Wednesday, June 24, 2009

6-24-09 GBP/USD TRADE








Today with FOMC on tap and other reports coming out, it was a little sketchy trading but as the old saying goes, "trade what you see" was in the back of my mind when I took this trade. In my mind it's all about trading at the right level at the right time and managing a trade properly. As I watched this pair, I saw the flows on the day seemed to be changing. We closed below last weeks high with a bearish engulfing candle. I scaled down to a 5 minute to see the last TSR areas and found two. The minor one at 1.6529 had more confluence with the retest of a broken trend line and 50% retrace of the last move down, so I liked that area more. With this pair especially, you can get a "bleed through" to a minor level or last dealing range. The trade set up, I took it and it paid. As of this writing it was trading at 1.6508. Two trades like this per day will do nicely. :-)

Wednesday, June 17, 2009

COST OF DOING BUSINESS

While having a chat with a trader yesterday the subject of losses came up. This particular trader summed it up pretty well by saying, "to me a loss is just a business expense." That simple statement had profound meaning to me. Every business has a "cost of doing business" factor in their business model. They allocate for travel, office supplies, employees, benefits, utilities and other expenses. There is a predetermined budget for each of those items. In the good times the budget may grow and in slow times it will likely shrink but the point remains the same. After these costs are factored in, a company expects to show a profit monthly, quarterly and yearly. Why should it be any different in trading?...yet many traders focus on the losses rather than the overall picture. As traders we will incurr losses. How we manage those losses is, of course, up to us, but we can cut the loss short or let it run to our full stop loss. I guess that would depend on your style and methodology. My point here is that we are going to have losses so accepting them simply as costs of doing business it can totally change the perspective. A loss becomes less painful and more accepted, allowing us to concentrate on the big picture of making money based on our overall performance monthly, quarterly and yearly. Maybe we should change the terminology from loss to expense. Hmmmm, "I had 3 profitable trades and one expense today." Sounds better already.

Monday, June 15, 2009

THANKS ROB!




This morning I was watching the GBP/USD and noticed a nice range that we could get a break out of. Rob, a friend of mine who trades with me from time to time noticed the break at a time that I was doing something else. He pm'd me and we both took the trade. My fill was at 1.6359.


This type of trade gets to the heart of what TSR is all about. If you traded the wicks here, your fill would not be as good. Of course you would have still made profit on the trade, but you would have suffered some draw down. I realize that trade management is the key, but the better fill you can get and the less draw down you have, the more likely you are to stay in a trade. Really, there were no strong longer term levels concerning this trade. Rob and I saw a range, and traded what we saw. I show a 30 min chart here which gave me confirmation to take the trade. The candle closed above the range and then on the 5 minute chart you can see the entry. It got a little hairy when the 5 minute closed right near my entry. As I took the trade, that candle was not closed as of yet. After I got another surge toward 10 pips I had made up my mind to exit the trade if it came back to my entry. Fortunately for me, I got a surge into the 20's and took the majority of my profit. I guess this trade is about as simple as it gets using TSR. The bulls won this battle, now to the next one.

Friday, June 5, 2009

MY APPROACH

I have not posted anything on the blog in quite some time, but because some have asked to know more about the methodology by which I trade I thought it might be helpful to write about the methods I use. I may be repeating myself from earlier posts but afer all, repetition is how we become succesful. First of all let me say (for some who may not know) that the foundation for my trading comes from my mentor and friend Chris Lori. The techniques Chris uses and teaches were introduced to me after I had searched and tried many "systems" that never worked for me. Chris taught me to trade based on price, and nothing else. I have attended several workshops with Chris and after purchasing his video course I went to my first workshop.  Unfortunately, I had "learned" better and thought that the more difficult a system was to implement, the more money you would make and didn't implement the methods Chris taught right away. I could not have been more wrong.  I still struggled and lost money. One thing that Chris teaches is having strict discipline with your plan and I didn't want to use discipline. I wanted to be in the market all the time like a gambler at a craps table. After observing other traders who implemented these methods,  I finally realized that I must do what they were doing if I was to succeed . I have been trading the methods from Chris now for three years and I will say that I do not think there is a better method. Let me emphasize, however, that I had to come to terms with my own psychological weaknesses and address them for ANY method to work for me. It was only when I also decided to do that very thing that my trading turned the corner. Now I can say that my account is growing steadily and even though I have struggled at times, I realized that the method of trading price based should remain the same.

In my opinion, the key to trading is learning how the market moves and adapting to it's environment. Support and Resistance are the heart of that movement, but there are other little "quirks" that you must pick up on as well. I will try to point out a few of those, if not in this post in others, however, the best thing you can do is get a lot of chart time viewing price behavior at critical levels. Combining this with patterns and fibonacci is how I find trades. When searching for a trade I look for:
  • Longer term key price levels using weekly, daily and 4 hour charts
  • The sentiment of the market by reading reports and talking with other traders
  • Economic reports that might move the market
  • Ranges that the market may be trading in at the moment or could break out of
Once I have got my mind wrapped around my trading environment I will look for convergences at a certain price levels. The more reasons I have that a level could offer a good trade, the better. However, that doesn't mean I don't change my mind. This is where price behavior becomes the only indicator you need to determine if your trade set up is still valid. I consider the volatility and the "energy" price has displayed many times to make my decision on placing a trade. The following example of the USD/CHF can help illustrated what I mean. After the NFP report was released I was looking at a level for a possible bounce (1 hr chart). Many traders place trades trying to predict what the market is going to do . I have come to realize I can't "KNOW" what the market is going to do or which trades I take are going to offer good profits for certain. All I can do is trade what I see. The price behavior approaching the 1.0872 level on the this pair was kind of "creeping" up to the level (5 min chart). Please note this was before the spike on the 1 hour chart. It came within 10 pips or so but it wasn't showing any weakness. As a matter of fact it had cleared another level at 1.0855 and was now using it as support (another trade within itself). A times when asking Chris "what do you think about a long at this price or a short at this price?" and he would say, " I will watch price around the level." I would come away shaking my head and think "what does he mean, watch price?" Well, now I know. You see, just because you have a level does not mean you should trade it every time. In my opinion, you should let the price behavior tell you whether or not to take a trade. On the USD/CHF trade set up, price really showed me that it wanted to go through the level I had eyed. It came within 10 pips and formed a trading ranged just beneath it. Think about it this way, if you trade S/R levels and it forms S/R just beneath where you would anticipate a bounce, what is likely to happen? It will likely use that as S/R again. If you view the 5 minute chart you can see that's exactly what it did. So does that mean the level is invalid and cannot be traded at all? NO. You see, when you observe price behavior there just wait and be paitient to see if price is going to hold or reject the level. It's a very good way to get a good fill and put the odds of low drawdown in your favor. With this set up happening on Friday we don't know how the level will play out, but look how it did come back below the 1.0872 and start holding there. Price will most times tell you if it is going to commit above a level or not just by observing price action.
Chris, BRV (nobrainertrades.com), you and I can all use different methods for our entries, or our money management approaches and our trading techniques, but one thing is for sure, price has a behavior, and if you really want to cut your losses short and let your profits run, then learn the true nature of price, in the NOW, and you will achieve much more than success, you will have mastered of your skill.