Tag Archives: technical analysis

Analysis 140413

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Yes indeed – these posts are coming thick and FAST! (not…)

Right… Since it’s impossible to trade or even look at anything during the day I have come up with an alternate stratagem. This also stems from my complete inability to multi-task.

Through the systematic practice of ‘doing a thing’ you get better and at the very least ‘doing the homework’ ahead of the next day then checking my planning against what pans out could be a good thing.  

A couple of people I follow have mentioned going into the day with a game plan and while I can’t really watch price live I thought there’d be some benefit in putting my own levels/ideas onto a chart and seeing how they hold up. Today I am pleasantly surprised.

Actually even before I opened a EURUSD chart I went over to Forex Factory’s trusty calendar and went through last week’s data to compare the Eurozone data results with the good ‘ole US of A’s. I wanted to get a ‘sense’ of positive or negative between the two contenders before looking at a chart. My conclusion was that as a whole the euro area data had been un-inspiring or at least not positive. Depending on the weighting US data seemed positive/ok.

One clear point looking ahead was that the euro’s chief wind-piece Draghi is talking tomorrow (Tuesday) and looking on an H1 chart we’ve been sideways following an up-swing. 

So… potentially more sideways, maybe it’ll turn into a pennant but a raging attack on 1.3200 seems somewhat unlikely unless someone/something drives it up. Then I had a look on an hourly chart and marked it up thusly… (is that a word?) so this is my ‘before’ picture.

140413 EURUSD H1

I’ll not bore you to tears about it but 1.3066 was what I wrote on the chart Sunday nite and it seems to have been a key point all day.

I put in the European open, US open and EU closes in as verticals below since this helps me get an idea of the passage of time across different chart timeframes.

140413 EURUSD M5 Results

What’s pretty clear is the selling all through the US session and then withdrawal of bids just now so we’re back at the low of the range from early/mid last week of 1.3040 – Is everyone selling euro’s to meet their margin calls in Gold? Who knows ;)

I guess we could see Asia take it sideways and then back up to 1.3066 again before breaking back down but I’ve not looked at this in any detail and I’m not staying up to watch either…

As they said in ‘Stingray’… “Anything can happen in the next half hour!” G’nite!

The real reason ‘retail’ traders fail

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I’ve been spending a lot of mental ‘time’ looking at the approaches of Jimmy Young, Chris Lori and especially @Trader_Dante off the twitter in the last couple of weeks. This also comes back to a throw away comment that Anton Kreil made at his ‘Traders of the Future II’ seminar. Added to that a spell watching Mark Douglas on youtube and then a couple of other excerpts by Brett N. Steenbarger so my brain is well and truly cooked with respect to trading.

Sometimes all this marinating can produce questions and maybe a little insight.

We all know the statistic about ‘retail’ traders have this appalling 80% – 90% rate of failure and it takes so much time to get good etc. Now of course psychology plays a huge part but prompted by this question I think I’ve gotten some way to understanding why this is true.

Retail traders are told that charts are at cause in the market or to put it another way…

Retail traders think what happens on the chart causes further stuff to happen.

This is partly correct but if something is partly correct it’s also not right either ;)

A chart is an effect – it’s the visual representation of a bunch of transactions and is only slightly causal in the grand scheme of things. A chart is an outcome. Believing that what you see represents the market and attempting to use this as a means of gaining an edge is likely to be a challenge because you’re not thinking about the totality.

Here’s a suggestion of the whole system

Now you can see that charts represent about 10% of the actual information available. Lets break the other elements down.

News = Information coming in that will have either a short term or long term (macro) effect

Market = The sentiment of the majority of the market at the time(frame) you’re in

Traders = Making bids/offers as the conditions change across multiple time-frames

So while there is a feedback loop between traders (who can move the market) and what happens on a chart (price) this image does not have the same weight for traders as the poor retail guy believe it does. For a retail trader the chart is the market. This is a key difference and a mental trap for every retail trader. It definitely pays to think outside of the chart.

For a trader with multi-millions at stake the chart is a result of their actions based on market opinion, macro economics, news and very importantly what other traders are doing. Here’s another attempt at a diagram as it relates to the actual situation…

Retail traders think the chart lives at the top on it’s own and has way more influence than it does…

What’s at cause here moving the squiggly line on the chart?

Yes, it’s how the Trader with a capital T is reacting to events, the market and to a certain extent where the price is in relation to other points. Now, what are the consequences of this for all us retail guys out here in the wilderness? What can we do to level the playing field? Well it helps to be asking the right questions for a start.

Retail newbie question – What’s the price/indicator/chart doing?

Retail improved question – What’s the market doing and how can I join in with low risk?

However here’s the question I believe you really need to ask…

How are Traders viewing the market and where can I enter for minimum risk to ride on the back of their actions

The market doesn’t move at all until a bunch of traders decide ‘we’re going to go this way’ because you and I as retail traders are simply riding on the chart which is the result of the actions of others.

A clear ‘short-cut’ for retail players is to learn to look at charts like Traders and then trade just like them or more accurately off their actions. Seems obvious when you say it like that but this may actually be the only way to achieve an edge over the long haul.

If you don’t want to spend your time thinking this through then I’m sure there’s another guy waiting to sell you the latest ‘can’t loose robot’ or ‘holy grail’ system. Putting myself in someone else’s shoes actually sounds a whole lot more straight-forward. I can’t beat them so figuring out where a Trader would enter and then doing the same means they’re doing the heavy lifting and I’m simply along for the ride ;)

Now a simple question remains…

How can you understand what Traders with a capital ‘T’ are doing? You need to look and think about what’s actually happening from the perspective of a bunch of real people that are already in the market, already in a position, trying to get in or out depending on whether the price is going up or down, rising or falling sharply. Thanks to @Trader_Dante for mainly providing the mental kicks to get this out of my brain and onto this ‘ere blog.

Traders are competing with others buying and selling actual stuff and because the retail guys is not doing this then it’s actually very challenging to look at a chart while keeping this in mind. Who is getting a kicking and who is dancing round the office? It’s that simple but until you realise you need to look at what is occurring on a chart with a completely different mind-set I’d say you may still be in the 80-90% bracket.

Ask yourself a different question when you look at a chart (price) pattern, see some news or try to get a ‘feel’ for market sentiment over the long term. Ask yourself this: -

What are the buyers/sellers and other actual Traders going to do when the price gets to ‘x’ point?

In summary and for the last time today… You are making a ‘bet’ on the price move of something that is being bought and sold so it’d probably really help to put yourselves in the shoes of those actually doing ‘buying’ and ‘selling’. How you see the price is not how the people moving the price see what’s going on so you need to look at everything from their perspective for a chance to win.

Right. I am now officially sick of thinking about trading. Possibly until tomorrow anyway ;)

I’d really be interested for people to comment on this post so please don’t be shy in coming back with your thoughts. Thanks for reading.

A retrospective of the last 9 months

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It’s been 9 months since I started blogging about learning spread-betting and in the last few weeks my posting rate has dropped off dramatically. Apologies for that.

The reason for this un-characteristic lapse is I’ve actually had a LOT of material to get through so I can actually achieve some level of profitability and consistency rather than blogging about making a bunch of errors, right?

So I’ve been looking back to the beginning of the year to break down the journey so far into manageable chunks that contain some pointers to anyone on a similar path.

Stage 1.

“I haven’t a clue what I’m doing but am going to trade anyway”

At this early stage, you have to consider that you’re very vulnerable… What do I mean by  that?

Well unless you’re living under a rock you’ll come across all sorts of people and organisations who will do their utmost to teach you to trade or sell you the secret to making money from the markets.

Let me be really clear. If you’re going to sign up at any time for a two day course that promises to be able to teach you to trade and it costs £2,000 then you’re about to get screwed. Whatever it is that they promise to be able to do in the time available, given there’s 40 people in the room, is going to be mainly basic and not useful. Just don’t do it.

The most you want to be paying for anything like this (2 days) is £250 and I’d only suggest this is ok after you’ve spent a few months trading. Why? Because otherwise you’ll have no idea whether what you’re seeing is crap advice or not.

If you want to check someone out then see www.forexpeacearmy.com - type in their name and hit ‘search’.

Also – While I ignored the following advice I really suggest you don’t make the same mistake. Start with a demo account and learn the mechanics of trading. No, it’s not exciting but really – it’ll save you money. If you can’t keep your hand off your wallet trade at 10p per point or something really low.

Depending on your tolerance for pain and how much you value being right this stage could last you quite a long time. At this point I read a lot of books about trading. Most of them didn’t help. It’s a funny point that I actually really thought that they were helping at the time but this turned out to be not true and some contained a bunch of total crap. The ones about psychology were actually very useful but in a general sense more than related to trading. I’ll have to revisit the pile of these and see what they actually contain in a few months.

Stage 2. 
“This is really hard and I keep losing”

I’m just coming out of this stage (lol). Previously I considered giving up a couple of times but I’m also quite stubborn so I’m still here. There’s a reason for this that I’ll get to near the end…

Everyone starts trading and thinks it’s all about the charts. If they can get the right combination of things on their charts and somehow deal with the emotional aspects associated with making decisions it’ll be ok. There aren’t that many people out there telling them anything otherwise either.

This reliance on charts (and that everyone sells/wries books from that perspective) is one of the big issues in the UK. My personal belief is that the pursuit of the right combination of lines on a screen is basically people searching for a shortcut. Nine months later I can tell you there aren’t any…

In another blog post I mentioned an audience member arguing with Richard Farleigh about technical analysis as being the be all and end all of trading. I’ve also seen a similar debate happen with Anton KreIl (hedge fund guy) and the same comments in various books. Sadly I didn’t pay enough attention at the time because like everyone else I was looking for a shortcut.

Stage 3. 

“Mostly what I thought was correct is wrong, let’s start again”

It would be crazy to spend another 9-12 months failing at this and not making any money. A few weeks ago this was what I was faced with… so I decided to roll the dice one last time and go to another FX seminar/event. Two days in London for less than £250 and the guy had lots of positive feedback online.

Before I write about this I have to say that I’ve encountered some great people on the road so far. I’m happy to report they’ve managed to ‘crack it’ and are making money at trading – they’re also extremely generous with their time. Special mention goes out to TraderSteve  who is a total diamond and I’d recommend people who want a winning longer term system check him out.

If you want to get a proper education as far as how a hedge fund works and the basis on which they’re making trades then go check out Anton Kreil’s site www.instutrade.com which I’m sure is going to have a big impact on the educational landscape in the UK where trading is concerned.

This is a ‘higher level’ approach to trading based on ideas not lines on charts… be very afraid as this requires you to think and involves a ‘next level’ approach to fundamentals which I’ve not seen anywhere else.

So back to me here… In one of those ‘serendipitous’ moments I ran across a guy called Jimmy Young who has 20 years of FX trading experience in banks and has spent the last 10 trading his own account. www.eurusdtrader.com

All I can say is that if you actually want to use your brain, learn to trade profitably and make money then at the very earliest opportunity get hold of this guy’s course and use it.

Seriously.

When you find that becoming successful requires you to think then ask yourself this question… ‘Do I really want to be a trader?’ If the answer is ‘Yes’ then be glad you’ve found possibly one of the best people on the planet right now to teach you.

For anyone of a cynical nature: – I do not personally benefit from any recommendations made in this blog. My intention is to become as really good trader, not to create some artificial passive income generation blowhole. Got that? Ok? Good.

Stage 4. 

“Even though I’ve now got the right tools, I still suck as a trader!”

Why? Because I’ve not had enough practice to actually become half decent. Difference now though is that 9 months later I’ve finally found the right tools. I can’t really express how relieved I am about that last sentence.

Because it’ll make you smile here’s a short list of my current trading issues: -

  • Not entering the trade when I should (talking myself out of pushing the button)
  • Closing the trade too early (think I’ve figured this one out)
  • Lack of mental flexibility (thinking too much)
  • Not understanding the implications of news that comes out (thinking too little)
  • Not having enough time to trade (work)
  • etc…

None of the issues above are about the tools, the market or the strategy. All the issues are my responsibility to solve ’cause they involve the bit between my ears. I’m still an idiot but now I’m an idiot with a flamethrower and not a teaspoon ;)

See, even with the right help this is still a very challenging activity… which is why I love it :)

Thanks for reading

Technical analysis brain fart

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Had a bit of a brain-fart over the weekend but still like this idea/way of thinking about the whole subject, so I decided to post it… Would be interested in people’s views on this perspective…

So what is technical analysis? My (very humble) opinion is that it’s like creating a map of what’s going on with a particular instrument. Why do you need a map? To get where you want to go. You need to be able to decide, based on the map you superimpose over the chart whether to accept or decline a particular trade based on risk.

It’s worth remembering again that at each given moment no-one has any faintest idea what might happen to the market next. It’s the mass decision impact movement of literally millions of other people deciding to buy or sell.

They can’t see what everyone else is doing either and are fiercely considering only their own position and unique circumstances… (selfish lizard brains running around in survival mode – lol)

You’re trying to create a probability map of the random movement of thousands of people. However, in large groups people aren’t random – in fact they are sometimes predictable or at least they will probabilistically move en mass in a certain direction. With this last point in mind we at least have a chance to move the odds of spread-betting successfully in our own favour.

How do we do this? Fierce observation of what’s actually happening without being attached to any particular opinion about a stock or share or particular market direction. An awareness of the likely probability of something recurring coupled with a risk managed approach and finally some sort of confirmation that essentially a large part of the market is in synch with your assessment. (i.e. an entry trigger)

Now, these ‘maps’ can of course get fiendishly involved… and I’ve been completely guilty of trying to read too much into a particular indicator or set of numbers. Sadly this hasn’t helped me in the past at all. You tend to start seeing the map swim before your eyes, no decisions get made and everything becomes loud and complicated. The data begins to conform to a particular bias or random piece of news you happened to see by accident.

Since you can’t predict price I suspect many people are asking the wrong question. They ask themselves “Where is the price going to go?” and the answer is no-one knows. Well, if no-one knows the chances of you or I being consistently right are quite slim!

Maybe we should instead be asking “Where is the price right now?”

To know where something is right now you have to place it in the correct relationship to other things. “Where is the price right now in relation to other points on my map?”

What are the other things that will help me figure out where I am? Levels, trends, previous highs/lows, size of bars etc. These will all have a certain ‘weight’ that affects the price right now. The decisions made by the millions of traders to get the price of an instrument to where it is now essentially creates it’s current position.

[It should be possible one day to create a statistical model that visually defines from previous probability data where the price should go next based on the influences of previous objects on the map and their effects based on probability numbers]

Look at this a different way. All the decisions you or I have made in our lives got us to where we are today. We can’t see the future however. It’s completely un-knowable and so the position of a stock or currency pair in the market in the empty space to the right of the graph is (and always will be) a mystery. However, based on the history of our own decisions (like previous price movements) and the influences of past external events we can get a ‘feel’ for how our own and other people’s future’s might turn out. If anyone has seen the film ‘The Adjustment Bureau’ then you’ll have an idea what this map could look like ;)

As a complete aside it’s possibly easier to ‘predict’ what will happen to people who’ve had more extreme pasts. Maybe this is why looking for extremes on a chart is similar in that when this does happen the likely hood of being right is higher? Possibly getting a bit too metaphysical now! ;)

Anyway, once we’ve got a pretty good idea of where price is in relation to the objects/points/levels/trends we think are significant then we at least have a fighting chance of making good (risk managed) decisions when the price gets near to a point it was at before.

Stop trying to figure out where the price is going to go next. YOU DO NOT HAVE THIS INFORMATION. All you have is where price has been and (if you’re looking properly) what happened at significant points earlier along the journey.

At point (a) something happened and price dropped hard. The reasons could be manifold and we don’t care about them anyway. If price get’s back to (a) is it going to drop again? Who knows? Who cares? All we need to make sure of is that we’re around when it happens, have a risk managed strategy to take advantage of this potentially high probability event and there’s some sort of short term confirmation that indeed, the same behaviour is happening again. Now all we have to do is manage our exit properly!

The right question is actually more likely to be, “What are the significant points on the map I’m seeing and how do they compare to and influence each other?” More on how I’m actually using this to appear later :)