(binned per thread starter's request) Market bottom rotation trad

USDJPY tracking for potential micro shelf buildup to long it if it takes out supply.

Almost 1R on that trade

Took the same entry, closed on break even. Risked 1R from the micro HL.

Flagship play of the day OGEN, demand failure took a solid dive. Shorted in Tradezero, didnt get shares to short in fund, locking most of position leaving the chunks to run. Being along the macro play will prove again and again to be strongest play.
EDIT: only noticed now there was secondary short play after that demand failure to add.

Looks like LFIN will get halted into the close, this could be bloodbath in Monday. In either case putting it on watchlist.

Why trade hard instruments if we could trade not hard instruments
Jan, please provide more criticism on my setups, to be able to move forward.

Good question...the more instruments you wield the more situations you can play of with exactly the way you want to play them . On regular FX or equity markets youll be limited to M1 as lowest play for most liquid instruments (and for 70% of them youll be forced to pick higher TF due to spreads and liquidity). Digital options will allow to execute in very liquid markets those very tiny situations that you cant execute in any other instruments simply becouse options do not carry spreads by default, nor the default commissions, its more like a fixed contract in a way. One might ask why bother, if regular FX and equities give enough daily setups? The key is that being aligned with macro factors is the strongest trade one can take if you have micro entry, and if one reads macro event well, then those few situations to execute from 10 sec chart can be great help, note that i would not take GBP trade if i had no 10 sec data fill, as that 2 micro shelfs were key info and the price stall on them to execute, even though that on H1 everything was aligned for proper move up. Having large cover area of all the plays and instruments is what can give you precision, and better results. It does however take a toll on learning and practicie if one wants to cover larger area, that is the price paid. Trading is like evolution process, you can never say you are done, and you should not say so, keep learning and adapting and including more plays is what pushes one forward understanding mechanics better.
One doesnt need to be flexible, you can stick to single TF, single market, single play. But to be adaptive, squeeze the most of the time, and for most reward, there has to be evolution process going on.

Ill comment on the plays individually tomorrow in details.

Aha. That explains why you had less R on the M1 chart than you reported few times. That was the 10 seconds options R value.
I know some trader doing similar thing with spot fx and futures. He looks at the spotfx GU chart and takes the trade on 6B where he pays no spread and only 50cents a contract. Almost same volume on spot will cost about 7$+spread. Futures markets offer about 70 instruments, some of them are very volatile like ES and CL and can be traded on much lower TF like 10 sec or even some custom tick candles chart of your choice.
There is only 1 broker i know (Ameritrade), that will give you access to real time data for 15000 markets including futures, equities, opetions, spot, imdicies,..... etc just by opening a live account with them.

@janpec1000:
any ideas how to avoid bad Trades.
just want to learn from your experiences with this system.
Thanks for your help.
reg.zack

Good day

I kinda put together what i did at that time looking at this attachment. I had taken them to be similar, correct me if i am wrong.

https://www.forexfactory.com/attachment.php?attachmentid=2651105&d=1517080236

Hope to hear from you

Regards

Hey zackery, that depends how do you define bad trade. Most traders think of a losing trade as bad trade, but there is a difference. Losing traders are part of business when you are doing trading you cannot avoid them. The reality is that no matter how much homework you do one does not know with certainty how will the price react once trader is in position, you can use historical examples as reflection but its not going to be smooth ride. Thus loses will happen.
The actual question is, how do you make better loses? How do you lose less, how do you make loses smaller etc.

A bad trade is a trade where you break either rules of what defines a solid pattern, or you simply do a poor exeuction on a trade, breaking the trade managment rules.
Every trader will do losing trades as well as bad trades, but its important to have set of rules and principles to decrease the amount of them as much as you can. To do that you need to reverse engineer your thinking process on a trade to approach the problem, thing is everyone is thinking differently thus every person needs to do it for him/herself in order to approach the problem and fix it as much as possible.

I can give you real example where i had a strong problem in past, where certain very good quallity patterns showed up and in my thinking i formed very strong opinion that that particular pattern should defenetly work out, which when it did was a decent trade, but when it didnt, i had a large loss, i was unwilling to cut the loss quickly. So to reverse engineer the thinking process behind the trade you first need to:
-identify the problem and admit that indeed there is a problem that keeps repeating
-is that problem consistently repeating if it is, are there common attributes around situation that make you fall into trap every single time (for example it could be your own mood, could be market behaviour, could be specific price structure, could be specific fundamental market conditions, could be having passed info from someone else that is consistently performing poorly etc etc...).
-if that problem is consistent and it does strong damage to your account, then you need to go deep and find exactly how your thinking process on that particular pattern works and what makes you fall into a hole
-once you get all the details then you need to form a plan, there are two ways to do it. One is to block that pattern from your participation in it, basically putting it on ignore and never trade it again, second way is to form a plan how to change your trading approach on it in order to not push a cascading event of bad decisions on it.

This is how i approached my problem and got rid of 80-90% of bad trades on it, i still make bad trades here and there, but the key is to reduce it as much as possible and for that you need a plan. The key is to be radically open minded and transparent with your self on how you are thinking so that you objectively approach whats wrong with your thinking apporach that makes you make a mistake, mind that trading is almost purely brain/thinking process so your performance will be reflection of your thinking process.


There are few general rules and habits from my observations that will help you be a better trader:
1.Cut loses quickly. As soon as price starts to move against you more than 1 full candle size, start to cut portion of position. Or cut it fully. Or if not that have a clear established level where you will for sure cut the trade once price gets there, its important to have that level in mind before you enter a trade, if you are confused and have no such level you should not be in trade in first place. Cutting loses quickly is not something you can read from book and then do, its something that takes a lot of practice and repeation simply its a non human thing to do, in trading you spend time to formulate opinion on certain asset in certain time, and to derail or swipe that opinion in a next 10 seconds is just not how brains are made for and you will naturally find a resistance to do that. People tend to hold to their opinions that were formed trough spending time on it to form it, but in trading you need to practice how to be flexible. Make sure that you graps technology that you are using fully (have complete understanding of trading software) becouse if you dont you wont be able to perform it, if you are going to need 1 minute to figure how to cut position , then you wont be able to perform on that task.


2. Workout. Might sound wierd, but having workout will naturally improve your discipline and make you a better trader, especially weight lifting. Weight lifting will also force you to have better diet if you want to see some results so it will naturally give you discipline rotation on both tasks. By no means i am a consistent example on it, but i have been setting a goal on it and meaning to stick with it for next few years, the results are obvious within a month.
Any process that requires a discipline and is a pain in the ass will also improve your discipline in trading, the harder that task is and the more pain it gives you the more discipline you will harness from it. Trading process is generally the same, its experiance of massive amounts of pain on losing trades that you go trough and trades where you had no idea why market reacted the way it did, but figuring out what went wrong and why it did is what then gives you lessons. If there was no pain in losing nobody would ever learn to trade, becouse one would simply eventually end with 0 balance otherwise every single time.

3.Be patient and pick better patterns. One thing that is consistent trough most traders is that they become jumpy on setups becouse after a time spent on watching chart and no setups aligned they think that the time needs to be paid of for what they invested that day, so they take quickly next first setup that comes across.
Almost every trader goes trough that, especially short term traders. Its important that you have long term macro view on why you are doing what you are doing and how in future you might do it bit differently if you capitalization is better. Generally traders jump into every oportunity on small accounts because they feel that is the way to pay of for profits, but having some further long term thinking is better, make distinction between learning to execute strategy versus actually then properly trading it once you are consistent. Once you are consistent you will build better capital and then you will not need to take every single setup and you can be more picky, but if one is too short term thinker and tries to overload while still being in learning phase it might end bad....with giving up eventually. I have seen it hundreds and hundreds of times. 1 year in life to learn sometihng that will carry you till rest of life is nothing, respect the learning process and dont be too jumpy.
Trading a lot in learning process is good becouse frequency can equal experiance, but just dont do it on live capital with strong positions.

4.Quality setups. To avoid as much bad trades as possible follow better quallity setups, rules of what makes a good quallity setups for supply or demand takeouts have been explained on previous pages along with some explanation for short squeezes. Make sure that your pattern has all the required attributes to fit a "good quality setup".

Overall your performance is mixed, you are able to spot quality plays but often still find too many low quality plays which should be not considered, and on entry execution being too late, on profit side being patient and aiming for larger gains which is good.
On TPing side there is nothing that needs to change or improve (perhaps maybe try adding third partial profit to increase scaling out).
On entry side you need to be more closer to takeout levels.
On pattern picking being a little bit more picky with better quality plays (about 20% of overall picked plays are low quality).
Be more precise on trendline drawing, i noted many times that trendlines should be drawn as precise as possible becouse that will guide you on your entry and also being responsible on tight exiting. If structure isnt very symmetrical just skip it, simple.
Another thing is if you have clear micro shelf, try to practice putting BE TP on your initial higher position and entering additional position near lows of micro shelf if price tests it, yes you will be doubling your risk on trade but that kind of trading will always end with positive edge if replicated many times, the lower trade will have excellent RR, adapt to what market is telling you.

Quick overview of patterns explained so far in thread.

No such thing as preferred RR on trade

Risk and profits on trade should be guided from actual market behaviour and not something that trader chooses by will and wish. RR has to make logical sense in terms of how it fits to pattern and it also needs empirical evidence that it is aligned with reality of correct expectations. For example if pattern traded moves 10 pips in 90% cases but trader aims to have 100 pips target every time it will be just a guess based strategy not aligned with reality.
Each setup will offer only so much potential, but that potential can be maximized in few different way, and the best way to maximize it is to have macro direction aligned with micro setup. This by default will allow trader aim for large profits while still having small loss in mind.
Combos of macro and micro setups are the most powerful way to go about in trading, first thing is to figure behaviour of macro setup and have realistic expectation, second is to figure micro setup and how to trade it in order to maximize on macro direction.

Macro setup could be either:
-economic data that tilts trader to have certain expectation on asset behaviour over time
-geopolitical events on horizon or already absorbed by markets
-macro high TF structure aligned with low TF structure in same direction
-consistency of price performance and asset (company/currency/ country) behaviour over past few years to use it as macro direction
............

Finding macro setups is not easy, takes time to study and figure them out, but it is the most rewarding play in trading if you can execute it with tight risk. Think of macro factor like an eagle in the sky with huge perspective over whats happening on the ground, and the fox bellow with micro perspective only seeing and sensing what is happening in front or near it. If you could forge or connect both of those hunters together one would get a very strong performant hunter.

Equity examples:
OGEN



Why LFINs trade halt is not as harmless as it seems, it could be a significant panic move or gap open.


SLS


BPTH



Finding macro plays in currencies is much harder than it is in equities, unless its purely PA based pattern. Currencies cover much larger area of knowledge and subjects to figure their real macro direction, the key to have proper macro direction is to focus on specific assets that fit certain attributes becouse those assets tend to repeat their behaviour. This applies the same to currencies and equities.
For example in equities:
-low float
-strongly shorted
-consolidated down trend
-gap open next day
-short squeeze or just a news spike
Above attributes if replicated over and over agian will 95% of time yield a strong bull move on squeeze and afterwards a full correction. A good macro setup to have in arsenal, it will by default give better probability to micro setups if timed right.

For example in currencies:
-strong bearish geopolitical and media exposure of country
-capital controls or capital flight in place
-uncontrolled inflation
-resistance to rate hikes
-nationalistic leader on top of country
Above attributes will lead in 90% cases to a bearish scenario for currency, where it will be droping further and further as long as attributes stay persistent.

While those are just two examples of macro plays there are a lot more plays to list, especially on bullish side. The easiest macro plays are the one caused by small group of individuals or single individual becouse reading their strategic moves will be much easier than reading the moves of large group of people.

“Study the past if you would define the future.”
― Confucius

In order to have realistic expectation of future events that are replication of past events one needs to study history of that pattern, if history is not studies trader is doing just a guess work.
Studying history is not just about being "right" on direction but also having correct timing expectation. Traders or investors that do not understand timing perspective are often wrong and come with too pesimistic or optimistic expectations. Its important to figure the thinking process being those individuals in order to not repeat such mistakes by yourself and avoid them.
Examples:
-Bitcoin should go to 50.000 USD in next 2-3 months becouse it went from 10-15.000 in 1 month. If such thinking is put into informational pattern and stress tested over history it yields very poor results, meaning it rarely replicates, unless one defines very clearly what the attributes of those tested assets are. Parabolic assets will tend to go parabolic again, but not before they crash or have major correction, especially inovative tech.
-Dollar will crash to 0 in 2017 becouse every fiat currency in history has. Anyone with such opinion exposes him/herself to not understanding the timing concept in markets. Without understanding timing makrets will crush you. Indeed almost every fiat currency crashes in hyperinflation, but the key is when, timing is the key, many reserve currencies have much longer time span than most people realize. If one does historical research all factors have to be taken in account, not just the end result.
-there are many more examples to list, but its too lengthy to list me all of them....

“Always start at the end before you begin.” Robert Kiyosaki

Interesting and also realistic view is that if one wants to form strategy about any pattern first the end result needs to be seen, becouse the end result points to the outcome of mechanism, but important is that the end is consistent. If end is not consistent then there is no pattern to trade in first place, and by consistent it doesnt mean that it should be 100% times the same result, it simply means that on success and failure there are charasteristics that are very consistent.
One cannot shape strategy just based on initial variables because it would take years and years to shape profitable strategies with such approach, thus focusing on end result first is better way. Any good strategic thinking is based on reverse engineering, start from end and move to the left side of time scale to figure what moves caused the end result. Staying on the middle of time scale means that one is only using logical thinking to make sense of situation, logical thinking is overpriced, it leads often to bad conclusions, use historical data to back the opinion.

“Therefore, just as water retains no constant shape, so in warfare there are no constant conditions.”
― Sun Tzu, The Art of War

No matter how much time and work trader puts into pattern, at the end current live order flow will dictate the result of price moves, therefore trader needs to always stay fexible to change according to the order flow. There is only so much you can plan ahead, the rest is all reactionary play.

“Strategy execution is the responsibility that makes or breaks executives.” —Alan Branche

Majority of traders will fail using strategy because they will fail into a trap of poor execution or poor expectations of that strategy behaviour. Most trading strategies especially market overfitting ones are not hard to learn, but traders will fail to properly execute them with consistency or simply a batch of un-even distributed loses and gains will discourage them from further participation.
Trading process is constantly throwing obstracles and testing the trader almost every day, and with wrong mindset chances are one will fail.
Traders who are not experianced over 1000s of play within certain strategy will often have a very soft ground bellow their feets, having strong doubts when performance drops and having strong courage and belief when performance is good.
The reality is that winning and losing patterns are not evenly distributed so often they will come in batches. For example 3 winning trades in row and then 2 loses, 1 winner, 1 loss and then few losses in row. This will often make trader question if he or strategy really has edge or if it was just luck before. From my experiance often those thoughts appear especially when trader is breaking rules of strategy and trading poorly but not being objective that actual under-performing of strategy was due to that and not just a behaviour of patterns. Its important to quickly figure out what the problem is by digging trough past trades and spotting the problem. If trades are well executed and its just overall poor performance of patterns, but strategy has been properly back tested, then its just what it is, its what reality was in that batch of examples, over next 100 plays it should even out, if its traders poor execution then that should be noted as its a real problem.

Thanks a lot for the remarks and the time spent. I am actually aware of the quality of the setups i am taking and to be honest i am taking every setup for execution and practice sake. I realize now that might be a bad idea, if low quality setup turns into good trade.
I already created a plan how to improve the missing points. Thanks again!

TRD

News behind the curtain

When it comes to trading the markets reaction to the news there are few factors that trader need to establish before attempting to have opinion on direction.
Objectively figuring out the impact of news on price is somewhat an exact science combined with non exact way to approach it. In a vacuum where no market participants have access to data a trader can completly objectively pick how should news impact certain financial asset, but in real world, those infos could be leaked in many different ways providing other market participants with ahead knowledge to position themselves. This doesnt necessarily means that this information is released in illegal way as inside info, it could be just few snippets of data here and there, hints, or any other clues that leave other market participants with some assumptions that something might be comming even if its not out there yet. This then builds a pricing mechanism in how markets will price certain potential news ahead of its release and some news will be complete surprise and markets will price them straight on realtime instead.
When it comes to de-picking news most traders are very confused, becouse they try to always use a vacuum approach on making sense of the news from completly objective point as if the info they have been given has just appeared for the first time for all market participants, this will lead to often being completly wrong on market direction from such events.

Therefore its important to approach news from right perspective to figure out best potential direction, and factors to do that are:
-is the information given completly fresh, has been not hinted in any other micro way before and is strongly against current consensus of market (most participants positioned in oposite direction of changed short term reality). If info is not fresh and has been leaked in any sort way before from trusted source then trader should take that into account to expect different price behaviour.
-is current news aligned with market expectations and positioning, or is it completly "out of wack" with current market expectations. If it is aligned then chances are that reaction to it will be bleak since majority of market participants are already positioned in that direction, if its out of wack case, then chances for large price reaction goes up exponentially.
-is news just a guess / assumption / subjective opinion from some untrusted source, or was it actually released or said by trusted source? Now one needs to define what trusted source is, it doesnt mean that that should be someone with history of realiable performance, it simply means if it was released by someone operating the process, or someone with agenda to release it, for example a central banker releasing info on rate hike, a company owner releasing data of earnings , 10 different news sources releasing the data on merger of 2 companies etc etc.
-is the news out of wack with long term perspective of asset or is it aligned to it. This will have major impact on whether the news price reaction will have full correction, or if it will simply go along its path forward. Asset with strongly bearish long term perspective will have majority of positiive short term news corrected fully on price, and asset with strongly bullish long term perspective and performance will have majority of bearish news fully corrected on upside.

If one uses the recipe described above you can figure out majority of news reactions and also reactions and results of price days or weeks afterwards. Yes one does require to have knowledge on subject before doing that, but knowledge is only step one, the recipe above is the key of a step two.
Understanding the true mechanism behind the news or asset is very important, not having a proper picture will yield wrong expectation.

I will not go into details for now how to use such approach in FX, since i mentioned before that it requires substential study of many different areas to figure long term and short term views on currency, but for equities there is a quick hack to do it.
Study balance sheets, basics of accounting, basics of equity company terms such as mergers, shortfalls, margins etc etc. Many books on that, a lot of free knowledge, mind that will only be step one, the key step is step two the recipe to use that knowledge with edge. Recipes are here, the basic knowledge is elsewhere.
Yes it is a bit boring and dull studying those concepts but luckily it doesnt take long to grasp it.

Alright so lets go into some examples.The key aspects from those examples and lessons are:
If asset is poorly performing, has down trend, and company as whole is performing poorly, when soft bullish news strike, chances are that there will be significant short positioning on such asset causing a large rally and afterwards due to factors explained it will also have full correction as long term picture sets in. If equity of such company rallies from 2 USD to 15 USD in a day and news were just slightly bullish chances are that there is no way near enough demand to keep that equity at such high price and the lack of buying at that high price will cause that asset to start droping day after day until it meets equalibrium. Or in some cases there wont even be a news triggering that, it just might be price breaking some significant consolidated level, and the shorts start to panic, causing that large spike, the end result will be the same. However on other cases if news trully were strongly bullish that equity will hold high price and keep trading at that high price. For that the news release really need to change long term outlook of company to have a chance.
This means that trader can have complex way to play such news event, if there is gap open and short squeeze and the news are strongly bullish one should be looking for any kind of micro bull play to enter. If news are soft bullish but move is strong, one should focus on short play. Etc etc...

Once trader goes trough hundreds of play it becomes easier and easier to do quick analysis to rationalize how and where to put the news and what to expect, it might be a bit complex at the beginning but it gets easier over time. Its a macro play, thus providing strong RR and should be priority focus for any trader.

Usually assets that go strongly up will further open next day with gap either gap up or gap down. Majority of gap ups after strong move with further have higher price trading, while gap downs will point to momentum change and have price decrease as result. Focus of trader should be noting on first behaviour change when asset is for first time opening with gap down after strong upward move (as long as news are depicked correctly as being not long term worthy). That should give trader focus on shorting the asset.

KODK. Example where news are on objective basis bullish, becouse there is a market for what Kodak is trying to do there, but for a trader all it matters, has market overreacted to the short term impact of that news? If answer is yes and trader believes that current price is unsustaniable and wont meet a demand then that creates a short bias. There is huge difference between news that has strong emidiate impact on company producing positive income results straight on, and the news that are very long term where very slow adoption will take place, both of those factors will impact balance sheet very differently and also demand factors at specific price. Price on KODK afterwards slowly went into full correction.





UAVS. Example where news were not only slightly bullish, but rather more bullish. Mergers are often bullish for companies especially when bought of by successful companies. Thus no short bias should be set in such case. While price might drop in this case, overall in large sample base its much more mixed result. Mergers are usually surprise news releases as usually there is no info leak thus markets will react to it on realtime basis.




GERN. Example of continous short squeeze. Usually there are two types of short squeezes, one is direct quick short squeeze that happens quickly where liquidation event is baked quickly (in single day or in single hour) and the other type is long term short squeeze that keeps squeezing more and more, this one will be the result of aggressive short sellers keep jumping into asset and as price goes up due to increased demand they are squeezed again and again, further pushing price up.
A note on GERN is first gap down after strong move upwards and the momentum change.





LEDS. Example of heavy short squeeze, and a very soft bullish news, 200% move , price unlikely to hold it up as demand wont come to support it. If one looks at earnings report on 14th Nov, its easy to see that not much has changed for company since previous year, and the overall long term picture is still pretty bleak, yet markets reacted very strongly on bullish side, whatever the case of that reaction was if it was liquidation of shorts or actual buying that cause it doesnt really matter, as one needs to ask considering all the facts, is the share price of company that was trading whole year at 3 USD a share, now sustainable at 10 USD a share within just a day move, considering all the facts? In case of LEDS the answer will be no. A quick check would always be, has there been similar event in history for that ticker, and has the result been aligned with trader expectation being bearish biased? In case of LEDS answer is yes, previous history of spikes and full corrections.

To continue above post:


AQB. Very tiny float, only 500.000 shares trader publicly, that creates potential for quick swiping move if any reasons to trigger market are there. Tiny low floaters tend to overreact heavily on soft news as float rotates quickly between hands. Such assets will often react strong on no news at all. Picking all the details away a trader should have a short bias after asset moves 300% as its clearly why the move has happened and that likely no new demand will meet the expectations to hold the price where it is. When thinking about the low float i like to use poker analogy....is one more likely to participate in squeeze event at poker table of 5 players or at the table where 1000s of players participate and each of them is anonymous and has no accountability for oposite players actions?







CHFS. Example where the balance sheet of company is overall quite decent or at least improving, but the main question is , is the magnitude of price reaction in realistic relevance to the actual companies performance? 4 USD to 25 USD is huge move, in order to sustain demand at that price there has to be a great reason, and in case of CHFS...for sure there was none. Not even close. When trading such patterns on short side its very important that trader has proper system in place, cuts loses, and only starts to trade when specific pattern shows up, never short randomly into spiking asset that is surely a way to go down. Trading liquidations is about being precise on timing and on risk side, one can scale in slowly small size, or go in proper size but having proper tight risk control in place.






CARV. Heavily shorted, tiny float, tiny volume (very few hands at the table), no strong bullish news. Demand failure brings price collapse.

LFIN charged for fraud, gap down open is now not a question anymore, the question is how much will it drop after gap down open. On shorting watchlist.

NJ setting up?