Take Five with The Power of Three

I'll be posting recaps of my live trades in this journal using a system I like to call The Power of Three. I'm very excited about this system and the results it will deliver. It uses solid time frames and indicators to determine the trend. More importantly, exactly when to enter and when to exit.

However, after keeping a close eye on the Forex for five years, knowing what to do seems to be the easy part. It's the, "Get in now before it starts going where it should go" and "Close the trade before it goes against me anymore" that I still struggle with.

Some of the phrases that often go through my mind are;
“Focus, patience, discipline, perseverance.”
“If you just get in and it goes against you, get out! You can always get back in”
“Before you get in, know where you are getting out.”
“Good trades take weeks to mature.”

Your tips are really useful and informative for newbie. Even I am completely agree with your this view "Good trades take weeks to mature.” As experience makes perfect.

Those are actually quotes. The first from a fellow trader, the next two are from Jack D. Schwager and the last is from someone who Jack D. Schwager interviews in one of his books.

As far as trades this week. I was pretty much breaking even until AUD/USD took off. My account is up by about 47% this week. Two long trades were closed after they were up over 200 pips.

Nice to hear from a fellow trader on the above. Look like we are currently at the same stage of our trading journey.

I have tried various strategies - long term and short term. Good returns come from longer term trade indeed. However, accompanying it will be the higher risk of a bigger drawdown on the downside. Up till today, the bulk (95%) of my accumulative trading losses arises from the huge drawdown from long term swing trade that did not turn out well.

Longer term trade would probably suit part-time trader time schedule better. But as a full-time trader, I am going into shorter term trade nowaday simply because I wish to manage my drawdown more tightly. This is something I have learnt from witnessing where bulk of my trading losses comes from.

Therefore, I would appreciate better a system that gives me a 20% annual returns with a maximal drawdown of 5% viz-a-viz a system that offers a 100% annual returns with a maximal drawdown of 85%. The former is akin to the spectrum end of bond investing with stable consistent returns but low downside viz-a-viz aggressive speculation in new bio-medical startup equity for the latter.

I know I am running a trading 'marathon' and lower risk progressive advancement and “Focus, patience, discipline, perseverance.” is the order of the day. However, our race pacer Mr/Ms Compounding will bring us up to speed faster than one would initially thought possible. Keep going mate. Keep the faith in trading alive always. I hope to see your name on the top 10 trader on the trade explorer leadership board one day.

If timed just right, you can risk a small amount by pulling the trigger on smaller time frames and ride out trades that last hundreds or even thousands of pips. It can be obvious on which currency pair to trade, when to get in, where to put your stop if you know exactly what to look for. Even after a trader learns all this the brick wall they may still struggle with is staying in profitable trades and getting out of non profitable ones.

My default stop is 25 pips but it will vary +/- 15 pips. I'd rather use an even smaller stop loss but getting out at the point where I am definitely wrong is a happy medium to me. On the AUD/USD trades this week, I kept the default stop at 25 pips and closed the trades around +230. I wanted to get out because the larger trend setup isn't ideal to stay in long-term.

The Reserve Bank of Australia interest rate fell .25 percent yesterday while AUD/USD has been a strong pair to trade lately. It's average 20 day range has out performed the EUR/USD slightly and GBP/USD by far.

The quality of the recent AUD/USD trends made it easier and more profitable to trade that all other major currency pairs. I know the daily is up but this could be just a pull back in the bigger picture. Even though AUD/USD hasn't had the daily confirmation candle I look for, this could be a time to go short and ride it out for 100s if not more pips.

A break of 1.0205 would make me look for a pull back for an entry around 1.0220

stopped out at -30

I'm going t keep an eye on AUD/USD but might be sitting out for a while

I took a 30ish pip loss on a couple trades going short on AUD/USD on Friday.

On Sunday, I went short again with three positions on AUD/USD around 1.0990
My plan is to ride it out until a daily candle closes that outweighs it's previous heikin-ashi candles

Well, I decided to close out early and watch for a pull back to get back in going short. Price can easily present an opportunity around 1.0060

+300ish pips on 3 positions, almost doubling the account.

-25, -15 and -11 on 3 attempts to go short again. In hind sight, I shouldn't of been in the first one and shouldn't have taken any losses. Good thing smaller lot sizes were used in this mess.

Even though it may not be written down, there is still a process of filtering irrelevant information and gathering useful information for tasks in any line of work. While I've done it in my regular job without thinking about it, this isn't something I considered with trading until recently.

My biggest hurdle was learning what to look for in the market. In anything that is new to us, we don't know what we don't know. I plan on adding more to this but below is a good framework for what goes through my mind with technical trades.

1. Volatility: Focus on the currency pairs that have higher daily ranges because they will be more profitable than pairs that are less volatile. The daily range for the previous 20 days is a good measurement. This can be done with the TSR Daily Range Calculator in the MT4 platform. Currency pairs with smaller spreads or the majors are preferred.
2. Quality: Narrow down which pair has the smoothest daily trend using Heikin-Ashi candles. This pair will be easier to trade than the others.
3. Trend Direction: Trade with the trend while daily Heikin-Ashi candles continue to close in the same direction without an engulfing candle closing against the trend. The engulfing candle indicates the trend is over.
4. Ideal Entry Areas: Areas where price pulls back on the hourly or 30 minute time frames are key times to wait for a trigger signal.
5. Trigger: Trades should be placed after price reverses then pulls back on the 1 minute. Using this method will limit losses to 15 to 40 pips.

I'm not short AUD/USD now because of a tough day trying to go short on Friday. Also, a lot of the major pairs are in extreme oversold areas against the USD on daily charts. I'm not saying the trend will change now, I just want to be more cautious. However there was just a text book entry on the 1 minute on AUD/USD. If price pulls back more I might be inclined to watch for a second chance entry.

Wow, it's been ruff getting in and staying in on AUD/USD. I had a trade earlier today that went up to around +45 or so and attempted to get in again after price pulled back but got out before breaking even. Momentum has really slowed down, it must because of the upcoming holidays.

Possible change in the AUD/USD trend happening now. I got some good rest last night because going short has been so difficult. Maybe the daily candle close will confirm the change today or tomorrow.

I know Christmas is just a few days away but I'll never forget the price break above 1.3 on the EUR/USD the day after Thanksgiving in 2006 or 2007. Yes, price can still move around the holidays.

I took a stab at going short near the beginning on the Asian session with -25 pips and reduced risk made it even less painful.

Today's range on AUD/USD was about 200 with an obvious trend change from bear to bull. Now isn't an ideal time to go long though. If price pulls back near the 55 EMA on the 30 minute, it would be.

It's been a bumpy ride but everything is still pointing up. The daily, the 30 minute with it's higher lows and five false signals to sell and so on.

Right now, a clean break of 1.0151 will make me look for another entry or two.

I like to keep an eye on the 20 day range of a couple dozen pairs. From those, I narrow a the list down to the top six. This is because I want to trade pairs that move. Measuring volatility is the first necessary step in my seemingly ever evolving method. It just makes sense to determine the best movers and go from there.

The top 3 major pairs averaging more than 130 pips/day for the previous 20 days (according to Alpari MT4) are;
AUD/USD: 154
EUR/USD: 140
GBP/USD: 134

A few crosses;
EUR/NZD: 177
GBP/AUD: 176
EUR/AUD: 138

Not to long ago, GBP/JPY and GBP/CHF were great performers but they are no longer moving half of the 200-300 pips/day they used to.

What can I learn from this? How can I use this information to improve my trading? Should I buy EUR/NZD rather than AUD/USD just because it has a higher daily range. Should I buy GBP/JPY and GBP/CHF in anticipation of them rising up to where they used to be?

I need to ask myself these questions with my mind clear of greed an answer them honestly.

Stopped out on AUD/USD at entry. My plan may have been flawed but it's more important that I followed it through. At least I got a few days of interest.

AUD/USD daily is still bullish while the 30 minute appears to have a change in the trend to the downside.

I'll be bearish on AUD/USD if the daily candle closes with an engulfing pattern which will happen if price is flat or continues downward. Then price pull back into the oval while stochastic moves down out of the overbought area would prompt for an entry on the 1 minute.

Until the daily candle closes, I'm technically still bullish. However, a lower low on the 30 minute makes me not want to buy. So all I can do now is wait for the right moment because the right thing to do now is nothing.