Making Money Trading

[omni]

Lurker,
Thanks for talking us through your trade.
I am surprised you have excited so early.
I would have set the stop at the bottom of the pin and not looked again til tonight.
To exit a daily timeframe within the first few hours of a trade is quite reactionary.....
If you look back at daily pins historically. Closing any of them within 24hrs would almost 100% of the time be too soon.
I guess we will all see soon enough if you made a good or bad call.
Best of luck.

 

[gorney]

Happy Christmas!

I hope you all had a great day.

Just to remind you - there will be a word document that has all the lessons in it along with a Q&A section that reprints what I think are some of the best questions in the thread. I will get this up sometime within the next few weeks. It will be released in volumes e.g volume 1 will cover pages 1-50 and volume 2 will cover 50-100 etc

I also still intend to get some video up here at some stage. First of all I need to learn how to make something that is a reasonable size. At the moment the file sizes are coming out huge. If anyone can help in this respect it would be much appreciated!

I'm off to do some reading now. One of my personal goals for the New Year is to learn as much as I can about the fundamentals in trading. With that in mind I've going to work through "Economics Explained", "How To Read The Financial Pages" and "If It's Raining in Brazil, Buy Starbucks"...

It's either those or watch the latest Harry Potter

Thanks TD for all your hard work.

I've finally managed to catch up. Its taken me a week to get from post 1! I've learnt so much on here and its taken me back to my roots. I feel like i've found myself again!

Thanks again, you've done a great work here.

 

[trader_dante]

TD pointed out that these moves tend to come back to BE before they take off again, so I'm leaving this one alone for now.

This is exactly what happened. The move retraced near to breakeven and then went onto make new lows. Why are you using a trailing stop on the hourly when you are trading the daily timeframe? You talk of fundamentals pointing to a bearish outlook for the pound but you are acting far too reactionary. That's a real shame because this could be a very profitable move.

 

[counter_violent]

This is exactly what happened. The move retraced near to breakeven and then went onto make new lows. Why are you using a trailing stop on the hourly when you are trading the daily timeframe? You talk of fundamentals pointing to a bearish outlook for the pound but you are acting far too reactionary. That's a real shame because this could be a very profitable move.

Kudos to lurker for posting live is the first thing to say.....but

I feel the initial analysis was wrong...I watched this price action unfolding in real time.

The observations are....GBP weakness....well no actually the story was about relative JPY strength...plain as day when you look at everything JPY cross last night.

What is a "bear" market as far as currencies are concerned.


Mixing of T F's ...fine if you decide to take the windfall profit of the sharp move...but mixing of T F'S then only taking half the windfall overall...kinda smacks of fear and making it up to suit the mood.

Up all night...no rest...and then making a decision to close the trade.....when the body clock says...i've had it...need sleep...sod the trading...need sleep...grab the profit...tomorrow's another day.

I'm not really criticizing....i'm sure we have all been there....it's just that there are better ways to deal with situations.

cv

 

[shadowninja]

What is a "bear" market as far as currencies are concerned.

Interesting question. Six of one and half a dozen of the other, as they say!

 

[lurkerlurker]

Mixing of T F's ...fine if you decide to take the windfall profit of the sharp move...but mixing of T F'S then only taking half the windfall overall...kinda smacks of fear and making it up to suit the mood.

I felt that exiting where I did was wrong even when I did it. Recall that I risked 189 pips on that trade. My historical and backtested win % is high, but not that high that I should be looking at trades making 1/2 R. 1 R is fine though, and in this case was a nice target for the move as it coincided with daily support.

Up all night...no rest...and then making a decision to close the trade.....when the body clock says...i've had it...need sleep...sod the trading...need sleep...grab the profit...tomorrow's another day.

Got it in one I guess. I've managed to wreck my sleep pattern in the last ten days and am feeling very run down. I forgot to have a rule in my trading plan about only risking capital when I am physically and mentally 100%. Thank goodness for the long weekend. I should be in better shape by next week.

TD - you were right again about this trade. I didn't think the market would come back to BE and take off again after moving 120 points, but I guess I was too tired to remember how markets work and why they behave in the way they do. Looks like I'll have to find another time and place to answer the "why didn't I just come back at EOD" question. (at which time I would have made an excuse about not wanting to pay 4 days interest and hold over a long weekend and bailed)

Remember - the pins tend to move at least R, so any move taking profit < R is likely to be premature. I'm going to backtest that assumption on some TFs over the weekend.

My "I'm not taking an entry 7 pips worse off when I miss the break of the pin" GBP/CHF non-trade is up almost 1000 pips now, but that doesn't really matter because I wouldn't have bagged more than 50 of them even if I had got into the move.

Looks like we've identified yet another problem with my trading. Even when I can become consistently profitable and picky with my entries, I mess up the exits so I am around 1/3 as profitable as I should be.

All the best for 2008, and thanks for the advice!

 

[lissasara]

Great thread! Thanks for providing such wonderful information.

______________________________________
Hotstockideas

 

[Glenborrell]

EDIT - 7AM. Covered at 225.74 for +82 net of spread on new hourly high taking out the trailing stop. Reverse pin has also formed on the houly's, so best to get out. A good trade though.[/QUOTE]

Lurker, i'm very surprised you closed this this early, it still looks a good trade.

I was going to PM you but seem to not be able to any more??

You seem to be over analysing your trades and following them to closely, for example entering on the daily then monitoring on the hourly (others have pointed this out).

Entering the trade following the techniques TD has taught us would have you 180 pips up or so up coming into the weekend. Then you could have moved your stop to BE and be on a free trade.

Now i'm not trying to be critical as i am only a beginner myself but maybe when you place a trade on the basis of the daily you should go away from the screen (even turn it off) and think how to approach it. Write down how to approach it and then follow it. I know we all do this in our heads but i've started writing things down so they are in black and white. And as i am only learning my first question would be. "How would TD trade this". Maybe, follow his technique to the book until you feel you have the discipline to "sit on your hands" if need be.

Have confidence in your formula so you don't worry about such a large stop. I know this stop would be to large for me and that's why at the moment i only trade FTSE 350 shares as the risk fits with my current money management. As the account grows hopefully i'll be able to trade with larger stops and therefore trade currencies and other instruments. Saying this i have began to follow currencies but i just keep a journal of possible trades if the stop is too big. I will continue this until i have complete confidence in what i am doing, ie my "formula" for trading.

I have gained an immense amount understanding and knowledge from this thread both from TD's techniques but also from others who have posted, including yourself, keep it up please.

I've now managed to catch up on the thread. One point i'd like to make would be for those who want TD's trades posted as he takes them. For example, "Trade X and enter at XX then set your stop to XYZ". I don't think this is TD's intention to trade for us. But here is an old chinese proverb that i think sums it up.

"Give a man a fish, feed him for a day. Teach a man to fish, feed him for life".

I know what i would prefer.

Thanks again TD.

Hope your all having a nice Christmas and New Year break.

Glen

 

[trader_dante]

Tips and Tricks *Part 3*

Throughout this thread we have concentrated mainly on pin bars because I believe they are one of the easiest setups to trade and I have showed you how this one setup can be used as the basis of a profitable strategy.

However, there are many different types of price action setups and some of them can be even more profitable than pin bars.

I have briefly listed all of them earlier in this thread. If you want to learn more about them you should go and visit the J16 thread if you have not done so already.

A setup that we have already encountered in this thread is the INSIDE BAR.

These are bars that have a range INSIDE that of the preceeding bar.

This is a setup that I regularly look for.

These are tricky bars to play well because you will often see a "fake out" of one side of the bar before the real move occurs. However, if you catch them right they can give huge profit potential with low risk.

Here is a great example (see chart) In this chart of the Eur/Gbp, you can see that the price moved higher through the first half of September '07 and then consolidated until mid November.

Rather than play the breakout, a strategy I like to employ, is to wait for the break and then look for an inside bar that shows the price is consolidating. I see this as the perfect time to see if the market can get the momentum to continue higher.

In this example the market breaks out and forms an inside bar. What I particularly like about this setup is that the breakout bar and the inside bar both form a TWO BAR HIGH. This means the highs of the two bars are exactly the same to the pip.

Therefore, if the price breaks this level then you are getting not only a confirmation of the initial range breakout but a momentum trade from the orders that are likely to be placed above the two previous day highs.

 

[trader_dante]

Tips and Tricks *Part 4*

Here I would like to talk briefly about trade entry and stop placement. As I end up saying in each post, this is something I have talked about in detail before but I repeat it here because I want to make sure I have covered every single aspect that I promised I would at the beginning of this thread.

Everyone that has read this thread through should know that when playing a price action setup, I place my buy and sell stops for ENTERING the market, just ABOVE or BELOW the HIGH/LOW of the bar.

I put my buy and sell stops for EXITING the market on the OTHER SIDE of the bar.

For example if I was to trade the pin bar in the chart below I would place my buy stop one tick above the high of the pin bar and my sell stop one tick below the low.

 

[trader_dante]

Tips and Tricks *Part 5*

In the next few posts I want to give another example of how I approach trade management.

How a trader manages their position spells the difference between a winning and a losing trade (and often trader).

Exits from the market are, in my opinion, far more important than entries into it.

However, there are countless different ways to manage a trade and like almost all aspects of trading the variety of methods causes the new trader to become confused and uncertain as to which way is the BEST WAY to approach the problem.

Here is the secret:

There is no right or wrong way.

Infact, that is the secret to trading in general.

It is all about finding a strategy that you are comfortable with.

The main way that I, personally, manage a trade is to see how the market responds to potential support and resistance levels.

I also keep an eye on the moving averages that I have mentioned earlier in this thread: the 10, 21 and 50.

To illustrate this I am going to give an example that follows on from the pin bar entry in the previous post. The pin bar would have got us a long entry into spot Gold.

This trade has so far returned a reward of over 12 times the risk and certainly shows that it pays to be patient and wait to see what happens rather than looking for the exit as soon as you are in a position.

The reason for the entry can be found in the chart below.

On the hourly TF, a pin bar formed directly off the 61 fib level which coincides with an s/r pivot zone.

 

[trader_dante]

Trade management *continued*

All the readers of this thread will know by now that I like to be prepared and have all the potential levels drawn on my charts before I enter the market.

So, lets go ahead and have a look what the market looked like when that pin occured and highlight potential problem areas.

Firstly, here is a chart of the daily timeframe. See chart.

The first thing I am aware of is the fact that price is winding up. It is making a series of lower highs and higher lows.

I have drawn in a descending TL that at the time of the trade, I am aware may or may not come into play in the future.

 

[trader_dante]

Trade management *continued*

I now move onto the TF I am entering on - the hourly.

The first area we can see that is likely to be a problem on the hourly chart is the s/r pivot at $805.

If price goes through this we can see an area of resistance above it at $814.

 

[trader_dante]

Trade management *continued*

As you can see from the chart below the position triggers our long entry and nearly takes us out but our initial stop beneath the pin keeps us in the position and the market moves higher.

The first thing I am aware of is that a majority of the time, the market RETRACES the initial move.

I have been burnt a good many times by seeing a sharp move in the direction of my position which led me to put a stop at breakeven. The market would then retrace and hit my stop before continuing higher.

Over on the J16 thread, this has been coined "the retrace bus" by one of the experienced traders and regular posters. The idea is that the bus (price) departs and then comes back one more time for those that have been left behind and didn't get on board for the move.

As a result of this, I now usually WAIT for the retrace and subsequent move higher before I move my stop to breakeven.

Although it doesn't retrace to breakeven here, I still would NOT move my stop until I see the gap up that occurs on the 21st December.

At that point it becomes a free trade and I am then looking to see whether the price can make it as far as my first s/r level and what it will do if it reaches it.

The chart shows us that it makes it there and then forms an inside bar just beneath it.

What interests me most here is the arrangement of the 10, the 21 and the 50 EMAs. The moving averages were all very close together but now they are all pulling up and away from each other. I have noticed that this will often but not always happen before a sharp move.

Now this is where the position gets interesting. Since this is a significant pivot, I would add a SECOND ORDER to go long on a break of the inside bar higher and move my stop (if triggered) to beneath the 21 EMA.

The reason for putting it here is that inside bars are prone to "fake outs". It is also my experience that a market will retrace to the zone of the 10, 21 before continuing higher. If this is going to turn into a trend then by keeping my stop here, I would expect to stay in it.

 

[trader_dante]

Trade management *continued*

The market explodes right through this s/r level, triggering our second entry and heads into the next resistance.

Price comes close to our second level and forms a doji (circled).

At this point I would move my stop on the second position to just beneath the low of this bar. The reason for this is that a break of this low shows a temporary REJECTION of the resistance area above.

The stop on the first position would go beneath the bullish bar that triggered the break. This is because price could retrace and find support at the previous resistance.

As it happens the price consolidates over the 21st and on the 24th it stalls once more at the second resistance level. It rejects it initially, then it powers through it, only to fall back beneath it once again. However it is clear that this consolidation phase has a bullish bias to it.

At the close on the 24th I would move both the stop on my inital position up, so that BOTH are just beneath the low of the doji which also marks the low of the two day range.

As price pushes through on the 26th, we can see that the descending TL that we drew in on the daily TF is now coming into play. Price touches it to the tick and then retraces but only marginally.

At this point I would move both my stops a little higher to just beneath the 21 EMA which is still beneath the s/r pivot.

 

[trader_dante]

Trade management *continued*

Once this descending TL is taken out, price retraces marginally into the zone of the 10, 21 EMA which holds it and price moves higher over the course of the next few days to take us near to the all time highs at $845.

At this point I want to see how the price can react to these highs and I would move my stops up to beneath the 50EMA to give the market a chance to consolidate before a possible move to new highs.

This brings us up to the present and hopefully shows you how I would manage a position by using s/r and the three EMAs.

 

[trader_dante]

Is Spreadbetting more profitable than direct market access?

I am aware that the gold charts used above are that of a spreadbet broker and that the direct market chart will differ.

However, the principle of using s/r levels to trail a stop is still very much the same.

One thing I would say is that In my experience I have found that using a basic spread betting broker as a means of accessing the markets tends to keep you in a move because the basic brokers are usually closed during the times of low volume that lead to random moves.

Throughout the course of this thread we have witnessed a trade being far more profitable with a spread bet broker than a direct market broker at least twice.

My Wheat trade was a very spectacular example of this. I made £1,335 in a considerable bull run. With a direct market broker, I would have taken a LOSS of £115 before the move even got underway as the market dipped below the pin in electronic trading, a few days after it triggered.

This gold trade is a perfect example. If trading direct market, a trader would have been closed out on Christmas day for a profit of 83 ticks (see circled area on chart and assuming only one position for simplicity) rather than the spread bet trader that uses a basic broker and would be up 417 ticks as of Friday's close.

I am sure some bright spark is thinking "what if the market gapped against you out of hours and it then kept going, you'd be out far sooner than you would in a sb broker"

TRUE. However, if you use the guaranteed stop facility in situations like this then you actually have a DISTINCT ADVANTAGE over direct market traders because (presuming you can fix your GSO that close) you will be taken out IF it gaps down but you have a chance for it to trade back up out of hours.

I would venture to add two things, before I get flamed:

1) Many SB brokers are now open "out of hours" so this only works on the ones that are NOT
2) This probably evens itself out over time

 

[lurkerlurker]

Lurker, i'm very surprised you closed this this early, it still looks a good trade.

I received my CMC daily statement. They give you the P&L for both the opening and closing parts of the trade. If I had left the trade until MOC, it would have made 235.00. Going long to close caused a loss of (153.00). Looks like I cost myself £150 jumping the gun. If I can do so much damage to my account at £1pp, I must be mad thinking about trading more! 82 profit, however I would have made 235 if I had left well alone. This should teach me to only take exits on the same TF as entry! Another expensive lesson.

 

[DaxDestroyer]

I am aware that the gold charts used above are that of a spreadbet broker and that the direct market chart will differ.

However, the principle of using s/r levels to trail a stop is still very much the same.

One thing I would say is that In my experience I have found that using a basic spread betting broker as a means of accessing the markets tends to keep you in a move because the basic brokers are usually closed during the times of low volume that lead to random moves.

Throughout the course of this thread we have witnessed a trade being far more profitable with a spread bet broker than a direct market broker at least twice.

My Wheat trade was a very spectacular example of this. I made £1,335 in a considerable bull run. With a direct market broker, I would have taken a LOSS of £115 before the move even got underway as the market dipped below the pin in electronic trading, a few days after it triggered.

This gold trade is a perfect example. If trading direct market, a trader would have been closed out on Christmas day for a profit of 83 ticks (see circled area on chart and assuming only one position for simplicity) rather than the spread bet trader that uses a basic broker and would be up 417 ticks as of Friday's close.

I am sure some bright spark is thinking "what if the market gapped against you out of hours and it then kept going, you'd be out far sooner than you would in a sb broker"

TRUE. However, if you use the guaranteed stop facility in situations like this then you actually have a DISTINCT ADVANTAGE over direct market traders because (presuming you can fix your GSO that close) you will be taken out IF it gaps down but you have a chance for it to trade back up out of hours.

I would venture to add two things, before I get flamed:

1) Many SB brokers are now open "out of hours" so this only works on the ones that are NOT
2) This probably evens itself out over time

Isn't it always up to the trader to decide, when he trades?
I prefer the choice, even a tough one I trade mainly the Dax :clap:

 

[shadowninja]

Thanks for the info you've posted. Very interesting stuff.

into the zone of the 10, 21 EMA

What do you mean by this?