The Traders Guild - Excellent Source Of Supply/Demand Material

http://www.thetradersguild.co.uk/trading-education/

I just love it whenever I chance upon great sources of information. The above site is fantastic. I'm halfway through the videos but I just had to post this. Great explanation, very thorough, and very organized. It basically sums up so many trading concepts, and the owner definitely has a great understanding on the markets. Understand how S/R lines are a result of multiple supply/demand zones, how PA bars are the by product of S/D zones, what is the orderflow dynamics behind a breakout and a breakout retest, what is compression etc etc. So far everything I've learned and know is in there. Lots of educational videos, twice a week webinars, FAQ, live twitter feed, all for free. I really respect and appreciate the owner Lovejoy for his incredible generosity and willingness to teach, do check out his FF thread at http://www.forexfactory.com/showthread.php?t=288707 too. The world needs more of such people.

Candlestick Patterns And Their Life Cycle

The past few days were fantastic. It really does help to have a trading plan. My demo account is growing once again, and most importantly I had many Eureka moments. Just want to share three of them here.

1. One of the revelations I had recently was that it is absolutely super important that a PA bar has to be taken at a supply/demand zone. Actually I knew that before but because I thought hey its just a demo account, I went berserk last week and took PA bars everywhere. It taught me a lesson I'll never forget. The best looking PA bars will slap you in the face and stop you out if they're not at a supply/demand zone. Additionally, the best looking PA bars will also fail if there is an opposing zone just above/below it. Never trade into a zone. Sadly this is something most PA traders will never realize. 


2. I also realized how I'm missing out so much by limiting myself to the two core price action bars that I was used to - Outside Bars and Pin Bars. After reading the Price Is Everything thread I learned about Engulfing Bars. I then thought to myself, if the reason price turns at a zone is because of a supply/demand imbalance and not a candlestick pattern, why the heck should only outside bars and pin bars work?! I had the opportunity to do some homework, check out the screenshot below, notice how effective engulfing bars and stars are? And these are only two patterns! I'm shocked at how blinded I've been all these while. Opportunities were dangling everywhere but I couldn't see them because I was only looking for outside bars and pin bars. I'm committed to re study the candlestick patterns and will do even more homework and train my eye to spot them more. One of my goals for now is this: Spot better zones, identify more candlestick patterns. Put those two together and we have a potent combination
   

   

   Engulfing Bars and Stars

3. I further convinced myself why lower time frames is the way to go. You see, once you've correctly identified a good zone, you basically know that you're going to take a trade there. Aggressive traders will touch trade the zone, conservative ones like me will want confirmation, if even the slightest. So how do you get confirmation? Through candlestick patterns. On which time frame? Well if you think about it, if the zone is really good, wouldn't a confirmation even on a low time frame suffice? Say the zone of interest is a 4H one, wouldn't a candlestick pattern on a M15 chart be enough? It already beats touch trading right? Lets look at this amazing example of the life cycle of candlestick patterns across different time frames:

   

   Candlestick Patterns Life Cycle

   That is so wow isn't it??!! Picture this scenario: Trader A - Trader E all saw the supply zone that is of interest. Trader A saw the bearish engulfing on the M30 and took it. Later on Trader B saw the Pin Bar on the H1 and took it. Yet later on Trader C saw the Bearish Engulfing on the H4 and took it. You get my point. Suppose, just suppose that we do end up getting a weekly pin and price proceeds to drop a few hundred more pips. Can you imagine how much Trader A would have made if he saw the PA bars forming on the various time frames and as such had the confidence to hold on to his trade made from the M30 Bearish Engulfing? Now imagine an ace trader who took the trade on the M1 time frame, how tight his stop can be... Imagine if he added to his position as price continued to exhibit price confirmation. Imagine a few such trades... Double an account within a few weeks? I say it is possible. So many traders are doing it, not with unrealistic leveraging but with pure skills. I make it sound simple but I still lack the experience and expertise to do this. However I'm trying, and I'm devoting every single day to hone my craft to such levels.

My Trading Plan

So I've been demoing like crazy past few days and to be honest, getting owned big time. I've been trying out the various styles of trading S/D and it is apparent that my knowledge is half baked and I'm not disciplined/picky enough. So after repeated failed trades and getting discouraged over and over again, I finally decided that I need to do something about this. We all know the common adage "He who fails to plan, plans to fail". I've been trading a lot on discretion and taking all sorts of zones and bars, as a result losing a lot of trades. I need a plan, rules to stick to, rules that'll help filter bad trades and prevent emotional trading.

There are many styles of trading S/D, and I'm only destroying my confidence by trying to master all of them at once and seeing my demo account's balance continually dip. I've decided to focus on one style for now. And I've decided to return to the thread where it all started, the Price Is Everything thread. The OP Redsword is legendary, and out of his sharing/teaching spawned numerous excellent traders. Studying the thread wasn't an easy task, considering the bits and pieces of information are everywhere and there are no fixed trading rules. It was vague at first, but after 70+ pages things are beginning to become clearer. I save the more descriptive charts from the thread and study them repeatedly, taking down notes whenever I learn something. I started noticing certain repeating patterns and things that Redsword looks out for. There are many gems of wisdom in the thread but they're everywhere. I'm determined to keep at it and try to uncover as much from it as possible.

Based on what I know so far, I've decided to come up with a preliminary trading plan and I shall be focusing on it for the coming weeks. No more touch trades, no more shotgun trading. I'll only take trades which fulfill the criteria in this plan and that should help filter away many bad trades and increase my confidence with time. What if I still fail? Well there is a positive aspect to that too. It means that I can add more things to my trading plan and further improve it. So here is my preliminary trading plan:

It is definitely not final but it should do for now. I shall not post example charts as the thread above has tonnes of it. Looking forward to see how it goes!

AUDUSD 1H Touch Trade - Lose

AUDUSD 1H

Nothing much to be said about this except that I should have taken this on demo instead of live, considering that I'm new to touch trading and have not proven consistency on it yet. I'll refrain from touch trading on my live account for the time being.

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Edited: Another trader's view on what went wrong with the trade:

EURUSD M15 BUOB Trade (Demo) - Win

EURUSD

I've decided to also journal demo trades which I feel are significant and educational enough. This trade is an example of how the lower TFs can be a source of fast and huge RR trades. I'm still learning how to scalp like this and hope I can be consistent soon. The reasons for entry and exit are mentioned above, I just want to mention some noteworthy points.

1. Notice how swift price cut through the compression again? I've pointed this out in so many of my previous posts, compression into a zone is really powerful.
2. I decided to TP 2/3 at the M15 supply zone mainly because I saw the compression and had a strong feeling price would correct. I was up by 2R then and didn't want to give it all away. Of course in hindsight holding on to the full position would have worked out better (4R), but at the expense of a huge draw down.
3. I find it very amusing that price would drop exactly to the M15 demand zone before the ISM Manufacturing news came out, destroying the Dollar and causing EURUSD to spike up to my TP. In fact the news came out when Dollar was at its hourly supply zone. Coincidence? 

I'm still new to the lower time frames and far from being a proficient scalper. But look, this trade alone increased my account by almost 6%. That would have been more than my previous monthly target! Can you even imagine how much a pro scalper can make? My point is, as a beginner, it is ok to set 5% a month as a realistic target, and from what I've heard and read so far it should usually take two or more years of conscious learning/practice before one can even hit that target consistently. However, we should not get comfortable with that. I used to think that a trader who can make 10% a month is amongst the best, how naive I was... If I being new to this strategy can make 6% on one trade, the top traders should have no problem making 30+% each month. And I'm so blessed to have come across RTM whose material unlocked this possibility for me. I tell myself, as long as I keep doing what I'm doing, learning, practicing, demoing, journaling, reflecting, correcting, that dream is not impossible. Now 30% a month compounded for a small 10k account would grow that account into 1 million in 18 months. Amazing? Suppose it takes 3 more years of intense hard work to be that good. How would you like to be a millionaire within 5 years? 

Dreams are not too lofty when you can break them down and visualize a way to achieve them. I truly believe our destinies and who we are in the future is dependent on what we do in the present. 

Scalping Low Time Frames With Huge R:R

This chart sums up the way some RTM members scalp the lower time frame charts for huge R:R trades with a decent hit rate, and will be the focus of my demoing moving forward. Important points are that price has to be at a higher time frame Supply/Demand level and it has to engulf a previous supply/demand level as a form of price confirmation. Notice how tight the stop loss can be and how it is possible to catch the precise top? This is the key to high R:R trades. That sharp move down for a 5:1 trade is super rare on the daily and above charts but it is common on the lower time frames. This is why I'm beginning to feel the key to huge and fast account growth if one only has a small account is to be real good at scalping the lower time frames.

The main reason why people shun away from lower time frames is because of the seeming noise and spikes that could easily stop one out. PA bars also have a much lower success rate. However, I believe this is due to a lack of knowledge, it certainly is for my case. Price moves according to the chart above, and the engulf is like a secret signal to the pros of where price wants to go next. Once we get that engulf, it is unlikely that price will stop you out even with such a tight stop because those in the know would want to jump in on the next move and they'll loading up as much as possible at that level before price takes off.

Acronyms:
DD: Draw Down
HTF - Higher Time Frame
RBD - Rally Base Drop (A rally in price followed by a small consolidation and a drop, this establishes a supply level)
R:R - Reward:Risk

Three Months Performance Evaluation And Reflections

Be warned, this post is going to be long, very long. So yesterday was the last day of a three months performance evaluation I set for myself. The purpose of it was to prove to myself that I can be consistently profitable in order to trade full time, either on my own or in prop. My result for May was 15 trades, 11 wins,  4 losses, 1.7% increase on equity. The result for the three months was a 6.7% increase of my initial equity.

Admittedly the result is abysmal, most of the profits came from the first month and the past two months were really bad. Like all humans I'm very tempted to blame it on various stuff like the stupid broker spike but that wouldn't help me grow as a trader. This is the time to conduct a thorough examination on my trades and think about how to improve moving forward. I cannot even begin to describe what I've experienced and learned the past three months spending 10+ hours a day on this business, but I'll try my best to pen it all down in this post as a form of trading review.

1. I learned that trading is really not easy. I'm totally convinced that there is no way a book, course, or black box system can make one a consistently profitable trader. As a person who read books and forums a lot, I know of quite a few excellent traders. But I've never come across one who hasn't spent thousands of hours of chart time, years of heartache and failure, before finally achieving consistent profitability. Even the Market Wizards didn't get it immediately, many took years. The only ones who didn't blow multiple accounts are the ones who're sensible enough to spend months on a demo or small account before going live on a bigger account. That is encouraging because I know that I'm not a flop, I'm simply walking in their footsteps and gaining the necessary experience/knowledge to be successful. Napolean Hill stated that "No one ever is defeated until defeat has been accepted as a reality". As traders, we experience losing trades and failures very often. I tell myself that as long as I learn from every losing trade, there is no way I will not improve.


2. I learned that I'm my greatest enemy. It is apparent that I'm sabotaging my own trades because I actually fared a lot better on my demo accounts than on my live! I made almost 10% on one demo account and almost 7% on the other in just the past two weeks alone. The thing is, it is so much easier to just set and forget trades on demo (Only act when they hit specific levels and not otherwise), and this is producing far better results than me babysitting my trades. Being a very logical person, I never did expect that my emotions and psychology would hit me so strong, but it did. I struggle a lot with anxiety, attachment to trades, and I still feel overly sore with losing trades. To a certain extent this affected my performance and is an area I need to work on. I'll probably need to return to the "Trading In The Zone" book to reinforce my trader psychology. 


3. Looking through the 38 trades I made in the three months, it is obvious what my main problem is. I had only 1 trade that made more than 1R! So even though my win rate is decent, the size of each win is too small and a single 1R loss can wipe out three winning trades. That is absolutely shocking and embarrassing, but it also revealed a component of my trading I definitely need to work on. There are two main reasons why this problem exists. 


• I am not good at identifying profit targets. This is really my main focus in the coming months. Without being able to identify targets correctly, I'm prone to premature taking of profits or not taking profits when I should. This is super apparent in most of my trades. ReadTheMarket is going to play an important role in helping me with this because their concept of engulf is revelational. It provides a logical way to identify profit targets. I only started to have a better understanding of it in the past few days and I hope that it will aid my future performance.
• I babysit my trades too much and get shaken out too easily. We all know the common adage "Let your profits run". I got a huge huge problem doing this. In many of my trades, I get scared out whenever a lower time frame setup occurs that is contrary to my position. Now while this has affected my performance quite a bit, I've also learned a great deal from it. I realized how important the higher time frame story is. Opposing signals on the lower time frames will often fail, and when they do work they'll usually only result in a small pullback before the higher time frame story plays out again. Of course a lot of discretion is involved in this. I've also had occasions where the lower time frames clued me in to a major reversal and enabled me to get out early. That is why chart time is so important, there is no way to know what will happen without ample experience in the markets.


4. I'm aware that my poor performance in the past two months is also due to analysis paralysis and my attempts to integrate different methodologies. My first month's trading was purely based on James16, I managed to achieve about 6% profitability in that month. In my second month I came across ReadTheMarket and a whole new world of knowledge and possibility opened up. I dived into it and studied all the resources related to it - AceGazette, Sam Seiden, FF's Price Is Everything thread, FF's Romancing The Price thread. It confused me greatly and I spent many frustrating moments trying to make sense out of it all. Supply/Demand is a concept, and there are many ways to trade this concept. Some choose to touch trade S/D zones, some wait for PA bars, some wait for price structures like the Quadsimodo. It is easy for me to list that now but I didn't know that when I first got started and so I was wondering why is everyone taking trades differently, what is the right approach? It bothered me to no end. I was trying to mix and match everything together and my half baked understanding led to poor selection and especially trade management. I soon realized that it is a matter of preference. There is no fixed way of trading the zones. Aggressive traders would prefer to touch trade them (higher RR, lower win rate) while conservative ones would prefer to wait for PA confirmation (lower RR, higher win rate). I had the good fortune of getting to know some guys who clarified a lot of things for me, and Phanti's PDF was like an epiphany moment for me. 


5. This is going to sound ironic but I really think I learned a lot over the past three months. It is ironic because my  first month's performance was the best out of the three, but I dare say I have a much better understanding of market structure now than I did in the first month. And much of this only occurred last week. The market is like a Jigsaw, and I'm slowly beginning to piece it together with occasional epiphany moments. This talk about market randomness is completely bull. I know because I've seen traders who scalp insanely well, pick tops and bottoms pretty often, and could probably double a small account within two months. The markets are not random, they move from zones to zones and news is just a catalyst. Take my EURCAD trade yesterday for example. I knew that there was CAD GDP news coming out at 8:30pm (GMT + 8) and I was already "predicting" that the news would be good. This would lead to CAD rallying and my EURCAD trade to hit its first target. True enough the news was good and it worked out the way I expected it to. It was also interesting to note that it was news of a possible EUR rate cut that led to the formation of the triple top. Coincidence? After realizing how this works, I kinda find it amusing to see traders trying to make sense of news and predict it. There is absolutely no need to follow news at all, the charts say it all. The only exception is probably NFP or speeches which can be so volatile that it might be safer to stay out.


6. I also learned a lot about the fractal nature of the markets and managed to sort out a major question that bothered me for some time. This was a pivotal moment and deserves a post of its own so I'll not talk about it here. 

So anyway, why did I decide to spend so much time on S/D concepts at the expense of my trading performance? I think a lot about things, and having a perfectionist like personality, I always try to look for the best resources to follow in everything that I do. In trading, I believe the way to determine the validity of a method is the result of its practitioners. One look at the journals of the top S/D traders is thought provoking to say the least. These guys nail multiple Rs trades very often. Just yesterday I saw one trade which yielded 9R. Do you know what 9R is? 2% per R would mean that trade alone yielded a freaking 18% return, three times my current monthly target. Tell me that few months ago and I would have called fake. How can a method be able to consistently yield multiple Rs trades and yet have a 70+% win rate? The books tell us that good trend traders often have a win rate of only 30-40%. I wished I hadn't read those books, they limited my vision and the possibility of what I could achieve. So how do these S/D guys do it? Simple, by scalping lower TFs with an impeccable knowledge of market structure. It is very hard to nail multiple R trades on the higher TFs because that'll take ages, maybe weeks or months. But what if you're able to catch the start of a move on the 5 mins chart with a 10 pip stop? Don't you agree that it isn't hard for the market to move 50 pips (5R in this case) in your favour? Seeing is believing, and I see this happening everyday on the journals of the RTM members. This gives me hope, something to reach out for, something I know is possible if I put in the commitment. 

So if it is that good, why isn't everyone trading the RTM way, especially since this well of trading wisdom is completely free? Well, I believe that is because it is very discretionary and damn bloody hard to understand. I spent two months of full time studying and I feel like I'm only just beginning to get it. Of course that could be because I'm not a fast learner. Most people will probably try it for a while, fail, and continue on their search for the Holy Grail. Even the top S/D traders will tell you that there is no way out except thousands of hours of chart time. Their assimilated knowledge can shorten the learning curve but one still has to put in the hard work. 

The past three months has been very exciting for me. There were many moments of utter frustration and discouragement, moments where I felt really down, but there were also moments where I literally leaped in joy and hugged my wife because I discovered or understood something. It is amazing but I learned so much about life through trading, particularly about coping with failure. I still feel like I'm falling in love with trading more and more each day, it is just so fun! Next month is going to be exciting because I'm going to practice scalping a lot more using what I already know together with the concept of Engulf. This concept is truly amazing and I had many OMG mouth gaping moments observing how the RTM members use this concept to nail tops/bottoms on the lower time frames with huge RR trades. Really hope I'll be able to achieve that soon too.

This post has been a good release of the thoughts floating in my mind. I want to end it with this excellent quote from Napolean Hill. Do take some time to think about it, regardless of your profession.

The person who stops studying merely because he has finished school is forever hopelessly doomed to mediocrity - Napolean Hill