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My Trading Methodology

  • Post #1
  • Quote
  • First Post: Dec 22, 2006 12:35pm Dec 22, 2006 12:35pm
I found from couple of months trading is that mechanical systems do not fit my personality very well. I like the objectivity of mechanical system, but I feel that mechanical systems takes me away from the market psychology. If I stare at a naked chart long enough, I will see fear, greed, overconfidence, defeat, etc. in the chart. Try it, and you'll see what I'm talking about. Market psychology is so evident on the chart is almost scary. And I feel that indicators, especially on chart indicators takes you away from this very important information.

So I decided to go with candlestick charting. I finally admit that price action is definitely the most powerful trading method. If you have been with James16 group, you know that it's effective. Candlesticks is the same exact thing except it's visually clear. I've actually have read about candlesticks before, but since I was a newbie, price action was a little bit too subjective for me.

So I have made a transition from purely mechanical to semi mechanical. Price action is not 100% subjective. If I practice it long enough, it will become easy for me.
Working towards CME membership
My trading system will compose of these things

Candlestick chart
Pivot/Fratals
CCI for rating simultaneous trades
Working towards CME membership
Here's how I will trade this system.

I will use the top-down method

First I'll look at the weekly chart, with monthly and weekly pivots on. The fractals will clearly show which levels or places where we'll see support and resistances. I will take into accout things like hammers, stars, or other patterns that signals rejection or penetration of these levels.

Then switch to daily and wait for a pattern to develp and trade with.

It's easy. The hard part is of course identifying a pattern and execution.
Working towards CME membership
So once I have decided on a trade, I will look at the hourly charts. This is important because I want to see how the intraday chart behaved. If they bounced back and forth on a certain level, you know damn sure that this is the level that these traders are focusing on.

I place my stop loss on default at the first daily support (for long) minus 1 pip. If the hourly chart says that a higher support is safe, I'll place my stop in between those two levels (between the hourly support and the daily support)
Vice versa for short positions

Once a trade is off, I'll move my stop loss to the next daily resistance at the start of a new day. This is not 100% mechanical. If the next bullih candle is very long, I'll place it at the pivot. But again, I also monitor intraday hourly chart to see what levels are significant.

If the next day's candle is against me (bear), I'll move my stop closer to the opening price. This is important! I have to minimize my risk as soon as the trade proves me wrong. If I just leave the stop loss alone, I'm only being a smart ass thinking that this might reverse. The first rule of the game, capital preservation. So I make sure to move my s/l once the price is reversing.
In other words, I move my s/l if the trade goes my way to lock in profits. But I'll move my s/l if the trade goes against me to minimize my loss
Working towards CME membership
So what happens if you get triggers on multiple trades. Well that's where I'll use CCI. Le'ts say all of these are long trades. The best trade is the one whose CCI is lowest value and the worst is the one with the highest CCI value. It's basically overbought/oversold test. It's simple and it helps me manage my trades

Adding positions is a very powerful method. I would probably wait a while before I'll implement this effective technique until my candlestick charting is more than proficient. Right now, the logical places to add positions is on a WINNING trade. So I won't add anything on a losing trade. But I'll add it at a rejection of a support on a daily or hourly (in case of long). But as I said, this would be an advanced trading method.
Working towards CME membership
There you have it, my first attempt towards the world of candlestick charting. It's effective and it's simple. I use my weekly as a filter, and I use pivots and hourly for my stop loss. CCI for rating trades.

Any questions or comments are welcome.
Working towards CME membership
Sounds completely technical. How do fundamentals play into your decisions?
Great job hilmy. You're gonna do some damage out there.

andersenws
"Youth is the trustee of prosperity." - Benjamin Disraeli
As a price-action-only trader I feel to say that you are on the right track.

However, I would like to point out that there is no BETTER method or system. Price action is not better than indicators or other mechanical systems. It's better for certain people, it's worse for others.

The good thing is that you quickly figured out that strictly ruled-based systems aren't for you. That is a very important step and you must continue to follow this path until you find a point of equilibrium.

As far as price action goes, I wouldn't focus too much on the weekly charts unless you decide to take a trade off the weekly charts.

If you use hourly charts to get into the market, I'd much rather focus on the 30min and 15min charts than on the weekly chart. Think of the NOW MOMENT, not about what happened on last Friday's close.

The only time I use higher timeframes is when I am running a winning trade and want to milk more money out of it. That's when I zoom out to a higher timeframe and try to see how far my position can go.

Finally, hammers and shooting stars are good early indicators a trend may be about to reverse; nevertheless, they can also be used as continuation signals as well. Don't fall into traps just because a hammer showed up. Everyone else who's read a few things about candlesticks is able to recognize the same hammer and will jump on it as well. Try to focus on those types of hammers that give you a clear edge. Not all hammers are the same.

GL
Quoting tdion
Sounds completely technical. How do fundamentals play into your decisions?
I can say I have no need for any fundamentals. I leave it to those guys with econ degrees...
Working towards CME membership
Quoting andersenws
Great job hilmy. You're gonna do some damage out there.

andersenws
thanks man..i'm ready to steal money next year
Working towards CME membership
Quoting ItalianSharp
As a price-action-only trader I feel to say that you are on the right track.

However, I would like to point out that there is no BETTER method or system. Price action is not better than indicators or other mechanical systems. It's better for certain people, it's worse for others.

The good thing is that you quickly figured out that strictly ruled-based systems aren't for you. That is a very important step and you must continue to follow this path until you find a point of equilibrium.

As far as price action goes, I wouldn't focus too much on the weekly charts unless you decide to take a trade off the weekly charts.

If you use hourly charts to get into the market, I'd much rather focus on the 30min and 15min charts than on the weekly chart. Think of the NOW MOMENT, not about what happened on last Friday's close.

The only time I use higher timeframes is when I am running a winning trade and want to milk more money out of it. That's when I zoom out to a higher timeframe and try to see how far my position can go.

Finally, hammers and shooting stars are good early indicators a trend may be about to reverse; nevertheless, they can also be used as continuation signals as well. Don't fall into traps just because a hammer showed up. Everyone else who's read a few things about candlesticks is able to recognize the same hammer and will jump on it as well. Try to focus on those types of hammers that give you a clear edge. Not all hammers are the same.

GL
When reading van tharp's book, he mentioned two things (that I remember) about a trading system.
Set-up and a trigger.

My set up is the weekly price action. It tells me the condition of the market and also gives me an idea what these traders are thinking bout..

Once I identifiy a set-up, I switch into daily for my trigger.

There's one thing I need to mention about my trading methodology, I NEVER manually close a trade (unless it's a mistake). Meaning that once I open it, I let run until I get stopped out. Call me crazy but I just let mr. forex determine how much he'll give me. I can tell you, with only 5 months of live trading and 60% return so far, mr forex is pretty generous..
Working towards CME membership
That's a pretty impressive record so far!

Good luck with implenting your system next year.
Ever alert for the call to action!!
  • Post #14
  • Quote
  • Last Post: Dec 26, 2006 9:52pm Dec 26, 2006 9:52pm
Quoting hilmy83
... Meaning that once I open it, I let run until I get stopped out. Call me crazy but I just let mr. forex determine how much he'll give me. I can tell you, with only 5 months of live trading and 60% return so far, mr forex is pretty generous..
watch out for mr. forex if that's the way you manage your positions. choosing to not manually close out a position and let mr. forex - i.e., those dishonest market operators who run FOREX - decide how much you lose or win is a mistake IMHO.

i have never met a trader who uses a 100% mechanical system for his entries and exits.

i've only met a few successful traders in my life and ALL OF THEM exit their positions manually.

here is a simple scenario:

your system has a target of 100 pips and a stop loss of 50. as you said you never exit your positions manually unless by mistake, you either are going to get stopped out or hit your target. did i get this right?

lets say prices move in yr favor by 80 ticks...do you have a trailing stop in place at this point? or are you going to let mr. forex stop you out?

anyway, dont expect mr. forex to be too generous over the long haul. with this i dont mean to discourage you nor do i imply that you are not going to make it.

i am just trying to stimulate you to activately participate in the markets and develop the necessary skills to help you decide when to get out, when to add to your positions, or when to remove some of your positions. there just are so many more things other than a target or stop, markets very seldom are black or white...there is a lot of gray in the middle.

the sooner you figure out that you are in control of things and that you CANNOT AFFORD TO LET THE MARKET control your destiny, the better your chances are you will survive all the ups and downs involved with trading.

i am saying all these things because i have been thru that type of thinking and it took me a while to change my behavior and approach to trading. the longer you let the market be in control of your trading, the longer it'll take you to eventually change this type of behavior.

GL
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