Trading Plan

“I define market context as the integration of the trend, price action, price pattern studies, and support/resistance. The primary is the trend and (it) overrides all other particulars of market context”. Crabel

Goal

Add to the fund incrementally each trading session(s) and compound.

Tasks:

  1. Be mistake-free.
  2. Make money.
  3. Compound it.

Strategy:

To take trades at or from a value point with contextual trend and setup.

Process

  • Complete the price action and context traders’ course. 
  • Back-test. “Repetition is the mother of wisdom!” (Weis)
  • Achieve 100% readability of the Slow Trader ‘picks’.
  • Paper trade in real-time until confident of the process.
  • Trade small until consistently profitable.
  • Incrementally increase the amount per entry to 1-2% of the account relative to risk.

Trend

A trend is a period in which a price moves in an irregular but persistent direction.

  • Higher highs and higher lows
  • Lower lows and lower highs

Never go for perfection; always shoot for consistency”. (Pring)

Trendline (TL)

“A true trendline is a graphic way of representing the underlying [or change of] trend”. (Pring)

Trend classification

Macro, context, anchor and micro represent our differing trend periods.

The crucial pieces of information that we can discern are whether the market is trending and value within that trend.

Not trending

If it is trending, we assume that the trend will continue and look to enter in the same direction (with-trend).

We only enter against a trend (counter-trend) after there has been a breakout beyond a significant TL and only with a healthy signal bar.

  • Counter-trend contextual trades to take:
    • Weak and Broad
    • Breakout entries only
  • Counter-trend contextual trades not to take:
    • Weak and tight
    • Strong and tight
    • Strong and broad

How to find the best trades

The following are in order of priority when considering a price action (PA) trade entry:

Value

We determine value through the drawing of TLs and trend channel lines.

In the diagram below the hashed line is the trend line and once established represents low value. The solid line is the trend channel line and once established, represents high value.

Setups entry

“It does not matter what you call a pattern—the important thing is whether it has bullish or bearish characteristics”. (Pring)

“When a setup is easy and clear, the (subsequent) move is usually a small, fast scalp. If the move is going to go a long way, it has to be unclear and difficult to take, to keep traders on the sidelines and force them to chase the trend”. (Brooks)

High/low 1 or 2

A low/high 1 and 2 is an entry when the price is consolidating from low to high value on the contextual trend and not beyond the premise point.

A low/high-1 enters off a support level. i.e. Open of the prior bar, 50% from the previous trend, ceiling test or a micro wedge.

A low/high-2 enters off a measured move of the first leg.

Wedge (triangle/flag/pendant) or three pushes.

Traditionally, a three push move and the trend line and trend channel line at least minimally convergent.

For a trader, the wedge shape increases the chances of a successful trade, but any three-push pattern trades like a wedge and can be considered one.

A wedge can be a reversal pattern or a pullback in a trend (a bull or bear flag).

Breakout (BO).

Breakout pullback (BOPB)—or retracement breakout.

“As with all breakouts, it is usually better to wait to see how strong the breakout is. If it is strong, then look to enter on the pullback”. (Brooks)

Ceiling test (CT).

Head and shoulders (HS).

Exhaustion break (EB).

Setups exit

Trend line break (TLB).

Double top (DT) and double bottom (DB).

“Rarely, the test will form a perfect double top or double bottom to the exact pip”. Brooks

Bar 19, DT

Major trend reversal (MTR).

Bar 13, lower high MTR

False break (FB).

Candle patterns

All (candle patterns) are meaningless in the absence of PA. (Brooks)

The candle patterns below are a few examples only and in isolation affect only 5 to 10 future bars.

  • Outside bars indicates a strong reversal in sentiment. The signal is stronger:
    • The wider it is.
    • The sharper the rally (reaction) preceding the outside bar.
    • The more bars encompassed.
  • Inside bars reflects a balance between buyers and sellers following a sharp up or down move. The signal is stronger:
    • The sharper the trend preceding the pattern.
    • The wider the first bar.
    • The smaller the inside bar relative to the outside bar.
    • The more bars involved.
    • If we include the tails, bodies-only is a less reliable version.
  • Two-bar reversal signals exhaustion and is stronger if:
    • Preceded by a persistent trend.
    • Both bars stand out as having wide trading ranges relative to previous bars.
    • The open and close of both bars are close to their extremities.
  • Inside-outside-inside
    • Three consecutive bars where the second bar is an outside bar and the third bar is an inside bar.
    • It is often a breakout mode setup where a trader looks to buy above the inside bar or sell below it.

Mental:

  • “It’s the process that’s most important, not the results”. (Dr. Rotella)
  • “Weak traders are trading on emotion and are competing against computers, which do not have emotion as one of the variables in their algorithms”. (Brooks)
  • Trade ‘in the zone’, or ‘let it happen instead of making it happen’.
    • Remove the mental barriers that prevent us from letting our subconscious govern our trades.
    • Thoughts about outcomes and results come from the conscious brain.
    • The conscious mind deals with trade analysis.
    • We want to keep our conscious brain quiet, almost inactive, during trade execution.
  • We know that to be consistently profitable as a ‘fast-money’ trader, we have to get good at waiting—to trade slow and think fast.
  • We work our strategy without fear of missing out or hesitation.
  • We accept whatever happens as it happens, we underreact to everything, we are unflappable, and we trust in our trading skills.

Picks

Find a technical analyst exceptional at accurately telling the market story at and often slightly ahead of time. We call such analysis ‘picks’.

We have an edge when:

  • We know the value and know which direction the market will likely go after a breakout attempt develops.
  • “Money is made by anticipating what is coming—not by waiting until it happens and going with the crowd.” (Wyckoff)

Order of things:

  1. Market analysis
    • Structure
    • Trend/probable direction
  2. Value
  3. Setup
  4. Price action
  5. Probability vs Risk/Reward
    • Entry
    • Stop
    • Objective
  6. Scale-in (each scale-in starts from number 2 in this list)
  7. Trade management

Definition:

  • Traders can be defined as ‘active’, ‘swing’ or ‘position’.
    • An active (or scalp) trader might exit with a small profit, usually before there are any pullbacks.
    • A swing is any trade that lasts longer than a scalp and that the trader will hold through one or more pullbacks.
    • A position deal is an investment, from a weekly chart or above.

Methodology:

  • Our methodology is active, tending towards swing.
    • Determine the anchor timeframe (TF)
    • Start with the analysis (Market cycle and structure)
    • Determine the value and any reasonable setup
    • Allocate from this analysis to a watchlist
    • News releases to be aware
    • Spread to be aware
    • Sleep and routine were correct
    • Centred (feel like doing this today?)
    • Distraction-free
    • Move and stretch

Feedback:

  1. Immediate: shared live opinion (skype) between analyst and traders.
  2. Weekly (or end of a trade session): Analytical overview.
  3. Monthly: Last 30-day profit/loss detailed review.
  4. Quarterly: Review of the trading process (what’s working, what isn’t?)
  5. Annually: Post results.

Currency pairings.

Swiss franc (CHF): No (1) out of profit scaling in and (2) overnight holds.

Timeframes (TF):

Favoured TFs’

Anchor

An anchor is a TF from which we determine the trade-entry, stop and target position and for the most part, conduct the trade-management.

View a lower TF to the anchor for PA detail or a higher TF for context. (For example, where an anchor channel is wide enough to trade—but low on PA features—we can take a setup from a lower TF).

Colour codes:

Analyst

  • Blue – identified
  • Purple – pending
  • Green – live
  • Red – priority

Trader

  • Blue – flat
  • Purple – watchlist
  • Green – find an entry
  • Orange – entry order set
  • Red – entered

Entries:

“Have an open mind rather than being fixed on a preconceived ideal.” (Weis)

“[There are] no perfect setups. Don’t worry about finding a perfect trade, just worry about trying to find a reasonable trade”. (Brooks)

“When I look at a chart, I am constantly thinking about the bullish case and the bearish case with every (pip), every bar, and every swing”. (Brooks)

“Be brave and get in at good levels. Institutional traders will use trend lines; they will use simple horizontal support and resistance levels to look for confluencies to try and place their orders. Nothing clever.” (Paul)

“Put entries where the masses put their stops.” (Paul)

“Can never be more than 60% certain. Don’t be paralysed by a 40% chance of loss. 60% is as good as it gets. If you are a trader, trade!” (Brooks)

Scale-in entries:

“Wherever possible, be a scale-in trend trader. In other words, scale into with-profit, with-trend trades if historical price movement, market conditions and overall risk are reasonable.” (Brooks)

Pre scale-in consider:

  • The 5% maximum loss on the week’s start account value.
  • Does it conform to our strategy?
  • Its standalone value, setup and PA.
  • The Swiss Franc limitation.

Stop positions:

“Markets go to the obvious stops most of the time”. (Paul)

A tight stop means to gain more per trade but to lose more often. A broader stop has a lower reward potential but wins more often. “As long as the stop is reasonable (and) if a ‘tight’ or a ‘wide’ stop is employed consistently, you get a similar result after 100 trades. (Brooks)

A reasonable stop is always obvious”. (Brooks)

Place stops above/below major higher low/lower high support/resistance levels or below/above a measured move level. Stops can be:

  • Wide
  • Medium “a bad choice in the middle of two good options ” (Brooks)
  • Tight

Wide stop

“Big up, big down, big confusion” is how Brooks describes a trading range (TR). The TR might be bracketed by horizontal lines or within a medium to a broad sloping channel with associated TR PA. In such a structure, use a wide-stop.

As a guide, a wide stop might be above or below a swing measurement or a prior significant high or low.

Tight stop

For everything else (other than for a TR) a tight—or a wide—stop can be used. How close is tight comes with experience.

As a guide, a tight stop might be above or below a leg or a single bar measurement, or an immediate high or low.

“If stopped out, you can enter again on a second reversal. If stopped out this time, do not open on a third as probably not reading the chart correctly (Brooks)

Price objective

Often moves exceeded the objective—which makes an objective more of a minimum expectation.

Price objectives represent the minimum ultimate target and are not normally achieved in one move”. (Pring)

  • An objective can be to:
    • An opposing dynamic value point, either anchor or context.
    • A Support/resistance level.
    • A measured move distance—or multiples of the initial objective.

Exit

  • An exit can be for:
    • Opposing PA.
    • A TLB.
    • Important news.

The initial and actual risk

  • High probability trades require a potential 1R (reward equals risk) initial risk/reward result.
  • Low probability trades require a potential 2R initial risk/reward result.
  • The trader’s equation necessitates a 1R to 2R actual risk result. (We can only know this measurement once we read the bars going forward.)

Trade management

  • Never increase the stop.
    • An increase of even a pip is unacceptable.
    • Get better at setting the stop from the outset.
  • Make holding until target a habit.
  • Loss rule consideration and management.

Accept loss:

Accept, move-on, plan” (Prof. Peters)

“Every human decision can be broken down into perceived risk versus opportunity, loss versus gain. Everyone is scared of losing something, and that fear of loss tends to overshadow the potential benefits.” (Voss)

“Rationalise a losing position in the same way as a successful business pays its bills. At the level of one trade, the market cannot be predicted”. (Paul)

Loss rule

Not more than 5% below the account’s value taken at the start of each week.