No Brainer Trades

Hi GW,

What you said here is very interesting. From your experience then, which of the pairs would you say fit better into S&R strategies ? This I am sure would be useful for us new to trading as I know concentrating on 2 or 3 is the way to start off.

So which pairs would you say fit best with BRV's methods?

Thanks

trade set-ups every where. This is the make-or break point for the day I think

trading the yen is fine. but to trade the yen you must also trade equity indexes. There is no pure s&r trade in the currency universe. However, I would eur/usd and gbp/usd is a great place to focus

looks like the usd/jpy trade is finaaly about to depart. Dax looks good as well.

GW

I'm just curious about your use of ATR for your stops, just wondering how did u come across using it and how accuratel is it for stops as in how often does it stop u out at the right time like does it happen that it stops u out and then the market turns in your favour ? Also say the ATR is 110 for something like cable do u still use a 110 pip stop and how does that work with your R:R ?

Thanks in advance.

Right now cable has a 1 hour atr of 62. I like atr because its flexible yet consistent. Its no magic stop. I'm sure if you back test deeply you could find better settings that would reduce stop outs and produce more profits. For me its just a simple concept. If an h1 bar is totally against me my analysis is wrong. The common chart stops are just asking for your stops to be picked off.

GW. When you are in a trade for the long haul, do you watch it on hourly chart, or lower. I find lower makes me nervous because there are often alternating red and blue candles. One hour gets rid of the static and looks calmer to watch. Or is this a problem others alleviate by putting in stop, take profit and walking away

GW

Ok thanks for the reply and i totally agree with u about the common chart stops.

Here's a nice trade on cable i've just closed for +60 pips. Went short at 1.5623 and it went down to previous support so banked the profits and the US is closed all day so might be a funny market today.

This is what I have been looking at all day. I've been stuck long usd/jpy from 97.62

Hey guys, I've been quiet the past couple days because I've been busy writing the final portions of the trading strategy stuff, which will hopefully put to rest many of the common questions I receive.....so hhhhheeeeeeeere they are, post by post:

One of the biggest myths about trading, and what is usually stamped into the heads of traders from the very early stages of their careers, is that successful entry techniques will lead you to consistent profits. This is wrong! This and this alone is only one component, and there are unarguably many other factors which attribute to consistent success.

In most books and articles I have read about trading, the main focus of discussion is typically centered around entering trades. There are literally thousands of ways of doing it, as more and more indicators and trading strategies are developed over time. As we start trading, however, we learn that entering the trade can become rather easy once we have it practiced enough, and that managing a trade and knowing when to take profits becomes perhaps our biggest obstacle.

Trade management is perhaps one of the most overlooked yet vitally important aspects of trading. Any experienced portfolio manager will tell you that knowing when to call it quits and defining a systematic means of trade management is as important of the trade selection itself.

Poor trade management, just as with poor entry selection, can lead an otherwise profitable trader into an area of undesirable consequences if not executed properly. Here, we will outline the basic aspects of trade management: risk/reward, position sizing, taking profits and using stop losses.

Before we delve into any detailed discussions of the above, it is important to note that all three must be executed in terms of the market we are trading. In other words, they should be dynamic, or not a fixed pip amount. Many newer traders will define both a stop loss and profit target based on a fixed pip amount. This is generally an inefficient strategy because it completely ignores any dynamics of the market, and hinders their risk/reward ratio. The market does not “think” like we do, in terms of fixed numbers or profit goals, and instead reacts to key price areas, as we have outlined in previous articles. We are on it’s turf; its not on ours, so we have to shape our trading plan around its rules. Defining our trades around static numbers can be good if setting an ultimate limit on risk, but regardless, is not a recommended approach, especially in terms of taking profits.

One of the largest benefits of setting dynamic stop losses and take profits is the generous increase they can provide in terms of your risk/reward ratio. There have been many trades I have taken where I am only willing to risk appx. -25 pips and offered a payout of several hundred. My selection of a stop loss, in these cases, is based on a clear violation of a level I am expecting to be a sharp turning point for price. Any violation I would consider to be unexpected and not part of the overall trade plan. An example of this would be if I were to short EUR at 1.3000 resistance, and price broke through it, and then used 1.3000 as support. It’s a clear sign that price is likely to continue and I might look to exit if the price high is not valid resistance, as well. The combination of these two factors indicates strongly that price is going to continue heading upwards.

A newer trader is likely to overlook or disregard many discussions on risk/reward because they are either busy fantasizing about millions in profits or too inexperienced to understand the importance of maintaining a proper risk/reward ratio. It is completely possible to have a system that wins 99% of the time, with the other 1% wiping out an entire account if not properly managed. It is also possible to have a system that loses 99% of the time, with the other 1% maintaining a net profit.

For myself, everything begins with risk/reward. One of the first questions I ask before considering any trade is “Is the trade in the boundaries of my risk/reward ratio?” If it’s not, I immediately pass and stop wasting any more of my time. If it doesn’t fit my risk/reward criteria, I’m not interested.

Risk/reward ratio refers to the amount a trader is willing to risk versus his or her expected reward.

If your risk/reward is 1:3, you only need to win 3 out of 10 trades to turn a profit (eg risk losing 50 pips to gain 150 per trade).

For example, lets assume 10 trades with a 60 pip take profit, with a -20 pip stop loss and trading 5 contracts where 7 were losers and 3 were winners (risk/reward 1:3)

60 * 3 = 180 pips * 5 contracts = $9,000
-20 * 7 = -140 pips * 5 contracts = $-7,000
Net them out and you have a profit of $2,000

This higher your risk/reward ratio, the better. Without proper usage of risk/reward, consistency over time is extremely difficult if not downright impossible. If the math doesn’t work out, the profits simply won’t be there.

So what’s a good risk/reward ratio to use? It depends on your system and historic performance. If your win rate is better than 50% at a static risk/reward ratio, then slightly better than 1:1 is all you need to turn a profit. If your win rate is only slightly better than 30% at a static risk/reward ratio, then 1:3 is required to turn a profit.

Personally, I seek 1:3 risk/reward on all of my trades, though this is not necessarily always the case. Even though my win rate is better than 50%, by maintaining a strict risk/reward profile I am able to enhance my performance, and weed out any potentially weak-performing trades. For myself, it is a matter of discipline. 1:3 is my ‘benchmark’, but there are times when I will drop below this level, and move towards the 1:2 mark if I have a strong conviction on an entry point. Anything below 1:2, however, I see no value in taking.

Ultimately, your risk/reward ratio should never drop below a certain level based on the historical performance of your trades. When starting off and without a good history of trades by which to measure, it is a good practice to prepare for the worst and assume at least 1:3. Once you begin to build a history of trading activity you will be better able to apply a more dynamic ratio to your routine.

Tied to risk/reward, the size of your positions dictates how much you are willing to risk per trade versus how much you will gain. As a general rule of thumb, I risk no more than 1% or 2% of my portfolio on each trade. That allows me the potential to gain as much as 6% per trade if adhering to a 1:3 risk/reward ratio.

In terms of position sizing, money comes first, not pips. This is important.

Just as stop losses and take profits are dynamic and relative to the market you are trading, so should be your position size. For example, GBP/JPY is a very volatile pair to trade. I might consider expanding my stop loss to 50 pips on a GBP/JPY trade based on its history of oftentimes erratic and volatile nature.

And just as I expand my risk in pips, so I adjust my position size. Many traders make a common mistake of not adjusting their position sizes in accordance with more risk assumed in terms of pips, and the consequences of this are typically fast and painful if bad entry is taken. I’ve known several traders to wipe out accounts quickly (and I mean very, very quickly) trading GBP/JPY, assuming the same position size as they would with a less volatile pair. But fundamentally, they were wrong from the beginning.

The psychological consequences of seeing 50 pips tear against you at full position size in a matter of minutes is not something you want to deal with. By understanding the dynamics of the market you are trading, and adjusting your risk accordingly, you can withstand any ups and downs as with any ‘normal’ trade. Greed is typically the factor in trading full-size on a pair like this, not brains. But brains tend to prevail over time.

What is also important to note is that the $ amount per pip on certain pairs varies. For instance, I trade in a USD denominated account. For me, 1 EUR/USD contract is equal to $10/pip, whereas 1 USD/CAD contract is currently worth approximately $8.37/pip. I would adjust my position size according to maintain the same money management rules on the USD/CAD position as I would on the EUR/USD position.

When we enter any trade, we have two basic goals:

1.Obtain the maximum amount of profit
2.Protect ourselves from losses

It starts from the beginning . Look for the most profitable opportunities in the market, as opposed to a series of weak trades just for the sake of trading. This and this alone should be a prerequisite for any trade. It avoids taking trades that offer weak payouts and keeps your risk/reward at a desirable level.

Stop losses and profit targets work hand in hand due to risk/reward. Both should be dynamic, and work off of one another in terms of value. For instance, if I identify a trade with a profit target of 150 pips, I know that I will be willing to risk no more than 50 pips in order to fit within the bounds of 1:3 risk/reward. In many cases, however, 50 pips isn’t needed for me to tell whether or not the trade I am taking is going as planned, and I will close it before then if I see signs of it clearly moving against me. My article on stop losses explains this in further detail.

Alternatively, if I identify a trade with a profit target of 50 pips, I know that I am willing to risk only -17 pips in order to fit within the bounds of 1:3 risk/reward, or -25 pips to fit within the bounds of 1:2 risk/ reward.

Some might argue that the distance of the profit target assumes more risk, as it is harder to get 150 pips out of a trade versus 50. But by developing a consistent approach in regards to general profit target marks (appx 150 or so, or whatever the case might be), the math works out over time if this mark is consistently achieved. The trader’s history alone can determine this.

Both profit targets and stop losses should be dynamic based on surrounding support and resistance levels, or other market factors. In the following articles, I’ll explain in deeper detail, methods for doing so.

In my experience, and as I have discussed in other articles, I tend to focus more on what can go wrong rather than what can go right when it comes to taking a trade. Because of this, I always start with risk as my primary assessment tool. If I am unwilling to risk a certain specified amount on a trade, I won’t take it. It’s black and white.

My selection of a stop loss amount is usually a combination of factors, and dynamic based on key support and resistance areas. First, I look at the potential profit on a trade to determine if there is any way a feasible risk/reward ratio can even be achieved. I typically look for a 3:1 risk/reward ratio on all of my trades, but will drop lower (but no less than 1:2) or move higher based on different variables.
Once I determine my profit target, I calculate my default stop loss based on my risk/reward ratio. For instance, if my profit target on a trade is 150 pips, my default stop loss, based on math alone, would be -50 for 3:1.

I then look to the area below my entry level for a long position, or the area above my entry level for a short position, and mark up any key support or resistance areas less than -50 pips from my entry level. I determine whether or not, if broken, price is likely to go in the direction of my trade or against. If I believe the levels are strong enough, I am likely to tighten my stop loss just above these levels for a short position or below these levels for a long position (but not too close so they can be taken out by small spikes).

Its important to note that with most, if not all, of my entry points, I intend on very little drawdown. The entry techniques for this strategy calls for price to turn ‘on the dime’, and violation of areas of entry immediately imply that a trade is not working out as planned. The areas marked up in between my entry level and default stop loss based on risk/reward are more or less ‘meters’ for me to ask “if price exceeds my entry level, where is it likely to turn next, and if it exceeds that level, am I calling it quits?”

“Soft Stops”

Many times, clues on smaller timeframes can tell you that a trade will not work out as planned, and whether or not price is likely to continue moving against you. These opportunities allow you to close a position prior to your default stop loss getting hit, thereby incurring a smaller loss. Additionally, they allow you to reverse a position and trade in the direction of the prevailing trend.

In the example below, a long EUR/USD position was taken at 1.3080, with a profit target of +151 pips and a default stop loss at -50 pips based on 1:3 risk/reward. Price moved in favor of the trade for +59 pips before coming back and taking out 1.3080, the original entry point. Price then began using 1.3080 as resistance, waving a red flag that it is likely to continue moving lower, and against your intended trade. In a situation such as this, after seeing price use 1.3080 as resistance, there is little reason to leave the trade running against you and waiting for your default stop loss to get hit for -50 pips, when you could be out of the trade for only -10 to -20, and profiting from a newly created short position.

Many traders don’t pay close enough attention to these clues and it only hurts them in terms of overall performance. Focus, and more importantly, reaction to these clues is essential.

It’s not uncommon for a trader to get “married” to a position, and maintain their directional bias, when clues on smaller timeframes blatantly tell them that price is doing otherwise. Quick response by trading what you see and disregard of your prior bias is the only way out of it.

In order to set a reasonable profit target, we need to know the following:

1.Is it a countertrend trade and against market sentiment?
2.Is it in the direction of the trend and in line with market sentiment?
3.Is it a reversal point where we expect the entire trend to reverse?

Naturally, the trades that tend to pay out the most are in the direction of the overall trend and reversal trades. Countertrend trades should be used for scalping alone and of course pay less. It is important to identify which type of trade you are in to gauge its ability to continue and set reasonable profit targets.

With any of the 3 types of trades, obstacles are our major concern. The trade will continue as long as obstacles continue to get broken.

There are two major types of obstacles, both in line with our reasons for entering trades:

1.Opposing horizontal support/resistance
2.Diagonal trendlines
3.Major key fibonacci levels

These obstacles also serve as my profit targets on any given trade. When determining a viable profit target I consider the following:

1.Is my target a reasonable point where price is likely to travel?
2.Is my target in line with my risk/reward ratio?
3.Is my target in line with my strategy in terms of how I normally trade/within my comfort level?

As previously discussed, profit targets should be dynamic, meaning they are not a fixed pip amount. Defining both a stop loss and profit target based on a fixed pip amount is inefficient because it ignores any dynamics of the market, and can hinder our risk/reward ratio. Again the market does not “think” like we do, in terms of fixed numbers, and instead reacts to key price areas, as we have outlined in previous articles.

By examining the type of trade I am taking (countertrend, trend following, or reversal), I already have a general idea of the profit target I would like to see hit. If it’s a countertrend scalp, I might be looking for only +50 pips, whereas if it’s a trend continuation trade I look for significantly more, possibly in the range of +150 pips to +250 pips, dependent on the strength of opposing market obstacles. Other traders might reach for more pips in these situations by looking at bigger timeframes, but these numbers are in line with my personal style and comfort level of trading.

I mark up the most significant price barriers counter to my trade and find a reasonable level at which price has the ability to reach. In the example below, a short trade was taken at 1.3280. This is a reversal trade, and a bigger payout is expected. Due to the price action on the last move leading up to the short, few obstacles lay in the path of the trade. The first obstacle comes in the form of a diagonal trendline, which price reacted to by bouncing approximately 100 pips. A shorter term trader could have taken profits at this alone for a healthy payout, or even faded the trendline for a countertrend trade. When the trendline was eventually broken, price charged through the next obstacle at 1.2975, which was former resistance on the last move leading up. You can even see on the hourly chart posted here that this level was actually used as resistance again on the move down, while price was ‘breathing’ from its move through the level. Eventually, the final target was hit at 1.2815, or the major low made as price was moving upwards. These lows, if build up enough, tend to be very strong areas, and I fade them quite frequently. It was perhaps the strongest level of support for my trade, hence, the ultimate target.

Scaling out of positions

It is important to state from the beginning that it is always better to let positions run for full profit. Only if intraday conditions change severely, and leave a high level of doubt that your profit target will not get hit, should you consider taking partial profits.

There was a time when I would regularly take partial profits when certain market obstacles were hit, though I soon began to realize that this practice was inefficient over the long run. The problem with this technique is that my risk/reward became skewed, and I was severely limiting myself in terms of upside potential. Most of my profit targets would eventually get hit, and nullify any of my reasoning for “protecting” my position by taking partial profits.

My solution to this problem came through simple math, and is derived from the basics of risk/reward. First, I will typically only take partial profits by 1/3 of the full position amount or 1/2 of the full position amount. The level at which I take these must be equal to the amount of initial risk originally put on the trade, or 1:1 risk/reward. For example:

Long EUR/USD at 1.3000
Stop Loss = 1.2880 (-40 pips)
Profit Target 1.3120 (120 pips)
Risk/reward on trade = 1:3

If I felt there was sufficient risk and that upside was uncertain, and I wanted to scale out of the position in halves (1/2 now 1/2 at final target), my first level of doing this would be at +80 pips. The reason for this is simple. I am allowing myself no less than 1:1 risk/reward, with the potential for further gain if the trade works out and hits the full profit target. This basic model assumes that I have a success rate of over 50% on all of my trades in order to turn a profit. By closing the rest of the position at +120 pips, my final risk/reward ratio comes out to 1:2.5. Here’s the basic math, assuming 5 contracts are traded:

Closing half to secure 1:1 risk/reward, final result 1:2.5 risk/reward assuming final profit target hit:

Stop Loss (Risk) = -40 pips * 5 contracts = $-2,000
Take Profit = 80 pips * 2.5 contracts = $2,000
Take Profit = 120 pips * 2.5 contracts = $3,000
Total gain = $5,000

Alternatively, closing the full position at +80 pips would secure 1:2 risk/reward

Closing full position at 80 pips, final result 1:2 risk/reward:

Stop Loss (Risk) = -40 pips * 5 contracts = $-2,000
Take Profit = 80 pips * 5 contracts = $4,000

There are many other variations of doing this, and the math is quite simple, but this is just one basic example of how to scale out of a trade while maintaining a proper risk/reward ratio. Ultimately, the most important factor to realize is that your risk/reward is not skewed or unaligned with your trading history and ability to pull in the number of pips you are targeting per trade.

ok I'm done now.

Barbaro Brv!!!!!!!!!!!
Ole Ole Ole.... Brv....brv!!!!!!!!!:d

Hi BRV Thanks with great work of teaching new traders.
I have completely read your strategy that is at your site.
Can you please the post the incoming trades.
This is not to take as a signal but i guess it will complement as practical part of what you have taught at your site.
I see your site but no update pending trades there ?
Or am i missing something ?
ln short i would like to go side by side with you and applying your methods there.
Don wanna say much but i guess you know what i mean.
Thanks

np...yeah I havent been posting much lately because Ive just been so busy - also Ive been working on getting this whole thing set up....been eating up a ton of spare time. will when I can, thanks