Forex trading and USA holiday

Good morning Forex day traders, 8 am Monday 19th February 2018.

Our first trade of the day was missed. From the close of the bear bar at bar 1, an unassuming engulfed bar, I went for my first pot of tea of the day. I missed the second bear bar, bar 2, which provided a probable entry short of 8 pips.

8 pips are our minimum entry in the GBP/USA currency market.

The short went 12 pips below our planned exit, down to Friday’s low and to the significant number of 14000. That, of course, means 1.4 dollars to the pound.

Trades today will in all likelihood be light being a USA holiday. A trading range day is expected, but occasionally on such holidays, a trend can form.

Our missed entry looks good on paper, but in reality, I would have not made the short. The spread at the time was double, which is typical for a no-news Monday morning. As I don’t pay the entry spread, I always like to achieve a limit entry, the subsequent pullback at the close of bar 2, and at 2 pips spread, would have not worked.

We wait patiently for the next opportunity.

Trade management, a skill

Trade management is a skill and tricky to achieve, the first thing in the morning! The trade is from 8.15 am 16th February 2018.

The chart below shows a possible wedge, three pushes down marked by the red arrows. A strong bull-bar, the close of which is characterised by the green box, provided a reasonable probability of an entry-long with a target back up to the previous high.

We enter (the green box) long. The follow-through, however, is somewhat weak. Until we get the bear bar, the close of which is marked by the red circle. This could have been accepted as a small loss exit position.

However, we hold. The trade is expected to go back to the low of the day. The risk is a breakout short.

At the price action long, shown by the green horizontal arrow, we scale-into the trade. Our target is a breakeven on the original bet and a small profit on the scaled-in take.

To scale-in improves probability but is not for the beginners.

A screenshot of the trade live.

Price action is all well and good, but context counts more

10.45 am 15th February. After the tight channel long the market went into a narrow trading range for a couple of hours.  The close of bar 3 provided the first opportunity long as the close was slightly above the support line.

However, we considered that bar 3 was the third push long, an embedded wedge, and therefore not a likely trade. In hindsight, computers saw this as two pushes down with higher highs and higher lows. The market went up after bar 3, without us!

Our next opportunity was the price action provided by the pin bar marked by the yellow box. The close of the pin is above the support line (and at the 21 EMA) and gave a 60% to 70% chance of a trade long, at least to the top of the previous high and a 15 pip profit; which we are happy to say, it did.

Advantage of the scalp over the swing, if we can make the entries

Good morning Day traders, 15 February 2018. A great start to the day for the early risers. The higher timeframe chart, daily in this case agrees with a possible trend long.  Soon after 7 AM on our 5-minute bars we get a breakout, indicated left to right by the first yellow arrow. We enter here for a scalp long and exit at the lowest red arrow.

We immediately take another entry near the close of the first exit, from this measurement we also set a pullback entry. We make these entries long for a scalp target shown by the middle red arrow.

A third entry is achieved, albeit more tentative as we are near the possible top of the push. We trade here with a decreased amount due to our stop being below all the bars shown.

Again we get the breakout and the pullback entry and take the final scalp at the target shown by the top red arrow.

Achieving about 70 pips for what was only a 32 pip move overall. That is the advantage of the scalp over the swing, the difficulty is making every entry.

Yellow arrows are trade entries, red arrows are trade exits.

Trading range morning

The example below provides a 30 pip trading range (TR) before significant news at 9.30am. The close of bar 1 gives us our first opportunity short. At this stage, we are not sure of a trend or TR therefore as there is doubt we take the scalp. On reaching the scalp target, we have three pushes down and hence probably a reversal to establish the TR. The fourth entry at the close of bar 4 did not reach the target. We exited on-market in this instance at the close of the third bull bar after entry. Bar 5 short was interesting. An excellent signal and as the bar was small, we took the measurement, unusually, from top to bottom including the wick. However, the institutions also liked this signal as the price, although showing a small PB, raced down and we did not get our entry.

Yellow arrows indicate entries and red arrows exits.

First trades of the day

First trades of the day can often test our resolve. Bar 1 below was our early trade this morning (12th February 2018). The London market is starting, and this can introduce volatility. Moreover, we don’t feel settled into the chart, we have a possible wedge that could take the price long and as the day has no news to mention we could be in for a trading range day.

We place our limit order short at the close of bar 1 and at the midpoint of the same bar. The next bar, a pin bar down but not a new low, is not the follow through we were looking for. We exit on-market for a break even. Bar 2 and bar 3, on the other hand, provide confirmation of reasonable probability of at least a scalp short so we take our limit order shorts at the close of each; the midpoint pull-back limit entries were not activated.

Our initial trade (from bar 1) if we’d held it would have provided 27 pips of profit. Bars 2 and 3 entries combined provided 17 pips of profit.

Some traders would have taken the first bull bar long after bar 3, however changing trade direction that quickly is difficult. Bar 4 was our next opportunity. By now we were in the groove and entered at the close of bar 4 and at its midpoint. The subsequent scalp provided over 28 pips of profit.

Short entries were taken at each of the red arrows.

New funds to trade

All traders look for an edge, an ideal way to enter, manage and exit a trade.

It is crucial that a chosen edge suits us individually too.

The time-critical stress of the day traders world is probably not for everyone. Nor, for others, the weeks or months of being out of the money, as in the longer time frame deals.

However, if we have the time, the knowledge and the inclination we might be comfortable trading in both disciplines.

More than this, one helps to condition the other. In day trading we have learnt the art of the identification of a likely trade. In longer-term trades, we appreciate the need for trade management and a requirement to ignore emotion and the uncanny ability to hit targets when we are not necessarily observing the trade moment to moment.

A big supporter of the commitments of Traders (COT) report, not everyone is as it is infrequent in its signals and notoriously broad in its message. However, with longer bets, as a ‘conditional’ trader, the COT provides arguably the only edge that is not in itself related directly from the price.

Day trading has provided us with skills that can be coupled very well with the longer term charts and this, in conjunction with the COT, offers an exciting way forward.

With additional funds coming in to trade, we looked at what would complement our day trades but not emotionally or otherwise interfere.

Significant commodities and a selection of currencies traded from weekly charts in unison with the COT is our chosen direction.