There are quite a few conclusions which I can take away from TheRoninTrader Project. I’ve learned what are my strengths and weaknesses in short term trading.

I will provide the link to the new trading project in a separate post.

(photo source: Reuters)

Trade signals:
Entry signals are provided by countertrend micro trendline breakouts with the trend indicated by the EMA20.
Short entry:
The bar breaking the pullback’s trendline is the signal bar. First entry is taken below the low of the signal bar. Second entry is taken at the low of the bar that has a higher low following the first entry bar. On the following charts I labelled first entries with 1 and second entries with 2.
Stop loss:
Initial stop at the top of the signal bar but not smaller than 1.5 points which is roughly 1.5 times the average true range of the last 200 bars (5 minutes). The logic behind limiting how close you put the initial stop is that an intra-bar pullback followig the breakout may kick you out of the position just before the price would move into profit.
Exit:
A short position is closed above the highest high of the last two bars prior the current bar.

1. The first signal came two hours after the open with an initial risk/reward of slightly better than 1:1 (measuring to the previous price extreme as a target). Exit signal came 11 bars later with a 4.60 pts profit. The second entry also offered a profitable trade with slightly less gain but the risk/reward was still close to 1:2 ex post after the price reached a new low. The small gap lower after the signal indicates that the entry was hard to execute without a few ticks slippage therefore the second entry was a safer trade to take.
2. The second trade offered an better risk/reward (nearly 1:3) while the second entry had a bit less profit. Should have been a pretty straight-forward trade to execute while two bars with long lower tail were giving an early warning for taking profit.
3. Trading the third signal would have been a bit tricky. While the first entry was not looking very decisive the the second entry was nearly at the same price level. Moreover the bullish bar after the first entry would have trapped out most of the traders entering short on the breakout so the second entry again had a better chance. I have to admit that after that long bullish trend bar against the setup taking out the high of the previous three bars I would have hesitated entering short.
4. The fourth trade had a nice signal with a bearish pin bar touching the EMA20 with a long bearish trend bar for the entry. One can argue that the pin didn’t break the micro trendline but the position and form of the setup bar was convincing enough in my view.

To sum it up, it was a study book example of a trend-from-the-open day with four trades with two of them require some discretionary judgement. I don’t think that there is problem with that. As long as there is a sound position management is place (i.e. stop loss) an experienced trader can trust his/her own gut feelings. As Al Brooks writes in his book, “close enough is good enough” when evaluating a pattern.

Bar1: entered long for a continuation trade on a bullish trend bar following a 3-bar consolidation.
Bar2: full position stopped at trailing stop with 7.50 pts loss and I reversed the position on the same bar selling short. Trapped out and trapped in. Big mistake. It was a failed break of the micro trendline. Bar3: short stopped with 10.60 pts loss.
Bar4: short entry at trendline resistance.
Bar5: stopped with 12.50 pts loss.

Doesn’t look good so far. Both my short entries were micro trendline failed breakouts. Bar6: short entry on lower high

Bar7: stop with 11.70pts loss
Bar8: H2 short entry
Bar9: stopped out 11.20 pts loss

Dreadful day. I was clearly on the wrong side of the market. Average loss was 10.59 pts without a single winning trade.

Bar1: long entry on an inside bar breakout
Bar2: sell half of the long position, loss 8.20 pts
Bar3: exit swing part of the trade when trailing stop hit, loss 15.00 pts
Bar4: long entry on breakout after pullback, closed half on the same bar with 10.00 pts profit
Bar5: traling stop hit for remaining long, 4.30 pts loss
Bar6: missed long signal where I should have faded the EMA on a 2HM (2 hours away from the EMA trade)

At this point I had to realize that my entries were late and the trades we slipping away after the setups.

Bar7: long entry on a break above a bullish reversal bar
Bar8: closed half of the long after bearish pin bar with 4.30 pts profit Bar9: trailing stop hit for the second half of the long loss 3.00 pts loss Bar10: missed bullish setup
Bar11: short entry on reversal below the channel line
Bar12: took profit on first half with 4.00 pts profit
Bar13: stop loss hit 0.80 pts profit
Bar14: short sestup with pullback after a long bearish reversal bar
Bar15: long entry after break above doji at the trendline support
Bar16: full position stopped out on the same bar with total loss of 12.50 pts

A tricky day with 36.40 pts total loss and 4:6 win/lose ratio. I have to make note of the three good setups (Bar6, 10 and 14) that I didn’t trade.