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.

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.