TraderGav.com

Gav's trading blog - Perseverance, Consistency, Confidence

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Coffee thought: Learning to drive and trading

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Here is something I thought might be helpful to some new traders.
My wife recently started her driving lesson. She is very keen to drive, but lack of confidence (and experience). Last evening, before heading out for grocery shopping, I thought it might be a good idea to let her drive while the traffic was low at that time.

She replied ” I will try later when I am more confident, and ready”.
My immediate reply was ” You will never be ready if you don’t drive”

How much screen time, readings, or even demo trading do you need before start live trading? It is good to get yourself prepared before investing your money in the market.The problem is, you will never be more ready, there is no “Right time” to start trading. I am not discounting the importance of getting the basic knowledge before start, but sometimes, we take too long to take the first step. Experienced traders will tell you, the real learning experience starts from live trading.

While I can’t promise you profitability in trading, rest assured you will discover something new every single trading day. Regardless how many books you have read, or how much time you have spent backtesting, you will be confronted with dilemmas when market moves against you swiftly, or it grinds you to death, or punches you on face with a series of losses, or it gaps so much in your “predicted” direction that makes you want to kill yourself for exiting too early etc.

You thought you are a disciplined person, maybe not. Market will tell you that. You thought you are patient, maybe not, market will test your patience. You thought you are a calm person, market will make you lose your cool soon.

The point is, you can’t buy, read, watch these experience. Put your money on the table, enjoy the challenge, learn from the challenge.

So, hope this small thought helps some of you. Meanwhile, I am going back to make sure she starts practicing driving now.

Random trading thoughts : LOCATION LOCATION LOCATION

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I have been putting in a great deal of time and effort in futures trading lately. From refining strategy, writing plans (scrapping plans), back testing (not your fancy automated testing, I basically replayed markets), setting up accounts, negotiate commissions etc.

The intensive process has almost burnt me out sometimes, but it is also a good chance for me to refer back to my old journals, some worth-reading trading books, and also do some deep thinkings about things.

So if you start reading some random short posts with some trading Craps/Wisdoms from me, you know I am working hard.

Anyway, here is something in my mind when I was back testing.

LOCATION LOCATION LOCATION

20131101_180316In case you haven’t noticed, trading is very similar to property purchase or development, it about Location, Location, Location. (Of course, during crazy market cycle, like what is happening in Australia right now, properties at some waste lands, or crappy locations, can also be sold for a couple of hundreds thousands, who are those buyers?!, really.). But, we are looking for consistent result, and long term prospect, then location is a key consideration. This is common sense.

Would you build a house without considering the location and the surroundings?

The same applies to trading. Why would you want to trade your freaking, holy-grail like pattern in any place? Do you wonder why did your favourite chart pattern stop working? Maybe a quick refer back to your trading journal might help. Pull out the charts, figure out why it failed.

Sometimes, when things get complicated, I like to refer back to the basic. How to make a trade? The simple rule on the first page of my trading journal is Location, Path, Management. I think you can guess what are these 3 words referring to. If not, you need to spend sometimes to think about them before making your next trade.

I hope this short post gives you some food for thought.

Until next time, trade well.

 

 

Levels trading tips from hindsight analysis

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First of all, AUDUSD approached 0.9130/40 resistance level. This is a daily level, and price reacted and immediately pulled back to intraday (hourly) support level 0.9085. If you managed to get in short position at the first test of 9130 level, the setup should give you around 1 R at 0.9085. (Unless you used a ridiculous tight stop, then you might get more of it..but, heck, it doesn’t make too much sense to me)

Here is the hour chart of AUDUSD

AUDUSD 1-hour chart 09 August 2013
AUDUSD 1-hour chart 09 August 2013

In case you’ve missed the first train of selling, I would prefer to wait for the break of 9085 and enter at the pull back to this level. It can be a rounded retest or immediate retest (read my butt kiss setup).

In addition, if you  noticed starting from mid-0.89 down to mid-0.88  there was an accumulation/distribution pattern, and also can bee seen as  multiple taps formation. Refer to the purple dash lines in the chart. 0.8943 was the decision level for this pattern, once it was broken, pull back to this level provided a valid long entry. With target set at slightly above 90 cents, it provided 1:2 risk reward ratio.

Our good friend, Steve at NoBrainertrades.com wrote an awesome blog post yesterday The Decision Making Plan – An Alternative Process to Trade Entry. In his PREP decision making process, the 1st action before starting a position is to identify profit target, identify where we are getting out of the trade. It makes total sense to me. Spend some time and read it.

We know price will normally react at the level, but the question is always, how far will it go. So, it is important to know where to enter a trade, it is even more important to have price projection, i.e where do you expect price to reach from here.

Hope you have a great week so far.

From the desk of TraderGav.com

Some levels trading lesson from USDJPY

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I thought I will write a quick follow up of the USDJPY development. Well, in the bigger picture, price is still trading within the channel as shown in my previous post Here and Here. However, there are some developments in Hourly time frame which I can use to show how I approach the levels. This is definitely not a post to show off how many hundreds of micro, nano pips that I have gained nor to whine about missing/losing trades.

Anyway, I have annotate the chart with my comments. Hopefully it helps some of my 12 readers.

The key notes here are:

  • The importance of observing on-going price development A valid level is not taken due to risk/reward ratio has been compromised. This happens when a price does not continue selling (or buying) as expected, instead it creates a base with forming new support and resistance levels.
  • When a level is not the strongest according to our plan, always look for more confluence factors.

Here is the hourly chart of USDJPY (click to magnify the chart)

USDJPY 1-Hour chart 06 August 2013
USDJPY 1-Hour chart 06 August 2013

Leave me a comment for any question you might have.

From the desk of TraderGav.com

My Harmonic trading guide

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I have been posting some harmonic setups over the years, I thought maybe a simple harmonic trading guide might help readers who are following this type of trading. For the harmonic patterns I am using, there are some Fibonacci ratios to follow. They might look complicated, but they are not. Once you get the hang of them, it is not too difficult to identify.

One of the important things to note is, I do not trading harmonic patterns exclusively. The patterns are used as an aid to my over analysis, an odd enhancer you may say.

Secondly, I prefer to look at harmonic patterns in higher time time frames, such as 4 hours and daily. This is not to say the patterns do no work in lower time frame, it is just personal preference. I found that the patterns work well in medium to longer term swing trading.

For the start, harmonic patterns are divided into two categories, Extension patterns and Retracement patterns.

  • Extension patterns are Bullish Butterfly, Bearish Butterfly, Bullish Crab and Bearish Crab.
  • Retracement patterns are Bullish Gartley, Bearish Gartley, Bullish Bat and Bearish Bat.

These are the patterns that I used, and the list is not exhaustive. The “hardcore” harmonic traders might look at more patterns such as 5-0, Shark etc and in more time frames.

So here are the key factors I am looking at when using harmonic patterns

  • Identify key market levels, in other words, key support resistance levels. This one of the MOST important step.
  • Identify established price channel. A channel also represent the current trend, applying the appropriate patterns to follow the trend.

Harmonic Trading Guide

Below are the patterns with respective Fibonacci ratios. I also prepared two simple cheat sheets in PDF forms for readers who would prefer to print it out.

Harmonic Trading Guide - TraderGav.com
Harmonic Extension patterns
Harmonic Retracement patterns
Harmonic Retracement patterns

My opinion about harmonic trading is, Do Not Complicate things. Keep it simple, be clear with what you are doing, are you using the patterns as entry trigger? or are you using them for directional bias setting (I will discuss more on this in the future posts),  and, as always, make sure the patterns are forming in the right place, i.e key levels or channels.

Here are the cheat-sheets in PDF format that I have prepared in case you prefer a printout.

Extension patterns

Retracement patterns

You can also find my harmonic setups/charts in Harmonic trading posts section

From the desk of TraderGav.com

Trading setup: Immediate retest of broken support and resistance level

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Very often, on twitter or forums, I see people posting some simple trading setups, and give them some odd names, then call it their inventions. Laughable indeed. Anyway, kudos to them for providing some amusements.

One of the most commonly seen setup is Immediate retest of broken support/resistance level. Well, regardless of the names given by “traders”, let’s have a look at it a little b it closer.

If I really wanna trade the immediate retest, there are three conditions I wanna see before establishing a position:

Strong level

Immediate retest of a level works, when it is against a strong level. It could be a horizontal support and resistance level, or diagonal trend line. A strong support or resistance level is the one that was formed by multiple touches in the inverse direction before it is broken. For example, a strong support is a level that was formed by a broken resistance level where there were multiple resistance points, in other words, multiple swing highs. Vice versa  for strong resistance level.

So, for the first condition, I want to see a break of level which was constituted by at least 3 swing points (or 2 with other confluence factors)

Strong breakout

Secondly, I want to see a strong break of the level. A slow grinding movement is avoided. Often times, it might turn out to be a false breakout. So, a STRONG breakout bar is what I would like to see.

Continuation pattern

A continuation pattern can be as simple as a small consolidation price cluster following a strong breakout. The basic idea is to have Breakout -> Consolidation ->Breakout scenario.

Here are some charts to demonstrate this setup.

AUDUSD immediate retest explain
AUDUSD immediate retest explain (click for bigger chart)

EURUSD Immediate retest explain
EURUSD Immediate retest explain (click for bigger chart)

So, here is the simple support resistance setup. Of course, this is not a complete trading strategy. Just some tips for you to consider before taking an immediate retest setup. Err… Shall I also name it as Butt Kiss Setup!

 

From the desk of TraderGav.com