FX Trade Setups, Entries, Management and Exit

[random12345]

I wasn’t thinking about switching to lower timeframes to take trading opportunities absent from my normal operational timeframe – although there’s nothing wrong with that in principle or practise.

Rather the complete irrelevance of any timeframe longer/larger than your operational one. I don’t believe it offers any context.

The lower timeframes inform the higher ones – not the other way round. When you consider each larger timeframe’s price action has as its basic component the price action of the lower timeframe, I can’t understand why I’ve missed this obvious fact for so long.

Not sure if I'm OT here as things have taken a different course, but I'd say that if you trade intraday then the lower timeframes provide better trend or breakout setups, while higher time frames provide more obvious points of mean regression or support and resistance. As you say, a single bar nearly always covers the entire move of an intraday trend at 15 mins + these days and is much more inviting with short wicks on a lower timeframe. Lower timeframe S&R scalping though requires extremely low commissions, which is why the prop mob trade outright positions in contrarian bursts with rapid clips rather than with much of a directional view.

Maybe I'm talking crap though.

 

[Shakone]

May have misunderstood your example in relation to my position, but if you're suggesting the 10,000 coin tosses are 'the trend' and therefore any subset will 'more likely' mirror that trend then yes you're correct as all the datapoints that constitute that trend are already known. But for the next coin toss #10001, it provides no context at all.

Ok, I think I can see the issue more clearly, sorry I misunderstood. You are considering the historical and whether that has influence on the future. This isn't necessarily just a question about trend, but whether context is provided.


In my opinion, the context is exponentially weighted towards what's happening now and more recently as it is in the Man City example. The team they have for this season is the most important thing for predictions for the future of this season. The previous season may have given some context to this in that you know how good some of the players are, how well the team did, and which players have been added to the team for this season, so you can estimate whether they have improved or not. The more seasons you go back the less and less relevant they become until they become completely irrelevant. However, once I have my bias for the long term (the season), there is an observable effect in each individual game and each 45 minutes and each 5 minutes if I have got the longer term bias right. As in my previous post, how could there not be?

And now that the football analogy has been done to death, perhaps consider your system, and consider how it would do on the Dow if you only took longs (rather than trade symmetrically long and short) from some point on from which you consider the long term trend to be clearly up. Anyway, it's a good question.

 

[Purple Brain]

But you are speaking only historically when you mention the past 20 years. I'm speaking about detecting the bias in advance for the future. It's your knowledge of the game and the players that tells you the bias. The season hasn't finished, I am saying Man City will finish highly this season and would have said so (as many others would) before a ball was kicked. Man City's past 20 years doesn't come into it that much.

Now, if them being one of the better teams (a bias to win) has no bearing on 45 minutes of play, then they are equally likely to win as lose over those 45 minutes, and the next 45 minutes. Which means they are equally likely to win or lose each game. Which means you'd expect them to have a fairly even split at the end of the season between wins and losses (they'll have draws too). Which means they will finish midtable. Something in this logic is incorrect. Other than the conclusion that over 45 minutes it does have a bearing, what else is there that resolves this contradiction?

The problem with metaphors and analogies is that they bring their own constraints, restrictions and paradoxes with them. The contradiction is one you’ve introduced by virtue of the example you’ve chosen.

Getting back to the initial point - within the original context - I was making, even though eur/cad may be considered to be in an up trend from the perspective of all timeframes from 30 min upwards, that doesn’t mean you couldn’t have profited from the down trend in the 15 min over the last 20 bars. Regardless of whether than down trend continues and eventually starts to manifest itself in the higher timefames or not.

 

[Shakone]

The problem with metaphors and analogies is that they bring their own constraints, restrictions and paradoxes with them. The contradiction is one you’ve introduced by virtue of the example you’ve chosen.

Getting back to the initial point - within the original context - I was making, even though eur/cad may be considered to be in an up trend from the perspective of all timeframes from 30 min upwards, that doesn’t mean you couldn’t have profited from the down trend in the 15 min over the last 20 bars. Regardless of whether than down trend continues and eventually starts to manifest itself in the higher timefames or not.

It's not a contradiction introduced by the analogy chosen. If an uptrend is to occur like eurcad has been for some time, then if we fix a lower timeframe and define it so that it is in a state of either uptrend or downtrend, then the up trends must be going further in distance than the down trends cumulatively. It can't be any other way. If you can successfully detect when the downtrend is beginning and when the uptrend is beginning then you can profit both ways, and why shouldn't you. But it doesn't change the fact that your profits are likely to be higher on the uptrends (all else being equal), so the longer term trend does have a bearing.

There are even more reasons why the longer term trend matters, but you asked for logical ones.

 

[Purple Brain]

But it doesn't change the fact that your profits are likely to be higher on the uptrends (all else being equal), so the longer term trend does have a bearing.

There are even more reasons why the longer term trend matters, but you asked for logical ones.

That was previously my view. And I found, like you, I was qualifying the situation with “likely” and “all else being equal” – which it rarely is.

I’m also wondering now whether the perception that in a longer term up trend, long trades will do better than short plays – for any given trade. Certainly there should be more long opportunities and it will be only infrequently a pullback of such magnitude occurs that your bias reverses, but if whatever you use to determine trend bias on your operational timeframe says it’s currently contra the longer term underlying, my current view is that you should take it. Especially the one that is the start of a reversal to the underlying. You won’t know this until after the event of course, but it’s a viable (as per your trading method) trade – even if contra the current longer term underlying, you should take it. Longer timeframes should not colour your view. They are a function of what has been happening - not what is happening.

I only chanced across this when reviewing the basis I use for deciding whether I’m in an up or down trend. I was using longer term moving averages all of which prevented me taking trades yesterday that were clearly pushing back hard. I then had the realisation that the trend on the 15 min ‘feeds’ the 30 min which in turn ‘feeds’ the 1 hour etc – not the other way round.

Captain Currency has an excellent thread which revolves around his clever and simple system of using three periods with the same moving average in each and only taking trades when all three timeframes’ price action are in agreement. It works. But he would be the first to agree that other systems work just as well. There is no be all and end all. A trading system with a sufficiently robust method for determining the current bias in any given timeframe will work rather well in complete ignorance of what the higher timeframes have been doing.

 

[Shakone]

Good questions you're asking PB.

If I can ask a couple of questions back...if you believe that the longer term or the past is irrelevant, and that 1 min feeds 5 min which feeds 1 hour (which is of course correct), then why not trade the 1 minute or the 1 second chart or the smallest timeframe that you can react to and make decisions?

Also if the past is irrelevant ("They are a function of what has been happening - not what is happening."), then entry doesn't matter does it?

 

[malaguti]

A trading system with a sufficiently robust method for determining the current bias in any given timeframe will work rather well in complete ignorance of what the higher timeframes have been doing.

or better still PB, two systems..one for fading the longer term trend, and one for reentry into the longer term.
and then your log would give you an idea as to either's success rate. Personally I'm not a fan of going against the trend, but if I do I am always conscious of its probability. An uptrend has longer peaks, and short sharp troughs, its this characteristic that I bear in mind in taking any trade against the trend. I know it should only last briefly and am looking to take profits where I can. As soon as I am trading with the trend, I'm less fearful of it ending anytime soon.

That withstanding, you are quite right that any short term could be a new beginning as it were. Also Random mentioned that the longer term will give you an idea as to where the support will come in, and thats the key thing when I look to go against the trend, and generally only when I know that its over extended and I have targets giving me a general feel for RR

just my 2c worth

 

[Purple Brain]

Good questions you're asking PB.

Good answers I’m getting Shakone.

If I can ask a couple of questions back...if you believe that the longer term or the past is irrelevant, and that 1 min feeds 5 min which feeds 1 hour (which is of course correct), then why not trade the 1 minute or the 1 second chart or the smallest timeframe that you can react to and make decisions?

I didn’t ever say the past was irrelevant – just the longer timeframes with respect to those shorter. What the price has been doing in my primary trading timeframe is extremely important – the absolute focus of my decision making.

Why not trade the 1 min or the 5 min? [a] because it’s tough enough to process 28 pairs within each 15 minute window. because at 1 min or 5 min there’d be little to no info as to what was ‘coming down the track’ toward my trading timeframe.

Also if the past is irrelevant ("They are a function of what has been happening - not what is happening."), then entry doesn't matter does it?

As confirmed above, the past it extremely important. And of course entry is important but in any case does not follow from your initial (incorrect) premise.

I’ll give you a real time example of what I’m saying.

Aud/jpy. In the old system, I’d be borderline short bias this pair. Just. It’s below the major longer term moving averages in the 15 min timeframe. But, in the new system, I’m seeing it as a potential long. It’s 21:49 GMT and there is a major resistance at 93.28 (price currently 93.22). The difference is in the old system I’d need it to break through that 93.28 level, establish support at or around that level then wait for a long entry criteria setup and signal. In the new system, I’ll go on a long entry setup without needing that confirmation.

 

[Purple Brain]

And aud/usd. My old methods have this in a short bias, needing the price to rise above (currently at 8913 as of 22:04 GMT) above the 8983 level. But with my new system it’s technically a long bias with any long setup presented to be considered as a viable entry.

Price may well succumb and fall over the next few hours and we’re back into short territory, but I’m just saying, the longer timeframes do not inform the shorter ones, the merely predict a more likely direction, but should not hold sway over what’s happening right now in the primary trading timeframe.

 

[Purple Brain]

For clarity: I’m not disagreeing with anyone. I have neither the experience nor the smarts to sensibly argue a case one way or the other. I’m simply looking for convictions based on an experiential and empirical basis from those who have already done the hard yards.

In essence I’m agreeing the longer term trend will give a more likely indication of where the current price will eventually develop, but that if sufficient indications based on momentum for instance suggest a viable move contra that longer term underlying, it should be considered.

Whether that contra move turns out to be the start of a longer term reversal is immaterial.

I also accept the view that moves contra the longer term underlying trend are likely to be fewer in number than their pro counterparts and more likely to offer a shallower opportunity for profit - which is where a keen eye on momentum – both in the building and the eventual decay of the move – is critical.

Moves contra the underlying trend could be discounted altogether for greater safety – this is what I have been doing. But on the occasional big reversals in one’s trading timeframe, regardless of whether this presages a reversal to the longer term underlying or not, there are profits a plenty to be had.

As with just about everything else in this game, it’s all Risk and Reward. You won’t go broke not taking a trade, but neither will you get rich.

Security places a premium on feebleness.

 

[Purple Brain]

Not only did I misquote, I failed to attribute.

“Security sets a premium on feebleness.” – H.G. Wells

 

[Purple Brain]

Cutting your losses seems a sensible strategy in just about any sphere of human endeavour. The problem is, one man’s cutting losses is another man’s spineless quitter. And another’s flogging a dead horse is someone else’s dogged perseverance. It’s never clear cut when or where to draw the line. Or obviously, more would be able to do so.

My decision somewhat made easier by a change to my deployment status which means I’ll be quite unable to trade for the next six months anyway, unable to do much at all other than my job, so external forces come to the rescue in bringing me to this point. Perhaps Freud was right in that nothing happens by accident.

I’m not an unintelligent chap and I’ve devoted countless thousands of hours to finding a way that works – and failed to do so. I could carry on of course, but whatever it is that separates those few that can make consistent profits from trading (as retail traders) from those that don’t is the same barrier that separates me from that hallowed ground.

There are no regrets on taking the path I have or in taking this decision. Those hours of effort still to come that would have been devoted to finding a way will now be invested in other, hopefully more suitable, ventures.

Thanks to all who have helped me and given so generously of their time, experience and knowledge. The insights and learnings from which will, I am sure find fertile ground in the future, if not in trading, then in some currently unimaginable way.

Good luck to you all in your own quests and may your efforts be as enjoyable as they are fruitful.