Video 07A: Starting Out as a Trader

* False beliefs * What is the big picture? B L S H! * Chart types, time frames

False beliefs

1. There are perfect trades

• Perfect trades cannot exist.

  • there are no secret of best setups

  • there are no golden goose for great traders

  • there are no best trades

• No one has secrete, no great setups

• No quick, easy way to be wealth

Because the other side is great institutions in the market.

Most buys and most sells are only 40% profitable.

2. There is a best time to enter

• Volume of every bar is big

  • some people buy/sell at high volume bars.

  • but institutions sell and buy whole day.

  • Institutions see reasons to buy and sell all day long.

• if yo miss the 1st entry, there are countless other entries.

  • There's no best entry.

  • The key is to learn how to read the charts.

  • So you can see the reasons why institutions sell and buy.

What is the Big Picture? (Buy Low Sell High)

Big Picture

1. Bull Trend

• Buy at support, and sell at resistence

• But in a bull breakout:

  • Market races to resistance.

  • All minor resistance will fail. Market will breakout a lot of resistance, to the next or even go higher.

  • Find any reason to get long.

2. Bear Trend

• Buy at support, and sell at resistance.

• But in bear breakout:

  • Market races to support.

  • All minor suppot will fail.

  • Find any reason to get short.

Management is the key

• Enter strong breakouts immediately. It's good to enter as early as possible.

• If you do enter late, riske becomes higher, downsize your trade. Make a small trade.

  • make sure to use the correct stop.

  • If you buy entry is late, but your stop should always at the same place.

  • As your risk is getting higher reduce your entry size.

Beginners believe

• Trading is easy.

• I can borrow my past experience here.

• Only need to learn some candle patterns.

• There are secrets, perfect setups.

Beginners discover

• Hard work does NOT guarantee getting paid.

• You are competing the smartest people in the institutes.

• No perfect trades

• Everyone's edge is small

• Candlestick patterns are fraud.

  • you need context

  • you need management

  • you need evaluate probability

What should I trade?

• Trading is genetically base, it works for all markets.

  • logical

  • rational

  • human behaviours.

• Traders are using same techniques

• All markets trade well

• Different markets all react to the same News.

• They trend at the same time (but not the same direction)

There is only ONE market

All financial markets are co-related.

One moves up, the other moves up. Or the other moves down.

Chart types

What type of chart?

1. Price action techniques work on all charts.

2. It's good to start with 5 minute chart.

3. Try to avoid any chart with more than 20 bars per hour.

   1. Because there are too many information on the chart

   2. You have too little time to read the information and make the correct decision.

   3. If you think you can trade on 1 minute chart? It only means you are not able to read enough information from the chart.

4. Price action trading on all different chart are the same.

Time frames

What time frame?

1. Trade the lowest timeframe, what you can comfortably and consistently making profit on it.

2. If you trade to small timeframe, you will make a lot of mistakes.

3. Scalpers: hold 1 -- 5 bars.

4. Swing Traders: hold 5 -- 20 bars.

You should always wait 5 -- 10 bars and a good number of ticks, otherwise it's just too hard to make money.

Look for highest time frame

1. Goal of reversal is TBTL: 10 bars, 2 legs.

2. Look at highest time frame where pattern is present, and has legs lasting 5 -- 10 bars.

• If the 5-minute chart has a wedge,

• and it takes place over 100 bars.

• and there's also a wedge on the 60-minute chart

• and each leg is 5 -- 10 bars

Then I'll look for 10 bars correction on a 60-minute chart, so a day or two of a correction.

Example for TBTL: wedge bottom on 5 min

5 minute chart

60 minute chart

If I see 5 minute chart, seems like there will be a reversal.

But the whole wedge has too many bars over there.

I need to switch to a highest timeframe possible chart, which I can see the wedge still, and each leg of the wedge are roughly 5 -- 10 bars. Then that's the "highest timeframe possible".

So this time frame is the most suitable time frame.

If I'm going to trade this Wedge Reveral pattern, I DON'T trade on 5 min chart, because there are over hunderds bars on each leg.

Instead, I need to trade the chart with time frame, where I can see 5 -- 10 bars on each legs. That time frame is suitable for trade this Wedge Reversal pattern (i.e. 60 min chart).

The purpose of this slide, is to tell you which time frame is suitable for trade your pattern/price actions.

Otherwise, when I trade this wedge reversal pattern on 5 min chart, I'm more likely to exit too early.

If I enter at the green bar on 60 min chart instead, then I won't exit too early on the 5-minute timeframe chart.

Avoid quiet time

I won't trade on the left chart:

• The trading range is too small

• The chart is too quiet

But if I do want to trade,

• I can choose to trade on 60-minute chart, which is more appropriate.

• Or I can choose other market to trade.

Why not use small time frame?

The benefit is the bar is small, so the move is small, then the risk is small.

Even if the pattern looks alright, but the profit is too small.

You are compete with High Frequency Trading machines.

1 minute chart?

It doesn't matter the bars are small, the risks are low, it matters you don't have time to take trade, so you are more likely to make wrong decision, accumulation of 1-minute chart small losses trades, you will lose a lot in a day.

What's the alternative?

If you make a great profit consistantly, you should increase your trade size, rather than trying to trade 1 minute chart.

Slippage

Don't be afraid of it. As long as you trade major stocks.

Exchange sometimes make mistakes in their time & sales chart.