USDJPY Trade - Typical PA Trading vs True PA Trading

Just want to quickly use a USDJPY trade to answer a comment made on my previous post.

USDJPY M30

USDJPY M5

USDJPY M1

So here is my take on how typical PA traders will trade this vs how true PA traders (Lovejoy style) will trade this.

Typical PA: Probably wouldn't even be looking at this because they focus on H4 and above and believe that LTFs are all noise
True PA: Sees a material false break into former demand with strong rejection back down, starts looking at LTFs to identify the SD structure and any potential trade opportunity.

Typical PA: Dismisses the setup because there is no pin bar or some favorite candlestick pattern
True PA: Understand that what is important is a strong rejection which indicates strong selling strength, candlestick patterns are secondary and unnecessary

Typical PA: If they decided to trade the false break, they will usually place the stop above the high of the breakout bar, which results in an unnecessarily wide stop loss and poor RR
True PA: Understands that the M1 former demand should hold for the trade to work out, and hence there is no need for a stop loss higher than that.

Typical PA: Have the mindset that the trade should at least yield 1:1 or more, and thus are only willing to TP when they're 1:1 or more in profits. Recall that they already have a very wide SL above the breakout bar high, and as such requires price to move a substantial distance before they will TP. They do not realise that 1:1, 2:1, or a TP based on moving average, Fib etc are just arbitrary levels with no logical implication. As such price often turns back on them and a winning trade becomes a losing or break even one
True PA: Understand that price moves from zone to zone, and there are certain ways to identify which zones/levels are significant and will cause a material reaction. Such a zone is used for the TP.

So in summary, I believe that SR and SD is all a true PA trader needs to be very profitable. Interpreting that correctly is the difficult part. In the above trade, my SL was 0.8 pips and the return was 4 pips, hence a 5R trade (excluding comms). I believe most traders would think that a sub pip SL is extremely tight, but really it is not about the SL size but the SD structure behind the setup. Also, if one were to focus only on the H4 and above time frames, the above setup isn't even visible and is probably only a small move. However this small move if played correctly using multi TF analysis down to M1 is actually a 5R trade within 45 mins.

Trading like that required a huge mindset paradigm shift for me as I came from the typical PA background. However I truly believe it is the most profitable way to trade, though quite honestly also the hardest I've come across. Hope this post helps!

Professional Trading

It has been many months since I last blogged. I came to a point where I realized many activities are good, but one has to prioritize and focus on the most effective and productive activities. As such, learning, practicing, back testing etc took precedence over blogging. In my last few posts, I mentioned that I have been learning a lot from TheTradersGuild (now known as LJ Forex Group), and it has been a tremendous learning experience since then.

To cut the long story short, I'm writing this post because I feel responsible to "caution" any readers regarding any other posts I've written in the past. No doubt trading is a continual journey of learning, and all traders start somewhere and pick up various things along the way, some good, some bad. I went through the same process, and my learning will never stop. However my entire view of price action changed after studying Mark (owner of LJ Forex Group)'s material, it is price reading in the purest form and makes total logical sense. 

As such, I just want to inform any readers to ignore any of my previous technically related post, be it strategies or vendor recommendation. In hindsight they're all crap. I'm particularly concerned because many of my top visited posts contain very amateurish material and recommendations to vendors which I no longer endorse. I just want to say this: candlesticks patterns are meaningless, it is ridiculous to only trade the higher TFs (H4 and above) with the excuse that the LTFs are just noise, claiming you only need 3-5 trades a month to trade for a living is also a senseless inefficient use of time. Gosh I'm tempted to state so much more, but I shall leave it at that, and shall avoid citing names.

In summary, I think in any craft it makes sense to seek out the best and learn from them. As far as trading is concerned, Mark is by far the best trader I've come across (and I do patronize quite a number of forums/sites). Add generosity, willingness to share, and a gift for teaching to that and he is really a gem. These days I devote entire days and wk ends solely on his material, and really hope to be able to achieve the kind of price reading proficiency and success that he is enjoying now. 

Mark often tells his students that it is very important to research, back test, practice, and work things out for themselves. That is the way to improve and gain confidence. A good trader should always have an inquisitive mind. I'm trying to live out that advice, and guess that is also the advice I would like to offer to any reader. 

All the best!

Some Setups On Singapore Stocks

Just for fun I decided to scan through some Singapore stocks and see if I can spot any setups. Did manage to find some, will monitor them in the coming weeks/months to see how they turn out.

GLP

Neratel

SIA Engin

Tat Hong

AUDNZD Compression + Liquidity Spike Trade

Just want to share an interesting trade I just took on demo. It is based on compression followed by a liquidity spike, similar to the pattern I mentioned in a previous post.

AUDNZD M15

AUDNZD M1

I'm happy because the setup worked as expected, and a little peeved because I got stopped out by the 15 pip spread caused by NFP. Its cute when you see it on the charts huh? Price didn't even come close to my SL but I got stopped out. Thankfully its only on demo, really wonder what I could have done to avoided it though, probably nothing. It doesn't make sense to set a extra wide SL just to cater for news based spread widening.

Anyway, I've been going through a very reflective period, and some events have really led me to feel very blessed. Some conversations with Mark (http://www.thetradersguild.co.uk/) as well as deeper study of his material has really opened a whole understanding of what price action really is, what most traders (including myself) have got wrong in their approach to trading, and how much more there is for me to learn and practice. It is really humbling, and yet I feel so motivated and excited to learn more and get better at my price reading. So Mark if you're reading this, thanks a lot for everything, truly appreciate it!

Accumulation Pattern And USDCHF

I like to study and save charts of repeating patterns I observed with the belief that over time I'll get better at spotting them and anticipating a move. Here is an accumulation pattern that I've noticed many times. Again I don't know what to call it. The pattern formation goes something like this:

1. Huge spike down - Selling climax in VSA?
2. Price subsequently tries to make 1 or 2 more stabs down but fails to make significant lower lows. This indicates a weakening in selling pressure and often shows up as bullish divergence. The stabs down might also stop hunt previous swing lows, allowing pro money to load up longs.
3. Price then breaks out of the pattern

Here are some chart examples:

It would be good if this pattern takes place at a HTF demand zone. It is also similar to a falling wedge pattern.

And now... I think I'm seeing something similar on USDCHF H1. It is still a small distance over a significant demand zone (blue area) so I won't be surprised if it takes another stab down into the zone first.

USDCHF H1

And here is the anti climax -  I don't know how to trade this pattern! I guess some ideas might be to trade PA bars at the 2nd or 3rd stab down (aggressive), or trade the breakout (in which case I don't know where to put the stop). 

Just something which I thought might be interesting!

AUDCAD - Watch To Short

AUDCAD Weekly

AUDCAD is approaching a very major level where there is a nice confluence of factors. If this was a H4 and below chart,  I would without a shadow of doubt place a sell limit to short the supply zone. However it is a weekly chart and to do so would incur too wide a stop loss. My plan for now is to wait for price to form new levels of H4 supply within the weekly zone and then short those.

Just thought I would post this because it is such a clear as day level that I believe every trader would be watching it no matter what system he is using.

Perils Of Unregulated Spot Forex

Spot FX is unregulated, and as such traders are at the mercy of their brokers. Unscrupulous stop hunting is one of the biggest complain (the market makers know where their clients' orders are). I just want to point out what this problem really looks like on a chart.

The top chart belongs to Broker A whom I'm so tempted to shame, the below chart belongs to Broker B. Ironically Broker A is one of the most reputable spot FX brokers, which is why I'm shocked at the blatantly obvious stop hunting that is going on. Now I have many MT4 platforms, and it only takes a couple of minutes to verify across a number of brokers that the problem indeed lies with Broker A. No other broker has those ridiculous spikes. And mind you this is not a rare occurrence, 10 in one screen and on a major pair on a relatively high time frame is a very serious matter! I've been observing this broker's charts and know that this is a very common occurrence. I don't see how it even manages to keep its clients.

So in conclusion, it is very important to select a good spot FX broker. Sure low spreads are important, but factors like execution speed, integrity of charts, ease of funding, technical stability are equally important. I used to neglect that until I experienced platforms that keep disconnecting, or orders that hang and refused to be processed so you cancel them and reenter a new order, only to end up with a duplicate position. In spot FX we have the luxury to try out demo platforms for free, take full advantage of it and at least trial a platform for a week or two before committing to the broker.