Making Money Trading

[trader_dante]

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

What do you mean by this?

I mean the channel that runs between the 10 and the 21 EMA.

 

[superspurs]

ha ha,hey td,do you think the gold market was reading your posts last night,its on a good pullback

 

[trader_dante]

The following excerpt is from an interview with James B. Rogers, Jr in Market Wizards by Jack D. Schwager:

Do you always wait for a situation to line up in your favor? Don't you ever say, "I think this market is probably going to go up, so I'll give it a shot"?

What you just described is a fast way to the poorhouse. I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up.

+++++++++++++++++++++++++++++++++++++++++++

I can't help thinking of this quote when I look at Eur/Gbp. There is the most interesting development going on in this market that I have seen in a long, long time.

Chart 1 is montly TF. Chart 2 is daily TF.

 

[shadowninja]

I mean the channel that runs between the 10 and the 21 EMA.

I don't see it. Could you mark the original graph with the channel?

 

[trader_dante]

I don't see it. Could you mark the original graph with the channel?

Sure. I've shaded it in blue.

 

[trader_dante]

Lurker

You have to learn to ignore the lower timeframes if you want to catch the big winners.

More importantly you have to IGNORE your P&L.

You entered on the daily TF. See chart 1. Your entry into a short position was clearly right and the market looks very weak and is heading into significant support with momentum.

Now look at chart 2 which is the hourly TF. To catch this move you have to be prepared to ride the move through the noise and give back large numbers of pips.

Note how the first retracement swing, which caused you to exit, confirms what I have said about how the move will retrace to your entry even after a large move in your favour.

 

[shadowninja]

Sure. I've shaded it in blue.

Ah, thanks. When you wrote "into the zone" I thought you meant between the two MA lines.

 

[trader_dante]

Ah, thanks. When you wrote "into the zone" I thought you meant between the two MA lines.

I did!

Price retreats into the channel/zone that forms between the 10 and the 21 EMA.

This is what I have shaded in the chart above.

 

[trader_dante]

Does anyone know why the thumbnails of my .gifs all have a red cross in them and refuse to display? When I click on them they open properly so the image has uploaded correctly but it won't display as a thumbnail.

 

[1Pipped]

I can see the thumbnails TD, try pressing Ctrl + F5 , might work might not ...

 

[shadowninja]

I did!

Price retreats into the channel/zone that forms between the 10 and the 21 EMA.

This is what I have shaded in the chart above.

Oops, I meant I thought you meant at the circle. I misunderstood what you wrote.

And the thumbnails work fine for me.

 

[trader_dante]

Tips and Tricks *Part 6*

The market often looks like a chaotic mess to the untrained eye.

However, there is a window of opportunity where it often moves with a clear rhythmn.

This rhythmn can be seen at the times when price breaks through previous support or resistance areas and retraces to retest them.

It is at the times that price reaches or retests a support/resistance pivot that the trader is presented with, in my opinion, the single BEST TIME to enter the market.

These pivots work so well that I have honestly come to the conclusion that a trader cannot fail to make money in the market if they are patient enough to wait for them and study how the market reacts to them in terms of its price action.

I find it somewhat ironic that the concepts of support and resistance are one of the FIRST things every trader hears about when they discover technical analysis and yet it is often a long time after - in some cases years later - that they are truly understood.

It is a great feeling however, when you get that revelation because then a trader feels "in the zone".

A post over on the J16 thread summed up perfectly, the way that the market moves, from a trader and regular poster who has finally, after a very long time, understood it: james16 Chart Thread - Page 563 (Post number #8431)

Read his post and then have a look at each of these charts.

The first is the Usd/Chf, the second is the Usd/Sek and the third is FTSE 100 listed Barclays. Save a copy of the third chart and mark the arrows on it yourself.

 

[trader_dante]

Tips and Tricks *Part 7*

Pyramiding

This is a complex area and I am going to cover it only briefly.

Pyramiding is the method of increasing a position size. This is either done by:

a) using unrealised profits to increase margin or
b) by the use of excess margin.

Which of these you choose depends mainly on whether your broker increases your margin when you have unrealised profits on a trade. Mine doesn't so I mainly use excess margin.

The point of pyramiding is first and foremost to INCREASE YOUR PROFIT.

However, it is tricky and not recommended for the beginner trader.

The reason I talk about it though is that it is an ESSENTIAL skill to master because it MAXIMISES your gains if you manage to get a good entry into a trend.

The main rule to follow when pyramiding is NEVER pyramid down.

If your first position shows you a LOSS, then you should never increase it.

This rule remains consistent each time you add. If at any stage, your previous position is in a loss, you should never add another.

If your first (or previous) position shows you a gain then you should look to add if you expect the trend to continue and you can define an optimal place to enter.

The optimal place to enter for me is where, if I am stopped out on ALL positions, my reward has INCREASED and my risk has DECREASED.

This is explained by considering the following hypothetical example:

Assume you were to take a long position in Crude oil at $80 with a stop at $79. When you take this position, your risk is 100 ticks.

Now let us presume that Crude moves higher but encounters resistance at $85. After a few days it breaks this to the upside and rallies to $90 where it then begins a retracement that takes us back to the $85 level.

When it reaches it, it forms a pin bar that suggests the previous resistance has become support and the $85 level has become an s/r pivot.

Now imagine you were to add to your trade, in an equal size, on the break of the pin bar and get a fill at the new price of $86 and move your stops on both positions to $84.50.

Your risk is now 450 ticks gain on first position minus a 150 tick loss on the second making a net gain of 300 ticks if you are stopped out. You have now potentially double the profit from this point onwards, should the trend continue.

To get this benefit, the trader "pays" (in terms of risk) the potential forfeit of 150 ticks (the potential loss on the second position).

Money managment when pyramiding

I have read that a trader should start with their largest position and then add in SMALLER increments each time. This would mirror a REAL pyramid which has a broad base and runs up to a point.

I usually add in equal increments so that my positions form more of a tower. What is important to remember is that you should NOT add in GREATER increments.

Adhering to this rule makes sure your position is not top heavy. If you add in greater size the further the move has run, you have the risk that if it suddenly collapses, which often happens with ferocity in extended runs, your largest positions will be hit the hardest.

I hope this has not been too complex and gives you a basic understanding of how to build a position in a trending market.

There has been a lot written on pyramiding and you should certainly read as much as you can.

 

[barjon]

TD

Pyramiding

There's a second "main rule" imo:

no losing secondary position should offset the entire gains of the prior position(s)

Adding equal positions sometimes makes this difficult and I do, therefore, prefer adding in smaller increments, although I do take your point.

Cheers and good trading

jon

 

[trader_dante]

TD

Pyramiding

There's a second "main rule" imo:

no losing secondary position should offset the entire gains of the prior position(s)

Hi Jon,

I wholeheartedly agree with you in my own trading BUT I think that is down to the risk profile of the individual trader.

I think the important point is that no additional position should INCREASE the risk. As long as the total net risk on ALL positions DECREASES each time they add, it is up to the individual trader how much of their gains they wish to give back...

 

[shadowninja]

What I like to do is add smaller (or equivalent) bets that are covered by the initial bet (usually by locking in profit via a stoploss). This means that you will never lose and stand a good chance of winning more.

 

[lurkerlurker]

You have to learn to ignore the lower timeframes if you want to catch the big winners.

More importantly you have to IGNORE your P&L.

You entered on the daily TF. See chart 1. Your entry into a short position was clearly right and the market looks very weak and is heading into significant support with momentum.

Now look at chart 2 which is the hourly TF. To catch this move you have to be prepared to ride the move through the noise and give back large numbers of pips.

Note how the first retracement swing, which caused you to exit, confirms what I have said about how the move will retrace to your entry even after a large move in your favour.

That is a great post and bears repeating. It is now 2008, and my panic exits are the issue I would most like to solve this year. Nobody can consistently get out at the most favourable point, but covering too soon is the road to the poorhouse. Consider the recent GBP/CHF and GBP/JPY short signals for example.

How long would we have stayed in these trades? I know I couldn't have held either for very long. Indeed something to think about.

 

[lurkerlurker]

Short 1U GBP/JPY at 222.17 on hourly pin. Order to short another 1U at 222.20. Stops for both 222.81.

Entry in direction of hourly/daily trend. Short near major longterm support, so cover on bounce. First target is 221Y, which is also the support level. Total risk is 62 pips on both positions. Checked USD and EUR crosses, and the story seems to be JPY strength.

Exit plan - cover on a bounce from major long term support. Stop to BE on test. If stopped out, trade was wrong. If support breaks, wait for 3 hourly closes below the S/R pivot and then trail stop down above the 3 bar high.

Not the best signal, but I think it is worth a trade. Going to pull my additional sell order at 222.20 if 222 breaks first.

 

[trader_dante]

Short 1U GBP/JPY at 222.17 on hourly pin. Order to short another 1U at 222.20. Stops for both 222.81.

Entry in direction of hourly/daily trend. Short near major longterm support, so cover on bounce. First target is 221Y, which is also the support level. Total risk is 62 pips on both positions. Checked USD and EUR crosses, and the story seems to be JPY strength.

Exit plan - cover on a bounce from major long term support. Stop to BE on test. If stopped out, trade was wrong. If support breaks, wait for 3 hourly closes below the S/R pivot and then trail stop down above the 3 bar high.

Not the best signal, but I think it is worth a trade. Going to pull my additional sell order at 222.20 if 222 breaks first.

I saw that just now and thought of you, Lurker. Good luck

 

[lurkerlurker]

I saw that just now and thought of you, Lurker. Good luck

Thanks. Second part of the order has been pulled as it was not filled. Looking for signals on other crosses now. Too early to move stop to BE, but I see price has formed a nice symmetrical pattern on the last three bars - in my experience that is a strong reversal signal.

No pin signals on other TFs, but the JPY is still strong against other crosses, and all are heading towards recent swing lows correlated with major long term support. This trade could be interesting, despite the fact I had missed over 400 pips of the move down. Checking again at 2.

Edit - story still seems to be JPY strength. GBP is weak too - I was considering taking the Cable pin short at the same time, but I don't really like correlated positions. Cable coming into support, but technical signals on that cross seem less valid outside of US/EUR trading hours. All JPY pairs looking weak, but we could see some buying coming in at the support level. Covering on bounce, stop moved to BE at +75.

Edit - 2am - no signals on other markets. Stop on this trade is to be. JPY strength vs NZD, EUR, and USD seems to be declining. Loss of momentum. GBP still weak vs USD and CHF, so I'm staying in this trade. Support from 31 Dec tested to the pip and held. Long term S/R pivot not quite hit yet, but part of me thinks it could break. Wish I was still in from 226.70 - I'd feel like I had a little more room. This mistake is certainly an incentive to stay in the trade. I want an hourly close below 221 and I'll manage the trade from then. Otherwise, I'm leaving the stop in at BE.