Multi-Lot Multi-Timeframe Position trading

I merely followed your lead! You opened the door and walked right in and said: Woe! Is that what trends look like these days - Geepers!

Recall, I don't believe in "trends." However, the Judge might have a different take on the matter entirely.

Thanks Jackenorme. Yes, we want to keep this as simple as possible. Extremely complex systems with many subjective elements are likely to lead us down endless blind alleyways. A winning system should only be as complex as necessary, but no more.

If there are any questions, I'll be happy to answer them if I can.

Graviton

About the pair you follow
EURCAD
USDCHF
EURJPY
GBPNZD
AUDNZD
NZDJPY
CHFJPY
EURUSD
USDJPY
EURNZD

do you think that some pairs are more "interesting" to follow ?
do you look at every possible pair , or are you using only a selection ?

i just start to check Long TF , medium TF and short TF on the above listed pairs to see if i can catch your concept of trend

Thank's for your patience and time ....

I look at most combinations of Eur, aud, usd, gpb, jpy, chf, nzd and cad which gives me about 24 pairs total. I haven't followed the more exotic currencies because the information on them is more difficult to find.

Any of the above combinations that are trending or have recently been trending are interesting to me. Today, I'm interested in EU, EA, GU, UJ, UChf, NU, AJ, EG, EN, Gchf, and UCad.

As someone said above, price is just one thing. It can be trending up, trending down, retracing, reversing direction or consolidating. It can't be really be trending down on short timeframes and up on the medium and long timeframes, so if timeframes are in disagreement, something is happening or has recently happened.

If price appears to be all mixed up, going up in several timeframes and going down in several timeframes in no particular pattern, this method just can't trade it. I'd set that one aside for now.

If we see price consistently going Down on short timeframes and going Up on medium and long timeframes, then it is trending up longer term and there is a retracement down on the short timeframes. If this is consistent, it probably would offer a good entry if and when the retracement ends. Occasionally, the down move starting on the short timeframes is the beginning of a major reversal. To keep from entering right on the peak of a trend and being stopped out on a major reversal, we want to wait until the retracement is ending on the shorter TF's to enter long. As I pointed out earlier, watching the RSI cross over the 50% line can at least provide a consistent signal of the end of a retracement. I also watch the 5ema cross over the 10 sma for a signal. So if the M1, M5 and M15 RSI all fall below the 50% line, but all the higher TF's are above it, I'd call that a retracement. As the M1, M5 and M15 RSI climbs back above the 50% RSI, the retracement is ending and there is an entry signal. But if the medium timeframes, 30M, H1 and H4, follow the shorter TF's down below the 50% RSI line, I would call that either a deep retracement or the beginning of a reversal and I'd stand aside and not try to call a bottom. Calling bottoms and tops is in my own humble opinion a very dangerous way to trade.

If we see price trend Up on short TF's, Down on medium TF's, and Up on long TF's, price had to be trending down earlier on the short Timeframes to drive the middle timeframes down, and it's now returning back up. I wouldn't enter long there since short timeframes change so quickly, the short TF's could easily turn back down and drive the medium TF's even further down. This is the same as calling a bottom on the medium timeframe move down, and that is a low probability way to trade. I'd stand aside and wait for the mid and long term timeframes to agree. If you check enough pairs, they usually do agree somewhere, and if not today, they will somewhere tomorrow.

If price is Up in short and medium timeframes and Down on long timeframes, this is either a deep retracement in an existing downtrend, or the beginning of a reversal from a downtrend to an uptrend. A deep retracement would make a good entry, but a reversal would stop you out for a loss, unless you call the bottom perfectly and get in early on a major reversal. If it is a major long term reversal, there is no reason to need to get in right on the beginning of it. Looking at the past, you'll see that major long term reversals lead to trends that usually last for months or even years. Id watch this one for a while to see which it is, a temporary retracement or a long term reversal, and only trade it after I'm sure.

Anyway, that's the way I look at it. To simplify, only enter in the direction of trend when 8 or 9 timeframes are trending in the same direction. You'll probably see some 60 pip retracements along the way, maybe more, so be prepared for that. At least I'm consistent that way and not trying to call tops and bottoms sometimes and trying to join in an existing trend others. Some of the biggest losses I've ever seen in trading is when someone tried to call a top in the Dot Com Bubble and went short, only to see it continue to rise, so they went short some more, and it continued to rise some more. They just couldn't believe what their eyes were telling them, that the market was still going up, and kept going short until they had to liquidate their position at a loss of millions. Then the Bubble burst, of course, and the market fell like a stone. That was a very experienced trader who just couldn't believe he was wrong. In the end, there is no right or wrong to it. Price moves and we trade in the direction price is moving for a profit. If we aren't comfortable trading the direction that price is moving, we just don't trade.

Best success to you!

G

Graviton

Thanks for your so detailed answer.
its amazing to see someone with a so clear and dynamic way to read the trend.and again i really appreciate the time and efforts you spend to give a so detailed explanations.
I got to do my homework now , trading to me its like learning how to dance ... we have to catch the rythm and the spirit to do it well .

Cheers

Any other questions? Comments? Suggestions?

Seeing no comments, lets drill down a bit on improving our trading edge.

Finding a trend is just the first step in this method. We've discussed it quite a bit, but if anyone has a problem with the definition of a trend, or finding one, lets look at it some more. The vast majority of pairs will not meet our strict criteria for a trend we can profit from. Out of 24 pairs I monitor, I'm only trading 3 right now, UJ long and EU and AU short. I have 5 lots long on UJ, 4 on EU short and 2 on AU short and I'm waiting for a good opportunity to put another lot short on AU. When trading multi-lot, we don't need a lot of trends. Just a couple really good ones will provide a great lifestyle. But once we are sure our trend meets all the technical requirements, we need to go one step further than most traders would. It's quite possible to make a good income just randomly jumping into trends and cutting losses short on those that fail, and adding lots to those that succeed, but we always want to find a way to do better. Why? Because this is a zero sum game and those who are constantly trying to do better, without taking additional risks or even reducing risks, are the ones that will wind up with the profits in the end. That said, let's talk about doing better.

I said above I'm currently only trading 3 pairs, UJ, EU and AU. There was another pair that met my strict trending criteria at the same time I entered these three, UCad long. The three I entered are profitable now, but had I entered the UCad long I would have lost on it. This was a very simple and routine decision. Here's the trick. I look at currency strength charts. There are several you can look at for free on the internet, just Google currency strength chart and pick the one(s) you like most and set bookmarks for them. Simpler and easy to read might be best. You should be able to see strong and weak currencies in a glance on the better charts.

We always want to trade a strong vs. a weak currency. The USD was a strong currency on all of my favorite charts. JPY, EUR and AUD were all much weaker relative to the USD, so Long USD/JPY is long strong over weak. It passes the test. EUR was weak and USD strong, so a short EUR/USD passes the test, same for short AUD/USD. The CAD showed up as a strong currency on the currency strength charts. As strong or even stronger than the USD. Clearly trading USD/CAD long is trading a strong vs. strong currency. Even though the trend looked beautiful at the time, it's really anybody's guess as to which will prevail. It did not pass the test and fortunately for me, I didn't take the trade. Had I taken it, I would have lost 56 pips by now. Of course, it could easily have gone up 56 pips, not due to any skill or due diligence on my part, just due to pure chance. Winning by chance can be confusing, as it looks like you have found some profitable method, but you haven't. See "Random Reinforcement" on Investopedia for more information on this subject, http://www.investopedia.com/articles...aders-fail.asp

This glance at currency strength charts takes only about 30 seconds. Perhaps a little less than half the time, a strong vs. strong or weak vs. weak pair will win anyway just by pure chance. Just don't let that fool you or mislead you into believing you can take shortcuts or that your luck will see you through difficult trading days. In the end, the law of large numbers will kick in and you'll give back all your lucky winnings and then some. Luck will let you down when you need it most, skill will always be there to help you. As we discussed earlier, to succeed, we want to eliminate all the chance we can from our trading and depend on our skill as traders instead.

Questions? Comments? Suggestions?

A 4-lot trade long on USD/JPY. Each original SL was 120 pips, 2X Daily ATR. Stops now moved up to lock-in some profit. The RSI (10) is shown along the bottom and 5ema cross over the 10 sma are shown in Yellow and Aqua.

Graviton

about the currency strength charts , you look at it on 15 MN Timeframe ?.
And why you didn't Long USDCHF and short GBPUSD ?
Between ,5 EMA 10 SMA, and RSI , which one will you follow in case of doubt ?

thank's

Hi Landsat, I'm usually looking at longer time duration on the currency strength charts. Daily, H4, H1.

I didn't long UChf because the dollar is a strong currency and the CHF is a strong currency. The CHF is so strong (high in value), it hurts Swiss exports to Europe by making them too expensive. Consequently, the Swiss bank manipulates the value of the Swiss Franc to keep it from rising any more, artificially holding the EChf up above 1.2000. Look at the last few years of the EChf on the monthly chart to see the flat line generated by that manipulation. Thus, UChf would be a strong vs. strong trade and it doesn't pass that test.

The GU just didn't have 8 or 9 timeframes pointing down at the time I scanned it, so I didn't take the trade. I typically only scan my pairs about twice a day. I might miss a few trades, but I only need a couple good ones to make my goals. If it's a really good trade, it will trend for months, so if I miss it one day, I'm likely to pick it up on another. It's an odd fact that I make more pips when away from my computer screen than when I sit at it.

Usually I can just look at a pair in a timeframe and see if it's going up or down, but I need objective measures for consistency. The 5emaX10sma crossover is very fast, so sometimes it leads the RSI a bit, but rarely do they disagree. In that case I'd look at the 100 period regression indicator that I linked to here earlier. I really like the 100 period regression. Even though it sometimes gives results that I wouldn't see with my bare eye, it seems to be consistently right on market direction when evaluated across multiple timeframes. It also provides a different perspective since it is considering the past 100 data points vs. the shorter term RSI and ma crossovers.

At the end of the day, when in doubt, stay out. If the market direction isn't clear, there may be some very important underlying reason for that, so we just choose to stand aside. It might clear up later for a good entry or we might find other better opportunities to put our capital to work. For this to work we can only take trades where the market direction is crystal clear. If we need to guess, about anything, then it is not a good opportunity. Guessing is the same as gambling and we need to remove all guesswork from our trading to the greatest degree possible. Happy trading!

G

Graviton

Clear , as usual , i like it .... i like your way to look at the charts ...it helps a lot , i used to look at only eurusd ... and without timeframe .... so big change .


Cheers

Landsat

Let's stay off the beaten path a bit and talk about avoiding financial ruin. We've all heard the old maxim, "cut your losses short". After many years of trading, I still need to ask myself at least once a week, am I doing everything reasonable to cut my losses short? I often trade with a wide stop loss to avoid being stopped out from a news spike, so I am forced to manually exit losing trades before the loss eats too far into my profits. I go back and look at all my trades each Saturday when the markets are closed and I pay particular attention to my largest loss. I know off the top of my head what my largest loss was in the last month and in the last 3 months of trading. That's an important thing to know. It was about half my largest win. That's not bad, but I know I can do better. It's clear to me where my trade analysis went wrong, and I won't be repeating that mistake, but that's not the point of this exercise. The point here is, even if I make a mistake and can't see it at that moment, can I still manage to reduce my loss, without compromising my ability to ride through news spikes? The answer is, Yes!

The fact is, I was not stopped out on a news spike. Due to a combination of errors, I entered right on a peak price, and price started dropping smoothly soon after my entry. I had entered right on the reversal candle of a major reversal in price movement. It wasn't obvious at the time, and these things can happen, but the point is, I could have exited after price smoothly reversed through a couple price supports and I'd have cut this loss by half. I could always re-enter later if the counter move just turned out to be a minor retracement. But really, how often does price reverse soon after entry and break a couple supports and it still turns out to be that one big home run trade that I've been waiting for all month? Like, never. There was no good reason to hold this loosing trade until it almost hit my large stop of 2X daily ATR.

The solution here isn't to run ever tighter stops until you are repeatedly stopped out at a maximum loss point by every bit of stray news. The solution is to objectively understand when a trade isn't working and get out while the loss is still small. I don't know of a fixed rule for this, but each trader should ask themselves for their style of trading, what is an acceptably large loss? If a loss exceeds that amount, then by their own definition, the loss is unacceptable. Red flags should go up, alarm bells go off and lights flash. For me, the maximum acceptable loss is about 1/2 the one I experienced and I'm happy to say I've kept all losses below that acceptable level since that disaster.

Cutting losses short isn't the easiest thing in the world to do, but we have no hope of doing a good job of it if we just ignore our worst losses and try to put them out of mind. Our largest loss of the past month or three contains a lesson. We've already paid the price for it, why not examine that loss in great detail and learn the lesson it contains? It's there if we only look for it.

G

If there are no comments, questions or suggestions, I'll just ramble on.

Above I talked about avoiding that one big loss that wipes out a pot full of hard earned pips. Everyone of us will have at least one of these, and most of us will have several. It's one path to financial ruin and I've seen many great traders go down it never to return. It's like a stake in the heart of our trading. It's almost completely avoidable though, and I hope all the readers of this thread have either already learned to avoid it or will give it some thought. Another path to financial ruin is more like death by 1000 cuts.

New traders will often experience a few large losses and decide to tighten up their stops so that can never happen again. They often tighten them up to the point that they are stopped out by minor market noise generated by stray news flashes and such. A stop should be wide enough that getting stopped out by stray news flash spikes is rare. The longer term you trade, the more, and larger, news spikes you will encounter. There is no reasonable stop size that can avoid them all. You just want them to be very rare. On Sept 2008 when the worlds financial systems were melting down, the EUR/USD had a daily range of 415 pips. A good rule of thumb is first decide how long you would like the trade to run. For me, that's about a week. Then drop one timeframe and the correct stop to avoid the vast majority of news spikes is about 2X that lower timeframe ATR. So for a one week trade in EU, I'd want a stop about 2X the daily ATR, or about 2X62 pips, or about 124 pips. Of course, if the trade turns against me, I'll want to manually cut my losses much shorter than that, at least by half, as discussed above.

If you think, gee, I just can't afford to risk that much on a trade, then you are trading positions too large for your account size. If your system is sound, you can prove it just as well trading $0.10 (or less) a pip as trading $10 a pip, and you'll last a lot longer in the trading game.

Essentially, your stop size should never exceed 2% of your account. If you see objectively that your trade is a bad one and manually cut your losses short at around 1/2 your stop the vast majority of the time, you can keep losses down to 1% or less for any single trade while still surviving most of the occasional news flash spikes. Large traders often risk much less per trade, like 0.25 to 0.5% of their account per trade, so that's something to keep in mind.

So, to wrap up, that's three paths to financial ruin we want to avoid. Taking very large losses, trading with too tight a stop and getting stopped out of good trades with news spikes, and trading with positions too large for the account size. If we can avoid those three mistakes, we can survive long enough to make this Forex trading thing work, probably about 5 or 6 years.

Comments, questions, suggestions?

OK, so we will all cross our heart and swear to never take a large loss again. Let's look at some trading. This link leads you to a very simple currency strength chart: http://www.livecharts.co.uk/currency-strength.php

This is a daily strength chart, updated every 24 hours. At this moment, it looks like this:

It's easy to see that CAD is a very strong currency right now and JPY is a very weak one. One possibility for a good trade might be long CAD/JPY. Trading strong against weak. If we check the trending of each timeframe on CAD/JPY and use our two indicators, RSI and 3emaX10sma, to clear up any doubts, we see that it meets out criteria for a long trade.

I have three lots long on it now and I'm preparing to put a fourth on. It looks like this right now:

This CAD/JPY trade is about 114 pips ahead total on three lots at the moment. Of course, every trade doesn't turn out as sweet as this one. Just prior to it I entered a UJ long and then manually exited at -21 pips when it went against me. Really good trades just shouldn't go against you right away. I re-entered UJ Long later though when it seemed to be a better entry and it's +10 now, so no real harm done.

The trick is to NEVER have a large loss. We put one test lot on. If it goes our way we can put another on pretty soon, like at +30 pips or so. If it goes against us we want to dump the trade while the loss is still small. We can always re-enter later. There is a difference between a quick news spike driving price 40 pips against you and a slow steady retracement moving price against you. The spike will usually end just about as fast as it started and price will resume in the direction of the longer term trend. With this method we are ALWAYS trading in the direction of the long term trend. A slow retracement against you might end in 20 or 30 pips, but it might go more. Early exiting a trade that isn't acting right (like a great winning trade should act), has never ruined a trader financially. You can always enter later again and those few pips won't matter in the long run. Taking a HUGE loss is both financially and psychologically destructive. We must all agree to never take a huge loss again. Define huge for yourself before you put each trade on and take the pledge to just say no to huge losses.

Comments?

CAD/JPY is in an upward longterm trend forever...

the last bull rally started on 08/08/2014, and continued for 22 straight days.

it also got rejected at 97.68 area.

I don't know your avg. trade duration but check the upper TFs too, the next 72 hours will be very volatile for most of the currencies...

edit: if you see another breakout today: try to scale longs at consolidation times, this could go to 99.x

What a good interesting Thred

Cutting losses is hard, but nobody said this was going to be easy. Practice cutting losses short on every trade and you'll get better at it as you go along. Always trade with a stop loss but don't depend on any stop loss or magic indicator to cut the losses short for you. Even if it worked, you wouldn't learn a damned thing from it. Suck it up, be a real trader and learn how to cut losses short for yourself.

As hard as cutting losses short is, and it's really hard, letting winners run is even harder. Trading multi-lots actually makes this a little easier. I currently have three lots on it the above CAD/JPY trade. They are ahead +44, +34 and +17. If I get really nervous, I can take the profit off the +44, or even the top two for +78 and leave the last one on to run. That way I'm still participating in the trade if it turns back around, which it usually will since I'm always trading with the trend. If it does really good I can start putting more lots on it again, never being out of the good trade. This way, I'm taking my profits off in bites, usually about 2X my average loss on a bad trade, but I'm still always following the rule of letting my profits run. Letting your good trades run is just as important as cutting losses short. Every successful trader finds a way to let their profits run. Trading multi-lots just makes it easier for me since I can always take a big chunk of profit off the most profitable lot anytime I want to and even if that proves to have been the wrong thing to do, the remaining lots are making pips and I can always put more back on, and it really doesn't feel that bad to take a big bite of profit out. It takes a lot of the stress off of the decision of when to take profits. I enter the trade with a predetermined TP set, just like I do with a predetermined SL, but I don't depend on that to profit from a good trade. If it's a good trade, I will have many lots running and I can profit anytime I like and still participate in the trade with the remaining lots.

So, next time you hear, "cut your losses short and let your profits run", you don't have to ask, "But How"? That's how

Yes! Good Point. We have Fed Speak tomorrow and the Scottish vote on succession from the UK on Thursday. There is no need to take excessive risk. I'll probably take my most profitable lots off before those events, just letting a little ride through those volatile events, or exit entirely if it goes against me.

My trade duration is as long as the trend continues. It could be for months if the trend will support it. If there is a deep retracement, I might stand aside and then re-enter when it is over according to my system. I just follow the direction of price. I have no preset notions of what the market will do. The market can do anything at any time and preset notions lead some traders into making very bad mistakes, in my own humble opinion.