Thinking in Levels

This post will tie into the one I made in early June - " Losing Streaks". Truth be told, I have not adapted well from the transition to lower volatility over the summer months.


What sucks is that I should know this. Summer months tend to have lower volatility. I observed this with overlapping daily bars signalling a lack of directional movement. As a result, I have a tendency to force trades - generating signals when they're not present. What bothers me is that this mentality is the complete opposite to that of my poker gameplay. I've talked through this extensively and I think I know why there is a disconnect with my trading.

In poker, when I commit a session (visit), I'm able to sit at the table for over an hour and play less than one hand. If the conditions aren't right (i.e. table positioning, hand selection, pre-flop aggression, etc.), I'm perfectly capable of sitting out. So why doesn't this translate to trading? Doesn't the same premise apply here where I would only take a trade if the setup, timing, etc. is right?

The difference, I believe, is that I can commit to a full session of poker. When I sit down, I'm there for a few hours minimum. Since I have a day job, trading doesn't allow me to constantly keep an eye on my charts. When I do get a chance to hop on and take a look at my charts, I have a tendency to want to capture any opportunity I see before me. In other words, I'm not committing to a proper session for trading. As a result, I'm entering at a suboptimal point in order to avoid missing an opportunity. In other words, FOMO.

The question now becomes what am I doing about all of this? I think the key is thinking in levels. I'm already beginning to do this, but I need to constantly do this. When I plot a level (support or resistance), I need to ask myself what is its significance? When price approaches this level, I have to figure out my game plan. This creates a buffer for me from forcing a trade to creating a game plan. When I see a certain pattern or desired reaction, I will then commit to an entry.

Part of the problem was I used to journal every trade in EdgeWonk shortly after I took them. I basically provided an in-depth explanation for the direction I took. Over time, I admittedly slacked off and reduced the amount of detail and reasoning for every trade. This has proved to be quite costly. It's time that I start this up again.

Here's an example of the recent analysis I did for an AUDUSD trade.

AUDUSD 30-Minute

Trade Details:
  • Sell @ 0.69948
  • Take Profit @ 0.6968
  • Stop Loss @ 0.7015
Trade Analysis:
  • There's a key 30-minute level at 0.6995 that formed at 2:00 PM on July 15. This level tested again at 9:00 PM with the formation of a bullish bar. Price broke through afterwards.

  • I waited for price to pull back close to this level. Given the three very weak bullish bars, I decided that this was a safe pull back. It's unlikely for price to cross above this level given that it hasn't already.

  • Price crossed above this level the following day at 10:30 AM. This was a little bit concerning to me, but I wanted to see if this level would end up holding supported. Luckily for me, it did not. As a result, it hit my take profit target earlier today. I was also lucky in the sense that I placed a wider stop loss, which was above the pin bar. 
I'm hoping to perform more analysis like this. This will limit the number of trades I take, but I believe that it will also help me generate the best setups. On the TopstepTrader front, I'm still stuck in Stage 2 of the $50K Combine. Given that I didn't trade much due to the 4th of July long weekend, I have been taking it slow. I am still refining my signals now that I switched over from ES to NQ. I'm hoping that there will be better trend-directional signals that can be generated and make my life easier. More to come.