Strat's Long Term Stress Free Trading

GBP JPY GBP USD & GPB CHF all posted potential bullish candles yesterday, the JPY has moved the furthest, putting in a strong close today above the 20 (daily and the weekly) and pretty much exactly on a S/R level @ 141.70. I didn't have the courage of my analysis last night to take this, mostly due to the stop size, but if I had done I would bring my stop up to the close of todays bar

The cable pin Opps sorry, I mean hammer, also was triggered & has closed today above the 20. I also think if this one had been taken yesterday the stop level could be brought up to the bottom of todays candle.

Ditto the swissie.

Any comments (particularly hints on my 'channel' issue)?

Why Obama couldn't catch the train from Stansted to London like I do twice a month I don't know. Its only £20 return off-peak & takes 40 minutes!
best
Paul

Dan, I haven't traded the energies (crude, natural gas, heating oil) since the 90s when I lost $tens of thousands on futures with them.

I wouldn't dream of trading them now UNTIL I felt sufficiently educated and trained on them. Just because you THINK you are successful at currencies does NOT give you the right to think the same for crude.

For a start, each financial instrument has it's own characteristics and idiosyncrasy that we need to "tune" in to before we trade. We can only do this with looking at thousands of charts and practicing on them.

Price action is price action and DOES work on any instrument but you need to know how to play the instrument first. Just because I can play guitar does NOT give me the right to THINK I can play the piano.

Crude, especially, is a WILD and VOLATILE, nasty piece of work. Just look at the length of those candles, pips - wise, and the length of the tails and wicks. They will suck you in and blow you out in bubbles without a care in the world.

You bit Nicola's bait with a huge open, gaping mouth - 350 pips! Nicola has been trading crude successfully longer than any of us. She is "in tune" with it. She can "feel it and smell it". Don't try to do what she does UNTIL you have put in the hours, time and effort to learn it.

I know of traders on other forums who daily publicised their pip winnings on crude to the envy of all other traders. Well he got his just reward and got wiped out by the Black Bitch!

Don't mess with her Dan - you are not big enough and good enough - yet

141.80 is only very minor resistance and will only cause a wobble at the most. The next major resistance is at psycho 145.00. Have you identified it? Can you see it? Are you comfortable in identifying S&R? If not, throw up some charts with your S&R on for us to critique.

Channels - these are only as accurate as the wicks and tails which, in my mind, do not represent "true market sentiment". I see wicks and tails as stop over runs by brokers and MMs and definitely on occassions, stop running by MMs. These are a few of the reasons why the CLOSE is the most important price to me.

Anyway, if I was to draw a channel to accurately represent "true market action", it would be a curve which is now flattening out at the top - can you see it now? If so, what is this telling you?

Remember that JPY pairs follow their leader, USDJPY, so always look to see what she is doing before trading any JPY pair.

""I omitted to say in my initial post that the stop size is too big for me to consider taking a trade from this PA anyway,""

This is, by far, your biggest step forward, Paul, congratulations. You are already ahead of most of your fellow traders by putting RISK and LOSS before profit when considering a trade.

I'm beginning to get a warm, fuzzy feeling for you now, Paul, which is far better than the one you gave me at the other place. Thanks!

USDCAD - I was long until yest - but I think usdcad is now looking weak. Hanging man candle today - at 50% fib from high to recent low and at strong level (look how many times it has kissed it before). Some hanging men allow for a tight stop entry with stops just above the SR level and candle tip. They are not as reliable as pins - it's all about where they form and why. - One to watch -

BBC in UK today were reporting that Canada is the best placed nation to come out of the Credit Crunch alive with near zero debt and a good savings rate - can we move in with you Nicola?? LOL

Still, funnymentals could support the CAD long it's just seeing that refelcted on the charts!!

PS - Flick to a line chart and notice the rh shoulder of a H&S forming!!

Well in addition to lurking I hope you are spending more time on that homework project I gave you!

"The longer the better" was referring to the previous trend - so, cause and effect - the longer the trend, the bigger the reaction.

By "reverse price action" I meant that in that particular high risk area where people are both getting on and off the train, I will look for a price reversal bar to get me out of the trade. I have entirely different trading strategies for those three different and separate areas. In this high risk area, I need to be out at the slightest sign of doubt.

Hope this clears it up. If so, get your head back down and on with your homework - it's a huge task.

Strat
I've still been looking at the gbpyen 2 TLs from last week. I have looked at other pairs showing similar PA over other charts, but you said I was close before? Am I missing something glaringly obvious?

To me it looks like falling momentum so no need to ever put a nasty RSI / MACD near my eyes ever again!!!

thanks for the clarification.
consider me head down and arse up, and nose to the grindstone

cheers
geoff

Paul, you are falling into the trap of filling yourself with pseudo - confidence with your "IFs". Woulda, shoulda coulda etc., have no place in trading - only REALITY is where we want to be. You already know what happens when you have your real money on the line and those demons, goblins and gremlins take over - have you forgotten already? Go back and read Nicola's post on "her little man".

One more thing - please DO NOT BRING POLITICS ON TO THIS THREAD. I have recently witnessed two very good threads degenerate because their thread owners forced their political beliefs onto their readers. Thank you.

Good on yer mate - that made me laugh!

Weaslygrim,

All these are good observations but they won't mean diddlysquat until this week is over.

It's no secret that Canada does not have the problems with financial credit like the rest of the world - we trained them right - why didn't we practice what we preach? If only Canada could geographically switch places with the USA - I would be there in a heart beat. (Heartbeat - Buddy Holly 1958).

Strat,
When I was reading thru the posts again this weekend I noticed you mentioned how long it took you to find the 3 or 4 signs (or phases) a trend is reversing. Can I ask about that?

Thanks
Lance

Greasyslim,

I put up those trend lines for a reason and was very pleased with the response. I wanted to demonstrate one of my methods for monitoring momentum and it was picked up. There were other things to see which were not brought up but Rome wasn't built in a day. Keep watching, listening and learning. I will be putting more things up to conjure the imagination and lubricate the trading process

I received this PM from a Macho guy with balls that would make an elephant proud:

""Hi strat,

I stumbled across your 'stress free trading thread'. It is very interesting to me as I'm an engineer myself and I spent a lot of time backtesting things which didn't work out for me.

I know you like stress free trading but let me for a moment assume that I can deal with the stress. I would like to more about that m5/m15 strategy which you mentioned from another forum; could you give me a link?

I'm sure I'll be too stressed from it as well but I would still like to go through that phase.

Thanks a bunch.""


I thought about this a lot, well 2 seconds anyway, and whether I should send the link or not, when I hear Michael Jackson's "Killer" album in my head so I sent it.

Then a few seconds later, I get another PM from the same guy whose balls are now smaller than a tadpole's:


""Wow, I just actually read some of your thread and turns out that you mention that lower time-frames are basically suicide.

Okay, let me spend some good amount of time reviewing your thread and apologies for the previous PM.

Regards;""


My reply:


Too late - already sent (along with reserving you a coffin!)


He is Oh so lucky I didn't post his name on it!


I'm still laughing!

You can ask anything Lance, you know that.

Isn't Blackeagle's post the answer or maybe my post "EURJPY - It had to happen" or maybe my reply to Naws?

If not, I'm not sure what you are really asking for. Could you maybe re-phrase it?

Well we have some interesting situations which is hardly surprising considering the week we are in:

AUDNZD:
20 & 50 are horizontal both bracketed by today's price bar

EURGBP:
20 & 50 are horizontal

EURUSD:
20 & 50 are horizontal

GBPCHF:
20 & 50 are horizontal (well OK, leaning to one side a little)

GBPUSD:
20 & 50 are horizontal and holding hands tightly

USDCAD:
20 & 50 are horizontal

USDCHF:
20 & 50 are horizontal

Anytime you have a moving average which is horizontal, it tells you that prices are going sideways. More important is that the market has reached equilibrium or balance. The market is constantly striving to achieve balance but rarely achieves it due to out of balance external forces (buyers and sellers). This means there are as many buyers as there are sellers which is really telling us nobody wants to do anything. Why? Because they are waiting for the outcome of this week. Nobody wants to get caught on the wrong side of whatever the outcome is.

When we get both averages horizontal it doubles the expectancy of the next move.

When you get them embracing themselves in mad passionate love in a horizontal position as GBPUSD is doing that raises a huge red flag the size of Alaska!

This all means it's quiet now, but WATCH OUT, something BIG is a foot!

Do NOT try to guess the outcome or direction. Instead, let price action show us the way. Patience and Discipline IS the key.

Dan,

Basically your position is square. Because long USDJPY and short USDCHF positions give you long CHFJPY. But on the other hand, you have extra short CHFJPY position. So as long as your USDJPY and USDCHF trades go in your favour, you'll continue to have even larger drawdown on your short CHFJPY trade.

Very good point, Blackeagle. I never thought to look at it this way although I knew he had cancelled out his USD with going both ways. Thanks.

Naws - you asked about Money Management - here is something from my files:

Money Management
The focus of this page will revolve mostly around the risk/reward ratio aspect, though another important piece is the equity percent of your account you are working with. For example, a rule of thumb for equity is never bet more than 2% of your equity on a single trade. So, for example, if you have $10,000 in your account then you should not bet more than $200 or 20 pips on a single trade (or else get a a micro-account so you can wager 200 pips or $200). Too often new traders lose too much and then get increasingly desperate in their trades to attempt to “make up” the lost money.

Ok, enough about equity. As I said above this page is going to focus on the risk/reward ratio.

Risk/Reward Ratio
In short, the risk/reward ratio means the amount you are risking (i.e. your stop loss amount) against the amount you stand to gain (your profit or limit on the trade). So if you enter long on the GBP/USD at 2.0040 and you enter a stop-loss or determine you will manually close the trade at 2.0020 if it goes the wrong way then your risk is 20 pips per lot.
Pretty simple so far, right?

Okay, now if on the same deal you determine that your target, or where you will take profit and close the trade is at 2.0140 then your reward is 100 pips (2.0140-2.0040=.0100 or 100 pips). So on this particular trade your risk/reward is 100 pips/20 pips or 5:1

Risk/Reward Ratio Example
Before we get into what ratios mean to you and what ratios you should aim for, lets try another one. Take a look at the below trade signal and figure out what the risk/reward ratio is:
Short Entry: 1.5950
Stop-Loss: 1.6005
Limit: 1.5840
Take your time, figure it out…

Ok, what did you get? Was it 2:1? If it was then you are right!
Risk = 1.6005-1.5950 or 55 pips.
Reward = 1.5950-1.5840 or 110 pips. 110:55=2:1.

Got it? Ok, if you don’t then read it a few more times, because this is very important. New traders too often do not set stop-losses and as a result may get a handful of 10, 20 or 30 pip gains (maybe even more) but then they get a 100 pip loss or worse because they keep hoping it will “just turn around” and it wipes out all of their gains plus some.

Now, here is where good risk/reward ratios become important.
Why is this important to me?

If you have a risk/reward ratio of 1:1 - meaning you risk the same amount as your reward each time - then obviously you have to win 50% of your trades to break even.
If you have a risk/reward ratio of 2:1 - or your target is twice as much as your risk every time - then you only need to win 33% of your trades to break even. Got that? You can lose 2 trades for every 1 you win and you will break even.

And it only gets better from there. Below are a few risk/reward ratios and the win percentage you need to break even:
1:1 - 50%
2:1 - 33%
3:1 - 25%
4:1 - 20%
5:1 - 17%
10:1 - 10%

Conclusion
A lot of new traders make the mistake of thinking “Ok I will just capture a few pips at a time, up to 10 or so” and they don’t even bother to put in stop-losses! What ends up happening is they may go on a streak for a few hours, maybe even a few days or more. But inevitably they get a big loss that wipes out all their profit and then some. When that happens you lose your confidence, your edge and you start to trade scared - and that only makes things worse.

The best traders I know practice good money management with good risk/reward ratios. Ratios of at least 2:1, up to 4:1. If you are a new trader I recommend you start with at least 3:1. The best traders sometimes don’t win 50% of their trades. But their wins are large enough where they make profit and then some.

Hope this helps

Excerpts from stuff:


SUPPORT:

Support is, simply put, a price at which point traders expect to see buying. Support can be a level that we have seen previous buying activity at (perhaps the price bounced off of it last month).

The most common place for support level is an obvious spot where traders have seen a major reversal in the past.

RESISTANCE

As you might guess, resistance is the exact same as support except it is an area where we have seen traders selling the pair in the past.
First is always to identify the direction in which the pair is trending.

How to Succeed in the Forex Market

More excerpts:

First off, if you are new and frustrated let me tell you I know exactly how you feel. When I started out I made every mistake you could. First I tried scalping (I didn’t know that was what it was called then, I just sold if I saw a huge green stick and bought if I saw a huge red one). I made a few pips at a time. If I got too far under I just bought more lots to get a “net position”. That worked great for a few weeks even until a one giant trade where I had bought four extra lots to “get a net position” wiped out all of my profits and then some! Big mistake. Next I tried trading the news. There was always a rise or fall with interest rate changes and all you had to do was buy or sell in the right direction, right? Sounds simple. In practice it is a little bit harder. Liquidity drops like a rock. The market tends to whipsaw, knock out stops or even go in the wrong direction you would expect it to. Again, Big Mistake. Lost a hundred pips on that one too.

And this a regular lot sized account, too, not a mini-lot account. Ouch.
Many new traders at this point give up and go back to their day jobs. Maybe I was smart, maybe it was dumb of me to stick with it but I did and I’m glad every day that I did. I went back to my demo account and figured out some trading systems that worked for all occasions. I read some books, took some online classes and kept plugging away at the demo account.



After I felt confident enough that I knew what I was doing I started slowly trading real lots again. And I started winning.


Occasionally I still will go back to demo accounts every once in awhile if I suffer too many losses and I lose confidence. Usually though I just keeping using the same systems I know to be profitable in the long-term and it works!


That being said, below are some things I’ve learned along the way that have helped me go from a horrible trader to a consistently profitable one. If you can master these I think you can make it in the currency exchange world too:


1) Use a demo account - and go back to a demo account every time you start to lose confidence or a significant portion of your equity - you should use a demo account until you’ve got your trades down to a science. You should get your trading style down to a consistent, systematic approach. Do the same thing every time. The hardest thing about trading real money is the emotions. When using demo account it is no problem to trade 2 lots with a 50 pip stop - the setup and risk/reward looks good right? When you start trading real money all you can think of is that you have 2 50-pip stops (or $1000) at risk that you don’t want to lose. Practicing over and over with the demo account gives you the confidence to say: “I’ve seen this chart setup over and over, I know that it will probably move in my favor. If it doesn’t and I take a loss I know that this trading technique is solid enough that over time it will be profitable.”

2) Keep a journal of every trade - and review them once a month or once a week. Preferably take a screen shot of the chart when you make the trade so that when you go back to review them you can see what you were looking at when you made the trade. Write about what was good about the trade and what was bad. If you keep doing this you will find that you start making less bad trades and more good trades. You will also hone what techniques you like and what works for you.

3) Take a loss as a learning experience. Write about in your journal what went wrong and what was right. Start making less bad trades and more of what you know to be a good trade. Remember that failure, if analyzed and learned from, is just a stepping stone to greater success.

4) Always use stop-losses. Every trade you enter you should have a stop loss. You should also at a minimum know what your goals (limits) are. If you are a beginner you should have both a predefined stop-loss and limits. Don’t be sorry if you miss out on some pips because of it. Write it down in your journal as far as what went right and what you could have done better. Remember this too: if you stop at at 40 pips and the currency continues to go against your prediction for a total of 80 pips you can always buy or sell then and skip the whole being 80 pips in the hole. Now you are only 40 pips in the hole! Only do this though if your original and follow-up analysis still hold true (for example, that the trend you were trading with has not been broken).

5) Educate yourself. Read some books. Take some online classes. One of my favorite books is “Forex Patterns and Probabilities:Trading Strategies for Trending & Range-Bound markets” by Ed Ponsi. I keep this one on my desk at all times in case I need to consult it.

6) Win at least 2:1 pips than you lose. Not in terms of number of trades (some great traders lose more than 50% of trades) but in terms of pips. This is called money management. If your wins are twice as big as your losses you will be profitable winning just 50% of your trades. If you in a setup you can’t win twice as much as you are risking don’t trade it. There are always other opportunities. For example, if you make 4 trades and only two of them are successful that is a 50% win rate and doesn’t sound great. But if you earn 100 pips on the wins and lose only 50 on the losses then you just netted yourself 100 pips profit (100+100-50-50=100)!

7) Rinse and repeat. Keep at it! If you lose confidence, go back to demo trading until you feel confident in what you are doing. Keep journaling every trade so that you can keep learning and improving. Keep reading books and other people’s analysis. Try to see the charts how I am looking at them and understand support/resistance and candlesticks. Come to your own conclusions about chart setups and try them out on your demo account.