Charts: AOL and EURCHF

I'm taking Trader-X's advice and not looking to trade much this week, although I'll still be keeping one eye on the markets tomorrow and maybe Friday.  During this pre-holiday week, I've found that many of the stocks that I put on my watchlist are getting quite choppy after the first couple hours.

I've learned through the hard way via a review of my trading journal that trading in choppy conditions are one of the biggest ways for me to generate losses.  However, I did see a setup in AOL today that was actually pretty clean, but I missed it and did not trade it.

I also keep one eye on the forex markets, and when an interesting situation lines up, I'll act on it.  And something did come up this morning in the EURCHF pair as you will see below.

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AOL - buy above 8th 5 min bar - Fibs over opening range (25 min), 5ema, 100ema, vwap
[Did not trade-missed it]

Drawing the Fibs over the 25 minute opening range, this setup was a shallow pullback to the retracement zone setup (i.e. didn't reach the 38% retracement), but what made this interesting was that there was a vwap line cross over the 5ema (vlco) on the 5th bar (a bullish crossover), and in addition, the 3 bar retracement prior to the setup bar was orderly with minimal wicks (solid bodies).

Note: Drawing the Fibs consistently over the first 15 minute opening range (a method I've used in the past) would have also produced a compelling "Beyond the Fib Extension" type setup.

So when that 8th green bar came up, it sure did look nice, and it hit the FE within 10 minutes.  The reward/risk ratio was at least 3.5/1 - not bad for choppy day.

AOL 5min - 8/31/2011

* * * * *
EURCHF - sell below 7:00 15 min bar - 5ema, 100ema

Not sure why, but I seem to be able to give the Forex trades a lot more liberal stop, and be totally fine just letting it go.  The EURCHF in particular is quite volatile for the little margin that is required, so you would think that I would be much more cautious when trading this pair.

Perhaps the reason I can let these trades ride is due to the method I use for the forex, which is slightly different than for stocks.  One key factor is that I go into these trades with the intention of holding as a swing trade.  I'll have to research this further to see if I can apply the same mentality for day trading stocks.

The EURCHF was of interest first and foremost because the daily charts looked compelling for a short.  The reasons are listed on the chart below:

EURCHF Daily - 8/31/2011

One key point to note is that I usually wait for a strong move in one direction on the 15 min chart, breaking key support or resistance levels, before considering an entry.  I want to avoid trading in choppy conditions.

The 15 minute chart below has been annotated with my thoughts on why and where I entered this trade.  Prior to this particular trade, the 5ema crossed over the 100ema earlier on the chart, and the separation between the 2 moving averages was growing larger.  This indicated that the stock was breaking away and possibly starting a strong trend.

EURCHF 15min - 8/31/2011

I exited the first half with 100 pips profit, and I'm still holding my 2nd half.  I'll let it go until it signals a clear reversal.  A few weeks ago, this pair nearly hit parity (1.000).  I have my doubts that it will go down that far that fast this time around, but I won't complain if it does!

Power has finally been restored!

Well...wasn't that interesting.  Quite a diversion I've had over the past couple days.

After hurricane Irene did her thing to knock out our power (although the block starting next door had their power), our sump pump couldn't work to keep the basement dry.  It was a mad dash early Sunday morning for me to try and save whatever I could before the basement eventually filled up with about 5+ inches of water. 

Thank goodness the power is back on as of this evening.  Although it'll take time to get through the cleanup and restoration, at least I can start getting back on track with my trading over the next few days. 

Back soon...

A moral victory

Since BAC was in-play due to the bailout by Buffet, most of the other major banking stocks were also quite active, as if it they thought they were also blessed by the Oracle.  BCS came up as a stock on my screens, and frankly, I really didn't like it much during the first hour.

The stock price was relatively low, which means the dollar moves aren't that big, and it's one of those ADR stocks that act sorta different.  However, the price action didn't seem as noisy as BAC or some of the other stocks, so I kept watching.  I ended up taking 2 setups.

BCS - Sell below 14th bar - Beyond the FE setup. Fibs over opening 20 min range. Scratched the trade. But in theory, I should have stayed in.  The price action made a new swing low, and therefore, it was not as likely to take out the prior swing high, which was the high right before my entry bar.

BCS - Sell below 12:00 red shooting star - Beyond the FE type setup. Fibs over 20 min opening range. Took profits at the 200% FE target.

BCS - 5 min

I consider this a moral victory of sorts, since I was very focused this week on following my plan, and after passing up so many setups, I consider these relatively good -- although definitely not a grade A setup, perhaps a decent B.  They weren't big winners, but what's most important to me this week is that I followed my plan.

I won't be trading tomorrow due to non-trading related plans, but will likely peek-in to see what's going on in the afternoon.  Good luck to all!

Charts that make me say, WOAAHH!!

Maybe grinding through and reliving 1000+ of my actual trades from the past 4+ months to update my trading journal, as well as the 10's of thousands of other charts that I have seen over the years, has finally started to internalize something in my heart and mind.

WOAAHHH! and UUUGGGH!

I say that because something is beginning to happen more often -- when I now see certain setups that I know have worked well in the past, I hear a big "WOAAHHH!" in my mind with a sense to take immediate action.  Or if it's a setup that has burned me in the past, I just feel like saying "UUUGGGH!" and running away.  When the trade does as expected, it further reinforces those setups in my heart and mind.

Stop trying!  Be Free!

Eli from Traderhabits.com (great website) has a post today explaining once he stopped trying to make sense of the markets all the time, and focused on himself, he became free to focus on the markets.  That made him a successful trader.  He makes the point that the best traders "do not try to make sense of the market, they let the market make sense."  In other words, wait for your setup (in my case, the "WOAAHHH! moment), then capitalize on your strengths.

I've spent this week with a trading plan that has been very focused and specific, so that I can test my discipline to see whether I can follow my own rules.  I thought I would be fighting myself to stay away from the buy and sell buttons, but something strange has happened.  It has been surprisingly freeing and liberating.  Sure, my trading plan has been somewhat extreme and constricting, but it has also freed me to see the markets in a way I haven't in a long time. 

And Finally, The Charts

Here were some interesting charts I saw from today that made me say "WOAAHHH!"  However, they were not on my trading plan so I passed.  I had ZERO trades today, and I consider myself very successful.  "Discipline trumps conviction."

NOTE: These charts are a snapshot of how my charts appeared at the time of these successful setups (they all hit their targets).  As part of my pre-market visualization routine, I want to program my mind to become accustomed seeing how my chart appears just prior to the setup bar getting triggered.

CHU 5min - A very bullish opening range pattern, although the ORH acts as resistance.  It hit the FE profit target (actually went above the 200% FE).

CHU 5 minute

NLY 5min - has some lower wicks (slightly bullish), but the support level in this descending triangle is quite distinct and clear.  Only downside is that the average range of this stock is low.  However, on a strict risk/reward basis, this was worth taking.  It hit the FE target. 

NLY 5 minute

WFC 2 min - On the 5 min chart, it looked compelling and bullish, although the setup bar wasn't the perfect green hammer.  But when you see WFC on the 2 min stock, how could you not say "WOAAHH!!", this looks like it's going to breakout higher?  It's a opening range breakout + fill in the tail + ascending triangle setups all in one.  No problems hitting the FE target (went to 161.8% FE).

WFC 2 minute

Pre-game rituals and visualizations

Trading is a performance field, and unlike sports, it's nearly 100% mental.  After doing pretty well so far this week, I had a situation today where I entered a setup that I now realize was sub-par.  It was a momentary lapse of focus -- after seeing many less than perfect setups I deliberately passed that eventually became successful, I let down my guard, just a little. 

It was a mental slip.  A brain fart.  It stank.  And I paid the price.

After Flowtastical tweeted prior to the market open that for today's trading -- he was visualizing passing on the bad setups and taking the good setups aggressively -- I realized I didn't have a good pre-market ritual.  At least nothing that I have instituted on a regular and routine basis. 

When I first heard of pre-game rituals and routines, I immediately thought sports.  Here's a humorous perspective on how some elite athletes perform their rituals.  Funny as some of these rituals may be, it works for them -- they're some of the best around.

http://bleacherreport.com/articles/230520-the-10-funniest-pre-game-rituals

So being such an obvious factor in sports, it wasn't very difficult to find a lot of great articles regarding how to setup your own pre-game type ritual.  And these rituals can easily cross over to trading.  Here's a link to a good article on how to design your own pre-performance type ritual. 

http://www.mentalgamecoach.com/articles/Article2_02.html

In summary, the article explains that there are two types of rituals:

• Associative - "you enjoy focusing specifically on the upcoming event and organizing details, thinking about it, imagining yourself performing well and can see yourself completing the event successfully."
• Disassociative -"you'd rather not focus on what is about to happen, and instead prefer to distract yourself by listening to music, reading, viewing television"

It's obvious that the associative ritual is the way for me.  I don't have decades of experience of what works that's burned into my brain so that I can operate instinctively.  I'm at the stage where I need constant reminders and visualizations of how a good quality trade should look and feel -- before, during and after the trade.

As a start, I'm going start building my pre-market ritual with these items:

• Review my trading plan, and then mentally visualize myself trading the plan
• Flip through my "setup charts" that shows how my screen appears right before a specific setup triggers.  Example of BRKR - pb2rz setup
• Review key goals for the week, and then mentally visualize myself achieving the goals

This is still a rough draft and I'll need to build upon this and refine it.  I might also need to come up with a ritual during the day, so that I can re-focus and re-energize as necessary.  But as they say, some plan is better than no plan.  I'll start executing this pre-market ritual beginning tomorrow morning.