I've been getting some good runs on the board of late.

Using the 5 min chart for market structure and the 100 tick for fine tuning trade entry.

Clean setups as panicked traders are covering is the skill to be perfected.

Dax 13-8.jpg (135.81 kb) Click to Enlarge

 

I have sent my computer with emails to the doctor for repair.

Everything metal rusts away in a few years here on the Sunshine Coast. You should see my barbecue!

I will reply when I get it back. (If I get it back)

I wrote this in my blog on the 2nd June:

"Today we are testing the upper resistance area of the Aus XJO 200 area on the daily chart. (Around the 4000 area)

This is as the US S&P is also at upper resistance at the 940 - 950 area and the 200 MA.

If you haven't forward planned your criteria for trading off key zones, now maybe the time to do so.

Breakouts, pump fakes and reversals will catch various traders forcing a scramble to cover.

As we can see from the 60 min chart price failed to break on the first 2 attempts with the 3rd attempt successful.

Notice the retest of the 4000 area which set up a nice risk/reward area.

Alexander is the owner of Pride Trading Education. 

I have completed his course and highly recommend it for serious traders.

Check out his website www.tradewithpride.com He is very easy to talk to if you want to give him a call.  If you do decide to contact him or sign up, be sure to let Alexander know that Davin referred you.  He runs an excellent 8 week course on futures trading (which can be equally applied to equities and other markets) that is very detailed, highly practical and provides plenty of opportunity for feedback, follow up and review of your individual trading.  You also get access to his proprietary indicator that links into charting software packages.  The course is run live on-line through HotComm so you can see and hear his presentation and ask questions at any time.  If you apply his methodology and produce his base line statistical results there is also the opportunity for employment as a trader.       

   This is an intro into the course Alexander runs

                                             Intro to Key Equity Curve Stats

 

Quantifying Reward to Risk Ratios & the Importance of Market Structure

• Technical Set Ups in direction of overall market structure.
• Market in Range or Trending? Becoming a specialist in both Ranges and Trending Markets is a necessity to having the potential to win consistently. Clear methods defining both entry, exit, stop – loss and positions sizing rules a necessity for consistent execution.
• Accurate Volatility Calculation
• Volatility – Risk - Entry Cost = Net Reward
• Reward ÷ Risk = Reward to Risk Ratio
• Reward to Risk Ratio Qualifies the Trade Set Ups not solely the Technical! Initial
• Inverted Ratios are Less Favorable than Set Ups that offer Multiples of Initial Trade Risk.

Reversal Set Up at Key Area

• Proprietary Support / Resistance Zone (Bid / Offer Zone)
• Volatility
• Ratio Analysis
• Pattern Entry
• Understanding odds of creating the positive statistics based on your objective analysis.
• Plan and rules for modifying entries to reduce entry cost consistently, and create much higher initial ratios. Very important for intra-day traders!

Pump-Fake Reversal Pattern

 

 

Drawdown Analysis

 

Pump Fake Reversal

Intra-Day PF Reversal

 

PF Setup Overnight Session

 

Protégé Class Information

• Complete trading methodology derived solely upon market price action and statistics. Classes taught live in our Hotcomm rooms over an eight week period.  All traders clearly define all the key variables in their as we have discussed today, and learn how to create and manipulate statistics.
• No time limits on support and all traders can join as many classes as you desire ongoing.
• Video archive of all lessons, reviews and supplemental classes. Over 200 hours of videos archive by the end of the quarter!
• Personal track record review of each trading sample. This is a step often needed but not offered, and this is where you learn the most from the methodology and trade set ups.
• Employment Contracts offered to traders and clients that achieve our objective statistical goals.
• Protégé Clients that meet our Statistical Matrix are automatically offered Firm Employment after class completion, and designed for those traders that are committed to a full-time career in the markets.
• Firm Traders also have access to live trading records via videos from our traders of actual trade execution using the methodology taught updated each week.
• Tuition Rebate Program to all firm employees allowing Traders to earn back Tuition expenses with firm capital.
• 17% of our clients are professional traders coming into the Protégé Class. New traders need to be challenged and work with a firm learning a methodology that will teach you how to read the price action of any market quantifying your consistent edge.
• In person workshop to all Protégé Traders included in class for Spring or Fall 2009.

In my experience I have the opportunity to talk to many people looking to actively manage their own investments and those looking to take on trading as a career path.  I have found that often new traders and investors become so confused by the volume of information available in the market that they lose sight of the end game.  Hundreds of hours are spent searching through indicators, oscillators, lines, systems and predictions looking for the strategy that will guarantee success.  Everyone seems to be looking for the magical answer, the secret to trading and the promise of 100% success.  In some cases, the search and analysis overtake the trading so that finding the perfect system becomes the goal.  They forget that we are actively investing and trading to make money.  And this requires you to place your money in the market and actively manage that position.  Once you enter the market, your previous analysis becomes irrelevant
 
So let’s get back to some basics.   The market is made up of thousands of individuals all completing their own analysis and making their own trading decisions.  We are trading alongside and against a changing and evolving crowd who react to a constant flow of new information.  The market is constantly changing and adjusting, so you too need to have a trading strategy that ensures you monitor the market, be flexible and react to new information when required.

 

So what are the ways to trade successfully in the market?

Firstly we must know our job and acknowledge that we are trading to make a profit.  Dividends aside, we are looking to profit from the movement in price.  So it follows that the key to selecting and managing your positions is an understanding of the price action.
 

There are only two facts that occur in the market:

1. Price (the price at which a buyer and seller agree to an exchange)

2. Volume (the amount that is exchanged).
 

My first point here is that all the indicators, oscillators, trend lines, averages, etc are simply derivatives of either price and/or volume.  They can be useful to support your chart analysis but should never be a substitute for analysing the price.  Why rely on assumptions and interpretations when you can go straight to the source?

Secondly, you need an understanding of what causes price movement.  We may think a particular share has fantastic earnings and great potential.  And maybe it does.  But unless a new buyer is prepared to buy at the ask price level then the share price will not gain in value.  We need a constant supply of new buyers willing to take the higher ask price for the value of our chosen financial instrument to rise.

Observing previous price structures can help in determining a likely future price direction.  An understanding of how to read candlestick charts will allow you to determine who is in control of the market – buyers or sellers.  Your price analysis will also allow you to identify the strength of the market and, importantly, a change in the strength of the market.  You are looking to see if buying momentum is increasing or decreasing over your chosen time frame.  A change in control from buyers to sellers will result in a fall in price and potentially require action from you.

Consistent profitability lies in constantly assessing our risk/reward profile for every trading position we take on from entry right through to exit.  Your risk/reward profile is your assessment of the risk you take on in any particular trade compared to the potential for profit.  We look at the risk in two ways.  Firstly, we use price analysis to determine the likelihood of the price moving in a favourable direction.  Secondly, we consider the risk we are taking as the amount we will lose if we are wrong.  This is simply the amount you will lose if the trade hits your stop loss.  How does this compare with the potential for price rise based on recent price history?
 
Obviously in trading and investing we do not know the future.  So we are constantly required to assess probabilities and look to find those opportunities that present the greatest potential reward with the lowest level of risk.  This will assist you in selecting your opportunities.

Once you are in a trade, your trade management will determine your profitability.  You have no control over the market and it will move regardless of your initial analysis.  Senario planning is an excellent framework for active management of your positions.  In any trading position, the price can move up, down, or sideways.  It may move quickly, it may move slowly.  You need to ensure you have a plan for whatever happens.

Ask yourself these questions:

•  What will I do if the price goes up?  Will I add?  When will I take profits?  How much will I allow for retracements?  What will I do if price reverses?
•  What will I do if the price goes down?  Where is my stop loss?  Will I re-enter if the price subsequently goes back up?
•  What will I do if the price moves sideways?  What is my timeframe? 

Your price analysis will continue throughout your trade management phase.  This is where you continue to assess your risk/reward proposition.  If your price analysis is indicating a potential change in market sentiment, you may wish to reassess your stop loss, or take some profits.  Conversely, your analysis may support continued strength over your time frame after a brief retracement and present a low risk high probability opportunity to add to this winning position and further your profits.

So spend your time wisely and gain the skills you need to make money from movements in price.  Study the charts.  Understand how to determine who is in control of the market and how committed they are.  Learn to recognize when buyers are losing commitment and there is a potential for change.  Learn to assess if a change in price direction is more likely to be short-term profit taking or a change in market sentiment.  This will allow you to make more responsive trading decisions based on primary data.