I hope you are having a good holiday season.
I’ve been poring over charts, with the Wavy Tunnel template, comparing what is happening at different times on different time frames. I also continue to use replay mode to test my skills. I feel that things are starting to come together. I think there were three major difficulties that I was encountering, so there was a lack of clarity on where I was taking wrong turns. First, I knew the six setups intellectually, but I wasn’t seeing them instantly when I looked at a chart. I think I’ve crossed that threshold, now. That’s a big one, it just comes with practice. The second issue was that I was misusing the multiple time frames. When I came to realize that I need to take my setups off of the largest time frame and then use the smaller time frames for confirmation and for finessing the entry; but, move back up to the larger time frame as quickly as possible, that made the third issue stand out as I simulated trading. My third problem was improper trailing of stops.
I was expecting that I would focus on really learning and paper trading one setup at a time, but all of a sudden, I have written three new trade plans. I know they need to be tweaked, if my BO-3 experience is any guide, but the plans make perfect general sense. One is trading the PW/FG combo off the 1-hour, the second is trading the BO-1 off the 1-hour and the third is trading the BO-4 off the 1-hour. The thing is, I have setup rules that the Hourly chart must satisfy for each setup, but I’m actually triggering the entry on the lowest time frame using a completely different Wavy Tunnel trade. So, for instance, the Hourly BO-1 is actually (usually) my old friend the BO-3 on the 5-minute. (Sometimes it can be a BO-4 on the 5-minute).
I put on a paper trade, today for a PW/FG combo. It looks like a picture perfect setup. The 1-hour had traded way below the Filter after a long decline and has CAO divergence with a Royal Semaphore. So, I went down to the 15-min for confirmation and on the 5-minute there was a great 61.8% retracement after a move to the Wave where the pullback showed a hammer with a very long tail (The body of the candle stopped at the 61.8% retracement). I waited for the price to close above the Filter and went long on paper with a really tight stop, below the tail of the hammer. Price stalled for about a half hour then suddenly gapped up above the Wave. We’ll see how it turns out. So, I’ve started to actively paper trade each of the new trade plans.
The thing that I am learning from my simulated trading is that for PW/FG I should use the 3-Profiteers and leave my stop alone except when profit targets are hit. I find that trailing the stop on a Wave 2 often stops me out, unnecessarily. So, I have decided that, at least for now, it makes more sense for me to make that particular trade all-or-nothing. I’ll either get stopped out for the complete initial risk, or I’ll hit profit target 1 and have at least a small winner, there is no in between. For a BO-3, on the other hand, it makes more sense to me that I trail the stop aggressively because if the price trades back in to the Wave, it probably wasn’t a BO-3 after all. And I might as well get out with a tiny loss or even a tiny profit rather than hope it is going to suddenly turn into a good BO-3.
I feel like the thing that is making the Wavy Tunnel gel is that I’m going back to old setups and asking myself “how would I trade this? what rules would I use?” Then I write that down and try a similar type of setup during another time frame, and again and again. Nothing is going to be infallible, but these plans feel generally justified by the Elliott Waves that they are trying to capture.