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

Task:

  • Grow as a full-time financial trader
  • Build financial resources for my family and investors.

Edge:

  • “Money is made by anticipating what is coming—not by waiting until it happens and going with the crowd.” (Wyckoff)
  • Work the trades, proven through tireless backtesting, without fear or hesitation.
    • “Repetition is the mother of wisdom!” (Weis)

Strategy:

Win at least as often as we lose, but on average, make each win two to three times as profitable to each loss.

The only thing remaining is to learn how to play the game!

Preparation:

“It’s the process that’s most important, not the results”. (Dr. Rotella)

Traders can be defined as ‘position’, ‘swing’ or ‘active’. This methodology is active, tending towards swing.

  • Start with a higher timeframe analysis (structure)
  • Allocation from this analysis to a watchlist
  • Trade timeframe, proportionately lower than that used for the analysis
  • Financial news releases reviewed
  • Diet and routine are correct
  • Centred (Do I feel like doing this today?)
  • Take time to move and stretch

Instruments:

Currency pairings and US 500.

Timeframes:

Weekly, Daily, 4 hr, 1 hr, 30 min.

Trading analytics:

  1. Weekly: Log all opened and closed trades
  2. Monthly: Review overall performance
  3. Quarterly: A review of trading plan/performance
  4. Annually: Post investor results

Structure:

  • Forecasting (yellow bars).
GBP/CHF daily chart building structure and forecasting probable vs possible.
  • Below is the follow-on sequence of daily bars. Not as low in price as forecast, but an acceptable representation.
  • Note that the 5th and 6th bar from the end is the narrowest two consecutive bars relative to the previous 20 bars; this is the point where the market is at its most ready to move.
Continuation from above showing the next 20 or so daily bars.
  • Structurally, the next stage might be:
Continuation from the prior chart to the next stage.
  • The higher timeframe structural forecast is provided (see below).
We forecast what we consider is probable.
  • On this occasion, a ‘possible’ happened and stalled the ‘probable’.
The probable gave way briefly to a ‘possible’.

The next example is a daily chart that shows a structure and a forecast that is good, but not good enough when moving to the lower timeframe.

GBP/AUD daily chart.
Continuation from the chart above. The yellow bars represent our forecast.

The final chart in this sequence overprints the actual daily bars with the forecast. As good as the forecast is, in terms of price hitting target, this trade would have failed if not correctly managed on the lower-chart.

Continuation from the chart above. Actual daily bars are remarkably close to the forecast.

The market and price pattern studies:

  • Support/resistance lines
  • Trend/channel lines
  • Correction
  • A squeeze
  • Follow-through, or not, at a critical level
  • Inside bars (“precursors of trending action” Crabel)
  • Narrow range setup
  • False breakout
  • Breakout
  • Breakout test
  • Momentum
  • Wedge
  • sHs

Where to find trades:

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

The snapshot of EUR/USD 1 hr chart illustrates both the repetitiveness and the volatility of the market.

EUR/USD today (at time of writing, so not a specially selected chart).

Trend:

Use of the regression trend (prefered) or the Keltner channel (each at +/- 2.5 deviations)

  • Find:
    • The ‘always in’ long/short level. (or change of premise level)
    • The point at which the current structure formed
      • Therefore, the start point of the regression trend tool
  • Trend
    • Trade with the trend (the ‘always in’ direction)
    • Overbought or oversold opportunities
    • A target to the:
      • Mean, if the channel is wide
      • Channel line, if narrow
  • Neutral
    • Trade with the probable price action
    • Our target is a:
      • Channel line
      • Measured move
      • Support/resistance
  • Trade if:
    • Reward/risk
    • Setup

The example below employs a regression trend with the assessed premise point being the high of that period. (Determining the change of premise point is the real skill of this method.)

EUR/GBP 30 min chart. Entered on-limit with a 3.2R ‘wedge’ setup.
Continuation from above. The trade is held through night and hits target late the following day.

A further example below shows CAD/JPY entry long on a potential 2.7R trade from a double bottom setup.

CAD/JPY 30 min chart long entry.
Continuation from above. The trade was held through the night, hitting the target at 8 am.

The gallery below shows AUD/JPY on a 30 min chart. The point here is the flexibility in deciding what is the ‘change of premise point’. We can see that it can be over a relatively large expanse narrowing to quite a tight area. In the case of a narrow channel, the target can be adjusted as the channel expands.

The example below shows the GBP/CAD 30 min chart. Neutral (rather than a trending) build-up.

Trend and structure

The next stage, following on from above, is to find an entry point by tracing bar-by-bar the trend and structure of the market. The screenshot below represents the wider picture. The second screenshot shows the breakout test setup in more detail that eventually provided a probable entry short.

NZD/USD 30 min chart. The wider picture of an entry setup short.
Continuation from above, zoomed in, to show the process that eventually found a probable setup entry. The trade was exited a few bars later, a third of the way to target, on a break of a trend line.

Correction:

The correction often provides a measured move target. Entry from which depends on the structural characteristics; for example, ‘momentum’.

NZD/USD 1hr chart. Correction and probably a measured move.
Continuation from the chart above. In this case, the target was a reasonable assumption.

Wedge:

USD/CHF daily chart. A possible ‘wedge’ forming.
Continuation from the chart above. Entry short was from the 1hr chart and the target being near the horizontal support line drawn, or hold for lower.

Breakout:

The USD/JPY example below supports a breakout build-up. The box below shows on the 1hr chart; however, in this trade, I referred to the lower (5min) chart for the breakout entry long.

“Always be on guard when a market moves above previous highs and the range narrows.” (Weis)

USD/JPY breakout setup on the 1hr chart. Stop 12 pips, target 55 pips providing a 4.6R trade.
USD/JPY the same trade but now on the 5min chart for entry.

EUR/USD below is a suitable example of a diagonal breakdown and from within a box pattern. Stop placement above the prior high or more conservatively above the top of the box pattern.

EUR/USD 1hr chart breakdown short from diagonal support within a box pattern.

The with-trend breakout below provided a suitable squeeze or build-up before the break long. Entry can be contentious. In this instance, entry was on the first close above the pattern. However, the prior bar pre-close would also have been acceptable. (Price reduced from here providing a trend line break of the extended diagonal drawn and a small profit exit).

GBP/USD 1hr chart long. The target above is from a daily channel line.

Breakout test:

The example below of USD/JPY is countertrend on the 1hr entry chart but is near the top of a range on the 4hr chart; this is a 2R opportunity, but countertrend makes us more watchful.

USD/JPY counter-trend test of breakout 1hr chart. The stop is 21 pips and target 41 pips making nearly a 2R trade if successful.

Another test of a breakout example below, this time was showing the higher timeframe reasoning (daily chart) before we zoom into the entry timeframe.

AUD/JPY on the higher timeframe (daily) to our trade entry timeframe.

From the daily chart above we forecast the ‘probable’ and ‘possible’ price action before selecting the 1h chart below and our entry point. (Target was hit three bars later for a 6.87R).

AUD/JPY is showing a test of breakout entry on the 1h chart. A bold trade as price aggressively approaches what is now support.

XAU/USD below is a trade in-waiting short from a possible breakout test. The countertrend feel is a concern as an engulfing close long would signal a false-breakout and therefore change the trade direction to long. A conservative stop is above the box pattern — about a 2.7R potential.

“When prices persistently hug the low of a trading range, the odds favour at least a washout and many times a sharp down-move.” (Weis)

Waited for the activation of a possible BP entry short in Gold.

Momentum:

Usually, a momentum trade shows on a higher timeframe chart.

The skill of interpreting between higher to lower timeframe charts is most prevalent in the momentum entry.

GBP/EUR a momentum entry on the 1hr chart, with the entrance being a breakout test setup (see below) on the 5min chart. Stop at 10 pips with a 31 pip target providing a comfortable 3R trade.
The 5min chart breakout test entry of the higher timeframe momentum breakout—the 1hr chart shown above.

Below is another example of a momentum trade. The prefered entry was a double top short from the high of the range drawn. However, not observed at 2 am! Instead, we accept a momentum entry some 50 pips lower.

AUD/JPY short on the 1h chart for a 3.27R.

Double top

The example below is a 1hr chart. On the higher timeframe price is in a downtrend. A short entry via a limit order with the target established on the 4hr chart. (The double top must show on a higher timeframe chart to that of the entry chart).

AUD/JPY 1hr chart short 15 pip stop, 78 pip target 5.2R trade.

False breakout

  • Moves below/above support/resistance often are aided by stop-loss selling/buying.
  • When a clear support/resistance line is broken and fails to follow through.
  • Be watchful if the bar closes well off its low/high.
  • Probability increases if entering with the trend.
  • The test often offers an entry opportunity.

sHs (shoulder/head/shoulder)

The chart below is an example of an sHs entry short from the 1hr chart USD/CAD. The setup also provided a double top entry with a 28 pip stop (stop above the middle-high) and a potential 178 pip target or 6R.

USD/CAD 1 hr chart sHs entry short.

Another example of a possible entry shown below and a limit entry short from the close of a double top right shoulder. The horizontal line is a crucial resistance from a higher timeframe chart.

USD/JPY 1hr chart. A possible limit entry trade short as shown.
Continuation from the chart above. Entry took, and price progressed to target.

Structure and pattern combined

Below is the structure/forecast on a daily chart transferred to the 1hr chart for more detail.

CAD/JPY daily chart for structure and forecast. The final (yellow) bars are the forecast.
Continuation from above. The picture we see when we transfer to the lower timeframe (1hr chart).
Continuation from above. A pattern and entry develop that agrees with our higher-timeframe direction/forecast.
Continuation from above. Entry pays-off and we monitor progress.
Continuation from above. An early exit is taken (see below for exit criteria).

Exit:

  • When the technical structure is incorrect
    • Break of a trend line
    • Exhaustion bar
    • Strong double bottom/top
    • Adverse wedge structure
    • Adverse false break
  • Fundamentally
    • FOMC interest rate decision
    • Interest rate decision traded market
    • NFP
    • London open, if a reversal is probable
    • Significant event

Trendline break: Exit a trade on the close of a bar that breaks a trendline leg. (See chart below).

USD/JPY 1hr chart short from the edge of a possible trend line. The horizontal lines are key support/resistance higher timeframe.
Continuation from the chart above. Exit as indicated or on the prior bar if the trend line is clear.

However, be careful the trendline is correct. The example below shows a possible confusion trendline (dashed yellow line) that would have resulted in missed profit opportunity with a break of that line and subsequent trade exit not yet halfway to the target.

EUR/AUD short from higher timeframe key support.

Watchlist:

  • Prepare the watchlist and ‘red flag’ for the week ahead
  • Structurally selective
  • Backtest the watchlisted charts before live trading

Entries:

“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)

“Buy signals occur when fear is high.” (Connors)

Prefered orders are:

  • Limit order
    • Support/resistance
    • Breakout test
  • Market order
    • Squeeze
    • False breakout
    • Breakout
    • Momentum

Stop positions:

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

Place stops above/below a measured move.

If a measured move is not obvious, spot each of the stop positions listed below before selecting the preferred level.

  • Conservative
  • Medium (preferred)
  • Tight

Targets:

Know the (probable first) target level before trade entry. Set take profit at 90% of the desired goal or the high/low for the bar that formed the target level.

  • Measured moves
  • Trend or channel line
  • Key support/resistance

Accept loss:

“Rationalize 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)

Based on account size:

  • Not more than 1% in any one trade
  • Not more than 5% in any week
  • Not more than 9.9% in any month

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