Journaling Of Missed Trade Setups

While journaling my trades, I suddenly thought of an idea which is pretty useful. Instead of only journaling trades that I took, why not also journal setups that I missed? There will surely be a few every month, and journaling them serves the purpose of reinforcing the effectiveness of the setup, boosting my confidence, as well as reminding me how much more my account could have grown.

Well because this is done in hindsight, it is very easy to only cherry pick setups that worked. Hence I need to be very honest with myself while conducting this exercise. For this month, there are two main setups that I felt was a big miss. Truth be told, there were 3-4 others that worked out very well, but they weren't A+ setups and I didn't take them due to certain reservations so I shall not include them in this list. Here are the two misses of the month:

NZDUSD 4H

AUDUSD 1H

BUOB stands for Bullish Outside Bar and BEOB stands for Bearish Outside Bar, these are James16 terms and are pretty self explanatory.

The thing is, I know I can never catch every single setup out there. But I need to be very true to myself, did I miss a setup because I totally didn't notice it at all or did I miss it because I wasn't diligent enough to check the charts when I should (time where hourly and 4 hourly bars are formed) even though price was at a significant level/edge of pattern? There are only so few FX pairs, how much effort does it take to start the day with a watch list of pairs with potential setups and scroll through them every hour/4H? A+ setups are rare enough and I simply cannot afford to miss any due to a lack of diligence as one trade could make all the difference in a month.

Lessons From Month 1 Selective Trading

I decided to get serious with my trading a month ago, and that meant no testing out of stuff and sub optimal trades on my live account. All testing of new stuff (Gap trades, touch trades, sub optimal setups) are to be done on a demo account. I started a small live account where I only take setups that jump in my face, setups where I don't need to squint and ponder if it is a good trade.

Results of Month 1

Winning Ratio: 8 wins, 1 loss. 89% win rate (All Forex trades)

Total R Gain: 2.7R

% Account Gain: 5.9%

I set out with an initial target of 5% monthly return, and I'm happy to have achieved it. However it isn't so much about the statistics, but the lessons I learned along the way. It is hard to put it in words but I'll try.

• I learned that all the professionals are right. You'll never really succeed and excel as a trader unless you get very serious and treat it as a business. The following points are so cliche and boring but believe it or not, it transformed my entire trading mindset and has helped me more than any book or course. We often go around seeking mentors without realizing we can also be a mentor to ourselves.
• It is important to have a measurable goal (in my case 5% monthly)
• It is important to have a trading plan complete with entry/exit and money management strategies
• It is important to journal all your trades and jot down the lessons learned in that trade

• One of the hardest and yet most important thing for a trader to do is to be selective. Our urge to trade (itchy finger syndrome) is an account killer. An example would be to take a pin bar in the midst of consolidation, or to short right into support just because our favorite bearish engulfing candle has just appeared. We are especially susceptible to over trading when we just had a good trade or feel like we're on a roll. The common psychology is to think that we have extra profits this month so losing some won't hurt. It is also easy to over trade when the markets are dull. My biggest flaw is over trading, so the results of being selective have really convinced me that I need to overcome this.


• We will never be able to trade well unless we have a sense of confidence when we pull the trigger on a setup. But we will never have this sense of confidence unless we've made a conscious decision to be very selective about the setup and have seen it work time after time. That way we won't be affected by losing trades or temporal draw down because we know for sure that we have a positive expectancy setup. The past month has boosted my confidence on trading PA setups at confluence levels so much that I know any losing trade in future is either due to my poor decision or just part and parcel of the unpredictable market.


• From my trades, my problem is taking profits or exiting too early. I need to trust in my trades more. I also need to identify confluence levels which can be used to manage the trade before I take it. If this level is far away from the entry point, I need to think whether I will be comfortable with a potential huge retracement/drawdown before the trade works out.


• It is ridiculous to trade Singapore equities on a small account. I mean I knew that all along but this is really beginning to sink deep. Simply put, if the above trades were on my equity account, I would only have made 0.4R after the exorbitant commissions. That and all the unexpected news, manipulation, and overnight risk is beginning to make me shun away from SG equities more and more.

I've achieved 5.9% this month, that doesn't sound like much but it means that if I'm trading a 1 mil account for a prop firm, I would have made the firm 59k and based on a 50/50 profit sharing, I would have made around 30k in a month. It also means I will nearly double my account in a year (5.9% compounded monthly without withdrawal). I'm trying to think like that so my trading will be based on what the chart is saying instead of what my current meager P/L is saying. 

And here is why I'm excited about future possibilities: 

• None of the trades this month fulfilled my A+ criteria. They were mainly B to B+ trades, and a couple were sub optimal in hindsight but I got lucky. Now what if I had more A+ setups in a month...
• I still do not consider myself an experienced trader. I have limited setups that I'm confident in, but I'm constantly reading, learning, and demoing stuff. Now imagine that I have more tested and proven setups in my trading arsenal...
• Because my trading method is highly discretionary, I still make a lot of mistakes. I get out of a trade too early or too late. Now imagine how much better my trading decisions will be with a few more years of experience...
• I'm currently risking a fixed 2% per trade. However once I gain experience and know for sure that there is a 90+% chance of an A+ trade working out, what is there to stop me from risking >3% on that trade? That way I'm able to make more on A+ setups

With all that in mind, I really believe that achieving a monthly return of >20% is not unattainable. Yes that is the realm of top traders, but how can I become a top trader unless I first believe that it is possible and make concrete plans to achieve it? 

The 95%.....

Three true stories which I heard today (paraphrased):

Trader A: I bought xxx today because the MACD has turned positive. The trade is going against me but I decided to move my stop loss lower in case it turns back up. I've moved my stop 2-3 times already, do you think I should cut loss?

Trader B: Mr Guru mentioned that the profit target for stock xxx is $2. Should I go short there?

Trader C: I intend to hold stock xxx even though it was a bad trade. Market overall is bullish so the stock should climb back up.

Can you already see how appalling that is?

Trader A's mistakes:

• Entering a trade based on MACD even though he is a price action trader
• Not cutting losses
• Depending on others for trading decisions

Trader B's mistakes:

• Since when has a profit target become a place to go short? It shows that he is just trying to catch the top
• Depending on others for trading decisions

Trader C's mistake:

• Not cutting losses and justifying it

I wasn't even deliberately looking for traders pitfalls, I came across them while going about my daily activities. And seriously the public forums/facebook groups has tonnes of these occurrences. It is really scary, and sometimes I wonder whether these people are truly ignorant to what is wrong or they're aware but choose to commit it anyway. The greatest obstacle to trading success is not the method nor the market, but the man in the mirror. 

Double/Triple Tops - My Bread And Butter Setup (For Now)

Been so long since I last blogged, and I can only attribute it to laziness plus the desire to spend my time on other things. Anyway I've been doing a lot of reading/chart time as well as thorough planning and analysis of the kind of trader I am. I concluded that I'm someone who likes a high win rate, like 80-90%, and don't mind if these wins are small in percentage. I've realized that a trend following system often only has a <50% win rate due to the necessity of a wider stop to avoid being stop hunted or washed out by noise. I'm fully aware that a 80-90% win rate system is highly unlikely to capture big trends, though it is still possible if a trade just runs without any deep correction. Having established that and after doing a lot of visual back testing, I've decided on my bread and butter setup.

The setup is basically double or triple tops (or bottoms) with a pin/engulfing bar, divergence, and sufficient space. That's it! Here is the trade criteria and some example charts:

Trade Setup

1. Double/Triple Top
2. MACD Bearish Divergence
3. Pin/Bearish Engulfing bar
4. Fake Breakout (Optional but adds a lot more weight if it happens due to trapped traders)
5. Confluence of the following Support/Resistance factors (The more the better)
• Horizontal S/R
• Fibonnaci Levels
• Round Numbers
6. Sufficient space for price to move into (This is very very important)
7. Compression

Chart Examples

GBPUSD Daily

USDCAD Daily

Trade Management

This is pretty discretionary, but personally I'm trying out a strategy of taking half profits at the first trouble area, tightening my stop, and trailing the second half. It is too much to go into the details of a trouble area or the trailing method.

This setup really does have a hit rate of 90% and above, and by that I mean price should at least reach the first trouble area for us to either take half profits or tighten stops to ensure it will not become a losing trade. This setup is according to James16 the highest probability setup, and he knows of very huge account full time traders who only trade this setup. Now here is the interesting thing. This setup is also acknowledged by Alexander Elder as the strongest signal in technical analysis. Not enough? A pin bar is also a Wyckoff/VSA Spring/Upthrust, and well known Wyckoff practioner David Weis mentioned that one could make a decent living just trading these bars alone. 

I've without a shadow of doubt that this setup should be taken every single time it appears. Now admittedly it is very rare, and so I'm looking for it on the weekly, daily, 4H, and 1H time frames. Now here are the main reasons why this setup might fail: 

1. Trading into support/resistance (Lack of space)
2. Price action setup was too small (Small Pin/Engulfing)
3. Failure to take partial profits or tighten stop at the first trouble area
4. Entering on lower timeframe (1H/4H) just before major news

Avoid these pitfalls and success should be guaranteed. I'm starting my hardcore hunt for these setups, lets see how it goes. 

Btw I'm really grateful to the James16 group and especially to one of the instructors Mike who has helped me so much. In the past 2 weeks I've taken 9 trades on my demo account, 4 on my live, and none of them were losing trades. They were either wins or breakevens, though the winning trades are not huge. I am finally seeing progress in my trading, and I attribute it all to the James16 group. This group doesn't teach a system, it teaches how the market move and where price is likely to react. Based on that the members have derived many successful strategies/systems, and the beauty of it is just amazing.