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Trading setups around SR Zones

  • #41
  • Mar 3, 2009 9:36pm Mar 3, 2009 9:36pm
Areas of interest for today's session EURUSD
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  • #42
  • Mar 4, 2009 12:32am Mar 4, 2009 12:32am
These are my areas of interest so far. the white lines are trend lines from the 15-min chart. The blue lines are what I believe to be pivotal points in the Jesse Livermore sense of the word. I prefer to have a hard, fine line rather than a wider zone. It's not that I blindy buy or sell as soon as price breaks the line (I always watch price action first), but it does help me make a decision.
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  • #43
  • Mar 4, 2009 12:40am Mar 4, 2009 12:40am
Quoting ProbaBill
Yes I agree, I think many traders are attracted to this idea and rightly so, lining up setups across multiple time frames is one of the best concepts around IMO. I think ultimately what every you decide, you must trade it the same way every time. I have been studying trading methods for a couple of years now and in hindsight I probably could have made a few of them work if I had stuck at them, but I am actually glad that I kept on searching for something better. I have come around full circle a few times and have found throughout all of this study...
I'm in the same boat, buddy.

Quoting ProbaBill
Balancing flexibility with consistency is the key.
So true. Have you reak Igrok's "Beating the Odds..." book? He mentions this. his approach is to have several smaller systems that you trade with consistency, but you have the flexibility to choose which ones to trade based on the current situation. It's a way to be both flexible and disciplined. This is the approach I'm going to try with S/R on the short-term EUR/USD. My smaller "systems" are things such as, H&S, tight ranges, pivotal points, 1-2-3, etc.
  • #44
  • Mar 4, 2009 12:58am Mar 4, 2009 12:58am
Quoting mathematician
These are my areas of interest so far. the white lines are trend lines from the 15-min chart. The blue lines are what I believe to be pivotal points in the Jesse Livermore sense of the word. I prefer to have a hard, fine line rather than a wider zone. It's not that I blindy buy or sell as soon as price breaks the line (I always watch price action first), but it does help me make a decision.
Morning !

Would you not look at the most recent high as a possible PP ?
  • #45
  • Mar 4, 2009 12:59am Mar 4, 2009 12:59am
For those of you trading EURUSD now, there's a H&S forming on the 1-min chart. It bumped its head on at 15-min down trend. Let's see what happens...
  • #46
  • Mar 4, 2009 1:02am Mar 4, 2009 1:02am
Quoting Willowgal
Morning !

Would you not look at the most recent high as a possible PP ?
Do you mean the high of 1.2539 that happened around 3:38 EST? If so, yes, I would, but there's another very close. The high of 1.2541 that happened at 2:29 EST is so close that you might as well see if price breaks through that too.
  • #47
  • Mar 4, 2009 5:48am Mar 4, 2009 5:48am
Take a look at this range breakout trade. I scaled out 1/3 of the position at +5 pips, then another 1/3 at +10. Then I moved my stop up a bit closer. In this particular trade, the news came out and price dropped. I lost 5 pips on the last 1/3.

Now this was not the ideal situation you look for in a range breakout. Of course I wanted it to keep going up, but it was sort of a bull trap. The point is I still made money on this trade by scaling out. If I were going to just trade 100% in 100% out, I probably would have lost a bit of money on this trade because there was no good place to put a stop before the price dropped.

Of course the trade off is that the portion of the position that I leave to run for a large profit is smaller than the full position. So in a large winner, you won't make as much. However, in a small move, you could end up with a winner instead of a loser. It all depends on the details of your currency pair, setup, etc. See which exiting method gives you the statistical advantage and go for it.
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  • #48
  • Mar 4, 2009 6:18am Mar 4, 2009 6:18am
I agree on the premise. If one or two of the trades run out of 5, then the MM system works. I'm all about reducing risk first, then adding on profit.

Quoting mathematician
Take a look at this range breakout trade. I scaled out 1/3 of the position at +5 pips, then another 1/3 at +10. Then I moved my stop up a bit closer. In this particular trade, the news came out and price dropped. I lost 5 pips on the last 1/3.

Now this was not the ideal situation you look for in a range breakout. Of course I wanted it to keep going up, but it was sort of a bull trap. The point is I still made money on this trade by scaling out. If I were going to just trade 100% in 100% out, I probably would have lost a bit of money on this trade...
Balance in Everything
  • #49
  • Mar 4, 2009 6:31am Mar 4, 2009 6:31am
Quoting jtdt777
I agree on the premise. If one or two of the trades run out of 5, then the MM system works. I'm all about reducing risk first, then adding on profit.
Yes. If price moved in long, clean, straight lines, it wouldn't make sense to scale out. But price doesn't move like that, does it? It's much more bouncy/spikey. With scaling out, we can often get something. Once we do, it reduces the risk on the remainder of the position. Depending on your scale-out scheme, you can find yourself in a risk-free or negative risk position. It's like "playing with the market's money," as some people say.

I'm testing a few setups. After my tests, I will calculate if it would have been better to scale out in thirds or halves, or maybe it would be better not to scale out for my setups. Time will tell.
  • #50
  • Mar 4, 2009 6:45am Mar 4, 2009 6:45am
I'm not sure which scale out method is best. For me personally, I like the 2 lot method. Let the one lot limit out and get the other to BE as soon as possible so that I'm risk free and playing with the market's money, as you said.

Doing this I may miss a couple of big runs but I may also avoid a number of stop outs.

Quoting mathematician
Yes. If price moved in long, clean, straight lines, it wouldn't make sense to scale out. But price doesn't move like that, does it? It's much more bouncy/spikey. With scaling out, we can often get something. Once we do, it reduces the risk on the remainder of the position. Depending on your scale-out scheme, you can find yourself in a risk-free or negative risk position. It's like "playing with the market's money," as some people say.

I'm testing a few setups. After my tests, I will calculate if it would have been better to scale out...
Balance in Everything
  • #51
  • Mar 4, 2009 7:01am Mar 4, 2009 7:01am
Quoting jtdt777
I'm not sure which scale out method is best. For me personally, I like the 2 lot method. Let the one lot limit out and get the other to BE as soon as possible so that I'm risk free and playing with the market's money, as you said.

Doing this I may miss a couple of big runs but I may also avoid a number of stop outs.
Yes. I suggest you find out which one works better for your particular setups. Keep track of the next 20 trades, see what would have happened in each case. It will give you an idea. That's what I'm going to do.

With my 3 lot method I risk 9 pips initially. So the worst case is -27 pips. If price hits +5 pips, then my worst case is -13 pips overall. If price hits +10 pips, then not only am I risk-free, but I'm actually in a negative risk position. The worst case after the second lot is hit is +6 overall. And that's without moving the original stop at all.

If I convert that all to % P/L, let's scale it so the worst case (-27 pips is -1%). Then it works like this:
All 3 lots stopped out: -27 pips = -1%
First target hit (+5), second two lots stop out: -13 pips = -0.48%
Second target hit (+10), last lot stops out: +6 pips = +0.22%

Let's say the last lot is a big move and I make 100 pips.
In total I would have made 5 + 10 + 100 pips = 115 pip = (115/27)% = 4.25%
Of course I would make 100/9 = 11.11% if I don't scale out, but who can know what's going to happen?
  • #52
  • Edited 11:59pm Mar 4, 2009 10:00pm | Edited 11:59pm
Quoting mathematician
Yes. I suggest you find out which one works better for your particular setups. Keep track of the next 20 trades, see what would have happened in each case. It will give you an idea. That's what I'm going to do.
This is an excellent idea. I have done this a number of times with the result that usually it is better not to scale out at all, even a relatively small fixed target seemed to work better over the long run than scaling out. However, profitability is not the only concern, draw down and psychology come into it as well. Though I think we shouldn't loose sight of our main objectives, It feels good to scale out as we are reducing losing trades but by doing this our trading objectives have changed from greatest profits to greatest comfort.

A lot of interesting things come up when you play around with RR Vs Accuracy Vs frequency in excel. I have spent a lot of time simulating different trading scenarios and have come up with some novel money management ideas from the process. I could expand on this if anyone is interested but it might be the subject of a different thread.

---

Anyway here is my view of the previous session and the way in which I am trying to trade (refer to my previous post if you want to know how I determined the SR zones ahead of the session). If only I could stay awake to take all the signals! though I am thankful my trading obsession has not driven me that crazy yet.
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  • #53
  • Mar 6, 2009 2:38am Mar 6, 2009 2:38am
Quoting ProbaBill
This is an excellent idea. I have done this a number of times with the result that usually it is better not to scale out at all, even a relatively small fixed target seemed to work better over the long run than scaling out. However, profitability is not the only concern, draw down and psychology come into it as well. Though I think we shouldn't loose sight of our main objectives, It feels good to scale out as we are reducing losing trades but by doing this our trading objectives have changed from greatest profits to greatest comfort.
Yes, I'm not sure what type of exit method will work best for my setups. All I can do is test it then analyze the data. I know 20 trials is not a very statistically significant sample size, but I think it's a good gauge for a few reasons:

  1. It's better than not doing any testing/research at all.
  2. It's not too much work, so you are likely to be able to gather the data easily by live (forward) testing, which is important for a discretional strategy.
  3. You won't waste too much time/money if it doesn't work.
  4. Psychologically and emotionally, I would have a hard time trading a strategy that DIDN'T yield overall profit after twenty trades (even if it is profitable over a longer run).

I think these kinds of money management ideas are important for this thread. They are an integral part of the trading strategy. I think MM is particularly important for these types of S&R trades. There are lots of ideas to play with, like what about taking profit on 2/3 of the position after a small target, then leaving the last 1/3 to run. That's closer to a 100% exit than taking 1/2 or 1/3 after a small target, but it's still flexible to catch some profit on a larger move.

I'm also very much interested in scaling in. If you can catch a trend, you might as well exploit it with multiple streams of income. At the same time, if a new trade doesn't pan out, you'll be glad you didn't fully commit to it.

  • #54
  • Mar 6, 2009 3:16am Mar 6, 2009 3:16am
I've given considerable thought to scaling out, scaling in, averaging, stacking and all that stuff. My thoughts are that the best trades are those ones that run from the start, no drawdown, no looking back, never threatens your stop loss, but these only occur perhaps 15-20% of the time. However, they will yield a disproportionate percentage of your profits, if you give them the time to pay you.

Then there are the trades that go into a bit of profit, then come back into the red - sometimes they pass and sometimes they don't. If you pull your stop to break even too soon you're going to get whipped out and miss some decent trades. In order to maximise profits from these whilst minimizing risk I have opted to use a policy of taking out a portion of profits (usually a third) when the position is in profit (this may be 10+ pips or so on EU, 15+ on GU and EJ, 25+ on GJ but it really depends on how the market looks at the time), and then use this profit to cover costs and buy me a bit more space on the stop loss so I put the position to net break even. It is no coincidence that price retests your entry level. Using this method should keep your stops a little further away from the clusters of amateur traders and allow you to capture more of those trades that would usually stop you out and then continue in the direction of your trade. If it retraces further and you do get stopped out then you haven't lost anything but given yourself every chance of getting into a profitable trade. This occurs around 50% of the time for me.

At certain times of day (London open, NY open in particular) and for certain set-ups, I will be much more willing to leave the entire position running as the probability of getting into a runner outweighs the added risk exposure of holding the full position.

And of course, there are those that trigger your entry and never get anywhere. Find a way to get out of these quickly and cheaply. I observe the 15m for entries, but set my stop loss according to price action on the 5m. That alone has reduced losses significantly, whilst only cutting out a few winners, and very few of which turn out to be 'runners'. Of course, you can always get back in, and often at a better price.
  • #55
  • Mar 6, 2009 4:44am Mar 6, 2009 4:44am
Quoting birdt
I've given considerable thought to scaling out, scaling in, averaging, stacking and all that stuff. My thoughts are that the best trades are those ones that run from the start, no drawdown, no looking back, never threatens your stop loss, but these only occur perhaps 15-20% of the time. However, they will yield a disproportionate percentage of your profits, if you give them the time to pay you.

Then there are the trades that go into a bit of profit, then come back into the red - sometimes they pass and sometimes they don't. If you pull your stop...
Good input thanks. Looking at scaling in again particularly on EJ. I've noticed over time that EJ usually has one or two runs per day that are continuous and strong with small retracements sometimes bouncing at S/R's and sometimes blowing right by them.

From a scaling in standpoint, has anyone done the math on this type of entry?
Balance in Everything
  • #56
  • Mar 7, 2009 6:00am Mar 7, 2009 6:00am
Quoting birdt
I've given considerable thought to scaling out, scaling in, averaging, stacking and all that stuff. My thoughts are that the best trades are those ones that run from the start, no drawdown, no looking back, never threatens your stop loss, but these only occur perhaps 15-20% of the time. However, they will yield a disproportionate percentage of your profits, if you give them the time to pay you.

Then there are the trades that go into a bit of profit, then come back into the red...
Nice analysis of the different cases. The big question is: How do you know which case your in?

I guess it will be obvious early on if it's going to be one of those trades that just takes off and never looks back. So if that doesn't happen within a few minutes, I guess we should assume it's the type that wiggles a lot.

What I have been doing is placing my orders to TP 5 and 10 pips immediately after I open the trade. It looks like you're saying that it's better to wait a minute to see if it is going to be a big winner, that way I can play the big move full strength. If, however, it doesn't make any big moves, then maybe I should put in some small TP orders, some "pip traps", to catch a few pips on one of the wiggles.

Just today I was thinking a lot about scaling in and scaling out. I came up with four cases: You can scale in or scale out (add or subtract) of a winning position or losing position. Now we've all heard before that the market tends to keep going in its current direction. It has "momentum." That is why it is better to buy when price is moving up, because it has an upward momentum. Many new traders think that they should sell when price goes up because it's "too expensive" and it has to come down. If we take the assumption of momentum...(actually, if you remember Newton's laws, it should be called inertia, but the financal world uses the term momentum).

Axiom of Inertia: Price is most likely going to continue moving in the same direction.

Now consider how this affects the four cases:

 

  1. Add to a winning trade: The axiom says this is good because it should keep moving in the winning direction, so you will make more profit.
  2. Add to a losing trade: The axiom says this is bad because it should keep going in the losing direction, so you will have a bigger loss.
  3. Scale out of a winner: The axiom says this is bad because it should keep winning, so scaling out would just reduce profit.
  4. Scale out of a losing trade: Although this is better than not reducing the position, you should just get out of this trade completely because the axiom says it will keep losing.


So if the axiom is true, we can see that the only time we should do any scaling, is we should scale into (i.e. add to) winning trades. All other cases lead to bigger losses or smaller profits.

However, I like your idea, birdt. If you just give the trade a few minutes to show what it's going to do, then you can judge what the best course of action is.

What does everyone think about this?

  • #57
  • Mar 8, 2009 7:36am Mar 8, 2009 7:36am
Quoting birdt
and then use this profit to cover costs and buy me a bit more space on the stop loss so I put the position to net break even....
Thanks birdt,

I have often made the mistake of moving SL of the remaining part of the trade to b/e, getting stopped out and then watching it move in the right direction when I am out of the trade.

So if you take 20 pips for 1/3 of your trade this would give you an extra 10pips of breathing space for the remaining 2/3 of the trade. It would still leave you break even if you get stopped out, but it gives you a much greater chance of catching the move when it is ready to go, rather than falling foul of the Market manipulators ?
  • #58
  • Mar 9, 2009 9:09am Mar 9, 2009 9:09am
Quoting mathematician
Nice analysis of the different cases. The big question is: How do you know which case your in?

I guess it will be obvious early on if it's going to be one of those trades that just takes off and never looks back. So if that doesn't happen within a few minutes, I guess we should assume it's the type that wiggles a lot.

What I have been doing is placing my orders to TP 5 and 10 pips immediately after I open the trade. It looks like you're saying that it's better to wait a minute to see if it is going to be a big winner, that way I can play the big...
"Axiom of Inertia: Price is most likely going to continue moving in the same direction." lol, since when does a price move straight up or down? Please call me, I want to trade this market. Also, please don't bring Math or Physics into the Market because the Market is undeniably not explainable, ahem, not predictable, with any science at current. "Add to a winning trade" Sure, if you are one of the major players(trend starters), otherwise, it does not guarantee anything special. "Add to a losing trade" Again, same concept. "Scale out of a winner" Wise. "Scale out of a losing trade" Very wise!
  • #59
  • Mar 9, 2009 9:29am Mar 9, 2009 9:29am
Quoting happy1234
"Axiom of Inertia: Price is most likely going to continue moving in the same direction." lol, since when does a price move straight up or down? Please call me, I want to trade this market. Also, please don't bring Math or Physics into the Market because the Market is undeniably not explainable, ahem, not predictable, with any science at current. "Add to a winning trade" Sure, if you are one of the major players(trend starters), otherwise, it does not guarantee anything special. "Add to a losing trade" Again, same concept. "Scale out of a...
That's why it's called an axiom and not a theorem. I'm well aware that math doesn't really help predict trading. I'm just quoting something that everyone says, including the big players: Don't fight the trend. The trend is your friend, etc. In other words, price will most likely continue it's current trend. I didn't mean that price moves in perfect straight lines when I said "continue moving in the same direction," I meant it will maintain the same general trend.
  • #60
  • Mar 9, 2009 9:30am Mar 9, 2009 9:30am
Quoting mathematician
That's why it's called an axiom and not a theorem. I'm well aware that math doesn't really help predict trading. I'm just quoting something that everyone says, including the big players: Don't fight the trend. The trend is your friend, etc. In other words, price will most likely continue it's current trend. I didn't mean that price moves in perfect straight lines when I said "continue moving in the same direction," I meant it will maintain the same general trend.
Big players say a lot of things. But not how they make money!
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