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!

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.

Some Trades Based On Fakeout With Compression

Refer to my previous post where I shared about the double top with compression pattern. Here are two recent trades I took based on a similar logic.

NZDUSD

GBPCHF

Cool eh? Zero draw down on both trades, caught them nearly at the top, exited right before price turned. Multiple R trades. Do charts like these make me seem like a pro?

Now here is the thing. Those trades are real, so are the reasons for entries and exits. But here is another thing:

1. Those trades are taken on a demo account. Even for demos I have a serious demo where I track everything and trade according to rules, and another casual demo where I try to test setups and trade random lots. These trades were taken on my casual demo.
2. I took a risk with the ultra tight stops. Yes we have fake out bars which closed with an upper wick, but those are not strong rejection bars like a big red bearish pin. Especially for GBPCHF, who is to say price wouldn't want to go deeper into the zone?
3. I traded these with very small lot size. So while at first glance those might seem like multiple R trades, in reality the profits were very small.
4. Those were actual partial closes. For both trades I was actually trailing the remaining position, both of which got stopped out at a higher price. But if I included the trailed positions in the above charts, I'll lose the "exit at the very bottom" guru effect right? I wonder how many of the forum posters are utilizing this same trick...

Now here are some other scary facts. I could have placed sell limit orders at various logical places (M1 supply zone, S/R flip etc). Some of those orders would have worked out while others fail. I could easily select the order with the lowest draw down and post it, appearing as though I managed to nail the trade to the pip. People will believe me because I did have a reason for the trade - the M1 supply zone, S/R flip etc. What they don't know is that there might be 10 other logical areas which failed. Oh and did I mention you can actually adjust the trade markers on the chart? Anyone can be a M1 god of trading. 

Oh ya I recently came across another "trick". There is this guy who is pretty active on FF, he sometimes post trades before the fact, and with pretty good results. I was pretty impressed by him and yet I don't understand why he took those trades. Few weeks ago I saw him post a trade during Asian hours where FF has the least visitors (Maybe this was unintentional). I followed the trade closely and knew that it was a loser. I went back to check the post, but lo and behold the post was deleted! That taught me another way to manipulate results - Take a scalp trade on M5 or some very low time frame so the result can be known very quickly, post during the dead Asian hours so less people will notice, and if the trade is a loser quickly remove the post. Thankfully that guy started an AceGazette journal, and I know now from his results that he is not as good as he portrays himself to be.

With those points, do you now see how results can be easily manipulated, and how important it is to only study traders who post before the fact, consistently and with explanation? Its a scary world huh?

On a side note, those zero draw down trades and getting out partially right at the turn felt really good. Maybe it is luck but I really took and exited those trades based on logic, it is nice to be able to predict the failure of a breakout. The main key and secret is the compression. That signals the intention of the pro money. I will continue to test my entries, if I'm able to replicate such results consistently, I might bring it live.

Thoughts On S/D Trading

I was actually writing a reply to a comment I received, and realized that it is better to put it up as a post in case it could be useful to some readers.

I've spent many months trying to understand and trade S/D concepts, and quite honestly have been through the same stage of being overwhelmed, frustrated, and cynical.

If you ask me, I would say the biggest problem is that there are so many ways to trade S/D concepts, and most threads/sites don't have fixed rules, so you might have a rough idea of what an engulf, Quasimodo, compression, bearish engulfing candle is but you don't know when they work and when they don't. So you might see posters who take engulf trades or a bearish engulfing bar and those trades turn out as big winners, but when you try to replicate it you get multiple losses and wonder why. Good thing about AceGazette is, after some time you realize many of these posters only have a 40-50% win rate and their equity curve isn't pretty, which means there is a problem with their trades to begin with. There is no reason to study their trades except to learn from their mistakes. In short, simply taking engulfing bars at any S/D zone will not cut it, taking any engulf or Quasimodo which appears in the middle of no where will not cut it, touch trading a zone just because there is compression leading to it will not cut it.

I realized all that through hundreds of failed trades, and from observation of many other journals. Now this doesn't mean that AceGazette, ReadTheMarket etc are teaching wrong stuff, far from it. But there are many nuances which most traders fail to notice and this makes ALL THE DIFFERENCE. Here are some of them:

1. It is very very important to trade with the higher time frame trend and respect higher time frame zones. So for etc, suppose we see a M30 bullish engulf. We try to long the source of engulf when price comes back to it and it turns out as a loss. A very common reason for this is because the engulf is into a HTF supply zone, say H4. Or it could be because we're too high in the curve and the profit margin for longs is no longer there. I've done this dozens of times and seen many people do it too, it is probably the most common reason why engulf trades fail. 
2. Quasimodos are powerful, but I realized they have to be taken at a HTF zone and not in the middle of no where. So for etc we want to long a M30 Quasimodo in a H4 demand zone, not when it is dangling in the middle of no where.
3. Compression can last longer than expected. Just look at the AUDNZD pair, compression is everywhere and many times it is not filled. Compression works best after an engulf (Can can pattern), or if price is compressing up to an extreme and high quality zone. Do not touch trade a zone just because price is compressing to it. Sometimes we see a M30 demand zone and ecstatically buy it because we see price compressing down to it, but we fail to notice that the zone is weak, and there is a much stronger H4 extreme zone underneath which will act as a magnet to pull price to it. 

There are so many such nuances, and the sad thing about AG and RTM is that many of the pioneers/seniors are no longer that active. The legendary and genuinely good traders often post without explaining the reasons for trade (Julexo, Ken etc), and those that do explain are mostly enthusiastic newcomers. Much of their trades and analysis are wrong (the dangerous thing is these sometimes end up as winners giving the impression that it is right), but few of those posts are corrected by the seniors. There is no one to blame, because the forums are free so the seniors have no obligation to correct the young traders, and most people are more interested in trading than teaching. 

So in conclusion, I really believe the methodology of the various sites is good, but you need to have a lot of practice, really understand all the nuances in order to make it work. Once you really understand the markets, you'll realize why some zones are touch trade worthy and why it is safer to wait for PA on others. I'm still far far from being good at S/D trading, but I've managed to eliminate many recurring mistakes in the past few months. It really takes months and probably years of chart time and experience.

As for reliable sources to study S/D, here are some:

1. PriceIsEverything FF thread. Redsword is the man who started it all. Ifmyante, Ken and many others all spawned from this thread. Here is a man who dares to post before the fact, explains his trades, and is consistently and uncannily accurate. A new reader might not be understand the first few pages, but keep reading and after 100 pages or so, you'll notice some recurring patterns (whipsaw engulfing, pins at zones etc). Coincidentally I'm planning to hardcore study the thread from today onwards, with the aim of completing all 1400+ pages of it.
2. Alfonso's FF thread. Again here is a trader who posts before the fact, is able to explain his trades, and has consistently good results. He has managed to come up with a rule based S/D system, and to be honest it is my bread and butter for now. I'm very active on this thread because after months of filtering and deriving my own rules, I somehow ended up with very similar rules as him so I really agree with his methodology. It is actually nothing new, but his rules help filter most of the mistakes that many RTM and Sam Seiden traders make. I know because I have made those same mistakes hundreds of times.
3. Lovejoy's FF thread and his website. Also check out Balhana's posts on that FF thread, he is really good and his posts are full of explanations that make sense. Lovejoy has some fantastic videos, in my opinion must watch videos for any aspiring S/D trader. 

At the end of it all, I feel it is very important to decide on a certain style (touch trade or trade PA bars) and focus on it. It is very very difficult to try to learn multiple styles at once, so master one before starting on another. I have one account for touch touching (which I've tested and am confident in), and another demo account to practice trading PA patterns and bars. Pen down trading rules and strictly adhere to them. Journal every trade and study them from time to time. It is amazing how often recurring mistakes occur, and we'll be oblivious to them unless we journal our trades. 

Hope this post helps!

How To Save Time When Studying Trading Forums/Sites

I just came across this article and man do I agree with it. In fact the third kind - Honest Ninja Guru is growing rapidly and I've seen many such examples in the Singapore trading scene. The thing is, this isn't just limited to gurus selling courses, but also active posters on forums. My heart aches at the amount of time I've wasted trying to understand why certain traders take and manage their trades. Many of these people are very active on the forums, they post mostly winning trades and often go around correcting others. As a result they're highly hailed as expert traders, and due to their connections they're often highly vouched too.

Now recently I had a series of eye openers, which led me to a conclusion I will share about later. I'm so grateful for sites like AceGazette, where trade journals not just have to include the trades, but also the account statement and the reasons for the trade. It is through there that I realized how many of these traders are actually not even profitable. I've also seen statements of traders who multiply their accounts within a very short time only to over trade and blow up another one before long. Their equity curve is like a roller coaster and their win rate is low. There is one common theme: They mostly post winning trades after the fact, and their results are inconsistent. Why should I study such traders? Now I'm not trying to say they're out to deceive or have any ill intentions. But given the enormous and endless amount of trading resources and threads out there, shouldn't I spend my limited time studying the really good and consistent traders? So now here is my conclusion, only study traders and posts with the following attributes:

1. Posting before the fact. This is very obvious, you know a good trader because he posts when he takes the trade and not after the trade has ended as a profitable one. 
2. Able to explain his entries and exits. This is super important. Now if you're only interested in a signal service, you might not care about this, but if you really want to learn, the trader you're studying has to be able to explain his trading strategies coherently, and you must be able to observe from his trades that he does adhere to them consistently. This point alone eliminates many traders who only post their winning trades but are very evasive and unwilling to explain their entries/exits.
3. (Optional) Positive and consistent account statement. This is optional because if points 1 and 2 are fulfilled, I don't really need to see their account statement to know if they're a successful and consistent trader. Nevertheless, an account statement is the best proof. 

There, I've grown wiser based on that criteria, and no longer waste time studying or listening to traders who sound very knowledgeable and are hindsight kings but still lack profitability. 

It Is Not The Critic Who Counts

It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat. ― Theodore Roosevelt

That quote has to rank among one of my favorites. I've read it many times and I still feel so inspired and encouraged whenever I read it. To me, it has to do with critics vs vision. Every successful person has a vision, be it Mother Theresa, Nelson Mandela, Steve Jobs, or President Obama. There will always be people who don't agree with your vision, ALWAYS. Critics will rise up, and in this generation where social media is prevalent, their voices will sound out far louder than ever before. However, successful people know this - They have to choose their battles. Not all battles are meant to be fought. Every second spent answering or pacifying a critic is a second that could have been spent furthering the vision. In other words, critics = distraction, and a visionary has to be very careful not to be caught up with such distractions.

In the trading context, not everyone will agree with your trading methodology. However, every second spent debating and fighting in the forums with your critics is a second that could be spent improving your strategy, back testing, reading, practicing. It is the same for every aspect of our lives, every vision, every journey. Critics will never understand the ironic relationship of the inevitable yet necessary occurrences of failure. They devote their time and energy to nitpicking on you, hiding in the shadows and ready to pounce whenever you make a mistake. Fast forward a few years and the focused visionary who failed repeatedly would have gained a treasure trove of lessons from his failures. He would be at a much higher level than where he was a few years ago. And the critic? I shall leave that question open. :)

China Minzhong - Another Reminder On The Danger Of Equities

China Minzhong Daily

Once in a while something like that happens to remind me why I quit trading equities. This stock got screwed by a short seller (similar to what happened to Olam) and dropped 50+% in a single day to its all time low. No matter how much one sucks at trading, reading charts or fundamental reports, nobody deserves to lose that much just like that. My heart really goes out to the retail investors who are affected, especially those who placed their hard earned money in the stock. It is exactly moves like this that potentially leads to suicide cases. Note that the shitty cash market brokers in Singapore do not provide stop loss orders, so unless you're trading CFDs or happen to be around when that spike happened, chances are you'll incur losses so big it'll take many winning trades to recover. So yep you can be a damn good trader, killing the markets and having a decent win rate. All you need is to get hit by one of these every few months and a big dent will be created in your account. The damage will not only be financially but psychologically. There will be a huge sense of unfairness and indignance coupled with discouragement. And mind you this happens far more often than one would like to believe. In the case of CMZ, at least it was a spike down so some people might still have got out in time either via stop or market orders, albeit with huge slippage. Most of the time though news is released when the markets are closed and huge gaps can occur overnight. Your stop loss order will not protect you then.

One might argue that huge spikes/gaps can occur in your favor too. I agree, but as a trader I'm more concerned about managing my downside than hoping for the big break.

Oh and did I mention that if you were short before the trading halt, the gap up today would have wiped out your account overnight? Welcome to the world of equities.

Will Smith Secrets Of Success

http://www.youtube.com/watch?v=q5nVqeVhgQE

That video really fired me up. This stuff is real, its the core of books such as Think And Grow Rich, it is biblical. I really like something Will said - "There is no reason for Plan B because it distracts you from Plan A". I'm wholly committed to becoming an excellent trader, and I refuse to harbor thoughts of going back to my previous profession or trying out something new in case this fails to work out. There is no turning back, I've burned all the bridges behind me.

One of the biggest and most important lesson that trading has taught me is how essential failure is. Society, education, and culture portrays failure as something negative, as if that is the end result. However I've come to realize that every failure is just life's way of showing us one more option that doesn't work. The path to success is built upon failure, or more precisely the continual eradication of the options that doesn't work. I've eradicated many mistakes in my trading, but there are still many more to go.

And so, I have my dreams, goals and targets, but I must not be naive to think that this journey would be smooth sailing. Just because you have a target and you feel fired up doesn't mean you'll definitely hit it. Disappointment and discouragement will hit you time and again, and it is in those times where you don't feel so fired up anymore when the true test of your mental capacity and character surfaces. Self encouragement and positive confession doesn't come naturally, it takes sheer willpower to discipline the mind to think positive thoughts and the mouth to speak positive words. It is easy to do that when you're feeling fired up after a good book, video, or sermon, but what matters is that you're able to do so even during times of failure and discouragement.

Here is one of the governing verses of my life:
Proverbs 23:7 - For as he thinks in his heart, so is he.

Common Scheme of Course Peddlers

I hope this post can save some people money. Recently I've been rather bothered by the increasingly shameless marketing techniques of course providers, especially those from my country. I must admit, their marketing skills are top notch, and the amount of students that they managed to suck in is a testimony of that. I'm not gunning down all course providers as there could be legit and good ones out there. However, from what I heard and from the courses I've took so far, the dark nature of many providers is very apparent. I'll just describe the core and most powerful technique they use.

Basically, many course providers provide a private forum, a facebook group, a whatsapp group chat etc. Through the week they'll make many calls/recommendations, some will turn out well and others will not. There will also be students who trade those calls and will boast about their winnings or thank the mentor for the calls. Now the course provider will then take screenshots of the original recommendation posts + the winning outcome together with the student thank you posts and put them on their public site/forum/blog. Some will also include the actual trade records. The idea is to give the public an impression that they made those calls before the event actually happened and hence boost their credibility. What people don't realize is that the losing calls and losing student posts get buried under the carpet. Now these providers are not dumb, they do know that no one wins all the time. So once in a while they'll post a small losing trade with some golden words like "Trading is a probability game, no one wins all the time, as long as we keep our losses small we'll make money in the long run". Again statements like that connect readers to them and instill trust. Many will also portray a very close mentor-student relationship by posting mushy SMSes. Some will even put on a good guy image by encouraging charitable acts or claim that their goal is to educate the public so they won't be slaughtered by the manipulators out there. Now who is the slaughterer?

Oh ya I just remembered another technique which I've noticed a few times recently. I know of a few courses who advocate trading pin bars on a 50% retracement. First of all I don't see the logic behind it, there is absolutely no reason why price should turn at an arbitrary 50% level of a freaking bar. Do you really think some huge Goldman Sachs trader is out there waiting for price to hit the 50% level of a H1 pin bar to press the buy button? No, price moves from S/D zone to S/D zone, period. Every market, every time frame, every single turn. Check it out yourself if you don't believe, there is ALWAYS a zone or an ignored zone where price turns. The only reason why Fib levels, moving averages, trend lines, indicators etc sometimes work is because they coincide with a zone. The best traders I've seen trade purely on naked charts. Ah I digressed, back to the 50% retracement thing. So these providers will then take a pin bar which turned out well, post it on their public site with a description like "If you had traded this pin bar using our 50% retracement strategy you would have made a whopping 6R profit!". This really grinds my gears because some of these pin bars could be pathetically small and lousy ones that aren't even good to begin with. So if you take a small pin bar and trade the 50% retrace of it, you'll obviously get a very tight stop and a small move will net you a multiple R profit. This kind of stuff looks good after the fact but did the provider actually take or post the trade before it happened? Another common one is posting inside bars that worked out. Inside bars are everywhere on every time frame, it is easy to just pick a few winning ones to show how effective your inside bar breakout strategy is!

It took me years to see through all this and experience it for myself. It is dark and sad but true. There are many shameless and evil people out there. I still struggle with a mixture of doubt and jealousy when I see some of their after the fact posts, but I constantly remind myself that they're just posting the winners and not the losers. It does not profit myself to get bitter and emotional about it. Our greatest competition is always the man in the mirror. I must discipline myself to stay focused and committed to my goals, to improvement, to growth. Too many people waste their time debating, arguing, and shaming others on forums when that time could be better spent on the charts, webinars, or educational resources.

In summary, never ever trust any course provider who does not post their calls/trades before the outcome. It is not enough to see screenshots where they appear to have made the calls before hand to a private group of students. Please do not ever get taken in by that. Also, it is ironic but the best educational material I've found so far are free. James16 (though they also have a paid group), ReadTheMarket (though they are also going to start selling a course), Sam Seiden's webinars, LoveJoy's videos, PriceIsEverything FF thread, and many other forum threads. The thing is this, people can't seem to believe that they can learn tonnes from a forum thread. The material is often unstructured and messy, it requires days and weeks of digging through hundreds of pages before the pieces start to fall in place, and a paid course often seems like the easy way out. However, I've realized that many forum threads are really treasure troves of knowledge, but the treasure will only be found by those who're willing to put in the hard work and time to dig for it. So.... if one is not willing to put in the hard work, he probably won't succeed in trading anyway and no amount of courses will help him.

Whew enough rant for today, glad to get it off my chest. Back to trading! :)

Self Mastery

I really feel that a huge part of trading is about self mastery. The ability to make decisions based on sound proven methods, to trade according to rules and not P/L, to manage our emotions etc. Well that seems very cliche and I've read and learned that from the start, but as time goes by the true meaning of it is really beginning to sink in. I'm just going to say this: "IT IS SUPER HARD".

I don't know if it is just me. I wonder if there is anyone who managed to attain a certain level of self mastery in just a couple of months. All of us have our inner demons, and they'll manifest themselves over time through our trading results. One big one for me is that I feel very uncomfortable whenever I'm in profit, especially if it is a multiple R profit. I'll then find any reason to get out of the trade, be it a lower time frame candle stick pattern or some lame reason like I'm going to sleep soon. The good thing for me is that I recognized that and I'm slowly overcoming it. I'm happy with my past few trades because I trailed my positions according to my rules and did not get out early at the slightest sign of trouble.

Our issues will manifest one by one and will continue to haunt our results until we overcome them. I reckon the entire process will take many years. Some traders manage to attain a level where they're completely emotionless about their trades, that is obviously the highest level but I really feel one does not need to berate himself if he still feels the euphoria or fear when trading. The important thing is to still be able to stick to the rules even though your emotions are crying out to do so otherwise. That is the stage I'm in now. Recently I could really feel my flesh crying out to just take profits quickly or prematurely cut loss etc, but I managed to discipline myself and not do it.

A trading journal is super important, I never fail to be disgusted by myself when I study my trades in retrospect. However disgust is one thing, progress is another. I really make a point to be very conscious about recurring mistakes in my trading and implement rules to work on them.

Emotional control also involves circumstances which can be very unpleasant. For me this is the typical stopped out by 1 pip before price takes off in my original direction, stopped out because spread got ridiculous during news spikes, and other unforeseen circumstances. I'll name some from today. My MT4 broker decided to mysteriously remove all my pending orders. I reentered them and it got removed again. Only on the third try did the orders not get removed. That wasn't too bad because I didn't miss out on any trade. However what happened next was epic. My broker decided to not fill any of my pending orders. That includes limit and stop orders. Imagine my shock when price hit my stop loss and I was still in the trade. I then had another trade which didn't execute because my limit order didn't trigger. To test it out, I placed multiple small orders on a pair to see if they'll execute. I'm looking at it now and I've never seen anything like this before. Price is just moving up and down my orders without triggering them. Only market orders work. Something is definitely wrong with my broker today and I have to do something about it before I continue trading. Heck I can't trade even if I want to. Times like this require emotional control eh? :P

Oh well, enough rant for now. So many things on my mind recently, hope I'll have the mood to write more about them :)

Common Pitfalls and Lessons From S/D Trading

Kinda in a blogging mood again so just gonna attempt to list them common pitfalls and lessons I've learned from observing the trades of myself and other S/D traders. I'm kinda lazy to look for example charts though so hope the following points are easily visualizable.

1. Trading a lower time frame zone which is just before a higher time frame zone. This may sound basic but I committed this a lot when I first started touch trading. For example we may have a nice looking Drop Base Drop (DBD) M30 supply zone, however there is actually a H4 supply zone right above it. The higher time frames represent the biggest institutions, so think about it. If you're a big market maker, there is a M30 supply zone but you also know that there is another bigger H4 supply zone just above. Greed is your nature, what do you do? You'll simply shoot price through the M30 zone to fill your sell orders at the H4 zone right? That way you not only get more sell orders filled (hence more commissions), you also benefit from the extra liquidity provided from the M30 bears getting stopped out. The same concept is also applicable to stacked zones (one zone on top of another), it is similar but I think the perils of trading a LTF zone which is not in a HTF zone is higher than that of trading a lower stacked supply zone.


2. When I first started touch trading a few weeks ago, I felt like a fish on land. Seriously it was very alien to me as I used to trade PA bars. My win rate was horrendous (thankfully on demo), but it also prompted me to dig deeper into my own trades and the trades of others. I started watching Sam Seiden's webinars all over again, and I studied Kenneth Lee's famous supply/demand thread thoroughly. I learned so much that I actually felt thankful for the losing streaks I encountered. I realized that it is absolutely important to be able to identify the best zones and be very familiar with Sam's odds enhancers. Now the term "odds enhancers" may suggest that those are just additional strengtheners of something that already works. I realized that it is not so. Trading supply/demand without the odds enhancers is account suicide. Just try touch trading every single zone out there, I believe you'll end up with a win rate of 30% or less. I see so many traders trying to touch trade zones that have been tested multiple times, others that treat every swing high/low as a S/D zone, and yet others who try to short every DBD speed bump supply zone in an uptrend. I've tried all that and had my ass handed to me. There are just so many nuances in S/D trading that makes all the difference.


3. I dare say that my ability to identify the best zones have improved a lot since I first started touch trading. There are two main price structures that I feel most comfortable touch trading. First of all is that tiny supply zone that forms just before the break of an obvious S/R flip level. If price breaks down and comes back to retest it, there is a high chance that this zone will hold. The second is simply shorting the previous DBD zone in a downtrend. If the zone is well defined, we really get a high odds and low risk way to join the trend. However once price starts breaking supply zones and is making higher lows, I'll no longer take any touch trade shorts as a trend reversal could have happened. This is a more conservative way of trading which I picked from up Alfonso in his thread. As with every trade, it is absolutely important to check where price is coming from. If price has already hit a HTF demand zone and is bouncing off it, I'll also refrain from shorting.


4. There are many ways of trading S/D concepts. The two main branches are touch trading zones and waiting for some form of price confirmation at the zones before taking a trade. After trying out both, I came up with a hybrid which I feel makes total logical sense. If a zone fits my criteria for a touch trade, I'll touch trade it. Otherwise, I'll wait for price confirmation first. So for etc if a zone is not fresh, very wicky, or it is a lower stacked supply zone, I'll wait for some PA bars or a LTF pattern like Quasimodo before taking the trade. Yes it will increase my risk, but it'll also increase my win rate. 

In the end, I just want to say that it is very very important to first be able to identify good zones. Even pro traders who wait for PA bars at zones are able to do so. I restudied the Price Is Everything thread, Redsword makes it look easy but seriously, the zones he points out are actually really good ones. The same goes for another legendary trader Julexo. I'm always a student of the market. Loving trading more and more still and really hope to be able to achieve my goals soon. :)

Quick Ramblings

Haven't been blogging much because for some reason I rather spend my time trading or focusing on trading material. Just want to jot down a few quick ramblings before I lose the blogging mood again :P

1. There are really all sorts of traders out there. Seriously I see many kinds of persona in forums, facebook groups etc, and like in every arena of life, one has to be very careful who he trusts and pays attention to. Some people are gifted with the glib of tongue, they're able to portray themselves as some trading guru, going around giving trading advice and correcting others. These people often only posts their winning trades after the fact. Mind you there is a huge amount of such people out there, some do so because they're course providers or provide some form of trading service, others do so because they enjoy the glory and fawning other traders bestow upon them. You'll often hear them say things like "That trade was so obvious, how could anyone not see it?", or "I knew it wouldn't work out, didn't I tell you so?", or "Sigh I only made 20% this week, could have been much better"....  I guess I'm kinda annoyed because I've wasted precious time trying to make sense or understand why the trades of these people work, when many times I don't even think they were good trades. I soon realized that I was right, many of these trades are lousy ones to begin with, they only worked because bad trades sometimes do end up in profit too. Such trades are many aplenty on forums, and one has to be very careful who he studies. Seriously do not ever ever listen to someone who only posts trades after the fact. A trader could identify 20 zones on the M1 chart, take all of them on a demo account, and probably 1 of them will result in a 10R profit. Post that trade on the forum and naive readers will flock to him and worship him. I thought a lot about it and this is my conclusion - I'll only render respect to the trader who is willing to post his trades the moment he takes them and not after the fact. Even so I'll only render respect to him if he is humble, generous, and willing to share and help others."The older I get the less I listen to what people say and the more I look at what they do." - Andrew Carnegie


2. Keeping to our trading rules is harder that I thought. I have no problem cutting losses when I should, but my biggest problem is taking profits prematurely. It has been my problem for months, and ironically still is. However, as I witnessed the destructive effects of this time after time, the significance of it is beginning to sink in. I have a dream, this dream sounds ludicrous at first but when you break it down, you'll realize that it is not impossible. This dream is to take a 10k account and grow it to a million dollars within 18 months. I did the math, in order to do so, one has to grow his account by 30% every month. Compound the profits monthly and a 10k account will grow into a million within 18 months. That will mean I have to make 7.5% every week, 1.5% daily. Now is 1.5% daily hard? I would say yes, but not impossible. I risk 2% every trade, that means I have to make 0.75R daily. To find out if that is possible, simply trade and prove it to yourself. I was analyzing my trades for last week and here is the shocking discovery. If I had stuck to the trading rules I had set for myself, I would not only have met my weekly target, I would more than doubled it. I'll post a trade to illustrate why.

   

   GBPCAD H1

   This trade could have been 9R (18%) if I had managed it according to my trading rules - trail stop above each supply zone. There is nothing magical about it, I simply took a short at a well defined supply zone. The problem is this - I was watching it on the M1 chart, and the trade put me in the green and back to the red about 3 times. It is very frustrating when you see a sharp breakdown and your mind goes "Yes this is it!", and the next moment prices retrace all the way back up and puts you back in the red. Fear sinks in, you wonder whether it was a fake out, whether you should just get out to be safe. Repeat that 3 times and the mind/emotions is totally drained. In the end I told myself screw it I'm just going to get out around breakeven, anyway I'm going to sleep and can't monitor the trade anymore. Can you imagine how disgusted I felt when price sunk the way it did the next day? This trade imprinted something deep in me. I realized that it is possible to make a million in 18 months, but I MUST stick to my rules. Did I expect such a runner? Nope. Does it always happen? Nope. But the key is this - The way to catch a runner is to stick to the rules. The tricky thing is this - Trailing a stop means you'll never get out at the exact top/bottom. You'll ALWAYS lose out on some profits. Also, perhaps 7 out of 10 times you'll not get a runner. It can be frustrating to keep getting stopped out at BE or a small profit. However, one must bear in mind that once the runner comes, it can make the week or maybe even the month. And the above is only one trade. There are a couple others that I also broke my rules and exited prematurely. As such, until proven otherwise, I'm going to believe that my dream is possible. Of course to achieve 30% monthly consistently is easier said than done, at some point the psychological stress of seeing the P/L fluctuate by the thousands will kick in. But I'll deal with that when it comes, right now I just want to focus on getting my strategy and discipline right. 

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.

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

Reminder On Why I Quit Equities

Comfort Delgro Daily

The above chart is a good reminder on why I quit equities. To me the equity market is just a freaking mine field if you do not have insider information. You can be the best technical analyst and it will not save you from ridiculous unexpected events that can severely damage your account overnight. So take the above chart for example, supposed you manage to catch either of the breakouts. You decided to implement a trailing stop and as the stock climbed so did your profits. Your stop is far above breakeven and you know that profits are secured. All of a sudden, this news occurred. A major shareholder decided to offload its stake. The stock gapped down 12% overnight, erasing almost all of your profits if you were in since the first breakout and taking you out for a loss if you took the second breakout. $*!&%*??!!

Now what do you make of it? How could you have avoided it? Mind you this is not an earnings report kind of news which one can avoid because he knows the date. There is absolutely no warning! And if you were to say "Oh well shit happens, as long as your method is sound you'll make money over time", I say to you "If my method is sound, why the heck would I not use it on Forex, Futures, or some instrument where I do not even need to worry about such ridiculous events?!" If you can make money on equities, I really don't see how you cannot make a lot more on other instruments simply because you lose a lot lesser on stupid events. Overnight gaps suck big time, and no one deserves to be a victim of it just because of some totally unavoidable news. Sure the news might cause price to gap in your favor and if you love excitement and don't mind a spiky equity curve, go ahead stick to stocks. I prefer my equity curve to be smooth. Besides, I realized that when price gaps in my favor, I only feel good for a while, but when it gaps against me, I get really annoyed and my psychology/emotions get pretty affected.

If you think this is a rare occurrence, do some research and you'll realize it is NOT. Companies suddenly getting investigated for accounting inconsistencies, announcement of property measures (I got caught by this three times, yes I'm that unlucky), various sorts of rumors, you name it... The equity market is a mine field. Of course, it could simply be because I am not skilled enough to spot signs like hidden selling.

What Is The Best Trading Strategy?

I have read many forum threads and quite a few books, and as a result am exposed to many different styles of trading. However one thing I can never understand is people disagreeing with each other. I simply don't get it! First of all let me just list out some styles of trading:

1. Wyckoff/VSA
2. James16 PA Trading
3. Bob Volman (Tick chart scalping. 10 pips stop, 10 pips take profit)
4. Supply/Demand Trading (Sam Seiden, ReadTheMarket, Price Is Everything FF Thread, AceGazette)
5. Order book/Level II Trading

Of course there are thousands more. Fundamentalists, quants, arbitragers, spreaders, SonicR, MA systems etc etc. Here are two main points I want to make. 

First of all, even if one has found a profitable system, why on earth does he have to think that all other systems don't work?! Personally I have a very simple way of evaluating a system. Are the traders using it making money? If so how much? Btw when I say how much I'm referring to a time based return in terms of equity %. I find it silly when a trader boasts of making 1000 pips in one month. Heck he could be risking 2000 pips to make that 1000 pips and if his R is 2%, that is only a meager 1% increment on his equity. Back to my point, I love the quote "A man with experience is never at the mercy of a man with an argument." One can try his best to explain how awesome his system is but if his trading results does not reflect it, why listen to him? Should a PA trader scoff at a Wyckoff trader with remarks like "Har vol on spot Forex is only tick volume and is not accurate!"? No, because there are spot FX Wyckoff traders who are doing very well. Just because a PA trader doesn't know how to trade Wyckoff properly doesn't mean it doesn't work! Just because a trend trader doesn't know how to catch tops/bottoms doesn't mean a supply/demand trader cannot! And to take it further... Don't tell me that trading Forex is very risky when you haven't even heard of position sizing and all you've been doing is buying and holding equities for dividends! So... my quest is to continually seek out ways to improve upon my current knowledge/system, always demoing and proving to myself before implementing. And the sources I seek must be reliable with people who dare to post without hindsight and who are incredibly profitable.

Secondly, I am a strong believer that the best system is one that suits your personality. An impatient person trying to trend trade higher time frames simply won't find success with it. So just because you really believe in your system and feel comfortable with it doesn't mean it is the best system in the world. I've found that traders often scorn a system because they've tried and failed to find success with it. This could be because they haven't put in enough effort to really get good at it, or it could be because the system doesn't suit them. I really don't understand why such traders are so blind/ignorant to think that the system that works for them is the best in the world. And mind you these could be really good traders. I wish there was less pride and more open mindedness in the trading world.

I really like what one of my mentors told me: "Anything you believe you must prove. Once you prove it you'll never question it" And so my endless quest of demoing and proving continues... I really look forward to the day when I can find consistent success and immense profitability. When that day comes and anyone tries to argue with me and promote his holy grail system, I'll just say "Hey I'm growing my account at 30% monthly, how about you"? That should put any argument to rest pretty quickly, and in the event that he does make more than me... hey I've found a new source ;)