LJ Forex Group

I spotted the 1H FB but waited for TL to break. Need more time to get used to playing an FB setup.

Closed the rest at 79.85 for +50 pips (+70 pips in total). This is my last trade for today.

Good trading to all!

Took a long on Bund this morning based on a sellers trap on the M15 TF at the clear H4 SR.

Was aiming for a move into 142.20's but the supply zone just below held and thus I exited 50% when the M5 BEOB formed of that supply and rest at 79's for a +0.95R win. Note the SL went below the bar low - why cos price shouldn't reach that area if that bar is indeed a seller's trap - simple!

I could have looked to hold the trade given the H4 bullish bias but a) I'd rather take the certain pips and look to get back in again (what's the point in suffering unnecessary drawdown when you know price is very likely coming back to your entry are and lower again) and b) lots of news on the wires from the EU Summit which are causing this morning's two way moves.

Currently looking to get back in the long side if get a reason to.

ACAD FTB occurred during the Asian session last night - will use this as an example of how to objectively determine where to put your SL based on price action alone.

I've compared this to where (based on what I see elsewhere and from what I've seen others in my trading room do when they first joined) others would typically place their SL - either above the breakout 'thrust' bar high or above the last swing high.

As I annotated on the chart this is just pure rubbish, people trying to create a mechanical strategy rather than learning how to read price action....and all for what, to make things more simple, to make it easier to cope with losses, to achieve that higher win rate and you can pat yourself on the back when you closed it for less than 1R ... professional traders focus on the approach that a) is a result of reading price action and b) the approach that over the long term will make them the most money. Retail traders are always looking for the easy lazy option and follow like a herd blindly believing what others tell them - if it's easy, simple and mechanical retail traders will believe it...

So what's the difference in end results...

Professional approach - entry @ 1.0360, SL @ 1.0373 (including spread), exit @ 1.0339 + 1.62R

Amateur approach 1 - entry and exit same, SL @ 1.0380
+ 1.05R

Amateur approach 2 - entry and exit same, SL @ 1.0394
+0.62R

But...wouldn't you expect a higher win rate with the higher SL that would compensate for the lower R?

Well of course a higher SL will naturally lead to a higher win rate but:

a) there will be a threshold where above a certain SL size the win rate does not materially change (I'm not talking about being stupid and having a 500 pip SL here either!).

b) A SL that goes where the trade probability has significantly decreased will naturally identify the above mentioned threshold.

Let's put some numbers to this...let's say we'd expect a 70% hit rate based on the smallest SL, 75% on the next one and 80% on the higher one (in reality the differences in the win rates will be smaller than this, but to illustrate the point I'll assume there are larger differences).

So what's our average trade expectancy in terms of R for each approach the calculation is (winning percentage x R winner) - (losing percentage x R loser)

1. +0.81R
2. +0.54R
3. +0.30R

So that's the average expected result over the long term for each trade for the 3 different methods.

Multiply those by trade frequency (I average 2 trades per day, assuming a 20 day trading month etc) then for a year the expectancy for each approach is...

1. +388R
2. +259R
3. +144R

So, unsurprisingly the approach that uses actual price action to determine the SL achieves significantly higher long term profits that some mechanical approach to designed to preserve win rate and instil confidence.

Learning the how and why price moves like it does is the first step in price action trading - unfortunately the majority just follow the nearest mechanical strategy that's given the term 'price action' and aren't prepared to put in the hard work to learn true price action - it's a lost art form in the retail space.

Sold GBP/CAD at 1.6040 and SL at 1.6055

Can price drop through the 1.6025 level?

Closed 1/2 at 1.6005 for +35 pips and moved SL to 1.6030

Closed the rest at 1.6010 for +30 pips (+65 pips in total).

Sold EU at 1.2685

Closed 1/2 at 1.2565 for +20 pips and moved SL to BE+1.

Sold NU @ 0.7975 and SL at 0.7990

Removed SL and then set SL at BE+1 again.

The remainder got stopped out at BE+1.

Cut the trade at BE-10 (-20 pips in total).

Sold GU at 1.5622

Closed 1/2 at 1.5604 for +18 pips and moved SL to BE+1.

Set TP2 at 1.5545.... Too greedy?

Moved SL to 1.5625

Stopped out at 1.5625 for -3 pips (+15 pips in total). Never easy!!!