Over October, I day traded a bunch of indices; here’s the trial result.

I regularly traded last month from before 7 am to about 8.30 am. The trades were tiny, starting with a £1,500 account. The idea was to trade several indices with a simple but consistent system. Rather than a demo, I prefer an actual, if not negligible, account. The result was nearly a 50% increase in net P/L.

The month comprised nearly 200 setups that I traded. (I take and manage from one to a few entries per setup).

More time is needed, but I’m happy this month to increase the trial account to 15K. I will report my results at the end and provide more information on my process, edge and what’s the next stage.

Daytrading is all about precision, but what does that mean exactly?

I took a significant loss in the fund many months ago. Although consistently profitable at the time, I had to restructure my trading system to build the fund back up as quickly as possible while removing the likelihood of such a loss from ever happening again.

Now I rarely have a losing week, and an out-of-sorts loss, I know, will never happen again. So how have I done this?

Successful trading is about precision. It is about risk and reward and being very good at judging probability. We derive expected value (EV) from risk, reward and probability. In addition, all three variables are constantly changing, and my decisions must reflect these changes in real-time.

To calculate EV, we take the estimated win rate as a percentage and multiply it by the reward minus the same calculation with the risk. I do this for each significant bar or phase of the trade. So, for example, if a percentage win rate is 30% with a reward of £250 and a risk of £20, then EV is £60.10.

EV=(250 x 0.3) – (20 x 0.7) = 60.1

However, EV is dynamic, so the calculation is done through experience as the trade progresses.

Appreciating what the EV is in the moment provides an immediate decision: exit, hold, take some risk off, or even add to the trade.

An advanced concept introduced by Lance Breitstein, but one that has made a significant difference to my results. Other aspects from Lance are exponential size on graded setups and a regular video review of my best trades.

How am I finding the all-important time over price structure?

The first chart I view is a line drawing, and surprisingly, that has markedly improved my win rate. A potential structure is generated from time-over-price and shows up very clearly in an uncluttered line drawing. A line provides the closes. In other words, you don’t see the wicks, and of course, with a line chart, there are no long and short coloured closes as in a candle or bar chart.

I’ve spent the longest time viewing charts with different tick and minute bar durations. As a result, I’ve chosen a 300-tick chart as my basis for the line, and I have the line more compressed (covering a more significant period) than I would have with a candle chart.

Once I find a potential chart structure, I review the higher charts for context. As my overview, those higher charts are the 30-minute and the daily candle charts. Both higher timeframe charts must agree with the trade direction for the line chart structure to qualify.

Therefore, I find that my review of some fifteen FOREX charts and the GER30 chart via the line drawing first is the best way around for me.

The setup is next.

With a qualifying structure, I switch to a 300-tick candle chart. The setup is usually a break in the desired direction. For me, a measurable target is a necessity. However, being practised in the many price action conventions is also essential. Before an entry (or immediately after), I’m aware that the trade satisfies my VSSS (See previous blog post). I’ve changed the A to ‘the right side of the V’ by Lance Breitstein).

In addition, the trade has to have a measurable target and a suitable stop position with a worthy risk/reward. As part of the process, I’m looking to the left to clarify the win percentage through prior chart structure and or significant support and resistance levels. And an awareness of the grade I have given the trade, and therefore the trade size gleaned through hundreds of hours of chart video.

In many instances, to achieve the all-important EV, trades happen in the blink of an eye. Under these conditions, mistakes happen but are minimised through practice and waiting for the proper setup.

Am I ahead of this trade or playing catch-up?

Something I consciously consider at the point of each trade entry is ASSS. That’s somewhat the point—easy to remember. The ASS part (always-in, structure and setup) is understandable to most traders, and I will cover them in a future post. The final ‘S’ is my consideration here and stands for speed.

Speed in this context is getting out ahead of the market. I don’t mean prediction, as that can often lead down the wrong path. I mean being in the moment, focused and seeing and reacting to the signals as they occur. How often do we stumble across an ideal setup (which wasn’t anything a few moments ago) and are now late to the game playing catch-up?

The trouble with catch-up is that often it puts us in the wrong frame of mind. For example, I want the price to return to my desired entry-level if I play catch-up. However, in the same situation, I may exit the trade if I entered already and got a reversal.

But speed has considerations further down the trader’s line too. It involves everything. Probably unnecessary in this day and age, but I’ve dedicated a computer entirely to trading—both for speed and distance from unwanted distractions and clutter. The charts I use and how I organise them for ease and speed of access help define my success (enormously), as is my WIFI connection and, crucially to a day trader, my chosen broker’s connectivity.

Speed, therefore, is a review of my physical and interactive process to ensure my mind is in the right place—focused, open, ahead of the chart, if only minutely—and decisive. As I have said previously, I enjoy considering multiple charts as that helps keep me absorbed. But I make a point of trading one chart at a time. Once I recognise a qualifying ‘ASSS’, I automatically judge my risk and ask, “is this a B trade or better”. Finally, I view the other side of the trade closely—because there is always another side to some degree or other. Am I seeing the beautiful lady and missing the witch?

Exponential risk, does it have legs?

I took a few days out and walked forty miles in the Lake District. After the walks, I read The Antidote by Oliver Burkeman and reread Atomic Habits by James Clear. Trading is improved by almost every good idea I read about; these books are no exception.

I’ve been pleased with the results of trading nine currency pairings. If done correctly, more markets can result in fewer, more selective entries. As I observe, an appropriate structure and setup are available in most sessions.

The currency market continues to have good price movement. And I’m continually scanning for high-probability trades. Oddly my ‘C’ trades seem to present themselves before the more lucrative deals. If I jump on a weaker deal, it tends to draw me as they can often be more challenging managerially. It is only later that I notice the better trades have sailed past undetected.

At the same time, I do not want to be hesitant when a higher grade trade presents itself, wondering if it is a ‘C’ or better. That comes with a lot of practice and consideration. Writing up in great detail each significant trade and honestly drawing out all the lessons helps. I’m starting to video my trade sessions too. I can then play the good ones repeatedly to reinforce what I did right.

It sounds like an awful lot of trouble. But the more repetitions I do, the easier it is to recognise when the play is so good. I also record repeat wins to note categories and pairings. It’s all about building a database of those setups and charts and what they look like when they work well.

I now have a note card of my ‘C’, ‘B’, ‘A’ and ‘A+’ trades and how much I want to risk. The risk I now use is exponential as the bet grade improves, and I gain confidence in judging those differences. An approach used by Lance Breitstein and one, I realise, that moves away from the usual convention. But as long as I work up slowly to the process, I think it has enormous potential.

A game-changer—increase in entry size based on the grade of set-up.

I introduced nine markets to my trading watch list this week and saw a profound favourable difference. Why?

Recently I’d traded only one and then two currency pairings. That had the advantage of knowing my market and, by association, controlling risk. But it introduced unwanted aspects to my trading too.

Patience is my Achilles heel. With only a single pairing, it might not be in play for some time, and, through impatience, I’d take a less than perfect setup trade entry. The in-play is an expression often used by SMB Capital and also identified by Lance Breitstein. They refer to stocks, but as the definition is technical, the principle applies to currencies too.

Observing so many more pairings, I’m more conscious of ‘always in’ and structure, which often results in an improved setup selection. For example, if I rate my setups from a ‘C’ to an ‘A’, I find that with multiple charts, I’m only taking what I might class as ‘B’ and ‘A’ trades and passing on the ‘C’ opportunities. Previously, with one or two pairings to view, I had a plethora of ‘C’ trade setups to my name.

Another advantage of waiting for the higher grade entries is that I can build my trade size and, conversely, my risk more confidently. This selective size and bet process, championed by Breitstein, is a game-changer. Yes, let’s not put the cart before the horse here. Reading probable direction (or always in), market structure—and recognising in good time a favourable setup—has to be proven before we up our stake.

After months of charts and hundreds of setups (a relatively limited view, thousands would be better), I found that the 500 tick chart provided three times more (precise) entry setups than the 5-minute chart. However, the 5-minute chart offers a better price over time visual structural assessment. So I have gone with both.

The left shows a 500 tick chart set at a ten pip scale (the market is closed hence the wide bid/ask lines), and the right shows a five-minute graph with an automatic scale.

Every chart can change our perspective about price over time and volume capitulation depending on its median and how we set the axis. I can identify the market structure more quickly from the layout of the right-hand chart. However, the one on the left is for trade entry. The advantages here are consistent risk assessment, thereby reducing errors, and often a sharper (and for me, it is subjectively less emotional in its appearance) presentation of a setup.

The tick chart can work well with others

Another active week in the currency markets. I mean broad, predictable vertical price movement. For me, predictable is if I can identify the market structure. If so, I have a fair chance of realising when the form is moving from balanced to trending. No matter how brief or extended. I worked this week rather pleasingly in terms of results with side by side a 5-minute and a 500 tick chart (and a 10-minute VWAP chart for mean reversion guidance).

This week’s screen is on an ultrawide 38′ Alienware.

To the casual observer, they look similar. And that is true. The 5-minute and the 500-tick harmonisation is close but derived from a different source. The 5-minute is, of course, the price movement that occurred during that specific five-minute period. The tick bar, alternatively, represents the net effect of each five hundred bought and sold contracts.

Why did I like this trading combination?

Market conditions always favour a specific set of trading parameters depending on market activity. However, often this is only evident after the fact. Therefore, we go into our work generally with a known system (how we’re going to trade today) and fit it as best we can to the conditions that develop. The market can favour a set of trading parameters for days, weeks and even months. So a regular change in our system is not needed.

I’ve worked a lot with a standard split of charts. Maybe using the 5-minute chart as the principle with the lower timeframe assistance of, say, the 2-minute chart and a higher timeframe—for mean reversion estimation—of the 30-minute or hourly chart—all standard stuff. But as I hinted last week, we can get in a lot of bother with overly interpreting the lower timeframe charts.

I use the mnemonic ASSS before I enter a trade. That stands for: always in, structure, setup and speed. The ‘always in’ is the initial key. It is where I decide which probable direction the market is favouring for the timeframe in question—long or short. You have guessed it, though. The lower timeframe chart can often be at variance with the principle diagram. No problem, we wait until the lower timeframe ‘always in’ direction agrees with the principle timeframe. Easy in theory, not so simple in practice.

Understand that on or about to enter a trade, most (and particularly inexperienced) traders’ IQ drops by about 100 points. Not ideal when we have to manage differing setup suggestions on very fast-moving platforms.

The trading combinations of the 5-minute and 500 tick charts provide correlation in structure and ‘always in’, but one can present us with a setup when the other does not. Two possible bites at the same cherry. Other traders might want to find a different trading tick chart correlation. On a limited test (over several months, creating hundreds of setups), I got three times more entries from the tick chart than the correlated minute chart.

For sure, you have to know what you’re about if trading the one-minute chart

To be profitable in this game is such a finite thing. No surprise there. But once an account can be held steady over an extended period, the next stage, profitability, flows very nicely. But my goodness, it can be messy. It requires grit and the need to come back from negative experiences. It’s not for everyone.

Having an edge is talked about a lot. I’ve mentioned it previously, but it is something I review regularly. Which, in turn, sees me tweaking my set-up criteria here and there. But I try not to fall far away from what I do day in and day out. I think trying as many methods and timeframes as possible to see what suits our personalities and goals best is necessary. But then, once past that stage, we need to focus on our chosen narrowness and utilise it better than anyone else.

ASIA (access, speed, information and automation or algorithm) is a simple way we have discussed previously to determine our edge. As a day trader of a currency pair, I offer the following thoughts.

Access to me is the accessibility of my chosen market. For me, this primarily comes down to where I live. The currency market is at its tradable best from as early as 6 am consistently through until gone 4 pm (UTC + 1). Perfect. Within the day, there are more favourable trade times. The European and UK markets take us from 7 am until about 9.30 am. The US market comes online from 1.30 pm and is at its most active for a couple of hours. I also like to have a currency pair where only one of the pairings is open to news events. As a day trader, access to a market at its prime time usually provides the more favourable and all-important minimum spread—the difference between the ‘bid’ and the ‘ask’ price.

Speed, I think, can be misinterpreted. Very easy here to put the cart before the horse. The pace of entry cannot stand alone. It’s the precipitousness with quality set-ups that counts. Also, this does not mean watching the smallest of charts. Whether a minute or an hourly chart speed of entry requirement is similar. In this instance, the recognition of the set-up is the most challenging. I use multiple timeframes of the same market. My primary chart is the 5-minute bar chart. But I like to know how I stand with other timeframes—I want to know what they’re doing. To that end, the hourly and 4-hourly bar charts are visible to me. In unison with the 5-minute chart, I keep close tags on the one-minute chart. I do this because I can identify entry set-ups valid to the higher timeframe chart but not registering. (A word of warning here, however, trading from the one-minute chart without the necessary practice and firmness of objective is highly detrimental to profitability).

Information to me is chart-based. A forward rather than a backwards-looking indicator is better, says Chris Cady, a trader of some 40 years. I have studied many such signals, including VWAP and market profile. But I’m at my most profitable, with the awareness such study has brought, by viewing a clean chart for structure and set-up. I suppose for me. Less is more. But this approach has a minimum lag, and the combination of information and speed is the nub of my edge.

Automation, to me, is structural and set-up recognition time after time. Alice, the name of artificial intelligence in a Jack Carr novel, says: “the data is collected, I can see it, it’s the looping it all together into patterns, watching for variations and turning it into meaningful predictions that is difficult”. Computers, though, do not fear missing out, do not revenge trade or lose their mogo. So I have to stay centred and manage all valid transactions correctly. That’s the theory anyway.

How do I know I’m in control?

I always mention day trading in terms of how I trade—no one wants to know the management bit. Last week, I said that managing my work trumps how I go about it. But that, in turn, bows to what is going on between my ears—the top idea in my mind.

In truth, everyone realises that I can’t profitably have one without the others over the longer term. It’s just that the ‘how’ tends to be more interesting. Jean-Francois Boucher puts it well in his chat with Etienne Crete. The getting in and the getting out are the easy parts. I also like how he mentions that trading is boring if you’re doing it right but not too dull. Charts are repetitive, with lots of the same every day occasionally thrown into turmoil.

Boucher has a reasonably distant safety stop-loss relative to his timeframe. A stop, as he mentions, that saves his account, not the trade. I do the same. Nearly all my transactions are manually rejected when they don’t work, but my safety stop is always in place, and I manually trail the safety stop in a winning trade.

I like to know what the value is versus the perception. In this regard, trading a currency pairing will be very foreign to an equity manager. Stocks and shares predominantly go up. Indeed most brokers only allow longs. In this regard, buy and hold is the way. Not so in currency pairings. With these, what is up anyway and to what? Price revisits the same level time after time. But this hope is dangerous too. It has been to me several times in the past. Okay, I get it a slow learner, but no different to many eventual profitable currency traders.

Over several days until mid this week, I’d traded light at no more than two lots per entry and added steadily to the fund. Then on a day of pure personal genius (cynicism), I traded my feelings rather than the chart with early anticipation of a market reversal—this has rarely worked in the past and certainly didn’t go favourably here. As a result, I dropped a thousand pounds. Not a lot in the big scheme of things, but I know it can quickly get away from me if I don’t halt and come back the following days with my head right.

I sorted my feelings, went back to basics and traded the two following mornings returning all the losses. It’s never about the profit. It’s always about working well. If I’m proficient, profits tend to look after themselves. Overall, not a big win week financially, but (correctly) bringing back a loss is very positive. It tells me I’m in control.

A day trader has to know when to go it alone

Look, to be consistently profitable in this game, we have to know a lot about the art of trading. But the rub is, the more we read, listen or watch, the further we are from that goal—what a dilemma. So finally, I had to get to the point where I was confident to put it all together. It takes a long time, though. No matter how well-meaning what I’m taking on board or how acknowledged the developer or author is, stuff will detrimentally plague my trading results. I can think of loads that did so for me. It still does if I don’t concentrate.

I include courses in this too. Education that costs thousands for what amounts to a couple of days. Of course, it’s not intended to throw us out for years to come. What is being explained works for one, the developer, not necessarily for the many? Okay, so why not stick to effective picture knowledge-based instruction and leave strategy to our creation. Great in theory, but it isn’t easy to separate the two. We seem to be solely attracted to the process.

An article on trade management—the primary contributor to our success rate— and a report on strategy will see only the latter digested unless the mentorship is consistent and always available as in a quality prop firm. As a home trader, it’s nearly darn gone impossible (as my online golf instructor says). Is there an answer?

The only one is to trade small until the account damaging picked up habits are eradicated. My ideas are self-generated, and my management is not complicated but so precise that I have no room for consideration or doubt. I have the flexibility to change with the market, and I’m consistently profitable. Then I’m ready to add size. I pleasingly did that this week—having been so long away from the screens.

In trading, everyone refers to an edge—what is it?

A recent chat with traders episode 231 with James Chen provided an acronym for realising an edge in trading. It was ASIA standing for Access, Speed, Information and Algorithm. Mr Chen’s trading routine is far different to my own. He lives in Australia but stays up all night to enter an Aussie dominated index during the USA trading hours.

However, I think “ASIA” has relevance in all forms of edge defining trades.

Access to me as an intraday trader is volume and, therefore, volatility during my trading day. A principal reason I’ve chosen currency pairings as these fit the UK workday perfectly. I have early access to the European market, with the UK opening soon afterwards. By early afternoon in the UK, the American market starts. I’ve found that concentration on a few markets is better. Indeed I concentrate on the British pound / Japanese yen. My alternative is the Euro / Japanese yen. Why so limited in market choice? Rhythm. I can more easily find the flow of a single market currency pairing, make fewer mistakes and trade more aggressively when appropriate. That, I feel, is an edge.

Speed means different things to different traders. For me, it refers to the speed of entry. But, of course, that is affected by our choice of broker. Trade spread, strong direct market connection and quality of market interface are broker factors that help or hinder. If the broker helps in each of these, it contributes significantly to an edge.

Information as a technical day trader is chart based particulars. I always want to trade the chart, not a bias. An example is that many trading software provides a sentiment biased target. A sentiment target influences direction. As we’re trading a different timeframe and a different trend, such an indicator would be disastrous. I’m constantly aware of market information that can move prices wildly. Other than that, to be in my information bubble is an edge.

More relevant than an algorithm is a term automatic. I’m a discretionary trader, and as every day is different in the market, my trading system needs to be adaptable to what the day brings. Nevertheless, each entry and exit is instinctual without procrastination or hesitation. That comes through a well-tested system over so many chart hours that the chart read and trade management is precise, mistake-free and systematic. When achieved, that, I’d say, is worth it and most certainly an edge.