Hello everybody, I thought I would explain the strategy I have been using lately and bounce my ideas off some pro traders so I can tweak it and work the kinks out. So far, I have profited on almost every single trade, but if there are risks that I didn’t consider I hope someone will let me know with constructive criticism.
I am fairly new at this (but I do it full time none the less, don’t have a day job anymore) so the purpose of my thread is to see if anybody notices anything about my strategy that needs improvement, or if you think it stinks and have a better one, let me know.
I have been able to consistently book pips and I think this is a very low risk strategy, however, it is a “day trading” strategy because I use a 1 min chart and have to watch it nearly constantly (that is the negative part of it, I am glued to the screen). But, considering I booked over 460 pips in a day last week it is worth attention I think.
It is simple (kinda); here is what I do:
I use mostly GPY/JPY because it is more volatile than other pairs (if anybody knows of a better pair let me know). Volatility is critical for this strategy. I use fundamental analysis to determine the likelihood of the direction of the trend. Lately the UK has had some bad news reports and the pair is trending down. I confirm this checking what analysts say about it (my broker has analysts, I use them). I also check the trend based on technical analysis starting with a daily chart, then 4 hour, then 1 hour, the 30 min, then 15 min, then 5 min, then 1 min. I check all of these timeframes to get the big picture and make sure the pair is trending where I think (lately down). I try to confirm the direction of the trend as many ways as possible. If you have your own indicators for that I am sure that would be fine. I look for as much confirmation as possible on this.
Indicators:
SMA: 100
Bollinger Bands (default settings)
MACD 5, 13, 1 shown as histogram
2 Stochastics, 50, 10, 20 and 5, 3, 3 settings.
Sometimes I use others such as Bill Williams Awesome Oscillator, etc for conformation
However, the main indicator I use is the RSI set to 9
The RSI is the indicator I base my trades off of, the rest are just for confirmation and to tell where the trend is etc. The RSI works great in the 1 min timeframe.
I also use Fibonacci Retracements, especially if the market is correcting in the opposite direction of the general trend and I would like to know potentially when it will resume the trend.
I am not a pro with fibos, still learning them, but they have been useful.
Strategy:
Simply short term trade with a bias in the direction of the trend, over bought or over sold conditions. For example, since the market has been trending down I go short GBP/JPY when the RSI shows overbought. I don’t place any long trades, only short. Only in the direction of the trend.
Entries:
I use one click order execution. Gotta be quick on the draw.
I stagger my entries. Sometimes I go short and the market is not finished going into an over bought condition (it keeps going up, along with the RSI) I enter again. Sometimes I will have 4 or so entries following the RSI to overbought. (Don’t get carried away with this though, or the market might keep going up to a new level, such as with a correction). Then the market reverses and starts to oscillate back.
Stops/Limits:
I have not used any stops or limits at this point because I am watching constantly. If I decide to get up to get a snack or something of course I would place stops at least, but for now it is not necessary. This pair moves quickly, sometimes 50 to 100 pips in a few short minutes, so it is critical to pay attention. I’ll go into more detail with stops in a minute. I use a hedging strategy when the trade gets away from me, which I will explain. I do use stops then.
When to close position:
I don’t place limit orders to close the position, and I don’t close the position manually either. I trail stops manually. The reason for this is to follow the market all the way down to where it will reverse and not loose out on any profits. Where to put these stops is subjective and depends on how volatile the market is at a given moment. In general, I will wait until I am about 20 or 30 pips in the money with the last entry (the one placed at the extreme over bought condition), and I place the stop a little ahead of breakeven on that one. The others I place the stops closer to the market action.
For example, if I had 4 entries, the last one is 30 pips in the money and the first one is 10 pips in the money, I will place a stop about 10 pips behind the first one (breakeven) and 20 pips behind last one (10 pips ahead of breakeven). As the market continues down I will follow behind with the stop, leaving a little cushion between the market action and the stop because of the natural zig-zag motion of the market (so as not to get stopped out prematurely). As the RSI heads towards the oversold condition, I carefully move my stops closer to the market action, 5 pips behind, then 3 pips, then 2 pips (after the RSI is clearly in an oversold position). Then when the market reverses and begins to oscillate back the stop is triggered and I take my profits.
Now, to clarify, I don’t let all my positions be stopped out in the same spot. That fourth entry I mentioned, (as well as the third or even second sometimes) I leave a little more cushion between the stops and the market action, say maybe 10 pips, just in case the market is not finished in it’s downward direction, which is frequently the case during a downtrend, even though the RSI says it is oversold. Sometimes the market will stall or retrace briefly only to head further down, so I keep some positions in the trade to ride it down to the very bottom. After it is clearly at the bottom, I edge the other stops down to the market action and eventually get stopped out booking a decent amount of pips.
Then, at this point, as the market oscillates back to over bought, I place no trades until it is either overbought according to RSI or close to that (sometimes it won’t cross the line in a steep trend). The entries are somewhat subjective which is why I stagger them, because the first one usually isn’t the best (it goes into the negative briefly).
The point of this strategy is to ride the oscillating market from the top of the oversold condition all the way down to the very bottom of it, to overbought.
Risks and how to manage them:
I consider this a very low risk strategy because rarely will I have a bad or negative trade. I go all day some times booking pips on every single trade. I am not magic though, and sometimes the market will go against me, and against the trend, so here is what I do:
Say the market reaches overbought so I start making my entries, only, to my dismay it keeps heading that direction. What to do, close the positions and take a loss? No way, the trend is my friend right? In all likelihood the market is just making a correction and then will resume in the direction of the trend. However, I don’t want to watch in horror as my account balance shrinks as the trade moves farther and farther away, praying that it will reverse. So, I hedge instead.
I only use hedging if I am quite certain that the market will keep heading the opposite direction I originally anticipated. I confirm this by watching for a retrace. For example, the market is going up and the RSI is in overbought, but then it starts to come down again just a little bit or stall and go flat. Then it starts going up again. Once it goes up past my final entry point a bit (like 20 pips or so) I can bet that it will continue in that direction for a while (I hope it wont). At this point I go long on all of my trades, so I am both short and long at the same time on each trade, essentially hedging it, and locking in a pre-determined loss temporarily. This way if the market keeps heading up I can be safe only risking a predetermined amount and then just wait until the market reverses and heads back in the direction of the trend. When it does, wait until it is obvious it is heading back toward the trend and then close the long positions once it either reaches breakeven or a small profit, and when the market goes in the money again follow the manual stop following strategy above to exit all the short positions as well.
This way I can ride out the volatility that is going against the trend without blowing up my account, or suffering a large loss. I lock in the amount of loss I am comfortable with and then just wait.
This situation tends to happen when the market decides to make a short term correction from its downward trend.
I use Fibonacci Retracements to forecast potential resistance for the correction, and if the market reverses at one of these retracements I sometimes enter a short position here to ride the market back down (this is somewhat risky though, if you are not sure it has reversed back to the downward trending direction).
Worse case scenario: the trend has reversed from down to up and will continue up, not coming back down to allow breakeven or profit on open short positions. If this happens then I close my short and long positions simultaneously and lock in the predetermined (small) loss and move on. Usually this doesn’t happen though, I can place many, many successful trades before this happens (even if I have to ride out a correction) and the loss will not be significant compared to the gains amassed.
What about when the market is going against me and I am done trading for the day, or need sleep, or it is 3:55 pm Fri and the market is closing? I place stops and limits simultaneously at a predetermined risk point, such as at a recent week high or at a point where I am in the negative half the value of my account balance on my short positions, or something (not to worry, I have locked in a predetermined small loss, I am not risking loosing half my account, remember?). Place the stop/limits far away from the market action, because the point is to place them where they will not get triggered (only in an emergency) and you can resume trading the next day and reassess the strategy. I do the same thing far above and below the market action. Above I place stops on my short positions, limits on longs simultaneously, and vice versa below market action.
I use this strategy until my eyes bleed from starring at the computer, or until I have made an obscene amount of pips, and then I am done for the day.
So there you have it. That is my strategy. Sorry I didn’t think it would take me this long to explain it but I wanted to cover all of it.
Thoughts, anyone?
I am fairly new at this (but I do it full time none the less, don’t have a day job anymore) so the purpose of my thread is to see if anybody notices anything about my strategy that needs improvement, or if you think it stinks and have a better one, let me know.
I have been able to consistently book pips and I think this is a very low risk strategy, however, it is a “day trading” strategy because I use a 1 min chart and have to watch it nearly constantly (that is the negative part of it, I am glued to the screen). But, considering I booked over 460 pips in a day last week it is worth attention I think.
It is simple (kinda); here is what I do:
I use mostly GPY/JPY because it is more volatile than other pairs (if anybody knows of a better pair let me know). Volatility is critical for this strategy. I use fundamental analysis to determine the likelihood of the direction of the trend. Lately the UK has had some bad news reports and the pair is trending down. I confirm this checking what analysts say about it (my broker has analysts, I use them). I also check the trend based on technical analysis starting with a daily chart, then 4 hour, then 1 hour, the 30 min, then 15 min, then 5 min, then 1 min. I check all of these timeframes to get the big picture and make sure the pair is trending where I think (lately down). I try to confirm the direction of the trend as many ways as possible. If you have your own indicators for that I am sure that would be fine. I look for as much confirmation as possible on this.
Indicators:
SMA: 100
Bollinger Bands (default settings)
MACD 5, 13, 1 shown as histogram
2 Stochastics, 50, 10, 20 and 5, 3, 3 settings.
Sometimes I use others such as Bill Williams Awesome Oscillator, etc for conformation
However, the main indicator I use is the RSI set to 9
The RSI is the indicator I base my trades off of, the rest are just for confirmation and to tell where the trend is etc. The RSI works great in the 1 min timeframe.
I also use Fibonacci Retracements, especially if the market is correcting in the opposite direction of the general trend and I would like to know potentially when it will resume the trend.
I am not a pro with fibos, still learning them, but they have been useful.
Strategy:
Simply short term trade with a bias in the direction of the trend, over bought or over sold conditions. For example, since the market has been trending down I go short GBP/JPY when the RSI shows overbought. I don’t place any long trades, only short. Only in the direction of the trend.
Entries:
I use one click order execution. Gotta be quick on the draw.
I stagger my entries. Sometimes I go short and the market is not finished going into an over bought condition (it keeps going up, along with the RSI) I enter again. Sometimes I will have 4 or so entries following the RSI to overbought. (Don’t get carried away with this though, or the market might keep going up to a new level, such as with a correction). Then the market reverses and starts to oscillate back.
Stops/Limits:
I have not used any stops or limits at this point because I am watching constantly. If I decide to get up to get a snack or something of course I would place stops at least, but for now it is not necessary. This pair moves quickly, sometimes 50 to 100 pips in a few short minutes, so it is critical to pay attention. I’ll go into more detail with stops in a minute. I use a hedging strategy when the trade gets away from me, which I will explain. I do use stops then.
When to close position:
I don’t place limit orders to close the position, and I don’t close the position manually either. I trail stops manually. The reason for this is to follow the market all the way down to where it will reverse and not loose out on any profits. Where to put these stops is subjective and depends on how volatile the market is at a given moment. In general, I will wait until I am about 20 or 30 pips in the money with the last entry (the one placed at the extreme over bought condition), and I place the stop a little ahead of breakeven on that one. The others I place the stops closer to the market action.
For example, if I had 4 entries, the last one is 30 pips in the money and the first one is 10 pips in the money, I will place a stop about 10 pips behind the first one (breakeven) and 20 pips behind last one (10 pips ahead of breakeven). As the market continues down I will follow behind with the stop, leaving a little cushion between the market action and the stop because of the natural zig-zag motion of the market (so as not to get stopped out prematurely). As the RSI heads towards the oversold condition, I carefully move my stops closer to the market action, 5 pips behind, then 3 pips, then 2 pips (after the RSI is clearly in an oversold position). Then when the market reverses and begins to oscillate back the stop is triggered and I take my profits.
Now, to clarify, I don’t let all my positions be stopped out in the same spot. That fourth entry I mentioned, (as well as the third or even second sometimes) I leave a little more cushion between the stops and the market action, say maybe 10 pips, just in case the market is not finished in it’s downward direction, which is frequently the case during a downtrend, even though the RSI says it is oversold. Sometimes the market will stall or retrace briefly only to head further down, so I keep some positions in the trade to ride it down to the very bottom. After it is clearly at the bottom, I edge the other stops down to the market action and eventually get stopped out booking a decent amount of pips.
Then, at this point, as the market oscillates back to over bought, I place no trades until it is either overbought according to RSI or close to that (sometimes it won’t cross the line in a steep trend). The entries are somewhat subjective which is why I stagger them, because the first one usually isn’t the best (it goes into the negative briefly).
The point of this strategy is to ride the oscillating market from the top of the oversold condition all the way down to the very bottom of it, to overbought.
Risks and how to manage them:
I consider this a very low risk strategy because rarely will I have a bad or negative trade. I go all day some times booking pips on every single trade. I am not magic though, and sometimes the market will go against me, and against the trend, so here is what I do:
Say the market reaches overbought so I start making my entries, only, to my dismay it keeps heading that direction. What to do, close the positions and take a loss? No way, the trend is my friend right? In all likelihood the market is just making a correction and then will resume in the direction of the trend. However, I don’t want to watch in horror as my account balance shrinks as the trade moves farther and farther away, praying that it will reverse. So, I hedge instead.
I only use hedging if I am quite certain that the market will keep heading the opposite direction I originally anticipated. I confirm this by watching for a retrace. For example, the market is going up and the RSI is in overbought, but then it starts to come down again just a little bit or stall and go flat. Then it starts going up again. Once it goes up past my final entry point a bit (like 20 pips or so) I can bet that it will continue in that direction for a while (I hope it wont). At this point I go long on all of my trades, so I am both short and long at the same time on each trade, essentially hedging it, and locking in a pre-determined loss temporarily. This way if the market keeps heading up I can be safe only risking a predetermined amount and then just wait until the market reverses and heads back in the direction of the trend. When it does, wait until it is obvious it is heading back toward the trend and then close the long positions once it either reaches breakeven or a small profit, and when the market goes in the money again follow the manual stop following strategy above to exit all the short positions as well.
This way I can ride out the volatility that is going against the trend without blowing up my account, or suffering a large loss. I lock in the amount of loss I am comfortable with and then just wait.
This situation tends to happen when the market decides to make a short term correction from its downward trend.
I use Fibonacci Retracements to forecast potential resistance for the correction, and if the market reverses at one of these retracements I sometimes enter a short position here to ride the market back down (this is somewhat risky though, if you are not sure it has reversed back to the downward trending direction).
Worse case scenario: the trend has reversed from down to up and will continue up, not coming back down to allow breakeven or profit on open short positions. If this happens then I close my short and long positions simultaneously and lock in the predetermined (small) loss and move on. Usually this doesn’t happen though, I can place many, many successful trades before this happens (even if I have to ride out a correction) and the loss will not be significant compared to the gains amassed.
What about when the market is going against me and I am done trading for the day, or need sleep, or it is 3:55 pm Fri and the market is closing? I place stops and limits simultaneously at a predetermined risk point, such as at a recent week high or at a point where I am in the negative half the value of my account balance on my short positions, or something (not to worry, I have locked in a predetermined small loss, I am not risking loosing half my account, remember?). Place the stop/limits far away from the market action, because the point is to place them where they will not get triggered (only in an emergency) and you can resume trading the next day and reassess the strategy. I do the same thing far above and below the market action. Above I place stops on my short positions, limits on longs simultaneously, and vice versa below market action.
I use this strategy until my eyes bleed from starring at the computer, or until I have made an obscene amount of pips, and then I am done for the day.
So there you have it. That is my strategy. Sorry I didn’t think it would take me this long to explain it but I wanted to cover all of it.
Thoughts, anyone?
