15 pip trigger system - I've "got it" too

In the spirit of giving back, which seems to be a theme on this forum recently, this post will explain the way I trade. I'm not much of a frequenter of forums over the last couple of years due to the same things and experiences JohnW and Phillip Nel have said in their threads, so rather than repeat it, read their threads and you'll 'get it' too. As an aside too much time spent in forums can wreck your trading as they pull your trading mind in directions away from your goal - which is making a profit...
Mentors are hard to find, I've been fortunate in coming across a few people that have really helped over the 3-4 years I've been doing this, but most are either snake oil salesmen or can't explain in comprehensible words how their strategies work......Plus the really profitable guys don't (at all), or very rarely frequent forums.

I came across John and Phillip's threads as I'm showing a few other people how to trade and was having a look about on the forums for some interesting things for the guys I'm teaching to read, mainly from a psychology point of view.

Their threads are here:

JohnW's thread:
http://www.forexfactory.com/showthread.php?t=59460

Phillip Nel's thread
http://www.forexfactory.com/showthread.php?t=14630


Longer term I trade very similarly to Phillip Nel and have done so for a couple of years now (I was pleasantly surprised at how similar our methods were and have passed on his documentation as a guide to the people I'm training) - I'm chucking in my job in a few months, so it works very well.

I trade cable mainly - and momentum/volatility on the 4HR chart as a seperate strategy - the attached pdf should show it nicely. This pdf is gold - it really is, there's many strategies you can take from it, but the one I use is the "15 pip trigger" section for cable on the 4HR chart and the 96.4% hit rate of 20 pips - this is about right for me (ha ha), especially when taken with the trend.

I use the 21EMA on the 4HR for trend, i.e. if price is under it, set a limit order to sell 15 pips from the open of a new 4HR bar and an automatic target price of 18 pips south of it. Vice versa for longs.

Good luck!

Excellent!

It's great to hear you're giving back. I started trading paper accounts when I was 13. I made a little, lost a little, and now, four years later, I still make a little, lose a little. However, I seem to understand more why I'm making money and why I'm losing money.

Who knows, I may just find the holy grail myself. Judging by the stories of James16 and Phillip Nel, I'm probably 6 months to a year off.

Good luck to you. You seem well on your way to that "1KT"

I have a couple of questions, if you don't mind.

1. I assume you are going short in the above example. Wouldn't you set a "sell stop" order 15 pips under the open, rather than a limit order?

2. By having a "target price of 18 pips south of it", do you mean you are trying to make 18 pips or are you trying to make 3 pips?

If you are trying to make 18 pips, then the 15 pip trigger section for cable on the 4HR chart and the 96.4% hit rate of 20 pips does not apply to your trade.

The pdf explains that to mean that price will travel an additional 5 pips after the initial move of 15 pips, for a combined total of 20 pips.

Your clarification will be appreciated.
Thank you

The missing 2 pips are most likely eaten up by the spread...

The way I understand it is that you first wait for the price to move 20 pips. At that point you open a postion and you take profit from there of 18 pips. But this would only give an 85% win rate which is pretty good. But, at a quick glance, the probability of winning two in a row is pretty good. Which means that you could win one and then use enough lots in your next trade to cover the amount of lots you lost in your previous trade.

I'll keep an eye on this.

Thanks Billbss this is nice for just a quick trade. What is your s/l setting? They recommend 20 pips in the manual. Is that what you use?

Damon

I agree with billbss here - to get the 96% hit rate the pdf explains using a 20 pip SL and total move of 20 pips (5 pips net after the initial 15 pips have been accounted for).

Also the pdf states that the spread was not accounted for.

So you're risking MORE than a 20 pip loss to earn LESS than a 5 pip profit.

Also this pdf is from 2004 so I think possibly changing market conditions would require different set TP/SL levels (maybe based off of ATR somehow?).

If you're in all seriousness making consisent profits from this, please clarify your exact technique.

Thanks.

Thanks for sharing your statistics and the method. But I'm not sure if understand it right way. Referring to your example the golden pdf says for cable that there is 96.4% probability to hit 20 pips if it moved 15 pips after closing 4Hours candle. But there are two restrictions. 1st is SL. Pdf mentions applying 20 pips SL as a hard rule stop. What that means? If there is a close of 4Hours bar at 1.9600 and it moves 15 pips to the south afterwards where is 20 pips SL in this case? 1.9605 or 1.9620? 2nd restriction is time period. It should happen within 24x4HoursBar=54Hours if we apply our example on 4hours interval.
And now your example. Lets say 4Hours candle closed at 1.9600 with strong down trend. You mention limit order 15 pips away. This means at 1.9615 !? Suppose you wanted to say sell stop order at 1.9585. This is your trigger point. According to pdf looking for 96% probability trade your target is 1.9580. Just 5 pips. When you subtract a spread you get just 2 pips. If your SL is at 1.9620 you get really bad R/R (35/2). Need 17 wins to offset 1 loser.
Hope I'm not right.

Regards, Mark

Agreed.
Not only that, but I question the data in the charts.

Why would this 20 pip move have a 96.3% probability on a 4H chart and only a 74.6% likelihood on a 5M chart?

How does the market know which chart you have up?

Hey Magpie, these are very interesting stats, but I can see that they're a few years old. Markets are constantly evolving, so I dunno how good they hold today.

The other issue is how do we know these are actually FACT?

too much haste, less speed... my fault, I wrote the post last thing at night (I'm in New Zealand) and on the spur of the moment.

To clarify, the pdf explains on cable for a 15 pip move from a new 4HR bar open, that the chance of it moving another 20 pips in the same direction and not hitting it's 20 pip stop is between 80 and 87%, not 96% as I said. When the new 4 hour bar opens, I use basic trend following, S/R levels and other GUIDES before setting limit orders in the direction of the trend. This isn't my main strategy, but it could be yours?!

Someone mentioned the difference between limit and stop orders - depending on the platform you use, the terms change - Oanda for example call them limit orders regardless and so do I I'm afraid. Too confusing for my wee brain otherwise...

How do I know these stats are facts? - I don't, but I've backtested it and use it live and found it to be a reliable indicator with profit on the table since 2006, expecially when you take the trend and S/R into account. You'll find like I have that your account balance is one of the only truly honest things in your life - it never lies and reacts almost instantaniously to your mental state.

For every trader there is a trading system - I use S/R, MAs, hi/lows for 4HR/Daily/weekly/monthly, Fibonacci, elliot wave, trend lines (Tom Demark and normal channels), chart patterns, candlestick analysis, andrews pitchforks, MACD and the moon (!) as GUIDES! I'll say it again, they're GUIDES!!! There may seem like a lot, I suppose they are, but I've been doing this a while now and I love reading and learning and have taken something from all of them; however, they are GUIDES!!!

Some very profitable traders just use one or two GUIDES, my personality is analytical, likes variety, and likes to be interested at all times - I read a lot and play chess when possible; so I'll play - try new and different things.
But and this is the whole focus of me and my strategy - at the end of the day, price action tells me what's happening and backtested money management keeps me profitable. Just using a basic '2 line break' (instead of the usual 3 line break) on the 4 hour chart when used in conjunction with the all of my GUIDES gets me in the market, or out of it. (And a whole lot less screen time...). When the daily makes a 2 line break that is a significant event and indicates a change in sentiment to me- which is another GUIDE of mine. Likewise for the weekly and monthly charts.

My personality was the biggest failing in my trading method and has also become my greatest asset now - I get bored easily and also become obsessed with things... staring at charts for 10 hours a day was initially an obsession as a day trader and very tiring in New Zealand as the UK open is around 7 to 9 PM depending on daylight savings - I traded full time for 18 months, then had to go back to work, which was a shame and painful, but necessary.

I kept changing strategies through boredom, greed, fear and laziness, then it all became a nightmare as my life deteriorated over the course of a year losses were the norm with the occasional large profit that kept my head above water, but basically I was either treading water or drowning (not waving...)
Six weeks off were forced upon me due to circumstances about 2 years ago and I re-evaluated my goals and took a long hard look at my personality and the traits mentioned above: They sound parodoxical - and they are, but that's humanity (and me and probably you too).
Accepting these things about myself and adapting how I traded ironically made me consistently profitable about 14 months ago and the reality of providing for me and my family with trading as the vehicle became a reality. I traded stocks from about 8 years ago and have been almost exclusively forex for 3 years.
So... I decided that checking charts less than 2 hours a day was my goal and I moved to the 4 hour chart for trade entries and used, almost exclusively, limit orders for entries and indicators as GUIDES ONLY.

The biggest question you should ask yourself, is what do you want from trading and what personality you have, everyone is a rich tapestry if ideas and emotions - what 'is your nature' as a person - use this and you'll find your niche as a trader. It's taken me a long time to get to my current comfort level and a great many experiences along the way, it's really only the last 18 months as a forex trader that I've been comfortable with the way I trade; it takes some traders a week or two to 'get it', others just don't ever get it.

No one said it was going to be easy.

If you can find your comfort level, both in time spent and account risk, with a backtested strategy that you can recite in your sleep, you've 'got it'.

The pdf supplied will give you ideas, it's a GUIDE!!! so backtest them. Phillip Nel's or John's threads, will supply decent strategies and good psychology - there's loads of other good threads out there that are profitable, but be aware and very scared of analysis paralysis if you're that way inclined - it fries your brain!.
Stick to one or two and learn them and only them. Like I said, you should be able to visualise your trade entries and exits and know it inside out, left and right, up and down.

If there's one thing that you take from this post, I'd like it to be the word "guide" - indicators are only guides, price action is the key.

Good luck!

Mag


GUIDE /gaɪd/ Pronunciation Key - Show Spelled Pronunciation[gahyd] Pronunciation Key - Pronunciation verb, guid·ed, guid·ing, noun –verb (used with object) 1.to assist (a person) to travel through, or reach a destination in, an unfamiliar area, as by accompanying or giving directions to the person: He guided us through the forest. 2.to accompany (a sightseer) to show points of interest and to explain their meaning or significance. 3.to force (a person, object, or animal) to move in a certain path. 4.to supply (a person) with advice or counsel, as in practical or spiritual affairs. 5.to supervise (someone's actions or affairs) in an advisory capacity. –noun 6.a person who guides, esp. one hired to guide travelers, tourists, hunters, etc. 7.a mark, tab, or the like, to catch the eye and thus provide quick reference. 8.a guidebook. 9.a book, pamphlet, etc., giving information, instructions, or advice; handbook: an investment guide. 10.a guidepost. 11.a device that regulates or directs progressive motion or action: a sewing-machine guide. 12.a spirit believed to direct the utterances of a medium. 13.Military. a member of a group marching in formation who sets the pattern of movement or alignment for the rest.
—Related formsguid·a·ble, adjective
guideless, adjective
guider, noun
guid·ing·ly, adverb

—Synonyms 1. pilot, steer, escort. Guide, conduct, direct, lead imply showing the way or pointing out or determining the course to be taken. Guide implies continuous presence or agency in showing or indicating a course: to guide a traveler. To conduct is to precede or escort to a place, sometimes with a degree of ceremony: to conduct a guest to his room. To direct is to give information for guidance, or instructions or orders for a course of procedure: to direct someone to the station. To lead is to bring onward in a course, guiding by contact or by going in advance; hence, fig., to influence or induce to some course of conduct: to lead a procession; to lead astray. 5. regulate, manage, govern, rule. 6. pilot, director, conductor. 7. sign, signal, indication, key, clue.
—Antonyms 1. follow.

Ok, so, no, those stats are totally false. Maybe they are from a parallel universe.
Of course you can understand that if they were true we would all be billionaires in a bunch of weeks. I extensively studied those kind of things in my early years of trading, and today I have to admit I almost fell down by my chair when I read that report. I wondered: "Possible I was so stupid to miss this?"
I was not that stupid. I cannot understand why people publish such false information, but I'm very used to it, this is why long time ago I decided that in this business I will never believe anything I cannot see with my eyes. Boy, if this business is hard!
Anyway you can do the same and decide by yourself.
Here is an EA I developed today to make that kind of stats.
Please, understand that this is not the best way to make this kind of stats, MT4 in not ok for this kind of jobs. Anyway it is enough to get the picture.
Use always M5 TF (or M1) and set 'timeFrame' to the number of minutes you want the bars you test to have (60 for H1, 240 for H4, 1440 for Daily, ....).
Put a lot of money (millions, it will lose all!) in the simulation, otherwise it will stop before the whole term is examined.
By the way, does anybody know how to disable those damn comments in the Journal of the strategy tester? The results will be printed there and unfortunately you have to wait for all the other messages to flush.

I for one am going to do this using the Binary Equation Strategy with EU, GU, UCHF and UJ. But I feel better using the 20 pip method and then taking 20 pips profit with a 20 s/l, wiht the 21 EMA as the filter.

I will let you know how my testing goes.

ubee, the evidence you provide has blown me away - my eyes have decieved me these last couple of years. You should start your own thread to pass on the knowledge!

The 20 I took on the first 4HR candle of the week (alpari feed) may disagree though... which I like!

Then again... the third candle of the week is a failure, but... taking them against the trend is risky.

However there's a JohnW set up coming - I've found his strategy to work too, am I looking at the right chart?!

...

Mag.

Sorry Mag, I was addressing exclusively that report, not your trading. Good strategies to make money with forex exist and your method as well as JohnW's seem good to me too.

No worries ubee. It's my issue I suppose as I have an (admitted) problem where I point out unqualified statements of fact, when the evidence says otherwise, rather than keep quiet and let it go... I found it actually affected my trading and stopped visiting forums beacuse of it.

I was addressing the report too as it is part of my trading method and it is profitable for me - I find it a very useful guide for volatility numbers, i.e. if it moves 15 pips the odds of it moving 'n' number of pips further is 'x%'. When taken with the trend it's even more useful as a g.u.i.d.e

Anyway, I hope you're profitable!

By the way, JohnW's method on cable netted some nice pips on cable too. Also following Phillip Nel's method you'd still be short cable from the 9690-ish area. An above average last couple of weeks percentage-wise, due to the big moves with three very simple strategies...

I've found (and I know others have too) that having a basic strategy in your head for the forseeable future is a good idea; for instance on cable, it's a downtrend, so 'sell the rallies'. Obvious?, yup, but your trading mind has the potential to trick and confuse with any number of strategies - I keep a simple phrase in my head as the week and month goes by, like 'buy the dips', 'sell the rallies', 'play the range'. It looks simple - and it is - that's why I like it - it keeps me focussed (and profitable).

For example, my analysis this week is for cable:
The weekly 50% fib and previous support is around the 9180 area, the 38% has been broken with a new weekly low - 'sell the rallies'.

Simple stuff works.

And you should go on using it and profit with it.
The point is: do you really believe a moving average has anything to do with how a market will move in the future? Do you really think Fibonacci does make any sense at all? Or stochastic or any other indicator? Even price action, let's look at those legendary pin bars! Well you can do any research you want (I made huge amounts of researches on all these subjects), you will discover that they are by no way more reliable than any other kind of bar! Still good traders makes a lot of money with all these tools, and newbies lose the same amount of money using exactly those same tools!
The secret to understand why this is possible lies exactly in what you said in your recent posts: for a good trader all this tools are just guides, for a newbie they are laws to blindly follow!

Now consider this example: let's have a car which has a defect such as when the wheel is centered it does not go straight in front of you but tends to the left for a few degreees. Do you think a good driver cannot drive that car? Of course yes, he will adapt his gestures to contrast the deceiving tendency of the wheel, and after some few miles his brain will do it so automatically that the driver is almost not anymore able to recognize the wheel has a defect. Now put in that same car a child that has never driven before. You guess what? He will surely crash in the wall on his left. After few feet!

This is the same for trading. A good trader has a brain that is trained to the market so well that it automatically filters and corrects any information a tool gives him, was the information good or deceiving. This is why you make money even if you use some tools that are not perfect.

I wont define myself profitable until I'll have recovered all the money I lost in the early periods of my trading. Unfortunately they were not some thousands of dollars, they were an incredibly obscene huge amount of money (mainly lost on Nasdaq more than Forex). I will define myself profitable when I'll have recovered all that money + 1 dollar. But if we want to consider only the last few months, I'm finally happy.

Simple stuff works. Complicated stuff works too. Everything starts to work when you finally starts to get it. But reaching that point is very, very, very hard. At least that has been for me and still is every time I try to go further.

That is the best metaphor I think I've heard as an explanation for the new trader versus the experienced trader and explains the difference in me from 3 years perfectly. I've been thinking about it a lot recently as I've taken on a few guys to train and I'm going to steal that -- it creates a picture we can all empathise with! Thanks!


complicated stuff works too, but I've found it harder to remember ha ha, which means I made more mistakes... 'simple' suits me personally now - even a two bar break on the daily cable chart will be profitable with a little backtesting and money management and maybe a filter for the ranges when they occur occasionally. I use this as a sentiment guide, if there's a 2 bar break in the opposite direction it alerts me to the possibility of people changing their outlook on price.
Most traders go through the process of losing money, be it a lot or a little in the early stages of their career, like you I lost a lot - but when I became profitable i.e. I was finally in the positive from ALL the money I'd lost over the years, it wasn't a big deal!? which I found odd... I remember it vividly, I was taking a sip of coffee and noticed the "realised P/L" field was black instead of red... Strangely, there was no difference in 'me' afterwards because I knew my strategy and knew myself a lot better; being humble and accepting your personality seems to be one of the things trading teaches you by default.

One of the most profitable traders I know as an occasional acqaintance, when asked how his trading is getting on says, every time, that 'it's going fine'. He showed me his trades for the previous 6 months (after I had the cheek to ask him ) and the figures he was up or down were phenomenal (it was only really 1-3% either way on his account), but I remembered every time I asked him how he was getting on during those 6 months, he said "fine" every time. That had a profound effect on me.

I admit, I've been fortunate in that I've asked the experienced guys, when I've come across them on the web, questions that pop into my head like - I always ask what books they recommend and see if they'd be kind enough to put a chart or two together to see entries and exits. Having a 'mentor' over the web doesn't really work for me as I need someone physically in the same room and also don't have the patience (or intelligence maybe?) to pick up what they mean all the time - which leads to frustration on both sides.
So, the result is, what would take 6-12 months to learn with a mentor in the same room, takes at least 2-3 years (if you're lucky!) and a whole lot more personal discipline to pick up when the web, books and your own analysis are the only teachers you have. Ultimately, once you have a strategy it's all in your own head after that.

Buona fortuna!

this is very interesting MagPie. would stop loss do you use, typically, for these small profits and would you mind posting a chart illustrating a single trade you took?

edit. so i reread and see the 20 pip stop loss. i really have to question it though. the percentages are just too high. but i am not one to dismiss something out of hand so i will try it at a penny a pip for a few days and see how it does. i was expecting something like a 100 pip stop loss.

Hi natejax,

the statistics are a small part of the overall profit goal, and it's entirely discretionary on my part... however, it revolves around price being extended away from the 1HR/4HR MAs with MACD overextended, or bouncing around in a range, or being rejected by an MA (I use the same MAs as Phillip Nel, plus the 144ema on the hourly.)

For instance, currently the 12:00 4hr candle has just begun (and I'm at work so can't get a chart together), cable has had a big run up and is extended away from the 8ema, plus there's a resistance level. I'm still long for a third of my original entry after taking some profit on my main account - on the break long from the 9550 area; but will be putting a short order on a seperate account 15 pips below the open to catch 20 (20 pips stop with spread added on = 25pip stop total). In this case it's more of a hedge, but I don't see it like that as I use two different accounts for my two strategies as they have two
different timeframe goals.

(edit: price moved 15+pips long so I've taken the sell order off - see what happens on the next candle..)

It'll be interesting to hear your findings.