Watch AUD/CAD For Short Setup

AUDCAD 4H

AUDCAD 4H has just convincingly broke out of a long consolidation zone and it is worthwhile to watch it for any potential short setups. This could come in the form of a pullback to the broken support turned resistance level, it could also come in the form of a bear flag. Price action setups shall be my trigger. It isn't going to happen tonight so I'm going to sleep now, but I'll certainly watch this pair from Wed onwards!

How To Use Indicators Properly

Well first of all I'm certainly not a pro at this subject, but I just want to talk about what I've observed from the various traders I come across in trading forums. As a price action trader, I'm inclined towards naked charts, however it doesn't mean I despise or belittle the use of indicators. Heck so many people have use them successfully. But this is what I've observed - most traders who are able to use indicators successfully are those that who have achieved a certain level of proficiency with price action. I'll provide some examples.

1. The beginner trader reads Alexander Elder books and learns about MACD Divergence. He sees one forming in the midst of a strong trend and immediately jumps into a counter trend trade, getting burned in the process. The experienced trader first identifies the significant support resistance levels. He notices that price has just formed a long tailed pin bar + false breakout of a resistance level. Moving to a higher time frame chart, he realizes that although he is making a countertrend trade on the lower time frame, he is actually shorting a retracement in the higher time frame downtrend. He then checks his MACD and observes that there is also a MACD bearish divergence. He takes the trade and makes a profit out of it. 


2. The beginner trader learns about Stochastics. He comes across the typical crap about trading %D %K lines crossovers or shorting when it is overbought and going long when it is oversold. I don't even need to state the outcome.... The experienced trader looks at his chart and notices that price has just pulled back to a support level in a strong uptrend and formed a pin bar there. He checks his Stochastics and sees that it is oversold. He goes long and makes a profit out of it.


3. The beginner trader learns about how moving averages and Fibonnoci levels can serve as support/resistance. He trades every rebound of his favorite 20EMA or 61.8 Fib retracement and gets burned. The experienced trader looks at his chart and notices that price has just pulled back to a support level in a strong uptrend and formed a pin bar there. He observes that the pin bar also pierces through the 20EMA and 61.8 Fib retracement, as such there is a confluence of 3 support levels there. He goes long and makes a profit.

Gosh I'm so proud of myself for being able to come up with those examples :P Haha actually it wasn't that hard because I was that beginner trader. I'm not saying that I'm now an experienced trader, but at least I think I know how NOT to use those indicators. So time and again as I read the posts and blogs of pros, I noticed that the way they use indicators is to use them as confirmation and additional weight to price action setups. Price action first, indicators second. This is really sinking into me deep, I'm so convicted by this that it is hard to convince me otherwise. 

Thanksgiving - Super Long Post

I think I'm really blessed. I don't know how to describe it but I really do. It has been slightly more than a year and a half since I got introduced into the world of trading. Since then it seems like there has been a divine hand guiding me along the right path. I do not say that because I'm now very profitable or super rich, I say that because it could have been so much worse. I read a lot, and as a result I have come across numerous stories of how so many traders blew their accounts and took years before they became consistently profitable. So many were stuck in the search of the Holy Grail, experimenting indicator after indicator, black box after black box. You know what, everyone who has been down that road knows the outcome, but I personally feel that it is a road everyone cannot avoid. So it is with all the common mistakes that traders often make. Let me give some examples:

1. You'll never know that having 5 indicators and 3 moving averages doesn't work until you've tried it.
2. You'll never know that a $3k black box system doesn't work until you've tried it.
3. You'll never know that disobeying a stop loss is disastrous until you've done it.
4. You'll never know that oversizing on a position is dangerous until you've done it.
5. You'll never know that trading your favourite candlestick pattern whenever it appears doesn't work until you've tried it.
6. You'll never know that trading based on tips or calls by others is stupid until you've done it.

I could go on and on... We read about these common pitfalls and mock at people who commit them, but can you find a trader out there who has never committed them? With the exception of purchasing a black box, I've committed all the others. And I feel blessed, because I have not blew up. So many people blew up 5 digit accounts multiple times before they got it. So many people are still tinkering with indicator settings after years of non profitability. In every course or seminar that I've attended, every forum that I patronize, every facebook group that I'm in, people just crave after tips and tips and tips. They post their trades and then ask if they should take profits or cut loss. To me it just shows that they do not have a trading plan, and to put it bluntly, are bound for failure. They are just in it for the money and they want quick rewards with minimal effort.

I'm really glad that I just love trading for trading and not for the money. There is a quote at the top of my blog that says "The goal is to become the best trader you can be, the money will follow". I really believe in that. If you're in this not for the passion but for the money, there is absolutely 0% chance you'll make it. I really mean it. Trading is not like engineering, teaching, accounting, or any other profession where you'll still be paid monthly even if you suck at your job. If you suck at trading, you're not just not going to make money, you'll lose it, period. 

The secret to being a successful trader often eludes beginner traders because it is dull and unappealing. Yes a good trading strategy is important, but try talking to a beginner about discipline, money management, psychology, power of compounding etc. It is impossible for them to appreciate it, simply because there is too much to learn all at once and it is natural to be drawn to trading methods initially. There is nothing wrong with that, all of us start that way, I know I sure did. Whats wrong is not progressing, is repeating the same mistakes, is continually focusing on methods and not other aspects of trading.

And so, while I'm far from being successful, I'm grateful that I've learned what took many others years to learn. I'm referring to the search of the Holy Grail, which I've come to realize resides not in methods but in self mastery. I'm at the stage where I think I've sufficient knowledge about trading strategies to at least not lose money, it is now about continual improvement, discipline, psychology, money management, and self mastery.

Methods wise, I'm grateful that it didn't take me long before I stumbled upon Wyckoff, VSA, and price action. I believe that in the long run my methods will purely be price action based, but Wyckoff and VSA really helped me understand how the markets work and opened my eyes to how it is all about supply and demand. The thought that I could still be meddling with indicator combinations and different systems freak me out, and I'm so glad I didn't go down that route.

I'm also grateful that I started trading Forex. You have no no idea how much that changed everything. Yes I haven't started for long, but already I can see how not having to pay a minimum comms can open the door to important trading strategies that I cannot implement on equities due to my pathetic trading size. Partial exits are just so important, but if I do that on equities my comms will literally balloon. Simple example, if I make a trade on IG markets and decide to take partial profits and trail the rest until it is stopped out, I'll incur a min comms of $45 ($15 per trade). That is A LOT for my trade size. I can do the same thing on FOREX for $0 min comms, see the difference? I can also trade real small and focus on achieving consistency before increasing my size. In equities I can't do so because of the min comms. There are also so much more useful resources and forums on Forex. I so wish I had started it earlier. 

Oh ya one more thing. I'm glad that trading is a business where everyone is bound to fail at the start regardless of how high his IQ is. High IQ people are used to top grades and a sense of control over their profession, as such it is hard for them to accept the probabilistic nature of the markets. They can read lots of books and derive a top A+ setup, but when it fails they simply cannot accept it. All their lives they're used to things going their way but that's just not how Mr Market works. As such I'm glad that I'm on level playing field with these guys, just because they're smarter doesn't mean they'll fare better than me. If I can have better discipline and psychology than them, I'll trump them.

I am also grateful for my beloved wife who has been so patient and understanding, who always tries to accommodate me and put up with the excessive hours I spend in front of the computer or books. Sometimes I set my alarm to wake up in the wee hours and watch how the US market closes but she doesn't bark about that either.

Wow this is a long post isn't it? I guess it is meant as a diary post for me to pen down the plethora of thoughts swimming in my head. I got into a very introspective mood after reading some James16 posts. This guy is for real, I really respect his contributions to price action and I admire his generosity. I'm only few pages into his thread and a couple of his videos but already I've learned quite a few interesting stuff. Here are the posts (non trading related) that for some reason brought goosebumps to me:

http://www.forexfactory.com/showthread.php?p=84617#post84617
http://www.forexfactory.com/showthread.php?p=4005559#post4005559

Case Study on USDCHF

USDCHF 4H

Just want to discuss a setup on the USDCHF 4H charts and talk about why trade management is so important. I didn't take this trade because I felt that the retracement on the daily chart wasn't strong enough; I wanted it to retrace to a stronger resistance level before considering any shorts. Of course in hindsight I should have taken it.

So anyway, the setup is a nice pin bar at broken support turned resistance and the EMA. A typical entry would be a break below the pin bar which came 2 bars later. Note that this was also an inside bar breakdown setup. Now here is the important part. If one did not take partial profits at the swing low or moved his stop to breakeven, he would eventually be stopped out with a 1R loss. This is so so so important, and I only learned this recently after studying sites like ForexSchoolOnline and James16. I've seen and personally experienced this so many times, where the trade initially went well before reversing and eventually ending up in a loss. It is so crucial not to let this happen, to take partial profits and move stops to break even once price has reached a trouble area.

Having said that, this is obviously just a preferred style of trade management for traders who fancy a high hit rate. The catch is that you'll miss out on larger gains (because you've already taken partial profits) should price just break the support and continue to fall. I personally prefer to be right most of the time and hence am adopting the above trade management strategy. I've seen my profits turned to losses way way too many times and really don't like that feeling. This strategy will minimize my losses and protect my profits as soon as possible.

Poor Entries Can Lead To Poor Trade Management

I've been doing some reflection on what goes through my mind/emotions when I'm making or managing my trades, and I discovered something that I know will really help me with my trading. Basically, whenever I make a trade on some suboptimal setup, I tend to be more nervous. Things I'll typically do are to constantly check the lower time frame charts or feel comforted knowing that some friend of mine is also in the same trade etc. The moment an opposite signal occurs on a lower time frame chart, the nervousness in me shoots up and I do things like cut my position in half or tighten my stop so tight that it is easily hit. I subconsciously know that I've made a poor trade entry and want to reduce my stress by getting out of the position ASAP. Very often this leads to poor trade management decisions.

On the other hand, when I make a setup that fulfills all my entry criteria, I tend to be much more confident. I know that if my stop is hit, so be it. Given a choice I would still have taken the trade all over again. I do not get shaken out easily by lower time frame movements.

So my point is, it is very important to be very disciplined and selective with our trade setups lest our psychology gets affected while managing the trades. I'm still having problems with over trading and am working on it. I'm trying to trade only 4H and daily charts for now as that would give me more time to really "hunt" and wait for setups instead of jumping into them.

J.K Rowling Harvard Commencement Speech

http://www.youtube.com/watch?v=wHGqp8lz36c

Main quotes from the video:

“It is impossible to live without failing at something, unless you live so cautiously that you might as well not have lived at all - in which case, you fail by default.” 

“Rock bottom became the solid foundation on which I rebuilt my life…”

"What we achieve inwardly will change outer reality"

So It Should Be For Our Trading.....