The first few weeks

Beginner's discipline

One of the enduring problems of a trader is the laxity in discipline that creeps in with success. My initial success rate of over 65% has dropped to below 50%. Some of this can be attributed to necessary experimentation, but not all of it. At least half should be attributed to overconfidence and a misplaced self-assurance that I can overcome any losses easily. In general, I try to design my experiments such that losses are minimal. However, for many goals such as figuring out where to fade an overlap, there is no practical way to do it.

Many of the big down days were wednesdays, trying to figure out how to extract maximum value from news events. I have given this up as an unreasonable and expensive goal.

My current goal is to redesign experiments such that even with losing trades, I wont have any losing days.

Plateau

Its possible that I have hit a plateau. The big losing week is especially bothersome and has reminded me to be more disciplined. I need to take care not to let my uptrend in the equity curve turn into a down-trend.

I will post with increasing frequency in the coming days now that I have a baseline to compare my performance.

Alternative RSS Reader

As many of you are aware, google is shutting down its blog reader. An alternative reader similar to Google Reader is Old Reader. You can use it to read this (or any other) blog. You can also export your google reader settings and import it in old reader.

Late 12-2010 and 01-2011 posts restored

My trading style has evolved over the time I have maintained this blog and have leaned towards new setups and new ways of seeing the market. However, the early articles are still relevant and extremely educational. These articles had lost their images due to deletion on the server.

Thanks to the contribution from readers worldwide, most of the early articles have been restored from images submitted by various readers.

I have regenerated images for posts dated 2011-01-10 to 2011-01-14. Those charts do not have their original markings. If anyone has these charts, please submit them for restoration.

Thanks to everyone for their continuing support. I hope to be able to continue posting with regularity and end the dearth of posts over the last several months.

Update: All images have been restored. Thanks to my readers.

Targets and turning points

A large first bar is usually an opening range, especially if it has large tails on both ends. Any breakout beyond it is likely to fail (b2, b5) and test the other end of the trading range. On tight trading days, price could bounce between two ends for the entire trading session but occasionally, a breakout will succeed and such breakouts usually lead to a measured move of the opening range (b14).

Trading the fBO of the opening range should be attempted with caution since the profit potential, defined by the range size needs to be large enough to justify the risk. A weak bar such as b2 or b7 are not very high probability entries and your chances of a successful trade are lower compared to a strong signal bar for an fBO setup.

A successful BO that leads to a measured move may turn and retrace most of the breakout (b24) or even most or all of the opening range (b49). Sometimes breakouts continue to trend up for the rest of the session, but a strong prior move (b3-5) suggest a turn at the measured move is likely.

Therefore targets such as the other end of the range such as b1L for b2 short, b2H for b7 long and MM target of b1 at b14H are potential turning points and you should watch carefully for signal bars. A strong signal(b15) bar may mean good chances of a reversal or retrace.

Structure before pattern

A tick or bar scalper only needs to find setups that move at least as many ticks as his stop. A swing trader's job is harder, since he has to correctly identify setups with a high probability of a large move. But the advantage of the swing trader is that he comes out ahead even with a 50% win rate.

One of the classic big move scenarios is a failure. A failure of a W trade (#1) sets up a measured move of the size of the W in the opposing direction. If the W setup was weak to begin with (b19,20), this strengthens the failure trade (#2).

Failures usually have a second leg and after the move down to b26, you should never take a reversal until a new low is reached (b52) or 3 pushes to a HL.

A second leg trade (#4) may only take out the prior leg or it could give a large breakout. A channel type move such as today is more likely to reverse while a breakout is more likely to result in a sustained trend.