ForexSpirit

I’m sure that just about every trader, or at least those who venture to read a trading book or browse a trading website, comes across Leonard Fibonacci and the series of numbers that are forever linked to his name.

It’s third grade stuff at the Babypips school, just after support and resistance and even before moving averages! Tree rings, spiral galaxies, the golden ratio, the whole nine yards.

It was so simple, elegant and cool when I learnt that Ian Bell and David Braben used the fibonacci sequence to generate the staggering amount of content that was found in the seminal 1980s game Elite.

I played that game a lot. For months on end.

This snippet from zenbullet shows just how powerful this technique was and the danger(!) it posed:

In 1984 Ian Bell and David Braben, the creators of Elite, had produced a game that was capable of defining a thoroughly believable universe containing 2 to the power of 48 galaxies – that’s 282,000,000,000,000 possible destinations to fly to, all within the 22k available memory of the BBC Model B computer. The final release of Elite had this number substantially reduced – 8 galaxies of 256 stars each – on the insistence of publishers Acornsoft, because a universe of such a size would be too daunting, and would likely induce a minor existential crisis in the player, making them question how such a place had been created.

A better showing today. Only one bad trade of note and overall ended up pip positive.

1. Exited out at break even as I didn’t really like the way price was moving. I envisioned 1.4755 as being decent support. I had the idea right but played it safe in the end.
2. I was looking for a ride down to 1.4760 on this short. When it only got as far as 1.4762 before breaking above 1.4764 I got out.
3. Which was followed immediately by a stop-and-reverse trade. Grabbed three pips.
4. A vanilla scalp right here.
5. This was the most interesting trade of the morning. 1.4770 looked to be forming as a resistance level and so I went short. Price meandered just under this resistance level for close to 10 minutes. From the price action I still thought a move south was the more likely. But as time dragged on I thought there was an ever increasing likelihood that price might do a false breakout higher, or as I like to call it a ‘pop and drop’. I held my nerve, ready to bail if a breakout did occur. I would have to exit even on a false breakout just to play it safe. Things worked out okay in the end, as price dropped. My target was 1.4760, which was almost breached. After a slow, agonising drop there was a flurry of price movement around 1.4762 at which point I got out.
6. After a slight retrace price started to move down again. I was again looking for a break of 1.4760 but had to deal with a breakeven trade in the end.
7. This was my one poor trade of the day. It was too quick and impulsive. I didn’t have a proper safety net of where it would become obvious that the trade was wrong, or at least not one that was within 3 or 4 pips, which is needed when trading on the really short time frames.

Things were beginning to get really slow, most likely in advance of the US Retail Sales data out later in the morning. There were quite a few instances where price didn’t even move for a minute or two, which definitely made trade 5 interesting. I hovered over the close trade button like a hawk waiting for price to either go in my favour or go against me. Instead it just sat there, unmoving.

Was there a problem with my internet connection? Would there be an explosive move after such idleness? Was I allowed to blink yet?

Scalping really does condense everything about trading. It reminds me of a Half-Minute Hero, a PSP game where the traditional 60 hour Japanese RPG is crammed into just 30 seconds.

This morning’s trades show just what a fine line there is between success and failure when scalping.

1. The first three trades of the day all exhibit the same issue: entering too early. In all three cases waiting an additional 20 seconds would have resulted in much better entry positions. I have the direction of the market right (more often than not), but I’m jumping the gun on when to get in. Instead of getting in on the break of the previous low I need to take a deep breath and wait for a small retrace. I think my fear is that I might miss the big move. If I wait that is all but guaranteed but it should significantly increase the odds of a successful scalp. It’s all about getting screen time and building technique.
2. Discussed above.
3. Discussed above.
4. This was a better entry than the first three in that it wasn’t entered on a new low. Instead it was buried in the retrace. If anything, slightly earlier here would have made it a perfect entry and would have allowed for a much lower loss when the move south broke down.
5. A nice little scalp on a continuation of the quick push back up.
6. Poor entry in no man’s land.
7. Another poor entry. Trades 6 and 7 should not have been taken. Just look at how I got got taken for a sucker bailing out of both these trades along with all the other weak hands.
8. Good entry. Playing the range that had 1.4748 as resistance and had been the start of a resistance zone from the earlier Asian session.
9. Another decent entry, again looking to play the range this time off support. I knew that the BoE MPC rate statement was coming up at 7:00 EST so I didn’t want to hang around in the market much longer. When price didn’t break back up to the middle of the range quickly I got out for a small gain (although price did hit the mid-range point soon after so my target had been good).

As the old saying goes, ‘Insanity is doing the same thing, over and over again, but expecting different results’ (cue hat tipping to Albert Einstein and Benjamin Franklin who are often credited with this quote).

I guess that brings me one step closer to crossing that line (if I haven’t already) as I’m back scalping. Long-time readers might remember my last foray into scalping territory which took place just over a year ago. I started out with a pretty traditional trading plan but soon mixed things up.

I find myself back here again for three reasons:

1. Disappointing November results.
2. I’ve had the chance recently to take a peek at some of the MAX Trading System. While it can be used on pretty much any time frame it seems to be predominantly used on 5 minute charts. It’s a bit overly technical for my tastes but it got me looking at shorter time frames for a while.
3. I was reinvigorated by the scalping during low volatile times done by PIP-SIPHON.

It’s pretty easy for me to identify one major reason why I switched away from the traditional scalping approach so quickly last year. And it wasn’t that I would find it better to just mould my prior trading approach to a shorter time frame. It was that I’m not an early riser. I’ve always had trouble getting up at the crack of dawn. There have been times when I’ve tried to make it a habit but I have yet to make it stick. I keep on reverting to my old ways of getting up much later.

This matters because early morning is the only time that I can dedicate exclusively to sitting in front of the charts and trading without the possibility of being distracted. That means if I want to sit down and dedicate an hour to focusing on scalping I have to do it bright and early.

My new routine means getting up at 5:30 EST. I want to be bright eyed and bushy tailed while I scalp EUR/USD between 6:00 and 7:00 EST.

I lasted about two weeks trying this in September 2008. It’s generally acknowledged that it takes 30 days to form the basis of a new habit. My goal this time is to at least reach the 30 day mark before reviewing and forming any conclusions. This could be tricky as December is not going to be conducive to an uninterrupted 30 day run. There are the Christmas and New Year holidays coming up and I’m taking a 10 day break to visit friends and family back home in Dublin. While in Dublin I will look to trade the same timeframe rather than get up early. I think there are going to be too many nights out to make that a realistic possibility. The crunch will occur when I get back. Will I be able to get back into the early morning routine?

I started getting up early and scalping last Thursday (December 3). That’s given me a few days to ease into things and to get reacquainted with looking at the very short time frames again.

To help me see if I’m making any progress I’m going to try and document some of my sessions. To start things off, here were my trades from this morning:

1. There was a consolidation zone between 1.4764 and 1.4772 for most of the prior hour, so this was a basic breakout of congestion trade. I probably got in just a tad too early here. I would have preferred an entry on the bounce back up to 1.4765 that occurred just after I entered. My target was the 1.4750 area but I bailed on a stall at 1.4757.
2. Periods of consolidation can be extremely common in the lower time frames. A ranging zone seemed to be forming between 1.4750 and 1.4756. This entry was a long on the congestion support line. There was no immediate follow through so I bailed.
3. This is a bad entry. I got in too late when the support level gave way. This is when all the weak money was deciding to get in. Too late.
4. I’m happier about this as an entry point. Price came back up to the lower end of the congestion zone which should now provide some minor resistance. The resistance didn’t hold and I got out ASAP.
5. This was a wishy-washy trade. My rationale at the time was that a low might have been formed at 1.4745 and price was going to rebound back up towards 1.48. There was nothing too wrong about the entry and price moved in my favour by at least 4 pips. What irks me is that I didn’t consider this to be a counter-trend trade like I should have. My primary bias was US dollar bull, thus I was more comfortable holding short trades for as long as possible, while I only wanted to be in longs for quick points. I didn’t take my four pips and instead let it turn into a break even trade. This also prevented me from being open to taking a short at the 1.4756 level, the resistance area for the range.
6. Flustered by my cock-up with trade 5 I got aggressive and jumped in short here when it was just hitting the support area of the zone. Should not have entered here.
7. Tried to play the support level here by going long. Not really a great entry. Much safer to play the range in the direction of the perceived trend. Thus I should only have been entered shorts at around the 1.4756 level.
8. Held this trade too long. When it didn’t break in my direction within a maximum of 5 minutes I should have closed it. Instead I got caught in a bout of increased volatility that occurred just as the 7:00 hour mark ticked over. This would have been from mechanical trading systems on the higher time frames (hourly and above) entering and exiting trades. I must remember to be out of the market when the hour mark rolls up.

An expert is a man who has made all the mistakes which can be made in a very narrow field.
- Niels Bohr

Let’s hope I don’t have too many more mistakes to make.

You know how when you’re trading futures you don’t actually want physical delivery of the commodity appearing on your doorstep in a few months time?

Whoops.