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Breakout Strategy - The Pro's Way

  • #61
  • Oct 24, 2006 2:51pm Oct 24, 2006 2:51pm
Quoting Micardo

kjellik74... I like what your system does in theory the only thing is I can't formulate it in my head in practise. Could you please put it in stupid form for me. i.e

Buy =
Sell =
Buy =
Sell =
Buy =
Sell =
Buy =

Profit target reached so X Lots short and X lots Long which = X Profit

Also what happens if you come to the end of the day and neither profit target has been hit.... or do you just keep going?

Again how long have you been doing this and what is the most amount of open lots youve had open so far?
Hi Micardo,

First sorry for the confusion, I should have continued a bit more then to only three trades, as it is misleading. Also my text further say increase by 1 lot, which also is not correct. The idea is that for the next trade I put on, it is sized by putting the two last ones together. I.e., I start with i.e. 1 m lot, then next 2 m lots, then next m 3 lots (1+2 =3), then next 5 m lots (2+3 =5), then next 8 m lots (3+5 =8), then next 13 m lots (5+8 = 13), and so on.

Buy = 1 at 20
Sell = 2 at 0
Buy = 3 at 20
Sell = 5 at 0
Buy = 8 at 20
Sell = 13 at 0
Buy = 21 at 20

Profit target reached so 20X Lots short x 60 pips = -1200 and 33X lots Long x 40 pips = +1320 which = +120 pips.

I have never been more then to the 4th trade, this is because I only trade when I see a break out due to happen, as well as trading only the GBP/USD which like to trend. Interesting to see though that the profit increase by the number of trades, not sure how much the spread will affect it though. Of course if I get stuck in a range it can be bad, still have not experienced it, have traded this strategy for the last 1 1/2 month. I have a equity of USD 100k on my account, so I have of course not be close to a margin call as of yet. Maybe something to test out on a demo account, it would be interesting to see how far this could carry based on say starting the first trade with 1 micro lot on a 10k account and 1 mini lot on a 100k account.
Kjellik74
  • #62
  • Oct 24, 2006 3:03pm Oct 24, 2006 3:03pm
Quoting accrete
Welcome to the Factory kjellik74.

Just a ramble. . .

This reply is a comment from personal experience forward testing a variety of EAs as i believe the concept of including an EA in one's tool chest can be of benefit if managed properly. There are a couple of EAs that trade in similar ways to what you describe and include hedges. What i can say is that at least in my testing it is not a way to preserve one's capitol !! After a month or two there was so much in float and open trades that the EA would no longer open any new ones. Sure the number of "open trades" could be upped, but then you would just have more float out there and a margin call would be on the horizon. I know there are those who are successful at hedging as a day-to-day practice, and i'm not affraid of pulling the trigger on a hedge if it makes sence (say in the case of a strong trend, but i wish to attempt grabbing some pips on a retrace before it continues in the direction of trend/original entry).

Good trading, and have a good stay at the Factory.
Thom

Thank you Accrete, appreciate your inputs. My idea is though to make this purely mechanical. You like to grab some pips on the retrace, rather then staying in the hedge, that is fine if you know that the trend will continue (-: Anyway, I am also aware of the weakeness of my system, and to get caugth in a long term range, i.e. misreading the due to happen break out, could be devestating. Therefore I like to get other peoples input on this, and so I appreciate yours very much, hopefully will help me finetune my trading system.
Kjellik74
  • #63
  • Oct 24, 2006 3:11pm Oct 24, 2006 3:11pm
Quoting ikholod
How long have you been doing this? What is the largest amount of positions you had open at any single point?

I think this is a good strategy, but I'm not sure about your assumption about not having to worry about margin call. Brokers usually only use one side in the hedge position for margin, but I'm not sure what happens if you keep on adding positions. Any one have an idea?
Ikholod, thks yr input. If you see my reply to Micardo it will explain what I do a bit more, and serve as an answer to your last post. I have never taken it more then to the 4th trade, so not sure how long one can keep on adding the positions before a margin call is due. This mean the largest amount of positions has been 1x1m lot + 1x2m lot + 1x3m lot + 1x5m lot = 11 m lots (with this system of trading that is). I have a 100k account, so obviously this is not an issue when it comes to margin call, then again when will it be (-:
Kjellik74
  • #64
  • Oct 24, 2006 4:02pm Oct 24, 2006 4:02pm
Quoting kjellik74
Ikholod, thks yr input. If you see my reply to Micardo it will explain what I do a bit more, and serve as an answer to your last post. I have never taken it more then to the 4th trade, so not sure how long one can keep on adding the positions before a margin call is due. This mean the largest amount of positions has been 1x1m lot + 1x2m lot + 1x3m lot + 1x5m lot = 11 m lots (with this system of trading that is). I have a 100k account, so obviously this is not an issue when it comes to margin call, then again when will it be (-:
To tell you the truth, this unlimited amount of lots kind of worries me. If something can happen it will...

I've looked over the daily charts for GBP and even though this currency seems to have a very big range every day, there are days when the currency doesn't move 60 pips (-20 for loss + 40 to take the win). So, I'm worried that on such days there could be so much in between motion that the number of lots grows significantly.

Of course, you say that you take these trades when you expect the breakout to occur. Do you do this at certain time, like before London opens? Or do you actually wait for the breakout?

Thanks.
  • #65
  • Oct 24, 2006 4:42pm Oct 24, 2006 4:42pm
I see alot of potential in this... In tight range days I guess it just means you must stay up late..... I don't think the GBP/USD has ever stuck in a 60 pips range for 2 days running. So if you have enough money then I dont see why this wouldnt work
  • #66
  • Oct 24, 2006 4:48pm Oct 24, 2006 4:48pm
Quote
Buy = 1 at 20
Sell = 2 at 0
Buy = 3 at 20
Sell = 5 at 0
Buy = 8 at 20
Sell = 13 at 0
Buy = 21 at 20

Heheh first time I have seen someone use the fibonacci sequence for lot size .. each to their own I guess but to me it is oh so dangerous.
You can quit and they won't care, but you will always know.
  • #67
  • Oct 24, 2006 6:51pm Oct 24, 2006 6:51pm
Liz,
Would you agree that this is the best way to draw "Close Only Trend Line's?

This question was sent to me from one of our students: Hey Joe! Have you ever used a “Close Only Trend Line?”

"All major market tops are created when selling pressure over powers buying pressure, breaking the powerful daily diagonal support Close Only Trend Line, and a close below the low of the of the highest weekly price bar. Begin the trend line by isolating the lowest weekly close, moving the ruler counter clockwise to connect the next close, preferably an intermediate bottom. The best trend lines will have three or more ranges and closes connected together. When choosing the initial beginning point for any support trend line, take the lowest close or lowest low then find how many other closes and ranges can be connected. The more points on a trend line the stronger it is, so long as no more than two consecutive closes are below it. It is okay to have one close violation of the trend line, but choose the trend line that connects the largest number of points. The 200 day moving average is the most important trend line for long term stock traders. Once this is broken with two consecutive closes, or a weekly Friday close below the 200 day trend line, the market is considered to be in serious technical trouble. You can try this concept in any market and in any time frame."

http://www.daytradingthemarkets.com/...read.php?t=592

I know this is a little off topic for the Breakout thread but similar and since its already been discussed here I thought other's may have the same question.
  • #68
  • Oct 24, 2006 7:41pm Oct 24, 2006 7:41pm
I'd say that's a pretty good written description, though on the smaller time frames I like to trade, I have to use a little more subjectivity regarding what constitutes proper connection points. After years of staring at charts, I think you just kind of get a feel for swing sizes and which ones are viable to trade.

Don't know if that was the answer you were looking for or not. ;-)

-Liz
There's always money in the banana stand.
  • #69
  • Oct 24, 2006 9:05pm Oct 24, 2006 9:05pm
My first post ever and I'm quickly going to look like the class idiot................What the hell is cable?

Now that is complete, let me ask this: At this time, I have narrowed the field to USD/CF to trade. One hour charts & I look for a previous days spike & use it as a means of S/R. Once it reaches one end, I generally have open orders in place and limit my positions to 30 ticks profit/loss. I must admit to have limited my backtesting to 45 days. The profits at the end of the month ain't great , but enough to add on another contract each time. Any thoughts?
  • #70
  • Oct 24, 2006 9:32pm Oct 24, 2006 9:32pm
robert

cable=gbphttp://www.forexfactory.com/forexfor...cons/icon7.gif
  • #71
  • Oct 24, 2006 9:58pm Oct 24, 2006 9:58pm
Robert welcome.... Ok to do with support and resistance, I am no expert on tis subject but seem to be doing ok..... I don't really take previous days spike as only only point of support or resistance... You see the market can be trending upwards or downwards and hitting certain points on the way up or down. What I am trying to get at is that S&R doesn't have to be a horizontal line it can be a diaganol line and generally speaking the more contact points the stronger the S&R and hence the better the break.

See the attachment for a rough example. Any other questions let me know....

[img]file:///C:/DOCUME%7E1/Alex/LOCALS%7E1/Temp/moz-screenshot.jpg[/img]
Attached Image
  • #72
  • Oct 24, 2006 10:04pm Oct 24, 2006 10:04pm
Hey Robert and welcome to the Factory. Cable is more accurately the GBPUSD pair, rather than just the GBP, which of course is the pound. So named as the first transactions of this pair way back when was done via transatlantic cable, so there you go, we all learn something each day

Choosing the one pair is a good idea, whichever pair that might be, so goodo to you on that one, you may find your profits are not too great as you are limiting your profits, but for now stick with what you are comfortable and look into different money management techniques to aid you in increasing those profitable trades, and decreasing the losses, money management is more of an edge than most realise.

Oh and also, well done on keeping it simple, i.e. support and resistance, the temptation will come to add an indicator here, an indicator there, here an indicator, there an indicator everywhere an indicator .. old macdonald had a ....... sorry I have a 1 year old ... overtakes the brain sometimes.

Anyhow, the trading experience for many goes something like this:

Beginner trade --> No indicators cause you don't know what they are = break even or enough to keep you interested
Pretending not be a beginner trader --> Find out all about indicators, add them willy nilly, get confused, add more indicators, get more confused, blame brokers, blame the market = lose more and more and more money
Realise you really are still a beginner trader who knows about indicators --> Realise what a silly duffer you were after your 2nd, 3rd, 4th blown account, strip off the indicators, only add one that mean something to you if any at all
Intermediate trader --> Start to make small amounts of money and learn how to trade, not how to watch indicators
Almost there trader --> Get that "uhuh", or "oooaahhh", or "why didn't I think of that $10,000 ago?" moment and start to make more money, with actually knowing why you are making it.
Look at my yaught trader --> You trade a thoroughly tested strategy that you feel ownership towards, making copious amounts of money and surf FF via satelite broadband somewhere in the *insert luxurious place of your choice here*.


Now it is up to the trader which step they want to skip.
You can quit and they won't care, but you will always know.
  • #73
  • Oct 24, 2006 10:18pm Oct 24, 2006 10:18pm
Akuma,

I like that post... I see what you are talking about though. I have been tempted to add loads of indicators... actually let me rephrase I started you using the market analyser software with Turning points, conductors, CCI, Stochastics, RSI and no mentions of a support or resistance line anywhere.... Can you guess what happened.... I can't get back into I have suppressed those memories already.

Anyway I then discovered breakout trading of simple Support and Resistance and you know what It seems to be fantastic. I can see that now the hardest things to conquer is going to be myself.

At the moment I am demo trading simply to get enough confidence in the system not to start chopping and changing when things go bad. I figure I will do this foranother month and then go live with very small lots and gradually build from there......
  • #74
  • Oct 24, 2006 11:06pm Oct 24, 2006 11:06pm
Quoting LizardGizzard
I'd say that's a pretty good written description, though on the smaller time frames I like to trade, I have to use a little more subjectivity regarding what constitutes proper connection points. After years of staring at charts, I think you just kind of get a feel for swing sizes and which ones are viable to trade.

Don't know if that was the answer you were looking for or not. ;-)

-Liz
LOL my Dad was a professional Fiddle player. Growing up I of course had music training. After Piano, Viola, Coronet, and Trumpet I finally settled on Tenor Saxophone. Reading music was easy for me at that point. The one thing I couldn’t figure out was how my dad would to a recording session and listen to the track then just play over it. No music, no practice just pure reaction. I often wondered the same thing when he would go to a club with other musicians he never played with and they would all play the same song but also add their own solos. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o></o>

<o></o>

I've been staring at charts for 2 years now and feel more confident all the time. Your answer is exactly the same thing my Father told me when I asked him how he "did it" as well. BTW I did get it with the Sax. I just need a little more time with charts.
I'm just waiting for the Jazz to kick in.
<o></o>

Thanks for your help. <o></o>
  • #75
  • Oct 24, 2006 11:27pm Oct 24, 2006 11:27pm
Quoting Robert DeCuir
My first post ever...
Greetings Robert. Every one here has their first post, and most of us could have asked the same Q on ours. Don't sweat it. You hang out here and you'll be amazed at the amout of knowledge you aquire over time. You are in good company. And just about every day here most of us learn something new and have an "Aha" moment, just like you did here today.

Cheers,
Thom
  • #76
  • Oct 24, 2006 11:36pm Oct 24, 2006 11:36pm
Hey guys, may you please elaborate a little more on how you use support and resistance as part of your “price action-breakout strategy”. I know indicators are not a big component of this but does anyone use RSI as a filter. I am new but I am trying to go from ignorant to informed, any help would greatly appreciated. I do see the value of price action; How do I make it work for me in the context of this method…

<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /><o> </o>

Thanks in advance.

  • #77
  • Oct 25, 2006 12:06am Oct 25, 2006 12:06am
In my opinion, and others that have done extensive statistical studies into it, the RSI is a complete waste of time, especially at default settings, Ill try to dig out the research on it somewhere for you, it's in one of the many books I have lying around. Anyhow personally, I use price action alone to see how it reacts around those levels, and I rarely trade a straight breakout, instead I trade the first pullback to the area of the breakout, it means you miss the odd one, but your probabilities are better as well with tighter stops as you don't have to worry about headfakes taking you out.

For example, here is the NZDUSD this morning after the news release, note the circled area, that was my entry (Liz .. the on close chart is especially for you on the first test of the original break out trend line. Sure you will miss the odd nice move, but why try to enter on a news release when slippage is so large and your broker is widening the spreads? This was good for 20 pips, which is fine with me for an asian session.

http://img220.imageshack.us/img220/1522/nzdusdmz8.gif

You can quit and they won't care, but you will always know.
  • #78
  • Oct 25, 2006 12:43am Oct 25, 2006 12:43am
i been reading your journal and as always your picture and explaination are so simple that I have to rethink about my trading technique. You are very helpful and I wish the best for you.... thank you
Quoting Akuma99
In my opinion, and others that have done extensive statistical studies into it, the RSI is a complete waste of time, especially at default settings, Ill try to dig out the research on it somewhere for you, it's in one of the many books I have lying around. Anyhow personally, I use price action alone to see how it reacts around those levels, and I rarely trade a straight breakout, instead I trade the first pullback to the area of the breakout, it means you miss the odd one, but your probabilities are better as well with tighter stops as you don't have to worry about headfakes taking you out.

For example, here is the NZDUSD this morning after the news release, note the circled area, that was my entry (Liz .. the on close chart is especially for you on the first test of the original break out trend line. Sure you will miss the odd nice move, but why try to enter on a news release when slippage is so large and your broker is widening the spreads? This was good for 20 pips, which is fine with me for an asian session.



http://img220.imageshack.us/img220/1522/nzdusdmz8.gif


  • #79
  • Oct 25, 2006 12:45am Oct 25, 2006 12:45am
Well that's mighty nice of you to say so .. thanks ... best of luck and happy trading.
You can quit and they won't care, but you will always know.
  • #80
  • Oct 25, 2006 12:56am Oct 25, 2006 12:56am
Akuma99, thanks for your response! Do you apply a set list of rules before taking a trade? I like the simplicity here!
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