FX Trade Setups, Entries, Management and Exit

[cablemonster]

mmm, just to put a different slant on scaling which is a massive topic in its own right.

The "take half, run half" is a well used technique but something of a comfort blanket since it is not theoretically sound. It ensures that you always have your maximum sized position (2) when you take your largest losses and your minimum sized position (1) when you take your largest gains.

Van Tharp says quite a lot about it and reckons that when he has asked clients to re-visit their past trades and determine how much of a difference there would have been had they only taken full loss or full profit, they become totally amazed at how much more they would have made holding onto a full position.

Just because something is theoretically unsound doesn't immediately render it a no-no in the practical world, of course

no it's not theoretically unsound anything written in a book about trading should be taken with a pinch of salt. You can scale out of losers as well as winners!

an all in all out trader will typically experience many emotional highs and lows, this is fine for some but not the majority. Most traders are doomed from the start because their targets are not realistic, better to increase size and have realistic targets rather than small size and keep trying to hit home runs.:smart:

if you enter a trade and it doesnt start going in your direction fairly soon you should be looking to lighten up the position, reason being others will be in the same boat when price goes against you.

 

[barjon]

............. better to increase size and have realistic targets rather than small size and keep trying to hit home runs.:smart:.........

absolutely

I've tried all sorts of scaling in my time - scaling in, all out; scaling in, scaling out; all in, scaling out etc etc - but nowadays I'm all in, all out.

 

[cablemonster]

absolutely

I've tried all sorts of scaling in my time - scaling in, all out; scaling in, scaling out; all in, scaling out etc etc - but nowadays I'm all in, all out.

nothing wrong with that mate, all about managing emotions

 

[Shakone]

no it's not theoretically unsound anything written in a book about trading should be taken with a pinch of salt. You can scale out of losers as well as winners!

an all in all out trader will typically experience many emotional highs and lows, this is fine for some but not the majority. Most traders are doomed from the start because their targets are not realistic, better to increase size and have realistic targets rather than small size and keep trying to hit home runs.:smart:

if you enter a trade and it doesnt start going in your direction fairly soon you should be looking to lighten up the position, reason being others will be in the same boat when price goes against you.

I don't think it's theoretically unsound either to scale out, but I do think if you're into fixed targets and stops then Phil Newton's take 2/3 off at 15 pips with a stop at 30 is unsound.

A trade may be in 3 lots, but each of those lots can be viewed as a trade in itself, and having a target that's half your stop size is unsound. Unless you're cutting your loss before the stop is hit.

 

[barjon]

nothing wrong with that mate, all about managing emotions

ah, that's down to following your earlier advice about not shooting for the moon

 

[scholfield]

losing 7 ticks so far on the day on oil.
Should be slightly positive really, as I was very late getting into the long trade at around 10.15am.
Day is young yet. Still time for a big losing day

 

[Splitlink]

losing 7 ticks so far on the day on oil.
Should be slightly positive really, as I was very late getting into the long trade at around 10.15am.
Day is young yet. Still time for a big losing day

Seems as if you got up late. I could not sleep and got up at 0400 and said, " this is a good chnnce to short the yen!" This I did. went back to bed and woke up, 2 hours later, stopped out!

 

[scholfield]

Been trading ES and Cable aswell today! Will post charts if anyone particularly wants to see them.
Faired better on them than on oil today (Not that it was an awful day on oil, but was a losing one)

 

[Purple Brain]

Been trading ES and Cable aswell today! Will post charts if anyone particularly wants to see them.

Of course.

Do you use the same strategies on ES and cable as you do on oil?

 

[scholfield]

Of course.

Do you use the same strategies on ES and cable as you do on oil?

More or less.
In my experience, the ES is more mean reverting than oil for example. I'm happier fading a move on the ES than I am in oil where I often get steam-rolled trying to be clever!

ES trade - I was looking for shorts as per my opinion of the trend. Price made a sort of flat-top and looked like it was struggling to go higher.
Shorted it at 1693.75 as it started to break down, and covered at 1691.75 for no particular reason, other than, as I say, ES doesn't seem to like 'running'.
i entered short again soon after as it didn't look like a 'bottom' had been made yet,
Covered that one for +2.25 ES points

Cable trade.
Naughty trade. Pure instinct. It's been going up like mad over recent weeks. I just felt that any drop would have have shorts who had been in pain covering on any sharp spike down, which could be good for a little bounce.
Shouldn't have taken it(despite it working well), though. Not part of my 'plan' as far as setups go

 

[Purple Brain]

Nice timing, especially on the exits.

 

[scholfield]

Oil ended up breakeven after all that!
Actually could have been quite a good day on oil, too, but lots of errors on my part.
From experience, I'll be a good 'fade' soon, after some fairly decent days in a row....I'm due some bad ones!

that's me done for today

 

[barjon]

More or less.
In my experience, the ES is more mean reverting than oil for example. I'm happier fading a move on the ES than I am in oil where I often get steam-rolled trying to be clever!

ES trade - I was looking for shorts as per my opinion of the trend. Price made a sort of flat-top and looked like it was struggling to go higher.
Shorted it at 1693.75 as it started to break down, and covered at 1691.75 for no particular reason, other than, as I say, ES doesn't seem to like 'running'.
i entered short again soon after as it didn't look like a 'bottom' had been made yet,
Covered that one for +2.25 ES points

Cable trade.
Naughty trade. Pure instinct. It's been going up like mad over recent weeks. I just felt that any drop would have have shorts who had been in pain covering on any sharp spike down, which could be good for a little bounce.
Shouldn't have taken it(despite it working well), though. Not part of my 'plan' as far as setups go

2 "good" winning trades and 1 "bad" winning trade then - go stand in the corner for1/3rd of a hour and recite your trading plan

 

[Purple Brain]

My foray into writing a trading plan has yielded an unexpected development - aka Epiphany - which will most definitely result in a significant change to the way I will be trading in future. It's unsettling that a task which I thought at the outset would lead to greater specificity in detailing what I was doing has led to me reviewing the entire basis for doing what I'm doing, not just the way I do it.

I say unsettling as I wonder how few traders probably ever attempt this task and therefore miss out on the opportunity for a truly objective review of their methods. Writing a trading plan forces you to look at it from a 3rd party perspective. Priceless.

 

[timsk]

Hi PB,
Well done to you for going down this road. Well done also for telling us about it. That said, you don't elaborate as to what the "unexpected development - aka Epiphany" is? You big tease you!

Tim.

 

[Purple Brain]

Hi PB,
Well done to you for going down this road. Well done also for telling us about it. That said, you don't elaborate as to what the "unexpected development - aka Epiphany" is? You big tease you!

Tim.

timsk - I wasn't being a tease. I just feel such a pillock. I've predicated my entire trading method on the underlying (my definition of it) holding firm and only very occasionally not - while any reversals to it likely to run out of steam around the level of the 49 average - providing there are one or more other technical levels of support/resistance coinciding with the level.

I've been waiting for 'an event' a point in time that manifests itself over 2 or 3 bars on my 15 minute trading timeframe.

I sit and watch the price pulling up from an underlying down trend for instance, and wait for it to engage the 49 average at a higher level (along with one or more other s/r levels) and then watch for a resumption of the downward trend - and then attempt to sell 'at value'.

What I'm not doing is trading the obvious direction of the price as it's moving up because that's 'against the trend'. The fact that the price must have obvious momentum to be moving against the main trend in the first place was lost on me.

The fact that I'm waiting for what is happening right now to stop and reverse i.e. change means I sit out most of the action available. I look at a chart covering say 2 days of bars and note the number of opportunities I had to get in as per my methods above. And then I look at all the quite clearly identifiable moves in both directions that occurred in that same period.

Given the smallness of my trading timeframe and the average duration of most of my trades - the underlying (however defined) is of less use to me than I initially imagined.

This is a point made by so many that I need to be looking at momentum first and foremost.

PuntFX (hasn't posted for a while) on Lord Flashearts live trading calls thread did exactly this. He looked for a major move and then went in. I asked him did he not feel he'd missed the boat by getting in after a big move. And his answer was that he used the big moves to get in as they typically led to further momentum. He didn't have a particularly good week or two as he freely admitted, but I sensed no BS from this guy, I believe him to be a pro and if that's the way a pro does it, with experience and practice, why not me.

Others also have pointed me very firmly in this direction. It seems extremely cliched to say 'go with the flow' so I won't.

Live example: Right now, the aussie is strengthening from very weak position and the Yen is weakening from a position of strength. That would normally pout me in a place where I'm looking for the aud/jpy (in a down trend as far as I am concerned) to rise up the 49 average at around the 92.40/50 level and then turn around again. It may well do that. But for the last 3 bars I've had clear indications of the current 'reversal' situation and could quite technically justifiably, have been long. Even if I then decided to go short when and if the upward momentum dies away and when and if the downward momentum reasserts itself.

I took a perspective and I sat tight and took a lot of convincing the bias had changed. Total lack of flexibility and lack of ability to intelligently identify what was happening right here and right now.

Certainly my trade management and money management will need to be an order of magnitude better than they currently are to survive trading in this manner, but it would be madness for me to revert to the old ways just because they feel more comfortable.

 

[scholfield]

Tough start on oil today. 2 trades, both smallish losers.
However, bought about the exact low tick on the ES this morning.
Doing better on ES than anything else at the moment.
Not liking the way cable moves at all. I used to do well on it (it was mainly cable I traded when I had my 6 months profit spell). Can't seem to read it nowadays

 

[Purple Brain]

aud/jpy short at 92.21 stop 92.37.

 

[Purple Brain]

aud/jpy rationale. It's in a down trend (though we don't talk about that any more). It found support on the weekly low, the century and the weekly S1. Got a few bars of upward momentum but failed to breach, after 4 attempts, yesterday's low or retrace more than 50% of the prior High to Low move. Aussie appears to be weakening and Yen to be strengthening.

None of this is a guarantee a short at this point will be profitable. But it does justify taking it.

Now the really tough bit - managing it and assessing an exit.

 

[timsk]

. . . but it would be madness for me to revert to the old ways just because they feel more comfortable.

Hi PB,
I'd been a member of T2W for a long, long time and had heaven knows how many trades under my belt before the penny dropped that so many aspects of trading are completely counter intuitive. I wouldn't go so far as to say if it 'feels' right - then it's probably wrong but, as a mental check for new traders, it's not a bad thought to keep in mind. However, that does't apply to experienced traders who have managed to re-wire their thinking to the extent that what was once counter intuitive is now intuitive - if that makes sense!

Take a look at this thread by Mr. Charts: How To Make Money Trading The Markets. You'll notice a key characteristic of many (not all) of his trades is to take long positions when the stock has broken out to new highs and to take short positions when it breaks down to new lows. This isn't an easy thing to do for many traders because in the back of their minds their intuitive logic tells them: 'there can't be anyone left to buy this stock because anyone who wanted to buy it would have done so by now. Having broken out to fresh highs it must be overbought and existing longs will be looking to take their profits. Therefore, I'll look to join the shorts and clean up on the inevitable pullback or reversal back down'.

This logic ties in with your comments about PuntFX waiting for a major move and then joining in on the premise that the current trend is more likely to continue than it is to change. It pays dividends for those that can do it well, but doing what is counter intuitive isn't a winning strategy all by itself. Sadly! Pullbacks and reversals to occur, obviously, and sometimes very sharply. As always, good traders are prepared for the worst and protect themselves for when things don't pan out.
Tim.