Any pin will do?

Quoting lesaurus

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........Please reply as I really look forward to hearing what you think to my ideas.........

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Quoting lesaurus

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Your comments are greatly appreciated and very interesting.

There are a couple of things that i would like to throw back if you don't mind.


Time frames.

I think the general consensus on the most part seems to be that smaller time frames are to be avoided.

I agree they are more difficult to deal with, and your win/loss ration will decrease due to noise stopping you out more often.

But let me put this to you:

Profitability over a given time period is a product of

Win/loss ratio X Risk/Reward ratio X number of trades in this period.

We strive to improve these factors to give us greater returns and to me the frequency of trades can be significantly increased by dropping time frames.

Moving from the D1 to H1 would produce approximately 6 times as many trades - That's by dropping just one time frame. Is the H4 that much more difficult to trade than the D1. I would like to know a way of increasing either of the other two variables sixfold.

Moving to the H1 =24 x
H30=48 x
H15=96 x
H5 = 288! x

I know the 5min chart may sound a little rediculous but is it?

I mean, there are levels of resistance in all timeframes, obviously varying in strength, but price action is price action just on different scales.

You still get pinbars on the 5min, just adjust the trade parameters accordingly. For example your take profit may only be a few pips, but as you know if this trade still adds 1% to your account, the same as the Daily, then there is no difference, apart from theres 288 more of them.

O.K, the risk reward will suffer and win/loss ratio as well but by how much?

I bet its not 288 times less. The most suprising thing is, from a quick visual back test the 5min timeframe actually improved on win/loss ratio.

I think the only way to really prove this is to complete some thorough backtesting, but my initial findings are very encouraging.

You say that working on the 5min is stressful, but does it need to be?
If you have a pretty much mechanical set of rules and an alert to help you avoid watching the screen, then its just a case of entering the trades as they come in.

In fact i think i would be less stressed worying about whether a trade on the 5min will work out, knowing that another will be along in a few minutes, than i would on a daily trade knowing that this may be my only chance this week of making some profit.

I know it comes down to personal choice at the end of the day and its what suits your lifestyle

It could be that trading Forex is just a mere hobby and 5mins a night perusing the dailys is all that you wish to do. but to me, i would like to make some money as a result of all this time i have invested and therefore I am willing to spend more time becoming profitable.

If it works for you, then that's fine. I think the point is that you need to decide what fits your personality. For example, James and I handle exits very differently. We both still use Price Action though.

However, there are two reasons I won't mess with the 5 minute chart: 1) Because resistance really does not mean as much. (Unless it's at a bigger s/r line.....say a weekly PPZ, and you happen to be right there at the moment.) 2) Because I would like to have a life. Seriously, I used to scalp a lot. My average day would be 7 trades or so.....5 winners, 2 losers. Normally I was either break even, or down just a touch. I decided it just wasn't worth it.

If "waiting" around for trades is an issue, then you are not going to do well. Sorry, that's just how it is. Think of it this way: You are using 100,200,400 times leverage to capitalize on move that MIGHT be 12/100 of a cent.

It has nothing to do with Forex being a hobby. In fact, using this same "slow" method, I have a firm watching my trades as a "tryout" of sorts. Certainly $3B firms know what they are doing. (Or at least should.) And as such, the fact that they do not allow scalping tells me I might be onto something. This is a very serious endevor for me. I am not telling you this to impress you, but to impress upon you that trading higher time frames is not a BAD thing. However, as I have lived life, I know that it's not worth killing yourself over. I guess it also comes down to account size. At $.50 a pip, it's easier to deal with than say, $25 pips.

Then again, it's these huge firms that had EA's that caused that crash last year....

Which brings me to another point raised here: EA's suck. I will tell you why. Those same "genuis" EA's cause markets to melt down everytime you have a "once-in-a-lifetime event". (Which seems to happen every 2 years.) EA's will also get you into trades 30 seconds before NFP. Or when the market is "off". Or the day before a holiday. Or on and on.....only a human has the processing power to diseminate all the info. I truely belive that.

Pins DO work. Someone else posted it matter more WHERE they happen. This is the #1 thing to learn. Also, did you wait for those pins to break 10 pips, or did you just take them blindly? Did you have an exit set up? Or did you just think that every pin was the extreme bottom or top of the market?

I read the part about the EUR/USD pins. Not true. A few weeks back, I made a little under 450 pips on bearish pins in that pair. I made no pips going up. I can think of another month like that last year. (Although I cannot remember exactly which one.)

The truth is this: It does not matter how you choose to trade, just that it works for you. But...on that 5 minute chart, you are going to have to deal with random moves. Yes, there are random moves in Forex, because THERE IS AN ENTIRE SEGMENT OF THE MARKET THAT HAS TO TRADE.

I know a guy that trades for two companies: Rubbermaid and Honda. Both tell him to buy "20 Million Euros so we can pay our German employees.....when you think it's cheap." Ok, so he just got into the market. He just took out a few orders. This effects you more on the 5 minute chart than the daily. Also, how many other companies and banks, etc.....will be doing the exact same thing? He also sometimes just needs to buy Brazilian Reals as well. No reason from a speculative point.....just that Rubbermaid has a South American facility, and therefore needs them. Meanwhile, you position just went 4 pips against you.

Just pay attention to WHERE these pins are formed.

TO answer your question about 4 hour trading being that much harder than daily? No.....Most of the time, the PPZs are interchangable. $ hour charts are pretty reliable in my opinion.

Remember, the break of the pin is very, very, important. If you include that in your trading, your hit rate will be really, really, good in my experience.



Discretion

I'd just like to touch on this.

You say that discretion is not guessing, and that it keeps you out of many loosing trades, but how many winners does it mean that you miss?

The fear of "missing the big move" is something your broker loves I am sure. The quick answer is "Who cares?".

The point of my method is to eliminate discretion, work on probabilities only.

Days such as NFP fridays are unusual, but could be controlled quite easily by creating a rule that says 'do not trade on NFP days'. And anyway, what is the probability of the trade going for or against you? it's probably the same as any other, just on a bigger scale.

You mention fear but is discretion not fear? is it not standing on the sidelines because you think that its risky to trade?

So is our method.....probabilities.

Take a look at NFP this year in EUR/USD. (The only one I have looked at for the topic at hand.) Not exactly a lot of movement on some months is there? In fact, there are a couple where the net movement for the day was 17 PIPS. Sounds like fun.

This point links in with what RABID has just said

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"This is going to be heresy... laff, but I've never had good results w/ pin bars. They don't accurately predict tops or bottoms. You'll get extremes that occur w/o them, and you'll get extremes that occur with them... that then keep on going. Look at all of the failed pin bars on the eurusd during the up trend, and look back thru various histories and you'll see pin bars that don't bounce... but just ride for a while."

This statement is very true, some pinbars sit at such beautifull points on the chart that it seems theres no way they will fail but they do and spectaculalry sometimes, and vice versa.

My point is that we can't really tell whether a pin will work or not, whatever reasons we like to use to qualify them, each one has just as much chance as working as the next and staying out of the market is really only down to a gut feeling or 'fear'.

Sounds like you two are looking for something that works 100% of the time. If you find it, let me know.

The pin breaking 10 pips, or 20 on a larger spread pair is crutial. MOST of the ones that got me are ones I got into before that happened. However, you would also have to examine what the exit strategy was. I ASSUME there was one. However, a lot of people don't really use one, and wonder why they are losing money.


Keep it simple

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I agree - however you put way too much thought into this. Price does one of two things.....goes up or down. It can go sideways, but only for so long.....trading should be easy. Thank God it is.

It us who make it hard.


This is exactly why i am trying to eliminate discretion, to keep it simple.

I want to spend time doing the hard work of developing and testing a system, optimise it, set the rules and then finally be able to implement it without hesitation or thought.

I don't want to analyse every trade and employ discretion, wondering if i should enter or not, going round in circles for all different kinds of reasons.

I just want a signal and an entry every time, knowing that i've already done the work and set the rules. I want to use probability as my edge.

Finally Clockwork, I would like to say that, maybe you are right, maybe my theories are wrong, and time will prove this. I mean James16 has one of the most popular and probably successful threads on this forum.

I respect your comments and on the most part wholeheartedly agree, but just want to challenge a couple of aspects of this method that i feel could be explored a smidge further.


Please reply as I really look forward to hearing what you think to my ideas.

Yours respectfully

Paul.

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Quoting lesaurus

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30 XTCi

Thanks for your view, i think your method has a sound basis, i like the use of the BB's to highlight pins at deviations of the median price. It is essentially a filter, and one with a very clear defined value which i like.

How do you determine if the bands are flat enough? Is this discretionary or do you measure them in some way?

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Quoting lesaurus

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Hi again Clockwork

You said

"Pins DO work. Someone else posted it matter more WHERE they happen. This is the #1 thing to learn. Also, did you wait for those pins to break 10 pips, or did you just take them blindly? Did you have an exit set up? Or did you just think that every pin was the extreme bottom or top of the market?"


The answer is this. Yes my method is to take pins blindly and enter immediately.

I think if you back tested them, you would be surprised how often they work, but AFTER they break 10 or so pips above/below the pinbar. (as the case may be.)

I myself have been burnt a few times "anticipating" the break of a pinbar. There are different ways to trade it, but I try to be conservative myself.

If the candle qualifies (as in it's size and shape), and is flagged by the indicator, i enter on the open of the next candle. I set my stop at the nose of the pin (plus a small buffer) and then set take profit as follows

I measure from the open of the candle after the pin to the end of the nose of the pinbar itself. I then set Tp this same amount of pips in the opposite direction.

With this way of doing things, you can sometimes take profit before the pin has even broken.

I am confused as to why you do this. Why is the length of the pinbar relevant to T/P? I understand the S/L, as I do same thing.....something like bottom of pinbar -10 pips. But if you think about it, WHY does the length matter in the other direction?

If you have a 75 pip pinbar, and you are getting in 25 pips into it, you are aiming for 50 if I understand you correctly. But why does 50 pips matter? I mean.....what is the relevance for T/P there? Why not at next resistance area?

It is essentially scalping, i am not even slightly trying to pick out tops or bottoms and enter into large moves, i am just using the pin to highlight a situation where price has experienced rejection, and working on probabilities that it may be more likely to take the path of least resistance - for a short distance at least.

You could call it momentum i suppose, as hanover has described and very often the tp is reached quickly. other times however it hovers around for a few candles and then finally moves, that is when i put it down to path of least resistence.

I think that trying to pick tops and bottoms is very difficult, trying to predict anyhting is difficult, i am trying not to pay any attention to where the pin is just work on probabilities.

I would only say, the probabilities are determined more by WHERE a pinbar accurs, than the pinbar itself. Once I realized that, I started making money. To be honest, a pinbar for the sake of a pinbar doesn't matter. However, at a point where price hasn't been able to break through for 9 months - that says something, and quite loudly.

I respect very much you're methology and i do try and trade exactly like you. I have two separate accounts, one called 'pins with discretion' and another 'any pins'.

Its early days yet to see any difference because im still very much learning basics and still keep making fundamental errors. But im trying to see if there is any real difference between the two.

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When you take profit at the above mentioned 50 pips, why? The thing is this: If you exit out of a position, there should have been something changed to make you decide that it's no longer valid. Believe it or not, there are people here in this forum that bought EUR/USD 3 years ago. They haven't shorted often, or at all in that time. Some of the original positions are still on. THAT is conviction. THAT would be where the money is.

Quoting lesaurus

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Hey snorm, you're welcome.
It's a great indicator i agree. It saves, watching screens and just brings you're attention to something interesting.
Absolutely - no more excuses for "the one that got away".

Please have a look at this.

Go to eur/usd H1 and look at each pin that the indicator flags.

Now back test with the following;

Enter immediately

Set SL to the nose+ 2 pips

Set TP to SL minus spread and the two pip buffer

See what you get.
I have done this since the beginning of the year and my results are
2:1 win :loss ratio, with average 1:1 R:R

I don't know what broker you use etc. etc. but i would be interested to see what you come up with.

I will definitely add that to my list of charting things to do Sounds like you have a good basis for a simple EA


By the way, youre technique of waiting for a break of the nose in a pin oppossing the trend is very interesting, i've never thought of that.
They often provide (or confirm) areas of support/resistance - so a break of the nose/tail/wick/dangly bits might be a logical place to enter a trade. It's an easy one to do a visual backtest on - use the most recent pin bar, it doesn't just have to be the preceding bar. As someone mentioned earlier, these can just be areas of profit taking before the trend continues.

Also, just in keeping with the theme of quantifiable techniques, how would you define a trend?
A much-revered contributor to these forums said something to the effect of: if price on the left is at the bottom and price on the right at the top, you are in an uptrend. I'm not sure that meets your 'quantifiable technique' criteria though. The 'proper' definition of an uptrend would be a sequence of higher-highs and higher-lows.
An alternative option might be to use three moving averages to represent short, medium and long term ... anything you like but try, for example: 5, 13, 55 EMAs or 50,200,400 EMAs or etc (I'm not convinced that any one MA is particularly better than another). If the short is higher than the medium which is higher than the long, and all three are heading upwards, you have a good up-trend. It will be a quick exercise to plot some MAs and visually see how trading the right side of them might offer lower risk & higher reward to trading the pin-bars, or the other signals.

Regards paul

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