Đối với những Newbie hoặc những bạn tuy đã tham gia thị trường lâu, nhưng vẫn loay hoay chưa tìm được cho 1 mình 1 hệ thống giao dịch phù hợp, hoặc là đã có rồi nhưng vẫn có tinh thần học hỏi, tìm hiểu sâu hơn về nhịp chạy của thị trường, thì theo cá nhân mình thì phương pháp Price Action có lẽ sẽ là 1 chủ đề mà các bạn nên dành thời gian để tìm hiểu. Do đó, hôm nay mình xin chia sẻ với các bạn bộ sách của Galen Woods: How to trade with Price action. Review sơ qua về cuốn sách: 1 – Kickstarter: cuốn này giới thiệu sơ qua về Price Action, các mô hình nến và mô hình giá phổ biến trên thị trường 2 – Strategies: cuốn này nói về 10 system tương ứng với 10 mô hình Price action được nói đến trong cuốn 1 3 – Master: kết hợp mô hình giá với các Indicator, cách nhận diện Trader bị mắc bẫy và cách tận dụng nó để kiếm lợi nhuận,v.v
2 ND EDITION www.tradingsetupsreview.com Day Trading with Price Action Volume IV: Positive Expectancy Galen Woods Trading Setups Review Copyright © 2014-2016 Galen Woods PDF eBook Edition Cover Design by Beverley S www.tradingsetupsreview.com i Copyright © 2014-2016 by Galen Woods (Singapore Business Registration No 53269377M) All rights reserved First Edition, September 2014 Second Edition, April 2016 Published by Galen Woods (Singapore Business Registration No 53269377M) All charts were created with NinjaTrader™ NinjaTrader™ is a Registered Trademark of NinjaTrader™, LLC All rights reserved No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, without written permission from the publisher, except as permitted by Singapore Copyright Laws Affiliate Program If you find this course to be valuable and wish to offer it for sale to your own customers or readers, please contact Galen Woods to be an affiliate and get a percentage of each sales as commission Contact Information Galen Woods can be reached at: Website: http://www.tradingsetupsreview.com Email: galenwoods@tradingsetupsreview.com www.tradingsetupsreview.com ii Disclaimer The information provided within the Day Trading with Price Action Course and any supporting documents, software, websites, and emails is only for the purposes of information and education We don't know you so any information we provide does not take into account your individual circumstances, and should NOT be considered advice Before investing or trading on the basis of this material, both the author and publisher encourage you to first seek professional advice with regard to whether or not it is appropriate to your own particular financial circumstances, needs and objectives The author and publisher believe the information provided is correct However we are not liable for any loss, claims, or damage incurred by any person, due to any errors or omissions, or as a consequence of the use or reliance on any information contained within the Day Trading with Price Action Course and any supporting documents, software, websites, and emails Reference to any market, trading time frame, analysis style or trading technique is for the purpose of information and education only They are not to be considered a recommendation as being appropriate to your circumstances or needs All charting platforms and chart layouts (including time frames, indicators and parameters) used within this course are being used to demonstrate and explain a trading concept, for the purposes of information and education only These charting platforms and chart layouts are in no way recommended as being suitable for your trading purposes Charts, setups and trade examples shown throughout this product have been chosen in order to provide the best possible www.tradingsetupsreview.com iii demonstration of concept, for information and education purposes They were not necessarily traded live by the author U.S Government Required Disclaimer: Commodity Futures Trading and Options trading has large potential rewards, but also large potential risk You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets Don't trade with money you can't afford to lose This is neither a solicitation nor an offer to Buy/Sell futures or options No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site The past performance of any trading system or methodology is not necessarily indicative of future results CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDEROR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN www.tradingsetupsreview.com iv Contents Chapter - Introduction to Positive Expectancy 1.1 - Definition of Expectancy 1.2 - Definition of Winning Probability 1.3 - Probability versus Reward-to-Risk 1.4 - Beyond Price Action Analysis 16 1.5 - Conclusion 19 Chapter - Stop-Loss 21 2.1 - Initial Stop-loss 23 2.1.1 - A Method for Losing Small 25 2.2 - Trailing Stop-losses 27 2.2.1 - Price Action Setups 29 2.2.2 - Support and Resistance 31 2.2.3 - Market Volatility 33 2.3 - The Wrong Way to Place Stop-losses 37 2.4 - Consistency of Stop-losses 41 2.5 - Conclusion 42 Chapter - Targets 43 3.1 - The Importance of Profit Targets in Day Trading 44 3.1.1 - Trailing Stop-loss 44 3.1.2 - Profit Target 44 3.2 - Finding Targets 49 3.2.1 - Support and Resistance 49 3.2.2 - Price Thrust Projection 53 3.2.3 - Price Channels 59 www.tradingsetupsreview.com v 3.2.4 - Volatility Projection 67 3.3 - Exiting with a Reversal Signal 70 3.3.1 - Anti-climax Pattern 71 3.3.2 - Merged Congestion Zone 74 3.3.3 - Additional Notes 79 3.4 - Targeting Examples 81 3.4.1 - FDAX 10-Minute Example 82 3.4.2 - ES 10-Minute Example 85 3.4.3 - 6J 10-Minute Example 89 3.4.4 - CL 3-Minute Example 92 3.5 - The Wrong Way to Place Targets 98 3.6 - Conclusion 99 Chapter - The Meaning of Likely 101 4.1 - How to Assess the Probability of Winning 103 4.2 - Conclusion 106 Chapter - Achieving Positive Expectancy 108 5.1 - The Split Second 110 5.1.1 - R2R Indicator 113 5.2 - Complete Trading Examples 117 5.2.1 - CL 4-Minute Example (14 April 2014) 119 5.2.2 - CL 4-Minute Example (1 May 2014) 126 5.2.3 - CL 4-Minute Example (5 May 2014) 133 5.2.4 - CL 4-Minute Example (12 May 2014) 146 5.2.5 - CL 4-Minute Example (15 May 2014) 156 5.2.6 - FDAX 3-Minute Example (8 August 2014) 164 5.2.7 - FDAX 3-Minute Example (31 July 2014) 171 www.tradingsetupsreview.com vi 5.2.8 - FDAX 1-Minute Example (20th November 2015) 180 5.3 - Managing Trades for Positive Expectancy 190 5.4 - Conclusion 194 Chapter – The Analytical Cycle 196 6.1 - Establish Rules and Guidelines 199 6.2 - Record Ongoing Analysis 202 6.2.1 - Thought Process for Basic Analysis 203 6.2.2 - Written Analysis as a Tool 205 6.2.3 - Tools for Recording 212 6.3 - Classify Trades 214 6.4 - Review Trading Records 219 6.4.1 - The Holy Grail 220 6.4.2 - Measuring Expectancy 224 6.4.3 - Computing Drawdown (for Position Sizing) 232 6.4.4 - Improving Expectancy 239 6.5 - Refine Trading Rules and Guidelines 253 6.6 - Conclusion 254 Chapter - A Risk-Based Approach to Trading 255 7.1 - Identifying Risks 256 7.2 - Risk Management Card 260 7.3 - Financial Risk 263 7.3.1 - Trading Capital 263 7.3.2 - Living Expenses 265 7.3.3 - Currency Risk 267 7.4 - Operational Risk 269 7.4.1 - Trading Computer 271 www.tradingsetupsreview.com vii 7.4.2 - Electricity 273 7.4.3 - Internet Connection 274 7.4.4 - Broker 276 7.4.5 - Trading Platform 280 7.4.6 - Execution Process 281 7.4.7 - Trading Environment 283 7.4.8 - Minimise Risk by Keeping It Simple 284 7.5 - Psychological Risk 285 7.5.1 - Psychological Foundation 289 7.5.2 - Practical Strategy 292 7.5.3 - The Final Determinant 303 7.6 - Integration of Risks 303 7.7 - Conclusion 305 Chapter - End of the Beginning 307 www.tradingsetupsreview.com viii Chapter - Introduction to Positive Expectancy The expectancy of a trading setup refers to the expected outcome of taking that setup many times over a long period of time The sole aim of every trader is to take setups with positive expectancy in order to accumulate profits Otherwise, your trading capital will be depleted in a matter of time Having a positive expectancy is also referred to as having a trading edge Conceptually, it is akin to a casino’s edge Over a large number of bets, the casino expects to make a profit at the gamblers’ expense As profit-driven traders, positive expectancy is everything The difference between us and the casinos is that their edge is rooted rock solid in statistics They have rigged the games in their favour, and they know it They can even prove it As for us, we are trying to rig the game, not quite knowing if we have succeeded It is a much tougher play for traders So, if you can get over the legal issues and possibly moral qualms, I suggest that you open a casino rather than day trade futures When it comes to trading, there are numerous topics covering strategies, indicators, setups, entries, exits, risk management, psychology, software, hardware, and many others Ultimately, these pieces should fit together to help you take trading setups that exhibit positive expectancy Positive expectancy is the single most important concept in trading Hence, it is essential that every trader has a thorough understanding of it and see how the different parts of a strategy www.tradingsetupsreview.com Chapter - A Risk-Based Approach to Trading Traders working in a bank or a proprietary trading firm must trade and must be profitable Or else, they will be asked to go While they enjoy superior infrastructural and financial support, they face immense pressure to perform on other people’s terms Even when they are not in the best condition to trade, they have no choice but to risk it That circumstance is obviously suboptimal However, as individual traders, our greatest advantage is the ability to choose whether or not to trade We have no organisational pressures upon us We have every reason to make full use of this flexibility By choosing not to trade when you are not feeling up to it, you gain a clear advantage over institutional traders “You have power over your mind - not outside events Realize this, and you will find strength.” Marcus Aurelius, Meditations You trade only when you are emotionally prepared You trade when you are “in the zone” Institutional traders trade because they are expected to They trade even when they are not “in the zone” Who you think will better? This is exactly why you must exercise the option of not trading when you are not emotionally ready Don’t feel compelled to trade If you feel compelled to trade, you are giving up a key advantage over institutional traders Given their superior technical resources, this is an advantage you cannot afford to waste Hence, the first step is to learn to stop trading when you are scared and don’t know why www.tradingsetupsreview.com 294 Chapter - A Risk-Based Approach to Trading The next step requires us to embrace our fears Think about the reasons behind your fear Given that you have worked your way to this final part of the book, finding the answer should not be difficult In the sections below, you will find sample entries of a Trading Emotion Journal www.tradingsetupsreview.com 295 Chapter - A Risk-Based Approach to Trading Entry Why am I scared? I am scared that the next trade will be a loser I want it to be a winner But I know that the market cannot guarantee that it is a winner So why am I hoping for something that the market cannot give? Because if the next trade is a loser, my trading account will fall below the minimum amount I need to trade Clearly, this fear stems from a lack of trading capital How should I respond to this fear constructively? Stop trading and build up more risk capital Resume trading only after you’ve accumulated sufficient risk capital Alternatively, look for a market that I can trade with less capital (for e.g micro lots in spot forex) A destructive response would be to continue trading and exit once my position shows a small profit Exiting with a small profit might increase my winning probability However, due to a proportionately larger decrease in my reward-to-risk ratio, the expectancy of each trade would decrease www.tradingsetupsreview.com 296 Chapter - A Risk-Based Approach to Trading Entry Why am I scared? I am afraid that if I exit now, I might lose out on a huge chunk of profits I want to exit at the best possible position and get the largest possible profit But I know that there is no perfect exit More importantly, I know that I not need the perfect exit to achieve positive expectancy So why am I hoping for the perfect exit? Because I saw that in my previous trade, the market went much further than I targeted and I missed out on a huge chunk of profits This fear of losing out (or greed) is the result of a single recent experience How should I respond to this fear constructively? I should not change my trading plan because of one isolated trade Moreover, even if I want to change my exit plans, I have no idea how to Let profits run? But how? Should I push my target 20 ticks out? Should I push it to the next support level? Should I throw on a moving average and let it guide my exit? I have no real solution Hence, I should not change my exit plan, for now However, it might be a signal for me to start exploring if setting my targets more aggressively produces better results This is an excellent chance for me to implement virtual decisions (as discussed in 6.4.4 - Improving Expectancy) to test the impact of setting more aggressive targets www.tradingsetupsreview.com 297 Chapter - A Risk-Based Approach to Trading A destructive response would be to cancel the target order and attempt to let my profits run However, without a concrete plan dictating how exactly I should let my profits run, I would end up confused and doubting myself with every price tick www.tradingsetupsreview.com 298 Chapter - A Risk-Based Approach to Trading Entry Why am I scared? I did not get any trading opportunities in the earlier part of the session I am afraid that I might not get a chance to trade But I know that it is better to take fewer high quality trades than to take more low quality ones So why am I scared that I might not get a chance to trade? Because I feel that I am missing out on the market action How can I call myself a trader if I am not trading? The fear in this case originates from the thinking that a trader must be trading at all times How should I respond to this fear constructively? My objective is not to take trades My objective is to take trades with positive expectancy Hence, instead of being tempted by inferior setups, I should congratulate myself for being selective and look forward to the next high quality setup A destructive response would be to compromise my trading rules and take trades that are inconsistent with my trading strategy These are rogue trades that would inevitably lead me into self-doubt issues www.tradingsetupsreview.com 299 Chapter - A Risk-Based Approach to Trading The fears discussed above are clearly not exhaustive The objective of the three questions is to enhance your emotional awareness while trading Becoming aware of your feelings and asking the right questions can uncover a lot about your trading psychology Fear is obvious You can always detect it When you start to hope and pray, you are fearful When you start to hold your breath, you are fearful This is why the feeling of fear is the best starting point for monitoring our psychological risks and enhancing our emotional awareness The Ultimate Litmus Test In chemistry, a litmus test distinguishes acid from alkali with a single liquid drop In politics, it is a simple question to determine a candidate’s attitude towards contentious issues In both cases, a litmus test is a simple test with great clarifying implications A major theme in a trader’s emotional issues is the constant conflict between the trader’s desire for certainty and the market’s probabilistic nature Truly understanding and accepting the market’s probabilistic nature is the key to minimising your psychological woes Based on this understanding, I have formulated an ultimate litmus test to help you decide if you should be taking a trade The test has just one simple question Before taking each trade, ask yourself: Will I regret taking this trade if it turns out to be a loser? www.tradingsetupsreview.com 300 Chapter - A Risk-Based Approach to Trading This is a simple but powerful question It drills into the heart of your market understanding and your rationale/motivation for wanting to take each trade If you took a trade that was consistent with your trading plan, you should not regret taking the trade even if it results in losses A trader’s job is to execute his trading plan If you have done so, you have no cause for remorse The loss incurred is merely a necessary cost of your trading business Doing the right thing, taking the right trade, unaffected by your emotions, is something that is independent of the trade outcome If you understand the probabilistic nature of the market, you will understand this principle Thus, if you can answer “yes” to the ultimate litmus test, then you may take the trade “Every battle is won or lost before it is ever fought.” Sun Tzu, The Art of War However, if you rejoice with winning trades and regret taking losing ones, then you are not ready to embrace the probabilistic nature of the market You are not ready to trade In fact, you have the mind-set of a gambler The psychology of trading is similar to the psychology of gambling However, there is one profound difference A trader’s mind is geared towards allowing long-term expectancies to emerge Traders want luck to even itself out in the long-run, which means that individual outcomes are unimportant www.tradingsetupsreview.com 301 Chapter - A Risk-Based Approach to Trading On the other hand, a gambler’s mind is focused on not wanting the long-term expectancies to emerge Gamblers want luck to be on their side, and individual bet outcomes are important to them If luck evens out, the gambler will inevitably end up broke Let’s say that you took a trade that was consistent with your trading plan It resulted in a loss, and you regret taking it You should not regret taking a trade merely because it resulted in a loss Losses are expected Hence, if you regret taking that trade, you have not fully comprehended the probabilistic nature of trading You should not be trading Now, let’s say that you took a rogue trade that was profitable Despite the profits, you should regret taking it because it is a rogue trade It is inconsistent with your trading plan and you know that you will not be able to replicate such trades consistently After entering a trade, you should be proud that you have entered a good trade according to your rules and should not be praying for the success of the trade The key here is that if a trade is worth taking, it is worth taking regardless of its outcome ULTIMATE LITMUS TEST Will I regret taking this trade if it turns out to be a loser? Asking yourself this question will keep you from taking rogue trades and remind you of the probabilistic nature of trading www.tradingsetupsreview.com 302 Chapter - A Risk-Based Approach to Trading 7.5.3 - The Final Determinant Ultimately, the burden of managing psychological risks rests squarely on you, the trader The first step is to be truthful to yourself If you stay in denial and refuse to take steps to react constructively to your emotions, nothing can help you Indeed, there are various methods to manage trading psychology like getting a trading buddy/mentor, using computers to control your risk with hard limits, and even with neuro-linguistic programming Yet, no method is impervious to your overriding You can stop employing these methods as quickly as you adopted them You, the trader, are the final determinant PSYCHOLOGICAL RISKS Start a Trading Emotion Journal (Template included in the Toolkit) Employ the Ultimate Litmus Test Be truthful to yourself 7.6 - Integration of Risks Up to this point, we have been discussing each risk in isolation for clarity However, in reality, risks are often inter-related To understand the overall risk context, we need to pay attention to the relationships among the different risks www.tradingsetupsreview.com 303 Chapter - A Risk-Based Approach to Trading This is hardly a new concept Throughout the book, as we speak of assessing trade risks, we also discuss how psychological risks might affect them A good example is found in Chapter 2.3 The Wrong Way to Place Stop-losses, where we discussed how the fear of losing can affect our stop-loss placement In particular, you will find that psychological risk is deeply integrated with other risks The following are classic examples showing how financial risk is tied to emotional risk We have discussed using a simulated drawdown figure as our basis for computing the amount of trading capital we need However, that is only the statistical aspect The amount of trading capital we need to trade also depends on our emotional considerations Your trading capital must be large enough so that consecutive losses not take a toll on your emotions Even if your trading capital remains statistically healthy, if you become afraid because of the magnitude of drawdown, then you might need a larger amount of trading capital The same influence runs the other way If you have a technically sound position sizing model that you truly understand, it is less likely that you will experience stress when you suffer drawdowns We have also discussed the issue of living expenses and the risk of volatile income for full-time traders Traders who are stressed by insufficient income are more susceptible to their emotional whims When you feel the heat to earn more or enough to pay the bills, it’s easy to get tempted to overtrade and take on a large (unsafe) position size www.tradingsetupsreview.com 304 Chapter - A Risk-Based Approach to Trading Understanding how risks are integrated will only come with actual trading experience However, this is an important area to bear in mind as you design a risk-based trading approach 7.7 - Conclusion First, deal with intrinsic and external risks separately Remember that external risks not give you any trading edge They merely prevent your trading edge (if any) from deteriorating Hence, manage your intrinsic risk first and make sure that you have the ability to find trades with positive expectancy Next, recognise that risk management is a process There is no destination You need to constantly evaluate the effectiveness of your controls You also have to watch out for new risk factors that might warrant intervention Even for the risks that you have decided to accept, you need to continue monitoring them in case they increase to an extent that you find unacceptable Moreover, your access to resources (financial, technological, and intellectual) might change over time Some risks might become harder or easier to mitigate This might cause you to re-evaluate your original risk decisions I recommend performing a risk review (i.e update your Risk Management Cards) every two to three months I am not professionally trained to manage risks in the way enterprise risk managers or actuaries are In addition, I am not an expert with computers, statistics, or psychology The perspectives above are simply how I think about the various risks I face as a professional trader While they are generally applicable to individual traders, as I have mentioned time and again, you must consider them within your own risk environment www.tradingsetupsreview.com 305 Chapter - A Risk-Based Approach to Trading Remember that the best traders are often the best risk managers Risk-Based Trading Manage your financial and operational risks with Risk Management Cards Start a Trading Emotion Journal and react constructively to your emotions Review your risk management measures every two to three months www.tradingsetupsreview.com 306 Chapter - End of the Beginning We have reached the end of the book However, it is really just the beginning for some of you Depending on your level of trading experience, you would have picked up varying ideas from this series For new traders, I’m sure that this book and the Toolkit contain everything you need to start day trading with a realistic and sound foundation For experienced traders, I’m certain that you will be able to integrate at least some of the price action concepts into your trading The Toolkit documents were built with Microsoft Excel which is a common yet powerful software This is so that you can adapt it for your own use easily I expect you to agree with some parts of the trading framework we discussed and disagree with others That is great, and unsurprising Most successful traders I know are fiercely independent It also shows that you have been engaging the ideas actively I hope that you’ll continue to learn and evolve as a trader I have benefitted immensely from writing this series It has allowed me to crystallise my trading approach and improve my trading performance I want to thank you for giving me this opportunity “We cannot teach people anything; we can only help them discover it within themselves.” Galileo Galilei www.tradingsetupsreview.com 307 Chapter - End of the Beginning Galileo got it right I am not teaching you much Ultimately, you must find the successful trader within yourself I wish you all the best in tackling the challenge of day trading with price action www.tradingsetupsreview.com 308 .. .Day Trading with Price Action Volume IV: Positive Expectancy Galen Woods Trading Setups Review Copyright © 20 14- 2016 Galen Woods PDF eBook Edition Cover Design by Beverley S www.tradingsetupsreview.com... 42 Chapter - Targets 43 3.1 - The Importance of Profit Targets in Day Trading 44 3.1.1 - Trailing Stop-loss 44 3.1.2 - Profit Target 44 3.2 - Finding Targets 49 ... 2 14 6 .4 - Review Trading Records 219 6 .4. 1 - The Holy Grail 220 6 .4. 2 - Measuring Expectancy 2 24 6 .4. 3 - Computing Drawdown (for Position Sizing) 232 6 .4. 4 - Improving Expectancy