# Simple Trading for a Job



## sinner (4 December 2009)

Hi guys,

Some of you might have seen my thread in the forex section called trading chaos, I am going to start a new thread here for index trading, but via a much simpler technique (which the other thread encapsulates but does not rely on).

*Please note during this thread I might refer to a buy or sell signal and not elucidate the opposite it is up to you to connect the very big dots together and figure the opposite out.*

There will be no squiggly lines on the chart, except possibly for bollinger/stddev/atr bands to determine good TP levels. It is important to stress, we will be reading the PA directly. We are not interested in the trend (although this should be obvious to you: higher highs and higher lows make an uptrend, no moving average required to point that out!). We are interested in taking N number of ticks from the market for ourselves every day and walking away from the screen.

My inspiration for this thread is from a forex trader called feb, we are essentially using his technique which is a very old and common trader technique: fractal breakouts.

A fractal is a simple formation of PA (price action). That is, a buy fractal is generated by a 5 bar pattern of two lower highs, a higher high, followed by two lower highs. Here are two examples:

Sell fractal 
	

		
			
		

		
	



Buy fractal 
	

		
			
		

		
	




So you can see from above that a "buy fractal" is formed on the close of the 4th bar, as long as the close price remains below the high on the 5th price. The idea of fractal formation is to place a buy order 1 tick above the high of a buy fractal. So when the price breaks that high, you are first in line to see some action.

Now you might be saying to yourself, these formations occur all the time (and they do) how do you pick which one to trade the breakout of?

Well that is the next component in this extremely simple system: we wait for a swing. It depends a lot on the market as to what defines a swing, but generally it is the distance the price will move before other traders start to take profit or it runs into resistance or whatever. For example, the average swing for EURUSD is 30-40 ticks. I believe 30 ticks is a swing on the DAX. We don't mind if the swing is a little bit more or less than that, but if it is significantly less (no strong move) or significantly more (the move is too strong) then we can stay out of that swing.

Here is a swing and following fractal:




So you can see what the gist of the system is already. We wait for the price to move, and we make sure the movement is a solid one (swing). Then we wait for the price to pull back. During the pull back, we place a buy order one tick above the high of the fractal. This means that if the swing resumes its previous direction, then we are first in line testing the market to see if it will go higher.

Hopefully it all makes sense so far. If you feel lost, all the stuff I've covered is common floor trader knowledge and posted all over the internet. You can read up on it further before continuing.

Now we know which fractals we are interested (those at the edge of a swing) we will add one more simple tool to determine whether we want to be first in line to test the market, or leave it be.

This simple tool, many of you already know, it is the fibonacci lines. We are not interested in the fib levels specifically (except for 50%) but just because they give us a % idea of the pullback. So using what we know now:

1. Wait for a swing.
2. Price pulls back, fractal forms, we place our order above or below the fractal
3. Draw a fibonacci on the swing.

The fibonacci lines immediately provide us with information. We know the range of the swing, we know the halfway point of the swing, and we can roughly delineate (using 38 and 61 fib lines) where the 33 and 66% of the swing is.

Here is an example from todays market (I will not name the instrument, it is irrelevant):



Just from following the above steps using this example we can see we would already be interested in testing the market if it goes below the 0% line. But we must be patient and watch, with our order ready to go. If the pullback of the swing is more than 50% then it might be the start of a new swing and we best not test the market even if it goes below the 0% line later.

Here is an example of what I mean:



You can see in this case, after the swing, the price managed to retrace and close above 50% of the swing. So we are not interested in testing the market if it goes below the 0 line, we just wait for the next setup!


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## sinner (4 December 2009)

So I hope you are still following this method and it makes sense.

1. Identify swing
2. Wait for pullback and place order
3. Draw fib and watch the retrace closely, if it goes beyond 50-60% of the swing we are not interested in testing the breakout and remove our order.

Now assuming all these simple criteria are met, and the market continues its original direction after the pullback (so our order is filled), we should place a stoploss. The 50-60% zone is once again a great spot to put the *initial* stoploss. I bolded the term initial to get your attention, because we should never let this stoploss be hit (it is only in place to protect us from any unexpected crazy events). Always cut a trade as soon as it looks like a loser, there will be more setups before long! 

I want to go home now so I will post two quick examples (one good one bad) from today, people can try and digest the information and I will add more stuff on the weekend.

Bad trade:


So you can see in this above example, all the criteria are met, but as soon as we are filled, the price moves against us and continues to post higher closes. GET OUT. Do not let your stoploss get hit, cut your losers quick and wait for the next setup. 

Good trade:


In this example, the scenario is very similar. All the criteria are met, our order is filled, and the price moves against us. But you can clearly see it has trouble closing above our entry level, so we hold it. We are not looking to get in at the top of a new swing, or make a million dollars or whatever. Once the market has given us some ticks (maybe you want 5 times the spread or something, I like 10-20 ticks a day) we exit the position and walk away from the screen! If you think you are onto a really big move, just move your stoploss to breakeven and walk away (instead of cashing it in).

Alright, hometime guys. Hope you are interested in this concept, soon I will begin posting live trades to show you the technique in action.

The main thing to understand so far is that we are constantly testing the market, as soon as our criteria are met we are waiting to be first in line for the swing to resume its direction. Sometimes being first in line is the worst position and sometimes it is the best. We have a few tools to determine if we want to test at all, and the same tools determine whether we should stay in or out of a trade.


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## spongetom (4 December 2009)

Thanks for posting this. To be honest I dont know what half of it means as I am just starting out, but I plan on learning it.

A general question if you dont mind,
Are there tools to automate this to a degree, not the buying as such but the analysis, or at least alert when a swing is in process?

Id love to see the live trades in action, thank you for doing this.


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## sinner (4 December 2009)

Alright, here is one in action.

I am just using a DAX (German stock index) tracker CFD to show an example live trade, these might not be the greatest instrument to actually trade. Get a proper trading account if you want to trade for a job! Electricians don't skimp on rubber gloves.

As you can see, price action is thin/boring/slow all day during Sydney and Tokyo futures sessions but as soon as Frankfurt comes online the price produces an approx 30 tick swing quickly. We draw a fib from the swing low to high (because it is an upwards swing) - you can see on the price it goes from 5730 to 5760 before retreating to the 33-38% area. Maybe traders are trying to buy back their positions for cheaper, or it is a VSA upthrust, it doesn't matter to us.

As long as demand keeps the price above the 50% line we will be interested in buying 5761 (1 tick above the high) if the price goes there again. Well, it has to go relatively soon. If no setup happens before long, don't push it too hard, it might be better to wait for a new setup.

EDIT: OH YEAH! and ignore the squiggly lines! It's just an example!


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## sinner (4 December 2009)

Alright guys, as you can see from the clock in the screenshot all the European markets should be pretty much up and running by now.

In the last 15 minutes (this is a 5 minute chart) some demand came in to keep the price above the 50% level (doji closed just above it), but it did not rise much from there. So I have drawn a new fib, a downward swing from 5760-5740 we now become interested in a break of either of these levels (0% or 100%). If to the downside, we will short. If to the upside, we will long.


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## sinner (4 December 2009)

I have drawn this chart with both the second and first fibo levels, it is messy I know but only for illustration purposes.

The current M5 candle would have filled a short order assuming no slippage. Let's try it on, and maybe even add one on a break of 5739 being mindful the price can reverse on us right here (in fact it has a little as I type), do not stay in losing positions if it goes too far against you.


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## sinner (4 December 2009)

Shorts payed off. I draw a horizontal line at 10 ticks + 1 tick for spread we can take profit here and walk away for the day. If you want more it's up to you, can keep holding same position, or move stops to BE and take some off the table or trail a stop or whatever. Now that you got ticks, it's up to you. 

So in the end: 

We short from 5740.3 take profit or reduce risk or whatever at 5729.3.

Our work is done for the day, you can see in the screenshot it retreated from the line I drew but as I type it is going lower. We don't care anymore. The trend might reverse here or not or we might be riding for a bigger reward, but our WORK is done for the day. 10 ticks in an hour, not bad.


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## Wysiwyg (4 December 2009)

I'm not a fan of fibonacci extensions/retracements because I have found that prices do not honour the levels at all. Over or under or around, and a general guide at best so for me they are a bit Elliot Wavish and purely open to each viewers perception.  

Shall be interesting to see what you read into each level.


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## sinner (4 December 2009)

Oops forgot to add some important info:

There WAS a 5 or 6 tick +spread drawdown on the trade before it went in our favor. Not much more than that is tolerable! Obviously markets are volatile tonight before the unemployment figures out of the US.

Price Action was a bit too fast for us to add anything on at the outer 5739 but that would've yielded 10 ticks + spread too I believe.

Drawdown = ~5-6 = 2-3 times biggest spread
Profit = 5 times biggest spread


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## sinner (4 December 2009)

Wysiwyg said:


> I'm not a fan of fibonacci extensions/retracements because I have found that prices do not honour the levels at all. Over or under or around, and a general guide at best so for me they are a bit Elliot Wavish and purely open to each viewers perception.
> 
> Shall be interesting to see what you read into each level.




Thought I explained in the first post, we are only interested in the 50% level because it is 1/2 of the swing, the other two are just approx delineations of 1/4, 1/3 and 2/3 of the swing...yep I did... 

Only as a tool to measure the extent of the retrace from the swing....


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## Wysiwyg (4 December 2009)

sinner said:


> Thought I explained in the first post, we are only interested in the 50% level because it is 1/2 of the swing, the other two are just approx delineations of 1/4, 1/3 and 2/3 of the swing...yep I did...
> 
> Only as a tool to measure the extent of the retrace from the swing....



Yeah no worries mate.


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## yonnie (5 December 2009)

are you using feb`s system I or II on the daily or the 5 min charts?

he uses the fractals for the daily system I without a 50% retrace.

system II is without fractals, but a certain big move followed by a retrace on the 5 min chart and jumps in when price passes the former high/low.

am getting a bit confused which system you are using on what time frame ???


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## Kryzz (5 December 2009)

yonnie said:


> are you using feb`s system I or II on the daily or the 5 min charts?
> 
> he uses the fractals for the daily system I without a 50% retrace.
> 
> ...




I believe its the quicker timeframe (5m), as per the system II thread. I trade exactly like this with the euro and the aud. It gives plenty of opportunities to make trades, it all comes down to trade management as sinner alluded too, and knowing when to pull the trigger. The main thing i have learned re this method is to identify when a market is range bound asap, this style of trading will get slaughtered in a range bound market IMO.


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## sinner (6 December 2009)

yonnie said:


> are you using feb`s system I or II on the daily or the 5 min charts?
> 
> he uses the fractals for the daily system I without a 50% retrace.
> 
> ...




Try not to get hung up on the "system", feb was not exactly the first to have the idea and it isn't exactly a complicated one. The key ideals to be inspired by are PA trading, understanding order flow on your selected timeframe, simple+reliable setups and the ability to use this technique to trade for a job.

Timeframe is specified on the charts for the live trades. The example charts formations in post 1 and 2 don't have timeframe, they are just to illustrate a concept.



> The main thing i have learned re this method is to identify when a market is range bound asap, this style of trading will get slaughtered in a range bound market IMO.




I plan on trying to cover how to deal with this soon. From my knowledge, almost all markets spend 70% of their time ranging and 30% of the time trending, so we should probably get used to identifying those periods pretty quickly


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## yonnie (6 December 2009)

alright, thanks for clearing that up; was just wondering if we`re talking about the same man...............you are doing it differently, so that will be interesting.............please continue


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## sinner (6 December 2009)

yonnie said:


> alright, thanks for clearing that up; was just wondering if we`re talking about the same man...............you are doing it differently, so that will be interesting.............please continue




Maybe I am doing it differently (it's been a long time since feb even used "system 2" himself I believe), but the end result is probably the same, like I said in the first post I can think of more than a few common KISS systems that traders like to use which end up with orders in pretty much the same spots. The idea is to find something that happens over and over again on your chart and keep testing the market there. For example if you are familiar with system 2 you are probably familiar with Peter Crowns "DIBS" you can imagine a lot of the time setups I'm talking about here will appear as a bullish or bearish IB on the hourly chart?


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## yonnie (6 December 2009)

yes I am familiar with Peter Crown`s IB system and I even traded it myself. also the weekly BO on the GBP/JPY.

but the thing with breakout systems is that it only works a low percentage of the time - <40% of trades are successful.

a guy, james666 I think his name is, is a professional trading IB`s for the last 5-10 years and some years you will lose or breakeven; other years you`ll hit the jackpot.

I like to get paid regularly and am back trading the penny stocks like I did before the crash and very happy

if I would trade forex again, I would go for S/R trading on a higher TF, which will pay out regularly as well.

unfortunately no leverage trading the pennies.......


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## yonnie (6 December 2009)

I actually read feb`s system II a while ago.

what I mean that you seem to trade differently is that feb didn`t use fractals and fibs at all for system II.

just a quick move of 30/40 pips on the EUR/USD within a certain time, a retrace of up to 50-60% of those 30/40 pips and place a pending order at the previous high/low. I think he goes for 21 pips with a 20 pips stop.

its just a bit easier to understand the system without the use of fractals and fibs.

but your system might be even better, who knows

hope I`m not interrupting your flow.
over to you.......


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## Kryzz (6 December 2009)

sinner said:


> I plan on trying to cover how to deal with this soon. From my knowledge, almost all markets spend 70% of their time ranging and 30% of the time trending, so we should probably get used to identifying those periods pretty quickly





Looking forward to your posts regarding this.


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## sinner (8 December 2009)

Kryzz said:


> Looking forward to your posts regarding this.




I am waiting for a good example to come along.

Markets have been good today for this method. I have annotated a CFD SPI tracker with todays possible trades from the ASX open.

Maybe you think trading is some super complicated, difficult to understand concept. It is all about keeping things simple, identifying the order flow for your chosen market instrument for your chosen timeframe, and getting out as soon as things look sour.

By this method we can see a setup that re-occurs multiple times over any trading sessions, provides simple boundary conditions for a trade, exit parameters, etc. 

I have not included any more fibs for fear of confusing the thread even further. Fib is just a SIMPLE TOOL for us to quantify the strength of a pullback from the swing. Don't get hung up on it or the stupid fib levels! Have used thin red lines to indicate pending and filled orders. Thick blue line for initial stoploss.

Market open. Gutsy players could've been done by 11am:



The rest of us have to wait:





But eventually we can go home:


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## sinner (8 December 2009)

Very volatile on the DAX tonight, I did not trade but thought I better post some good trades while the getting is good, it's essential to see there WILL be losing days, but days like today can make up for it and then some.

Thin red lines are valid, filled trades for +10+spread. I included a couple of thick red lines as potential sell levels just to pique your curiosity.

Day in, day out, test the market. If you are more of a "catch a fire" trader than a "hit and run" trader then try this: when market hits +10+spread take off half your position and move your stoploss to -10. So if you get reversed on, your balance remains intact. If the trade is a runner you can let it run!


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## Kryzz (8 December 2009)

Sinner, what about using the fractals as stop points also, avoiding the costs of the spread when re-entering for a new fractal, or do you still prefer taking the 10 ticks and awaiting a new setup? Totally agree re your sentiment toward trading and keeping it as simple as possible.


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## sinner (8 December 2009)

Kryzz said:


> Sinner, what about using the fractals as stop points also, avoiding the costs of the spread when re-entering for a new fractal, or do you still prefer taking the 10 ticks and awaiting a new setup? Totally agree re your sentiment toward trading and keeping it as simple as possible.




Whatever works for you bro, like I said the main goal is secure some ticks then the exit strategy is up to you. I like the idea of taking a little bit home every day very much. Others like to trail. Some believe you've got to let every winner run. 
My opinion is that these are problems every trader would like to have: what to do with all those ticks. My advice: whatever works so long as you don't give them back to the market they came from.

If you are trading futs, spread is low anyway.


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## investorpaul (9 December 2009)

Hi Sinner

Great Thread!

A question I had a look at the system you mentioned and just played around yesterday/last night trading it in a demo account.

In your first post you mentioned to look for a certain pattern to be formed with the candles at which point the price then bounces. You set your fibs up and as long as it doesnt break 50% you wait for it to go one pt higher or lower (depending on whether you are short or long) than the previous low or high prior to entering the trade.

Do the pattern of the candles actually make a difference? I was looking last night and as long as there is a clear bounce and failure to reach the 50% fib and then a continuation of the initial trend then you could still enter the position 1 pt lower or higher than the previous high/low.

is the fractal pattern only needed to confirm that it is a sharper bounce and not just a slow move back up, which could invalidate the trade?

Looking forward to your comments.

P.S. I will be spend more time reading up on this over the w/e so forgive me if I have missed something


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## sinner (9 December 2009)

investorpaul said:


> Do the pattern of the candles actually make a difference? I was looking last night and as long as there is a clear bounce and failure to reach the 50% fib and then a continuation of the initial trend then you could still enter the position 1 pt lower or higher than the previous high/low.
> 
> is the fractal pattern only needed to confirm that it is a sharper bounce and not just a slow move back up, which could invalidate the trade?




Mate the clear bounce IS the formation of a fractal. How can the price bounce without forming a fractal?

As an exercise, hold your right hand up with the palm facing you. Your fingers will be the "candles".

Pinkie, ring finger are the swing, rude finger is the fractal high. Index finger and thumb are the pullback. Are you sure you understand this pattern?


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## fosezzle (18 February 2010)

Sinner,

any hints on how you personally identify rangebound markets? Pleeaaase


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## Trembling Hand (18 February 2010)

fosezzle said:


> Sinner,
> 
> any hints on how you personally identify rangebound markets? Pleeaaase




Volume moves markets.


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## fosezzle (18 February 2010)

Trembling Hand said:


> Volume moves markets.




I do appreciate that, TH, but not as easy to track with forex as far as my (probably limited) understanding goes. 

Was just curious about how Sinner deals with it relative to this particular "system"/thread.


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## Trembling Hand (18 February 2010)

fosezzle said:


> I do appreciate that, TH, but not as easy to track with forex as far as my (probably limited) understanding goes.
> 
> Was just curious about how Sinner deals with it relative to this particular "system"/thread.




Nah, that's not really true in relation to vol & forex. You have futures & ECN where volume is available.

Then its the same as every market as far as observing and figuring out range v trend. Look at what the "other" markets are doing? Equities, Commods etc. Is the money flowing or flip flopping?

As far as this system you will have to wait for sinner to reply I guess.


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## Porkpie (21 February 2010)

I trade a similar method as this but using the trader's trick technique of getting an entry in on the pull back and another above the fractal (eg. the high of the lowest low on a retrace of an upmove). You then take partial profits at the fractal. It is known that the pro's will sometimes whip the market up to prior fractal highs or lows, triggering stops and orders before dumping the market in the opposite direction. The traders trick will allow you to get out with a small profit or breakeven when this occurs. See attached. 

Sorry to digress.


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## tech/a (21 February 2010)

Nice explaination of the Ross Hook.
Have 4 of his 5 books.


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## fosezzle (7 March 2010)

Trembling Hand said:


> Nah, that's not really true in relation to vol & forex. You have futures & ECN where volume is available.
> 
> Then its the same as every market as far as observing and figuring out range v trend. Look at what the "other" markets are doing? Equities, Commods etc. Is the money flowing or flip flopping?
> 
> As far as this system you will have to wait for sinner to reply I guess.




Not so much a reply to TH, but as a sidenote just wanted to let peeps know that if you want live forex volume data and your market maker doesn't offer it, you can sign up to MB Trading's demo account and download metatrader 4. Simply a matter of right clicking and selecting "Volumes". You will have to subscribe to the newsletter, but I'd consider free volume data worth a little junk mail.

Now to the challenge of reading VSA accurately and not applying it to every single bar... Btw TH, I've studied a bunch of the Tradeguider videos and have learnt a bit about VSA, but if you have any other resources you could recommend relative to volume, I'd be grateful. If not, feel free to tell me to shutup and do my own research. :

(Sorry to mildly digress from Sinner's thread/system).


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## sinner (7 March 2010)

Hi guys,

Sorry I completely forgot about this thread. The British Pound has been keeping me busy.

I am aware of the Ross Hook entry but don't like it. I like to trade the markets structure, which means waiting to be first in line on specific high/low breaks as outlined repeatedly here. Pros bla bla bla is outside of my understanding of the market structure.

Will try and show some ideas about ranging market soon.


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