Trade Set-Ups Being Watched for Week of May 19

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Forex Trade Set-Ups Being Watched for Week of May 19

Friday May 16 has been a pretty quiet day (so far), but that may set up some good trades next week. Here are some trades I have on, as well as a few set-ups I am waiting for. These are swing trades in the forex market, so I am using stops and targets. Trades are expected to last for several hours to possibly several days.

AUDUSD

I went long in the AUDUSD yesterday based on a long-term rising trend, and the pair recently broke higher out of a short-term downward sloping trend channel (within the longer-term trend). I am long near the bottom of the current consolidation. This is a trend trade, so expecting the price to move higher. Once (if) it breaks above this current consolidation we could see some quick sharp moves.

AUDUSD 4-Hour Chart

EURGBP

The price is currently near the low of a downward trend channel so I will wait till the price reaches the top of the channel before looking to go short. Blue line marks the potential short entry (may be adjusted slightly), the line above is the stop and the line below the target placed about half way into the channel. The concept here is simple–trade the channel but take the short trade at a resistance area (other example explained here: Are You Giving Yourself Enough Running Room on Trades?)

EURGBP 4-Hour Chart

EURJPY

The EURJPY broke out of a triangle pattern to the downside, and has been trending lower since. I am waiting for a pullback (higher) to get short. This pair typically sees deep retracements so I have a short order waiting just below a prior pullback peak in the downtrend. If the price keep dropping and we get a pullback peak below the entry point, then the order will need to be moved down below the last peak (yet to be seen).

I let the market come to me, I don’t chase trades. If I can’t get a trade where I want it, then I don’t take it.

EURJPY 4-Hour Chart

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GBPJPY

The EURJPY and GBPJPY are highly correlated, but will have different set-ups since they don’t move exactly the same. The GBPJPY was moving in a channel lower but has broken through it on aggressive selling a few days ago. The start of that aggressive selling is likely to be a strong resistance area, and it is also very close to the channel top. Therefore, I have placed a sell order right near the start of the big drop we saw a few days ago. Stops are above a recent high, and targets down near the original channel low in anticipation of the downtrend continuing.

GBPJPY 4-Hour Chart

Final Word

On this time frame( 4-hour and 1-hour charts), I spend about 20 minutes a night going through about 15 to 20 forex pairs and looking for these types of setups. I put out lots of orders, and don’t focus on any one particular trade. Less than 1% of my account is risked on each. On a given day I will usually be filled on 5 of these trades, so if one or two don’t work out, the other three or four that do make it up for it. In other words, diversify a little bit with this style of trading. There is very little time or effort required, so put out orders when you see a setup. Don’t find one trade, trade it and pray it works out. With trades like this you have an edge, but like a casino that edge shows over a great many trades. It is very easy to lose one trade even with a great edge, but if you take a lot trades that have an edge, it becomes very hard to lose overall. All targets are at least 1.6 times the risk, making winners bigger than losers.

The Power of a Time Stop

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This is a guest post from Tino @tradersreality. This article originally appeared on tradersreality.com and is reposted here with permission.

Since my last post regarding Martial arts and trading, I have been consolidating my thoughts on ways to improve our mindset of when we trade. Let’s face it. Mastering any craft, has no destination. Pit stops maybe, but you are forever on the journey to mastery. As long as you are humble to the concept that mastery is a journey then you will be open to ways of developing every skill that you feel will provide you with an edge in this ever so challenging game of speculation and uncertainty.

Which leads me to a concept that is probably not considered much and given little attention to.

How can time help your trading?

Now I am not saying that if you trade for 1 hour a day, and only 1 hour a day, your trading will improve drastically. The idea of this post is to understand what we are doing in the “time” that we are exposed to the market. How is it that time can improve the way we trade and what can we learn from it?

To understand the concept that I am delivering, I will introduce to you Trader X. Trader X is someone who has subscribed to my “Review My Trading Journal” service and sends me his trading journal every week. I then explore patterns in his trading and areas that he may or may not be struggling with that he cannot see yet.

Trader X Bio
Trades Stocks, Swing trader turned Scalper, (might have been my fault that happened).

Pretty decent track record, he came to me when he had lost half of the value on his account, through perseverance and dedication he has now managed to regain that capital and is going on to having many great trading weeks.

I approached Trader X after exploring his journals and I could see a pattern forming. Trader X would always try to allow his trades to hit his profit target and keep his risk to a minimum. He would get a little bit frustrated when price would be close to his target and he would leave it on, only to see it reverse and his stop get hit later. Trader X would document how he would feel and quite rightly, he didn’t allow it to bother him and he would go on to the next trade.

I decided I wanted him to try something out. I approached Trader X and explained to him I wanted him to try out something that would, if done correctly and if he sticks to the criteria, would allow him to determine any flaws he may have in his trading.

I wanted to determine if we can develop the skill of taking a win and taking a loss. What impact would this have?

Trader X agreed…

The Criteria…
I asked Trader X to take a series of trades. These trades would be closed within a set time period. E.g Scalpers would either choose 5 minutes,10 minutes, 15 minutes. Literally a stop clock counting down.

Now whatever happens. once the timer has completed. THE TRADE MUST BE CLOSED.

Set the risk parameters, only because anything can happen and you don’t want your trade to be exposing you to a draw down and you not preserving your capital all for the sake of a stop clock not triggering.

This exercise is not engineered to make you money. The idea is to understand how you can handle the concept of FOMO (Fear of missing out) and how well you manage your behaviour once this FOMO kicks in.

After a week, Trader X sent me his thoughts and pictures of the trades he took:

What’s going on Tino,

Here are the details of the trial period that you had me do.

I was a little nervous at the beginning. I followed my trading routine as you already know and executed the same strategy for all my trades during this trial. There was no hesitation when it came down to execution, There was no problem when the price was going against me, I have been used to that type of exposure and as long as price does not hit my stop and when the price hit my stop then I would get out without any problems and accepted the trade did not work.

The emotions started to flare up when the timer had 2 minutes left and the trade was going in my favor. I asked myself with some of the trades, it hasn’t hit my target yet and I doubt that it will hit my target in the next 2 minutes. What if I get out of the trade and then it hits my target? I would be missing out on making some serious percentage gains to grow my account.

I felt anxiety, that’s the best description I can give you of my emotions during this trial, it was like I knew the price was going to hit my target. On some of the trades, I stayed in for an extra 20 to 30 seconds to see if the price would hit my target but then I felt like shit because I was violating my commitment to your teachings.

So, I would get out and take a deep breath. I wrote down all this information and it took me until the 3rd trade to figure out that I have not fully accepted the concept of uncertainty because if I did, I would not have those types of emotions. So I did this exercise while on the trial, I kept repeating to myself that I would get out of the trade when the timer hits, no matter what and that’s what I did.

Even though I did not want to get out of the trade. I got the f*ck out and accepted the outcome of the trade. I watched most of my trades hit my targets after and I would just sit there accepting that I am never going to know what is going to happen in the future, and accept the outcome of the remaining trades on this trial. A very powerful exercise for sure, it definitely, brought more awareness to my trading. Now it’s time to head back to the lab and keep working on improving.

As you can see, this is from a trader who is happy with his trading, takes his trades sets his stops and targets. Yet time has taught him something that had been lingering within his mind.

Is it possible that Trader X has realized a flaw in his trading that has been laying there dormant, ready to come out? Maybe its presence will arise at a time and cause Trader X to lose a hell of a lot of money.

What Trader X has accepted is he really does not have any control of what is happening.

This is what I wanted to achieve with this trial with Trader X. He now knows that, even if you are winning in trading, great, but always, always be aware that the irrational behaviour of the “Monkey Mind” will always be present. We will do things that in hindsight we will say “f*ck sake, why did I do that?”

What to take from this?

From Trader X’s perspective, its evident that he was struggling to accept that his trades, had he not had a timer in place, he would have been profitable and earn himself decent percentages on his account. But lingering behind the frontal cortex of his brain was his emotional centers, that were being triggered and his need for certainty came out.

The truth of the matter is this. The point of this exercise is to get you to realise that when you are trading, you will never know what the market will give you. Setting profit targets are great, but you can fall into the trap of being “married” to a target and price could fluctuate and be within a couple of pips or cents and still not hit your target, you as the trader will be thinking “Yeah it’s going to hit it.” and then you are in the position where price has completely pulled away from your target area and is more likely to hit your stop…This has been done many times with my own trading and i am guilty of it to this day.

Try out the trial above and see if you can actually be committed to closing your trade within a set time. Explore your emotions after the trade and let me know.

Trade Set-Ups Being Watched for Week of May 19

NASDAQ ETF (QQQ.O)

CUE Charts have several easy to use tools – and once someone is used to them, new trades may be improvised; combining CUE Charts with broader Market facts (not judgement or opinion – we try to stay away from that if we can !)..

You may recall that I had already analyzed the broad market to be Bearish in my Market Internal study blog a few days ago. Based on that and movement of QQQ.O, I could improvise a profitable quick trade using Weekly Options.

​I had booked profit on most of the QQQ.O Put Options on entry day itself. At more than 100% profit. And I allowed some lots to carry on for next day. Letting profit run – but ensuring it was already a guaranteed Risk Free Trade. The remaining position was stopped out today at a Trailing Protect Profit Stop. Which I had put some distance away from my Entry Price. A net highly profitable trade closed within two days.

Not all the time a Stock moves in our anticipated direction. It does so many times when we follow a roust and disciplined trading way. But not always.

Sometimes market moves opposite to what we anticipated and we have to take small loss, close the trade and move ahead to next trade.

​Some other times we may be flexible enough to switch direction and come out with some profit. Here is exactly that happening with JPM.

Being Flexible

JP Morgan (JPM)

JPM did not turn out as we anticipated. It moved sideways for two days since we analyzed it and then on 18th May it shoot up – as shown below in CUE Hop On chart below.

JPM going up in itself probably would not entice a Superior Profit trader to display flexibility and switch from intended Short direction to a Long trade on JMP. There were few more facts in play.

On 18th Fed meeting minutes were due at 2 PM. On this day, market struggled to go up. However, Financials were soaring right from beginning of day. As if someone knew what the minutes will say and what its probable impact on banking stocks might be. And were buying up many banking stocks in advance. Resulting them to soar.

Below is the sector wise performance of Dow Jones Industries index as of end of day. Financials were strong from beginning of day itself and closed the day as the strongest sector of Dow Jones.

That observation, along with relatively narrow Stop Loss from Fine Tune Template could lead Superior Profit Trader to switch from Short to Long Direction and make a profitable Day Trade – as explained below.

​This is how the Day Trade would have played out – using CUE Fine Tune Template.

It was a profitable trade. No – I did not take it; I missed this opportunity. And I am not sad about it. I don’t try to take every possible Superior Profit trade that comes in the market.

However, did you see in the sector wise breakup of .DJI above that Industrials were poor performer today?

And do you remember that we had DOW in our original Community post being a Bearish Stock? I was watching DOW since I identified it to be Bearish . and I did take the DOW Short today and profited from that.

Being Confident

​Dow Chemicals (DOW):

Dow had a Bearish Candle yesterday in Daily Hop On (not shown here . you may look it up on your CUE Charts). However, as the Candle Flow was still Bullish (cyan), one would not enter Short. And would watch it today.

Today DOW was Bearish (part of Industrials – which were also Bearish as a whole) from beginning of day.

And as broad Market fell, DOW fell even more.

Here I could time the trade well. And could confidently add to my position. Using Weekly Options -I booked more than 130% profit in a day on partial position – making the entire trade a guaranteed trade a Risk Free Trade. Below snapshot explains the trade.

These trades illustrate the many opportunities that a Superior Profit Trader may encounter and exploit. I have traded these using Options. However, the same trades could be taken using Stocks or ETFs.

Before I end this blog, some further discussion of the trader’s characteristics in display here is warranted.

Different Characteristics in Different Trades/at Different Times

We watched several characteristics in action. Being prepared, being patient, improvising, being flexible and being confident.

Being prepared and patient are all good. No further discussion required on that probably. They are essential and useful in trading. And that is that.

Improvising may need a few words. This characteristics come after observing the Market for a while. After trading for a while. It is like in any other skill. Photography. Playing violin. Or in golf. Trying to improvise from the early days of trading career may be frustrating.

Then comes the matter of being flexible and confident. These may be two edged sword. They are indeed useful – and allows an experienced trader to capture more from the opportunities the Market presents. However, they also incorporate the risk of going into the realm of gambling. To chase a trade. Or to break one’s own trading system rules. Or doubling down too much into a losing trade. Worse than even that . to not cut loss if Stop Level is touched.

How to avoid those pitfalls?

Like in the case of improvising, one may wait for a while before starting to be flexible (to reverse direction in a trade) or to be confident (to add to a losing position).

One might also practice for a while on simulation money first. Before going all out with flexibility and confidence.

With a bit of practice and discipline, trading can be fun. And even profitable. The above examples illustrate that.

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