$AUDUSD: I'm watching 0.9665 - 0.9700

AUDUSD - Monthly chart

Although I'm on my self-imposed time out and then a family vacation for the rest of this month, I'm still following the markets with at least one eye.

Here's something interesting.  With AUDUSD continuing to drop like a rock, I wanted to take a look at a much higher timeframe to see if there's anything of interest.

Well look at that on the chart to the right, the 0.9665 level on the monthly chart seems to stand out going back years.

AUDUSD - Weekly chart

And 0.9665 seems to hold well even after you drill down to the daily or weekly timeframe.

What's also interesting is that the 0.9700 level is also the 78.6% level of the most recent swing low to swing high. 

It seems like the most interesting action lately has been taking place while I'm asleep, but while I'm awake, I'll be watching the price action around .9665 to .9700 level closely if it decides to get there. 

If the .9665 area holds and a bottoming formation and/or retest of the .9665 level takes place, that might indicate a short term bottom and long opportunity.

Otherwise, a decisive break of the .9665 area and a pullback/retest back up to that level may indicate an opportunity to short.

View from the time out box

Since the family life has gotten a bit busier, I've gotten a bit behind with updates to this blog.  However, this post is something I wrote mostly late last week, and just completed the final edits today. 

*****

There have been a few times in the past when I knew taking a time out was the right thing to do.  Once again, I reached that point last week.  My psychological capital is running low, my day trading has gotten impulsive and undisciplined, and a "I don't care" attitude has taken hold a surprising number of times.  I feel good that I had enough self awareness to simply STOP.

Now that I've made that decision, I'm finally in the cool down mode and am at peace.  My goal is to take a couple weeks off to regain a clear mind, and work on my mental game as well as revisit and revise my goals and plans for the next chapter.

There were many warning signs.

• Although my forex swing trading continues to perform well at over a 100% return year to date, my larger ES daytrading portfolio has lost over 50%, a big chunk of it from this month.  This is red flag #1.  The P&L speaks for itself that something was not going well.
  
• Possibly due to boredom and greed, I started to experiment with scalping again.  I've always wanted to be able to put myself into and out of "scalp mode" on demand.  While I've found some setups that I've been able to execute well on the fast moving tick charts, the momentum of taking so many trades opened the door for revenge trading. 
• I started to focus on recovering my losses (i.e. the money) instead of following the proper process to simply trade well.  I got fixated on getting +10 ES point days, which I did accomplish a few times.  But it's a recipe for disaster, because when the markets weren't moving, I still tried to force home runs, and struck out to the tune of more than 20 ES points.
• Efforts on my daily journaling and overall analysis of my trades during this period went downhill.  It's as if I didn't care anymore.  I only wanted to hit home runs, and nothing else mattered.
• When I started to look at my bread and butter forex setups, I started to feel impulsive and tried to justify and force setups that weren't there.  Or tighten up on stops way before my rules and get stopped out.  I had a completely different mindset and process vs. the successful process I used most of this year.
  
• And worst of all, I could feel some trading stress spilling over into my primary role as father and husband.  I feel fortunate that I was able to catch this situation and stop it well before any flash point was reached.  Because that would have been absolutely inexcusable -- a clear deal breaker in my life.

A great relevant webinar
When I expressed my time out to some fellow traders, I received a great link to FT71's "Trader Intervention" webinar from Matt.  It's about a futures trader with about 2 years of experience who started with a $100k account only to see it get crushed down to $20k in several months. 

He regrouped by trading on SIM for a few months, and went back live to become consistently profitable for 2 months resulting in his $20k account growing to $33k.  Then he lost $32k in 2 days, leaving behind a $1k balance.  OUCH!  The monkey took control and won. 

Listening to this webinar was eye opening and somewhat painful, since many of the trader's challenges are so similar to mine, except my losses are peanuts compared to his. 

FT71's comments and coaching in this webinar was spot on -- including his first recommendation that he just needs to stop trading.  And FT71's question about how he was doing with his journaling during his binge made me crack up (because his assumption was right, the trader's journaling was nearly non-existent, as was mine).  It felt like FT71 was talking to me and his recommendations in the webinar further reinforced my decision to take a time out and regroup.

Where to from here?
Over the next 2 weeks, I'll be working on cooling down -- no more live trading.  That will open up the day so that I'll be revisiting my goals and plans.  Working on my mental game will also be one of the key areas of focus -- self-hypnosis, meditation, yoga, etc.

Another question I need to seriously consider is, if I'm doing so well with forex, why not just swing trade forex, size up, and forget about everything else?  That style of trading seems to flow naturally and is a strength of mine.  So yes, that's also in the picture.

And on a related note, I need to consider whether the method I'm using to daytrade the ES is in sync with my personality and style.  Maybe all this mental stuff is a symptom, not the cause.  Because if I felt 100% comfortable and confident with a system, would I be breaking the rules so often?  Something else I'll be evaluating.

I look forward to returning from my time out in June, a little wiser and better prepared.  And especially a step closer to becoming a consistently profitable trader.

Belated update: $AUDUSD stopped out -10 pips

Here's a belated update of my AUDUSD short from 0.9945 last week. 

$AUDUSD 15 min chart as of 5/18/2012

• I was stopped out pretty quickly for a -10 pip loss, since I lowered my stop way before I was supposed to.
• Not sure why I lowered the stop, since it was already pretty tight at -25 pips.  But I suspect there was bad mental spillover from my ES daytrading gone bad
• The trade has gone as much as +150 pips, which would have been about a 6R return.
• It's time to take a little break from trading to revisit my plans.

$AUDUSD short at 0.9945

Short AUDUSD at 0.9945, with stop at 0.9970. 

The chart to the right is a 60 min timeframe, in order to show the origination of the trendline. 

It looks like a bottoming formation is setting up (higher pivot low) so it doesn't look like it may run far. 

But if it breaks under the lower trendline of the triangle, it might have a shot at retesting the lows around 0.9870.  So I view this as a potential 3R trade, not a big runner.

$AUDUSD - one that got away

Family duties have kept me a little busier than expected lately and away from the markets, so I realize that I will miss my fair share of good setups.  So when I do come back to see a good setup that got away, what I will do is to acknowledge that the setups are still taking place, and that there will be many more in the future.  Because the markets are not going away anytime soon.

Here's a setup that took place earlier today that I wasn't around to take.  And although it wasn't a textbook perfect setup, there were enough elements that came together that would have made it worth taking.  Since my stop would have been around 15 pips, it went over +60 pips (around 4R) at one point.

There will also be some high impact AUD news in less than 2 hours, so it'll be interesting to see how it will impact the currency.  At this point, the trend is still down on many timeframes, so I would be assume the market is expecting that the news will likely be more negative than positive.

Update: $AUDUSD 15m trendline holding

As long as the this down sloping trendline holds, the trend on the 15 min timeframe will remain down.  Once this breaks, or I see consecutive higher swing highs and swing lows, then I will start considering an exit point to cover the short from 1.0125.

A couple short setups today on $AUDUSD

I am already short AUDUSD from 1.0125 from several hours ago, but here's another simple trendline and stochastics setup that just took place.

$AUDUSD 15 minute

Will we hit 1.0000?  My original target for 1.0000 was made on March 28th based on my short from 1.0521, although I was expecting reach it by April -- so my timing was off.  However, we're finally at the point where it seems does seem quite realistic to achieve.

Attempting to slow down -- Resulted in +8.50 $ES_F

Since I've discovered that my wheels have the potential to wobble and fall off when I trade $ES_F more than several times a day.  So I'm taking a hint from my forex trades and cutting back on the number of trades (being more selective), and then going for longer duration moves (letting them ride).

Today, this "slow down" strategy worked for +8.50 ES points over 2 trades, both winners.

What part of this is due to luck?  I don't know, but although there was some luck, I know there is definitely room for improvement upon review after experiencing some unlucky situations today.

On my long 1360.00 trade, I was not lucky to reach my profit target at 1370.75 by 2 ticks, and ended up closing the trade for +6.50 (instead of +10.75).  There were some signs that the trade was no longer working, and I believe I could have saved a couple handles. 

Last week, I had my first > +10.00 ES day and it was also based on a slow down/let it ride strategy.  Maybe I'm on to something -- a method that's a better fit with my style and personality?  Although my desire is to be able to scalp my way to consistent profitability, maybe because it "feels" more like work with less potential boredom. 

But the slow down strategy seems to have a lot less wear and tear on my psychological capital due to less decisions that need to be made during the day.  And most importantly, if it turns out to be profitable, then why mess with it.

I'll continue to take this current overall strategy and mindset, especially the "I really don't care unless I see a solid setup" attitude, and see how long I can consistently follow this current path. 

$AUDUSD stopped out swing long, -34 pips

Well, that didn't take long.  Stopped out of $AUDUSD swing long from earlier today for a -34 pip loss.  There was a news release tonight at 9:30 PM ET regarding the Australian trade balance, and it came in worse than expected. 

$AUDUSD 15 minute

There were a few signs that the trade wasn't going to hold up.  Some key tells were:

1) The upward trendline and a revised trendline weren't holding
2) There were no longer new swing highs and swing lows on the 15 min chart (indication that the upward trend was over).

Now back to waiting for the next solid setup...

Long $AUDUSD at 1.0207

I exited the $AUDUSD swing short late last week, and ended up missing a decent chunk on the downside -- since I was partially biased/scared off by the oversold conditions on the daily chart.  But I need to remember that just because something is oversold, doesn't mean it can't go down much much more.

But it looks like we're finally getting that oversold bounce, and although I admit the overall longer term trend is still down, it looks like there might be an opportunity for a few hundred pip bounce.

So I went long today at 1.0207 with a stop loss currently at 1.0175, based on the charts below. 

The daily chart below shows the potential targets.  There's currently quite a bit of confluence and symmetry/structure in the $AUDUSD.

$AUDUSD Daily chart

The trigger to enter was based on the C2E setup on the 15 minute chart (below), which is simply based on the trendline and stochastics -- get on board in the direction of the trend on a pullback.

About half of these setups will get stopped out, and assuming it does go in my favor, I will only consider moving the stop once it goes 2R or 3R (2 or 3 times my initial stop amount) in my favor.  So mentally, I consider this trade is pretty much done/gone, and will start looking for the next opportunity soon.

From the comments

"Bud Fox" posted a comment under a prior post.  And since my response was too long for the comments section, I've posted it here.

In the comment section you sound so confident in your system. You speak of a "positive outcome" over time. So why do you get so tilted when you take a losing trade or multiple losing trades? Are you being honest with yourself about believing in your system? Or are you just saying it to yourself in an attempt to convince yourself?

IMO you are focusing too much on the psychological aspects of trading. This is a trap that I think a lot of newbie traders are falling into in recent years. It's like a Little League ball player seeking out a sports psychologist to help with hitting woes. The problem is not in the Little League'rs head, it's in mechanics and technique. Therefore working on the mental aspect is not going to help.

Based on your blog entries I'd say that your system does not work. Either that or you are not following it at all. 

Hi Bud:

Thanks for the feedback, you have very valid points.

Yes, I am absolutely confident that certain setups I trade have an edge.  After meticulously going through and honestly analyzing thousands of actual trades with a strong no-BS filter to help understand the probabilities of various setups (see examples here, or here, or here), I am very confident that certain setups I trade work well over time.

But you are absolutely correct, I am NOT following the system since I'm also taking unauthorized revenge/rogue trades that crush my profitable trades.  If I was miraculously able to eliminate ALL my impulse trades, I would be a consistently profitable trader.  The data proves it and I have a high degree of confidence in my analysis.

After the markets have closed and the dust has long settled, I review/grade my performance trade by trade, and it's quite easy to look back and see those revenge trades -- trades that just don't fit valid setup rules and usually take place shortly after I was stopped out of the prior trade.  They really stick out, and they also stink bad.  Some people have the inability to enter trades, but I have the inability to stay out of trades. 

So the easy answer is, "If you have a system that makes money, then just follow the darn system and don't take any invalid trades!!!"

Yes, I have tried, and based on my ES daytrading P&L so far, I have not yet been successful.  I can follow the system for short stretches of time successfully as I did here, and then I fall off the wagon.  It's like telling a alcoholic, just don't drink.  Or a smoker, just don't smoke.  Or a gambler, just don't gamble. 

I'm honest enough with myself to admit that it's likely some "wiring" in my mind needs to be modified before I truly become consistently successful.  And that I might not be able to "fix it" myself.  When you hit the wall enough times, making the same mistakes over and over and over, it starts to hurt.  So even though it was just a couple revenge trades this week, the camels back broke.


Ultimately, what really bothers me is that trading is one of the very few areas in my life where I do not feel as though I have complete control over my actions and emotions.  So at this point, my biggest motivation is not necessarily the P&L (although the P&L will reflect my success in how well I control my actions), but I'm motivated to learn and conquer how to gain better control of my actions.  This is perhaps one of the biggest challenges I have faced, and welcome the opportunity to improve myself.

This is why I'm looking for help on the psychological side of trading.  At a certain point, it's no longer about the mechanics and the fundamentals.  It's all about the ability to execute consistently over time.  Similar to how even the elite and best figures in the performance fields of sports, acting, or concert violinists have coaches / instructors / teachers / mentors, I'm looking to get the best possible help so that I know I'm doing everything I can maximize my success. 

In the end, I want to know in my heart that I've given and did my absolute best.

Thanks again for your comment, it really helps to keep me honest.  This also helps me to think through and better understand my current challenges, or at least what I think they are.  And if there are certain experiences that you [or anyone else reading this far down] can share that helped you to overcome your challenges, I would really appreciate hearing about them.

$AUDUSD closed +175 pips

$AUDUSD daily chart

$AUDUSD retested the daily trendline at 1.0265 with oversold stochastics on the daily, and the ES looked like it hit a short term bottom.

So I exited with +175 pips.  With initial risk at 35 pips, this was a 5R trade.

This resistance area around 1.0265 is solid, but not quite good enough for me to buy.  However, it was good enough for taking profits.  I'm now looking for a solid buy setup for a short term retracement higher.

Update: $AUDUSD swing short

 Update on the $AUDUSD swing short position:

• The 1.0265 immediate target based on the trendline of the daily swing lows was reached within a few pips earlier today. 
• The 1.0300 area is currently a good area to short. 
• However, if 1.0310 does not hold, I will look to exit the short position, and look for long opportunities.  

Current position is up about +145 pips, which is about 4R.  Stop is at breakeven.  Longer term target is currently 1.0000, but subject to change.

Day trading discouragement

The early morning session started with a limit order to short that didn't get filled at 1399.75, and ultimately went as much as +10.50.  Fear of missing out was actualized full-on.  But I was actually fine and chalked it up to bad luck.  I continued to feel under control and didn't trade the rest of the morning session.

The 2 losses in a row trigger
After the lunch break, I entered a valid trade that got stopped out.  And then I entered another valid setup that got stopped out.  Uh oh, 2 stop losses in a row.  And like clockwork, a revenge trade or two came up. 

That raised all kinds of red flags and sirens in my mind.  It's quite surprising how quickly I went from feeling like having a positive breakthrough day yesterday, only to experience great discouragement this afternoon.  It's good to know that my self-awareness levels are up, but I believe this level of discouragement is a sign that my psychological capital is running low. 

And then the voices started
Although I ended the day with a winning trade, my inner voice started to question whether I am mentally ready to day trade.  Part of self-awareness is knowing when you just don't have the right mental frame of mind and then having the ability to stop trading.  I'm just about there.

My trading strategy works just fine -- it has an edge and I've proven it with data.  I have confidence in it.  I've said it many times -- eliminating just half of my revenge trades would be a huge positive impact for my P&L.  So my issue is the ability to wait for the solid setups and to avoid revenge trading after a loss or two in a row.  In other words, it's all in my mind.

Time for another break?
Therefore, I will likely take an extended break from day trading and return only after I have regained a much greater sense of control over my actions.  I'm seriously considering hiring a trading coach / psychologist to help with my psychological challenges.  They're not cheap, but I'd rather make a serious investment in making myself a better trader over the long term, rather than continuing to lose money via revenge trades in the short term.

Although I may stop day trading temporarily, I will continue to swing trade in the forex markets, since my bottom line performance has been good so far this year.  Perhaps I have not given ES day trading enough screen time, because I still have no doubt that I can become a consistently profitable day trader.  Or maybe this is a sign that my strength is not in day trading, but in swing trading the currencies.  Time will tell.

A scratch day that's a breakthrough day

It's May and it's time to get back to business. 

I spent most of April trying to learn as much as I can about the mental game of trading and thereby better understand my own trading.  It has been a tough month and at times, mental nerves have been touched that I had never expected. 

About 90+% of what I read and focused on last month revolved around trading psychology.  So when I started to read the same messages and themes (from different authors written decades apart), I realized that I've probably dug into the topic as far as I can.  

The biggest issue I have as a trader?  Revenge / rogue / overtrading / impulse trades. 

So that's why I'm very proud of my scratch performance today.  I only had one trade -- on a big trend and reversal type day.  These are the types of days that had a higher likelihood of hurting me in the past from trying to fade the big moves as well as overtrading.

Earlier in the morning before taking my kids to school, I was short, looking for a big move down with a initial profit target about +13 away, because I knew a bad 10AM news had the potential to juice the move.  When I returned, I saw my position get over +3, only to get stopped out at breakeven by 2 ticks. 

Revenge was totally on my mind, but I realized what was going on and did my best to let it pass.  And of course, had I gotten back on board with a revenge trade, it ended up going up as much as +4.

Then the big 10AM news was released. 

It was much better than expected and the market shot up.  In the past, especially after feeling as though I was wrong (e.g. stopped out or missed trades), I would have tried to short the big move up, getting stopped out several times, trying to prove that my initial short thesis was right.  This time, I sat, took no action, and simply watched. 

I knew the 1397 area was key since that was the prior day's RTH high.  I saw it break through and pullback to retest the level slightly, and thought about buying.  But it wasn't a setup in my plan and instead of taking an impulse trade, I once again passed (and it eventually went up +15).

Then I decided it's time to call it a day, well before the lunch hour.  Passing up all those impulse trades and then making the decision to stop trading early in a very active day, was huge.  This is something I never would have done in the past.  So this is very different.  And I felt relatively at peace with myself based on this decision.. 

I feel very strongly about how this day, as minor as it may seem, was groundbreaking for me personally.  One day a trend does not make, but if I'm able to consistently maintain this mental frame of mind of preventing revenge and impulsive trades, and only wait for the solid setups, the positive impact on my P&L will be considerable.