Where to start and how to start??
“Where to start and how to start? ”
This is the common question I have been hearing from the followers of my blog these days. Thanks for asking me that question as it reminded me that I have missed one of the essential aspects of trading success, practice….
After burning a lot of my capital at the start of my trading career, I came to know that there is something called price action trading. Then I have gone through a lot of books, gathered as much as I can from the theory given in the books and prepared a trading plan. Each and every trading plan works wonders when you paper trade it or trade it in simulation. But when you put that into the real-time, stream of losses is inevitable. The same happened to me even after preparing a 90-page trade plan document. “These are because of just the probability factor in trading” I used to say this to myself when I faced with a stream of losses and moved on, but getting consistent profits was next to impossible for me at that time. Then I paper traded the strategy again for a month, then the results were outstanding again. When I analysed the trades that I have done with real money, I realized that I was hesitating to enter when the high probability setup presents itself on the chart. Then I gave a thought on why I was hesitating at the right moment. The answer was simple. I was just not fully confident on my strategy and I need to practice it rigorously to see some progress. Paper trading is not helping me and neither does the simulation trading. Then I decided to form a structural approach to my practice session. I jumped onto the classical way, ie. using pencils and printouts of charts.
In this article, I am going to give the structural approach I have done in my early stages and I hope it will work for you too. 🙂
Before going into the details, just think how we approach the market if we have a well-tested trading strategy. Making consistent profits is our main aim of trading. We do our pre-trade analysis ( step 1 to step 6 explained in the trade school section) to identify the high probable setup location. Then we do our ongoing analysis ( explained in the article about ongoing analysis) and wait for a low-risk high probability opportunity. Then we enter and manage the trade well to decrease the risk and increase the opportunity in that particular trade. This is what we need to do in the live market. Then how to practice this in our practice sessions ?? Just reverse the above process. Let’s see how……
Take at least 50 printouts of different sessions of your trading timeframe chart. (3min. in my case).
Set a minimum target in terms of points. Let us say 10 points of NIFTY is the minimum profit I want to make in a single profitable trade.
Now, take the trading timeframe chart which you have printed on the paper and mark those swings which extended a minimum of 10 points or more.
Now circle the area where this 10 point swing was started. This circled area is the one (setup area) which we need to identify in real-time using our trading methodology if you want to make a minimum profit of 10 points.
Once you circled the start of the move, open your higher timeframe chart(hourly in my case) in your computer and scroll to the time where this move has occurred such that the data on the right side of this time should not be visible. Let us say, the move in the trading timeframe started at 10:30 A.M of 26/05/2015. Then you must scroll your hourly timeframe in such a way that you cannot see any data after 10:30 A.M of 26/05/2015.
Then identify the structural support and resistance around the market price in the circled region using this higher timeframe data and then draw them on your trading timeframe chart printout with a pencil.
Now try to identify the setup location which we have circled in the trading timeframe with the help of the steps that I have explained. Perform all the steps on the data to the left side of this circled location. Identify the location where this circled area is with respect to the higher timeframe structure. Identify the trend and strength & weakness. Observe how the market reached this setup area. Identify the signs market provided within this area before taking off. Identify the possible entry price and also imagine how you would have managed the trade until it had taken a U-turn. Do this on all the charts that you have printed.
This is how I practised and it worked for me. Give it a try and discard it if you don’t see any progress within a month. Hard work and patience are needed to do this. Without them, success in trading is next to impossible.
One general question. When you started with Price action/discretionary trading, How did you start? Did you start by completely finishing off with Lance Beggs books and then with the acquired theoretical knowledge you started experimenting and tweaked and fine-tuned your trading process?
Did you follow someone’s trading journal and compared it with yours?
I am trying to understand the best process to start and go through this journey of learning this methodology.
You might have heard about Saint from traderji.com, the author of teaching a man to fish article. That was my starting point in price action. I haven’t made any money out of it, but I just came to know that market can be traded without any indicators and that triggered my curiosity. Bought the book series of Al brooks. At that time, these books were not at my level of understanding. I tried to read that series three times, but I don’t know why I felt like its not my cup of tea. Then I came to know about Lance and that made the impact in shaping me. I have a Market structure journal where I place screenshots of the lessons learnt with detailed annotations. I try to learn at least one new lesson from the market every day with hindsight analysis. It is fun and you will have more than 20 new tools which you have found on your own every month. Frankly speaking, these lessons are the main edge that you have on other traders. I don’t follow anyone’s journal except mine. I just compare my real-time performance with that of the hindsight and take necessary modifications the next day. I practice the lessons I have learnt in bar replay every weekend. But, you must understand the strategy to the dot before improving it. Get yourself comfortable with the core fundamentals of market action and try to earn consistent profits using it. Once you are consistently profitable, you can put your knowledge into it to widen the edge.
My suggestion, focus more on understanding the core fundamentals like how the market works, how it moves, how to interpret price chart about other market participants etc. and setups will jump out of the chart if you can read other trader’s mind. Reading the minds is the skill that is must for a discretionary trader. Learning the rules doesn’t help in the long run.
I have been reading lance Beggs and tried to read AL Brooks. Brooks is just impenetrable ball of mess, whereas Lance Beggs beautifully builds up like a mathematical proof. One chapter builds on other… and it all fits nicely at least I can understand what he says! AL Brooks is just stream of the word after word afterword… it’s like reading a sentence letter by letter after removing all spaces, punctuations, paragraphs and table of content! But sure AL Brooks has something valuable to say… maybe someday I will catch up with his level (at least enough Gyan to read Brooks work)!
But Reading Price action Bar By Bar by Al Brooks is a gold mine. True that it is very difficult to understand his writings as he used very few charts to explain the concepts, but once we are in sync with price action, we realize the importance of his writings. Even Lance suggests reading that book in one of his newsletters. I am still struggling to understand some concepts in that book
I came across the blog (site) recently. Mind blowing trades!!
When did you start? During engineering or after that. Did you leave your job and started working on this full time? How much time did you spend on this to understand and fine-tune?
I’m sure you would have done a lot of work to reach this level of skill. I’m trying to get a first-hand experience of an engineer turned trader; this would help me make a better estimate towards that (as I have a day job). Maybe a post on this will also help.
Welcome to the blog and thanks for your kind words.
Yes. I started my learning when I was doing my engineering, but traded with real money after joining in the job. Yeah, I left my job last year to take trading as my full-time profession.
I used to spend around 12 to 15 hours on charts when I started learning price action. I actually didn’t have much guidance that time and that’s why I had to stay that much time in front of charts and it might not be the same for others. If you have a day job and you are really passionate about trading, you have crude oil futures to trade in the evening. My suggestion, adjust the market and timeframe as per your lifestyle. But don’t try to do the reverse. Don’t try to day trade when you are working in an office. I used to do that and it was no way helpful for trading progress. If you have enough patience, try daily timeframe. If you are a bit aggressive, try another market like crude oil with the intraday timeframe.
I have a question:
It’s extremely hard for me to take small losses and often leave it to turn into big loss, how to fix this ?
Hesitating to take small losses and turning them into huge losses is very common almost to all traders. I have this topic in my mind for future articles and it definitely deserves some space on this website. Let me give you some of the reasons behind it so that you can workaround.
1) First and the foremost reason behind it, this happens when you impose your will on the market. The market doesn’t know your financial problems and it is not meant to give anything in return to us. Enter when you feel the market will do something and exit when the market proves you wrong. If you don’t know why have made your entry, it’s impossible to know that your wrong when the market is trying to tell you that you are not right. You must know what core fundamentals, your whole strategy was built on. Learning the dynamics of the market is more important than learning setups.
2) You might be focusing on making money instead of executing good trades. You will not hesitate to take small losses when you don’t focus on making money. Are you risking more than 1% of your capital?? Are your entries in right setup areas?? Are you trying to make huge amounts of money from trading?? Ask yourself questions like these and put them on a paper. You will understand where you are doing wrong. Remember, our strategy is not a sword to attack all other traders to rob their money. It is a spider web that we are nesting and we wait until someone gets trapped in it. Picking the right areas to enter is more important than entering a trade.
3) This also happens when you don’t have complete faith in your strategy. When it says that the edge is gone, you must trust it. If you are dragging stop loss away from its initial position, you are entering into pray and hope mode when your strategy is telling you to exit the trade. Remember, stop loss once placed must only be moved in the direction of the trade, not against it. It is a disaster.
4) If you are talking about scratching the trades when you mean taking small losses, it comes with experience and observation of our own setups. You will know when the edge of the setup is gone before the stop loss is triggered. Journal the trades and it will be your greatest trading book ever after a few months.
There are much more like this and thanks for reminding this topic. I will work on preparing the content.