TechQuant - Preparing to Trade

[TechQuant]

Pull up a naked Daily chart. Just the price. No indicators.

1. Without using any special analysis or techniques ask yourself, is the price falling or rising or is it indeterminate? If it's anything other than completely obvious, move onto the next pair.

2. Next look for areas where, more than once in recent history, price has stopped moving in the direction it was moving and either stalled or reversed. e.g. aud/jpy 94.50, 90.50.

3. Where is the price now in relation to any of those levels and is it moving toward or away from it? And how does that tie-in with your assessment of general price movement as determined in step 1?

This is my primary filter for intraday trading.

I no longer have access to, nor need, accurate data on the percentage of speculative to commercial interest in forex nor the percentage of the commercial volume going through via currency swaps and complex derivatives rather than the open market. But of the approx 85% (?) speculative interest in the market, it is predominantly led by large concerns rather than aggregated smaller players. It pays to trade with them as they do with each other, for the most part.

 

[TechQuant]

Having assessed each pair as per the above, this doesn’t mean that just because I anticipate a higher probability of price development in one direction than another that the price will develop in that direction. It means I’ll only seriously consider a trade in that direction, if it does.

And there are nuances to the blanket up, down and indeterminate terms used above. If price is obviously up or obviously down and moving away from a historical support/resistance level that’s a fairly solid position from which to consider an intraday trade in the same direction. If it’s moving up and toward a historical resistance level I’ll consider the possibility it might break through to the upside on this occasion and also the possibility it will once again find resistance and reverse back down. The same obviously applies to those where the price is moving down to a historical support level. I’ll be trading toward the support/resistance level, but when it gets there, all bets are off and I’ll be waiting to see what happens around the support/resistance level to decide which way I am inclined to take a bias, if any. That’s the Up, Down and potentially both/either up or down ones.

Then there are the indeterminate ones. These fall primarily into two classes. Those for which the price action is flat and not really showing any response to or perhaps even the complete lack of existence of any support/resistance areas. eur/cad falls into this class at the moment. You could say there is evidence of a support/resistance level at 3800, but that’s pushing it a little and even if it does exist, look at the price action, it’s flat and fuzzy and spiky. Why bother? The second class of indeterminate ones are those for which I have used their rather complex technical term, the I Haven’t Got A Clue ones. gbp/nzd falls into this category at the moment. It’s important to ensure you don’t allow yourself any more knowledge about a situation that you can absolutely and empirically demonstrate. I’d rather say I don’t know than squint and see it as flat with a possible area of support and resistance. Always err on the side that you know less than you think you do. The good trades present no barrier to entry. Cherry pick. Only take those trades for which everything is definitively in your favour. Even then, you’ll find plenty to disprove your view, but enough to keep you solvent.

From a fairly simple earlier post where you have just up down and indeterminate I needed to be far more specific if I’m going to give my disinterested 3rd party trading monkey any chance whatsoever to execute clean trades. Writing stuff out like this in as much detail as you can is the best way to train a trading chimp. If you are a discretionary trader, it is absolutely the ONLY way.

 

[tokyojoe]

Having assessed each pair as per the above, this doesn’t mean that just because I anticipate a higher probability of price development in one direction than another that the price will develop in that direction. It means I’ll only seriously consider a trade in that direction, if it does.

And there are nuances to the blanket up, down and indeterminate terms used above. If price is obviously up or obviously down and moving away from a historical support/resistance level that’s a fairly solid position from which to consider an intraday trade in the same direction. If it’s moving up and toward a historical resistance level I’ll consider the possibility it might break through to the upside on this occasion and also the possibility it will once again find resistance and reverse back down. The same obviously applies to those where the price is moving down to a historical support level. I’ll be trading toward the support/resistance level, but when it gets there, all bets are off and I’ll be waiting to see what happens around the support/resistance level to decide which way I am inclined to take a bias, if any. That’s the Up, Down and potentially both/either up or down ones.

Then there are the indeterminate ones. These fall primarily into two classes. Those for which the price action is flat and not really showing any response to or perhaps even the complete lack of existence of any support/resistance areas. eur/cad falls into this class at the moment. You could say there is evidence of a support/resistance level at 3800, but that’s pushing it a little and even if it does exist, look at the price action, it’s flat and fuzzy and spiky. Why bother? The second class of indeterminate ones are those for which I have used their rather complex technical term, the I Haven’t Got A Clue ones. gbp/nzd falls into this category at the moment. It’s important to ensure you don’t allow yourself any more knowledge about a situation that you can absolutely and empirically demonstrate. I’d rather say I don’t know than squint and see it as flat with a possible area of support and resistance. Always err on the side that you know less than you think you do. The good trades present no barrier to entry. Cherry pick. Only take those trades for which everything is definitively in your favour. Even then, you’ll find plenty to disprove your view, but enough to keep you solvent.

From a fairly simple earlier post where you have just up down and indeterminate I needed to be far more specific if I’m going to give my disinterested 3rd party trading monkey any chance whatsoever to execute clean trades. Writing stuff out like this in as much detail as you can is the best way to train a trading chimp. If you are a discretionary trader, it is absolutely the ONLY way.

Hi TQ, I trade the Dax intraday & have come full circle in the 4 years since starting out in this arena, from the usual retail route using stoc's ma's fib's etc, to looking at price only candles with the obvious S/R & TL's etc (I can now see them without the need to constantly redraw them) & lean heavily on the price structure within the 30 min chart & 5 min chart (& 1 min just to keep an eye inside the 5 min).

I learned to use the 1 second & tick price chart for entries, but as you know this is a one way road to overtrading hell & in the end I was easy meat for the algo farms after getting far too comfortable trading reasonably high £pp, especially as I've gone down the spread betting route as a vehicle to trade during normal market hours, so I had the SB layers to navigate as well.

Although it is generally thought of as a false economy & many would say we are much better off paying a DMA broker commissions/tax etc, I have stuck with the SB because I do not want to expose myself to laying out an initial large amount of money to trade the DMA

The Dax SB price quote during the day is approx 3 points on average away from the DMA price (ref ; bloomberg & ADVFN) & often pretty much on par, of course the faster moving price is another matter.

So I calculate the spread, the price skew, the risk & the potential profit target in the moment of decision to fight or flight/click or miss.

I've become active again, but now I am very choosy about picking my entries & targets, with points in mind rather than £pp.

I have been training my trading chimp to deal with the shenanigans of the SB price quotes (market hours only), but it has the extra burden of trust to deal with.

Your description of a disinterested third party trading monkey is excellent & may help focus on accepting this trust issue.

I have a couple of friends in the game (bank boys) with opinions of the fact that all brokers & clearing houses etc are spivs, which I think we all agree on, so if learning to trade efficiently throughout the intraday sessions, why expose any more capital than minimal amount required for say 3 or 4 losing trades if totally out of sync with the market.

BUT, I keep thinking in the back of my mind that I should in the end go DMA, for the simple reason of trust in the price offered, just wondered what your opinion is on the type of vehicle the 3rd party trading chimp rides on ?

 

[TechQuant]

I have a couple of friends in the game (bank boys) with opinions of the fact that all brokers & clearing houses etc are spivs, which I think we all agree on, so if learning to trade efficiently throughout the intraday sessions, why expose any more capital than minimal amount required for say 3 or 4 losing trades if totally out of sync with the market.

I wouldn't say I totally agree or totally disagree with those sentiments and depending on what your friends' positions are, is it possible they could be considered in a similar vein by those upon whom they heap their opprobrium?

BUT, I keep thinking in the back of my mind that I should in the end go DMA, for the simple reason of trust in the price offered, just wondered what your opinion is on the type of vehicle the 3rd party trading chimp rides on ?

I don't think the choice of platform has any definitive impact on how you trade. You'll get better fills and better prices and less synthetic action, in general, using DMA than an SB. But it'll make not a jot of difference to your tendency to run a loss/grab at a quick profit, or whatever you consider are your current trading flaws. You seem more comfortable with SB at this time from your comments and that (comfort) has to be in place for any possibility of good coming from your endeavours. If you are twitchy and nervous and worried or scared, your chimp will pick up on that and will likely completely ignore your trading plan. Calm. Clear. Relaxed. Trade your system. Manage your risk. Take your losses when you should. Take your profits when you're able. Be there for the home runs.

 

[tokyojoe]

is it possible they could be considered in a similar vein by those upon whom they heap their opprobrium?

A very good point & yes I would say the above statement is spot on, they (by their own admission are spivs too)

 

[tokyojoe]

I wouldn't say I totally agree or totally disagree with those sentiments and depending on what your friends' positions are, is it possible they could be considered in a similar vein by those upon whom they heap their opprobrium?

I don't think the choice of platform has any definitive impact on how you trade. You'll get better fills and better prices and less synthetic action, in general, using DMA than an SB. But it'll make not a jot of difference to your tendency to run a loss/grab at a quick profit, or whatever you consider are your current trading flaws. You seem more comfortable with SB at this time from your comments and that (comfort) has to be in place for any possibility of good coming from your endeavours. If you are twitchy and nervous and worried or scared, your chimp will pick up on that and will likely completely ignore your trading plan. Calm. Clear. Relaxed. Trade your system. Manage your risk. Take your losses when you should. Take your profits when you're able. Be there for the home runs.

Good sound advice.

I am (& have been) part time in this arena over the last 4 years, but I've delved deeply into it's workings, (with the help of some spivs ) or at least to a point of which my resources & time will allow.

I noticed your other threads after being away & have to say they are a great read, just wanted to say thanks.

ps all comments above duly noted, good luck if you are in for the last hour.

 

[TechQuant]

Nothing wrong with spivs. The can be generous, intelligent and are generally great fun to be around. They can also give you some great insights.

If anything I have to say about what I do and have done is of use to anyone then that's just great.

I'm not in at all today. IV sedated dental work and trading don't mix.

 

[TechQuant]

After assessing visually on the Daily where each pair is most likely to be heading, I run a cross-check on all pairs for which I have a declared directional bias. This filters out all those for which I have been unable to make a determination or where the determination has not been unambiguously directional. This process will weight each individual currency (not pair) against all the others so that even if I think aud/jpy is a solid buy, and it may well be, it doesn’t mean the Aussie is strong against all the others, it could just mean the Yen is really weak. At the end of this process I have a tabulated integer array of strength for each currency.

This is the backdrop against which intraday price development is assessed. I’ll get into the nitty gritty of the intraday stuff later, but if I get a setup, I’ll be checking the pair in question [a] exhibits price development in-line with my assessment of price development on the Daily has an appropriate vector to existing support/resistance levels on the Daily and [c] base and counter have sufficient delta on my strength array to warrant assigning risk.

In summary, an entry setup will be evaluated to ensure it’s developing in the same direction as the Daily price development, is moving away from a level of support/resistance or towards one and there is still plenty to play for with respect to estimated risk/position size, and finally that the base and counter currency are sufficiently diverged in strength to warrant assigning risk.

 

[TechQuant]

I'll start detailing my basis for assessing trade setups within the context defined above.

I take a view that price has memory. Price for any given asset has a fair value. Doesn’t matter that we choose to refuse the need to define fair value, or concern ourselves about how it can be assessed or calculated. Monetised Consensus determines fair value. Monetised Consensus says if I have a billion dollars and I think something is worth round about what I’ve just sold/bought it at with my billion dollars (maybe not all in one go), then it’ll take an awful lot of people with just a million dollars with a different view of its value to [a] make me change my mind and move that price appreciably from that level. What builds rather than weakens consensus from the smaller players even if they hold a wildly different view of value (they usually do not) is that they want to get in where I am because there is safety in the herd. The very worst they will do to my assessment of value is not participate until the price moves to where they assess the value is fair. This all works a lot more cleanly and obviously in some asset classes than others. Stocks are beautiful, forex possibly less so, but still viable. When the price moves to an area which is either above or below fair value, interest will begin to accumulate. By above or below I am suggesting a range rather than a specific level. On the daily charts you can see evidence of the ranges within which price will appear to find support/resistance. In forex, these ranges can be many hundreds of pips wide. Which for an intraday trader when used sensibly will pay for lunch and much else besides.

As price moves to test these value area bounds, it creates its own mini fair value area for which rather than looking at the bounds, we look to the mean or to where the price is most likely to regress before setting out in its discovery mode again. It is around this mean which I look for price action to indicate potential setups for entry. I’ll pick one tomorrow and do a worked, real time example. Win or Lose is not important as it is the principle I’m outlining, without any direct interest in the absolute profit or loss to the bottom line. This is actually the case for all of my trades as I do my accounting at end of week, not per day or per trade.

 

[TechQuant]

Not a very pretty example, but as I'm already in the trade from Friday and as this is reality...:-

- eur/cad - ideally I'd like the price to plummet uncontrollably for a thousand or so pips, but the reality is it's likely (spikes notwithstanding) to gravitate upward toward the 350 level (just 10 pips below my 360 stop) before deciding what to do next. |If I wasn't already in this pair and if the price action at that level suggested a down tun, I'd get in there. As I'm already sold to open at 366 I'm covered for no risk anyhow, but absent any serious action anywhere else at the moment...

 

[TechQuant]

Nothing like a bit of competition to get the juices flowing. I've offered NVP the opportunity of pitting his 15 years experience against my 2 months (retail side) next week. A one day, limited period, single pair contest. If he accepts, I'll dub in a little more detail here about how I'm going to trade the lower levels within the context already outlined.

As an aside, and this is what makes the difference between a pro and an an amateur, I don't have any ego riding on the outcome. Win/lose - do better/worse than NVP - nothing can hurt me. The other reason it's a no-brainer for me and bad news for NVP, regardless of outcome, is that he's picked on a kid with 2 months experience to show off his 15 years experience. He has to do spectacularly well to even begin to justify his arrogance and bravado. A lot of pressure on him with absolutely no guarantee of a good outcome whatever happens. That's the difference between a pro and an amateur.

 

[tokyojoe]

Nothing like a bit of competition to get the juices flowing. I've offered NVP the opportunity of pitting his 15 years experience against my 2 months (retail side) next week. A one day, limited period, single pair contest. If he accepts, I'll dub in a little more detail here about how I'm going to trade the lower levels within the context already outlined.

As an aside, and this is what makes the difference between a pro and an an amateur, I don't have any ego riding on the outcome. Win/lose - do better/worse than NVP - nothing can hurt me. The other reason it's a no-brainer for me and bad news for NVP, regardless of outcome, is that he's picked on a kid with 2 months experience to show off his 15 years experience. He has to do spectacularly well to even begin to justify his arrogance and bravado. A lot of pressure on him with absolutely no guarantee of a good outcome whatever happens. That's the difference between a pro and an amateur.

Fair enough, but NVP strikes me as quite a humble guy tbh. I would say 15 years retail against an ex inside man may be slightly off kilter, I know you are now in retail & it's very different, but I'd say your instincts will be much sharper.

Wondered where you'd gone, have read your other post re the UKIP & raving loony party, made me laugh out loud.

Have a good weekend.

 

[TechQuant]

Yeah, humble enough to offer Warren Buffet the benefit of his advice. LOL.

 

[NVP]

leave warren and I out of this ...

and TQ you can see my response re the "competition" idea on your other thread ...

I call a few when I can on Forexperians thread .....and will continue to do so as and when I can .............

I see no need to start changing my routines after a bit of banter with a newbie .....if TQ wants to contribute on Forexperians thread then its up to him ....its a free forum

cheers all .........

N

 

[TechQuant]

leave warren and I out of this ...

and TQ you can see my response re the "competition" idea on your other thread ...

I call a few when I can on Forexperians thread .....and will continue to do so as and when I can .............

I see no need to start changing my routines after a bit of banter with a newbie .....if TQ wants to contribute on Forexperians thread then its up to him ....its a free forum

cheers all .........

N

It's probably safer for you there NVP. Your numerous posts lost among all his numerous posts. Far too many and far too indistinct to ever be worth the effort of following. Which is precisely the intent.

When did you give up on trading and decide blogging about it was more satisfying?

 

[TechQuant]

Then when I get a setup on the lower timeframe I do the opposite of what I suspect most traders do. Instead of looking to ensure all my 'must haves' are in place, my first check is that all of my 'must not haves' are not.

I'm desperate not to trade. I have to be really convinced by a setup that it's worthy of my risk before taking it on.

Something else where I suspect I may differ from most traders is that far from falling in love with my methods and systems, I distrust them with an absolute cynicism. They really have to love me hard before I'll engage with them.

 

[tokyojoe]

Having gone through the cycles of overcomplicating & deconstruction of my entry/exit criteria, I can honestly say that my view these days is leaning towards the "brutal simplicity of thought"

As traders we often bring a chess board to a fight, when all we needed was a club ! (by traders I mean as people with enough live screen time & live trades to have gone through the motions)

I'm not talking about taking pot shots, but once the various set up are lodged in the various cubbieholes of the mind, then the various set ups have their own set ups within them, pattern failures, confirms yadda yadda.....the list is endless.

I think second nature & instinct have a great part to play in this game, you get a feel for it, movement, speed, time of day, traps, momentum continuation etc

At the end of the day some of the main problems for many traders is the very fact that we are at a massive disadvantage right from the beginning, as we are trying to make money from doing something inherently against our nature, we do not want to take a loss nor be proved wrong.

Your instincts & second nature slowly change over time to control these disadvantages.

 

[TechQuant]

Take eur/cad.

The larger context has it having a higher probability to the downside.

It's tough to find any potential support even when you pan out to the weekly chart. Maybe 2-300 pips below, but nothing obvious.

On my trading timeframe it's showing resistance at around the half-century (3150).

It has met all but one of my several dozen qualifying setup criteria and it may well now be starting a good down move. But I'm not sold on it because of just the one qualifying criteria not met. And for that to be met, I'm guessing the price will have perhaps first drop some and then for it to have a shot a re-visiting the 3150 level but not getting that far that time. So a lower high, and a low that doesn't breach the century at 3100. If it does breach, it'll automatically hit my limit sell at 3090 as that will indicate sufficient momentum to carry to at least 3050 and with a stop in that event at 3110 I have a 20:40 even if I need to manage it out before target it's worth assigning risk.

 

[TechQuant]

One reason eur/cad isn't quite lined up for me may be to do with the higher low followed by the higher high (11:45 and 13:45 BST respectively). While this puts a crimp in my own criteria, it often presages a good move back down. It is one of the chart patterns that I do watch out for. You can imagine the higher low/higher high getting those bulls excited and even buying it on the strength of that structure alone. They probably weren't looking at where the higher high topped out, on the half-century. What the slightly more clued up bulls will be doing right now is waiting for additional confirmation that this is break upwards, such as a break up through the half-century with momentum, or a break up through with a re-test to confirm, new support at the half-century before committing funds.

 

[TechQuant]

And of course this time of day leaving a limit in place is rarely a good idea regardless of subsequent price action, more often than not, you'll get screwed. eur/cad sell limit pulled.

Even though eur/cad did pull back up but not as far as the prior high which was the action I suggested would need to unfold for there to be any chance of a valid setup, I'm still missing the same single entry criteria I was earlier.