Making Money Trading

Which market do you want to learn to trade?


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rathcoole_exile

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Jun 12, 2007
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Krung Thep Mahanakhon
Many days I don't trade. I sit and wait. When I started out I wanted to be in the market every day, the big momentum moves do this to you. But for me, now, the key is patience.
Tom, more sound common sense !
If I see more than 3 signals per month on the same vehicle I get worried that I'm overtrading it :confused: Patience is the key. Took me years to figure out this one simple fact that can often make the difference between winning and losing.

in Elder's book, he says something like "private traders have one advantage over professionals - the ability to stay OUT of the market, yet they squander this advantage time and time again by trading when they shouldn't" (crap paraphrasing but it's too late to go digging out the actual quote)
 
Jan 28, 2007
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Tom, more sound common sense !
If I see more than 3 signals per month on the same vehicle I get worried that I'm overtrading it :confused: Patience is the key. Took me years to figure out this one simple fact that can often make the difference between winning and losing.

in Elder's book, he says something like "private traders have one advantage over professionals - the ability to stay OUT of the market, yet they squander this advantage time and time again by trading when they shouldn't" (crap paraphrasing but it's too late to go digging out the actual quote)
The quote you want is in Trading for a Living, and the relevant section can be found here in google books. (luckily I remembered enough of the phrase that google turned it up) That was something which stuck in my mind when I read that book for the first time - we have a great advantage in not needing to trade.

Good post mate. How did your options position in August turn out (the one you were worrying about being stung for $10k on - writing 14000 calls I think)?
 
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A word of warning if I may: If you take positions on EOD setups, I would advise not to monitor it in the day, if you are even remotely trigger happy in your exits.

Trading daily requires enormous discipline in exits - in my opinion, based on my experience, it is even harder than trading hourly setups for this very reason.

If you enter on a daily, set your stop, walk away and check at the end of the day. This is just what works for me.

The only exception to this rule is if there are nearby target levels you need to react too. And even then, BE CAREFUL - I have found it far better to set a stop which, if hit, will tell me that I was wrong on the expected direction of the trade and just walk away and see what hand the market shows me.

I have been shaken out of amazing daily TF trades in their very early stages because a trade stalled at an S/R level for a few hours.
Thanks for that - I am trigger happy with my exits. I think I'm going to choose a time (probably between 10pm and 11pm) each day to examine the markets, place orders, and if necessary make decisions regarding stops and targets for open positions.
 

trader_dante

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The quote you want is in Trading for a Living...
There is a very similar quote in one of the interviews in Market Wizards - no doubt regurgitated from Elder's book.

How did your options position in August turn out (the one you were worrying about being stung for $10k on - writing 14000 calls I think)?
Hey rathcoole - careful of Tom: He never forgets anything ;)
 

trader_dante

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Something that made a big impact on me

For every trader there are points along the journey to consistent profitability when something clicks.

You may see something, read something, overhear something else.

These points come to different traders at different times but I think we've all experienced them.

I had one when I read the following passage, early in my trading career. It had a big effect on me when I read it and I have never forgotten it. I think it has shaped me in an important way and still effects how I think about the markets.

Grab a coffee and have a read. If you've read it before, remind yourself once again what an incredible trade this was:

++++++++++++++++++++++++++

Excerpt from an interview with Randy McKay from The New Market Wizards (Jack D. Schwager).

Did you continue to meet success after your intial year? Were there any pivotal trades in those first years?

The trade that was a turning point for me was the one that took me from being a twenty-to-forty-lot trader to trading hundreds of contracts.

In 1976, the British government announced that they weren't going to allow the pound to trade above $1.72. They were concerned that the pound's strength would lead to increased imports. At the time, the pound was trading in the mid-160s. To my surprise, the market responded to the annoucement by immediately going to $1.72. The pound then fell back to $1.68 and rebounded again up to $1.72. Every time it reached $1.72, it fell back, but by smaller and smaller amounts each time. The price range steadily converged until the pound was trading narrowly just beneath the $1.72 level.

Most of the people I knew said, "They're not going to let it go above $1.72. We might as well sell it. It's a no risk trade." I saw it differently. To me, the market looked like it was locked limit-up.

I felt that if the government announced that they weren't going to let the price go above a certain level and the market didn't break, it indicated that there must be tremendous underlying demand. I thought to myself, "This could be the opportunity of a lifetime." Up to that point in time, the largest position I had ever taken was thirty or forty contracts. I went long two hundred British pound contracts.

Although intellectually I was convinced that I was right, I was scared to death because the position was so much larger than what I had been trading. In those days, there was no Reuters or similar service providing cash market quotes in the currencies. I was so nervous about my position that I woke up at five o' clock each morning and called the Bank of England to get a quote. I would mutter something about being a trader from CitiBank or Harris Trust and needing a quote quickly. I would normally talk to some clerk who thought I was a big shot, and he would normally give me the quotes.

One morning, I made the call from my kitchen, and when I asked the clerk for the quote, he answered: "The pound is at $1.7250."

I said, "What! You mean $1.7150, don't you?"

"No," he replied. "It's $1.7250."

I realised that was it. By that time, I had gotten my brother and a number of friends into the trade, and I was so excited that I called all of them with the news. I was so confident that I even bought more contracts for myself. I then just sat back and watched the market ride all the way up to the $1.90 level.

++++++++++++++++++++++++++

As I said, when I read this passage, it had a big impact on me.

But I think that what I took away from it was not the obvious message.

The obvious message from that passage is:

If the market reacts bullishly to bearish news then there is something wrong.

This is a very valid point and many, many traders use it in their trading.

But I got something very different from this passage. I felt the important message to be taken from this was:

If you get a sign that the market wants to see a level, usually it will and the single most important thing you can do is be properly positioned to take the maximum advantage of it.

This came back to me this time last year when I was watching the pound rising to the $1.9100 area.

If you will look at the chart you will it tried this five times and everytime it did, it fell back.

Infact, on the last attempt you will see on that chart, where it had held for a little longer than usual, I went gone long and I was so sure that we were going to see $2 that I held the position even when it turned against me.

I held and held, moving my stop back each day and almost as soon as the loss got so large that I was forced out of the position because I could no longer hold it with the funds in my account, the market turned and went straight back up to $1.9150 or thereabouts.
 

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trader_dante

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When I saw the Pound hovering at that level, all I could think of was that passage from The New Market Wizards.

To me it looked like the calm before the storm. It felt to me like there was an almost unbearable tension in the market at that point.

As you can see it had been in a clear range, had moved sharply up the day before and now there it was, literally sitting on a key resistance level with nothing above (certainly in very recent history) but that $2 mark.

What I remember is that I took a large position relative to my account size and because of the fear associated with that greed, I ended up being shaken out at what I believe was breakeven.

It was a very frustrating time for me when I saw what happened next. But I wanted to share that story with you all because it is a trade I have always remembered and it shows how what we read can influence how we think and lead to good trading ideas (although in this case bad risk management)

That small bar circled measures just 39 pips from low to high. It formed on a Thursday night.

It is still the best risk to reward opportunity that I have personally seen in the seven years I have been trading.
 

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fibonelli

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Oct 1, 2006
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Hi Trader Dante,

The above chart (#147) shows a very clear ascending triangle chart pattern.

Out of curiosity, do you pay attention to any chart patterns which you consider as an additional piece of important evidence ("confluence"), or do you disregard them?

Fibonelli
 
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trader_dante

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Aha Fibonelli!

Very perceptive and good question - although it raises the issue that my method is largely discretionary.

To answer your question: I will certainly draw these patterns on my charts but in almost every circumstance I want to see a price action setup before I take a trade.

There are two scenarios I look for.

Let's refer to the triangle you have noted. The best scenario is, for example, to see a breakout of this triangle and then have the breakout tested. At that point where it is tested, if there some price action such as a pin bar then you have a very, very good trade. If there is other confluence at such a level then you really have to take it.

However, in this scenario the breakout was so sharp that there was no real test.

There was no way of knowing at the time that there wouldn't be a test (apart from gut instinct) so I have to make a choice whether I will wait for a possible test or try scenario two.

In this scenario, if I feel that the pattern is so obvious that every trader in the world is likely to be watching it, then I want to get onboard before it goes. This is much riskier but it has the advantage that if it goes, you're going to get it. And if it retests you're going to likely be able to double up and make some serious money out of the move.

That bar on the GBP/USD chart is called an inside bar. It signals a consolidation and narrowing range from the previous session. I would have played a break of that upwards (directly into the resistance) with a stop just beneath the bar.

Inside bars are tricky and you can lose on them even if you are right in your market call because if the range expands to engulf the previous day you will be stopped out even if the market eventually goes the way you thought it would.

Bear in mind, also, that many traders play inside bars by putting in both a buy and sell stop and letting the market react. These traders will then have their position reversed if the range expands both sides.

So, if they have a long order and it gets filled and then the market turns and takes them out, they will now be short rather than flat. You can get badly whipsawed if you are new to this.

I know you are not Fib but it is a warning to the new traders :)
 
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trader_dante

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So far we have looked at one type of price action setup (pin bars) and the best places to look for them. These are at swing highs and lows. You should also look for the nose to line up with: support/resistance levels (particulary areas where the price has flipped between support/resistance) remembering that trendlines also serve as support/resistance. Then you should see if that area lines up with any key fib levels. Draw fibs from different but clear and well-defined highs/lows. Do any of them match up with key areas on top of one another?

Perhaps most importantly I have emphasised that a clever trader will prepare their charts before the trading day and wait for the market to come to them. We want to watch the market participants, see what they are seeing and take action when we get a sign that they are.

I have also told you that I use only the daily and the hourly TF but I prefer to operate on the latter.

It's been pretty simple so far but I have a huge amount to add.

I am going to set any die-hard enthusiasts with some homework :)

Take your chart and add 3 moving averages.

The 10ema
The 21ema
The 50ema

Levels you draw on your charts such as support/resistance will likely change after time as new ones occur and old ones seem to get abandoned.

The one consistent element of my charting is my moving averages.

Your homework, if you choose to do it, is when you look at your charts during the week, watch how the price reacts to the moving averages during a trend. You should notice something that almost always happens when the market is trending on ANY timeframe. More on this soon.

Thanks for reading.
 
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combotrader

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Great stuff, TD.

One of the problems I had with the J16 thread was that I relied hevily on candles and most of his stuff was on bar charts. You have solved that dilemma for me.
The pin bars - are really very bullish doji like candles - dragonfly doji`s. Surrounding them, are many other bullish patterns - piercing etc. Obvously there other patterns that you will reveal (maybe) as we go along.

Your stops are the only thing concerning me. If you trade cable on the daily charts, sloss at the low of the day or 1atr will be around 150 pips. Trading 1 lot - $10/point - $1500. Given the volatility at supp/res - is it not likely that you will lose most if not all of your $1500 ? And what if this hapens on 2-3 trades, with 2-3 lots ? You can wait for the markets, but you can be sure the markets are also waiting for you.

The answer would be to have a large account. $1500 would be 1% if $1.5million - but how many of us have that ? :rolleyes:

Cheers
CT
I
 

trader_dante

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Your stops are the only thing concerning me. If you trade cable on the daily charts, sloss at the low of the day or 1atr will be around 150 pips. Trading 1 lot - $10/point - $1500. Given the volatility at supp/res - is it not likely that you will lose most if not all of your $1500 ? And what if this hapens on 2-3 trades, with 2-3 lots ? You can wait for the markets, but you can be sure the markets are also waiting for you.

The answer would be to have a large account. $1500 would be 1% if $1.5million - but how many of us have that ? :rolleyes:
Another excellent question and partly why I make almost all of my money on hourly setups. My stops are smaller meaning I can take larger size and from my experience I have found it offers as good risk/reward opportunities as the daily TF.

I often see incredible daily setups on markets like the GBP/JPY and cannot take them because the stops are so large even for trading at £1 a point with an SB broker. This is just too bad. It's a moments pity and then time to move on.

You do have the option to trade a mini-account (or even micro) rather than full lots and clearly if you want to trade daily setups then this is the most sensible option.

I'm not sure I have correctly understood one part of your post though. The volatility at S/R has nothing to do with whether you will lose or not (if that is what you meant?). If you trade a pin or an inside bar that has its low/high on an S/R level and you take it long/short (so it is moving away from the previous S/R level) then the probability that it will continue in the direction you have taken it is is in your favour - particularly if you traded a bar with good confluence. If it comes back you are wrong and the trade is a loser...

You ask what if this happens on 2-3 trades...as you stated it could spell disaster unless your account size is huge...but just for the record I have never had two back to back losers in five months actively trading most days.
 
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Likes: jkplay
Jan 6, 2007
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Value don"t last for long

This is an example of what I consider a high probability setup for a trade.

The bar circled is known as a pin bar. This bar indicates a potential reversal.

In addition, the nose touches both:

1. The 38 fib level of the swing low to recent high
2. A support/resistance zone. See how previous support became resistance and then turned to support again.

The fact that these two pivots line up make this a powerful confluence.

A long position would be taken when the price breaks the high of the pin bar. A corresponding stop would be placed beneath the low of the pin bar.

Trading is about having the patience to wait for these setups.

The trader that wants to win in this game has learn to wait on the sidelines until he sees an advantage. They will plot their support/resistance areas, they will draw in their trend lines and their fib levels and they will wait for the market to react to them.

Don't go to the market. Let the market come to you.

I will show you how I draw in my "pivot" areas and how I play price action bars and give you suggestions of how you can play them too but for now I'll leave you with a quote:

"Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch it's prey. It may hide in the bush for a week, waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, but preferably also one that is sick or lame. Only then, when there is no chance it can lose its prey, does it attack. That, to me, is the epitome of professional trading" - Mark Weinstein (Market Wizard)
A very informative post. One small criticism:
"Once you start looking for them you will see them everywhere".

This however will lead new aspiring traders to take setups all the time. Pinbars on a 1-minute time frame? Sure... Plenty!

It's my experience that the higher the timeframe the more reliable a pin-bar and the more powerful the signal.

But as you know where to look for pinbars, you already know which ones are the high probability ones ;)
Tom, more sound common sense !
If I see more than 3 signals per month on the same vehicle I get worried that I'm overtrading it :confused: Patience is the key. Took me years to figure out this one simple fact that can often make the difference between winning and losing.

in Elder's book, he says something like "private traders have one advantage over professionals - the ability to stay OUT of the market, yet they squander this advantage time and time again by trading when they shouldn't" (crap paraphrasing but it's too late to go digging out the actual quote)
Hi Dante,

Spent an hour reading and all excellent IMO

1st ftse trade/chart you posted, I think I posted similar or same on Ftse swing thread, the point you may want to make , its your thread, and looking very good it is to

The market or at least one market does not offer value for long and that set up, my memory may be off a bit as happened only about 3 times this year so as Rathcoole points out, patients is the key, its the ability to sit on ones hands that can make you most pennies. SEE THREAD, and have a wheeze seeing how easy it is for me:eek: and I suspect others to muck up ROYAL.

START at the point where I observed the potential set up on ftse swing thread. sorry to x thread but its on last page and a good live example I think. Page 13 last but one

This point IMO anyway is vital, beginners and some not so beginners :eek: will not improve if they cannot except this truth. Trading everything that moves kills you dead.

Looking forward to more :eek:

Andy AKA
 
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combotrader

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I'm not sure I have correctly understood one part of your post though. The volatility at S/R has nothing to do with whether you will lose or not (if that is what you meant?). If you trade a pin or an inside bar that has its low/high on an S/R level and you take it long/short (so it is moving away from the previous S/R level) then the probability that it will continue in the direction you have taken it is is in your favour - particularly if you traded a bar with good confluence. If it comes back you are wrong and the trade is a loser...

Precisely my point - you could have an excellent set up, make 100pips in 1 day and then bang, cable reaches out a long tail and takes you out. After 3 days it goes off like a rocket, having kept that support. What am I saying is - the stop might often have to be 200+ pips and hold, not raising to BE after making 100pips the 1st day. Manging stops on daily charts on cable is really hard. You would get 2-3 trades in a year that could get 500-1000 pips...but the others would be just annoying.

I find that on 1hr, a 40-50pip stop for cable works well with a setup very similar to yours - this is usually about 1.5atr. As you say - 1hrly is much easier!!:eek:

CT
 

trader_dante

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Precisely my point - you could have an excellent set up, make 100pips in 1 day and then bang, cable reaches out a long tail and takes you out.
Combotrader, good point raised there.

Price will often move in the direction the pin indicates and then retrace to the break of it (and your entry point)

This happens on most pairs. However, Cable is notoriously volatile. I try and stay away from this market.
 
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