The Plan

Page is well out of date 29 October 2017 and is due a very major overhaul. So major you wouldn’t recognise it. It is not how I’m trading at all today. See you soon. Well maybe next year as I’m putting my focus into other parts of my trading.

I feel the biggest influence on my plan initially came from Bob Volman’s books especially the second on trading the 5 minute charts. I have also been recently heavily influenced by the works of Al Brooks which was like a light bulb moment for me when I finally finished one of his books ( also the 5 minute chart) and most of his online course. Of course other influences have been Comander Rob Wilson, author of ‘5 Bullets’ (1 minute chart). I also feel Matt Lacoco’s style of using the longer term charts for context and entering on the 5 min and 1 min has been another good influence. I like a few other educators but this section is purely about my plan and not about other issues so I have left tem out here.

As this page like most of the blog is still under construction, please forgive me the errors/omissions etc. Will update asap 25/06/17

Fail to plan and all that sees me putting up a new page where I outline my plan. I like the idea that Rob Booker introduced about having a guiding philosophy rather than strict rules however there is a quote at the start of many of his podcasts from Hubert Senter’s which says, ”I have rule to protect myself from myself, ” and I think we all know what that means. So I’m going to have some rules and also some less strict rules that I will call regulations, which  are guides that may be achieved in different ways to achieve the same  outcome. These rules and regulations will be all bound together in a guiding philosophy that has come from a different aspect of my life where successful risk taking has been achieved. Many of the rules and reg’s are connected in some way or the other, they are not mutually exclusive which makes summing them up to a set of specific conditions difficult without introducing the other principles at the same time, however I will do my best to do so.

It has taken many years to get to the stage where I feel I can actually start writing down how I want to and am trading. It is not an easy task for me, as I am a bit of a perfectionist and want to describe things down to the detail, which certainly wasn’t possible when I was continuously struggling to find what fitted my personality and is still difficult to do when so many factors come into play in taking, managing and exiting a trade and especially as I am still developing.

My trading methodology is certainly not complete as I am still changing things all the time. Hopefully by writing it all down I will be able to simplify things and make them clearer over time, for myself rather than anyone reading this. In fact I feel that it is me that will get the benefit as I focus on understanding what I am actually trying to do and what works and what does not for me.

Part I

The Regulations for Trading From the Edge

Years ago I completed Commander Rob Wilson’s,’Edge Trading Course,’ which was all about trading without confirmation. You would take the trade when price moved to the pre-determined entry level based only on support and resistance. Rob would say, ”Confirmation costs,” so bearing that in mind this Part I of my plan is about trading from the edge, but is not the final story.

Reg 1: Prevention of Overtrading

I’ve found trading range breaks a very difficult concept using tight stops. I now only want to enter trades on a retest after a close and never on the break. A retest must also be meaningful usually at least 40% of the previous move or better 75%. I like false breaks that come back into the range, (see rule 5 on false breaks) for then I can get a better entry closer to my stop. So most of my trade entries are to be taken with price moving towards me, like a limit order, rather than away from me in the direction of the trade like a stop order. This means all trades have to be planned in advance even if the advanced is very near during times of higher volatility and this prevents jumping in on the fear of missing out or the desperation to win. Sometimes bars look good pushing in one direction and I want to join in, and then they retrace and close looking totally different and then I have to sit in the negative, so this is my remedy to stay out. Now I know there is a chance I will miss out on trades that go without a retest/pullback but that is how I am learning to trade.  As I am mostly entering on a retest I maybe making things hard for myself and what about a strong close bar?

Reg 2: The Higher Time Frame Context, Environment, Trend.

I start the day looking at support and resistance on the weekly and daily charts, peaks, troughs, ceilings and trendlines. At these levels I expect chop (range behaviour) away from them they are magnets.

I am looking to trade in the direction of the trend on the M30 and H2 charts however when they are showing ranges I will trade in either direction. I look to trade off support and resistance at range extremes and from 50% pullbacks aligned with technical tests for trends.

I am prepared to miss out on range breaks but will take the retest especially with nested patterns. I like to trade against climaxes at range barriers and 3rd pushes.

Reg 3: Price Reaction Points -Support and Resistance

Expect chop at these points within a higher timeframe range and fast reversals at range extremes. V reversal at range extremes are common so expected especially if that is how they reacted before.

Reg 4: Markets Natural Moves and Overstretched Markets as Reversal Points.

I like climaxes racing towards me. Price bursting out of a range then overextending towards me. The end of trend=trend 100% symmetry. Stop runs almost jumping through levels beyond highs and lows into liquidity. Third channel line pushes to measured moves. Measured moves from range heights and  spikes with follow through to double with a channel.

Reg 5: The False Break

All the patterns traded in some way incorporate false breaks. False breaks take out stops of weaker traders, they create panic and tension with trapped traders in the market looking to get out.

Before a bull flag breaks out higher, it is often seen there is a false bear break lower, before the big breakout higher can occur. This could be argued to be the second leg of a move in the wrong direction in a complex pullback.

Arguably the head and shoulders pattern ‘head’ is a false break above the shoulder line, and it is the shoulder line that is the true support or resistance (inner trend line). The neckline itself will be subject to false breaks, trapping the small-stop traders and sending price back up to the shoulder because the neckline is generally the outer trend line, where there are more traders of all types.

False breaks in both the direction you want to trade and against the direction both add to the tension on the charts, with trapped and stopped out bulls and bears together. Often this is referred to as whipsaw. This tension build up is well described on the micro scale, in Bob Volman’s book ‘Forex Price Action Scalping.’ This is the point we should be getting ready to enter our set ups, the market is ready to explode. It may not be always in the direction we want, but our small stops will keep us safe.

One of nobrainertrades patterns is the double top with a small false break higher on a third attempt. One of Adam Grimes’s patterns is called ‘trading the break for failure.’ One of Shonn Campbell’s patterns, the spike and sell is actually a failed break above what he calls continuation liquidity, with a counter trend scalp back to the averages. Divergence setups with pin bar entries surpassing the last fractal high or low but being quickly rejected are false breaks. Liquidity is sort out and then the market reverses. Of course all this must be taken with the context of the market as in line with principle 2.

I am always looking to be trading the failed break in some way or the other, always looking for trapped or stopped out traders, I believe in some way it is the key, it is crowd psychology of traders working for us. Of course many times it is I who am the trapped, stopped, weak trader and it is those time that my journal is most important in trying to understand why I was doing what every other sucker was doing.

 

Reg 6: Trading Price Patterns

I’m not going to fully explain the 5 main patterns I use because they are freely available and fully explained on the nobrainertrades website. I am however going to show the bearish patterns below. The bullish ones are just these inverted. Also the way I enter I am actually trying to predict the pattern will occur as my entry is the final reversal point of the pattern. The entry point is the edge I want to trade from without any other indicator or price action confirmation.

stops2 001

stops1 001

Often the patterns above can merge in continuation patterns of the underlying trend like the flag which has many variants. Often the final burst up in the bull flags shown will come immediately out of the false break and so I have to go to the smaller timeframes to enter. These are points where a strong close bar may be the better entry option like Shonn’s momo entry or break and buy or Steve Winiarki’s strong close bar entry, however that is something I need to investigate rather than trade as principle 1 is my guide to entry.

The flag needs to be with the H2 trend and looking likely for another equal leg up. Those against the H2 trend unless they are like the anti I will be looking to fail and trade accordingly.

stops3 001

Here’s an example of putting it all together. I just picked this at random and I wouldn’t have traded as it’s not my time. It’s a spike and sell using Shonn’s context in principle 2. Once the H2 20 ema is reached further moves are likely off however I continued to show the patterns on the charts after this to show the patterns are always there. In this case it was difficult to get an entry with the m5 as the market spike sold off fast, but the m1 gives a number of possible entries if quick enough on the button. Don’t take this as how I exactly trade though you will have to visit my recent journal for that.

ScreenHunter_2001 Aug. 14 17.10

ScreenHunter_1999 Aug. 14 17.07

For good measure I add the H2 chart.

ScreenHunter_2000 Aug. 14 17.08

Trades may be taken at the pattern lines on the H2 or M15 charts as price reversal points traded with principle 2 (context) in mind and other confluence. H2 patterns are seen to be stronger with generally larger targets than M15.

Otherwise we look for the market to tip its hand after a reaction and a pattern showing itself first on the H2 and/or M15 and then look for patterns on the M5 chart and sometimes the M1. Outer local trend line breaks and retests of the line or line break level can also be used to add confluence to the pattern.

On the M5 / M1, I don’t wait for the pattern to form and a strong close, rather I enter at the anticipated final reaction point of the pattern which itself is some sort of inner or outer trend line.

I’m also looking for a confluence of several patterns to be occurring around the same area, all reversal signals like a triple tap followed by a quasi and local trend line break, then that could be followed by a DT with 3/4 pull. All these patterns are better described at Steve Winiarski’s nobrainertrades and fxsanlytics websites. See my trading-course, resource-list here fxoutlier.com/trading-resources towards the lower part of the page.

Reg 7: Stop Losses.

I always trade with one. I have an automatic 12 pip stop set with Oanda but this can be immediately adjusted once in the trade. Once any initial adjustments made the stop can only be moved to a lesser size than the original and preferably to break even. Breakeven can often be the worst possible place to set a stop especially if the trade hasn’t made its first pullback after entry.

I must always be aware of what is called the reward to risk ratio with the initial risk being the stop before entering the trade, although I don’t actually trade using any specific target for this, however mine tend to be positive with a minimum of 1.5 to 1 preferably 2 to 1 or more. I do not necessarily feel a reward /risk ratio has to be greater than 1 to succeed however at the moment that’s where I feel most comfortable.

I do allow my stops to get hit, however I am often waiting with my finger over the close trade button and when things don’t go my way quite quickly, to try an exit at around break even or, I will close at a small loss if things are taking too long and the trade is hanging in the negative . I’ve listed the 5 main nobrainertrades patterns 1 to 5  in principle 6: and where I enter. (Which is not how I have been advised to enter them by the way, it is my own thing I bring to the table.) I have also put in the stops on the drawings in principle 6 and am not going to repeat those drawings here.

Entries at the quasi, square root and  DT+3/4 pull pattern lines all have an inflextion point as part of the pattern that I can tuck my stop behind 3-4 pips to cover spread and false breaks. If price breaks my entry level a quick bounce off or before the inflexion point keeps me in the trade. However if the entry level fails and sends me negative for too long but held below the stop loss/ inflexion point I will try and exit at break even. Afailure has to be quite fast back to positive really for me to stay in. If closed I can then look for a better entry level

Pattern entries where I am entering on a predicted  false break like in pattern 1: DT + small FB higher or in pattern 5: Triple Tap I require some other chart resistance to tuck my stop behind as these are more the catching a falling knife type entries.

Reg 8: Market Intent

Intent is the reaction price gives on breaking through or bouncing off a S or R level. If the first retrace or break is strong with good volume we can have more confidence in a retracement entry.

Reg 9: Volume as an Indicator

The problem with volume is that it produces many ambiguous and misleading signals which are hard to interpret. A big bar with small volume is a definite anomaly and a small bar with big volume is too, however most bars are found somewhere in between and unless you wish to spend hundreds of hours watching these bars in relation to price then we need another measure. For that on my higher timeframe Daily and H2 charts I am using OBV as a volume indicator to signal divergence. On my 5min trading chart I wish I could use a 500 tick chart which would include the volume in the bar however Oanda don’t give access to tick charts and nor do tradingview. I am still pondering this and have yet to make any decisions.

Reg 10: Targets and Take Profits

On thing is for certain if price prints a big candle on a fast move I want to take profit quickly and look to re-enter with pips in the bag. Sharp spikes often retrace unless it’s  fundamentally explosive data that caused it. Of course S & R is a good place to take profit and the 00 and 50 levels are also. If the market is racing I may wish to wait for the 00 and  50 levels to break and have stops run them to 8 to 15 pips further dependent on the pair. I may like to use the 100% or 62% extensions for trending moves dependent on the depth of the pullback and again the speed of the move.

Reg 11: Announcements, Fundamentals and Sentiment.

At present my lap top is set up as seen below with myfxbook calendar open (free), with Ransquawk live commentary from talking-forex.com with headline notes and calendar (£20 month), forex factory as a back  up (free).

ScreenHunter_93 Jul. 08 13.24

To be completed soon……..

Reg 12: Routine, The Craftsman’s Checklist and What If?

I was until recently only trading the EURUSD but was finding it to be getting very frustrating with very little happening. Since taking Shonn Campbell’s Playbook course I decided by using more pairs I could select those that were more favourably lining up with direction. I started with about 21 pairs, soon knocked it down to 15, then to 12 and then a more manageable 8 and now 6.It was just too much to be going through so many pairs.

 

I then have each pair set up with it’s own chats for my longer term analysis as below.

screenshot-2016-10-14-12-06-04

 

to be continued…….

Part II

Having read Rob Wilson’s book ‘5 Bullets,’ and listen to him on various podcasts and having read his now obsolete Bullet trading blog, I know that he says that trading from the Edge is possible from the longer time charts, however some sort of confirmation is required when you are day/session trading from the shorter time frames. Confirmation can come in the form of indicator divergences and indicator extremes including band extremes for mean reversion strategies with dynamic moving average support and resistance for trend following, all aligned with price action candlestick confirmation on the smaller timeframe that doesn’t take the entry too far from the hard ‘Edge.’ Remember that even Bob Volman scalps using an ma and a candlestick pattern confirmation set up.

Regulation (a)

To be continued……..

 

Part III

The rules to protect myself from myself, rule enforcement and other mind tricks are contained in this section.

To be continued……

 

Part IV

This section is where I outline the guiding philosophy in my trade plan. The trader’s guiding philosophy, being a principle first mooted by Mr W R Booker.

Traders that I have empathised with over the years, often have a way of thinking about their trading, drawn from some of their life experiences before they took up trading.

Shonn Campbell trades a style which he calls ‘Inventory Trading.’ He uses the retailer trading model of buying and selling products or services as his guiding philosophy and sometimes even uses his experience coming from an agricultural community to back it up. He’s even written a book about it. Rob Wilson uses a guiding philosophy of military tactics, often making analogies to his short term trading using the military tactics of an insurgent against a super power. Quotes from Sun Tzu are common place and he refers to things like the ‘fog of war,’ jetty rush’ and ‘recovery strategies’ which is unsurprising given that he has commanded a Royal Navy battleship. Matt LaCoco talks about the motor bike racing he has been involved in and relates his past success’s he’s had in that field to his style of trading. He talks about the risk of falling off the bike in relation to the speed of travel around the circuit, and was able to win a championship by not riding faster than everyone else, but by falling off less.

When it comes down to it, the style of trading we need to use to be most successful, seems to have to match up with our personality which is both nature and nurture. The nature bit is probably our intelligence level and our natural creative talent and the nurture is our own successful risk taking experiences within the confines of our natural abilities. When I refer to intelligence, I don’t necessarily mean being able to complete complex cryptic crosswords or IQ tests in as short a time as possible, although maybe that can help certain styles of trading. The intelligence quotient is the result of just one way of measuring intelligence, apparently there are many other ways that it could be done.  I heard once that IQ tests were invented and marketed by people who were good at these sort of tests. So of course they like to think of themselves as the intellectual elite and superior to others with lesser ability at these tests. IQ could be thought of as a term invented and used as a power thing, and a put down for those not in the group. Read some of Taleb’s books/ twitter comments and you will notice there is rarely a moment where he isn’t implying how intelligent he is and how dumb someone else is. I’m sure many extremely high IQ types are geniuses, but there is no doubt that there are many failures in life whose genius abilities haven’t enabled them to be a success and many idiots who have done the complete opposite. Why is this so, if they are such clever bastards? Being a dumb ass myself, with an old school report that said ‘Works hard, but as thick as pig shit!’ Well, I would say all these things wouldn’t I, to boost my own level in the pecking order of life. I personally don’t suck up to clever bastards, however I do want to pick their brains and use what they may not even be able to use themselves, probably because they can’t understand that all they need is a successful risk taking philosophy and not a super fast brain.

Whether you are a high street retailer, a military general, or a motorbike racing champion you will have taken risks on, managed them and found or observed some sort of success in this risk taking model, for you to relate to them in your trading. You may even not actually need the experience if you can relate to others who have. What it appears to do somehow, is to super charge your trading and take you to the next level of professional discipline that is required to move you through the barrier of frustration to success. IQ may not actually matter a jot. So if you’re a dumb ass like me, don’t give up so quickly and just find a successful risk taking model to relate to.

For me my guiding philosophy / risk taking model for my trading plan is what I am now calling ” Cake Walk Trading,” which I’m going to delve into more deeply in this section of my plan, explaining how it all relates to my own style of trading.

To be continued……

For now those seriously interested in what this ‘Cake Walk’ model is about, can get an idea from this blog post I wrote over a year ago about ‘A lesson From My Childhood Holidays.’ https://fxoutlier.com/2015/05/10/a-lesson-from-my-childhood-holidays/

Here’s an old disused Cake Walk machine that my guiding philosophy is based on.

ScreenHunter_1017 Jun. 03 20.08

If you have read that article and now got this far, you may be thinking that I’ve gone completely mad and that I certainly am a complete dumb ass. You maybe thinking such a simple act as winning a few penny’s as a child couldn’t possibly be used in trading, against some of the smartest minds in the world. It is such a ridiculous notion and just too much for you and you probably think everything  I’m writing about is a load of bollocks. Well that is most likely  because you have a much higher IQ than I, and can’t bring yourself to take any advice from one of your inferiors. That begs the question, if you are so clever, why are you reading such a poorly written, non-academic and stupid article in the first place? Then again you maybe just one of the multitudes of failed genius’s out there, trying to pick the brain of a lesser mortal, to use the occasional accidently good idea they produce, that they are too stupid to use themselves!

If you really want to know if you’re as clever as you think you are, go here.am-i-dumb.com

 

 

 

 

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