Hi Dreamliner, great thread you have here! As an ex-pilot, I feel like I'm homeLooking forward for the next post
- #42
- Jan 30, 2016 8:39pm Jan 30, 2016 8:39pm
- Joined Jul 2011 | Status: Gold Again | 10,593 Posts
It takes a lot for me to IGNORE you, but you can try.
- #50
- Jan 30, 2016 11:17pm Jan 30, 2016 11:17pm
- Joined Oct 2006 | Status: Trader | 2,271 Posts
I'm trading forex so many year experience, when price move to firm a trend, all indicator look like a rainbow, after that all indicator crash in sideway move, trust me...!!
- #53
- Jan 31, 2016 2:10am Jan 31, 2016 2:10am
- Joined Oct 2006 | Status: Trader | 2,271 Posts
How to take advantage of a trading tailwind.
When we fly East to West our dispatchers try to pick the most advantageous route and altitude to put us right in the middle of the Jetstream. We can save sometimes two hours or more (on long routes) by flying directly in the tailwind. Our technology tells us what the winds are like at different altitudes, and we try to maximize the tailwind.
The reality is that most routes we fly from East to West take advantage of the Jetstream tailwind. Likewise in trading you can follow a trend and make money in that trend. But our airline wants to maximize the tailwind, so we not only fly the correct route but also the optimum altitude. We are maximizing the Jetstream.
In trading we not only want to follow the trend we want to maximize our profits in that trend. Again there are lots of ways of doing this, and my way is only one way. Some people add positions on retracements, or at key levels or upon touch of a moving average, etc. These are all good, and there are many more ways. You can share your way of adding to your trend if you like, we can all learn from you.
I take a very simple approach. I add on to my trade whenever there is a candle that closes opposite to the trend. A bull candle in a bear trend is a retracement, and is a reason to sell high (in comparison to what the price just was). A bear candle in a bull trend is a retracement, and is a reason to buy low (in comparison to what the price just was).
On my initial entry I usually do not move the stop loss. It stays above the previous swing high or low. Not moving that stop loss allows that initial entry to catch the entire move from top to bottom in a downtrend or bottom to top in an uptrend.
My subsequent entries, however, have no initial stop loss (if uncomfortable with this, you can always place a stop), and will be closed upon either of two conditions being met: 
Next Post: Results of this trade
When we fly East to West our dispatchers try to pick the most advantageous route and altitude to put us right in the middle of the Jetstream. We can save sometimes two hours or more (on long routes) by flying directly in the tailwind. Our technology tells us what the winds are like at different altitudes, and we try to maximize the tailwind.
The reality is that most routes we fly from East to West take advantage of the Jetstream tailwind. Likewise in trading you can follow a trend and make money in that trend. But our airline wants to maximize the tailwind, so we not only fly the correct route but also the optimum altitude. We are maximizing the Jetstream.
In trading we not only want to follow the trend we want to maximize our profits in that trend. Again there are lots of ways of doing this, and my way is only one way. Some people add positions on retracements, or at key levels or upon touch of a moving average, etc. These are all good, and there are many more ways. You can share your way of adding to your trend if you like, we can all learn from you.
I take a very simple approach. I add on to my trade whenever there is a candle that closes opposite to the trend. A bull candle in a bear trend is a retracement, and is a reason to sell high (in comparison to what the price just was). A bear candle in a bull trend is a retracement, and is a reason to buy low (in comparison to what the price just was).
On my initial entry I usually do not move the stop loss. It stays above the previous swing high or low. Not moving that stop loss allows that initial entry to catch the entire move from top to bottom in a downtrend or bottom to top in an uptrend.
My subsequent entries, however, have no initial stop loss (if uncomfortable with this, you can always place a stop), and will be closed upon either of two conditions being met:
- First, if the market closes above the SMA I will close this trade.
- Second, I wait for the market to move in my favor a small amount (sometimes as little as 10 pips, depending on the market) and then place a stop loss at breakeven plus cost (spread). Since I start my trading day at 5:00 PM Pacific Time I do this manually as the market moves before I go to bed. But I’m sure there are EAs that would assist you with this if needed.
This means that these subsequent entries have no chance of taking the entire trade into a loss (remember, we have a position on at the beginning of the trend that is in profit), a medium chance of running with the trend clear to the end, and a larger chance of just breaking even. In other words, there is no risk to adding on positions like this, and a chance for a large reward. No risk, large reward trading is what we like. It is part and parcel of our High Flying Trading method.
If you examine any trend you might question why we place a stop loss on these add-on trades at all. After all, adding on these trades clearly would bring in profits in a real trend, taking advantage of huge Jetstream tailwinds on our flight. Indeed, you may choose not to set a break even on these at all. Backtest it, study it, decide if you want to use this method or let them run, or maybe come up with another method that is different.
The reason I set the break evens on these add on trades is because of rule number one: keep losses small. Sometimes, when the trend gets extended price will come back to the SMA, and all those trades coming back to the SMA will be losers.
The reason to not set break evens on these add on trades is because of rule number two: let winners run—and multiply them. In a good trend these add on trades will produce hundreds and thousands of pips, literally compounding your profits on the way to your destination.
So which method should we use? The answer is up to you. I will sometimes not place the breakevens on the add ons near the beginning of the trend, and will place them on the add ons later in the trend, when the price gets quite a ways away from the moving average.
Experience will tell you which to do. If you are new, place the break evens and take the chance that some trades will only break even that could have produced much more profit for you. At least you are keeping losses small that way. More experienced traders will just “know” when to place these break evens on their add on trades, as the market is very far off from the SMA.
Here is the chart with the reentries:
Next Post: Results of this trade
- #54
- Jan 31, 2016 2:15am Jan 31, 2016 2:15am
- Joined Oct 2006 | Status: Trader | 2,271 Posts
Trend Summary:
In flying I want to maximize the tailwinds, flying the route my dispatcher has programmed that contains the strongest tailwind, and sometimes changing altitude to pick up more of that wind. This gets us to our destination faster, saves thousands of pounds of fuel, and makes the airline more profitable.
In trading we want to maneuver so as to take best advantage of the trend, which sometimes has the effect of netting ten times more pips than the trend itself.
When my friend from Iowa knows that the next week will be sunny, and that the fair is expecting a record crowd, he will maneuver carefully so as to take best advantage of the circumstances. He will stock up on food, make some things ahead of time, hire an extra helper, etc. He knows that this one week at the fair could bring in a year’s worth of income, if he works it correctly.
Trading works the same way. We must be very careful not to take big risks (rule #1) and we must let our profits soar—increasing, multiplying and compounding them at every turn (rule #2). We know that one good trend can hugely affect our trading business’ bottom line.
Here are the numbers from the above trend:
Total trend move: 570 pips
Total pips gained: 5379
Total risk: 12 pips (previous swing high)
Risk/Reward ratio= 1/448
26 winners 6 losers
On a standard account: $53,790.00 (minus spreads)
This was a nice descent into a smooth landing. Is this an average trend on the 4 hour timeframe? I don’t believe there is such a thing as an average trend. Trends are like the people they represent: big, small, short, tall, marathon runners and couch potatoes. I only chose that trend because it was the latest one, occurring just this month, January 2016.
In this case we did not use the break evens on the add-on trades. Had we added those break evens we would have lost less and won less. Overall it probably would have been less profitable in this case to use the break evens. Sometimes it will be better, in saving some losses; other times a little worse in giving up some profits. It’s up to you.
This trade also shows that, while we try to minimize losses trying to find a new trend, we can afford to take numerous small losses (well hundreds really, if we had to) while searching for the trend. We may get a few whipsaws, or many whipsaws, but as Ed Seykota says, “one good trend pays for them all.”
Here is the chart of the results of the trend trade:
Next post we will look at the trades immediately following this one, and learn something very important about our psychological makeup when it comes to trading.
In flying I want to maximize the tailwinds, flying the route my dispatcher has programmed that contains the strongest tailwind, and sometimes changing altitude to pick up more of that wind. This gets us to our destination faster, saves thousands of pounds of fuel, and makes the airline more profitable.
In trading we want to maneuver so as to take best advantage of the trend, which sometimes has the effect of netting ten times more pips than the trend itself.
When my friend from Iowa knows that the next week will be sunny, and that the fair is expecting a record crowd, he will maneuver carefully so as to take best advantage of the circumstances. He will stock up on food, make some things ahead of time, hire an extra helper, etc. He knows that this one week at the fair could bring in a year’s worth of income, if he works it correctly.
Trading works the same way. We must be very careful not to take big risks (rule #1) and we must let our profits soar—increasing, multiplying and compounding them at every turn (rule #2). We know that one good trend can hugely affect our trading business’ bottom line.
Here are the numbers from the above trend:
Total trend move: 570 pips
Total pips gained: 5379
Total risk: 12 pips (previous swing high)
Risk/Reward ratio= 1/448
26 winners 6 losers
On a standard account: $53,790.00 (minus spreads)
This was a nice descent into a smooth landing. Is this an average trend on the 4 hour timeframe? I don’t believe there is such a thing as an average trend. Trends are like the people they represent: big, small, short, tall, marathon runners and couch potatoes. I only chose that trend because it was the latest one, occurring just this month, January 2016.
In this case we did not use the break evens on the add-on trades. Had we added those break evens we would have lost less and won less. Overall it probably would have been less profitable in this case to use the break evens. Sometimes it will be better, in saving some losses; other times a little worse in giving up some profits. It’s up to you.
This trade also shows that, while we try to minimize losses trying to find a new trend, we can afford to take numerous small losses (well hundreds really, if we had to) while searching for the trend. We may get a few whipsaws, or many whipsaws, but as Ed Seykota says, “one good trend pays for them all.”
Inserted Video
Here is the chart of the results of the trend trade:
Next post we will look at the trades immediately following this one, and learn something very important about our psychological makeup when it comes to trading.
- #55
- Jan 31, 2016 2:25am Jan 31, 2016 2:25am
- Joined Oct 2006 | Status: Trader | 2,271 Posts
Whipsaw: the Importance of Being Deliberate and Methodical
One thing that is drilled into airline pilots is the need to be deliberate and careful, sometimes even “slow” in our decisions. In the simulator we practice handling abnormal situations and emergencies, the point of which is to teach us to be deliberate, think through the situation methodically, analyze the problem carefully, go through our checklists not missing one single item, consider our resources and utilize all that we have. Captains, especially, are tasked with keeping “the big picture” in mind. We are to keep the main thing the main thing.
In trading we must learn to think logically and deliberately about our method. Take your time to think over the big picture of trading and learn to keep the main thing the main thing. Realize that in an abnormal situation, such as price retracing toward our stop loss, and then another stop loss, and another, we should not be in a panic. Our stop loss is in place, and we are not concerned about it in the least for we know stop losses are part of our “operating costs” which every business has.
Last year a foreign commuter plane crashed and killed all onboard. It turns out that shortly after takeoff an engine failed. The pilots, rather than being deliberate and methodical, and probably acting on adrenalin, reached over and shut down the only good engine remaining. They were no doubt thinking they needed to “feather” (shut down) the engine that had failed and was windmilling, causing drag. But in their haste they shut down the wrong engine, the one good engine.
Learn to be careful and deliberate in your trading, logically thinking through your trading plan and following it consistently, not being reactionary or acting on impulse. Flying, done correctly, should be boring. So should trading.
Now let’s examine our next few trades, the ones that came immediately after the trend discussed previously. I think you’ll see why I began with the instruction about the need to become deliberate and logical in following our plan.
The very next trade gave us 2 indications that it would be a dangerous trade. Not that we wouldn’t take it, we take every trade, but we should be wise in the way we use our money management. So the 2 indications of danger up ahead are:
1. The SMA is still sloping downward. This means the move lower may not be over yet.
2. The distance between the entry point and the previous swing low is very large. Whereas the previous trade had a 12 pip risk this trade has over 100.
These two things make us cautious on this trade. Cautious, in my mind, means we reduce our leverage for this trade, trading with less units (I use Oanda as my broker that lets us trade in units, rather than lots). We have not talked about money management yet, we will do so in future posts, but right now we just need to recognize the warning signs when we see them and be prepared to act cautiously.
This next trade, the long trade in the yellow ellipsis, lost 70 pips when it closed below the SMA. It is the cost of doing business. We have just made 5379 pips, now we lost 70 pips. This illustrates our two rules: keep our losses small and let our winners run—and multiply them. How many of these 70 pip losses would you take in looking for a trend? Of course we could take many of them. This whipsaw does not give us sweaty palms or shaky knees.
When we are sitting in the airplane at the gate and get notified of a ground stop program in effect due to weather, we calmly accept that as our fate for that flight. We will be delayed. It is part of flying and not something to fret over or get angry at. We will still depart, it will just be later.
This is the way we must look at stop losses. Our trend is delayed, there is some cost to it, but we will depart. The next trend will come, and we will catch it right from the beginning, right at the departure airport.
Even if we had numerous of these whipsaws, with each one we know we are getting closer to the trend, so we press forward. The worse the situation looks the better we feel about it, the more we anticipate victory just up ahead:
"Hard pressed on my right; my left is in retreat. My center is yielding. Impossible to maneuver. Situation excellent. I am attacking. Attaquez!"- General Ferdinand Foch (to General Joffre during Battle of the Marne)
Some people would say to only take the trade in the direction of a higher moving average, which would have eliminated this loss. That’s true, and that’s perfectly acceptable. However, that method would also have missed the next trade, which we could not afford to do.
Others will use different methods of getting in the trend, such as a trendline break. Perfectly fine. The point is, get in early.
Finally, some people would say to wait until the market makes it’s breakthrough of resistance (in this case the moving average) and then retraces back to support. That is a very valid way to trade. I do not trade that way simply because we would have missed the entire next trade (and it is still running). We must not miss trends.
Here is our next trade, the losing trade in the ellipsis:
Next post: the next trade, and we will learn something about flying that not many people know, this time using the example of a rocket. Any guesses?
One thing that is drilled into airline pilots is the need to be deliberate and careful, sometimes even “slow” in our decisions. In the simulator we practice handling abnormal situations and emergencies, the point of which is to teach us to be deliberate, think through the situation methodically, analyze the problem carefully, go through our checklists not missing one single item, consider our resources and utilize all that we have. Captains, especially, are tasked with keeping “the big picture” in mind. We are to keep the main thing the main thing.
In trading we must learn to think logically and deliberately about our method. Take your time to think over the big picture of trading and learn to keep the main thing the main thing. Realize that in an abnormal situation, such as price retracing toward our stop loss, and then another stop loss, and another, we should not be in a panic. Our stop loss is in place, and we are not concerned about it in the least for we know stop losses are part of our “operating costs” which every business has.
Last year a foreign commuter plane crashed and killed all onboard. It turns out that shortly after takeoff an engine failed. The pilots, rather than being deliberate and methodical, and probably acting on adrenalin, reached over and shut down the only good engine remaining. They were no doubt thinking they needed to “feather” (shut down) the engine that had failed and was windmilling, causing drag. But in their haste they shut down the wrong engine, the one good engine.
Learn to be careful and deliberate in your trading, logically thinking through your trading plan and following it consistently, not being reactionary or acting on impulse. Flying, done correctly, should be boring. So should trading.
Now let’s examine our next few trades, the ones that came immediately after the trend discussed previously. I think you’ll see why I began with the instruction about the need to become deliberate and logical in following our plan.
The very next trade gave us 2 indications that it would be a dangerous trade. Not that we wouldn’t take it, we take every trade, but we should be wise in the way we use our money management. So the 2 indications of danger up ahead are:
1. The SMA is still sloping downward. This means the move lower may not be over yet.
2. The distance between the entry point and the previous swing low is very large. Whereas the previous trade had a 12 pip risk this trade has over 100.
These two things make us cautious on this trade. Cautious, in my mind, means we reduce our leverage for this trade, trading with less units (I use Oanda as my broker that lets us trade in units, rather than lots). We have not talked about money management yet, we will do so in future posts, but right now we just need to recognize the warning signs when we see them and be prepared to act cautiously.
This next trade, the long trade in the yellow ellipsis, lost 70 pips when it closed below the SMA. It is the cost of doing business. We have just made 5379 pips, now we lost 70 pips. This illustrates our two rules: keep our losses small and let our winners run—and multiply them. How many of these 70 pip losses would you take in looking for a trend? Of course we could take many of them. This whipsaw does not give us sweaty palms or shaky knees.
When we are sitting in the airplane at the gate and get notified of a ground stop program in effect due to weather, we calmly accept that as our fate for that flight. We will be delayed. It is part of flying and not something to fret over or get angry at. We will still depart, it will just be later.
This is the way we must look at stop losses. Our trend is delayed, there is some cost to it, but we will depart. The next trend will come, and we will catch it right from the beginning, right at the departure airport.
Even if we had numerous of these whipsaws, with each one we know we are getting closer to the trend, so we press forward. The worse the situation looks the better we feel about it, the more we anticipate victory just up ahead:
"Hard pressed on my right; my left is in retreat. My center is yielding. Impossible to maneuver. Situation excellent. I am attacking. Attaquez!"- General Ferdinand Foch (to General Joffre during Battle of the Marne)
Some people would say to only take the trade in the direction of a higher moving average, which would have eliminated this loss. That’s true, and that’s perfectly acceptable. However, that method would also have missed the next trade, which we could not afford to do.
Others will use different methods of getting in the trend, such as a trendline break. Perfectly fine. The point is, get in early.
Finally, some people would say to wait until the market makes it’s breakthrough of resistance (in this case the moving average) and then retraces back to support. That is a very valid way to trade. I do not trade that way simply because we would have missed the entire next trade (and it is still running). We must not miss trends.
Here is our next trade, the losing trade in the ellipsis:
Next post: the next trade, and we will learn something about flying that not many people know, this time using the example of a rocket. Any guesses?
- #57
- Jan 31, 2016 2:56am Jan 31, 2016 2:56am
- Joined Oct 2006 | Status: Trader | 2,271 Posts
Trend Results:
Before we discuss the results, let’s think about something regarding flying. This time using a rocket as an example. If you’ve ever seen a rocket take off you know that right in the beginning it exerts a whole lot of energy but doesn’t move far or fast. As the engines/rockets roar they are burning huge amounts of fuel, far more than at any other point in the rocket’s journey, yet it is barely moving.
Then, as the rocket gets airborne and begins its climb it “throttles back” at a certain altitude so it begins burning a lot less fuel, expending a lot less energy. And yet it is now moving at hundreds/thousands of miles per hour.
Finally, once that rocket gets into orbit it is expending no energy whatsoever, it is orbiting at a very high rate of speed without any burning of fuel or using of energy.
Remember this when you are just starting to get in the trend. This is the time when you will burn the most fuel (pips) and could be making no progress. You might go through one stop loss after another, seemingly wasting energy while going nowhere.
Once you get airborne into the trend, and begin adding positions, you find that your profits are compounding, almost like they are on autopilot. If the trend lasts, you will be orbiting.
Here are the results of the previous trade (which is still open).
Next, we are going to examine some of those times when we are first trying to launch, where we go nowhere fast while using lots of pip-fuel. But this post will not be until I get home (flying from Chengdu, China to San Francisco right in the Jetstream).
Before we discuss the results, let’s think about something regarding flying. This time using a rocket as an example. If you’ve ever seen a rocket take off you know that right in the beginning it exerts a whole lot of energy but doesn’t move far or fast. As the engines/rockets roar they are burning huge amounts of fuel, far more than at any other point in the rocket’s journey, yet it is barely moving.
Then, as the rocket gets airborne and begins its climb it “throttles back” at a certain altitude so it begins burning a lot less fuel, expending a lot less energy. And yet it is now moving at hundreds/thousands of miles per hour.
Finally, once that rocket gets into orbit it is expending no energy whatsoever, it is orbiting at a very high rate of speed without any burning of fuel or using of energy.
Remember this when you are just starting to get in the trend. This is the time when you will burn the most fuel (pips) and could be making no progress. You might go through one stop loss after another, seemingly wasting energy while going nowhere.
Once you get airborne into the trend, and begin adding positions, you find that your profits are compounding, almost like they are on autopilot. If the trend lasts, you will be orbiting.
Here are the results of the previous trade (which is still open).
Next, we are going to examine some of those times when we are first trying to launch, where we go nowhere fast while using lots of pip-fuel. But this post will not be until I get home (flying from Chengdu, China to San Francisco right in the Jetstream).
- #58
- Jan 31, 2016 3:10am Jan 31, 2016 3:10am
- Joined Sep 2012 | Status: AlgoTrader | 3,610 Posts
No guts, no glory
