Making Money Trading

[trader_dante]

Hi TD,

Pls see iam attaching a chart GBPUSD 1hr pin with fib 50% peek. Whats your insight on this trade?

Fxbee

The short answer is it was invalidated before triggering a short order.

 

[forexbee]

The short answer is it was invalidated before triggering a short order.

Hi TD,

i should have seen that...oops, missed it, need patience to look for everything. Thanks TD, After seeing the pin, i was excited ...ummm, points to be taken in my mind.

Fxbee

 

[firewalker99]

Hi Firewalker, we're privileged to have your insights. This is a fantastic post

My questions were indeed rhetorical and mainly directed at lurker, but your reply covers it completely. No further questions, your honor

I'll be completely honest with you all here. When I started this thread I wanted to show you all exactly how I am managing to make profitable trades consistently but the more I respond to peoples questions the more I realise that my edge is personal and many times I will have a reason to enter or exit that I find very hard to explain. What I am trying to do is give you the tools to arm yourself.

Indeed, it's personal. Because you looked at all those charts, and you studied all those situations and probabilities. Let's face it. You did the hard work. And you are still doing it by answering all these questions people keep firing questions at you, "what would you do here?", "how would you react in these situation?", "is this a trade you would take?". None of that is going to help them though. But hat's off for the efforts you are putting in.

You should all go away, practice it and make it your own.

Wise words!

 

[trader_dante]

TIMING AN ENTRY ON A LOWER TIMEFRAME * Part 1*

Before we look at exits, lets have a closer look at how to TIME an ENTRY on a lower TF since I know many of you are not comfortable with the large stops required on the higher TFs.

This is the pin bar that appeared on the Gbp/Usd weekly TF.

As soon as I saw this I measured the risk and deemed it to be, at around 400 pips, unacceptable even at the minimum amount I can trade with my broker.

However, the pin bar and the following sharp fall tells me that I want to be looking for a short entry into the market.

 

[trader_dante]

TIMING AN ENTRY ON A LOWER TIMEFRAME * Part 2*

So I then move down to the hourly timeframe.

The first area I am immediately aware of on this TF is the area of minor resistance on the 31 October that then became a zone of support before being broken in the sharp fall.

 

[trader_dante]

TIMING AN ENTRY ON A LOWER TIMEFRAME * Part 3*

At this point, I WAIT for the market to come to me.

The market begins to retrace some of the fall and after a few hours price forms a pin bar.

This is around the time I believe that Splitlink entered.

Now, while price may indeed resume its fall at this point, I see no supporting factors that make this a high probability trade.

Price did NOT test the previous S/R pivot and the nose does not touch or come very close to any of the key fib levels.

Therefore I pass on the trade.

 

[trader_dante]

TIMING AN ENTRY ON A LOWER TIMEFRAME * Part 4*

At the end of the following hour another pin forms.

However, although price has got a little closer to my S/R pivot there has still been no firm test of that level and still no fib confluence.

At this point I continue to sit on the sidelines.

I am fully aware that price will not always go exactly where I want it too and that I may miss a large move but unless it does, I have the CHOICE not to take it. That is part of my edge. To only take things when they line up in my sights.

 

[counter_violent]

T_D great thread

Following on from Firewalkers post...these turns in the markets that give rise to the pinbars ( and the potential to deliver further significant price moves ) have various defining criteria and it is possible to list them.

Consider a V shape bottom or top....the very best turns in any market come when price action goes (inside time) ie:- price becomes exhausted and then turns and retraces quicker than the time it took to get to the point of exhaustion...so in other words the right hand side of the V shape takes less time to form...this kind of price action tells us very clearly where price did not want to be. So if we know where price did not want to be, it is logical to take the trade on, with a much higher degree of certainty on the outcome of any future price action .

An example this morning was eur/jpy. At 2.53 on a 1m chart price made a pinbar as described between 160.41 and 160.52 This area was also previously a support and resistance zone.

We can list the possible trade entries on various time frames

1m 160.52
5m 160.66
15m 160.74
30m 160.81
1hr 161.27

Next consider which instruments are moving in the same way...so in this example eur/jpy...we would be looking for supporting price action across gbp/jpy and usd/jpy.
If all three pairs are moving roughly the same, this tells us..the move is all about the jpy....the story is about the jpy....not the gbp or eur or usd. When you get movement on only One of this example of Three...the chances are it is either going to be unsustainable or the story is about a different currency, in which case you would need to look for supporting evidence elsewhere.

The shortest time frame T_D uses I believe is the 1hr....but i'm just making the point that price action in all time frames behaves in a similar way.

cv

 

[trader_dante]

TIMING AN ENTRY ON A LOWER TIMEFRAME * Part 5*

Note that regardless of whether I had decided to take them or not, the market fails to move below either pin and instead continues higher.

It is five hours later that we get a pin that tests not only our S/R pivot (support is now tested from beneath) but also comes off the 38 fib level.

This is EXACTLY what I was waiting for and it is just beneath this that I place my short order.

 

[trader_dante]

TIMING AN ENTRY ON A LOWER TIMEFRAME * Part 6*

At this point the market finally moves lower and gives the short position a risk/reward of around 1:1.

Whether you took profit here is down to the individual trader but it would have been perfectly acceptable to put a stop in at breakeven after it had moved this far into profit.

 

[trader_dante]

Timing An Entry On A Lower Timeframe * Conclusion*

Looking at what happened afterwards shows why Kenobi thought I would have got "skinned"

The market rallied much further before eventually turning down but you can see that it offered enough movement to make a decent profit or a risk free trade on that pin bar.

The important LESSONS to take from this mini-series are:

a) Always wait for the price action setup to trigger (the first two pins did NOT)

b) Always wait for the supporting factors to line up before taking a trade

What do both of these points have in common?

PATIENCE

 

[trader_dante]

this kind of price action tells us very clearly where price did not want to be.

This is a very, very, important point.

This is EXACTLY why I like to see the nose TOUCH or come extremely close to significant S/R pivots.

It is not enough for me to see price bust right through a level and THEN retreat back beneath it.

I want to know the level ITSELF is important.

The shortest time frame T_D uses I believe is the 1hr....but i'm just making the point that price action in all time frames behaves in a similar way.

It certainly does.

There is no reason you have to stay as high as 1hr. I advise you LEARN it on the higher TFs before you go lower and I also believe that once you do you may never see the NEED to go lower but its much the same on all of them whether it is a 1m chart or a monthly chart.

The only difference is the MENTALITY needed to trade these different TFs.

 

[trader_dante]

Exits

I'll post a mini-series on exits later today or tomorrow.

I've written 1,200 words but want to make sure it is easily understandable before I put it up.

 

[forexbee]

Hi TD,

Mini series was damn good, i am saving those charts and your writings into document.

The market fails to move below either pin and instead continues higher.

Even if order placed on this pin, i hope it is invalidated by its move & naturally we cancel order as it happened for GBPCHF yday.

It is five hours later that we get a pin that tests not only our S/R pivot (support is now tested from beneath) but also comes off the 38 fib level.

This is EXACTLY what I was waiting for and it is just beneath this that I place my short order.

My query is , suppose if the earlier pin (circled in pink) which was invalidate falls in 23.6% fib line, if the the pin validated properly by market, still would that be a better entry for short?

By the way, all your charts in this mini series shows as Daily rolling, you have mentioned as weekly, hourly etc. Wont your charting package changes the heading when you move to different timeframe...?

Fxbee

 

[trader_dante]

My query is , suppose if the earlier pin (circled in pink) which was invalidate falls in 23.6% fib line, if the the pin validated properly by market, still would that be a better entry for short?

I don't put a huge deal of weight on the 23.6 fib level plus it didn't hit the S/R pivot so I doubt I would have taken it anyway.

By the way, all your charts in this mini series shows as Daily rolling, you have mentioned as weekly, hourly etc. Wont your charting package changes the heading when you move to different timeframe...?

No the package keeps the same heading even if you change timeframes because that is its name: the market rolls on a daily basis rather than being a futures contract

 

[trader_dante]

Trade update *December Wheat*

December Wheat closed this evening in profit for the first time since I entered it.

Price has been trading in a narrow range since my entry but managed to push through the upper level (also a minor S/R pivot) on the close. See chart 1

The price action also shows a break of the descending wedge. See chart 2

My stop is still beneath the pin. (note that on this chart it looks like I would have been stopped out but the brief move below the pin was made in out of hours electronic trading when my broker was closed)

This December contract expires tomorrow. Unless I am stopped out I will roll the position over to the March 2008 contract.

 

[trader_dante]

Looking at Exits *Part 1*

Exits are one of, if not the most, important element in successful trading.

An exit should by conventional wisdom, LIMIT LOSSES and MAXIMISE GAINS.

Although I have not exited my Eur/Gbp position yet, I am going to show you how I approach an exit with the above premise in mind.

Firstly, if you remember, when I took the trade I went long because of a retest of a descending triangle on the montly TF. This retest resulted in an inside bar which shows consolidation.

The IDEA behind the trade was that the Eur was consolidating above this triangle and preparing for the next move higher. So I entered long on a break of the inside bar to the upside. See chart

Once I am in I have two exits to consider:

a) The initial stop.

I always place my initial stop at the area where the idea for the trade is WRONG. If the risk as a result of this stop placement were to be too high, then I pass on the trade.

So, in the case of Eur/Gbp, I am speculating that the range of the inside bar is the consolidation area and that although price may break out and then retreat into it, it should NOT break it to the downside. As a result, the only area where I am WRONG on the reason for the trade is beneath the inside bar. This is where my stop went.

b) The second exit is where I will take profit if the trade moves in my favour. This is harder to define and is very discretionary. One of the problems a trader faces is that they should let their profits run to maximse their gains which means sitting through minor retracements during a trend. However, all the while the market is retracing, a trader is giving back their profit.

How do you know how far the market will retrace before it continues its move? How do you know the difference between a minor retracement and a change in trend? The simple answer is: you don't until after the event.

So, I make a compromise. I trail a stop which:

i) Gives the trade room to move
ii) Is out of each reach of the market
iii) If hit, INVALIDATES my CURRENT REASON for still being in the trade
iv) Retains profit

Let me illustrate what I mean.

 

[trader_dante]

Looking at Exits *Part 2*

I use one or more of three elements to help me define exits:

a) Support/Resistance

b) The three moving averages (10, 21 and 50)

c) Price action

 

[trader_dante]

Looking at Exits *Part 3*

SUPPORT/RESISTANCE

Lets look at the Eur/Gbp chart again.

First off I marked the key area where I expect the price to reach which is a significant resistance point. See chart 1

You can see on this chart (which shows the current price as the grey horizontal line) that price is at point 1, coming into point 2, at point 3 and still has some way to go until point 4.

As price pushes into this area it shows a strong bullish candle on this TF.

I now anticipate a breakout of this resistance. To gain confidence in this scenario I want to see MOMENTUM into this area.

One way to check the momentum is continuing is to follow the market step theory I outlined early in this thread.

As the price moves up from one step to the next, I expect this step to HOLD the price in order to maintain the momentum.

Chart 2 shows such an area. The previous swing high coincides with the area of solid resistance that marks the top of a recent range on the daily TF. This area is close to my entry.

As the market breaks strongly upwards from this level notice that it pauses, retests the breakout area and then moves up again. This is therefore the first place I move my stop too.

My thinking evolves with the trade. The market has tested the resistance, CONFIRMED it and started on the next leg up into the KEY RESISTANCE in chart 1.

Although it may stall here, if there is significant strength in this market, then it should not come back below this breakout point.

Chart 3 shows a close up view of the market. The market has moved up sharply once again and then consolidates in a range as we come into the critical area. Consolidation is to be expected as prices will often pause before resuming a move but what I do not want and would not expect to see, if my thinking is valid, is a drop beneath this recent range. As a result, these bar lows become a viable place to move my stop too.

 

[trader_dante]

Looking at Exits *Part 4*

THE THREE MOVING AVERAGES

As explained previously, I have noticed that in many STRONG TRENDS which are defined by a sloping 50ema, the market will pull back to the zone between the 10 and 21 before continuing on. Sometimes the price will barely touch the 10 before the trend continues, other times it will retrace all the way into the zone.

I am only interested in catching strong trends which means that I don’t like to see the price retrace beyond the 21 when I am in the market.

I am always aware that if I can keep my stop behind the 21 then on those times that there is a very strong trend, I can capture a very large part of it.

Just as in my entries, what I try and do in my exits is get as many factors as I can that will KEEP me in a trade if it trends.

In this Eur/Gbp trade the 10 and 21 fall between two areas of possible support and I have to make a decision whether to use them in this scenario.

I could put my stop very close below the 21 which should keep me in the market if the price fakes out the lower support before moving higher. However in this case, the EMA is too far from the price and would give back too much profit so I decide to rely only on the support level above.