I flew fast jets for 30 years of my life. I've traded full-time, more or less, for the last ten years, initially from fundamentals and over the last few years as a dedicated day trader. I live on the North Norfolk coast.
As a technical price action trader, I know that it is essential to work to a strategy. However, that is not the entire story, not by a long way. Within a plan, I have to define my trading frequency. The best way for me to explain is through an example. The diagram I have chosen is from the 5-minute chart on Thursday 7th February 2019 of the currency pairing AUD/USA.
Price in the chart above is ranging, but the last move long was from a higher low and before that a higher high; this ought to indicate that the dominant price direction is becoming long.
However, set against this is my understanding that the magnetic effect of the double zero number (in this case the price level 7,100) is still a dominant factor below our current price. In other words, my direction of trade at this point is undefined.
The next three and a half hours provides many exhausting false or aggressive opportunities that in one way or another match the criteria for my strategy but ultimately would avail to nothing other than a gradual depreciation of my account.
The box, drawn around the possible high and low levels of the period, was not so clear at the time. Moreover, something I am not able to show is the fluctuation (or flickering) of the open bar that adds to the frequently incorrect temptation of the determination of dominate price direction.
A substantial opportunity presents itself at the close of bar 1 shown above; this results in a false break of the lower part of the price box I have drawn.
The close of bar 2 either reconfirms our entry short at bar 1 or for the more conservative trader bar 2 is the real signal bar that has arguably closed below the breakout box drawn and demands a trade entry short into the face of the double zero number.
Bar 3, following the entry bar, provides a ceiling test of the bar 2 signal bar. Often a positive sign and another entry opportunity for the sharp trader. I can draw the box representing my best assessment of support and resistance with all the price action of the last few hours in place. Therefore, all well and good in hindsight.
But unless I sort my ‘trade frequency’ out in my mind, the result will not be as clean as I have demonstrated above. To decide and understand my ‘trade frequency’ can turn a mediocre account into a genuinely winning proposition.
To help sort the infinite frequency possibilities, I will classify them into three broad definitions: (1) Always-in or high frequency, (2) positive entries but aggressive, and (3) stable entries. Within each of these bands, there is the possibility for a wide range of clarity; for example, the final definition of group 3, could itself be classified from the stable aggressive to the conservative. But for now, the three bands are sufficient.
Our first definition very much appeals to me. The absorption or total engagement necessary to survive in this operation is electrifying. However, it is a fool errand. Very few highly experienced traders (or computer algorithms) are successful at ‘always in’ or high-frequency trading. Moreover, any form of spread commitment places this form of business into the impossibility category.
So that only leaves me with band 2 or band 3. In my opinion, over a series of trades, ‘positive aggressive’ is where all my losses reside, and ‘stable’ is where I get my wins. By making a conscious decision to disregard band ‘2’ (positive aggressive) trades and only to consider band ‘3’ (stable) entries is essential to the fruition of a compounded winning account.
In the example I have examined today, both signal bar 1 and signal bar 2 are stable entries; bar 1 being slightly on the bold side of this band, and bar 2, I suggest, being more on the firmly reassuringly conservative end of the stable definition.
What follows is an unedited transcription of a selection of the week’s real-time trades as relayed on Skype between Nick, James and Buzz.
The idea is to provide a feel for the day trade decisions as they occur.
The abbreviations used include ema (exponential moving average, set at 25), pb (patten break), pbp (pattern break pullback), pbc (pattern break combi), pr (pullback reversal) and shs (shoulder head shoulder pattern). Moreover, comments are about the currency markets EUR/USD (Fibre) and AUD/USD (Oz).
The strategy is from Bob Volman. A page will appear on Slow Trader in the next few weeks providing comprehensive notes from Bob’s book titled ‘Day trading tight stops’.
A word of caution, those using some of the trades shown below as examples should note that many are too aggressive for the intermediate trader. Start slow with the obvious (cautious trades) and move up as experience builds.
Nick, 08:58 Looks like a bit of volume in the Fibre this morning. Spotted a good trade at 7:35 for a pr
Buzz 08:59 Well done with that. I had a limit entry set but the pb missed me by a fraction. Did you come out at the double zero or hold for a swing?
I didn’t take it as I wasn’t convinced at the time there was much volume. I just marked it on my charts to observe where it went. It went for the full 20 pip though.
Buzz 09:05 Okay, nice. The 07:05 was quite strong but I was happy to set a limit entry. I was too ambitious with the price I wanted.
Have gone for a slightly different look. Only two markets now (Fibre and Oz). Sensibly! Thanks, James. But I’m also looking at employing the ‘wide’ stop as well as the (Bob) tight stop strategy; this is only possible because of the auto qty. (A software on prorealtrade)
James, 09:10 Looks good. 🙂
Buzz 09:48 An aggressive entry short in the Fibre. Signal bar (9:15) with a long wick. I considered this as a pb on the resistance horizontal drawn or even as a pr – took the ‘out’ at breakeven.
I took the same trade but on the Oz.
Came out after 3 consecutive bull bars.
Round number doesn’t help on the Oz. (Round number is the magnetic pull of the 7,200 price level)
That was a better entry proposition. I missed it so put my attention to the Fibre. Are you referring to the pull of the 7,200? Seems like a good out. Possible higher low (Oz)
It was! although I would have accepted a pull-back to exactly where it has got to as it is a ceiling test with the low of the 09.10 bar. Just did it in too many consecutive bars for me.
Yes the pull of the 00 level.
Buzz 13:45 (no chart snap as too busy at the time to take one) I liked the Fibre short on bar 12:50 (signal) and 12:55 entry. Immediately went against me and to within a pip of stop. I am looking for best out before the ECB, Draghi in 15 mins.
James, 13:46 Can’t ask for more than the EMA I think.
Although the bulls had 3 up.
reasonable signal short at 13.30
Buzz 13:47 Tricky, but thanks, I exited the trade at the ema (as James suggested) for a small loss – fortunate though.
Yes it has been a tricky hour.
I took it long off the 13.05 combi.
Didn’t get the break-out, quick out.
Then immediately shorted the Oz.
Buzz 13:49 When it looked like it wasn’t going to break the double top. Well done.
Took 2 attempts shorting the Oz.
Bounced off the bottom. I think that second short was high probability off the EMA despite a weakish signal bar
Good out on the Fibre (referring to Buzz’s last trade).
Caught the break. Came off at what I consider a reasonable support.
Don’t mind trading the Oz when Draghi is on. What do you guys think?
Buzz 14:32 Linked (Fibre and Oz),I’d say, to a certain degree anyway. But I would probably trade a good signal.
Good time for a cuppa. Not sure how long Draghi is on for. And then it’s Carney!
Buzz 15:07 Not sure, difficult to find a link. I reckon the chart will tell us when it’s over.
(Tuesday 29/1/2019) Buzz, 09:10 A contrarian Oz scalp. Not a ‘Bob’ strategy. I was happy with the three pushes up and the possible exhaustion before entry. The risk was 1.8 pips but a high probability of being hit. It was a comfortable 4 to 1 return in the end.
Took the eight pip scalp. Buzz 16:39 Entered a pbc long. Somewhat concerned about this take as clearly counter-trend. However, it was coming from a higher low (at least the close of the bars were higher). I waited until the entry bar had cleared the combi then set a limit long; this got taken but the next, a little pullback, so I exited. It then, of course, went exactly 20 pips.
James, 09:24 Haven’t found good market conditions yet today.
Buzz 09:25 Oz nestled on the double zero and Fibre waiting to do something.
James, 09:25 Exactly.
Buzz 09:40 Moving the support line down.
Buzz 09:47 A reasonable pbc on the Fibre. Maybe too early to go long?
Only problem is it’s counter-trend and still sitting under the EMA
But it does have a shs pattern.
Buzz 09:54 Yes, I let it go
Buzz 10:58 One issue with a limit entry: missed opportunities. (The trade below did not take).
Nick, 11:02 I’ve decided not to use it (limit entries) on that bases. I would happily use it if it were an on stop entry.
Buzz 11:03 That’s a very good point. Buzz 11:13 I’ve had another go at the ‘Mantra‘ on slow trader if anyone wants to take a look. Thoughts. Buzz 11:49 Took limit entry short once the signal bar was activated on a pb. the exit was one pip above the high.
James, 11:59 Small price to pay for a good opportunity with trend. A false break-out of horizontal support? Pull from the 50-level.
Target achieved. Went for a resistance target from a limit entry short. pbp. I manually executed the exit at 10.8 pips as price touched the target. I had not allowed for the half spread and it looked like it wouldn’t push past the support.
Had just taken a chilly eye-watering stomp along the beach. Good for clearing the head. Non-farm news out soon. A reminder. The 1st Friday of each month is the non-farm day. The build-up starts now, and with a few events tomorrow. They are most certainly best avoided.
James, 13:14 Amazing trade! Well done. (Referrin to the trade above).
James, 13:28 Much simpler and precise. (refering to the new Mantra on slow trader)
I always have it open on the side. (Mantra)
I was happy with my out. Notice how price went exactly to my measured support.
James, 13:36 That’s when you know you got it just right.
Typical 8 o clockers turning the chart (Referring to the European market opening)
Fed interest rate stayed the same yesterday at 19.00
Buzz 08:03 Thanks. Yes, some ‘good’ movement in the Fibre but no setups for me.
Was expecting a break-out.
Buzz 08:27 Yes, I had that marked. Maybe too far from the ema for me.
Yes I thought so too, wasn’t going to hold if it didn’t look like it was going to break-out. Although that bear closed on it’s low pip, so it still might.
It looks strong. You could be ‘right’. Sorry, will stop highlighting right and good.
Buzz 08:49 A lot of financial news to work around today.
Yes there is.
Tricky scenario on the Oz.
EMA and trend but a weak signal bar.
Buzz 08:53 Yes, had that line marked. Easy in hindsight but at the time I thought the 8:30 bear bar was too strong to take a ‘long’.
Yes it is a reasonable bear bar, but maintained a higher low.
Buzz 11:32 The slightly higher close of the 11:25 (Fibre) has kept me out for now.
I waited as the bear signal bar was poor then took the long off the 11.25 close. No evidence of double pressure so I’m out.
Buzz 11:41 The long was aggressive but a good call. I think the power is still with the bears.
James, 11:41 Your out and my in were the same trade.
The seven consecutive bull bars persuaded me that the bears were done after three down. (three distinct moves represent what is known as a wedge pattern, often has a precise effect).
Buzz 11:43 Yes, they were. A very good point. Double pressure is shown.
The bears failed to capitalise.
James, 11:48 (USA interest rate decision effect the previous evening).
We reached the base of the bull trend. Often forms the base of a TR
Buzz, 11:50 That it does.
Buzz, 12:01 As you said, the ‘bear’ bar at 11:20 was weak. The wick was too long (making it difficult to activate the entry bar) and closed at the open of the bar before. The close of bar 11:25 was a reasonable entry (aggressive) scalp long. Probably a 4 to 5 pip stop risk, i.e. below the 11:20 bear bar.
Buzz, 12:17 Took the short at entry bar 1. Bar 2 was too strong so exited the trade.
Bar 2 with a bull combi is a long entry but too high in this move for me to take.
Of course the 11,500 level is taking effect also.
More difficult now with the trend line break. But still a valid trade.
I mean the long
Buzz, 12:21 Yes it is.
Not a bad follow-though bar either with the doji
That looks more like a double-pressure bar.
Buzz, 12:23 It does. Great, going out for some sea air.
What follows is an unedited Skype day trading chat between Buzz and James, Thursday 24/1/2019.
EUR interest rate decision at 12:45 I see.
Yes and it is a big one too
Yes! Caught the little bugger
I just come out when it goes crazy like that in case of a tree shaker. Nice to be in the right way.
My target was the 50 level
Tried the same trade on the Oz without fortune. Interestingly it looked like the better trade coming off the EMA but the Oz trend has been so strong since 2am.
Out on the Oz despite looking like a combi pattern, it made a double bottom from the doji/pin. The doji was too pinny for me.
Oz too close to the 7,100 for me to consider.
Yes another good point, one I was aware of
Strong trend though and the EMA pushing it down.
Good amount of consolidation too at that point
I looked closely at taking the EUR on that little pb at 08:00. But the 08:00 has a habit of changing the direction.
Should have seen that Euro go though! Jumped straight off the screen. I had no idea where it was.
I have a 100 pips on the right so stayed on the screen fine. I missed the actual move though.
Makes me wonder if I should leave it on ‘optimised scale’, or centre it and keep the target and stop in view
I am pleased to be picking these moments before break-outs. Shows it’s working.
Happened yesterday too, but I came out moments before it went
You are right the 08.00 has a habit of turning it and that’s exactly what I thought was happening after the first trade
Fibre is gapping, something must be happening?
Build up for the decision later?
No easy answer to the bar size. I personally think (as Bob mentions) that the bars should be as relatively constant as possible.
That last bar on the Oz looked reasonable but as you say 00 level holding it tight.
I agree but one of our main strategies is to get in at the end of consolidation periods looking for the break-out. Double pressure and strong trends can lead to big bars like that.
How it appeared on mine.
Wow so different, makes that incredible trend seem flat though.
Guess it’s what you get used to
Finally the chart is picking up some pace.
For me it puts things into perspective.
These round numbers really playing their part.
Could be a bouncy day prior to the interest decision.
Yes, for me particularly the double zero numbers.
Yes I hadn’t considered that too much, but I suppose they are rounder numbers than the 50’s
Okay, the bars are all a bit big at the moment. Needs to settle a bit.
EUR news in 10 mins and then clear until the interest rate decision.
Good time for a bounce!
The Oz lost a lot of ground through night.
Yes the Oz is stuck to the 00 level for now. Not a bad out after all.
Yes both had an eventful night.
Considering how flat it has been. Must have been Ozzy politics?
Risked the wrath of the double zero for this reasonably classic pr short. Entry was from a auto qty set as seen once the signal bar had been activated by the entry bar. Stop for qty was the top of the spike indicated. Then the stop adjusted to a not go above position, plus a pip, plus half spread. Tgt is a measured distance of the planned stop (from the top of the spike)
The 10:30 test of the ceiling (entry and ema) helped. Funny how we don’t now mind those pullbacks.
Yes the second entry philosophy on limit can be a good option.
Decided beforehand that with the double zero above I wouldn’t accept any engulfing pullback bars. So came out on bar 10:50.
EUR has gone a little quiet leading up to the interest rate decision.
That was a great out by the way.
Bob says it’s the press conference afterwards (after the interest rate decision) that can have a bigger influence.
That’s correct. Draghi usually has a few things to add.
Something of note. Even though the spread is steady at .6 (EUR) a limit entry closer than a lot of pips will not be accepted. That must be because of the news. I’ve come across this a few times when news is strong and even when the spread is normal. The only entry at the moment is via a on-market entry.
ECB press conference coverage:
ECB Press Conference – 24 January 2019 – YouTube
Draghi said ‘however’ and the market moved 20 pips!
Haha, it did!
He shouldn’t pause too long after a ‘however’
Not being able to place a limit order has thrown me out somewhat. I’ve missed 2 entries. One that worked and the Oz now.
US news out in a min
Busy news day
Limit entries are back on. Again, the entry bar activated the signal bar before I set the limit.
Took the 8 pip scalp. Out on the big number and double bottom.
Nice, that was a tricky one.
I had a quick in and out as it didn’t form.
I see what you were thinking. An early continuation of that strong bull from 13:30. Could have gone.
I was in the Cable a few minutes ago short. It was from a pbp. I got a good entry but it didn’t break and I took a 4 pip profit. A two bar pullback and now has gone short. But that is fine, I’d rather keep it tight than not.
Quash the gambling instinct don’t fall in love with a trade.
To get us to invest time and energy into a deal is an old salesman’s technique.
If we do so, we will then not analyse as clearly as we would from a cold start. We are often overly influenced by the current ‘open’ bar.
If we think a trade has gone to a 50/50 outcome, it is probably more likely to be 40/60 against us.
The enthusiasm generated after a win can be described as professional or everyday arrogant overconfidence. The difference, in my experience, is narrower then we may think but the outcome depending on which approach taken can be everything.
Gambling to my mind is when we are not working consistently to a clear set of rules. It is commitment through emotion rather than analysis. It is relying on chance rather than a measured probable outcome.
However, other areas can be just as damaging as that of the blatant gamble.
Once we have given our time and energy, we feel that we are entitled to a positive outcome; this could not be further from the truth. The market does not give two hoots either way.
We think rationally, and we decided to exit the market at a specific pullback point. All well and good until we see the pullback bar. This bar often looks so inviting, and we feel that if we only hold we will make it work. However, in the briefest of moments, we miss our exit opportunity as the price reverses and presents us with an exit loss.
The success or otherwise of our trading account is based on how we manage our edge. At best our advantage in the market will provide us with a 60/40 outcome in our favour. However, when our margin escapes us, for whatever reason, then our issue usually does not fall to a 50/50 but more likely a 40/60 or worse against us.
Our edge is taken away whenever (1) we wander into the gambling mindset, (2) be overly influenced by the ‘live’ as opposed to a closed price, or (3) commit ourselves to a trade not based on sound management but anything approaching arrogance.
Yes, as day traders we deal with these issues many times daily. However, they apply just as equally to the longer term fundamentalist fund manager.
The following short videos, only several minutes long, are sporting applications that may be applicable to our day trading.
The first video ‘the psychology on winning’, in the cricket part, the ‘challenge state’ and the ‘threat state’ is discussed. Synonymous possibly to a trader’s daily situation.
It also highlights how some people view pressure as a challenge. They are folks that are able to focus on things that they can influence rather than on uncertainties. And how visualisation develops a perception of control.
The next video, ‘how data transformed the NBA’ has a correlation to data building of our trades taken. Something we will consider is recording outcomes of specific trade setups and subcategories of those setups to build an NBA type analysis from hundreds of findings.
In his superb book ‘Enlightenment Now’ Steven Pinker provides a mountain of balanced positivity on how life is getting better. Even some read across in his discussions to day trading: (1) appreciating uncertainty and seeing multiple sides; (2) comfortable at thinking in guesstimates; (3) anti impulsive distrusting first gut feelings; (4) ask themselves: are there holes in this reasoning; (5) disciplined to avoid cognitive biases; (6) intuition is not the best guide; and (7) vehemently reject (the idea that) chance or fate play a part.
Keeping stops tight means very well considered entry positions if we are to have a chance at profitability.
09:00 My watchfulness of the market has, I think, increased. I take very early exits as required. Here’s the trade from this morning. I entered on bar 1, a type of pattern break pullback (pbp); seemed reasonable at the time. My concern was the significant number above the entry position. However, if bar 1 had closed even slightly above the close of the previous bar, I would have exited. If bar 1 had pushed up – before closing to one pip above the high of the last two bars – I would have exited. When bar 2 closed, as a combi long, I exited which coincidently was breakeven.
14:22 An odd-looking entry. My reason was in the price action of the three bars before entry. Also, I’m looking for opportunities where the stop (and therefore the risk) is small. Not a perfect ‘Bob’ entry, but this time it worked.
14:28 Of interest, I moved the stop to its position at two pips above entry only after the bar below the 7,160 level closed. I took the scalp due to the ranginess of the day which was also the turning point and the ceiling test of the bar to the left at 08:20.
Many systems trade a trend. That is they are trend breakout methods. But there is a glitch with this. No matter what timeframe we observe the market is in a range for most of the time.
I’ve read that 80% of the market cycle is ranging. And this can be more or less confirmed with a brief observation of a broad section of one’s charts.
To, therefore, aim for a ‘trend’ dependent system is to spend much of the time sitting watching. It’s worse than this because it is difficult to determine if the price is in a range or the early stages of a trend. It is only apparent once the day, week or month – depending on our chosen timeframe – is well underway or completed.
Moreover, a discipline that works well in a trend may not work so well when a market is ranging and vice versa. So what is the answer? My view is that as the market spends most of its time in a range, I’d like a procedure that works consistently well in that environment.
When I get to the occasional trend – as long as I stick to my methodology – my account shouldn’t come to too much harm and as long as I can withstand the frustration that being out of a trend generates I’ll be fine and remain ready to do battle when (all too soon) the range starts again.
The secret here is sticking to our methodology. It is very tempting – and we have all done it – to alter how we trade to try to fit in with the new and dynamic looking trend. For the range based trader there is only one thing for it when the big move hits, let it go.
Unless I can successfully combine the tight and wide stop strategies. This, I consider, is only recently possible with the introduction of a technical software update known as ‘auto qty’. I will trial this over the next few weeks and report back.
Many have mentioned that they are interested in doing whatever it is that I seem to do. There is a side to trading that attracts.
And I’m not referring to the gambling types but those that genuinely want to learn a craft based on a desire to learn a strategy, a method and discipline. A good start is to read the books by Bob Volman.
What follows is copied directly from our daily Skype chats. This is something I will probably post more regularly so others get a feel for what happens day trading in real time.
Worth a look at my statistics for yesterday. A Monday and often a slow day. A total of 14 trades of which 6 were winners (5 actually as one win was small). However, my gain was £642 for a £270 loss. All the profits were scalps as a ranging day. I’m trading tight with my stops. On one occasion I was out only to re-enter the same direction, and on another, I was out and bet on the opposite direction within a bar or two. The most important thing to me is context. Once I’m happy with that, I find that I’m closely watching the detail (individual bars).
For clarity, my planned stops are not tight, but my manual rejection of the trade (my actual stop) is close. I would still not trade without the planned stop in a proper position and for the reward/risk to make sense; this is only one technique. I think trading as Bob does in book two works well if done consistently. My outs are more in line with Bob’s writing in his first book. 08:06 I made the conscious decision yesterday to try the tight stop regime. But that was in a range. A trending market might show different results. Also, I figure that the more I practise the tight stops then, the better I ought to get at it.
Its interesting to note your average times in winning and losing trades. 20 minutes for winning trades, and your out of losing trades in an average of 3 minutes. Thats good practise that I need to learn.
Buzz 08:37 An example from this morning – which I missed. The entry short for me would be on the pullback on bar 3. Quite near the top of bar 2 actually. My planned stop would have to be above the high but my actual out (manually) would be at the tight stop arrow – as price goes above the top of the bar before bar 1.
The FTSE 100 has seemingly gone into freefall taking out all gains since mid-2016.
A fall in the value, to some extent or other, can be seen in all indices; and with much uncertainty to follow in 2019.
Selfishly, this is not our concern with the Slow Trader fund. We are over 41 per cent up since the start and without the worries that plague traditional funds. See Slow Trader Hedge Fund.
We can make that last comment with some confidence because of the way we trade. We day-trade on a small time frame, but we buy or sell (long or short) with little bias to the fundamentals. We only go where the price action is going.
A justified objection to day trading is the unexpected effect that short-term news can have on results; this is valid. But we trade away from news events whenever possible, and quite often a warning of a prior news spike will show to the watchful trader.
‘Breakout day trading’ parts one and two provide in some detail how we traded for most of last year: an aggressive breakout style that can result in significant gains; and, as much fun as that is, in matching losses too. Not so much fun.
However, much of the information contained in ‘breakout day trading parts one and two’ is valid hence the reason for leaving these pages available for review.
We have moved to a more cautious style of breakout trading. The gist of which is in ‘my mantra‘ or can be glimed from a glance at the selection of trades posted in the ‘chart debrief, Buzz‘ section.
A detailed description of our ‘conservative’ trading method will follow as 2019 progresses.
We know that our revised and cautious and compounded trade procedure will provide the future build in the fund that we want.
To qualify as an expert trader, we run our trade account as we would a business. Any founder of a new company will need sufficient capital to get started, they will take as little as possible from the industry and will put all their energy into growing the capital of that business. We do the same with our trading account.
A consistently profitable trader can utilise the massive advantage of compound interest.
Consider that we are a consistently profitable trader that does not calculate the compounded amount per pip on a regular basis. We start with equity of £15,000 and have a consistent daily profit of £75. After 232 days our capital will be £32,400.
If we consider that we are the same consistently profitable trader but this time we adjust our amount per pip regularly by the ‘risk level of each market‘ calculation then after the same period of 232 days our equity will be £75,443.
A somewhat simplified proposition, but the principle is clear: we must apply a regularly adjusted calculated and, therefore, compounded amount per pip.