Risk to Reward

I have been so busy this week that I have not been able to trade my personal account much. But here is an update of where I am at as we approach the middle of the month.

If you notice my batting average has suffered severely because I have not been able to pay as much attention to my positions. But because I maintained a solid risk to reward on each position I have still been able to see consistent results. Stay Tuned!

XAU: Respect is Earned

OMG! it looks like gold just does not want to quit. Looking back at one of my previous newsletters we anticipated a pull back on the daily chart to find an opportunity to add to our position. The chart below is a snap shot of price action on August 22nd when we projected the pull back.

Look at that we got our pull back and follow through on our buy setup. Not only did we got follow through traders but we even got a new high. Now that is what I am talking about!!!

You are probably wondering how I was able to project that price would not only pull back but eventually present another buy opportunity. The move we got from the bulls last week took a lot of buying power to establish. Buying power that could only come from big institutions. When you see big candles or moves that clear a lot of price action on the chart they demand your attention and command respect. On the chart below you can see how I have highlighted the powerful moves established by the bulls in side the grey areas and the buy zones that have been established based on these moves by the bulls inside the blue rectangle areas. A Buy Zone is the area from the prior low of a bullish candle or bullish move to the prior high. We typically look for pull backs to the 33% – 61.8% level  inside the Buy Zone. (The same applies in reverse for a sell zone created by a move from the bears.)

Now that we understand how to identify a Buy and Sell zone, your probably asking yourself how to incorporate these zones in your trading. It is easier than you think. First you must make sure that your Buy Zone is inline with your higher time frames. If it is counter to your higher time frames then you want to make sure that there is enough upside potential to your next area of resistance. In other words you want to make sure your risk to reward is on point. Now inside a Buy Zone you will see all kind of attempts from the bears to wipe out what the bulls have established. But it is your job not to be fooled by these moves, instead you want to be patient and wait for a buy opportunity to present itself inside the Buy Zone. This can be applied to any time frame but keep in mind that the higher time frames are always going to carry more weight than the smaller ones. So that means that Buy Zones on the higher time frames are always going to be stronger than zones created on smaller time frames. Now Rule number 2 is a Buy Zone is still valid until it is wiped out from the bears completely. If you follow these few rules and respect these Zones by trading with them your trading profits will soar.

S&P 500 Trade Update (The Bottoming Tail)

Do you see what I see! Things just keep getting better and better for S&P 500. I mean are you kidding me a Bottoming Tail some call it the Hammer others call it the hanging man but regardless what you choose to call it, it is the second most bullish candle in our Candle Stick Alphabet, sitting right on top of the 20 MA. Need I say more traders, we are getting blatant strength from the bulls. A bottoming tail is formed when the bears start out dominant and are able to push price down to a lower level. But before the candle closes the bulls are able to overcome the bears strength and close out the candle as the side that won the battle. If you look at the chart below you will notice how in the past four weeks every time the bears attempt to muster up some strength, before the week is out the bulls have wiped out what the bears have tried to establish and then some establishing themselves as the side that is in control. In a lot of cases doing so in less time then the bears had to establish their strength, talk about power. This is why the Bottoming Tail is one of the most powerful tools inside our Traders Toolbox that we have at our disposal.

If you notice in the chart below we are starting to get some follow through to the upside as a result of the Bottoming Tail from last week. By spotting the right candles on the right time frames you are able take advantage of certain moves and opportunities as they present themselves with the confidence of knowing you are trading in the direction of least resistance.

$&P 500 Trade Update were in the money!

Man what can I say S&P 500 has been a beast. I mean did we pick the right time to go all in or what. Our Long position and add has paid us handsomely. As stated earlier we were looking to take profit at the top of the channel as price makes its way into the prior high. We are up 600 points and counting and we still got some nice size on this position. I am looking to get light on my position at the prior high on the monthly. It is rare in trading to have a home run but I think it is safe to say we knocked this one out of the park. Stay Tuned!

On another note have you ever heard the saying strike while the irons hot, get to gettin while the gettin is good, ride the trend till the end, Milk it dry etc… Although it is best to ride the trend as long as you possibly can during any season in the markets. During the summer since good trades  and solid trends are far and few between  (except this week in the market oh boy) one has to try to take advantage of any trend you find and follow the money. That means ride the wave and add till you cannot add no more. Now of course you want to keep your risk in check, treat every trade separately even if they are on the same chart, and follow your trading plan. But if there is money staring you in the face on a particular pair or commodity then stick with that pair or commodity because if it is paying and the other pairs or charts are choppy then the instrument that is paying is the one that commands our attention. As you can see in the chart above I have played S&P in a major way as well as AUD this past month because these are the charts that commanded my attention. In directing my focus to these charts I was able to avoid the whip saw and choppiness in other pairs that would have more than likely resulted in me giving some profit back.

If you fail to plan you plan to fail.

Traders it is here the time we all dread as traders. THE SUMMER!

Every year at the end of June I hit the road and travel because during the summer you will find that there is a lot more consolidation and choppy price action due to there being low liquidity in the markets.

In past years I would find myself trying to force things during the summer only to find myself in a deeper hole. I was under the impression that not even summer could stop me. It wasn’t until I gained time in the chair that I realized you cannot work harder or force progress to get more performance out of your strategy.

If you try to work harder and force things you just fail more and dig yourself a deeper hole.

In order to get more performance out of your strategy you must follow your trading plan. You must be rigid in your rules but flexible in your expectations.

And being flexible in our expectations means making the necessary adjustments as the season or the sentiment changes in the market.

In prior newsletters I touched on the four key areas that a trader needs to master in order to become what is referred to as a Master Trader. But in this newsletter I want to shine a little more light on an area that is over looked by so many traders. DISCIPLINE, so many traders trade with no clear plan or set of rules. Unfortunately how can one be disciplined if you have no clear plan or set of rules to follow.

A Trading Plan is like a road map. When you are on a road trip the road map allows you to know if you are progressing along on your journey or if you have veered off of the path at some point.

If you have not drafted a Trading Plan then I recommend that you should not take another trade in a live account until you have drafted a trading plan that addresses when you are to enter and exit the market, your risk management & money management etc……

The point I am trying to make here is if you have no clear map you will not know if you are progressing along as planned in your journey to becoming a profitable trader or if you have veered of the path.

Have you veered off of your path are you finding you are having inconsistent results in your trading. Then ask yourself two questions. Do I have a trading plan? If you answered yes then ask yourself the next question am I being DISCIPLINED and following my trading plan.

Now on to the fun stuff. Below is the S&P 500 weekly chart. For the second week in a row the S&P 500 has made me proud. For most traders their emotions would have shaken them out of this trade, since price action came within a few points of our stop-loss. But if you held on and implemented some discipline and stuck to your guns you would have been rewarded as price action came back into the bulls favor and closed out last week with a bottoming tail. This presents us with the opportunity to go long or add to our position above the 1369.05 level. Stay Tuned!!!