With Friday in mind...

Fridays - particularly, last Fridays of the month - have a nasty habit for trend reversal as profit is taken and balance sheets squared the world over.

Well, what about this for a pair that is ripe for a reversal ...

Now, this is what I call divergent.

So, switching to a shorter timeframe...

What I am looking for is a convincing break of the pink support line to trigger a short entry.

And I'll be targetting the 5m 800 sma (Yellow), watching price movement around areas of support for opportunities to add positions or take pips off the table.

Quite Excited

I'm getting quite excited about GBPCHF...

I'm getting more bearish by the day on the Sterling crossess. Whilst this pair and Cable continue their massive consolidation, Yippon is forming a double top on MACD divergence.

But GBPCHF is particularly interesting as it flirts with support in the lower quartile of its pennant.

Having said this, downside momentum is weakening on the 1H chart and it will have to get beyond the 800 sma before rising support can be challenged.

So, what are the options ?

Well, a downside move - sufficiently large - to supportprovoke a short is asking a lot of the last Friday of the month, so in the near term a 15min pivot play might generate a few pips but looking into next week ...

Whatever happens, the move is likely to be explosive, given the length of consolidation and the extent of the current squeeze.

But I do hope it's down !

Catching Up

Sorry for dropping out of contact. I need to bring you up to date on a busy, and profitable trading week.

You will remember that I went into Week 8 with a pilot short position on USDCHF. Here is how it panned out...

The reversal against this pilot position was nasty and my stop loss at 1.1717 was a few pips from being taken out, but when the pair started to reverse off previous support (now resistance) I drew a trend line connecting the lows and sold a further (standard) lot size.

Then on witnessing the pair start to break down the following forenoon I entered a final (standard) short on the 1H close.

On Rob's advice I targeted 1.1550 and exited all positions at this point. As you can see from the chart Rob's exit level was spot on; the pair hasn't been this low since.

Because of position sizing this was a very profitable (200 pips / 3% of account) trade.

My second trade of the week was the short term reversal on the GBPJPY that I had strategized over at the weekend. This is how it looked...

It was hard work watching this pair soar away all Monday but when MACD momentum began to dissipate on the 1H chart I switched to the 5 minute chart and waited for a decisive break of rising support.

You can see from the chart that I was late with my initial short (1/3rd standard lot size), but I was watching the pair break down with my trading partner, Tom, and having made good money already this week, neither of us wanted to trade until we saw a really strong bearish candle and a decisive break of horizontal support at 1.40.

I took profit on the first touch of the 1H 62 ema (117 pips) and then, because the pair hadn't completed its return to the 5m 800 sma, I continued to trace the reaction rally closely.

I re-entered short (1/3 rd standard lot) on the first 5m break of short term rising support and within an hour I was able to exit at the 800 sma with another 75 pips.

Profit on this trade was a shade under 1% account.

I'm proud of both these trades...

- the first because I held my nerve and leveraged when I was sure the trade was moving my way.

- the second because of my short term execution (particularly) on the second leg.

So, overall, it's been a great week and end to my first trading month. The account is 6% up and whilst consistency is not yet where I would wish it to be, I can feel trade planning, discipline and execution all improving.

Looking forward, my focus beyond these areas will be on developing my ability to safely leverage successful trades. But already I see that the key is personal conviction, and this builds as a direct result of seeing a thoroughly back-tested and meticulously planned trade play out before one's eyes.

Week 8 Strategy

Since I have already nailed my colours to the USDCHF mast (see last post) I've concentrated this weekend's analysis on Cable and my GBP risk pairs. I'm going to look at them from Daily Charts down the 1H.

GBPUSD

The sheer scale and pace of Cable's fall, together with clear divergence on the Daily chart at the bottom, makes me feel bullish. Surely it is due a meaningful snap back up ?...



This 4H chart is a little less convincing. The pair has been consolidating all week and whilst the sloping 4H support line has held, it has been tested twice. Whereas, the pair failed to make it up to sloping 4H resistance, instead being turned back by closer horizontal resistance.

The longer it consolidates, the larger the potential breakout (No s**t Sherlock !), but, my feeling is - increasingly - that the first big move will be back to the downside.

But, what I think is absolutely irrelevant, as the next breakout of the pair's current consolidation zone is likely to be significant enough to 'take-out' sloping support or resistance lines and tell-us which way it's headed.

Tactically, this leaves us with 2 options:

1. Either, trade a (significant) 1H breakout from the 1H 800 - particularly if it closes outside the closing S/R pennant.

2. Look for divergence and reversal candles at the limits of the pennant and trade back into the 1H 800.

GBPJPY

Whereas Cable remained rangebound last week, the 'Yippon' (our coloquialism) managed to break out to the upside, but was temporarily turned back by 4H sloping resistance; an earlier trade report details my trade of this move.

However, it hasn't fallen back far and looks like it wants to have another go...

However, even if it does break through it soon comes up against the Daily 62 ema and the previous high at 137.28.

So, for the meantime at least, there isn't a trade to the upside for me. I will be looking for reversals - on divergence - back to the 1H 800 sma.

GBPCHF

... Is different in that the recent up-swing on the Daily chart was not predeeded by MACD divergence - weakening the argument that zest for the downside is dwindling.


And look at all those 'indecsion' candles on the Daily...

On the 4H chart I note Upside MACD divergence and the fact that (unlike the Yippon), it hasn't managed even to challenge sloping resistance of late.


Finally, I note on the 1H chart that this pair (unlike the other Sterling crosses) still hasn't made it back to the 800 sma.

As you can see, I am bearish on this baby. I think she wants to tank and I wouldn't be at all surprised if she gaps down the 1H 800 at the re-open.

Whatever, I'm going to be watching that (very) near support line like a hawk.

Swissy Finally Breaks...

Having strategised last weekend about a possible short on USDCHF I had been getting frustrated as my rising support line repestedly turned the pair back to the upside.

Well, on Friday it finally got well and truly breached.

Given this pair's stubborness to comply (!) I sat on my hands and entered on the 4H close, and as it stands I am currenlty carrying a small loss.

Now from here, it could easily be turned back by either the 200 sma or 800 sma just below it, then retest old support as resistance... in which case I would be sweating if carrying a big position, so I've kept it small initially (1% account).

Or it could just tank, in which case I'll be looking to add positions on 4H closes below the support lines shown on this chart (to see clearer just double click).


My final, aleit heady target, would be the support line at 1.08677.

We shall see...

Pivot Friday !

Friday, for reasons often explained but never really grasped, by this fledgling trader, is particularly volatile. It doesn't support my usual trading methodology and having previously had my fingers burned, I have endeavoured to stay away ...

However, it had occurred to me that Daily Pivots might be useful in identifying reversal points on shorter time-scale charts so I decided to have a go today on Cable; but, in accordance with an earlier rule, I only staked 'beer money'.

The chart below shows my results...


Having witnessed a fairly meaningful reversal at R1 I entered short with the intention of adding further positions as short term support barriers were broken. My target was the Daily pivot.

A total of 3 positions were taken and the trade was closed in toto, when the pair reversed off the third support, for a total of 111 pips.

This turned out to be a good time to get out as the pair never went lower and ended the day at R2.

On reflection there were potentially 3 successful pivot trades on offer during the day; a better one both before and after the one I took...

... which might be another string to one's bow on a trading day which had only served to damage my bottom line thus far.

Just a thought...

Saved by the Yen

I cannot tell you how hard it was to get back on the horse today, but when GBPJPY reversed off 4H overead support it seemed like the perfect opportunity.


I shorted this pair when it broke the steepest support trend line and then sweated (profusely) as it see-sawed about my entry, for the next few hours.

When it eventually came around to my way of thinking I entered a second position, when the 5m closed below the 144 ema, and then held my breath ( and hosted friends for dinner) ...

As you can see (... well, actually, you would need to see this chart on a larger time frame to be able to see) I cashed out when the Pair fell to its next support level.

This may seem a little timid (in that the pair ought to fall to at least the 1H 62 ema), but given my earlier f**k up, and mindful that tomorrow is Friday (see earlier rules), I will enjoy my sleep tonight, safe in the knowledge that I have unwound the damage done to my bottom line; the account ends the week as it started...

... and I've achieved this with a big, big lesson learned.

In sum, I am well happy.

Goodnight.

Idiot

I just cannot believe I'm writing this - particularly on a week when 'impulsive trading' has been a topic of debate- but I promised myself I'd be absolutely honest so here goes...

Last night, over a few glasses of wine, my mind wandered onto the subject of leverage. The gist of my musing was when and how best to leverage a winning position; early, uniformly or as it's about to cross the finishing line.

Park this thought for a moment...

This morning I oversleep, missing my 'buy' trigger on the Cable. Dithering over what best to do, I decide to allow my confidence in it (the trade) to build for a bit, then go in later but harder - when I'm sure it's going to come in...

And this what I do.


15 minutes, -30 pips and 1.5% of my account later, I bottle it and close the trade.

20 minutes after that, Cable reaches the profit stop I had originally set.

There are so many lessons to learn here that this craziness could form the central case study of psychology thesis !

And I can't kid myself that this sort stupidity is without precedent; it's the character flaw this blog is trying to eradicate.

...but for pity's sake, Rob, just learn your bloody lesson, and let's move on.

No Fish

Well, it's wednesday afternoon, and apart from a few 'pilot' trades - none of which have come to anything - we are, essentially, where we were on Friday.

This is particularly frustrating during a week that I had set aside, 'to trade', and I'd been starting to look for trades that just weren't there and generally, feeling edgy.

A minor breakout has just triggered on GBPJPY but for reasons I don't understand I'm not willing to take it.

... But perhaps this is teaching me something about myself.

Because the bottom line is that I am, essentially, a divergence trader. Although I have back-tested and demo traded break-out, my favourite triggers occur when pairs have over extended themselves from the median, and with everything consolidating at or near that median this week, there just aren't any 'fish' to catch.

I need to learn to enjoy the view from the riverbank ...

Week 7 Strategy

In analysing the charts this weekend, everything seems to be at a tipping point. The trick for the coming week will be to watch closely and fight the temptation to jump too soon...

GBPUSD

Srategy...

This pair continues to consolidate in a pennant. Overhead is the previous all-time low.

Tactics...

Whilst the pair is closer to rising support it has made a double bottom on dwindling MACD momentum.

1. A close above the 62 would be a cautious buy, targetting the 800 sma.

2. A 1H close below that rising support would be a sell, targetting the all time low.

USDCHF


This pair has had 6 attempts at overhead resistance !

On a 1H close below that rising support - and, preferably the nearest horizontal support - I'm going to short it, targetting the 1H 800 sma.

EURGBP

... another pair being hemmed in, but signiicant resistance overhead...

...Simple. It's a buy on a 1H close above sloping resistance, tagettign the 1H 800 sma.

... and a sell below rising support, Targetting the recent low.

GBPJPY
This chart looks similar to the other sterling crosses...


... But it is currently consolidating at the 1H 800 sma.

I'm going to put on a small pilot position on a 1H breakout of the consolidation zone, and add to it if the pair can break sloping support or resistance.

GBPCHF


... struck by the similarities ???

This pair isn't tradable until it makes it back to the 1H 800 sma...

... or it closes above the 62 ema AND sloping resistance.

Week 6 Review

Since this bog is all about honesty and discipline, I have decided to post statements at the week-end, so that I know, that you know, that any bad trades cannot be secreted away.

Unfortunately my attempts to achieve this have, thus far, failed... but there must be a way.

If I had succeeded, you would have been able to see how grim Monday was, and you would also have seen the recovery.

You would have seen that the bad results were followed by more conservative trade sizes, indicating - to me at least - that I am finally countering the instinct to 'get even' with the Market. This has taken a while to master...

Overall, I'm proud about how things have turned out and it wouldn't have happened without my trading partner, Tom.

I am quickly learning that when it comes to live trading, accountability to a trading partner - together with that 'on the spot' second opinion, is worth much. Thanks mate - I owe you.

Bottom line; this week the account has grown by a shade over 2%. It's very early days but we're on the tram.

Good Friday

It has been hard staying out of the market since Tuesday but that is what I had said I would do so I have...

... until a peach of a trade started building on GBPCHF yesterday afternoon.

My backtesting on this pair has shown that having set out to regain par (1H 800 sma) fails, a 1H close back above the 62ema almost always (superior to 85% probability) results in a re-test of the 200 sma.

So, when I sawMACD starting to diverge from the price action, I focussed.


I took this trade on the 1H close, above the 62. Based on my testing I'd ordinarily have been happy to stake 2% of account, but it's a Friday (see earlier rules) and I've already had a good week.

As you can see, having closed above the 62, it didn't hang around long and inside 2 hours later I closed the trade when it hit the 200 sma for 79 pips profit.

Initially I was frustrated with myself for not having allowed the 1H candle to complete before exiting the trade (as I have in testing), but as you can see from the chart, it quickly reversed. It is, after-all, a Friday.

Bottom line, as Rob would say, is to take the easy pips. I have. I'm happy.

Getting Better

Yesterday didn't start well. Basically, I traded the plan ... and got wacked on 3 separate trades; GBPCHF, GBPJPY and USDCHF.

These 3 trades cost a total of 615 pips and 2% of the account.

However - and this may seem crazy - I was as happy as one can be with such a catastrophe as I had executed a legitimate plan and managed my money sensibly.

The one lesson I would draw is that Monday is early in the trading week and, experience has shown, prone to giving these false signals.

This doesn't mean that they shouldn't be taken, but in future I am going to scale back risk to 0.25% account per trade on a Monday.

What happened next I will not quickly forget.

Feeling a bit shaken as I watched GBPJPY start to form a double top at Resistance I entered a very small (0.1% account) short position and discussed the potential for the pair to return to par (1H 800 sma) during my weekly trading session with Tom, my trading partner.


As a result of our discussions I opted to enter a further short (standard lot size) on a 5 minute break of the 5 min 200 sma and see what happened.

I entered a third short on the 1H close below the 1H 62ema.

I began scaling out at the 1H 144ema and took the second position out at 4H rising support.

I re-entered on a 5 minute close below the consolidation pattern around rising support and closed the trade completely at the 1H 800 sma.

Since Cable was mirroring GBPJPY I shorted it simultaneously but to avoid over-exposure, avoided the temptation to lever up the position and closed it out on the first touch of the 144ema, since they seemed to be 'the easiest pips'.

So what was the bottom line ? Well, these 2 trades netted 1272 pips and a shade under 4% account growth.

More importantly, I traded my plan and execution was as good as I have ever achieved, with total account risk less than 1% at entry. When viewed against the return, I am well pleased.

As a result the account is up 2% on the week. The challenge from here will be to take a step back for the rest of the week, preserve theose pips and use the time to focus on my backtesting.

Key Lessons from this trade are...

1. The power of a very small first entry in helping focus and psychological commitment to a trade.

2. The power of scaling in and out.

3. The utility of a short timeframe trigger (risk minimised), moving to a longer timeframe as momentum and profits build.

4. But perhaps most importantly, the inestimable value of a close friend and trading partner.

Week 6 Strategy

GBPUSD

Strategy.

Cable cleared a key resistance level last week and regained the 1H 800 sma, endind the week hard up against 4H downward sloping resistance. Overall, the pair still looks pretty strong BUT a pull-back to rising support may be necessary before it has the oomf to power through the resistance overhead.

As can be seen from the Tactical chart, Cable is both overbought and divergent.

A lot will depend on how it opens but ...

1. A strong 4H close above downward sloping resistance would provoke a long entry; Tgt 4H 800 (currently at 1.63...!).

2. Alternatively, a bearish 1H candle, below downward sloping resistance, as the 1H stochastic comes out of overbought would provoke a short entry; Tgt rising support / 1H 800sma.

GBPCHF

Strategy...

This pair overcame major horizontal and downward sloping resistance this week and is trending steeply (60 degrees !) upwards. It is starting to look over extended and may be due for a pullback to horizontal and longer term upward sloping support.

Tactics...
Overbought on the 1H chart and with MACD momentum quickly evaporating, I will emter a short trade on a 5 minute close below short term support, leverage the position on a 5 minute close below longer term rising support. Initial target will be the 5 minute 800, but depending on momentum here I will let a position run to the shallower rising support.

Or I am wrong, in which case a 1H close above 1.7286 would trigger a long entry.

GBPJPY

Strategy...

Again, this pair has made great strides over the last week, climbing back up to some pretty strong resistance, but it's hanging on by its teeth and for the next 500 pips above it's got some major congestion to deal with.

Tactics...

Absolutely not interested in any buy trades while the 1H 800 sma splits the 62ema and 200sma and there's enough divergence to provoke a sell on a strong bearish candle coming out of overbought... so long as it closes below rising support. Target would be gentler rising support.

EURGBP

Strategy...

This pair looks like it may be trying to bounce...

There's a few nice reversal candles on the 4H and MACD divergence on 4H and 1H charts.

Tactics...

... But it's going to have to close above horizontal and downward sloping resistance before it's a buy, targetting the 1H 800sma.

... Or it will bounce off resistance and bomb. In which case it's a sell below 0.8665 on a 1H close.

And finally....

USDCHF

Strategy.

This go has also bounced nicely, regaining and blasting through the 4H 800 sma. BUT, it's had 3 failed attempts at the resistance at 1.17047 and it's very MACD divergent on the 4H chart. It currently looks headed for another test of upward sloping support (at least) before it has a 4th attempt.

Tactics...

As can be seen onthe 1H chart, this pair has already broken 1H rising support, regained it and then failed again. A fall below the next layer of rising support may trigger a return to the 1H 800 sma.

Sell below that and horizontal support at 1.15740, Tgt 1H 800 sma.

Friday 6th February - Forgetting Basics

An unstructured and poorly executed end to the week, where 3 unplanned divergence set-ups (2 of them on NFP Friday) all cost pips.

Result for week; 76 pips and 0.5% growth in the account...

...which could be worse (i.e I'm still up on the week) but had potential to be so much better had planning been more rigorous and execution more considered.

So, how to progress ? Well, from now on...

1. Only planned (articulated here) trades, based on known (backtested) probability will be attempted.

2. 1% account growth will curtail 'live' trading for remainder of week.

3. I will be extremely cautious about entering trades on a Friday.

Tuesday 3rd February - Failed Trade

Well, The GBPCHF Head and Shoulders didn't trigger today but based on my strategy for the week, I did take a Short entry on USDCHF, based on a solid break of rising support and a 1H close below the 1H 200 sma... signalling the potential for a return to the 1H 800 sma many pips below.

As you can see from the Chart above this was a good entry with much confirmatory evidence supporting my decision, including clear MACD divergence.

...But my trade management was poor. As it raced South I moved my stop loss to break even and was subsequently taken out during the reactory rally - below the Support line (...!).

You can also see that the pair has since reversed back to the downside, leaving me chasing the trade with a far less favourable risk / reward ratio.

Whilst I didn't lose any money, the seeds of this poor result can be found in my post of last night.

LESSON: Unless I am prepared to commit to a trade, my stategy won't deliver !

Tuesday 3rd February - Head and Shoulders

'Don't see much on for my pairs, but one possibility is a classic Support/Resistance entry on Cable...

With Pip Target for the week achieved, this trade would only be entered for 'BeerMoney' (1/10th normal risk).

Monday 2nd Feb - Early Triggers...

Overnight all the GBP pairs had gapped down and by 0600 short trades were building on all of them...

GBPCHF

Sold short on 5 minute close below 200 sma AND horizontal support. Based on backtesting, risked 0.5 % of the account, targetting 5 minute 800 sma.

Stayed with it through one nasty reversal at London open and finally got cold feet as pair rose to re-test resistance at 1.6586 for the 3rd time.

Closed trade for 111 pips profit.

Looking at chart now I would have done better to shut down the lap-top and trust to my back-testing as the pair regathered momentum and made it, not only to the 5 min 800, but right the way down to the 1H 800 - a further 250 pips away ! ...

... and exactly what I had strategised at the weekend. Hmm.

Against that, there was a risk (in my mind) that the trade was turning bad so it wasn't wrong to have taken the pips. QED.

GBPUSD

Ordinarily I wouldn't risk a second, concurrent, trade on a pair containing the same base currency but my backtesting has indicated that a breech of the 62 ema, following a failed attempt to regroup at the 1H 800 sma, results in a very high probability of a move back down to the 1H 200 sma...

...So I was happy to enter short on the 1H close, again risking 0.5% of the account.

I'm particularly happy with my tactics on this trade as I pre-set a profit target at a support level just above the 200 sma, aiming to take the easy pips.

You can see from the chart that this tactic was spot on as the pair never made the 200 sma on this occasion, but my trade was closed for a profit of 196 pips.

What next ? Well, clearly I want to see how my pairs move from here, but I also need a pause to clear my thoughts as I am determined not to give these hard won pips back cheaply.