on the above trade. I think Sive got wipped out too. If I had entered exactly where I said above I would have won big but I was determined to do two positions and I would have lost the second position and I'd be at break even. Instead, while writing the post above, I was late to the game, didn't wait for the price to come back for me, and opened two postions in the wrong spot so I lost big. Total loss was about 6%.

The correction to the trading plan is to fix my R:R. Letting price come back before entering so as to make a more favorable R:R or to let the trade pass. Letting trades pass has made me a good return, oddly. Rather it's let me keep them.

I read on Nial Fuller's website that the risk reward ratio was the "Holy Grail" and he "proved" it by randomly buying and selling on several pairs for 10 days. A total of 20 trades. 12 losers, 8 winners. $5000 account, $1 pips. Risk 50 pips ($50) and the reward 100 pips ($100). He traded EURUSD, GBPUSD, and AUDUSD. No planning or analysis. That is an acceptable position size relative to for the account value. And he kept all the base pairs USD to make the math easier at the end, since all the totals would be in even dollars. His account grew by a very respectable 2% in two weeks with a max draw down of 6% and a losing streak of 9. The details of his experiment weren't laid out so I'd like to conduct an experiment on risk reward but lay out all the rules in a more fair and truly random way (if possible), to see if there is merit to that claim. The claim: risk reward alone will give you the edge with no planning, no analysis.

The experiment:

Every morning at the same time approx 7-8am EST (just to pick some set time and to avoid the whip the London sharks create on the EUR/USD nearly every morning to nail people just like me) for 10 trading days, open two opposite buy-sell pending positions straddling the price on 10 pairs, the majors plus 6 more. Each order pair will be OCO to allow the price choose its own order and each order when set pending will be 20 pips either way of the current price, whatever that may be.

A pending order set is placed every day, regardless of whether yesterdays orders were even triggered, allowing each day to stand on its own merit. So it would have to be on a non-US broker allowing hedging.

To make it REALLY fair, it might be better to let the TP and SL be a ratio of the daily average move of the pair since many pairs don't move 100 pips in a day.

My hypothesis: It won't work. I'm biased against purely mechanical systems. Sorry that doesn't sound very scientific but it's true. I just don't believe they work in Forex for very long. If this ended up showing an overall gain, I might argue the sample size was not big enough or that any method could encounter a lucky streak. Still a sample of 100 trades is pretty good. I'm pretty sure EA's are best used to execute trades efficiently but the EA's are turned on by an intelligent person. Whatever, I'm open minded.
I'll do this when I get a minute to breathe. I need to reopen demo accounts anyway.

 

[WaveRider]

Bearish outside bar on weekly

Since this is a weekly TF trade and the SL is about 300, I have to use the demo account. The little live account isn't funded enough to handle the potential drawdown. The first image is the daily. It shows how the price is about to waterfall off the S/R at 1.3000. Arching moves up and thrusting down and the ups are decreasing in height. The second image is the weekly, showing the bearish outside engulfing bar and trendline. The weekly shows a bear outside bar indicating from the market that it wants to move down. The next S/R is at 1.2660 or so. This will possibly move against me to close the Sunday gap and I put another sell limit order at about 30% of the BEOEB, which is probably where I should have entered anyway.
TP is 1.2710. This puts my TP a little higher than the bottom of the last swing low and, of course, above the psyche level 2700. SL is at 1.3310 which is above the bearish outside bar, negating this pattern. R:R is a little better than 1:1. $20,000 Alpari demo account, using $2 pips for a total potential loss of 3%. This trade was 100% PA with no indicators. I intentionally don't go to sites that do analysis so I can train my own eyes to see the patterns.

 

[WaveRider]

I don't believe any money management scheme can overcome a losing trading plan. Martingale, grid trading, risk/reward trading or anything that is purely MM related cannot make poor odds become good odds. They are so deceptive because the account will be positive the entire time until you've busted the account on the last trade. I read about a grid trader trading someone's live $100,000 account and he brought it up to $119,000 in about a month. 81 wins. But the floating loss he didn't mention. Scary that people are trading that way with other peoples' money.

 

[WaveRider]

Good trader psychology can't overcome a losing trading plan, but poor psychology can destroy a good one. If this weren't true, the EA's would be winning. But they aren't.

 

[WaveRider]

Multiple positions, if done incorrectly can worsen your odds by a lot.
Scenario 1:
Open 3 positions. TP of 2/3 at 50% of target and move remaining stop to break even. SL and final TP are equidistant.

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Problem: This changes the risk reward to being worse because you're fully exposed on risk but only partially exposed on reward. The above scenario is a risk reward of 1.5:1. It means you'd need 3 wins to make up for one loss. Or if you locked in profit but the last position moved against you, it would erase your win. Maybe I'm just getting lost in the math of this but if the trade is valid, keep your full position open until the trade is no long valid.

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One successful trader said this idea is easy in theory but when you are risking $50,000, he can't keep the position open. He takes a modest profit early and lets a little position ride it out, so that he's made something on the otherwise good trade and isn't exposed to loss anymore. Sounds like a purely psychological problem. As far as psychology is concerned, that is perfectly valid, since the psychology of trading will ruin an otherwise good method.

Scenario 2:
Open three positions. TP of 2/3 at 100% of target and leave remaining positions open.

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Problem: Keeping a position open would only make sense if it makes sense. Why would you leave open a small position when, if you hadn't had the previous win and profit, you would not otherwise have a position open. It would only make sense to leave a position open if the trade context still exists. Perhaps the only redeeming value is that a trend, any trend, is likely to continue. But why expose yourself on that alone?

 

[WaveRider]

Win: 109 pips, demo account. Coudn't handle success

I closed the trade out early. I couldn't handle it. Gained about 109 pips and 1% of account value. I know this injurs the R:R math because I would have let the trade ride until the stop was hit. Had this been a live trade, I would probably have TP sooner. Not sure what to do about this other than let the trade ride out.

 

[WaveRider]

I've been trading a demo account forthe last couple weeks. 5% up and 5% down. I need to post every trade or I will not be disciplined enough. Been trying some new strategies. The trade above is still valid and if Sive is right, it will more than hit my initial target. Coulda shoulda.

 

[WaveRider]

Sorry to be so vague but I've gotten about 200 pips in the last week on the live account. But I had lost some so I'm actually exactly where I was when I posted account statements.