Kreslik.com - traders community since 2006

First of all I'd like to thank TRO, the mighty one and the many others that actually take the time out to help those of us on the 95-98% side that get drained by the banks.

[The Purpose of this post is to ask some questions to experienced traders if you don't want to read my back story BS skip to the questions section ]


Since this is my first post here I thought I'd start things off with a bit of background:

I like so many others am a walking cliché, I'm a very smart guy that has always succeeded in the very mechanical world of academics and theory (where 2+2 IS ALWAYS 4). I've always been interested in the world of investments and trading so I decided to take what little spare money I had and have a go at FOREX (the market with the most "bang for your buck").

I read everything I could get my hands on using babypips as my primary "go to" source on all things FOREX. I traded a demo account for 2 weeks and did fairly well so I figured why continue wasting my time with fake money and opened a MBT account (choosing MB as my broker seems, up to that point, to be the only thing I did right).

First two trades raised my account by 20% (I must be the Micheal Jordan of FOREX right? ). So then in typical cliché fashion I over leverage and get hammered ending my first day by losing a third of my account.

After that disastrous day I went back to babypips and the "never lose again" thread caught my eye for the second time (the first time I thought, because of the title, that it was a BS post trying to sell me something). This time however I decided to read it since I couldn't possibly do any worse.

That thread and all the babypips/anti-TRO drama surrounding it lead me here where I've spent the last 2 weeks doing nothing but reading.


QUESTION I

I've noticed the following common themes in the advice many of the experienced traders give and believe (hopefully not erroneously) that success boils down to a mastery of the following:

*I'm a minimalist at heart and therefore try to boil everything down to a sentence or a word to capture the essence of something, hence the oversimplified descriptions.

A. Price action (and what to do with it)- Trending up, trending down or going sideways. Trends either move with the trend, retrace or reverse. Sideways movement indicates uncertainty but focusing in on this type of price action can give clues as to which way it wants to break. All of this is, of course, relative since a change in perspective can change the picture.

B. There is no Spoon- The world of FOREX as with all things speculative is a world of probability. 2+2 might equal 4 or 3 or 2 or 10, the point isn't to find the absolute answer but rather the most probable answer. All you can ever hope to do is stack the odds in your favor.

C. Support and Resistance- This along with almost everything else is an illusion but since so many see this illusion and believe, it becomes a self fulfilling prophecy (applies to Fibo and psycho lines as well).

D. Money Management is Key- Tweaking Risk/Reward and leverage is key. Poor money management can turn the best system into a losing one.

E. Plan the Execution- Know when to get in, when to get out, when NOT to get in and when NOT to get out.


So the question is do you agree or disagree that A-E are what success in FOREX boils down to? Would you add or subtract anything?


QUESTION II

Would you consider my identification of major support and resistance on this chart to be accurate? Would you change something? If so why?

*I chose the EURUSD 4H chart up to the close on Fri 7/31/09. TRO hints, well more than hints, that being able to see involves only the chart so I've stripped it bare in order to try and train myself.

*I know there are more possible S/R lines but I wanted to keep it simple until I grasp the concept.

*Red lines are stronger than the blue one

Hi Pipatron2

And Welcome to Kreslik. By far and away my favorite trading site.

All I can say is that I like the way your mind thinks cause I think along the same lines. Your questions are great; I don't know many of the answers. If you want to master trading, may I suggest you read the Never Lose Again thread several times.

Open a demo account, get use to what button does what, then open and fund a mini account and trade with it. Small gains and small losses. Record you emotional responses for both. MO says don't go live until you make 1000 pips with 200 trades. That comes down to 5 pips a trade. Don't over trade. Don't trade against the H1. -- Patch, In VA

Welcome Pipatron. I see you are beginning your education in trading. I'm glad you're a booksmart fellow but throw all that out the window, it doesn't apply here. Now to answer your questions.

Q1:

I think the majority of traders would agree with these statements, I will however make a few modifications which are important.

A. Price action is only relative to supply and demand, changing perspective will do nothing to usurp how supply and demand control the market. Sideways moving markets do not denote uncertainty. They denote accumulation or distribution at certain price ranges. As we all know, the market either moves up or down in the long run and the reason for sideways markets is the fact that even the pros can't purchase or dump their entire holdings at a particular price.

B. This depends on who you ask. However keep this in mind, if there is no spoon, then eventually your luck will run out. If you have to stack "odds" then they will get the best of you in the long term, I can only hope people who trade odds make a million and quit before that happens. Personally I wouldn't waste my time trading if I knew there was no definite way to make money in the market.

C. Support and resistance is not an illusion, they both actually exist. Support is where the smart money buys and resistance is where the smart money sells. Weak money, aka the public, does not form support and resistance, it is too uncoordinated. Psycho and fibo lines are weak money. I can guarantee you that the big boys don't use fibonacci retracements when placing orders.

D. Without a doubt this is extremely important to your trading.

E. Better to say, have a plan, know your plan, execute your plan flawlessly.


Q2:

You have done a good job of placing support and resistance for previous trades, hindsight is always 20/20. What you have marked however is irrelevant to anyone wishing to place a future trade. When identifying support and resistance there is only 1 relevant support (a previous low), and 1 relevant resistance (a previous high). TRO has done a magnificent job with his dynamic SR indicators, which will plot them for you automatically.


Remember that TRO has been trading for awhile. He has found methodology that works for him but he also has intuition that comes with experience, of course it can not be learned by reading any number of books or forum posts. You can find many grand ideas here at kreslik but ultimately you will need to discover a style that works best for you.

jhtumblin has made some good points



let me ask you this Q


what does support mean to you----exactly?

what does resistance mean to you----- exactly?

You are quite correct, jhtumblin and es.

Price movement is the result of order flow imbalance. There's nothing more to consider.

Obviously you need a trading plan with good risk/money management rules.

Lis

Thank you all for the replies it has been very helpful and has given me a lot to think about. I have a few more questions if I may.

*Please excuse the gratuitous use of quotes

es/pip wrote:jhtumblin has made some good points



let me ask you this Q


what does support mean to you----exactly?

what does resistance mean to you----- exactly?

I don't know if this was for me or jhtumblin but I'll try to answer

I see Support as basically a price where there are a lot of buy orders and resistance and as a point where there are a bunch of sell orders. I guess the trick there is to see what the majority (most money not most people) sees.

Price movement is the result of order flow imbalance. There's nothing more to consider.

A. Price action is only relative to supply and demand, changing perspective will do nothing to usurp how supply and demand control the market. Sideways moving markets do not denote uncertainty. They denote accumulation or distribution at certain price ranges. As we all know, the market either moves up or down in the long run and the reason for sideways markets is the fact that even the pros can't purchase or dump their entire holdings at a particular price.

This part confuses me a bit, after analyzing it for some time I boiled down price action to which side is willing to "go out on a limb" if sellers are willing to take a lower price then the price goes down and the reverse for buyers.

Question 1

I guess the confusion comes from the "imbalance" and "supply and demand" parts which inherently suggests a greater number on one side but doesn't there have to be one buyer for one seller for price to move?

A. Honestly I threw the term "price action" in there but in retrospect I've come to realize that I don't really understand it. Price doesn't always move one way. Aren't candles price action (net movement/time)?

B. I guess the question is how do you use price action? (I realize that's kind of a loaded question as a write it but every time I hear "price action" I think tick charts and those look like chaos to me)

B. This depends on who you ask. However keep this in mind, if there is no spoon, then eventually your luck will run out. If you have to stack "odds" then they will get the best of you in the long term, I can only hope people who trade odds make a million and quit before that happens. Personally I wouldn't waste my time trading if I knew there was no definite way to make money in the market.

Question 2

Coming from an academic background I have to say this is somewhat comforting, The idea of trying to tame chaos is daunting.

The question them becomes should I get myself into the mindset of "every day life" where there is a "tried and true" technique to get things done with a bit of probability sprinkled here and there (could get hit by a meteor ) or more like a blackjack player where there is a technique but its grounded in probability?

You have done a good job of placing support and resistance for previous trades, hindsight is always 20/20. What you have marked however is irrelevant to anyone wishing to place a future trade. When identifying support and resistance there is only 1 relevant support (a previous low), and 1 relevant resistance (a previous high). TRO has done a magnificent job with his dynamic SR indicators, which will plot them for you automatically.

Question 3

A. How do historical S/R lines play into this then if at all? I ask because I've heard it frequently mentioned that a line that has been both support and resistance historically is considered strong.


B. Using the most recent support and resistance definitely makes sense after all you aren't going to go back in time and trade. How far back should you go to find this? Is there a rule of thumb (like for example if there's a low 5 candles back but a lower low 10 candles back do you go with the 10 or the 5)?


C. How many candles do you look back for Support and Resistance personally? Does it change based on any factors?

Pipatron2 wrote:Thank you all for the replies it has been very helpful and has given me a lot to think about. I have a few more questions if I may.

*Please excuse the gratuitous use of quotes

es/pip wrote:jhtumblin has made some good points



let me ask you this Q


what does support mean to you----exactly?

what does resistance mean to you----- exactly?

I don't know if this was for me or jhtumblin but I'll try to answer

I see Support as basically a price where there are a lot of buy orders and resistance and as a point where there are a bunch of sell orders. I guess the trick there is to see what the majority (most money not most people) sees.

Price movement is the result of order flow imbalance. There's nothing more to consider.

A. Price action is only relative to supply and demand, changing perspective will do nothing to usurp how supply and demand control the market. Sideways moving markets do not denote uncertainty. They denote accumulation or distribution at certain price ranges. As we all know, the market either moves up or down in the long run and the reason for sideways markets is the fact that even the pros can't purchase or dump their entire holdings at a particular price.

This part confuses me a bit, after analyzing it for some time I boiled down price action to which side is willing to "go out on a limb" if sellers are willing to take a lower price then the price goes down and the reverse for buyers.

Question 1

I guess the confusion comes from the "imbalance" and "supply and demand" parts which inherently suggests a greater number on one side but doesn't there have to be one buyer for one seller for price to move?

A. Honestly I threw the term "price action" in there but in retrospect I've come to realize that I don't really understand it. Price doesn't always move one way. Aren't candles price action (net movement/time)?

B. I guess the question is how do you use price action? (I realize that's kind of a loaded question as a write it but every time I hear "price action" I think tick charts and those look like chaos to me)

B. This depends on who you ask. However keep this in mind, if there is no spoon, then eventually your luck will run out. If you have to stack "odds" then they will get the best of you in the long term, I can only hope people who trade odds make a million and quit before that happens. Personally I wouldn't waste my time trading if I knew there was no definite way to make money in the market.

Question 2

Coming from an academic background I have to say this is somewhat comforting, The idea of trying to tame chaos is daunting.

The question them becomes should I get myself into the mindset of "every day life" where there is a "tried and true" technique to get things done with a bit of probability sprinkled here and there (could get hit by a meteor ) or more like a blackjack player where there is a technique but its grounded in probability?

You have done a good job of placing support and resistance for previous trades, hindsight is always 20/20. What you have marked however is irrelevant to anyone wishing to place a future trade. When identifying support and resistance there is only 1 relevant support (a previous low), and 1 relevant resistance (a previous high). TRO has done a magnificent job with his dynamic SR indicators, which will plot them for you automatically.

Question 3

A. How do historical S/R lines play into this then if at all? I ask because I've heard it frequently mentioned that a line that has been both support and resistance historically is considered strong.


B. Using the most recent support and resistance definitely makes sense after all you aren't going to go back in time and trade. How far back should you go to find this? Is there a rule of thumb (like for example if there's a low 5 candles back but a lower low 10 candles back do you go with the 10 or the 5)?


C. How many candles do you look back for Support and Resistance personally? Does it change based on any factors?

whew---- i read all of that but i have no idea what i just read, but i have been drinking a little bit

there are lots of different views on PA and how to interpret it, and in my opinion that is due to the fact that no one person sees the exact same thing when they look at it. The standard things everyone may agree on what they see, but how they interpret what they see makes the market move up and down.

before i came here i was a s/r guy-- mixed with some vsa trading the es. After i read the NLA thread and understanding what MightyOne had presented it changed the way i looked at the market.

i suggest you read that thread and see what he has presented. Yes it is 580 odd pages but it is well worth it. ZapZing archived the first 520 or so pages on the web so it is quicker to read thru--- do a search. When you are reading it, if you decide to, copy and paste every one of MightyOne's and Dragon's posts and charts into a word doc for later.

I Agree with MightyOne's view, theory or what ever you want to call it. Getting away from price action in its general form, and just looking at a chart, just in general, what do you see? It is a bunch of candles or bars that look like choas or random with not much reason.

What if you viewed a price chart as a blueprint of other traders emotions? Clearly displaying fear and greed. Then you treated that chart like a game of poker.

What if you knew the following statements to be facts?

1. Traders are greedy.-------greed
2. (most) traders trade off of emotions.------------fear
3. traders, once in profit, usually get out at break even.
4. the easiest money to make is other traders held profit
5. there is truth and there is illusion
6. the truth is closed candle bodies
7. the illusion creates the fear, which in return creates my entry
8. momentum shows the way
9. body in direction of profit and wick in direction of loss


this may not mean anything to you now--- but if you read the NLA thread you will live by it. i do.


momentum shows me the way and i get into my trades on the fear of other traders exits. i then take the profit of the next group of traders, and i do it over and over and over again---- each and everyday.


When a trader gets out at break even it is called a Zline---per MightyOne

ZL's are the most powerful S/R i have ever seen.

i was a s/r guy

now i am a zline guy