My Gpb/Jpy trades

2-6% gearing, 10%-15% risk, 10-30% gain

Starting this journal to post trades, exchange ideas and suggessions
on trading the exotic g/y pair.

Peace!

Entered long position with 100k (1lot) at 279. ATR being 6, stop was
placed at 182. Exit point at (S3)271.5 (moved from 271) after ATR dropped
to 5.2~5 range.

pip gain - 750

Thanks for starting the thread. It would be very nice if you can explain your strategy and support your trades with charts and remarks. This will make it a better thread. Thanks again for sharing the information with us.

The trading strategy uses ceilings and floors to establish stop limits
first and entries following that.
Usually, the maximum possible point in the ceiling(or lowest pt in
the floor) is picked, which in this case was 179(see the pivot pt on the day
candle stick on 10/8/2008) right before everything headed down.

Now as soon as prices start heading up towards the ceiling, use a technical
indicator - atr(10) which stands for average movement for 10 days
to calculate the stop limit. Say if the atr is 600pips(which it was), the stoplimit is calculated as max ceil + 0.5*atr = 179+300pips= 182.
That is the maximum the prices should ever go to with the current volatility after
the ceiling max (179) is reached. If prices breakout above that, it is
then considered a ceiling breakout . Chances are prices would
retract before it gets there. In this case it retracted at 181.2.

Now entries are made 250pips(max fin loss sustainable)
below the stop limit. So 182-250=179.5.
In the previous entry it took a while before i saw the ceiling max (my bad)
and had to make 2 entries to average up to the desired entry pt ...so.
However, 2 entries around 179.5 can be made intentionally if you so
wish to have multiple entries (say 179,180 which averages to 179.5)

Exits are based upon where the price pivots and every half atr below
that pivot pt is a support level. S1 is half atr below, S2 is 1 atr and
so on. Ranges can go upto S6 or S8 (the floor on the other end)
but traders exit on S1,S2,S3 or S4. Going from S1 to S6, the rewards
increase but so does the risk.
Mostly would exit on S3 which in this case is 181.2-1.5*550pips= 172.95 or just 173!

(Can move stop to breakeven when price reaches S2 and prices might
just fluctuate b/w S1 and S2 before heading to S3, in this case
S2=181.2-550pips=175.7)

lost 250 on the last breakout to the downside. need to start
using tech indicators to try and predict the same

breakouts cannot easily be predicted and it has been an achille's heel.
MACD(12,26,9) should give some warning signals such as strong
divergence to the downside - future possiblity (MACD is a very lagging indicator) coupled
with a price close to the min floor level would suggest a wait and
watch approach. That is as close as I got, along with fundamentals
to try and predict a breakout. most breakouts are preceded by
a narrowing bollinger band but need not always be the case.

Stochastics are not much use in a trending market.

Any suggessions welcome!

Entered short(correction!) position with 100k(1lot) ......... (see above)

Thanks a lot Sree,

I appreciate the explanation. I would really like to follow up on ur trades. Please keep posting ur trades. A short explanation on each trade would be appreciated.

Thanks again.

The famed default MACD indicator, (fondly pronounced MacD) doesn't seem to
be of much use in trending markets. the indicator is the difference b/w
26ema and 12ema lines. This itself depend on the fact that the
26 ema is a rather stable (like it is - say in a ranging market) indicator and the
12 ema moves around it creating positve and negative variation
over the macd average line (which uses 9 division average). All that is fine as
long as the market is oscillating in a range between floors.
Soon as the market starts trending, gone are the smooth curves,
hills and valleys. now the macd starts bouncing off from an immediate cross or max points or whip lashes.

Guess the best indicator of breakouts are tightening bollinger bands
or just plain old fundamentals, new events, mass hysteria, gaining confidence for carry trading and so forth.

Trading in the direction of the trend markedly reduces breakout losses.
The issue is when trend itself changes!!

Wish there is some indicator of a change in trend.

The only one available is multiple breakouts
in the opposite direction of the prevailing trend with falling tops
changing to rising bottoms or viseversa.
A phenomenon which in some instances takes weeks or a month to decipher
and might issue couple unpleasant stop loss hits before the trend
reasserts and continues.

How do calculate ATR @ 600 or 550 ?
Intellichart atr looks diff. Can u explain. Thx

--------------x-------------

The atr(10) is in the daily charts. Open charts on candlesticks pattern
and set it to daily (showing day movements). Now pick
atr in the technical indicators and in parameters select 10 (i think the
default is 14). That is it! for the g/y pair it has been going up to as
high as 800 pips. it keeps changing and when setting my stops i overetimate
and so if it is 550, i may use 600 and when setting my s3 (for exit), i just
use the current value which in this case is 550.

Hi Sree
Have been reading through your journal and am struggling a bit to understand your strategy, would be a lot easier to understand if you could post some charts which I think would make it all a bit clearer.Just another query do you risk 10% per trade and are you after a reward of 30% or is this an annualized thing.Interested to hear your comments and good luck with the journal.

The trade shown in attachment, is entered using the strategy above.

The max ceiling is around 161.00 and atr at the time was 10 which
placed the stop limit at max ceil + atr/2 = 166.00

it pivoted at 165.2 and is headed down - exit planned at S3 151.8
using current atr which is around 8.8.

Entered trade at 166-2.5=163.5 (by entering twice @163 and 164)

4% used (2 lots) or $2000 in trade out of $50k capital - could lead to 10%
loss on the downside - 250pips financial loss (see 2.5 above)

downside loss = 250pips* 4%=10%.

gain potential = 1200pips*4%=48%

Had to change my exits as volatility reduced mostly because of upcoming
non-farm employment change news. With atr(10) hovering around 7.5,
exit is at 153.

However the ceiling has triple returns and would be an indicator
of a major move to the downside. Might be prudent to move the
exits to S4 - 149.5.

lost patience and exited close to S3 at 153.8 and pip gain amounts to 163.5-153.8~920pips.

close to 38% gain on balance.

Thanks Sree for the valuable information you are providing. I have a question if you don't mind. How to set the ceiling? Based on which day?

Assume I want to trade GBPJPY today, what would the ceiling be and how did you reach it? Sorry, I am having difficulty understanding this part.

Thanks,

Max Ceiling (known) for today is 160.95(or 161 rounded off).

Ghadeer, there is no way of knowing the max ceiling accurately since the
ceiling itself is a range. the only information i have is historical candlestick
patterns. in 10/22/08 the g/y candle stick broke below the preceding range.
Following that event, the candlestick on 10/23/08 continued in an undecided
pattern, reverting to the upside, heading down for a while and resting finally
back in the center (like a doji). It was followed by a massive breakthrough movement below the next floor around 10/24/08. This leaves 10/24/08
candlestick highpoint as the marker of the ceiling max which is 159.95 (or 160 rounded off).

So why is 10/23/08 max being used as ceiling max - 161??!

the reason is if you take a second look at this candle stick, it is hard
to tell if it belongs to the upper range or it belongs to the one lower.
ranges are at most 2 to 2.5 atrs in size (top to bottom). The candle stick
on 10/22 and 10/23 seems to have covered a range but seems to
have gotten below that level (unusual event), which is why i finally
decided to treat the 10/23 candle stick and 10/24 candlestick jointly as
one candle stick all the way down and this gives me the known ceiling max
as the max of 10/23 - 161.00.


yeah! deciding on a safe ceiling max is as much an art as it is numbers.

every pattern throws up new challenges and many times you will have
to go back to the previous pattern and atr to determine previous
floors and find which candle stick actually broke through that floor.
The one that got below the (floor min - atr/2).

Then one has to study that candle stick to see how much of it belongs to the upper
range and how much of it belongs to the one lower - if it is a short
candlestick , you could pick the maximum and use the same. However
if it is a long candlestick with significant presence in the prior range,
that is when it gets complicated. Then a detailed study of the 24 hour
candlestick patterns (zoom ing in on that day candle stick) and
finding when it broke through the floor and maximum prices it reached
following the breakthough should help you seal the "max ceiling price"
that you were looking for - hope all this helps.

The web site below shows the futures for several major forex pairs and
seem to indicate a sharp fall for Nov 20th(tomorrow).
g/y pair futures is conspicuously missing. a low employment figure news release at 9:30AM should signal a sharp falling trend for usd/jpy pair and could possibly drag g/y with it.

http://www.cmegroup.com/trading/fx

Look under FxProducts

researching for last couple of days with futures information, it unlike in the case of stocks doesn't seem to be a
significant forecaster for the forex market.
Need to take the previous blog on predictions using futures to be quite
speculative at best.

Current Strategy uses max ceilings (in case of down trending pair) as
a reasonable guesstimate using chart watching both the daily
and hourly candlestick patterns and trying to speculate on high point
based on the breakthrough candle and following candle stick high
points.

After studying historical trends on the g/y pair and calculating stops, entries and exits for the same, have arrived at a reasonable simplification of the strategy. The method to symplify the same would be to
use the breakout candlestick max and the maximum of the immediately
next candlestick pattern and take a simple average of the two - as the
max ceiling. atr/2 could then be added to find the stop limit and
entry can be placed at the max ceiling (can be sweetened by splitting
or diluting). The amount of money entered into the trade would be
(stoplimit - ceiling max)*amount =< 10% of total capital.

As the range proceeds, I am finding that the entries are harder to make
at ceiling max and would need increasing dilution - keeping the risk and
stop loss(calcuted with the new atr) unchanged.

This way the financial risk is unchanged and entry is made much more
likely to happen.

Exits - I use to stick to S3. This can be extended to S4 for second
entries and well below S6(or close to the floor) for third entries.
A triple hit on ceiling indicates that a breakthrough through the bottom floor
may be imminent.

A cautionary note: For trends on g/y pair which I have noticed is that
a simple breakthrough (not a multiple breakthrough through several
floors) when unsustainable - that is if it returns back to the previous
range without reaching a floor well over 2*atr is a sign of things to
come. Traders seem to be shying away from the trend and
a future reversal likely.
Another caveat along the same lines is a triple reversal from the floor.
This signals the same trader emotion of uncertainity in dis-continuing the trend and further trades need to be suspended until the pattern either returns to the ceiling and does an unsustainable breakout from the top and decides to return back for fourth (and mostly final) attempt to break through the floor!
MACD and Slow stochastics can be used to time an entry into the above
reversals near the ceiling top for massive pip gains - possibly including the
breakout! Entries cannot really be made using the the original strategy
such as ceiling max and stop limits for these cases and has to rely more
on compelling momentum. Once the momentum is in place, the stop loss
can be re-entered (ceiling max+ atr/2) and the amount traded calculated
using max fin risk of 10%.

Using number from the previous example

Candle stick max for 10/22/08 = 168.
Candle stick max for 10/23/08 = 161.
So
Max ceiling = 168+161/2 = 164.5.
Stop Limit = 164.5 + 5.0 (atr/2)=169.5 (looking about right - midway on previous range)
Entry = 164.5.
Money that could be traded - calc the risk = (169.5-164.5)*money= 10% of $50000 = $5000.
So Money = $1000 or 1 lot.(2% of balance)

Subsequent entries can be made at lower points like 162 etc with
less money in the trade.