Making Money Trading

[trader_dante]

Hi folks,
Current thread topic is fantastic, don't want to interrupt but couldn't resist posting this one. Amazing what you notice when someone points the way.

This pin-like candle piercing the SMA(60) gave me confidence I was on the right side of the trade having gone short at around 09:10.

Sorry to cut accross topic, please carry on.
Best Regards,
Neil

Neil,

This is exactly what I like to see - traders using price action in a way that works for them.

However you enter, you are using the price action, on your own timeframe (5m) with your own supporting factors (60 SMA) to give you confidence in the continuation of the move. Great stuff!

 

[trader_dante]

After the trend took off, a simple strategy of moving the stop to the low of the previous hourly bar when long (reverse when short) when price makes a new high would have kept me in the trade for a couple of bars. Not moving the stop up until the trade made it through resistance would have kept me in until now. However, such a method would lead to losses on other trades.

TD - how do you exit your positions, and could you offer any general advice for our trade management since it appears that we can now make a reasonable job of entries?

Lurker,

It really is about finding out what works for you by trial and error. A trader has to trade in their own style to be truly comfortable.

To operate the same way I do requires a trader being prepared to give back a significant amount of profit in order to capture a large move.

I will walk you through how I would have managed Gbp/Chf trade in the next few posts.

 

[ER2-D2]

Don't have time to check back very often and feel rude for not saying thanks for the replies and all work that's getting put in by TD (thanks for the charts, really helpful to see how others would look at things, even if it's just to confirm your thinking) and others. Great to see others becoming successful with it as well.

Moved my stop to b/e on eurchf daily, around +100 at the moment.

 

[trader_dante]

Managing a trade *Part 1*

I am going to talk you through how I would have managed this Gbp/Chf trade on the hourly TF to give you an idea of dealing with the difficult problem of exits.

Being in a trade is naturally very different to looking at it in hindsight where you can be less emotional. However, you should get a good idea of how I approach trade management.

This chart shows the S/R pivots that I already have on my chart. They are all based on the daily TF as I could find no significant ones on the hourly.

The reason that the one nearest to price is not straight is because it is the underside of an ascending TL.

Assuming that we have decided to trade this pin, the initial entry goes above the high (one pip for me).

The stop goes below the low (again, just one pip for me)

The first area of resistance is just under 100 pips higher. This is the first target. Remember, I like to see momentum coming into this area.

Once the trade triggers we see that after the first hour, we are marginally in profit. At this point, the stop stays in place and we wait to see what happens next.

As you can see, we immediately get a strong bullish bar. What is important about this bar is that you can see the lows test our initial entry. As I have said frequently throughout this thread, you will see this happen time and time again.

At any rate, at this point, with the position looking like this, I would move my stop to breakeven.

We are below a long term trend line (have a look at the daily TF for confirmation of this) and unless there is going to be a decent attempt to get back above it then I no longer want to be in this trade.

It is important to realise that I am not looking at any other TF but the one I am trading. It doesn't matter to me if the 5m or the 15m is showing a bearish setup. Many times you will get stopped out and you can look at the 5m with hindsight and see the "perfect" exit right at the turning point. However, you will also get shaken out of many a good trade if you try and fine tune an exit in this way.

Remember, there are 12 5m bars in a one hour bar, 20 3m bars and 60 1m bars.

That means even in a very BULLISH candle on the hourly, you are still almost certain to see not only periods of consolidation that looks like the price has run out of steam on the lower TF but RETRACEMENTS AGAINST YOUR POSITION.

 

[trader_dante]

Managing a trade *Part 2*

It is the next bar that tests a traders resolve and often means the difference between a large win and a small one.

Look how the move initially retraces. A trader has to give back 35 pips here to see his conviction in the trade justified.

The retracement stalls above not far above our stop and then takes off to the upside once again and closes just beneath our resistance.

Now the candle that prints immediately after is the first warning sign that the trade may be running out of steam. We get a pin bar that shows the underside of the TL has been TEMPORARILY rejected.

At this point, I would move my stop up to just below the low of this pin bar.

I don't exit just because the target has been hit. I want to give the market some time to see if it can take out this resistance.

However, when the market gives me a warning which it does with the pin bar I want to make sure that I am ready to act if it shows signs of turning.

 

[trader_dante]

Managing a trade *Part 3*

Next candle shows us another pin bar. Clearly the market has run into some difficulty making headway but the important difference between this pin and the one before is that on his one, the close is ABOVE the resistance point.

At this stage, I would expect to see some retracement. The long wicks of the candles tell me this much is likely. However, I also want to see if this resistance can now hold as support.

The logical place to move our stop seems to now be the low of this pin. HOWEVER, since we know that our S/R pivots are unlikely to hold to the pip and the low of this bar is only 5 pips below the pivot, I would still keep it where it is, underneath the previous bar.

There is one important factor that helps me make this decision. That is the fact that my EMAs, which have previously been consolidating are now starting to pull away from one another which often (but not always) signals a sharp move.

 

[trader_dante]

Managing a trade *Part 4*

As the trade progresses we can see that the market is consolidating but also that it is finding support once again at this TL.

At this point, the EMAs are trending upwards and I would be now looking to the second target up at 229.20.

The stop would still stay where it is. It is safely below the TL and also has the 10ema onside.

 

[barjon]

..........................Assuming that we have decided to trade this pin, the initial entry goes above the high (one pip for me).

The stop goes below the low (again, just one pip for me)..............

td

Apologies if you have covered this before (this has become a long and fascinating thread
) and also that I'm not familiar with forex since I don't trade it.

What spread are you operating with? When you say "one pip" do you mean one pip on the mid-price (thus actual entry price is above that)? Or, do you mean one pip above using an offer price chart? Or what?

Just interested

good trading

jon

 

[trader_dante]

Managing a trade *Part 5*

It is at this point, where the trade, at 365 pips in profit, has returned a reward of 8 TIMES THE RISK, that I would operate in a way that people would find hard to follow.

At this stage I would be playing for the next target (unseen on the charts but at 2.3298 to be precise)

To make sure that I am not shaken out by minor retracements or a phase of consolidation I would move my stop up to just beneath the previous resistance which now coincides with the 20ema.

I would keep it here until I see a more meaningful place to put it.

With this stop placement I am prepared to give back 185 pips of my profit in order to catch a larger move. Since my next expected target is over 190 pips higher that still gives me a R:R of 1:1 which I am more than happy with.

I also stay in the trade in the anticipation that the market might present me with a potential situation to add to my position.
When I hit on a large move like this I am always thinking of how I can make the most out of being right. This is key to me.

Where I can ADD not where I can EXIT.

Adding to positions or pyramiding requires careful planning. We will consider ways to do this at a later time.

 

[trader_dante]

td

Apologies if you have covered this before (this has become a long and fascinating thread
) and also that I'm not familiar with forex since I don't trade it.

What spread are you operating with? When you say "one pip" do you mean one pip on the mid-price (thus actual entry price is above that)? Or, do you mean one pip above using an offer price chart? Or what?

Just interested

good trading

jon

Hi Jon,

My charting works off the bid. So if the high of the pin is 2.3114 then I would add 1 (to equal 2.3115) and then add the spread, which in this case is 8.

Therefore my entry would be 2.3123 if I was going long.

 

[barjon]

ah! thanks td

 

[forexbee]

Hi Jon,

My charting works off the bid. So if the high of the pin is 2.3114 then I would add 1 (to equal 2.3115) and then add the spread, which in this case is 8.

Therefore my entry would be 2.3123 if I was going long.

Hi TD,

I missed this part of adding spread to entry, i was just only using above or below 1 to entry. Moreover with SBfirms (Igindex) they also account (+/-) 3 pips for guaranteed stop (charge) to short/long entry. I believe i have to consider that in my entry when operating thru igindex.

Fxbee

 

[lurkerlurker]

Hi TD,

I missed this part of adding spread to entry, i was just only using above or below 1 to entry. Moreover with SBfirms (Igindex) they also account (+/-) 3 pips for guaranteed stop (charge) to short/long entry. I believe i have to consider that in my entry when operating thru igindex.

Fxbee

I've stopped trading with them because of this. You don't need a GSO for the most liquid market in the world unless you are holding positions over the weekend. With CMC the spreads are pretty much the same as IG, and there is no GSO requirement. However, you can't trade at £0.50pp like you can with IG.

Regarding adding spread to entry - with IG your entry price is adjusted. If you lift the offer at 2.0520 on cable your fill will come back at 2.0523. Equally, if you hit the bid at 2.0517 your fill would be 2.0514. If you want to go long on the break of a pin, then set your entry to 1 pip above and let the system take care of the rest.

 

[lurkerlurker]

TD, thanks very much for walking us through your trade management. Something tells me I am going to be more comfortable holding trades in the future, thanks in part to your advice. However, I am a little concerned with the charts you have posted - they don't seem to correspond to my chart which I posted earlier. In particular, there is a more pronounced retracement which may have shaken even you out of the trade. Would it be too much for you to briefly comment on trade management from the NF chart? Also, would your EMAs correlate given that data is missing in your other chart? Finally, why is data missing? Is this chart taken from a bucket shop, and if so do they not quote 24 hour FX? Thanks in advance.

I have decided that my entry criteria are going to be tightened in order to give me increased confidence to hold a trade. I'll be making much more use of the daily timeframe when confirming 1H entries, and will be more selective about the amount of confluence required. Further, I am going to identify in advance zones where the price may stall at, and note objective criteria for exiting the trade under these circumstaces. Further, I am going to implement the rule given in the article linked earlier to only check positions on the close of each bar on the TF you use - for me, this means only checking positions on the hour when I will also be looking for other pins. A final consideration in my trading plan will be exiting only on stop loss orders. This should stop me panicking an exit at the market, since stops need to be placed at around 2x the spread worse than the market price with CMC. A reluctance to trail this order up too quickly and therefore take a worse exit price should keep me in trades longer. I fully expect to be taken out for BE more than once however.

 

[trader_dante]

TD, thanks very much for walking us through your trade management. Something tells me I am going to be more comfortable holding trades in the future, thanks in part to your advice. However, I am a little concerned with the charts you have posted - they don't seem to correspond to my chart which I posted earlier. In particular, there is a more pronounced retracement which may have shaken even you out of the trade. Would it be too much for you to briefly comment on trade management from the NF chart? Also, would your EMAs correlate given that data is missing in your other chart? Finally, why is data missing? Is this chart taken from a bucket shop, and if so do they not quote 24 hour FX? Thanks in advance.

Just noticed this! It is due to Gbp/Chf being classed as a minor FX pair and therefore closing overnight. Let me post a chart from the direct market...

 

[lurkerlurker]

Just noticed this! It is due to Gbp/Chf being classed as a minor FX pair and therefore closing overnight. Let me post a chart from the direct market...

My chart linked above is from the direct market. Thanks for taking the time to explain trade management and exits. I've just entered GBPJPY short on an hourly pin - stop are in, emotions are out! I'll check again at 7, and see if any action re my stop needs to be taken. I got 228.17 short on the break of the pin, with a stop at 228.67. The market is heading north again, and it looks like my stop has a high chance of being hit. Perhaps it isn't best to go against the carry trades when the YM is up 300 points, but I'm just taking the pin bar from a reasonably important S/R pivot.

 

[trader_dante]

Managing a trade *updated to include dm chart*

This is a chart of the direct market which includes the "out of hours" action missing from my last chart.

Interestingly enough, my ascending TL appears slightly lower down on this chart. If you remember in my first chart I saw the pin at point A as a warning sign because the nose poked through the TL but closed below. This time it closes above with the low finding support at the TL.

As I have said before - the charts are just a window to view price. You should play what you see and the result (which was a move of my stop up to below the pin) would have still been the same.

So with a stop below the pin at point A (see horizontal white line) it is more than likely that I would have been taken out by the pin that occurs in the middle of the night (see arrow). This breached the low of the previous pin by 5 points.

However, lets talk about that pin because if you were awake to get it, it provides another excellent trade. On this chart it looks so small as to be insignificant but the reason for that is that the huge move that follows it alters the scale of the chart, reducing the appearance of the size of the pin. Lets look at in context.

 

[trader_dante]

Gbp/Chf *continued*

As you can see, when the huge move to the upside is taken out, the pin appears larger.

What does it have in its favour?

- It has found support at the ascending TL

- The 50 is sloping up and the pin has formed in the zone of the 10 and the 21

- The nose of the pin hits the 38 fib from the swing low (see chart 2)

 

[lurkerlurker]

My chart linked above is from the direct market. Thanks for taking the time to explain trade management and exits. I've just entered GBPJPY short on an hourly pin - stop are in, emotions are out! I'll check again at 7, and see if any action re my stop needs to be taken. I got 228.17 short on the break of the pin, with a stop at 228.67. The market is heading north again, and it looks like my stop has a high chance of being hit. Perhaps it isn't best to go against the carry trades when the YM is up 300 points, but I'm just taking the pin bar from a reasonably important S/R pivot.

Stopped out (-64 pips). Waiting for the next trade. Average win is certainly too small to support these stop sizes at this win %. I'll need to ensure I select high probability trades I have the confidence to allow to run in order to make profits.

 

[trader_dante]

Trade update *Eur/Gbp*

Speaking of exits, Eur/Gbp has had a good attempt to take me out by coming just 2 pips from my stop before holding.

My stop was placed below the lows of the recent consolildation period. (see higher line on chart)

(note that my long, with entry at lower line on chart, was in the March future rather than in the rolling cash as it offers better value for a longer term position)