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Post by traderAllen on Nov 8, 2014 12:35:10 GMT -5
I had a discussion yesterday with an aspiring trader. While talking to him about Friday's trades, I mentioned to him that early in the day on Friday in the chat room, I had mentioned that the euro would be going up after the markets settle down from the 8:30 news due to profit taking. Therefore I would be looking for long entries setups, I was not interested in shorting the low of the day. He asked how did I know. I replied well it's a given. Everybody knows the market was going to go up on Friday. His response was NO, not everybody, what is he missing that he did not know. So I attempted to explain that we always have to be aware of the big picture view of the market, you have to be able to determine what are the driving forces. Only after you absorbed the big picture view of the market you can be confident and zooming in on a tick chart to look for buying and selling pressure. In this case the dollar it had its biggest weekly gain in a long time. Day traders, swing traders, and position traders will all be wanting to book some profit before the weekend. As of Friday morning their gains were only on paper, they needed to close out their trades to turn that into real money. Therefore it's a given that they would be profit taking on Friday. This gives you added double pressure to the long side because you not only have purma-bulls as buyers of the euro/usd you also have the bears covering their shorts which as we all know a short covering is a buy order.
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Post by fxoutlier on Nov 8, 2014 15:25:11 GMT -5
Here you write about coming to the market with a bias long. You give more examples of being prepared for this sort of thing in your 'Playbook' Nov 2nd Putting it all together article preceding this. Also you appear to enter news trades with a preconcieved bias to your advantage . Now in your journal article Oct 26 you mention that when the market opens we need to forget whatever bias we have whether short or long, which tally's with Volman's guidance in FPAS. How do you get around this conflict of ideas? Your playbook starts from 07:45 NY time, do you have any guidance for the European session starting 6 hours prior to NY, at least a rough guide until I can gain the experience to formulate my own playbook?
I see you are not only using your price action analysis of the 70 tick chart with the set ups alongside the time and sales information but now also incorporating a big picture analysis. Any future videos of any of these subjects alongside the very useful ninjatrader video you did would be much appreciated.
Thanks again for these insights into your trading. As you said once before we have little chance without a reliable experienced mentor to guide us and I'm beginning to see how true this is.
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Post by traderAllen on Nov 8, 2014 17:54:19 GMT -5
As always the devil is in the details. There's a difference between bias and knowledge and expectation. An example of a bias is"the market CAN'T go any lower"or"it's good U.S. data so the market HAS to go up". Or maybe," all the news is bearish so I'm going to short this currency pair". Knowledge however, is not based on how we feel, it is based on what we know. Using our current example, we know the dollar has rallied all week, we know that it's the last trading session of the week, we also know that many currency traders don't like to hold trades over the weekend. We know that paper profits are not real they need to be booked to count. Therefore we can expect to see a retracement in the market due to short covering's.
As humans we have feelings therefore in trading how you feel is always going to come into play. That is not necessarily a bad thing. However we need to be careful that we don't form a bias on how we feel. You see this most of the time after someone is in a trade that is going against them. They know they should close the trade and take the loss, however more times than not they immediately start searching the charts to try to come up with reasons why the market has to turn around. They start to develop those biases, it can't go any lower, it has to turn. And they confirm it by only focusing on the indications on the chart that show that the market may turn. They have formed a bias in their head and have totally blocked out all the indications on the chart that they should be getting the hell out. Only when the pain of their loss overrides the bias with a close the position.
When you begin to trade, you trade what you see on the chart. You trade the price action that is going on on the chart. But you make yourself aware of where the possible roadblocks will lay. Previous levels of support and resistance, the 50 level, and the 00 level on the chart, the average daily range. Just to name a few. Using the latter for an example, if you know the euro has an average range of 100 pips. And so far in the day has only move 60 pips, you can expect that the market will move another 40 pips. You continue to trade the trend. When the market nears the 100 Level you begin to be more cautious in your trading. You have the prior knowledge that in recent price action that's the maximum level you are likely to reach for the days action. So you may choose to decrease your position size since your risk level is now going up. Or you may choose to book your profits. And take your spouse to dinner. However, should you have taken a trade in the opposite direction, which sometimes would be appropriate, if the trend had changed. If your trade reverses and goes against you. You exit the trade appropriately. You do not form a bias that the market will not move any higher because it's at its maximum range, and end up holding on for a greater loss.
I hope this is a better explanation of the difference between forming a bias. And trading with actual knowledge and expectation. Knowledge is knowing where are the buyers and where are the sellers. A bias is based on a feeling of hope that there will be buyers or sellers.
A bias blinds you, knowledge opens your eyes.
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Post by fxoutlier on Nov 8, 2014 19:14:01 GMT -5
Much clearer now thanks. I wasn't expecting such a detailed answer, especially so quickly. In the DD section of FPAS 7.4 Volman writes that, ''The fact the trend was already 50 pips underway does not in anyway diminish its longevity prospect. At least not from a technical perspective.'' In my study I missed that last bit about only a technical perspective, and now see that sometimes another perspective is needed. He goes on to say,''With no signs whatsoever even remotely suggesting that the market is about to give up on its trending inclination, a scalper is best advised to just bite the bullet and pull the trigger on any next trade that comes along.'' Well it appears that although Volman is a master of FPAS it appears that you are taking what he wrote about to an entirely new level, which will take much time for me to learn and absorb. Here now it's exciting to feel, I'm in the right place, at the right time, to learn from you. Long may it continue.
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steve
New trader
Posts: 37 
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Post by steve on Nov 8, 2014 22:02:17 GMT -5
Bottom line. I was watching the chart. A textbook setup, RB, set up very much by the book. I did a text book entry and came away with 11 pips. What else do I need to know?
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Post by traderAllen on Nov 8, 2014 22:48:13 GMT -5
Its not about knowing when to trade. Its about when not to. To be successful in the long run month over month you need low risk, high probability trades. I talk to many new traders that could do so much better if they/when they, learn to set on there hands. Its one of the hardest things to teach someone. Many think every candle is an opportunity. Wait, let the odds line up in your favor. When they do, take the trade. Is it mandatory to cover all the bases, NO. Its said all the time you only need 30% wins to make money. (I don't beleave that BTW) If you hate to lose money and strive for a 90+% win rate. Then YES you need to know where those buyers and sellers will be.
Keep in mind I'm not a guru, I'm just a trader just like you guys. I just Studied and tried and failed enough to learn what works and what does not. And try to help others where I can. I go off of the belief that we are all the same, we have the same advantages and the same disadvantages as home based retail traders. I've heard it before that"just because it didn't work for use doesn't mean it won't work for me". I don't believe that. There is so much misinformation on the Internet and in books and trading courses that it's damn near impossible for someone off of "Wall Street"to learn this business. It is very hard as it is, and compounded tenfold by all the marketeers. I try my best not to do the I know better than you thing. But everything I say comes from the fact that I live this market everyday.
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