Dave from Sydney's Journal [Awarded Title: the Box-Trader]

[Dave]

Hi Ben, welcome to AIMS.

Thanks for your question, I'll do my best to explain it succinctly.

eWave/AIMSwave gives a visual representation of where we are within a cycle of Elliott Wave. It enables us, with one glance, to see the structure of the price action and therefore, what we may see next in order to complete the Elliott Wave cycle. We want to be trading into 3rd and 5th waves (impulse waves) and avoiding 4th waves like they are the plague. If we happen to enter a trade during 1st wave, then 2nd wave is most often a very small correction (and one that would not see an adequate retrace to make us close) before price moves into the juicy 3rd wave. It is difficult to see 1st and 2nd wave on the eWave as they most often occur very close to the zero line, they are not labelled and they are very small.

Essentially, when I look at eWave I am looking for the following things:

1. On the current timeframe, has eWave recently crossed the zero line and is it now crossing back in the direction of the intended trade? If yes, good.
2. On the current timeframe, do we see a completed W3, W4 and W5 cycle? If yes, no entry. If we are waiting for a price movement and for this cycle to begin then we are most likely to be entering into the 3rd or 5th wave, depending on what has gone before us. If we already see a completed cycle, be wary and stay out, you've missed it.
3. On the higher timeframe, do we see a completed W3, W4 and W5 cycle? Or do we see that we are within a 3rd wave or 5th wave? If you can already see that 3rd and 5th wave on the current timeframe is formed, and 3rd wave on the higher timeframe is formed, then we need to wait for 4th wait to be completed (cross of zero line) on the higher timeframe before thinking of entering looking for another 3rd wave on current timeframe. The best entries have eWave crossing the zero line in favour of the direction of our trade on both the current timeframe and the higher timeframe. For example, if I look at my current timeframe and eWave is crossing back above the zero line, but I look at the higher timeframe and eWave is retreating back towards the zero line from above, then stay out.
4. On the higher higher timeframe, is eWave moving in the direction of our entry on the current timeframe? Again, the best entries show exceptional confluence across all timeframes with the current, higher and higher higher timeframes all showing an eWave that has recently crossed the zero line on the direction of the intended trade. In the very least, they should all be moving in the same direction.

Here's a chart with how I see it right now.....

Screen Shot 2012-08-30 at 4.07.01 PM.jpg

When you look from the 1 minute chart where I have labelled the 1st/2nd/3rd waves, you can clearly see that 'wave within a wave' structure on the 5 minute chart. And notice how the double arrows alert on the 1 minute chart gave a nice entry good for some pips, and if this had occurred while London or US was open there's a chance the increased volume may have made the move even greater.

So now if I was looking to take an entry on the EU based on this chart, what am I waiting for?
1. Current timeframe, eWave must come back to zero line and then be crossing (or has just crossed) back above.
2. I am aware, based on the grounded assessment of the eWaves, that this is likely to be a 5th wave on the current timeframe (5th on current, of 3rd on higher, of 3rd on higher higher - 'waves within waves'). Therefore I know that to form a 5th wave price need only break a previous high. So if it should do so and retrace/stall I am ready to exit and say NEXT!
3. If this was a 5th wave on current timeframe of a 5th wave on higher timeframe I would not enter. 5th of 5th is less probable to give a good impulse wave and nice trade. However, as a 5th of 3rd I'm interested.

I suggest you read the 10 second Elliott Waves ebook that is available within this forum. It explains this structure in a much more thorough (and probably accurate) way. And have a read of the P5 principle (which shows the ABC correction of 4th wave). And remember, this is only to do with eWaves. You also need to understand the fractals (AIMS boxes) and the entry signals and, of course, the gator!

I'd love for Immy/Snorm/Grant/Herbert/Bettina or anyone to comment on this post and give me an idea of how they feel about my interpretation of eWaves.

Good luck!

Dave

[Dave]

Screen Shot 2012-08-30 at 4.38.49 PM.jpg

So it did set up in a nice way for a long entry, and the only reason I didn't take it was because London wasn't yet open, and I wasn't keen on getting in 15mins before a major market opening. You could also say that the alli wasn't asleep but was in fact open to the downside at the time of the double arrow alert.

[immy]

yes Dave, well filtered. I would not have taken it as well because of London Open and more because Gator was open to downside.

cheers

[Dave]

Hi everyone, hope you're all well.
I haven't had much of a chance to trade lately but wanted to get this post on. My Dad has recently taken an interest in trading and, as an absolute beginner, I'm trying to help him avoid some of the mistakes I made early on. The following is an email I sent him yesterday. I don't know if anyone is interested but if it helps just one person then it's worth posting....

"Trade management. The single most important thing. In my opinion, the easiest and most reproducible way of consistently making profits.
We'll use a hypothetical to illustrate the point. Let's say the probability of price moving up or down at any point in time is 50/50. We know that we can improve these odds by only trading high probability setups (AIMS), but for now let's say it's 50/50.
Suppose we enter a trade and that trade turns 20 pips against us. Now we know this won't happen as we don't let our losers run, we wouldn't cop a 20 pip loss, but for arguments sake we lose 20 pips x 1 entry = 20 pips. We never add to losers.
Now let's suppose we take the same entry, only this time as fortune would have it we have gone in the opposite direction and the trade had moved 20 pips in our favour. But as that trade has steadily moved into profit we've added to our position. So at +10 we added another position. Then at +15 we added a third position. Then at +20 we closed all positions. So we have 20 pips x 1 entry + 10 pips x 1 entry + 5 pips x 1 entry = 35 pips.
So on the exact same move traveling the same distance we've almost doubled the size of the loss with a winner, and the net result is +15 pips. Now I'm not in any way saying that we should open in both directions at the same time. Don't ever do that because if price goes sideways you can lose on both. But what I am saying is that when you're wrong be wrong quickly and only for the initial entry. But when you're right add to your position and be very right. You can see that with this approach your win/loss ratio can be very much skewed to the loss side, but your net result will still be positive.
This takes great discipline and composure when in a trade. I know that when I first started it was very easy to become paralysed by the fact your money is on the line. And you just get stuck in the moment and watch the price every single tick and live by the tick. But if you're able to be aware of the situation and think one step ahead by setting further entries in the direction of your initial entry, then you're well on the way to success. And of course as that position moves into profit we protect it with our stop loss, gently following price and locking in profits and protecting against a sudden market turn around."

A simple concept but I'm sure you'll agree it makes sense! Good luck everyone.
Dave

[Topher]

Dave

A very good point but in my opinion the most important trade management rule (especially for someone new) is to only place a certain % on every trade.

Too many people I speak too don't realise the importance of this. If you only trade 1 or 2% of your trading account on every trade and you have a string of losing trades the £-$ value you lose on each trade will get less and less and will take a very very long time to destroy your account. On the other hand when you have a string of winning trades each trade you win will be for a higher £-$ value each time.

Once these basics are adhered too and you can consistently pin point your entry then look at improving by adding on etc.

This is simply my opinion.


Richard

[Dave]

I completely agree Richard. Many people focus all their energy on the entries only and not enough attention is paid to money management. Me thinks the next email topic will focus on this! Thanks for the reminder.
Dave

[Kyle]

Awesome Post Dave, and great addition there Richard.
I am sure that Dave either has gone through money management or will soon do it with his father, but hat is the same sort of management I use. Reset after each trade, so the absolute value risk increases or decreases after each trade, depending on it being a winner or rent prior.

Man, am I looking forward to better conditions (return to some sort of normal) in the coming weeks. It will be great to be able to regularly pick a nice, high probability trade on London and NY opens. A few trades a day will be great. In saying that, they will have to scream at me, rather than me trying to create a trade and therefore losing the edge that AIMS gives us.

Kyle

[Dave]

Thanks Richard and Kyle for your replies, I really like it when we get a discussion going!

I suppose this is probably a good opportunity to detail the money management system I use. Again, someone somewhere might find it interesting haha!
 
As Richard mentioned, I use a set percentage of my bank balance (1% at the moment) as my risk for each entry, and I calculate this risk based on the stop loss of each entry. But my actions after a win or loss are slightly different.
 
My maximum actual balance is referred to as my trading balance. This is the balance from which I calculate my position size based on my risk percentage and stop loss. If a trade is a winner then this trading balance increases along with my actual balance. If a trade is a loser, I do not change my trading balance unless my actual balance decreases by 20% from my trading balance. I call this a ratchet system. It's always easy to use examples:
 
Balance = $100
Trading balance = $100
Re-baseline of trading balance at $80
 
So with a $5 winner:
 
Balance = $105
Trading balance = $105
Re-baseline of trading balance at $84
 
If I then have a $5 loser my trading balance stays at $105 and my re-baseline stays at $84. If I was then to reduce my balance to $84, my position size would be calculated from my new trading balance ($84) and my new re-baseline level is $67.20 (80% of $84)
 
I do this for one simple reason. If I have $100 and lose 10% I now have $90. If I then make 10% of $90 I now have $99. So it requires larger winners to cover the losses. But if my trading balance remains at $100 despite the 10% loss, I can make the lost 10% back with a 10% win, and not an 11% win (just an example, my account doesn't fluctuate by 10% at a time).
 
I use this method because I am confident in my ability to regularly have winning trades. But, again as Richard says, it is proabably best for beginners (not that I'm that far past being a beginner ) to calculate their position size based on their current balance, therefore reducing their position size if they have a string of losses and minimising the chance of blowing an account.

Dave

[Kyle]

Very interesting MM rules there Dave. I think it has some real merit. When I o live on AIMS, I might apply the same sort of principles to my money management.

When you consider that you stop your losses most of the time much before SL is hit, it will take quite an amount of losers to hit the ratchet mechanism, however, your balance is still safe from ruin. Thinking that you may take 3-4 losing trades to a winner for a breakeven sort of area, your plan seems quite robust (wd)

[Dave]

Friday 7 September

Finally found a setup that was “into clear space”. I haven’t had much trading time this week (and it looks like the market hasn’t really played ball anyway), so I was happy to close out the trade with some profit and not risk giving back the only money I’d made this week. It looks like it was a timely close, but I admit I was hasty to get out at the new M1 high when my add on position showed a little profit, and if price had gone through that high and taken off I would have been annoyed. Anyway, 1% is still 1% and I’m happy with this setup and result.

EU buy above M5 high for 15.7 pips with an add on of 3.4 for a total of 19.1 pips (SL 16.2, 1.17%)

Screen Shot 2012-09-07 at 5.17.02 PM.jpg

The more I look at my results the more it is becoming obvious that the absolute best setups and most powerful moves come right on, or very close after, a market open time (in this case London open). It’s not really a surprise that the open brings volume and movement, but does make trading later in a session a little less attractive, particularly for these M1 setups.

Hope you all grabbed a few pips! There were some nice moves at the same time incl. GU (As I write this EU is making new highs, if anyone took it from M5 they could be +25 now with a 16.2 SL, and no sell signal yet – NICE!!!)

Dave