Hi MP,
I have been following your posts from some forums and I am trying to demo the method you mentioned from your posts mainly using LRCs, S and R, fibs, ziggies, checking for reversal times and without stoploss therefore using careful money management to protect the margin. I want to mainly trade GU from H1 chart, looking at daily, H4 & H1 trend.
Now, let's say the trend in daily chart is up with price halfway to the top of daily LRC, H4 trend is down and H1 is up. Somewhere along I take a long position on H1 chart and not long after, price goes in strong downtrend against me. Some days later, price is lingering near the bottom of LRC on daily chart and, snap, it broke down the bottom of daily LRC which normally imply the uptrend on the daily is weakening or about to be over...Now because no stoploss is used, how do I protect my position in that case? Do I counter trade it? As I would imagine taking a position from H1, having price goes against me then relying on higher TF trend to save me but it failed, would normally cause a very big drawdown if I decide to close that position.
Do I hedge my position on the GU, till it goes back up again? Perhaps you could share some wisdom in regards to what you do when you have a bad trade with this method?
truly an excellent question, although with proper use of technique it SHOULD NOT have done that, EXCEPT !
the half way point on the LRC is normally a "rest stop" for the price on its way up to the top channel, and if you look at your daily charts, you will see how often the price moves off the bottom channel, passes the midpoint, then comes back down, then back up, etc -- using the midpoint as a pivot point, where traders load and unload, daytrading the currency.
so while your scenerio should NOT happen, let us go with it for a while.
If this happens, one immediately goes to the weekly and the monthly charts, which should give you an idea of whats happening ---- you should also determine what caused the drop (if news, note that the price CAN drop below the LRC by a bit and then come right on back up quickly, and while its not usual on the daily, one sees it a lot on the 10 day/240 min chart.
once you determine from the weekly chart where support appears to lie, you can then decide whether to hold or not. If you hold, quite naturally you can enter a counter trade in the direction of the weekly chart (to REALLY help your margin and build equity, I often open 2 equal size trades) which will cover your "unhappy" original trade, you can exit your wrong direction trade piece by piece as the short provides cover if your margin does get dicey (the only problem with the hedge is if the price drops tremendously, when you exit your short, your long will be endangering your margin since there is NO counter to hedge against, so one can eliminate that problem by having a profitable and strong SHORT POSITION, and slowly chipping away at the long --- although you lose money on the long, the short is making TWICE as much. When doing this YOU DO NOT ENTER ANY OTHER TRADES, BUT SIMPLY LET THE SHORT(s) COVER YOUR LONG. (if skillful, one can daytrade smaller timeframes for profit, but NEVER enter a counter trade to the trend direction or you will be right back to endangering your margin)
while i can afford to hold a lot of trades that go against me, i rarely have to but it happens --- it becomes my choice as to whether or not I continue to hold the long, open two shorts and then sell off little bites of the long as we move down, or simply hold the long and use two shorts to build the equity.
now remember, you have to be able to identify support and resistance areas so this is not just a way of holding your margin --- this requires some experience and nerve (which comes to most with experience) and can be scary at times, but with experience, it becomes a very satisfying combination offensive/defensive play !
PS: I apologise if my post is kinda long winded.
Thanks,
David
