Ok folks now that everyone’s head is throbbing with this the answer.

Drum roll…. (insert own sound effects)

Answer = 10

The funny thing is that out of all the possible answer I don’t think that this was one given, although it was mentioned mid way through the comments.

How did I get that? 1 + 2 + 3 + 4 = 10

Before you all shout at me for such a simple sum ask your self what is more important;

• The answer?
• OR
• How you came to an answer?

The object of this game was to highlight some of our failures in logical thinking. Many people simply put the answer that they thought which was simply a guess. With a little prompting some of you started to think about this and what rules need to be used to come to a conclusion.

Even the most obvious answer, 5, has a set of rules that has been bred into us from an early age as a basic number sequence. So before we come to any answer we need to establish what the rules of the game are otherwise we are making simple guesses and assumptions to ascertain an outcome.

Now lets think about this in trading terms. Mr Market knows the rules and with that same number sequence there are a certain number of possible outcomes. As traders we are looking for outcomes based on a certain sequence of events leading up to making a trade decision.

To make this decision we need a plan. We need a rule set. We don’t know the rules of the game but we do know that when certain things happen we can assume a favourable outcome.

5 is the most obvious answer and is what all the so called text books tell and and is really what Joe Public is doing and loosing money as a result. So what other outcomes could there be.

What I am telling myself as a rule set for a trading plan is that every time 1,2,3,4 happens I expect an outcome based on 1+2+3+4=10.  I have researched, back tested and forward tested this rule set and I’m happy that this is a set of rules that I can follow and make money in the market with.

The point is I have a plan based on a logical set of assumptions with a tested and expected favourable outcome based on probability.

As traders we need to always be thinking about all the possible scenarios that could develop and take a course of action if those events fit into the trading plan that you have devised, researched and tested.

So one last question.

Do you have a trading plan?

Ok folks, something for a little but of fun but at the end of it will have a very interesting result.

Answers on the comments please.

Hi Folks,

I’m looking at the charts as usual this morning and have been all morning and all I can do is shake my head. 

Most of the cross rates that I’m looking at are still range bound and waiting for price to get to S/R levels or break past those S/R levels and so far they are nowhere close to being at those levels previously identified.

The only cross rates that have looked interesting for me so far today are AUDJPY AUDUSD and CADJPY which have broken out of the larger 240  min ranges and there is such a lack of activity today that I’m thinking that these might really struggle to make any significant intraday moves at the very least.  the good news with them is that I have managed the trades to a break even point as Ive described in the Ive room today.

So its back to waiting… waiting and waiting some more.

I think personally If I wasn’t at the trade desk and doing some presentations, today and this week would be a really good time to go fishing. Have a long weekend. Spend some time with the family. If I was flat that’s what I would do with my time…. something better than sitting at the desk.

What every you decide to do today and tomorrow… enjoy yourself and have a great weekend.

Phil

….tick…tock…tick…tock…

Follow the white rabbit… he never had much time and was always rushing off somewhere and was always late to be some place else.

One of the main things I have talked about in the Live Trading Room today is time management and how you can get the most out of your day without wasting a moment of your time between trades.

Even when you have several positions open for me the actual “trading time” is actually very small and most of the time before during and after a trade is spent waiting.

So what can you do in that free time other than update your analysis? Firstly I encourage you to give yourself a “homework project” for most newer traders this will be to strat writing a written trading plan of how you intend to trade.

Other homework ideas could be research and development of ideas or variations of ideas. I spend a lot of time looking at different variation of what I’m doing to see if they would be better on the real time accounts rather than on the back burners. It also helps me keep a benchmark of performance over the long term with my different strategy ideas.

Or you could do what I’ve done in the past and teach yourself how to juggle

So whats been keeping me busy today in what has been for me a rather dull slow paced day for my strategy?

As well as keeping track of many different idea’s, answering support emails,explaining each of my trades as they set up and all the other support stuff from doing the live room. I spend a few hours today looking at a new trade platform.

In addition to this I was looking at the same strategies I use on FX and seeing what they look like in real time on Gold, Oil, and European Index’s. As a few things set up I fired a few trade off on the demo account to get a feel for the platform and see how the patterns develop on these markets.

Ive looked at these market before and prior to starting the live room I was trading FX Mini Dow and occasionally NASDAQ stock.  Now Ive got the routine down in the live room I’m looking to re-start trading multiple markets again.

Below is a quick look at what the charts look like on the platform I’m looking at as well as the two trades I have taken using the Fib set up with exactly the same rules as I would use on FX.

Gold Fib set up selling rallies in down trend

Scale out not quite reached at time of this image. When/If triggered will be setting a target to low of day for last 3rd as will only be passively watching it.

15 min Fib oil set up, selling rallies in down trend.

Scale out hit just after this image was taken

Trade management for last 3rd as I’m only passively watching this Ive set a limit for a retest of the low of the day

Hi Folks,

Find myself with a lot of free time today

Today is one of those days where I look at the charts and think stuff it.

Price activity in the overnight or Asian trading range is not in the best place to be taking trades on as far as I’m concerned OR there are still some larger term ranges that still need to be broken before any action can be taken. AND when that happens I will need to take an average days move into consideration which means waiting yet again for more significant retracements using fibs and at least a 50% retracement.

Long story short I dont fancy sitting all day just on the off chance that something might develop from what will most likely be scraps for the day.

Now this doesnt mean we cant or will not see some good moves it just means that based on market norms and averages I have a low expectation of being able to join in on any moves based on the strategies I use.

Other traders with different style may be looking at this and thinking this is perfect for my strategy but that just highlights the magical difference between traders and strategies.

Have a good days trading folks

Phil

What do you Guys ‘n Gals think of today… is it worth trading? or taking a long weekend?

 I usually like to type my thoughts out when I’m trying to shape them which I usually in a word doc … and is a good exercise I like to do to help put all those thoughts together

Firstly ATR’s have been done, which gives me little profit potential for the day we know that the short term moves of late can still produce some good moves after ATR’s have been done but profit potential at the moment is 0 versus large gaps and wide swings… this is making me scratch my head. 2 big gaps in as many weeks also making my think twice about these markets

so I’m back to thinking about direction for any potential…

Using gbpusd onscreen as example…

Big gap up which from Friday has moved more than 500 pips. When was the last time we saw this and what happened?

As chartists we are looking for history to repeat itself.

So what did it do last time?

If you notice, I’m still going through the first 2 of the 3 basic questions only this time I’m expanding the where is price now and what is it doing part… looking for as many facts as I can and also looking at what price did last time this happened

ok so last time….

Big gap up, which was the Fanny and Freddy bail out. This pretty much amounted to a nationalisation of those financial institutions and some pundits were saying this was the equivalent of an interest rate cut. Which is good for the US, right? The bail out though is bad news… = gap up. This was seen as a shorting potential for gbpusd

So what different fundamentally this time?

LEH bail out and maybe a few others to follow… the news in UK not as bad, also a price action direction bias on the 240 min charts which we looked at last Friday.

So this time LEH bail out… bad for US and FED also considering changing views on rates… gap up on gbpusd and the trend is at the early stages of change… which is different from last time as the trend was well established as already down… is this gap going to be a shorting opportunity as well… It might be but I don’t thing so.

So facts again… This gap is different from last time and bad for US as their financial system is in melt down and the government is not bailing them out = bad

All in all while the UK is not too much better than the US the UK is not having as many problems and our banking system isn’t collapsing…. at least not just yet!

It now looks like the financial melt down we were predicating several weeks ago is happening and its the US who has buckled first, should it be good for the UK in relation to currency exchange in basic terms if the UK and US were companies and you had to invest on one of them,  which one would you invest in…? Neither, but If I had to choose right now it would be the UK.

The point is everywhere is struggling its a question of which one is doing worse and looking at gbpusd the USD is doing worse… and its not a case of GBP is better… its still in a bad shape just not as bad… for now.

They are the facts using the 3 basic questions and taking some of the fundamental picture of why this is happening into consideration

The last of the 3 questions is how can I get involved…? It takes a while sometimes but we are getting there.

This one will be easier to answer… ATR done looking for fib set ups… but which way will we be looking to trade? Intraday looks like at the time writing mixed direction and the 240 min chart is starting a new uptrend, but how long is that going to last? Long story short is that the potential for the day has been done based on an average days move. And is a step aside say for now.

Lets think about this another way… if you are playing football on the park. You have a giant square of grass to play on… and if the ball went on to the main roads with traffic going up and down would you continue to play on the main road or would you get your ball and go back into the safety of the park…?

At the moment folks we are on the main road… so lets wait for little jonny to get the price action back into the park so we can all play

Do you have any thoughts or comments? What about JPY rates as a safe haven instead of USD rates?

Please leave your thoughts using the form below.

I was going to write about some thoughts today about learning from mistakes… and I had a really cool analogy which I might fit in at the end… but I spotted something that makes my blood boil on one of my rare visits to another websites forum which ties into something similar.

There is a current hot topic about trading a break out or a predefined 2 hour segment of the day (In short the start of the US trading session)… not just any breakout but a bracket… this is placing a buy order above and a sell order below the identified range… and set a XX pip trailing stop loss and hope for the best. Those are actually the rules!

Works great on an intraday reversal (on a daily bar chart you will see these as hammers shooting start outside bars) but what about all the other days of the trading year? In the last few weeks we have seen several of these types of days which is unusual in itself in my opinion.

Now what most new traders do when “something new” catches their interest is just look back over the last few days or few weeks on maybe  one or two pairs and what they will see is that this strategy is the best thing since sliced bread. They will go all glossy eyed over the winning trades and the massive movements that they see and think… “This is easy money”

What a serious trader or prospective trader will do is take it one step further and look to see what the LONG TERM life of this potential new strategy is and not what this has done in the last few days.  

Take a look at a daily chart yourself how many intraday reversals do you see these usually easiest to see as hammers shooting starts outside bars do they happen enough to make it a regular trading pattern on a day to day basis?  I think not!

While all things go in cycles and my general view on technical analysis is that all things work some of the time will this strategy still make you daily pips in the long term? No.

Today as I’m writing this strategy will have worked an absolute charm and made quite a few pips, but how many people actually traded it today… not too many by looking at the forum in question.

What is going to happen tomorrow?

All these inexperienced traders will be trading this so called strategy as it has made money today. I foresee them being sorely disappointed. They might then also try to trade this for a few days, maybe a week or two all the while watching their account erode, guess what they ain’t going to use a demo account as this is such a “hot” and “sure thing”… “just look what it did yesterday for the proof”.  This is like taking a tip off the “bloke down the pub” because a “friend of his” knew “someone” that was talking to an employee of xzy company about a sale he had made some good commissions on. So of course that company must be a good one to invest in!!!

So now that my rant about some of the rubbish that people “think” is good without out actually checking the facts is over, the cycle of new trader generally speaking is something like this… and Ive watched a lot of people doing it and caught myself doing it early in my own trading career.

Find an entry strategy/method back test it for a few days/weeks… looks good, “I’ll give this a go”

Watch it in real time for a day or two… “This is making, easy money. Why I’m I just watching it? Tomorrow I’ll live trade it”

Tomorrow comes, live trading starts… they are all excited, might even get lucky for a day or two, on a good trade, might have missed one… “I’ll get them tomorrow” and them your up a few dozen or more pips.. “Great day. Easy!”

Then the losing/mixed trading cycle of the strategy happens and continues for the next few days/weeks… “What I’m I doing wrong? This was so easy” and so the decision to stop trading happens (or the decision that that strategy didn’t actually work in the first place is made and so they stop trading it)

And so the newby trader stops live trading licking wounds and reassessing the strategy making sure the rules have been understood, watching the strategy unfold.  At this point they might see a few more potential losses and think “what a good decision to stop” and then the next several days are spent watching the winning cycle of the strategy profit after profit is seen, confidence is built and “if I had stuck with it all those losses would have been returned to me, I’ll start trading again tomorrow”

So the new trader continues this cycle of watching a winning phase, trading a loosing… and maybe getting lucky in the overlap of cycles but on the whole watching equity erode out of the live account and “if I had just stayed with it from the start, I’d be making a lot of money and kissing the day job goodbye!”

Consistency in trading is a big key with the application of a strategy when you find one that suits your personality or from sticking one a strategy rather than jumping around from method to method.

Of course all the above assumes that the strategy in question is well rounded and not only includes “just and entry method” but also an exit strategy and trade/money management.

Ultimately have a well rounded and complete written trading plan that you have faith in, that is back tested AND forward tested before you commit your hard earned money on the markets.

Don’t fall into the trap of stopping and starting a strategy, realise that you don’t have all the key components or jump from one strategy to another with every new day.

Trading is one of the few if not the only business in the world that allows you to practice before committing real money to the markets. So you can make all those mistakes and learn your new profession on a demo account.

Don’t just jump on the first hot strategy that you see or are told about, test it, see if it works for you, and find the proof for yourself.

Have a well rounded tested trading plan; know what you’re going to do, when you’re doing it and why you’re doing it at ever stage of the trading day.

One of my all time trading wishes came true this weekend which was that a politician actually told the truth… not only did Alistair Darling say that the UK economy was in a bad shape he completely bombed the UK by saying

“arguably the worst” economic downturn in 60 years which will be “more profound and long-lasting” than people had expected
The economic backdrop presents Labour with its toughest challenge since the 1980s. “We’ve got our work cut out. This coming 12 months will be the most difficult 12 months the Labour party has had in a generation,” he says. But Labour has been lacklustre. “We’ve got to rediscover that zeal which won three elections, and that is a huge problem for us at the moment. People are pissed off with us.

Quote from the Guardian Online - http://www.guardian.co.uk/politics/2008/aug/30/economy.alistairdarling

I’ve said for years that I would love to be a fly on the wall when a politician looses the plot and Saturday morning that wish came true, in my opinion he might as well have said we are all going to hell to burn which might have actually had a lesser effect than what he did say.

The funny part of the whole thing was that some news reports I was listening to were saying that he was overstating what was actually happening and that AD is either very clever or very stupid

Which one do you think it is?