james16 Chart Thread

Hi there,

I am fairly new to trading and very new to posting on here and would appreciate some help.
I am currently two months in to demoing daily pinbars and so far, it is going quite well and I am 5.25% up after two months. However, I can see that my results could have been better. I have in one of my trades taken a large loss (180 pips) where price reversed on me and hit my stop loss positioned just beyond the end of the pinbar.
Something I am having difficulty with at the moment is the position of the stop loss. The J16 material says that if you trade a 150 pip Pinbar and therefore put your stop loss 10-15 pips beyond the nose of the pinbar, you would be risking 165-180pips (worst case scenario). However, I have noticed that James says that he would never be prepared to take this size of loss and would KILL the trade if it were to go 30-50 pips to the wrong. I have also seen on this thread traders such as Jaroo, Ryanmcd etc. trading this way…killing the trade way before it gets anywhere near the end of the pinbar. Is there any point to the stop loss being at the end of the Pinbar as, in reality, we are just trading with a 30-50 point stop loss?

I hope someone out there can help clarify this for me.

Regards,
Kean

Read this post, Kean. Twice

http://www.forexfactory.com/showpost...ostcount=32422

Yep my thanks too, Jim (and co).
Reading this post and other posts of peoples progress certainly help to keep one focused. Keeping plugging away here.

Gov

Well said Forex007. This is not a system but a method. Practice on your demo account, take your time and go through the thread (you owe it to yourself) and above all, ask as many questions. We are all here to help each other.

Z

I have to agree with the recent posts and say Thank You James16!

I have not yet had the pleasure of the PF, but I can still say this thread has fully turned my trading career/business around.
Reading this whole thread as a textbook was invaluable to me. I learned from some of the best traders I am familiar with, namely James. In my opinion, you generally have 2 types of posts, both of which are important.

You post charts that illustrate the PA method trading and illustrate it with text that outlines what the trade setup was, where to put a stop, where to take profit/move to B/E. These charts were invaluable in 2005 and continue to be now.
You also post about the money management/seriousness of this business, aka, treat it as a business. Demo, read the thread, study, backtest, write a strategy, demo, prove yourself with play money, ask questions, help others, save money to build a decent sized account, be willing to be helped, demo, prove yourself with a small account, and treat it as a business. Continuing to post about these topics helps engrain/remind us about what we need to do to be successful.

Finally, you serve as the ultimate role model for many seniors on the thread. You started this thread as a way to help other traders. You even laid out a plan for how to make this work as a career (not just as a short term game till you blow up). You answered the same (and continue to) questions many times. I'm sure that is frustrating. Some other traders would have been turned off by this (not going to name names) and simply stopped posting.

But instead, you found compassion and take an interest in us. I have never experienced this before as a trader. This cannot be overemphasized. Why? Because look how many other seniors look up to you and continue to post on here (helping others, answering the same questions, sticking with us despite frustration).

IMO, that is what has made this thread so popular and lasting. It's that you are great inspiration to newbies (to become successful) as well as to seniors (to give back to you indirectly by helping on this thread).

I know this is long. But it needs to be said.

Josh

Thanks Forex007, I have read this post but I am still unsure why you would you need to have a full bar stop (180 pips away in my example) when you only are prepared to take a maximum loss of up to 50 pips...why not just have a 50 pip stop loss that covers both quick reversals and also catastrophies?

Some traders do place smaller SLs in such cases (I do, for example). It all depends on your style.

On smaller TF, SL above PB helps a lot, BTW.

Thanks again, I see what you mean regarding smaller timeframes but can I ask you... do you trade on the daily timeframe and if so how do you implement your stop loss on this timeframe?

Hi Kean,

I think this is a very valid observation and shows that you're really onto something and thinking about stuff the right way.

I hope you don't mind if I use your post as a springing board to get some of my own thoughts about this issue in order. None of this is specifically directed towards you, it's just organising the junk in my head

In my experience the learning curve begins with entries. That is, identifying the bar correctly (what is a pin bar, outside bar etc), looking for good confluence, learning to identify PPZs.... then we begin to realise that we could pick every bar that James picks and still lose money while he makes it. So we work out that what is crucial is trade management and exits. Usually this is the point where we have been trading profitably but we see that we're not quite squeezing as much as we can out of the moves.

I'm at this point on the learning curve myself so I can identify.

The truth is that exits and trade management are an art, and it really comes down to comfort zone. James has a large account and hates seeing a trade go into a loss (don't we all) especially if it was a winner at first. He teaches a trade management system whereby we kill trades that don't work quick, and take profit quick, or at the very least get stops to break even. It's what he calls day trading off a daily chart and requires close watching of your trade once it triggers. He uses alerts to inform him when his key levels are reached (eg through www.alertfx.com)

I believe the reason he teaches and recommends this for newcomers is that it has a high win rate and so builds confidence. The small losses offset the low risk to reward ratio. So he hardly ever takes a full bar loss and makes up his profit from a high win rate and low risk to reward ratio. We all know in our psych that winning feels good and losing sucks so this method is a great way to build confidence when you're new.

A crucial component to it however is killing the trade early if it doesn't work. Otherwise you can end up with five 0.2R winners being wiped out by a 1R loser and that can be crippling to the confidence.

Jarroo (and I am putting words into his mouth here) made exactly the same observation as you did and thought "well if I am never going to let my full bar stop be hit then why don't I just place a tight stop at an SR level 30 or 40 pips behind my entry, and then I'll get a much higher risk to reward ratio because of my bigger position size." So different things become important to him. A good hard break can take a trade to 1:1 very quickly. And if he gets his stop to break even and perhaps takes some partial profit, and then if it keeps on running, because of his smaller position size he can make 5:1 or even 10:1.

Now the negative side of this is that sometimes the trade reverses and hits his tight stop loss before continuing into profit. These price action bars often retrace. The recent EURCAD and USDCAD bars had deep retraces and you would have taken losses if you'd "killed" the trade. Patience paid off here. If you're like mbqb11, when taking daily trades you don't want to be daytrading so you don't kill it so quickly (although you may trail your stop down behind the bars thus reducing your risk), you are much pickier about entries, and you let your bars breathe a bit more before moving stops to break even.

So when someone asks "should I take this bar?" the answer really has to take into account how you manage it. Mike would turn down a bar that jarroo would take simply because of the way they both manage their trades.

The key part is to find what works for you, what you're comfortable, and stick with it. Say you kill trades early and you're just taken two losses on the UCAD and the EURCAD this month, only to watch them succeed and see James post charts on them. You're frustrated. Dammit you say, I'm gonna let the next one breathe. And of course that one doesn't bounce. It just ploughs on through your stop loss.

And you go mad.

There's no way to guage your results if you're chopping and changing this way. You need to just put each loss behind you and trade your method and see if the edge plays out over a period of months. It's tough when you get a string of losers, especially from trades where everyone else is making hay, but sooner or later the reverse will be true. An edge plays out over time, and with our method that edge is comprised of entry, SL position, TP target, trade management, full or partial profits... so many factors. Find a winning package that you feel comfortable with and you're there.

It gets really complicated because to an extent trade management is situational. I took a break even on the recent GU BEOB only because when the weekly pin appeared I wanted to give it a little room because I felt we could break 5800. That's a lot to hand back, and if the weekly pin didn't appear I would probably have taken some profit around the 5800 level. I look at a trade and then see how I want to play my targets. With trend, counter trend? Breakout play? How far to first SR levels? Traffic? All these things affect how I will manage it, when and where my stop will go to break even and when I'll look to get out.

My edge will play out if I stick to my guns, because letting trades breathe will give me a nice runner before long. But changing to taking profit at first target might result in me banking early on a big runner next week, and that'll drive me mad. It also won't make sense. Strategies are not about individual trades, they are about months and months of trading.

So you're absolutely right. What James is effectively doing (if he risks say 2% on a full bar stop) is trading with a risk of about 0.5%. That is functioning as a mental stop (the point where he "kills" the trade) with a hard physical stop at the full 2% (he calls it insurance). Looked at it that way his risk to reward is pretty good. You can place your hard stop where James places his mental one but I am guessing he doesn't do that to give himself some options just in case. You could also trade a full 1-2% position size based on the place James puts his mental stop. Jarroo does this I think. But then you'd better be trigger happy with your break even button because you don't want the trade to reverse on you if your stop is that close.

So after that long ramble, the answer to your question is....yes there is. Psychology, comfort zone, whatever makes you feel best about the way you trade. But if it feels more comfortable to you to have a hard stop 30-40 pips behind your entry, then go for it. And print out every chart Jarroo every posted....

I hope that helps. I am really very much in the same place as you and am grateful that your post allowed me to get my thoughts around this in order.
Someone like mbqb11 who works a lot with traders on the learning curve says that he watches them go through the same processes...and that there seems to be a path that they all take. I suspect he would say to you and me that thinking about this stuff means you are further along than you realise, even though it feels like a bit of a conundrum at the moment.

I identify some setups via D1, but I enter via lower TFs.

The whole idea behind the Pin Bar is that it's a momentum candle. First off, we are looking at a PPZ. So we know that if PA occurs here, it means something; usually that a shift in flows MIGHT be occurring. Second, the candle we call a pin bar is NOT a pin bar until the candle to the right of it breaks its highs. So if we don't get the break then the momentum that was created by the hammer (what we hoped to be the pin bar) has fizzled out. If we do get a break then the momentum is continuing. The momentum is the reason for the trade.

James will trade these setups in a sideways market in addition to ones with more space. A sideways market will have a lot more obstacles than one where there is more space (the MBQB special). These obstacles can be momentum killers. So what James is doing by taking 30-50 off the first part of his trade is an insurance policy in case those obstacles interfere with the momentum. Again, the momentum is the reason for the trade in the first place so if we lose it, why still be in it? Or why stick around with a full position?

Now as far as what Mike looks for, it's a different story. He's looking for PBs that could be significant intermediate to long term reversals. For these setups it makes a lot more sense (to me at least) to set a stop behind the pin bar and use the trail method of choice to let the sucker ride. Or maybe take partial soon off the break but keep the stop behind the pin bar and trail from there. These are ideas that each person needs to test on their own to see what works. We need to test what the PA looks like, where it's located, what is its size, what does it smell like, what does it eat for dinner, who has it been dating. Full background check with stats.

Until you understand the meaning behind the setup, you won't know how to handle it when it happens. Be prepared. Its like adopting a puppy. If you've never owned a puppy before and didn't read up on what you will need to do when you get one, you will be very unhappy. Chances are you might even give up on the dog and give it away. You weren't prepared for the bathroom breaks at 2am, 3am, 4am, etc. You weren't prepared for the bathroom breaks on your lovely carpet. You didn't buy stain remover. You didn't enroll in training classes. You didn't realize that a dog will lick your dinner plate clean even while you're sticking your knife and fork into the steak that's now in his mouth. Etc etc. Someone who has read up and is prepared will not have to put up with most of these stressors because they were expecting them and were prepared with a plan.

The people who are successful on this thread didn't just throw ideas up against the wall and saw what stuck and went with it. No. Their ideas have been tested before they went live. They know everything about their setups. They know the percentages. It seems like at least once a month Raczekfx is showing a statement of an idea he is testing. Mbqb has tested and tested his ideas. Ryanmcd tested and tested. The great thing about James' guidelines is that while you're demoing daily and weekly charts, you have A LOT of time to backtest as well. Play around with ideas, any ideas. Aside from the fact that you might discover something new, you are also logging crucial chart hours.

So in conclusion...get on your Forextester or Vhands or whatever software you may have. See what works, log those hours. That's what I'll be doing when I'm at the beach most of the summer. Good luck!

Hi TiaForex,

Thanks for taking the time to write this fantastic in depth post, it has been very very helpful. It has left me feeling like I am getting closer to my own comfort zone/style of trading... but not quite there yet and also made me think of how far I have come, so far. I will take a closer look at the way Jaroo trades, as you suggest. Once again thanks, I appreciate it.

Regards, Kean

Great post, along with Tia's, I feel a lot clearer about this now, thanks

Yep.

Awesome post too Tia. You've explained it pretty well.

...and ...I think my notebook fan just said "Goodbye cruel world!" ....<snif> <snif> ....and that smell doesn't give me a warm fuzzy feeling either. Better shut down now eh? lol

Still using CRT's, very retro!
Nice setup - its wonder you can concentrate

Actually, its a very relaxing atmosphere.

If I can wait doing only 3-5min charts you should be able to as well.

That's an awesome post Tiaforex. You just put my thinking on this into order as well!!

Thankyou, Gov

[quote=TiaForex;2800592]Hi Kean,

I think this is a very valid observation and shows that you're really onto something and thinking about stuff the right way.

I hope you don't mind if I use your post as a springing board to get some of my own thoughts about this issue in order. None of this is specifically directed towards you, it's just organising the junk in my head

In my experience the learning curve begins with entries. That is, identifying the bar correctly (what is a pin bar, outside bar etc), looking for good confluence, learning to identify PPZs.... then we begin to realise that we could pick every bar that James quote]

TiaForex,

Awesome post BTW it has helped me a lot..... thanks very much.....

(...Tom lookin forward to his & familys holiday to France... less than2 weeks and counting!!!...>

yep, headed for post one.

jim