market-structure-journal-creation-and-validation

Market Structure Journal.. Creation and Validation…

Hello traders,

Today’s article is something very interesting and equally important. I always say that we, traders must be thorough with the market dynamics and everything falls in line after that. If that is the destination of consistent success in trading, why most of the people fail in trading even though they have sound knowledge of the basics?? Your answer might be like this, there is a set of skills that has to be developed to be consistent which cannot be learnt from a book. True. But how?? If the skill set cannot be learnt from a book, leaning the hard way, ie. losing our hard-earned money, is the only way to develop the skill set?? If at all, is there any confirmation of the validity of the lesson learnt after losing money?? Or, is there any other structured approach to build the skill set?? I am very excited to say a Yes for the last question. This is where our Market structural Journal comes into the picture.

Ufff. A long list of questions isn’t it..? 😀 Before proceeding further, let me ask you a question. Are you really passionate about trading or you are just doing it for money?? I know that everyone comes for money, but after beginning the journey, we feel some connection with the market that shouts like, “Yesss. Trading is my Cup of Tea and I have to succeed in it now matter how strong the obstacles are.” If you felt something like that, welcome to the world of successful trading. You are almost there.

The reason why I have written the above paragraph is, building market structure journal at the initial stages is very very tedious. It demands a lot of hard work and passion. You cannot consistently do it if you are not passionate about the process. Let me tell you, my market structure journal is 2 years old and this is what that gave me an edge over other traders. Now, I consider this as my greatest trading book ever. Thanks to Lance Beggs for introducing this to me with his enlightening articles.

Before going into the construction and validation part, I will share a few examples from my Market structure journal so that you get an idea of how the screenshots appear.

Example-1

Preconditions:-

Yesterday’s market closed into the high or low of the day with a momentum overextended move.
Today’s open is a gap open against the accelerated move yesterday.
First trading time frame candle hasn’t shown any strength in the direction of the yesterday’s momentum move.
Bias:-

The most likely market moves in sideways range within the trend violation pivot and extreme of the accelerated move as shown in the following figure.

Closed into the high or low of previous session

Example 2-

Preconditions:-

Yesterday’s market closed into the high or low of the day with a momentum overextended move.
Today’s open is a near yesterday’s close.
Bias:-

In spite of the accelerated move yesterday, the market continues to move in the direction of yesterday’s accelerated move.

Closed into the high or low of previous session and opened near the close

Example 3-

Preconditions:-

Change in market structure late in the session, ie. after 2 P.M like trend change, sideways range breakout with good momentum, technical chart pattern breakout etc.
Bias:-

Expect a momentum move in the new structural direction.

Structural change late in the session

I have a very long list of content like this. URD is sharing his structural journal here.. I suggest you to go through them, test his hypothesis on your own and implement that in your plan.

Now the question is, how I know these?? How I have been constructing my structural journal?? Duhhhhh. Experience. This might be your answer, but it’s completely wrong. There is a lot of hard work behind that and you can do it on your own. Remember, the market always pays to those who put the effort into learning.

So, allow me to say how to do it.

Framing the hypothesis and validating it for saving it in the market structure journal:-

Market teaches a lot of things and there will be at least one new thing to learn from it every day. Follow the following steps..

Market closes at 3: 30. So allot at least half an hour for the hindsight analysis. Be consistent with the time every day. I personally do my hindsight analysis between 4:00 P.M to 4:30 P.M. Do it like a ritual, you will lose seriousness in it otherwise. Be disciplined with the timings.
Find at least one feature of the market structure in the session of that day like the one’s I have given above. Look what happened after that market structure you have identified and make a detailed note of that in a book. It must contain the preconditions, bias and a screenshot of the structure. This gonna be your hypothesis and you have to validate it now.
Now take at least 20 samples of the same structural occurrence from the previous sessions with the same preconditions and now check how many times your bias proved correct.
If it proves to be correct at least 17 out of 20 times, place it in your structural journal. Otherwise, discard it.
Repeat this every day without any fail and you will have the greatest trading book ever after a few months. Refer to this journal every week, practice them using bar replay and witness how you stay ahead of others in real-time. I at least get one valid journal entry every week these days.
Pat, you’re back if you find a valid journal entry and don’t forget to reward yourself after discovering something from nowhere. 😀
Note:-

Some of the valid entries in your journal might lose its power after some time. So, the construction and maintenance of the structural journal must be dynamic.

I am repeating again, this will keep your head and shoulders above other traders. In a business where there is no place for average and below-average performers, we need this.

User says
A couple of questions. Is your journal a book or do you maintain a soft copy?

One problem that I have been facing is to maintain the index. Over time, there will be too many topics. How do you go back and associate /remember the topic? What I mean is, In the above blog post, You have given 3 lessons. I am sure there are 100s of lessons in your journal. Every time do you browse through these topic names/indices and then associate the chart/note to those topics? ( Not sure if I could articulate my question properly)
Reply:
I always prefer hard copies. Once the entry is validated, I take a print out, write preconditions and bias at the back of it and then I place it in the folder.
That’s where your practice session on bar replay at every weekend comes. You don’t need to refer them all the time after a rigorous practice. Skimming through the headings and exploring deep when it didn’t strike in your mind is enough. Your eyes will automatically identify them when they appear in the chart. As I am the one who discovered them, it won’t take much time to refer. It is now 120 pages fat and I do refer all of them at least twice in a month.

User says:
Just for curiosity, you save journal in hard copy, before starting a blog, or you save both hard & soft copy.

If possible can you show us please, how you save it ….via photo,video….etc any medium? it’s optional if possible.
Reply:
I save both hard and soft copies for obvious reasons.. Will add that photo to this article when time permits.

User says:
This is one of the core principles, without which no one can turn into a successful trader!
I think this is like focusing the lens when seeing through a microscope/binoculars.
Without focusing its all just a blur.