Actionable Analysis

As far as trading is concerned every analysis should lead to the identification of “Actionable” price levels. If your analysis is not able to identify the price levels where you can take concrete action, it is a waste of time and you are practicing a useless skill.

My trading revolves around “Decision Points” where I am able to take action with the least amount of risk. Price can react in three ways at these levels. It may accelerate through it, stall at there or reverse from there. My current focus is to develop a “Feel” of the price action at these levels and enter in the anticipated direction without hesitation.

I have seen many traders spending hours together doing analysis. Unfortunately most of their time and efforts are wasted as their focus is not on identifying levels on which they can “React”. Ensure your analysis is focused on something easily “Recognizable”, “Reactionable” and ‘Repeatable” otherwise you are analyzing to paralyze yourself

Brian Hoffman

Brian Hoffman will be doing a presentation tomorrow ( 29-09-2012 ) evening. The event is sponsored by  Ninja Trader.It is at 11.00 AM EDT ( 08.30 PM IST, I think). Brian Hoffman is a full time trader and consultant who has had the unique opportunity to work with traders from all around the world.   His trading methodology is based on price action and exploiting retail trader psychology and does not require the use indicators or systems.

Register for the event here

28092012

Nifty gaped up and gave a very low risk opportunity to go long . Spike and channel moved well. Went short when the third attempt to go above the tight trading range failed. Later scratched it.

Price Flips

Do you know which price pattern repeats over and over again in Markets.?

I had written an earlier post on this ( Read). I am afraid most of the readers have not understood it properly.Price Flips are the basic pattern of all auction markets.It is the very basic structure of the price action..This is the concept on which almost all the profitable trading systems or methods are built.Any trading method ignoring this behavior of the market is likely to fail.

Everybody is aware of support and resistance in markets.A price area which was previously support or resistance has a good chance of continuing to provide support or resistance again in the future.Once this levels are broken this levels become Price Flip zones.In other words a resistance turns into probable support and a support become a probable resistance.It is like once you climb the stair the roof becomes the floor

Price Flip zones are an important concept in trading. It is very important to initiate your trades at these levels.It helps us to place our stops at logical levels and enter trades with very favorable RR ratio.Consider Price Flips as zones and not exact levels.Price Flip zones work in all Markets irrespective of the time frame you trade.

Pay attention to Price Flips zones while negotiating price action.  This may provide great help in extracting Money from the Markets

 

27092012

Another disastrous expiry day. Market fooled me again and again. Opened just above PDH and sold. BPB short stopped out. Went long on the retest of PDL. Expected a test of BRN and a probable reversal. But it reversed without testing BRN. Went long on the LOL BOF of PDL and IR Low. Stopped out. Expected a long signal at PDL.Price  reversed without touching PDL.Skipped the last LOL BOF of LOD/PDL

26092012

Nifty gaped down below PDL. Looking for an opportunity to go short. Broke PDL and gave a nice BPB.Scratched the long later. BOF of LOD gave a long signal which moved well.. TP at HOD

25092012

Nifty opened within previous day range. Opening move was very bullish. Missed the BOF of  BRN.In fact  I was looking to go long the BPB of  BRN.  BOF of LOD was a good opportunity to go long. Did not have the confidence to enter the later BOF of BRN as I expected a chop.

24092012

Nifty opened within the previous day evening range and could not break it the whole day. IR formed around BRN and as expected formed a Barbed Wire around it. BOF of Range low gave a long signal which failed to move. Scratched the trade.

21092012

Nifty broke above PDH and spiked. Could not enter on the first pullback as I expected a deeper one. Entered long on second pullback. As expected it channeled. I was expecting the channel till BRN.But it broke BRN and moved up. Now I was looking for a short.I expected a BPB when price broke below BRN.It happened to be a BOF. I was anticipating a BOF of  HOD like yesterday. Price could not reach HOD. BRN of Spot Nifty was giving stiff resistance at Nifty Future 5720.Always respect BRN of Nifty Spot and Futures.

Uncertainty

Have you ever bet on a Money Wheel ?
Money Wheel is a crude Roulette.Money Wheel simply have a couple of symbols on it.To play, place a bet on one of the symbols on the betting table  and spin the wheel.If it lands on your  symbol you win.Long back we used to bet on this and lose money during village fairs and temple festivals

I don't remember feeling bad or getting frustrated after a loss.I think it was because we were well aware of the probabilistic nature of the game and the results are uncertain and random.We never did bet more than we could afford to lose

What about a trading loss? We feel upset ,angry, and betrayed after a loss.We feel betrayed by the Market, We feel betrayed by our  method and start doubting it. (I am sure Some of us may even feel betrayed by the person who taught the method and will curse him) The problem is we are not accepting the uncertainty of the Market.The only thing certain in trading is the Uncertainty.No matter how good your analysis, no matter how perfect your set-up , once you enter a trade anything can happen.Anything can happen  at any time!
Even a single order can cause a flash crash in Markets ( Read)

Embrace the uncertainty and accept the probabilistic nature of the market. Do enough back testing and forward testing before accepting any method.Do not bet on it until you have total trust on it.If you are convinced that the method is effective, stick to it.Never be tempted to throw away your trading system due to a loss because  losses are expected from time to time.
Take massive action and conquer the final slippery slope

20092012

Nifty gaped down below PDL.First candle was a spike.Initial spike is always confusing for me. Whenever I expect a channel market gives a BOF of IR . Today I tried to short the BOF of IR high , but market stopped me out and moved in a channel. Late afternoon BOF of HOD gave a good short which moved very well. Could capture the entire move

Losses

We do not like to lose or fail. That is human nature.We have a tendency to view losses as personal failures.. This is disastrous for a trader. Losses are inevitable part of the trading game We need to accept  losses as cost of doing this business.Worlds best traders too lose a lot.

To be successful in trading, we must have a method with an edge. We need to trade the method long enough ignoring the results of individual trades to win.This is not possible without  total trust in your methods. If you have confidence in your trading method, losses shouldn’t worry you at all. Just take it and  move on. Successful trading is not totally avoiding losses but winning more than what you lose.

For every trade we enter, there could be four outcomes. a) Big Loss, b) Small Loss, c) Small Win  and d) Big  Win. Let us remove the Big Loss from this. Small Wins will take care of Small losses and Big wins will remain with us. Ensure that your trading plan eliminates the possibility of losing big.


“You can’t make money if you are not willing to lose. It’s like breathing in, but not  willing to breathe out”
 Ed Seykota

Kindly read the anonymous comment I received and my reply to it.

18092012

Nifty opened near PDC. IR formed . Went short on BOF of IR high.Expectation was a retest of BRN/IR Low. Scratched the trade later.Price did not test any other DP today. Almost all the day it was moving within a 20 point range.

17092012

Nifty Gaped up and sold. Did not initiate any trade till the market stabilized after RBI announcement.BOF of BRN/PDH gave a long sinal which moved well . TP at IR Low.

Round Numbers

Round numbers are an under used concept in day trading.This cannot be used as a stand alone system but is very powerful when combined with any other strategy.

Round numbers are psychologically important levels. We have a tendency to round off any number to the nearest round number. This is a common trait and is applicable to markets as well.Many traders enter and exit trades at round numbers. Most of the stop loss orders in markets are at round numbers. For Nifty futures pay attention to round numbers ending  0 and 5 and always try to place your stop loss orders beyond this numbers as far as possible.

Bigger the number higher the significance. Figures ending 00,25, 50 ,75 are very important.I refer figures ending in 00 as Big Round Number (BRN). BRN of Spot Nifty and Nifty Futures are very important and they are capable of turning the markets on their own.Big players in the markets will have very large option exposures and they will act forcefully around  BRN of Nifty Spot Do not forget to monitor these levels.(due to the introduction of xx50 option strikes, 50s have become important Round Numbers)

Awareness about the round numbers will help you to
a) Avoid bad trades into round numbers b) take higher probability trades.c) take profit at the right place and
d) find solid stop loss levels.

This is a very simple concept , But  it is very powerful and can be used in trading almost all the days.

14092012

Nifty gaped up well above PDH. Topping tail of the first bar gave an impression that nifty may drift down. IR low gave support and the expectation was a grinding channel move. Exited when the channel broke. I was expecting a strong BOF at BRN to go short. It did not happen

13092012

Entire day Nifty moved within the Initial range. ATR of Nifty is getting squeezed and day trading has become very difficult. Let us hope this situation will change soon.SS has made a good post on this ( Read)

11092012

I was not watching the market live today. I would have gone short at the BOF of PDL and got stopped out.. I will skip the BOF of BRN as we are trading in to too much of traffic.I could not understand the cause of 12.05 " Flash Dash"

10092012

Nifty opened near PDH and sold . IR formed . BOF of IR high gave a short which moved well. Did not attempt any other trade.

Decision Points

Decision points are price levels where  day traders are expected to act. Most of the time these are levels where a demand and supply imbalance existed.My trading revolves around these points and I expect the traders to act forcefully at these areas These are reference points  to navigate the chart space.Day traders are creatures of habit and I assume,they use these levels as way points

In fact these levels are implied support and resistances. I don't call these levels support or resistance  because these words give a wrong impression that a support is a level to buy and resistance , a place to sell ( Read Mind your words).I always let other traders to fight it out at these levels and try to join the winning team.

The core concept behind my method is the acceptance and rejection of price at these levels.I assume the market to move within a frame work of decision points and use just three patterns to trade the levels.Major decision points are previous day  high,low and close. After the open, market will create levels like DO,Range Highs/Lows,LOD, HOD,MSP and breakout point Flips.

We need to monitor the price action at these levels closely and take appropriate action .This is purely a discretionary method and we need to rely on our judgement a lot.This require a lot of experience.We will never know for sure what is going to happen at these levels before hand, but still we can have some anticipation.

While waiting for the price to hit a DP, pay attention to what happened when the market visited this level earlier to assess the strength of DP

a) Number of earlier attempts to break the level. Fresh levels are likely to hold. Levels become weak after many attempts.

b) How long price stayed at the level. Price will run away if the demand and supply imbalance is significant.Otherwise it will hang around

c) How the rejection took place. Price will behave as if it touched an energized fencing, if the level is very strong

d) How far the price moved away on previous attempt . More the better. Rejection could to be of lesser magnitude on subsequent attempts

e) Presence of Layer over Layer. If LOL exists first level may yield and second will hold.

f) Confluence of levels. For example if IR High is also PDH , this level may  hold well.

There are other factors like strength of trend, origin of the move, how far the price has moved to reach the DP etc. We will discuss these factors in a later post.( Read it here )

07092012

Nifty gaped up above PDH. Bias was bullish.I was looking for an opportunity to go long.  BPB of IR high gave a long signal. This trade failed to move. Scratched. Stayed away from CT  trade.

Reading :Complicated !!

Every day I see new and even experienced traders who try to make trading more complicated that it needs to be, and their P&L suffers because of it.  They use multiple monitors, multiple programs, and a half a dozen or more indicators, 99% of which are all based on price and volume.

I don’t begrudge those who are successful with complex setups and strategies, but for the vast majority of us who are not running the quant desk at Goldman Sachs, simple is better.

Some of the best traders I know only use one or two monitors at most and focus on price, volume, support/resistance levels, a few core patterns, and perhaps an oscillator thrown in for confirmation.  After that it is all about proper sizing and trade management.

If your trading returns are less than you hope for, the first thing you should do is strip down your system to the basics; price and volume.  Then look at your indicators and studies to see if you really need them all or if they are just causing you distraction. Check out of all the patterns you trade, and determine which ones show the highest reliability.

Then throw the superfluous things away and keep only what you need and what works.
And remember that the money you make in the markets is no more valuable if you make it in a “complicated” way than if you make it in a “simple” way.

Brian Lund
Read the original post here

06092012

Nifty Gaped down below PDL, but immediately climbed back to previous day range. BPB of PDL gave a long signal. This trade tested the patience but finally gave good points. BOF of HOD gave a short. Not a bad trade.

05092012

Nifty Gaped down within previous day range.Bias was bearish. Avoided shorting as PDL was too close. Broke PDL and stalled at 5350 level. I suspected absorption and went long ( watch the volume at 5350). Scratched it as it did not move as expected.

04092012

Today Market fooled me thrice.. First bar gave an impression that PDL( Wrongly marked as LOD in chart ) is going to hold. But it broke down and gave a BPB short. Stopped out of this trade. First BOF of IR low trade failed to move and  scratched. Second BOF moved  well.BOF BRN gave a short signal, but failed to move. Another scratch trade.

03092012

Nifty opened within previous day range. I was expecting a short trade at PDH. But  5320 acted as a strong resistance. FTC was a short signal with SL above PDH.Closed the trade too early at IR low. Did not get any other reliable signal..

Location

I have written a short post on the importance of location where price action happens. I made this picture for that post.On the left side you can see the chart of 31-08-2012. On the right side you can see the projected 30 Minute price action for the next day as if it is occurring at different places marked A to F. Let me know your bias and thoughts in these situations. I am not going to publish the original post. Your comments are going to serve the purpose.
You need not write an essay. Just one line is sufficient, for example. " A-look to go long on TST of IR Low"
I am expecting good response from your side. Please do not  let me down

In fact , I am a little bit disappointed with the lukewarm response. Any way happy to note that a few cared to respond.My anticipation of price action will be as per the above picture.Do not forget to notice the Initial Range and BRN.Be aware of the FTA. The very same price action occurring at different locations have different meaning and require different approach.Location is the most important thing in Price Action Trading.Location is very important not only in Real estate investment but also in trading.