For the record,I trade from forex and so will not discuss traditional measures of volume as they are not applicable.
I have found the problem many people have with the switch to the dark side is the time and effort it takes.
One cannot expect to succeed without many many hours of bar by bar real time analysis of each candlestick to to see the different buying and selling pressures and to gain the ability to know where a stop and exit would be for any trade made,
I would like to discuss further the subject of exit and stop points, as i trade off multiple time frames with 5 min chart my main end focus stops and exit points become of extreme importance. I read an article in the Technical analyst magazine this month about how a random entry system(which i am not condoning) with correct exit and profit taking points which produced an impressive return. The importance of exiting strategies such as paring down when in profit are paramount in my eyes and can make or break a trader. I know some will say exit points cannot be predicted,which i agree, but knowing how to react to those changes is key.
I will now contribute a little on how i plan exits and stops on some of my trades.
For example:
If trading from a market hook (eg, market structure high or low)
After an down/uptrend of 3 or more bars i will wait for a hook to form, my stop loss will be 1-2 pips above the high of the hook, my entry point 1-2 pips below the 3rd bar in the hook.
KISS
There you go, a simple entry and stop setup, obviously ternding or consolidation filters have to be in place. I will not discuss these filters as they are very individual from trader to trader and should be developed through candle by candle analysis of your chosen market.
For exits, a simple strategy i use is to pair out 1/3 or 1/2 my profits when i have made my stop loss in profit. My stops are usually in the region 6-12 pips, therefore 1/3 -1/2 profits are paired out after 6-12 pips are made
I also use a trailing stop which is effective at filtering and missing noise on the majority of trades. I am a percentage trader, That means waiting and waiting for my initial filter to be met, and then analysing whether the conditions are met.
For example if the hook formed at the end of a trend provides a stop loss level of 15 points and you feel the move cannot make 30 points(1st and second profit taking levels would be at 15 pips and 30 pips using the previous profit taking setup i gave) then simply do not take the trade,how hard is that? aparently very hard for most traders as an indicator can never give you this level of detail. This simple strategy would outperform the majority if someone adapted it wholeheartedly and it doesn't even go deeply into candlestick analysis, The only caveat is the waiting you have to endure.
Phew that was a lot of writing and i don't feel i've scratched the surface of price action.
I feel this simple method provides concrete entry points,stop loss point,and exit points.
I provide this not as a system but as hopefully a stepping stone for the thousands of indicator traders. Give it a go, watch the charts and see how the hooks form,your entry points are breached, and where profit taking levels occur.
A little about money management: This strategy, if thats what it is called, uses an average of 10 pip stop loss on popular currency pairs. Using fixed fractional MM:
£10000 account
1% risked per trade = £100
10 pip stop loss = £100/10 = £10 per point
Consider this further if you will, 5 minute charts provide noise, but i feel this is acceptable noise when it means you can keep your stop at 10 points,
If you are a beginner you will not find a safer entry into trading, and it forces you to follow price action.
Have i wrote too much? Hope not, if you liked my post send some good karma my way.
Thanks
Nathan
