Trading: A Deeper Understanding

Trading: A Deeper Understanding

Here below, the market action, July 18th, 2019, US OIL (WTI).

As we see so very often, a rise and then a fall. No alt text provided for this image

The similar pattern, inverted, is as common (a fall and then a rise).

In WTI, the ideal outcome is to earn as it rises and earn as it falls.

To try to accomplish that on a 4-hour chart might be difficult, as the US Oil market turns swiftly and sharply... by the time you get a signal for a buy, the market is dropping already.

I am not saying that no trades can ever be taken on H4.

I am saying that you have to choose your market well, a market particularly suited for H4.

I specialize on US Oil and the way I trade is not suitable for H4 trading, and yet I have colleagues of mine who are doing great with 2-hour and 4-hour and daily charts.

But that was never me and will most likely never be me.

I have learned to trade according to my temperament and personality and those are much better suited for short-term trading, and the market best for me is West Texas Intermediate.

The process of first figuring out who you are and then which market is best for you, is treacherous and often leads to a sense of doom, as novice traders are not good traders yet and so, they keep changing their methodology (if they have one) and they keep jumping into new and different markets. Bad idea.

It takes years for a person to finally isolate they type of trading they wish to practice and perfect and it takes a few more years to adapt to the characteristics of the individual.

Any company or person who tells you that you can become a pro trader in 6 months is probably not telling you the whole truth.

Down below, we see of partial screenshot of my setup.

On the left, the WTI on S30 (30-second chart) with one indicator.

On the right, the same WTI but on S15 with 2 other indicators.

I need to see a confirmation on those two different timeframes and sets of indicators.

First image down below is the rise we had at first in the early morning hours (NY time).

The second image further down is the fall we had, which followed the rise.

No alt text provided for this image


In the graph above, we see on the left side of the image, how the indicator goes from negative territory to positive territory.

Anything well below those two red horizontal lines, is a signal that selling pressure is much greater than buying pressure.

Anything well above those two green horizontal lines, is a signal that buying pressure is much greater than selling pressure.

In this example of market action today we see clearly a shift from negative to well into positive.

As long as the fast indicator line (chart on the left, above) is well above the two green horizontal lines, we are not thinking of a short at all.

Then, on the chart on the right side, two other indicators.

The top indicator is different and gives us the outline of up move, consolidation, downmove and consolidation.

On the top indicator, we see two yellow vertical lines.

Those are the two entries for a buy trade.

We close each buy trade as soon as the fast indicator line crosses back into the slow indicator line.

Could we do this type of trading on H4? Never in a million years.

The bottom indicator on the image above, is a study on volume

Here, this study gives us a representation of each spike in volume.

When we see that the purple and cyan lines on this indicator, rise above a minimum level, then we have significant spike in volume, likely to affect the market.

On the image above, the bottom indicator gives us three such spikes.

The first one is insignificant and the next two are much more meaningful.

They precede just a little bit each up move.

Therefore, here, we use volume and this study on volume, as a leading indicator.

Once the market confirms the actual up move with the top indicator, we know that we have a solid trade, here, two buys as mentioned earlier.

As soon as the purple and cyan lines of the volume indicator go back down below the yellow horizontal line (minimum level) then we know that volume is falling significantly and this usually signals the end of the trade, and acts as an additional confirmation.

No alt text provided for this image


In this image above we see how the upmarket became a downmarket.

We ended up traveling to a price point much further down than where we were at the start of the day.

The rise permitted or allowed or facilitated the fall.

The traders who take a buy trade and stay in it, thinking that the market will rise the entire day, will most likely have a loss.

You need to be able to determine the twists and turns of the market.

If not, it leads to financial suicide.

Again, on the image above, we have two windows, S30 on the left and S15 on the right.

We use the same criteria and employ the same set of rules in order to determine entry and exit.

The two down trades (sell trades or shorts) are confirmed visually with the top indicator on the right side window and the info given by the study on volume shows us how there is much more volume on the final down segment.

As soon as the fast signal line of the top indicator on the right side, slows down and turns up into the slow indicator line, we close the sell trade.

This methodology is not the only one or the best one but it is the one I have been using for the last 15 years.

I know lots of people who trade in all kinds of ways.

Whatever works for you is whatever you should use.

How to know?

By your daily and weekly and monthly P/L (Profit and Loss numbers).

One trader I know recently said on LinkedIn that it is bad taste to show a P/L number.

I personally do not agree or disagree but one thing is certain...

It is only by measuring your performance that you are able to understand if what you do makes sense or not.

If the P/L is bad, consistently, even if you are certain that you have the Holy Grail you definitely need to make small or substantial changes.

You must be honest with yourself and you must assess and reassess yourself and your attitude and your decision-making and your emotional reactions, constantly.

This is how, eventually, you will learn and improve and develop your own methodology.

 

Good luck,

Francois Normandeau

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  • Robin Olsson

    Everyone can become a trader but only a select few can survive in the wild.

  • Alice Lacey

    Refreshing perspective from a veteran trader !

  • William Macrae

    No bullshit... Straight Facts.....

  • Scott Adair

    You have hit the nail on the head

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François Normandeau

Finance Guru

François is an institutional US Crude Oil trader with over 18 years experience. He is also working with startups, helping them secure investments. He is an active real estate investor, in Europe and North America and has a special interest in the tokenization of real estate as well as other tangible or intangible assets. He holds a degree in psychology and finance from McGill University. He lives and works, south of Barcelona and north of Boston.

   

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