How to learn the MAX Trading System

Posted on November 10, 2010 by Moo Trader

This post may seem a little presumptuous, self-righteous and self-assured. However Dave has inspired me to write something about how I choose to learn the MAX. I am not saying this is the best way, or that this is the recommended way, it is MY way and I thought I’d share it in case it’s useful.

Goals

What are your goals? (click to enlarge)

The first thing to do when learning a trading system is to think to yourself, what on earth am I doing this for? You should really reflect on the nature of what you’re doing and why you are doing it. Is it for money? What will money bring you? Freedom? Luxuries? Choices? Holidays in exotic destinations? The ability to tell your boss what you really think? Having a goal in mind is very important because that is the fuel for your work. That becomes your motivator, and for me has grown into a burning passion which no-one can take away from me. I really enjoy learning to trade: the countless nuances of the market, the psychology of fear and greed written on the charts fascinates me and intrigues me, and ultimately I delight in it. If you have these feelings then you are half-way there. If trading feels forced, difficult, boring, dull or pointless, then you are already defeated in your heart.

Anyway, to answer Dave’s question:

Any advice you can shed with regards to learning it all?

The MAX is a paradox, being both exceedingly complicated and refreshingly simple at the same time. If one reflects on what the system is designed to do, it is really quite simple:

To identify a trend, ride it and scale into it as it goes in your favour and scale out and take profits at signs of weakness.
~ keymoo 2010

Now, that’s pretty much it. I think it’s important to keep in your mind the grand goal of the system (actually I hate that word because it’s not really a system, it’s a method) because the principles of it will guide you as you trade.

The MAX method (there, that’s better), is one based on price action, although it may not seem so when you are learning it. When looking at the MAX charts one should focus on the price action itself, and look at the indicators for confirmation of decisions based on the price. That’s it. So, how to learn it?

Plan

Write a training plan (click to enlarge)

Write a training plan. If you know any high-achieving sports people, ask them how they became so good and then copy them but simply exchange their training for MAX training. My training plan looks like this:

Phase 0: Learning phase and introduction to the MAX system. This phase is attending the course and doing the homework. DO the homework diligently and to the best of your ability. DO NOT skimp on it or treat it lightly. This system could change the rest of your life forever, PAY ATTENTION! Do the other students’ homework privately before it is graded by the instructors. Then, compare yours with what the instructors have done and learn from the differences. Believe me, if you do this 20-30 times you will start to learn the MAX quickly.

DO YOUR HOMEWORK! (click to enlarge)

Phase 0.1: Videos. Once you have made yourself some popcorn, if you have attended each MAX training session live, then watch each video again at least twice, preferably more, and make a mind map of each session. I prefer to attend the live event and not make any notes at all but just take in everything that is said with full attention because if you start making notes, then your attention is on your notes and not with the instructor. Draw the mind map on the first watching of the video and then fill it in on the second watching. This should cement the rules into your mind. Any doubts, then ask them in the homework group and get them cleared up quickly.

Phase 0.2: Course completion. When the course has finished take a week off to allow the concepts to sink in and have some fun.

Take a break (click to enlarge)

Phase 0.3: Watch the videos again. This is not as arduous as it sounds because you can speed them up in your media player. With one of the instructors I can watch the video at 1.8 – 2.0x normal speed and the other one at 1.4-1.6x. My first watching though, was at normal speed and the notemaking one was at 1.2x speed.

Drilling (click to enlarge)

Phase 0.4: Entry Drilling. Go through each entry setup from your notes and scroll through the charts and find 200 of each one. But do them sequentially and not in parallel. What do I mean? For setup 1, scroll through the charts on the timeframe you are going to trade in real life and mark 200 entries as you were shown in class. When you have marked 200 entries, ask questions in the homework group or the Max forum about any doubts you have. Do the same for setup 2,3,4,etc.

Phase 1: Scroll through 1,000 charts. Mark up every entry, and exit and record in a spreadsheet the winners, losers and breakevens until you have recorded 1,000 trades in your spreadsheet. Analyse these results and ask questions about any particular nuances that come up. At this stage in your learning (only Phase 1, LOL) you will start to find that the MAX requires less conscious thought about the setups and your mind simply reacts to movements on the chart. It is starting to feel easier and the setups jump out at you.

Phase 2: Strategy test at least 200 trades. I have decided to test the H4 timeframe from January 2010 to October 2010 – you may decide something else. Whatever. This phase is slow, but very enlightening. I feel that I have learnt the most about the nuances of the MAX in this phase of my training. The basics were learnt in phase 1 and earlier, but this phase starts to refine and hone your skills. Again, ask questions if you don’t understand anything. You don’t want to be trading using wrong assumptions.

Phase 3: Live demo trading. I am not at this stage at the time of writing this blog post. However, my plan is to trade the live market for one to two months in demo mode with no real money. Some people say this is a waste of time, but I beg to differ. The reason for demo trading is to learn your platform. It’s to learn to fit trading in with your schedule. Can you do it? Adjustments and expectations may need to be changed after trading this phase. You should learn about your trading platform and it should be second nature to you.

Live trading (click to enlarge)

Phase 4: Live trading: If phase 3 was profitable, you can fund a very small live account. Whatever amount you were thinking of funding, halve it. Learn to trade with real money with the knowledge that if you make a big mistake, it’s not going to hurt your wallet. If, after three months your account has grown every month, then double your account with extra capital. If after another three months, you have grown the account every month then start to add money to the account every month for the next twelve months, or until you have a losing month whichever is sooner. I’m betting with the MAX system that you will never have a losing month if you’ve been diligent. At this point, there should be enough funds in the account for it to grow like a monstrous snowball avalanching down a mountain.

Phase 5: MAX Advanced training. At this point it would be good to milk even more from the markets by taking the Advanced Course and learning some extra setups and nuances. This is my plan.

So, I hope this has helped. Most of the information above was from the MAX instructors, but also from Brett Steenbarger from his internet blog, and his books. You should look him up. Good luck. I like the following quotes:

What is success? It is a toy balloon among children armed with pins.
~Gene Fowler

Success consists of going from failure to failure without loss of enthusiasm. ~Winston Churchill

Dream no small dreams for they have no power to move the hearts of men. ~Johann Wolfgang von Goethe

By perseverance the snail reached the ark. ~Charles Haddon Spurgeon

Nothing in the world can take the place of Persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan ‘Press On’ has solved and always will solve the problems of the human race. ~Calvin Coolidge, 30th president of US (1872 – 1933)

and finally:

That man is successful who has lived well, laughed often, and loved much, who has gained the respect of the intelligent men and the love of children; who has filled his niche and accomplished his task; who leaves the world better than he found it, whether by an improved poppy, a perfect poem, or a rescued soul; who never lacked appreciation of earth’s beauty or failed to express it; who looked for the best in others and gave the best he had.
~Robert Louis Stevenson

Focus

Posted on June 7, 2010 by Moo Trader

With advice from my new mentor I am going to focus on only one market – I am going to stop looking at the futures markets and other currency pairs for setups so that I can really get to know this one market. The market is one that a huge amount of people trade and probably won’t come as much of a surprise, it is the EUR/USD forex market.

The reason for this decision are many

EUR/USD is a very “trendy” market, not that it is fashionable, but rather it trends well. Have a look on a daily or 4 hour chart and you can see how nicely it trends. As I am going to be trading a trend following system, a trendy market is a necessity.
Liquidity – this market has huge liquidity when traded on the large ECNs and even euro futures. If I get good at this (my total all-consuming goal), then that will allow me to trade size a lot easier.
“smoothness”. Highly liquid markets tend to have less whipsaws and erratic movements than illiquid markets. Take a look at wheat or silver futures and compare those to the euro and you’ll see what I mean. I don’t want to get stopped out by whipsaws.
24 hour market. If I place a trade and leave it running I don’t want to have the market gapping past my stop loss orders. I know this could potentially happen around economic releases, and I intend to reduce size or get flat at that time. Markets that aren’t open for long should really be day traded or position traded in my opinion, not swing traded. I would hate to swing trade the grains for example and risk a limit offer when long.
Focusing on one market removes distractions and allows me to “get intimate” with it

I have cancelled my chart subscription (so that I am not tempted to look through other markets) and will look at the netdania charts online or my broker’s charts and will try hard to restrict my viewing to the EURUSD.

Outside bars formed on stock index futures

Posted on May 28, 2010 by Moo Trader

Scanning my daily charts here early on a Friday morning and I have noticed many outside bar, higher closes on the daily charts in the direction of the trend. Trading with the trend should make them high probability trades. Some examples below:

ES Outside bar

YM Outside bar

NQ Outside bar

I also noticed on the same day a setup with the trend on Copper Futures.

Long term trend in copper

Outside bar setup on the daily chart

I will be monitoring these pretend trades over the next few weeks to see how they do. Any comments?

Outside Bar setup

Posted on May 24, 2010 by Moo Trader

I have just read Martin Pring’s chapter on outside bars in Martin Pring on Price Patterns and I thought I’d have a look through my charts to try and find this pattern; it didn’t take long. The idea is if the high and low of a bar exceed the previous bar’s high AND low, then we have an outside bar. What we want for a break lower is to see the bar closing in the lower third of the bar, and vice versa for a break higher. Even better is for the close of the outside bar to below the low or close of yesterday’s bar.

Outside bar, lower close example

On the S&P 500 futures (ES) a nice outside bar at daily resistance formed. Martin also mentioned that these short patterns should be used with confluence with other things so that the weight of the evidence indicates the market direction. Remember that these patterns are lower probability when considered on their own. Have a look at the ES Daily chart ending on 24-May-2010.

ES Outside bar, lower close

Confluence

Looking at the monthly chart, we are at the 61.8 retracement where price will likely hit some resistance. This level also happens to be support from July 2008 and looks to be resistance now in April 2010.

ES Monthly May 2010

Taking the daily chart short from 1182 from 30th April with a stop above the high of that bar gives us a nice setup. This is all in hindsight of course, but I find it interesting that a setup with confluence delivered the results.

Platinum hammer

Posted on May 22, 2010 by Moo Trader

A nice hammer formed on Platinum futures on 21-May-2010. It’s not a perfect one, but I would say it is an acceptable one to take with limited risk. Here’s the chart with my support and resistance levels marked.

Platinum futures daily (click to enlarge)

Blue lines are support/resistance pivots, white line is a trend line, yellow is the 365 day EMA and the red line the 200 day EMA. The 365 EMA provided support on 20-May-2010 but did not on 21-May-2010. The 200 EMA seems to be providing resistance now on 21-May-2010 as price could not rise above it, although the day closed slightly higher than the open and significantly higher than the low with a nice hammer formation. The hammer’s tail has rejected the support/resistance level and confirms to be a reversal pattern and a signal to go long.

Entries

Entries on the daily PL Futures (click to enlarge)

Using my refined hammer entry method, I’d like to bid at 1481 on one third of the position as that is half way down the hammer. A buy stop of another third is placed at 1520. I will then look to add another third around the 1580 area and if we have a full position at this point start looking for exits. If we don’t have a full position (if the limit order on the candle wasn’t filled) look to add around 1630.

Exits

Again, I’m unclear as to where I should exit this trade – how could I do this?

Hammer thoughts

Posted on May 22, 2010 by Moo Trader

I’ve been thinking about my hammer trade on the euro and how I could have avoided that huge loss (I didn’t actually take a loss with real money I’m just using this blog to think out loud right now).

Scaling In

I am reading lots of trading books at the moment and one thing that struck me from the pros (especially after reading New Market Wizards) is that in order to succeed in trading you must cut your losses and let your winners run. I know that people in general know this, but it’s starting to really sink in with me after observing the markets for a short time. There’s a difference between intellectually knowing this and knowing it with your gut after observing the markets for a while. If I get stopped out for a small loss, so what? Take the next trade and let it run. The Euro trade I looked at on the hammer required a 200 pip stop. A way of tackling this is to “test the water” with a reduced position size and once it goes my way, add to it and scale in to full position size. The way I am currently trading (that my gut instinct doesn’t like) with the Furquad strategy is to go all-in and then scale out. That feels very wrong to me now because if I am wrong, the market spanks me hard on my full position. If I am right, then I am scaling out and reducing my profits. It just feels wrong, although my back-testing of Furquad is showing very healthy profits indeed.

So, to heed the advice of the market wizards and trying to apply the advice into a strategy that could be used on my euro hammer trade (and my gold trades) I have come up with the following idea.

The refined hammer set-up

Ensure that a trend is in place on the daily chart: there must be a “strong” move currently on this time frame. For this example let’s assume the move is down. Wait for a hammer candle to form on the daily chart with confluence to a key support/resistance pivot. If this pivot also coincides with a fib retracement level, then all the better. At the close of this candle, place a limit order of a third of the intended position half way down the candle with a stop underneath the candle a few pips/ticks away. Also place a buy-stop a few ticks/pips above the candle with a third of the position to scale in the next third. If the limit order is filled then we are in the trade with a small position – great. If the sell-stop under the candle gets hit, then we were wrong about the market direction and we take a very small loss and cancel all outstanding orders for this trade. If we are right, then the limit order is filled and then the market starts to move in our favour by retracing back to the top of the hammer. If the market continues in our direction then the buy-stop gets hit and we are scaled in with two-thirds of the position. At this point move the stop on the first third to break-even (half way down the hammer candle). As the market moves in our favour look for another pullback to add the final third of the position and adjust the stops below so that the first third of the position is in profit (with the stop), the second third is a break-even stop and the final third has a logical stop under price action (under the last swing low). When the market continues to move in our favour we have a heavy position making lots of money which has been built up with limited risk. At this point move the stop on the final third to break-even and move the stops from the other positions to the same price (to preserve gains made so far) and start looking for an exit with the idea of holding the position as long as possible.

EURUSD example

EURUSD Refined hammer trade thoughts

Gold futures example

Gold hammer trade thoughts (click to enlarge)

Exits

This is the crucial bit I have to figure out next. I am thinking maybe to use either Elder’s SafeZone stop, use parabolic SAR, a divergence, maybe a multiple of risk, a key support/resistance level or some other price action exit signal. I’m not sure yet, so if you have any helpful suggestions please let me know in the comments or the contact link at the top of the blog. There are lots of ways of exiting and I’d like to exit all-out and not scale out.

Credit where credit is due

A lot of ideas in this post were gleaned from my studies into price action lately. I would like to credit trader_dante on trade2win.com, james16 from forexfactory.com, Nial Fuller from learntotradethemarket.com (I’m not a member here, but watched his free youtube videos), Martin Pring, Alexandar Elder, Jack D Schwager and other people in my trading bookmarks. I have taken ideas from lots of different sources and am trying to condense them down into my own strategy which may look similar to, but slightly different to other people.

Markets I am trading

Posted on May 2, 2010 by Moo Trader

Forex Strategy

I am taking it slowly and starting with a tested forex strategy that is beautifully simple to follow. It’s called the FurQuad Core swing strategy and can be found here. I am only trading three currency pairs to start with until I get more proficient with entering and exiting trades and achieve a good level of consistency. The pairs are:

EUR/USD
EUR/JPY
GBP/USD

I would also like some exposure to the swiss franc, aussie dollar and canadian dollar – but I can wait for those and will perhaps add them next year if it’s all going well. I am trading the above pairs on a four hour chart and you can find full details of the strategy at www.trading-strategies.info

Futures Strategy

I am also looking at the futures markets and am currently only watching them right now and developing a stategy based on daily and weekly charts. Futures markets I am watching closely are

e-mini S&P 500 (ES)
e-mini Dow (YM)
e-mini Nasdaq (NQ)
DAX
German BUND
US Treasury notes (ZB)
Gold
Silver
Copper
Light Crude Oil

I am also casually keeping an eye on

Russell 2000 mini
FTSE-100 futures
Long Gilts (eSignal R 1!-EIR)
Platinum
Natural Gas
Corn
Soybeans
Wheat
Currency Futures

I am following a different strategy on futures which basically watches what price does at support/resistance pivots and looks for an entry based on price action at those pivots on the daily and weekly charts. I have been reading the famous J16 thread at forex factory and a lesser known but very good trader_dante thread on trade2win.com. I am taking elements of these and developing my own entry and exit criteria but they are heavily taken from James’s and Tom’s ideas – thanks guys!

The entries are:

Swing into pinocchio bar
Inside bar break
Outside bar break
Double bar high, lower close
Double bar low, higher close

I will describe these set-ups in detail over the course of the blog and they are already described in detail in the threads above – I highly recommend you read those threads. They might take a while to get through, but for new traders, they are a MUST READ.

I am also reading Martin Pring’s Price Patterns book which describes the above set-ups and others in some detail. This is a great book, I highly recommend it to price action traders.

I’m back

Posted on April 28, 2010 by Moo Trader

A Little History

I started trading in 2006 and to be honest it was a bit of a disaster. I think it was a disaster mainly because of the following reasons:

I was young – not a drawback in itself but I think younger people tend to take bigger risks than older people and tend to be more naive.
I was inexperienced – I tried to produce an income from trading right off the bat with no experience at all.
I had no other source of income. I was relying on my trading to produce an income. This in itself is no bad thing, but when you combine it with 1 and 2 above it becomes a mess very quickly.
Small account – the account size was very small to start with only $10,000 USD.
Fast intra-day timeframes – 15, 5, 3,1 minute timeframe trading.

When you combine the above points you have a very dangerous mix. An inexperienced over-emotional trader with a small account on a fast time frame depending on it for income will never succeed in the markets. When depending on a very small trading account, losses are very hard to take and result in not trading a plan. Losses by an inexperienced n00b result in a depressive mood, over analysis, mistrust of their trading system, paralysis, self-doubt, paranoia, destruction of a good trading system due to “tweaking”, etc.

So, this blog is a place for me to vent my thoughts and was primarily intended for me to analyse my own thoughts and trades. If you get something out of it, then great; however, it is not intended for a wide audience.

Current state

I have decided to abandon most technical indicators and focus on price action. I want to succeed in trading and I am going to persist until I get it right. Most technical indicators LAG price, the ones that don’t are the ones that ARE price, for example candlestick formations, price patterns and support/resistance. I am willing to put in the hundreds and thousands of hours required to excel in any endeavour. I recommend reading the book Outliers by the way, a great insight into how extremely successful people became successful. I believe this time that I will succeed because I have the following attributes:

Patience - successful traders need to learn to be patient and wait for the best trades. They need to learn to filter out the mediocre trades and only focus on the best set-ups.
No pressure to drain trading account. I have a decent income from my day job so I don’t have any pressure to make money. I can focus on the best trading set-ups at leisure.
High timeframe trading. I will be taking trades on the weekly, daily and 4 hour timeframes only. I will not be looking at any lower timeframe charts. In order to make money trading I don’t believe that staring at a fast timeframe is necessary, and it gets stressful and tiring – I know because I’ve done it for months on end.
Price-action trading. I have done a lot of research since I started in 2006. Indicator based trading CAN work, but it doesn’t work FOR ME. I’ve tried many indicator based set-ups and they all tend to get me in late to the market and I become one of the johnny-come-latelys. Some of the price-action based research I’ve done indicate to me that this is the way to trade. I will share some of these setups with you as I progress.
Money Management. I am going to spend a lot of time ensuring that I manage my risk and reward appropriately. I’m still not quite sure how I’m going to do this yet, but it is a key feature of a successful trader to get this right. If you have any input here, please contact me.
Analysis. I have spent the last fifteen years as an IT consultant designing, building and supporting enterprise class databases for major financial instutions including some of the worlds largest investment banks and hedge funds. I know how to track trading data and report on it, so I will be harnessing these skills to provide insight into my own trades. I will share some of these techniques with you over the course of the blog.

My setups

Over the coming weeks I will share some of my strategies. I am currently looking at trading two strategies at the moment. One of them is a proprietary strategy in the forex market which I have purchased and hence cannot share with you, but trades a four hour chart with reference to a weekly chart. I will provide information on how you can get this system for yourself, but I can’t reveal the strategy here sorry, but I will be tracking some of the trades here.

The other one is in the futures market and trades only daily and weekly charts based on price action and support and resistance pivots. In my next post I will outline what my plan is for the next three to six months.

Moo Trader

keymoo's trading thoughts

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