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.

I’m back!

I’m back in the trading room, thank goodness. Six months was somewhat longer than I’d anticipated. The self renovation (sounds better than labouring for my builder son-in-law) and the home move took more than I thought.

I backtested the markets most evenings to keep in touch and continue to develop my trading system.

Of course, the currency markets recently have seen volatility, and there will be more to come. However, as a short-term derivative currency trader, my ethos is to trade the chart without bias.

I’m working with volume indication showing anchored VWAP signals imposed onto range bars. The entry screen uses price action signals from a tick bar chart.

I get it. To most, that sounds as dull as dishwater, but I’ve worked with it for many months, and I think it’s excellent!

I found the diagram below revealing, though. It shows how long it takes to brute force (i.e. crack) your password.

Talk again soon.

Crypto, how goes it?

An indifferent few weeks in the crypto world!

The levels posted (texted to those that ask) are shown below—shown in British pounds and rounded for ease of entry.

Ethereum

As we can see, thus far, Ethereum has achieved the upper level provided with two or maybe three opportunities of getting in at the higher entry-level.

Ethereum seems reasonably balanced and within a broad area of consolidation.

Bitcoin

On the other hand, Bitcoin made a torrid—if not entirely unexpected—time.

Bitcoin is not ranging, as seen with Ethereum. On trying to balance, Bitcoin dropped significantly, only gaining a positive footing hitting our lower published entry-level.

However, I understand that taking an entry while the ‘knife’ is falling is not a prudent action and viewing the chart whilst it happens is fanciful if we’re not a full-time trader/investor.

What to do?

Those who have invested or consider doing so in crypto join a rollercoaster of an event.

If you are in the camp that believes crypto has a future, then as an investor, I hope you have been patient and grabbed as sequentially as possible the proposed levels made available.

You will recognise the importance of taking small bites at the levels proposed.

Binance

Binance has changed its investor identification requirements to make it more acceptable to the UK and such.

In that regard, larger banks may still block such investment through Binance. However, it is possible through smaller banking institutions such as Monzo. (Nick tells me).

Advantages with Binance over PayPal is that it is more suitable for trading as limit or stop orders are possible, and selling costs are minimised if exiting but not withdrawing.

Another thought comes to mind that once bought, investors looking at their portfolios every two to three years are verging on too many!

Crypto—if you missed the buy, hold tight.

Price

Our required price for bitcoin and ethereum was probably too fleeting on Friday for most of us to get.

Price in both of our interested crypto’s has gapped slightly high this morning.

If we now revisit the price we desired, that could signal the level failing.

If you missed Friday’s signal, I’d suggest staying out—even if the price revisits the recommended levels.

We’d need time to take another read as to what is likely to happen.

PayPal

The buy mechanism with PayPal is limited in that it does not seem possible to set a future price—so if you are not on when the price is at the level you want, you miss it.

Equally, a stop level with PayPal is not possible.

As crypto has the high potential of significant price gaps, a stop level is not solid anyway. Hence the big recommendation is not to use a leveraged account in this regard.

I will monitor bitcoin and ethereum and update you technically as appropriate. But, for now, hold tight.

Buy levels for bitcoin and ethereum

Divide your investment amount by six, with three of those lots going to bitcoin and three for ethereum.

Bitcoin

I suggest the first buyback of bitcoin at about (or below) £44,000.

Buyback in stages. I cannot emphasise this enough.

The next buy level, if we see it, is in the region of £42,000.

These are value entries, albeit after a minor reversion.

I would like to see a momentum entry too.

But that won’t show itself until the current pullback turns bullish again.

If I were to prioritise a coin, it would be bitcoin due to the recent launch of the first-ever bitcoin ETF.

Ethereum

That position is happening as I write, the first buy level is £2,800.

I would also consider £2,650 and, after that, as with bitcoin, wait for a momentum entry.

Lesson

It seems that the PayPal personal account needs to be pre credited to allow crypto purchase.

Disclaimer

The levels given are my thoughts only. Individuals will need to take responsibility for their investments and the reason for doing so.

My Edge, what is it? And a crypto update

What is my edge?

As traders, we have to ask ourselves this question routinely—particularly if changing anything.

My edge identifies the market structure, trend and odds-based trades.

Identification of the market structure comes down to experience in the live market. Backtesting is a must but is no substitute for watching price in our chosen timeframe.

The trend is much talked about but remains elusive to most of us. I found the volume-weighted average price (VWAP) indicator on its session setting invaluable here. If trading a higher timeframe (such as the crypto investment), I like the anchored VWAP.

The shorter the time frame we use, the more we seem embroiled in odds-based trades: stops and targets—reward and risk—and the management of a transaction. So I have reintroduced trend line breaks and a two to one no quibble reward to risk. I’m also interested in the study of volume profiling.

As I’m still, and will be for many weeks yet, in the process of moving home—and making the one we’re moving to livable—I’m limited to an hour or so each evening backtesting the day. I do, however, take at least one day a week to dedicate to the charts.

Staying current in the currency markets is vitally important. But time out is also an opportunity to develop and reflect. Therefore, trading with clarity of method with practised (no mistake) purpose is vital.

Simplification is also a product of my time out. When busy in the game, I can be blind to development creep. That is, I introduce too many markets and systems without objectively examining what works and what doesn’t.

Getting back to an honest reflection of ‘what is my edge’? And only doing what that is.

Crypto.

We’d posted buy levels in Bitcoin and Ethereum—provided again below in British pounds.

Bitcoin provided both entry levels before returning to the all-time high. Those that bought, fundamentally and technically, you will find much information to influence whether you now stay or sell.

Taking at least some profit at this point would be sensible. Investing is a different approach. It’s for the long haul. But taking some, if not all, of the gain now is still advisable, and if we have a pullback in price, I will provide a suitable re-entry level. However, there is a 40 per cent chance that the price will continue higher and you are not on board!

Ethereum gave us only the higher entry-level. So we are only half loaded in Ethereum. It, too, although not at an all-time high, is at a distinct technical level. So the same profit-taking argument above with Bitcoin applies equally to Ethereum.

Bitcoin and Ethereum daily bars priced in British Pounds.