Doing another week at least with forex. I’m starting to like it more and more than the traditional stock market.
Longgg posts coming up, but if this pans out these will be the 2 most important posts on this blog.
This system, strategy, guide, build, or whatever you want to call it, is not my own, but borrowed from a guy named “pipwoof” over at babypips.com, which is a pretty darn good resource for learning about forex and trading currencies. I’ll try to make some alterations to see if I can’t make it more fit to my style.
Every strategy should answer 2 questions: When do I enter and when do I exit? While we’re at it, what’s the premise of this system or theory behind it? It’s called the Triple Threat Exit strategy, meaning surprise, it revolves around 3 exits; therefore it probably shouldn’t come as a surprise that the entry point isn’t very important. The idea is to get in at some point, and watch the exit points very well as to be profitable. Simple enough.
-How do we enter a position?-
Using a daily chart, the entry point is at the breakout of any chart; either 1 pip above the previous day’s high for a long, or 1 point below the previous day’s low for a sell. So on candlesticks, simply above the wick/shadow for a long, or below the wick/shadow for a short, no matter the color.
-Wait, what’s a pip?
To be precise, a pip=.0001 Most currencies, outside of the yen, are quoted to 4 decimals (There is often 1 decimal after that which is something like a tenth pip and is often the superscript above the pip, but the pip is more important).
So, if I have a position on EUR/USD which I buy at 1.2313, and sell at 1.2325, that’s a gain of 12 pips. Trading forex is all about them pips.
-Ok, so how are we entering the position again?
Right, we buy if it goes 1 pip above yesterdays high, and sell/short if it goes 1 pip below yesterdays low.
Lets look at a chart a 30 minute chart of EUR/USD from July 24th to the 25th
If we look at the data from the 24th to form our trading plan for the 25th, it’s clear that the 25th was a day to buy since price pushed up the upper boundary. Where though? Lets move to a 15 minute chart of the 25th. It’s worth noting/seeing that a pip is small. the yellow line is drawn at the previous day’s high, and 1 pip above that price still includes that first and 2nd red arrowed candles, which look very minimally above the line.
Do we enter on the first green candle when price hits our target price? Do we wait for a second test? Do we wait until a candle makes a full close above the target line?
Now, it’s very easy to imagine that if we were using, say, 30 minute or 1 hour charts, it would look different. Maybe there wouldn’t be so many shadows or entry points. The wicks would still push the limit and give the green signal on the system, but what if the candle is a doji, hanging man, or shooting star? There are multiple questions to ask about when exact to enter the trade. In the words of pipwoof “judgement. It makes a good trader”. These kinds of questions leave room for people to make their own calls about how they want to trade, which is awesome.
—To play it by the book though, we would enter a buy position on the first red arrow I labeled.
The exit strategy is tomorrow, and is what got me pretty excited about this system.