Introduction

In continuation of previous article, I will now go further in my self-analysis to understand what is the reason of the difference in what I should be doing, and what I am sometimes actually doing. This article has to be read as I would be writing to my self, so the "you" in this case is me myself.

Indicators

As I already explained, when I started trading there was a completely naked chart with the possibility to draw some stuff like for example fibo retracements and drawings. What I need is to understand if and where I have more probabilities for a rise, or for a down move, based on recent price data.

At a certain point in history, someone decided that indicators are useful when deciding an entry. I remember that I was pretty sure people where wrong about this indeed, indicators were useful if used with certain algorithms in order to have a quicker and simpler way to read market moves. Who of you ever coded any automated strategy knows perfectly what I mean. I will explain it better with an example: I want to trade an instrument and by looking daily chart I see the situation represented in next picture:

  1. Price in uptrend, we are probably looking to buy, except for those looking to get the top of the move to post it in some forums showing the entry at the upmost pip possible, but not showing all wrong entries got along the way.
  2. After some sideway moves, price broken support, so we will probably looking to sell. Again, another exceptio for those looking to buy the lowest pip possible.
  3. Price met with important support, and sell pressure decreases.
  4. After building a short term resistance, price met again with support. Here someone will surely keep selling, trying to anticipate a possible support breakout, and having so a "better entry".
  5. Price broken the short term resistance: here is were we should be looking for buy opportunities.
Everything is simple when you can visualize price moves! But can you imagine what could mean building a code able to read this chart with the same perception like an human eye? Here is where indicators come. See the same chart with MACD (just random choice):

  1. Indicator tells price is going up.
  2. Change in values, suggesting price is in positive ground, but with no new highs.
  3. Here MACD tells price is going down.
  4. At this point we see how the indicator helps to detect there is something going on in price.
  5. Still we have not a clean direction up with values, but they will probably be updated in following few days.
So just by reading 1 or 2 values, extracted from actual price, we can have a great filter to make any code able to decide if price is going up or down. But you can clearly undestand (I hope) that this comes useless when we are reading a chart for manual trading. I mean, if price is going down, you see it going down, there is no need of a further sign telling you price is going down. The very same effect applies to any existing indicator in any timeframe: great and helpful in case you are partially or fully automating any trading command.

Define entries

What I need is to read what is actually happening around, and filter as less informations as possible, in order to retrive 1 or 2 trade entries. There is a guy out there, one of my mentors, who said the most powerfull thing anyone could tell you: "once you enter a trade, you cannot decide what market will be doing.. it could go in your favour or not, where is the problem? The most important thing is for you to decide and it will be better for you to decide based on very few factors, otherwise you will end up confused".

There is one clear and recent example coming from an houlry chart I saved yesterday in GBP / JPY, while attempting to get an opportunity for the trader contest:

  1. Price printed a triangle pattern near an important support / resistance area.
  2. Pattern broken, and attempt to move higher: I was attempting to buy the instrument,and used to move my SL really closed to my entry since in case of immediate reverse down, it could have gone far lower.
After some minutes I moved my SL at entry +1 pip since I saw market was not really going in my direction, and decided to shut everything down for a while and get some rest. Today I open again the chart and this is what I find:

  1. Price boucing off the extension of the line containing the triangle pattern (which indeed I was suspecting since I drawn it as "extended").
  2. Meeting known resistance (50 pips up).
  3. Again touching the line (80 pips down).
  4. After the bounce, meeting back with the resistance and in this case breaking higher (80 pips up + 40 pips breakout up).
It is not possible in my opinion getting all these moves up and down, that's it. But let's say I want to keep my bullish idea, I would have got 2 great opportunities for a total 130pips. In case I was for the bearish side, I would have got at least 1 opportunity for 80 pips (when price went in 2) and another losing opportunity when price (4) met resistance going hihger (would you have left your short trade running?).

What I am trying to show here is that with just 1 single and simple line, one can have a lot of trading opportunities just by buying near it or selling near the other side. Will support or the line hold or will price go through it? It is not possible to know and there is absolutely nothing in this planet that is going to tell you if market will decide to go higher or lower. If you believe that an indicator will eventually save your life, let's see the same example through indicator values. First, in this chart you see a possible buy opportunity coming:


Let's say I am lucky and get entry @135.67. The next few hours we see a kind of confirmation for upward move:


And let's suppose we hold the trade despite the 30 pips drawdown and we are in this actual situation:


Price rising, indicator following and our trade 30 pips in profits. What could happen next? Here you go:


Sudden and strong reversal downward, telling that price will probably keep going further down with indicator re-opening to the downside, and of course your trade in loss of about 60pips. Would you really hold the trade? If were true the reasons to enter the trade, at this point not only they are not anymore valid, but there are also reasons telling you to sell. So you close the trade or eventually try to short in hedge on next candle. And here is your present:


Do you understand what I mean? I found my self so many times in situations like this that I had to stop trading for some years trying to forget what someone was trying to put in my brain. Still today I need to avoid looking at other people charts, or to enter in any forum because I could only end up in confusing my ideas.

Conclusions

In trading there is nothing helping you, and everybody around will only be trying to take advantage of you and your money.
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