Not likely to make any trades today. May make a trade at night around midnight on Monday or Tuesday, and may be looking to trade more actively on Wed-Fri. I’ve been in this zone of going back in forth between trading long term (12 hour-daily charts) and sticking to 4 hour charts. I’m hoping I can be a little more comfortable about how I want to be trading by the end of the week. When it comes to learning in general, I feel that to be successful, there has to be constant progression. I don’t always have to be right, or get something right away, but I have to be in the mist of doing something. If I don’t have a direction, time line, or plan, its much much more difficult to get the final result I want.
There were a few times last week when I thought that price on AUD/USD would turn south for sure, but it just paused and then shot up. In technical terms I misread the continuation as a reversal, be it in the trend, candles, or what have you. To try to combat this, I have decided to always root for the direction of the ADX or current trend until it has a full cross over when I’m trying to get a lot of pips. The exception to this when a very very clear reversal indicator appears. If cases where I get someconfirmation of early reversal, such as a long term overbought signal on Bollinger bands or stalling on shorter time frames, I’ll try to scalp some pips in accordance with earlier adjustment posts.
Following on yesterday’s Entry Strategy, I also planned for an Exit Strategy. I put myself up to the task of roughly 40-50 pips a trade
Rule 8: Should a trade go right, make the following exits: On the first 20% position, take profits at +25 pips. On the 60% position, take profits at +50 pips. Let the last position run based on visual support/resistance, trailing stops based on the low of the last 12hr candle, with a max profit of +100 pips
Rule 8 part 2: Should a trade go wrong, exit the first 20% position with a max loss of 30 pips, or 15 pips below the 12 hr low, whichever is smaller.
Rule 8 part 3: Should a trade go right, and then wrong (aka enough to trigger the other 2 positions), exit the first position as above, and exit the other 2 positions 10-25 (generally 15) pips below entry point.
Therefore, max profit on a trade is 25/50/100, or (25*.20+50*.60+100*.20)=55 per position pips and a max loss of (30*.20+15*.60+15*.20)=18 pips per position.
Understandably 100 pips on the 3rd position is really a stretch, I would be more than happy to get out of the position at +50 pips as well, which is 45 pips in total
Initially I thought that both scaling in and out were good ideas, but when it came to actually doing them, it just seemed so complicated because there were so many ways to do it. If I have 3 entries with 3 exits, all with different pip values, it just seems like a mess to keep track of everything. With scaling in also comes position sizing(if I’m doing a 100k position, should I do 33/33/33? 20/40/40? 20/20/60?) that potentially has different risk valuations. Yet it’s been my experience that when I’m wrong about a trade, more often than not I’m wrong within the first few hours. In other words, it’s the entry point, either too soon or I assume it’s a good trade when it’s just not there that is hurting my trading. Because of this, scaling in with probes seems like a good idea that I need to incorporate.
Additionally, I wanted set myself up with a pip goal. Letting winner run is an important thing to have, but I prefer consistency. Therefore I decided that if I made a buy and it just kept going up, I would have most of the trade cashed out at a certain goal, and let a fraction run until a trailing stop knocks it out.
After some thought, here’s how I’ve decided to approach it.
Rule 6, position size: Trade 3 positions, split 20%/60%/20%.
Rule 7, Entry management: I will put in the first 20% at a certain entry point, and then put in the remaining 80 (split into 60/20) 10-15 pips in favor of the direction chosen. So on a 100k position I will enter 20k at say 1.03150, and then 60k at 1.03250 and 20 also at 1.03250.
Here’s my setup on AUD/USD Short:
Limit order Short AUD/USD for 8000 at 1.03580. SL at 1.04010, TP at 1.03330.
Limit order Short AUD/USD for 24000 at 1.03480. SL at 1.03630, TP at 1.02980.
Limit order Short AUD/USD for 8000 at 1.03480. SL at 1.03630, TP at 1.0273.
Here on the 12 hour chart it looks like it could be reversing soon. This is based purely on candle formations. It helps that Stochastics are overbought, but not necessary. Ideally the wick on the previous candle would be taller to make the Shooting Star candle stick out more, but a top is a top. As for entry, I’ve decided to move to the 4 hr charts:
The reversal started to show here, and has since rebounded a bit. Because of this, I have made the entry point a few pips below the short term (6 candle) low.
This is for sure going to be the most important part and the most variable, but I want to put it out there are early as possible to give a good idea of how I’m thinking.
Thought 1: Stochastics is kinda cool, but not the most reliable. Even with the trend vs non trend distinction, I’d rather look at it but not base trades with it as the number 1 bullet
Thought 2: I like the idea of the double Bollinger Band and the buy/sell zones. It would be good if I could back this with some other indicator.
Thought 3: ADX is honestly an indicator I know very little about, but the Red/Green crossing seems to work well in conjunction with price action.
Rule 4: Trade candle patterns over all. They ARE price, and price rules. Dojis, engulfing patterns, etc are more important than oversold/overbought indicators.
Rule 5: Trade slow and smart. Always wait for confirmation.
So I started with TT, and recently after I moved to ITT. However since both are very dependent on being active with the markets and watching for points to be hit, it doesn’t work so well with me as of late. While automated trading may be possible and I know of people who are trying to create a script to run TT, I’m still trying to learn about the markets so I want a system that is discretionary (as opposed to automated) to allow for learning opportunities.
Also I have gained many followers in the recent months (Btw thanks to all of you, I never would have thought tumblr users would be interested in this kind of stuff :D) and so I wanted to put in sort of a super condensed version of how I’m trading. Anyone is always more than welcome to send me a question via the Ask Me Anything button, no matter how basic.
So here are some rules, and then later on a check list that I’m going to try to follow. I’ll write what I can off the top of my head now, and will continue to add on to it as time goes on.
Rule 1. Try to trade only AUD/USD, EUR/USD, and GBP/USD
Rule 2. Use more 12 hr and 1 day charts, as opposed to 4 hr and 1 hr. The latter time frame is too short and requires too much monitoring for the average student/full time worker.
Basically, trading comes down to commitment. The more hours you put in, the better results and more pips you’ll be able to get. So while I’d like to trade 4hr and 1hr charts, aka day trading, I’m going to start with the longer term trades and work my way in. After all, if I can’t be profitable with the longer term trades, I’d rather not spend more time to trade smaller frames.
Rule 3. Trade with a lot of triggers. Stop loss, take profit, etc.
I’ll be resetting my trading account back to 1000 flat when it comes time to trade on Sunday/Monday
And btw, the last trade I got into a few days ago (the missed entry one) ended up in a small profit. Not really worth getting into right now.
So, bask to the question of stochastics and wrapping it all up. When are stochastics a good indicator and when are they bad? Are the reliable? I think that my new answer, for the timing being, is kind of like a flow chart.
If the pair is trending strongly, either in a trend channel or range, stochastics can be part of a very good entry point. In these cases, buy when stochastics are very oversold (10 or under) and sell when they are very overbought (90 or over).
If the pair is NOT trending strongly, or looks to be in a continuation pattern, stochastics should not be used as much for an entry point. In fact, what was once a buy point on a channeling or ranging pair could now be a sell point.
Following up on yesterday’s question, I thought a little bit about the systems. It appears that both are profitable, but of course this seemingly presents a problem: If one system is meant to buy at a certain price, while the other is meant to sell at the exact same price, how can theybothbe profitable? The answer, for those following the systems, are through 1) the system itself and it’s stops, and 2) logic, and that some days are more profitable for 1 system than the other. The second point is what I’m more interested in.
The way I see it is that a losing day (or net 0 pips) on 1 system is a winning day on the other, given that the triggers appear. The best case scenario is if I could tell when to use what system right? How?
I’ve come up with a few “solutions” and it also answers the faulty stochastics problem from yesterday.
If I think about the systems (and this has been said before), 1 is a reversal system, the other is a continuation system. Therefore, the reversal system works best inrangingortrendingmarkets, while the continuation system works best incontinuationmarkets.
So lets go back to yesterday’s chart.
This chart basically breaks down into a trend channel followed by a trading range followed by a continuation downtrend. While it’s true that a continuation trend is a trend, it’s easy to tell that the reversal trading system works much much better on the channel on the very left than it does on the very right. In other words, I’d rather be using ITT for A and B, and TT for C. And the stochastics show. Using only the very oversold indicator, it is profitable on A and B, and not so much on C.
Whew. Finally got 2 free days, and I spent a little time today to just look at the charts. Take a look at the 1 hr, 4 hr, and 1 day, take a look at the other currencies, compare contrast price action and stochastics, etc. The losing trades I made were slightly more off than they should have been; not in positional entry and exit, but in mindset.
Here’s something I noticed today on the AUD/USD chart. One of the main ideas that I have been running with and using as a check off for entering into a trade is the stochastics. I noticed before hand that the 80 and 20 marks are good, but not great, and that the 90 and 10 marks are much better. However, I don’t think it’s so simple; A new perspective needs to be added:
So first start by looking at what turns out to be a good trade and what turns out to be a bad one, purely on the oversold line at 10. Some of them aren’t perfect, but they are trades I would have made with such a system, and in fact did make.
1 and 2 are great trades. 3 and 4 are okay. 5 is bad. 6 is good depending on where the stop is, and 7 is good. 8 and 9 are both bad. Hopefully it’s easy to tell what makes a good trade in hindsight and what doesn’t just look at where price goes after.
A trend that is appearing is that as time goes on, the trade prospects get worse. Why? It’s an interesting point to think about.