How to recognize price action and trade it: 10/30 Wedge on Euro (M6E)- $375 return to $20 risk

It's important to recognize a trading environment / trade-able price action. The main reason it's important is because it will preserve your cash when you recognize conditions that you should not be trading in. This may mean not having a trade for hours, maybe even days. But when the price structures itself in a way that signals a trade-able environment, you need to act on it. In this type of a profession, you are always working. This work includes simple things like checking whether price is pressuring the high or low of the current day, while you're out running errands. It doesn't mean you're trading 24/7, the trading aspect of it should be very minimal because perfect price action occurs much less than non trade-able environments. So your job as an analyst is the most important, the trader part of it only executed orders based on what the analyst decides.

I want to share an example from this evening:
- I received a text alert on my phone from cnbc, the following article: Japan Intervenes to Curb Yen's Strength
http://www.cnbc.com/id/45098537
- As an analyst you formulate the following opinion using economics. Yen weakened = Strong US Dollar = Weak Euro.
- I trade the M6E Euro futures, therefore I looked on my phone on ThinkorSwim to see the price of the Euro.
- My last note in my phone from Friday was that the Euro was in a wedge and to expect a breakout to either side upon fundamental shift.
- I took the following trade, selling the top of the wedge with contract 1, max risk of $20:

- I was able to eventually add 2 more contracts into the position.
- I had a target of 100 pips for each contract, which would result in a profit of $375 if max targets are met.

I met target on the first 2 contracts, will be looking to add into the short position if movement increases. If not, I will move my stop below entry price, leave my target, and go to bed. I will update tomorrow.

Goodnight and good luck this week trading!

10/25/11 Trade Results: 5 trades, $646.25 profit

Traded both the NQ and Euro today. I had 3 positions in the NQ and 2 in the Euro. The day was extremely volatile, with the markets being in a bear channel almost all day. Ended the day around 12:30 with $646.25 profit.

Here is a chart that includes an interesting Euro position. I had my first target defaulted to 50 pips and the second target at 100 pips, but upon seeing that maybe my 100 pip target was unrealistic in the current situation, I decided to take profit on both at 50 pips; resulted in a good decision.

10/24/11 Trade Results: 4 trades, $245 Profit

I want to spend a little bit more time on this trade results post than normal. Today was the first day of trading the M6E (Micro-Euro currency futures) in conjunction with my standard instrument, the NQ (Nasdaq). As a trend trader, you should be able to apply your system over all markets, this ensures that the system is valid and allows for diversification of risk.

I chose the M6E over the 6E because it allows you to apply scaling into and out of positions due to the smaller tick value, which is 1/10 the 6E. Therefore, in theory, to trade the equivalent of 1 6E contract you need to trade 10 M6E contracts. Using the M6E route, you are able to scale into and out of the overall position. I am still applying the 4 trade rule, but with the M6E I consider the overall position as the trade not the individual trades scaling into the position. For example, if I go long with 1 contract on the M6E and then add another contract long after I'm 20 pips in the money and then 1 more long after another 20 pips, that is 1 position or "1 trade".

I had 4 positions today, 2 in the NQ and 2 in the M6E. Below is the chart for the M6E positions:

10/21/11 Trade Results: 1 trade, $200 profit

Friday usually = low volume slow day, but not today! Bulls were in control this morning. Since I usually use Friday as a research day to analyze my week, I trade very light on Fridays. I had one trade which met target at $200 and I ended live trading for the day. I will take the rest of the day to go over mistakes made at the beginning of the week and positive notes taken from wed, thurs, and today. In general, mon and tues were days that I over-traded and traded in non-trading environments according to my system. A BIG positive for this week is applying the 4 trade rule. The benefit of it is invaluable. It helped me be very selective about my trades and pick only the highest quality of entries. Here is the chart of the entry that I took and the exit level:

You want to apply the following rule to your trading, it is a concept developed my Richard Donchian back in 1933, but it still holds true! The simplest of rules are always the best. I found that this easy technical guide will help you profit in the markets and avoid taking counter general trend trades which result in losses. The thinking behind my trade: current consolidation range, expect a move to the upside (continuing the bigger picture trend).

A move followed by a sideways range often precedes another move of almost equal extent in the same direction as the original move.  Generally, when the second move from the sideways range has run its course, a counter move approaching the sideways range may be expected.

10/20/11 Trade Results: 4 trades, $310 profit

Ok, today was very interesting. It was the second day of the 4 trade rule that I have implemented. If I reach 4 trades during a day, I stop trading no matter what. Unfortunately for a day like today, I should have still traded, BUT this 4 trade rule teach EXTREME discipline. Do you know how hard it is to turn the screens off knowing you're missing big profit trades because of you're stupid rule? All the trades that you can't get into because you've reached your max trades for the day? It sucks, but it's great! Think about it, you ration your trades to only take the highest of quality positions. You learn discipline, discipline, and more discipline. Also, patience that is acquired through this will be your most valuable asset in trading. So, as much as I'm mad that I had to stop the day at 4 trades, I'm thankful that I have learned discipline and patience. Here is the performance report for today.

 

I also wanted to show you the price structure that I was seeing today. It gave me a short bias, therefore allowing long signals to go by. I was somewhat disappointed with that last trade. I moved my target from 10 points down to 6 points for no reason. I had no indication to exit the position. This was one of those emotional moments that all traders have. The fear of giving back profits and just exiting. It's something that I'm working on and hopefully can be more systematic with. 

Here is how the stop would be managed systematically:

10/20/11 Prep / Analysis: Market currently indecisive

Market is bouncing between yesterday's low. This resembles a buyer / seller struggle. Direction is currently ranging. Waiting for a trend to define itself. Here's the current snapshop:

10/19/11 Trade Results: 2 trades, $225 profit

I have added to my rules the following:
- 4 trades max per day, no matter what
- 5 points max risk per trade on the NQ

I began to have an issue with over trading the past few days. Over trading in turn leads to trading in bad market environments. So, I'm trying to challenge myself to 4 trades max per day. This way, I ration the trades and only trade in good trading environments.

Today, I had 1 trade during the regular session, which met max profit at $200. I am ending for the day, making it a 1 and done day. The only reason I'm doing this is to learn discipline, patience, and to build confidence. It's always better going into the following day with a profit. Here is the chart:

10/17/11 Morning Prep / Analysis: Futures lower, earnings week ahead.

Fundamentals: Neutral

Futures lower amid Euro Zone fears. Earnings week will make things very unpredictable, take it a day at a time.

Technicals: Short

Technicals all showing short bias. Longer term charts showing a pullback, shorter term charts showing selling pressure.

Plan: Be careful shorting at these levels, could be last wave. Only go long upon strong signals. Rallies may be "pullbacks" with continuation into downtrend. If taking shorts, attempt to sell buyer failure.

10/14/11 Trade Results: 5 trades, $170 profit; $720 on week

Friday's are usually my day off or a very light trading day because the volume on Fridays is usually quite low. I like to spend Friday's as a research day / analyze the weeks trades (looking for ways to improve certain things).

As mentioned previously, this week and next will be very conservative trading, attempting to validate and finalize an aspect of my trading system. Therefore, the profits / number of trades will be low, but the quality of the positions / strictness of entries will be my goal.

Here's the chart up until this afternoon:

 

Conditions changed following consumer sentiment figures. I had my most profitable trade around 9:40am, prior to the news, for $100. The rest of the trades were small profits, recognizing that I'm trading in light volume, I would get out for $10-$50 on the positions.

Here are the live results during this week. Prior to commissions, the gross profit for this week is $720, factoring in the 30 trades, commission of $114.60, ended with $605.40 clean profit. The goal for this week and next is $500 each week. The goal was exceeded by 21.1% for this week . 

10/14/11 Morning Prep / Analysis: Futures extend gains after retail sales

Fundamentals: Bullish- Markets to open higher after retail sales and Google earnings.

Technicals: Bullish- Technicals all giving a long bias. Pullbacks are expected but will not be regarded as reversal (only until confirmed).

  

Plan: Very simple plan of attack for us today because of the fundamentals and technicals agreeing with eachother. BUY the seller failures.

10/3/11 Morning Prep / Analysis: Futures Lower Amid Euro Zone Jitters

Fundamentals: Wall Street to open lower, following on overseas action. Investors nervously eye Greece's deficit.

Technicals:

Bigger picture- Markets still in a bearish bias. There was a bearish flag earlier this morning, with a BOT Short occurring around 8:10am. When price was between moving averages on the 5 min, that was the first signs of a possible long trend, but buyers failed to propel price. Current bias is short, if price gets back in between moving averages, I would shift from short to neutral, but not long yet. If we break highs of day at 2134.75 with buying conviction, bias can then shift long.

Short term- The markets have been in a slight uptrending range since 2:00am. Around 8:10am, our short term chart broke out of the uptrend and gave short bias signals with the cross to the downside. With the indecisive short term chart, its better to wait for an evident direction before taking a position.

Course of Action: Wait until dominant direction is formed, then take trades in that direction. Currently bigger picture is short and short term is short, so look for short trend to confirm and only look for short trades until there is a condition change on the 1 min chart, which then you will stop looking for shorts and monitor for longs.