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  • #61
  • Edited 4:30pm Apr 2, 2008 7:24am | Edited 4:30pm
The trend following and entering on pull backs looks like it generally works. I expect it to remain robust.

Almost every trade went in my favour by 30 pips. The biggest wins took off and almost right away.

My stops were way too big. 1 x ATR(100) would have been sufficient.

analysis of losses.

Loss 1- wait for the candle to close. (euro)

Loss 2– long entry way above the 21 ma, there's no hurry, wait for a decent pull back in price as well as stoch (euro)

Loss 3- nothing wrong with the entry – except that the context on the daily chart was heavily short and I went long.

Loss 4- No need to catch the falling knife. Prices dont usually V shape on one candle. The botttom is a process and I can use a fib on a retracement for a better entry if I think the bottom is in.

Loss 5- Tried to catch the falling knife. Again, wait for a candle to trigger the trade and then enter on a retracement of that candle.

Seems to me that the losing trades were 60:40 trades. Patience and only selecting the best setups (80:20) will go a long way to keeping the account moving in the right direction.

  • #62
  • Apr 2, 2008 7:56pm Apr 2, 2008 7:56pm
I am learning that you dont learn anything unless you follow the rules for at least 20 trades. So this is what I am doing for the next 20 trades.

Philosophy: trend trading. Preference given to daily trends, then zooming into the 4 hour charts.

Setup:
1. See a trend on the daily. I define this three moving averages stretching in the same direction. I use the 21ema, 55 ema and 89ema. If they are all stretched in the same direction then we have a trend.
2. Pull back. How far is a pull back? I dont know! I like to see an extreme stochastic reading; but as long as the price is somewhere near or on one of the emas, then that's sufficient.

Entry:
Price action. I am looking for an outside bar or a pin bar or an inside bar at resistance. Any price action that indicates the pull back has ended and price will resume the trend.

Money management:
Risking $200 per trade. (I'll be allocating $10,000 to trade this system for the next 20 trades; so my risk will be 2% of my initial equity).

Exits:
1. Initial stop loss:
Placed at the extreme of the entry bar. If that is 50 pips away, I will size the position so 50 pips = $200.

2. Profit taking:
I will have 2 exits. 60% of the position will be closed at a 1:1 reward to risk ratio. So if the initial stop is 50 pips, close 60% ($120) of the position at 50 pips. At this point the stop will be moved to Break Even on the remaining 40% ($80). I will then trail the remainder of the position until I see price (at the close of a candle) showing that price is likely to reverse.

This means each trade will have the following outcomes:
Outcome 1 - stopped out for a loss of $200. (loss of 1 x risk)
Outcome 2 - take profit $120 and the market then moves back to Break Even on the remaining $80. (Gain of .6 x risk)
Outcome 3 - take profit $120 and let the remainder of position follow the trend. Backtesting indicates a total reward greater than 1 x risk. (But we have to see what the market will give us.

After taking 20 trades with 14 wins 1 b.e. and 5 losses I know this type of system is robust. The goal of this next 20 trades is to see how I go with managing the exits differently.
  • #63
  • Apr 2, 2008 7:59pm Apr 2, 2008 7:59pm
Setup - daily down trend.
Entry trigger - daily pin bar
Helpful - stoch at extreme
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  • #64
  • Apr 2, 2008 8:03pm Apr 2, 2008 8:03pm
Entered on the close of the bearish engulfing candle.
4 hour stoch at extreme too.

What I liked about this trade : daily and 4 hour both showed entry signals at the same time.

How confident am I this trade will work out? Well backtesting and forward testing indicate a 70% success rate - so I'll say 70%.

By the way: the next 20 trades will be shown with the white background so I easily know that the rules have changed a bit.
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  • #65
  • Apr 3, 2008 2:05am Apr 3, 2008 2:05am
Quoting stewartr
I am learning that you dont learn anything unless you follow the rules for at least 20 trades. So this is what I am doing for the next 20 trades.

Philosophy: trend trading. Preference given to daily trends, then zooming into the 4 hour charts.

Setup:
1. See a trend on the daily. I define this three moving averages stretching in the same direction. I use the 21ema, 55 ema and 89ema. If they are all stretched in the same direction then we have a trend.
2. Pull back. How far is a pull back? I dont know! I like to see an extreme stochastic reading; but as long as the price is somewhere near or on one of the emas, then that's sufficient.

Entry:
Price action. I am looking for an outside bar or a pin bar or an inside bar at resistance. Any price action that indicates the pull back has ended and price will resume the trend.

Money management:
Risking $200 per trade. (I'll be allocating $10,000 to trade this system for the next 20 trades; so my risk will be 2% of my initial equity).

Exits:
1. Initial stop loss:
Placed at the extreme of the entry bar. If that is 50 pips away, I will size the position so 50 pips = $200.

2. Profit taking:
I will have 2 exits. 60% of the position will be closed at a 1:1 reward to risk ratio. So if the initial stop is 50 pips, close 60% ($120) of the position at 50 pips. At this point the stop will be moved to Break Even on the remaining 40% ($80). I will then trail the remainder of the position until I see price (at the close of a candle) showing that price is likely to reverse.

This means each trade will have the following outcomes:
Outcome 1 - stopped out for a loss of $200. (loss of 1 x risk)
Outcome 2 - take profit $120 and the market then moves back to Break Even on the remaining $80. (Gain of .6 x risk)
Outcome 3 - take profit $120 and let the remainder of position follow the trend. Backtesting indicates a total reward greater than 1 x risk. (But we have to see what the market will give us.

After taking 20 trades with 14 wins 1 b.e. and 5 losses I know this type of system is robust. The goal of this next 20 trades is to see how I go with managing the exits differently.
Hi Stewartr

Just recently discovered your thread. Nice thread ! Like you, I am a trend trader too and a follower of Jacko's methods. I am most interested in what you're doing here and will follow you closely in your journey and see how you progress.
I currently just use trendlines, 50 % fibs and round numbers to look for entries. So far it has been working out well using just those tools but I have missed out some good buying opportunities when I stuck rigidly to the entry levels I want. One more tool I need to mention and one I think is so very important especially to us trend traders is Patience ! Normally I am an impatient man but I have been making a real effort to change. Since I have been following Jacko, I realised that it's half a battle won by just being patient and wait for the market to come to me.

Good trading to you !

Bakuli
  • #66
  • Apr 3, 2008 2:49am Apr 3, 2008 2:49am
This journal is becoming interesting, the way you trade is very smart and everthing you do is in black and white. Good stuff keep up the good work.
  • #67
  • Apr 3, 2008 4:10am Apr 3, 2008 4:10am
Thanks for your encouragement and stopping in.

Patience! Yes! I want patience and I want it NOW!!!!!!!!!!!!!!!
My losing last few loosing trades I was getting too close to the market. I was watching every pip. I was "looking" for trades. Yet it seems that the best trades are made when I don't panic, I don't hurry, I don't get excited, I just place the trade 'because its there'.
In the first 20 trades I would get excited (or stressed) when trades moved in my favour as I would be wondering "should I lock in a profit?" or should I move quickly to break even. That idea gave me a grand total of 10 pips out of the euro's last 550 pip up-move.

So these next 20 trades I am aiming to leave my stop where it is until its hit or the profit targets are hit. I've never done that before.

Suddenly the 'excitement' has gone because I am prepared to accept the losses that come.

.....I think this means I am gaining confidence in my method.....

Thanks again for stopping in. Its nice to have some company in my journal.
  • #68
  • Apr 3, 2008 4:39am Apr 3, 2008 4:39am
In round 1 I was interested in proving the robustness of the system; ie does it produce positive pips. I believe I have settled that 'yes it does'.

In round 2 (the 2nd trades) I am interested in seeing how the account balance behaves with low risk, disciplined money management. I have allocated a $10k usd account for the next 20 trades and 2% risk per trade.

Here's what could happen.
1. All 20 trades are losers. = $4000 loss (40% loss worse case).
2. All 20 are winners but no trends kick in (so 60% of the position closes at the tp and 40% closes at BE). = $2400 (24% profit)
3. All 20 are winners and trends allow an average of 1:1 R:R (meaning the trades would return $200 each). Thus $4000 proft (40% gain).

1,2 and 3 are extremely unlikely and I have not seen it happen in any month ever!

4. I have 70% winners and 30% losers (which is what previous testing and the first 20 foreward tests showed). Assuming there is not one trending trade, I'll return $1680 (14 x 120) but it will cost me (6 x 200) = $1200 so the net will be $480 (which is 4.8%).

I can live with 4.8% for one month from a trend following system; especially since that assumes a market that does not trend this month.

5. The market behaves in april like it behaved in March; I can expect approximately 8 times the risk. Since risk is $200 per trade, I may expect 8 x $200 = $1600. That's 16% for the month.

6. To break even the system would need 13 wins (and no trends) which is a 65% wins. Foreward and backward testing indicates that this is realistic. Obviously, if a trend kicks in I can have less winning trades and still break even.
  • #69
  • Apr 3, 2008 1:58pm Apr 3, 2008 1:58pm
Quoting stewartr
Thanks for your encouragement and stopping in.

Patience! Yes! I want patience and I want it NOW!!!!!!!!!!!!!!!
My losing last few loosing trades I was getting too close to the market. I was watching every pip. I was "looking" for trades. Yet it seems that the best trades are made when I don't panic, I don't hurry, I don't get excited, I just place the trade 'because its there'.
In the first 20 trades I would get excited (or stressed) when trades moved in my favour as I would be wondering "should I lock in a profit?" or should I move quickly to break even. That idea gave me a grand total of 10 pips out of the euro's last 550 pip up-move.

So these next 20 trades I am aiming to leave my stop where it is until its hit or the profit targets are hit. I've never done that before.

Suddenly the 'excitement' has gone because I am prepared to accept the losses that come.

.....I think this means I am gaining confidence in my method.....

Thanks again for stopping in. Its nice to have some company in my journal.
Hi Stewartr,

The emotions you described above, when the trades moved in your favour is so typically experienced by most, if not all, of us traders ! Many a times, I have "interfered" with my trades once there were showing a profit instead of just letting the tsl take me out. I would often either close the trade early because I thought it was turning against me or I would take part profit because I was afraid of losing it back to the market. I thought I was being clever at the time but in reality, I was worst off pip wise ! After each winning trade, I found that in most occasions I would be better off sticking to my pre-trade plan of letting the TSL take me out. I believe Jacko feels the same too hence the reason he prefers to stick to a more mechanical approach to exit a trade than use a discretionary one.

I think you are on the right track here letting your future trades play themselves out. It's matter of having a plan before the trade and sticking to it once the trade is on - "Plan the trade, trade the plan". I know it's easier said than done but it's something that we should all work on to make our trading more business like, stress free and without feeling overly excited ( well , maybe we can allow ourselves to jump up and down with excitement like a mad man ( or woman) after the conclusion of the winning trade after all we are naturally highly emotional creatures !)
  • #70
  • Apr 3, 2008 8:14pm Apr 3, 2008 8:14pm
Daily trend down - so I'm going short
Stoch at extreme - so a pull back has occurred.
Daily Pin Bar - possibly reversal trigger
4 hour - bearish engulfing or "double bar high low close" (James16).

There's been a small pull back (retracement of the bearish engulfing bar), that stopped at typical fib levels.

So I'm in.
Stops are set at the previous 4hour high (top of the daily pin bar)
Profit target is set for 60% of the trade.
Rules have been followed.
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  • #71
  • Apr 4, 2008 4:12am Apr 4, 2008 4:12am
Here is a reply from Soultrader to a question I sent him.

sorry now Stewart, i'm ranting - let me summarise my advice.

1. Firstly don't rely too much on statistical numbers - "i win 70% of the time and it's a 40% probability etc etc" once you make assumptions like that the market will prove you wrong.
StewartR: I agree - that's why the system has be really simple and robust.

2. dont close partial trades - professional traders dont close partial trades, in fact they add into winners - that's one of the hardest things to do, try it sometime.
StewartR: this has been nagging at me. On the one hand I agree, on the other hand my emotions say "NO!!!! I want to have a high winning percentage and scaling out will give that to me".

3. forget about locking in profit, closing half, is this enough pips, and things like that, you are focussing on the money / pips. Instead focus on the process. you have specific setups for entry based on price movement so why do you not have the same thing for exit?
StewartR: Soultrader you are tormenting me.
Professional traders focus on the process - if the process is good then the money will take care of itself. No amount of money management will turn a bad process good.

I dont like Moving averages as you know but if they work for you then what the heck - but can you see what im getting at here? you have defined an entry method based on price action which is great, you're half way there. Now you need to define an exit system based on price action too. your trade might go to the moon and if it does you want to be fully loaded not at 40%.
StewartR: hmmm cant argue with any of this either
Many traders in their trading method look to price patterns, indicators or whatever for their entry and generally they design good stuff. That's because generally it's based in some way on price action - where they fall over is designing the exit - they say "oh take half at +20, the rest at 50" or "i'll close at +3% of account" or something else connected to pip value, or money which has nothing whatsoever to do with the market. if you enter based on price then seeing as you nor i have the first clue where price is moving why would you not exit based on price?

StewartR: yep yep.........I have some thinking to do.
  • #72
  • Apr 4, 2008 4:26am Apr 4, 2008 4:26am
Market moved 25 pips in the direction of the trade - however it closed at a loss.

-48 pips (1R)

What I did well - I took the trade in the direction of the trend.
What I could have done better - nothing really. I stayed out of the trade until it was finished.

Emotionally - the trade was 10 x more boring than my round 1 trades. All the decisions on what to do were made before the trade was put on so there was just 'nothing to do' except let it play out.
  • #73
  • Apr 4, 2008 4:30am Apr 4, 2008 4:30am
Quoting stewartr
Here is a reply from Soultrader to a question I sent him.

sorry now Stewart, i'm ranting - let me summarise my advice.

1. Firstly don't rely too much on statistical numbers - "i win 70% of the time and it's a 40% probability etc etc" once you make assumptions like that the market will prove you wrong.
StewartR: I agree - that's why the system has be really simple and robust.

2. dont close partial trades - professional traders dont close partial trades, in fact they add into winners - that's one of the hardest things to do, try it sometime.
StewartR: this has been nagging at me. On the one hand I agree, on the other hand my emotions say "NO!!!! I want to have a high winning percentage and scaling out will give that to me".

3. forget about locking in profit, closing half, is this enough pips, and things like that, you are focussing on the money / pips. Instead focus on the process. you have specific setups for entry based on price movement so why do you not have the same thing for exit?
StewartR: Soultrader you are tormenting me.
Professional traders focus on the process - if the process is good then the money will take care of itself. No amount of money management will turn a bad process good.

I dont like Moving averages as you know but if they work for you then what the heck - but can you see what im getting at here? you have defined an entry method based on price action which is great, you're half way there. Now you need to define an exit system based on price action too. your trade might go to the moon and if it does you want to be fully loaded not at 40%.
StewartR: hmmm cant argue with any of this either
Many traders in their trading method look to price patterns, indicators or whatever for their entry and generally they design good stuff. That's because generally it's based in some way on price action - where they fall over is designing the exit - they say "oh take half at +20, the rest at 50" or "i'll close at +3% of account" or something else connected to pip value, or money which has nothing whatsoever to do with the market. if you enter based on price then seeing as you nor i have the first clue where price is moving why would you not exit based on price?

StewartR: yep yep.........I have some thinking to do.


Thats some good stuff there, I will print it out and add it to my notes, is Soultrader on this forum, i might have a look at his posts? Have a good weekend, Happy trading and more pips next week.
  • #74
  • Apr 4, 2008 5:05am Apr 4, 2008 5:05am
Yes - soultrader is on the forum. His "clinic" in the 1kt forum is one of the best I have read anywhere, anytime. He is able to make very fine distinctions on minor trading issues that are helpful, insightful and tortuous!

I will be re-writing my rules because of stuff that Soultrader has said. In fact, my rules are becoming the sames as Jacko's.....just discovered on my own this time.

Best wishes
Stewart
  • #75
  • Apr 4, 2008 6:44am Apr 4, 2008 6:44am
Philosophy: trend trading. Preference given to daily trends, then zooming into the 4 hour charts.

Setup:
1. See a trend on the daily. I define this three moving averages stretching in the same direction. I use the 21ema, 55 ema and 89ema. If they are all stretched in the same direction then we have a trend.
2. Pull back. How far is a pull back? I dont know! I like to see an extreme stochastic reading; but as long as the price is somewhere near or on one of the emas, then that's sufficient.

Entry:
Price action. I am looking for an outside bar or a pin bar or an inside bar at resistance. Any price action that indicates the pull back has ended and price will resume the trend.

Money management:
Risking $100 per trade. (I'll be allocating $10,000 to trade this system for the next 20 trades; so my risk will be 1% of my initial equity).

Exits:
1. Initial stop loss:
Placed at the extreme of the entry bar. If that is 50 pips away, I will size the position so 50 pips = $100. Leave the stop there - it does not trail.

2. Other exits

  1. price action (pin bar or outside bar/engulfing against the trade, from a support-resistance area)
  2. large move against trade in one candle (volatility exit -I haven't decided how I'll define that yet)
  3. taking out a swing high/low

...................................................

  • #76
  • Apr 9, 2008 4:18am Apr 9, 2008 4:18am
I have been continuing to trade this week but am on vacation in the country and only have a dial up internet connection. I'll post all my trades from this week when I get back to the city on Friday or Saturday.
  • #77
  • Apr 12, 2008 5:38am Apr 12, 2008 5:38am
I have been backtesting to see how money management plays a role in the outcomes.

I was surprised to see that targeting a 1:1 risk:reward presented greater profits than letting profits run at 1.5* ATR(100). The winning ratio also went up dramatically.

So my tweaking on money management is coming to an end. I am going to be protecting profits and closing trades at a 1:1 risk reward ratio.

Backtesting showed.
I looked at 169 trades across 14 pairs during a strong 30 day trending period and a 30 day sideways market. The profit target was 1:1 and the win:loss ratio for the trending market was 82:18. During the sideways market the win:loss ratio was 60:40 (there were 96 trades in this sample sideways market).

I have previously tested this approach over 12 months and it continues to produce a positive expectancy no matter what I do to the exit strategy.

So it important to get an exit that fits my personality.
I like to lock in profit.
I like to have a high win loss ratio.
I would rather take multiple small pieces of a trend in preference to getting in and holding it for weeks.

I am getting very close to settling on the system now.
  • #78
  • Apr 12, 2008 5:57am Apr 12, 2008 5:57am
loss 48 pips
trading error - did not enter on break of previous bar.
jumped the gun - 100% my fault. If I followed the system, this trade would not have been taken.
  • #79
  • Apr 12, 2008 6:03am Apr 12, 2008 6:03am
.....threw out the trailing stop .....just using a risk reward ration of 1:1

closed + 50 pips
  • #80
  • Apr 12, 2008 6:12am Apr 12, 2008 6:12am
(posted after trade closed - because was on vacation)
Loss: - 76 pips (1R)

what I did well - I took the trade. With the trend (according to the emas) at a stoch pull back.

what could I have done better: I followed my plan - there was nothing wrong with this trade. It just didnt work this time.
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