Just a bad thing to do. Last night I was trading the Yen in the Asian overnight. We had a rounded top formation so I went short into the US afternoon, Japanese early morning once we had broken the 118 level in the Yen.
The trade went well, and after an hour , I was in profit. Volume was falling and the market was getting quiet as it usually does this time of day, and I was waiting to take my profit.
I literally just fell asleep watching the screen. I had my original stop which as back up at the 118.20 level. I woke up and immediately closed the trade. I was now well off my trading plan, and when you are off your plan, the best plan is to get flat and regroup.
The reason I wrote this post is the moral of the story.
When you are off your trading plan for any reason, close out your trade and get back to disciplined trading.
Disciplined trading is really the only way.
LARGE VOLUME DAYS
If you have been trading recently, you know that volume and volatility have stepped up in the US markets a lot recently. This is not normal, or has not been the norm for a few years.
If you are trading time based charts, like a 5 minute of 15 minute bar, the chart will look the same. The bars are still 5 minutes apart, they just have more volume. If you are using tick or volume charts however, the story is quite different.
WHAT ARE TICK & VOLUME CHARTS
A tick chart draws price bars in terms of how many trades occur. A 2000 tick chart will plot a bar when 2000 trades have occurred, showing the open, high low and closing price that were reached during the preceding 2000 ticks.
Volume charts are the same, except that they plot a new bar given the amount of contracts that were traded. One 1,000 contract transaction would appear the same as 1,000 single contract transactions.
HOW TO TRADE THEM
The easiest way is to trade them so that the number of bars goes back to approximately what it was before. Mind you, you do have to switch back to your normal chart setting once volume goes back to normal. This is only a temporary solution.
I normally trade the ES on a 2000 tick chart. The last few days however, I have switched to a 40000 tick chart just to keep up. That bars are still coming fast, but they are now manageable.
To sum up, the few times a year that we have a volume explosion, consider doubling or tripling the size of your charts ( in terms of ticks or volume ) and going back to your original setting once the market calms down.
Photo By Fisher Chia
FINDING THE TREND
For an Al Brooks style price action trader, we do draw short term channels during the day. We can draw them off the highs and lows or the closes. Sometimes the chart gets crowded and it is hard to see the forest for the tress.
Using NinjaTrader, we can change the bar type from candlesticks ( the most popular chart type ) to Line on Close. This draws a line between only the closes on a chart.
LINE ON CLOSE
I picked up this trick from Mack at price action trading systems, it is not my idea. By switching the chart type, we can see the above chart rendered in a simpler manner.
Give it a try the next time you are having trouble drawing trend channels.
Today I am trading the ES. I went short off a double top and got smoked three ticks. Meh, the signal bar was not great and in hindsight, I should have waited. It turned out to be a triple top and I made 4 ticks on the next move down.
The next entry was a first entry pullback to the EMA. I went short and without out even waiting one bar for my trade to work, I moved my target to two ticks and puked out early.
Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker! Don’t let ego and greed inhibit clear thinking and hard work – Linda Bradford Raschke
CUT MY WINNER SHORT
I CUT MY WINNER SHORT. A classic way not to be profitable. I thought I had gotten over that habit, but I still do it sometimes. Maybe we never truly get over our bad habits. The most important thing is not to let it ( a trade cut short ) affect me and I get more aggressive because I am mad at myself or the market.