1% Trading System - Continued

1.3140 is still tricky.

15M chart indicates 1.2950 a possibility if it breaks the current level of 1.3075.

Coming back to Trading System, many of you noticed how pa responded to the buying zone of 1.2800. This zone is very much visible on Daily Timeframe if you like to check left side of your char (the historical moves).

It's not that pa will always respond to these levels, but strong possibility of at least a good bounce. It is upto you how you make use of this observation.

What's your RR now?

So far we have tried to prove the following three elements using live trades on a demo account:

1. Risk should never be over 1%, no matter what
2. Try to avoid market noise. Study chart and set sls away from normal market noise. Every timeframe, no matter how big that is, has market noise. Our job is to do our best. We cannot avoid a spike taking us in surprise. Very short sls are good only for scalping trades.
3. Study left side of a daily chart to identify buying / selling zones. If nothing, expect a good bounce at these levels.

The next topic I will cover is how price generally behaves at these buying / selling zones. That may help many in maximizing risk:reward ratio

Sorry, I earlier missed your this post. I thought no body will ever write here

This system prefers quality of r:r over quantity. However, we can also decide not to take trades with less than 1:1 r:r. I personally do take these trades, but not all the time. One good example is what I did between 1.3100 and 1.2800. I risked over 75% of my capital for a very little gain. Relying mainly on history of this buying zone. The focus here was not risk control or money management, but a bid to show how reliable these zones could be. If one combines this reliability with 1% money management rule, becomes a prudent method.

Coming back to your question, r:r depends on the time when you check the market. Obviously, we are not glued to our screens and are there to take all the set-ups that appear. Let's say for example, I log-on and see a good resistance 90 pips above the current pa and a good support 30 pips below the current pa. What I do? 1). Wait untill it gets very close to either of them, or 2) take a trade now. If I wait, will get good r:r, but if don't will still get 30:90 r:r (reward three times more than the risk). However, look at it from this angle - if we are right, it should move up towards resistance 90 pips away. It goes this way proving us right. But more it proves us right (that is, moving closer to the resistance), worsens the r:r. If one takes a trade when pa is only 30 pips away from the resistance the r:r becomes 30+(90-30=60):30 or 90:30 or 3:1 (Risk three times more than reward). But quality of r:r gets better because some of these strong PPZs are like magnets, they suck anything coming closer. Now if you had decided to risk 30 pips and reward 90 pips, what do you think was more likely when your entry was only 30 pips from a magnet (support).......... remember this is also a ppz and is a magnet too.

Therefore, I normally look for quality of r:r, but may decide not to accept r:r less than 1:1.

One down side of a good r:r is the market noise. No support or resistance has a definite boundary. If your r:r is good, it means your sls are more vulnerable to market noise and therefore you may need more than one attempt to get on board. These repeated attempts reduce your reward ........... back to square. Therefore, focus on quality of r:r and book your profit when pa gets near to your target - don't wait until it hits your target, it may or may not.

Did I write in the above post that I would be discussing how pa behaves at major buying/selling zones? I don't remember what was in my mind when I wrote that.
However, the simple answer is pa goes wild at these levels and you can expect any thing when market gets warm on these levels.

There are two views about pa behavior at these levels.

The first is that pa quickly bounces after touching a strong s/r, it does not stay there for very long. However, if pa hangs around a major s/r level, means it is likely to break that level. This view is based on the logic that if there is buying/selling potential at these levels, buyers and sellers become active when it reaches there. For example if this is a support and big long orders are waiting at this level, pa will quickly move up. Again if it is a support but there are no big long orders waiting, pa will hang around at this level. Pa will also hang around at this level if sellers keep on absorbing buy orders, indicating a possible break if either buying dies out or selling pressure increases. Once broken, bulls would cover their longs, and after that, these bulls will join hands with bears giving more push to this break.

The second view is completely opposite. It suggests if pa hangs around a level for days or hours, is an indication of a strong level.

As a trader, I am only interested in benefiting from whatever happens at these levels. Luckily, the only thing that happens at these levels is either a break or a bounce. There are may ways one can play these levles, but mine is simple. I go for a bounce. Means, buy at support and sell at resistance. Why?...

That's why. There is big profit if one catches a trend reversal and rides it a long way. When I say say long way, means for months and years. Yes, you have heard it right, for years. There is much more to a trading system than just calculating direction and number of pips it will move.

I don't know how much I will be able to share without breaking my promise of non-disclosure. But these are the key features of the system that I follow:

1. Trades based on daily chart
2. Scores of trades running at the same time
3. Direction based on Key Fundamentals
4. Riding trend for thousand or over pips, until mega trend gives sign of exhaustion spported by Key fundamentals.
5. Very few trades in a month, maybe 2 or 3 a month, depending how may pips pa moves.
6. Always, always and always keep risk limited, that is, 1) if something goes wrong you know how much you will lose, and 2) Do not exceed the position-size budget calculated for a zone. For example, if I intend to risk 1/2% on longs in 1.3000 - 1.2900 zone and have completed my buying for this level, will never ever risk one single penny more on another trade in this same zone.
7. Buy when everybody is selling and sell when everybody is buying
8. Wait for the better price / right set-up, but start bulding positions as soon as pa enters the buying/selling zone
9. Stand up one more time than you fall. This is all one needs while focusing on a big big move. But do not fall more times than you can stand up. Know your limits.
10. Place trades not based on what is about to happen or what is happening right now, but what had happened in the past at these levels. Not just immediate past, but "long-term past".
12. Keep on realizing part of unrealized profits.
13. Never look at your pocket for additional trading capital.
14. Fuck everybody else, let them express their opinions about the next move. You do only what you see market did in the past.
15. Do not try to correlate news/latest developments with charts. "They live in separate time zones". Means, sometimes chart is ahead of news and other times it is way behind the news.
16. Sit on your hands. Trading is not about placing trades, but making money. The good thing is that you make money if you don't trade very often.
17. You don't have to worry about price spikes, 100 pips, 200 pip or 1,000 pip spikes. No worries at all.
18. You don't have to baby sit your positions. Log-in few times a month/week. Trade if price is in a good zone. If not, go have some booze and sex.


The only issue with this system is that it requires hell lot of trade monitoring/management work. Keeping track of countless trades, all changes made to sls and tps of each such trade, continuous risk/reward calculation for each trade, calculating when to take profit, calculating when to take loss, narrowing / expanding sls/tps based on market situation / news releases, etc.

I think we are in a selling zone on 1H Timeframe.

Closed all

will comment later in the day what we learned from recent trades

Time to comment. Will be back after a smoke

OK.

It looks like I lost a lot (more than 70% of the account) and then gained a lot (in times if one calculates from $3,000 or so to $10,000). However, the net gain following the 1% method would be about 2 or 3 per cent. As mentioned earlier, I am taking huge risks only to demonstrate strength of buying and selling zones. It is not wise at all to risk more than 1% in a buying or selling zone. These risky trades can wipe off my account in minutes, as they did many times in the past. This account has seen several margin calls. It is a demo account, only to show application of various aspects of this method. Every time, I focus on one aspect only, that is, If I focus on money management, pay little attention to trade setups. How can I show power of money management if I do not incur several consecutive losses or how can I show strength of a set-up without betting too much on it?

There is no joy like the joy of consistent gains, no matter how small they may be. Experienced traders know that enormous gains made taking huge risks have no value as at the back of their minds there is always a fear what if it does not go well next time. Gains made on blind or risky trades are useless, they never help you and if they do it is only temporary. If you really want to develop a system it should be within the boundaries of risk management.

A prudent system may be slow but you are never stressed. I take very few trades a month on my real accounts. Sometimes do not login even for several days. It is not that I trade long term, I trade short term intra-day using daily chart, but trade only at key levels.

Now I tell you how can you save some money if pa goes against you or if you think your broker is after your sls.

Here is an example.

Pa is at 1.3140, a very strong support/resistance. It does not matter if you want to go for a break of this level or a bounce from this level. Let's say you are going for upside break of this level and your profit target is near 1.3250 (or a danger sign before that).

Now you calculate how many pips are available for you to gain. That will be 3250 minus 3140 = 110 pips. For one hundred and forty pips, how much cost you are willing to pay? Based on my earlier poll oni this thread, many would like to pay anything from 40 to 50 pips. Allow yourself 5 or 6 attempts to catch this train. That is, you will be stopped out 5 or 6 times in an effort to enter a surviving trade.

The next step is to plan how you are going to use your 1% budget on these 5 or 6 attempts. I normally take first couple of attempts with a very very tight stoploss and last couple of attempts with little wider stoplosses. Remember that sum total of risk on all these attempts should not be more than 1% (my actual risk is much much lower than 1% on live account, maybe 1/4th or half a % max - combined on all postions). In order to apply this, either you trade with some decent capital or look for a broker that allows you to trade even one single unit. Trading is not my profession or I do not trade to make money. It is my pleasure. Therefore I trade with very small amount.

Continuing the example, Let's discuss the benefits of having tight stop losses for first few attempts.

1) Pa many times goes in the opposite direction before making a big move, hits a support/reistance and bounces off from it never to return any soon. 2) Other times it just takes off/dips without first moving in the opposite direction. If you are smart, can use both of these in your favor.

For example, on first trading day of the week, you remain out until market gets warm in Franky Session (one hour prior to London open). Let's say at this time pa is at 1.3125 (I in fact expect this for tomorrow). Now, you take a position at 1.3123 or 1.3122 if it gets there with 5 pip sl (don't forget to check spread at this time). If pa suddenly moves against you taking your sls, you may get an opportunity of a re-entry 15 or 20 pips below this level. With the same profit target of 1.3250 you now get an entry let's say at 1.3108. You have so far saved 7 pips (1.3122 minus 1.3108 = 14 - 5 pip lost = 7 pip gained). If pa bounces off from this 1.3108 level (it will be situation 1 above). You can play with your budget in many ways. Once you are confident that your surviving position is out of danger zone, use rest of your budget with a wider stoploss, that is below 1.3108.

If situation 2) happens, you do not save any pips, but it is good that your first position survived and you gave nothing to your broker.

Many times, pa turns back, snaps at your sl and again moves on. There are two ways you can handle this situation:
1. Keep your risk at fuckin' 1%
2. Open a bottle of Vodka.

Wow, a very nice thread. After reading all the posts, I realized that it summarizes all the wisdom that has been posted in FF so far.
My vouch goes to you, Chicky!

I can see you trade only EURUSD. We could work something out.

We are now in a good selling zone. Let's see if it bounces from here or breaks this level

SL is one thing and many have developed their tactics how to avoid big losses. TPs are also important.

This market moves in cycles, some are big, some are small. If one does not frequently book profit, one of these two things will happen:
1. Market will complete its cycle and the trade will be back to square
2. For a very long term trader, profit will become almost permanent but not worth it. For example, the one who bought Euro at 0.8000 would be very happy today (if alive). Currencies are not commodities or stocks, they keep on coming back to certain levels. They have to come back to these levels to survive.

Waiting for the pa to travel to a desired level is very painful and the greatest fear in this waiting period is the market noise. The most fearing thing in this market noise are the sudden spikes. The most painful of these spikes are the ones that reverse soon after knocking someone's sls. Don't know about others but this is the only reason for me to book profit much earlier than I should and then curse.

Have to go for a smoke. Later

I wrote whole thing on tps and then hit the wrong button everything is gone. Let me write again.

We cannot avoid spikes or market noises. The best is to keep part of the tps close to current pa, may be 1/4th of the total position. If a sudden spike can hit your sl and reverse, it can also hit your part tp and reverse. Our sls get hit in the noise because they are closer to current pa but our tps are far away. Let's create some balance without losing trade potential.

One benefit of carrying small positions is that you are never worried about the spikes or temporary market direction. Many times I feel closing my position if market starts going against me, but 90% of the time I just shrug my shoulders and close the trading platform without changing anything in my trade. My positions are so small that they are not worth fearing. If you are an old timer you probably know how one kills a good trade in the fear of losing some gain made while overleveraged. If pa moves 3 pips against you it looks like start of a 1000 pip break against your position. You immediately start looking at nearby s/r to find an excuse to remain in this negative trade. And if pa moves 4 pips in your favor, it also looks like hitting a s/r before going 1000 pip in reverse direction and before it happens you close your positon with a 4 pip gain only to see it going 400 more pips.

Money is not in the size of the trade, but in their quantities and quality.

Thanks for the vouch Indrek. There is nothing new here, all collected from people on FF with little bit of experiments here and there to see what works and what not. Logic prevails in this game.