Making Money Trading

[trader_dante]

Looking at Exits *Part 5*

PRICE ACTION (and risk reduction)

Lets look at the GBP/JPY trade I took on Friday. This pin came at a daily S/R level and close to the 50 fib of the last swing down (these factors are not shown on this chart).

Although this looked like a high probability trade, the risk that was at the forefront of my mind was that I was taking this Friday evening with the possibility of a large gap against me over the weekend.

In my opinion it is far more important to minimise losses than play for potential large gains so the only way I wanted to hold this over the weekend was if it moved significantly into profit before the close.

After the first hour in this trade the market had created an opposing pin bar. The second hour showed another pin with an identical low. (see circled area) This showed me that ALTHOUGH MY REASON FOR BEING IN THE TRADE WAS STILL VALID (the pin had not been broken) there was buying coming in that was acting as a support to the price and it was simply not following through on any move down.

Seeing this coming so close into the close, I moved my stop to a little better than breakeven and was stopped out for +3.

Finding out that this would have made over 300 pips if I had held it does not bother me at all although not so long ago it would have done.

Now, however, I realise that cutting this (at least for me) was the right thing to do as the market gave me a clear sign that it didn't want to go any lower in the short term and exiting meant I had no risk exposure over the weekend.

 

[trader_dante]

These examples should give you an idea how exits are largely discretionary.

You should try different types of exits including fixed targets (I sometimes use these on hourly setups with great success) and trailing stops using EMAs, S/R and price action.

There is rarely a right or wrong answer in the market. Each trader has to find what works for them.

 

[fibonelli]

Hi TD,

What's your view about using Welles Wilder's *Parabolic Stop And Reverse indicator as a trailing stop?

Fibonelli

 

[Reas]

Hey TD,

Thanks for all the effort you put in this thread. excellent work.
I'm gonna study your exit postings a bit more, and maybe come up with some good questions later

Reas

 

[forexbee]

Hi TD,

As you said, iam going thru MT4 F12 method of traversing bar by bar, i found usdjpy had a good pin in 15Mins chart (As i work only in 1Hr & Daily on your pinbar, just had a peek on other timeframe). Again, its bit nail biting tension for my mentality to trade in faster timeframe like 15Mins or 5Mins etc.

Anyway, could be helpful, but couldnt find support/resistance point, but had a good fib peek. If you find anything to add , pls dont hesitate to comment.

Fxbee

 

[MitchT]

Well, I thought I'd lost faith in trading, and these forums, but this is a real turn-up. I do have some questions though...

1: I see a lot of market reversals on the charts, but very few pin bars. Is it possible to use this system if all the factors are present except a pin bar? If so, how?

2: If I want to trade a shorter TF, such as 15m or even 5m, do I still refer to the Daily TF for supprt, resistance and pivot areas, or do I use a shorter TF to reflect the fact that everything is being done on a much smaller timescale?

 

[trader_dante]

Hi TD,

What's your view about using Welles Wilder's *Parabolic Stop And Reverse indicator as a trailing stop?

Fibonelli

Never heard of it, Fib! Try it. If it works for you then use it!

 

[MitchT]

Hi TD,

What's your view about using Welles Wilder's *Parabolic Stop And Reverse indicator as a trailing stop?

Fibonelli

I read something a while back about using Parabolic SAR as a trailing stop, and I can see its potential. I'm not successful enough as a trader yet to have the authority to test it conclusively and give others the nod to use it though!

 

[trader_dante]

Hey TD,

Thanks for all the effort you put in this thread. excellent work.
I'm gonna study your exit postings a bit more, and maybe come up with some good questions later

Reas

Hi Reas, glad you liked it.

I've been thinking about it a lot since I posted and I'm not sure how helpful it is. It doesn't feel concrete enough but unfortunately thats a result of the highly discretionary element.

I think that most readers will learn more when they see how I actually enter and exit live trades.

 

[trader_dante]

Anyway, could be helpful, but couldnt find support/resistance point, but had a good fib peek. If you find anything to add , pls dont hesitate to comment.

Fxbee,

You will find out that going through bar by bar and analysing each set up will be well worth it. It will help you get a feel for what works and what doesn't. You are being very methodical and doing so will put you ahead of many other traders that just leap into the market with real money.

The setup you posted above looks good. You have two fib levels that are close to one another providing strong confluence and a great looking pin bar. Good spot!

 

[trader_dante]

Well, I thought I'd lost faith in trading, and these forums, but this is a real turn-up.

Hi MitchT,

Welcome aboard!

Learning price action and having a mentor that constantly emphasised the importance of hunting (stalking trades) with a "rifle and NOT a shotgun" completely turned my trading around.

1: I see a lot of market reversals on the charts, but very few pin bars. Is it possible to use this system if all the factors are present except a pin bar? If so, how?

It certainly is. There are many different types of price action setups. These include:

- Pin bars
- Bearish bars
- Bullish bars
- Bearish outside bars
- Bullish outside bars
- Double bar high, lower close
- Double bar low, higher close
- Inside bars
- Inside bars with consistently smaller ranges
- Two (or more) bar highs
- Two (or more) bar lows

So far I have not covered most of these setups. You will find all of them explained in detail on the J16 thread over at FF.

2: If I want to trade a shorter TF, such as 15m or even 5m, do I still refer to the Daily TF for supprt, resistance and pivot areas, or do I use a shorter TF to reflect the fact that everything is being done on a much smaller timescale?

You would be best off asking a very short term trader. I know there are a few that post on this thread. I would say that it would be very helpful to know where the daily TF levels are but you should also be aware of levels on the TF you trade on. E.g. When I trade hourly bars, I am aware of both daily and hourly levels.

 

[MitchT]

Thanks TD, that's interesting. I definitely like your Daily+1hr TF method, though my main concern is that I'll miss signals and opportunities to enter trades when I'm at work. I usually have IG Index running in the background all day at work but I'm not always in a position to maximise it. Trading on a shorter TF would mean maybe one or more trade every evening with small stops and small targets - a little and often - and would overcome my [hopefully temporary] work issue. That said, I intend to watch this thread intently as it's the most refreshing and encouraging thing I've ever read on the subject of trading.

 

[trader_dante]

Thanks TD, that's interesting. I definitely like your Daily+1hr TF method, though my main concern is that I'll miss signals and opportunities to enter trades when I'm at work. I usually have IG Index running in the background all day at work but I'm not always in a position to maximise it.

I'm with you on this. The MD has a habit of walking past when I have my charts on the screen. At first he thought it was the web traffic monitoring software Lately he's taken to saying "I hope you're not online trading!" I have to be careful...

Trading on a shorter TF would mean maybe one or more trade every evening with small stops and small targets - a little and often - and would overcome my [hopefully temporary] work issue.

Trading on a daily TF or higher will probably be easier if you can handle the larger stops. My current trades are Eur/Gbp (daily TF) which is now +181 and Wheat (monthly TF) which is now +5. These positions only require reviewing once a day in order to analyse the days price action and alter any stops accordingly.

That said, I intend to watch this thread intently as it's the most refreshing and encouraging thing I've ever read on the subject of trading.

Thanks MitchT

 

[MitchT]

on a daily TF or higher will probably be easier if you can handle the larger stops. My current trades are Eur/Gbp (daily TF) which is now +181 and Wheat (monthly TF) which is now +5. These positions only require reviewing once a day in order to analyse the days price action and alter any stops accordingly.

I agree. The only issue I have with trading on daily TF is that of the larger stops. I'd be somewhat limited as to what I could trade as I really can't risk more than about £50 on any one trade at the moment.

Thanks MitchT

You're welcome. After reading this thread I feel like I've spent the last four years walking round with one eye closed and someone's just pulled the other open for me - that's the only way I can describe it. Try keeping one eye closed long enough to get used to it and then open it again to see what I mean! It's like I have a more realistic perspective on everything - Okay, I'm not suddenly a genius trader, but I feel like I have a better perspective on the issues that I have to adress to at least become a competent one.

 

[trader_dante]

I agree. The only issue I have with trading on daily TF is that of the larger stops. I'd be somewhat limited as to what I could trade as I really can't risk more than about £50 on any one trade at the moment.

Hi MitchT - If you can lower your trade size you can increase your stop size. Trading at 50p per tick/pip will allow you to run positions with 100 ticks/pips stop loss. Some brokers such as Finspreads will let you trade at an even lower size.

You're welcome. After reading this thread I feel like I've spent the last four years walking round with one eye closed and someone's just pulled the other open for me - that's the only way I can describe it. Try keeping one eye closed long enough to get used to it and then open it again to see what I mean! It's like I have a more realistic perspective on everything - Okay, I'm not suddenly a genius trader, but I feel like I have a better perspective on the issues that I have to adress to at least become a competent one.

I felt exactly the same after finding J16 so I know what you mean

 

[MitchT]

Hi MitchT - If you can lower your trade size you can increase your stop size. Trading at 50p per tick/pip will allow you to run positions with 100 ticks/pips stop loss. Some brokers such as Finspreads will let you trade at an even lower size.

IG Index will let me go 50p/tic on Spot and Forward Currencies so I'll concentrate on them for the time being.

 

[lurkerlurker]

IG Index will let me go 50p/tic on Spot and Forward Currencies so I'll concentrate on them for the time being.

I find that quite useful as well. The spreads are okay too, although CMC are tighter on a few markets. Unfortunately CMC don't let you go less than £1pp.

 

[lurkerlurker]

Crude Oil - Hourly Pin

While I wasn't around to take this one when it triggered, I thought I'd post it here as an example. These pins really work! Entry and stop are shown on the target, and I'd have a stop at BE now if I had taken the trade. Position about +70 after 2 hours.

Note that it would be a good idea to cover this before the inventories come out at 3:30, given that the release is known to cause gaps two big figures either way (and with the associated slippage). I suppose you could stick a GSO on if you spreadbet, and you feed the premium is worth it (and you want to protect your upside if you are bullish on the figures).

 

[trader_dante]

While I wasn't around to take this one when it triggered, I thought I'd post it here as an example. These pins really work! Entry and stop are shown on the target, and I'd have a stop at BE now if I had taken the trade. Position about +70 after 2 hours.

Good spot Lurker.

I miss a lot of these opportunities whilst at work.

See attached chart for my comments.

 

[lurkerlurker]

Automated Pin Bar Searching

I miss a lot of these opportunities whilst at work.

This sounds a little over the top at first, but I know there are some talented MT4 programmers who read this thread from time to time. I know it is already possible to make an indicator to highlight pin bars on MT4. My question is this:

Is it possible to program MT4 to scan through a list of instruments every 1 hour highlighting hourly pin bars, and then posting the instrument names to a website? Actually, even if it could put the instrument names on a text file in the local machine it would be trivial to get that to the web.

I'd like us to be able to check one source every hour to see if there are pin bars. Naturally we would then need to load up a chart of the instrument in question to see if it is a pin worth taking. If we think it is high probability, we simply set our orders and check later.

I'd like to be able to put quite a few instruments into the list. For example all the major FX pairs, FTSE, Dax, Dow, Gold, Crude, etc. If it only flags pin bars on the hourly, there shouldn't be too many false positives. Obviously only a percentage of the pins an algorithm can see will work, but the point of this is to save the operator time - we can filter false positives quite quickly, but it is important to know if there is anything to check.

As it is, few of us have the time to manually pull up hourly charts for 20 odd instruments on the hour every hour to look for pins. If we could take a look at one site which listed the instrument name of anything which had just closed as a pin, it would be a great help.

Another member of these boards generously provided me with a MT4 plugin which detects pins amongst other things, so it can be done. I just don't know how to get it to scan each instrument and output something to a file if true.

Could some smart lurkers help us out here?

(oh, and if we can get a trading program to spit out details of pins into a text file on the local machine, it would be trivial to do all sorts with that - we could have a webpage which could be checked, or even send email alerts to subscribers - there are even some web to SMS or web to blackberry services which we could use - although it shouldn't be a big deal to check a website every hour, as long as the checking takes a matter of seconds)