I’ve been drooling over the weekly AUDUSD all weekend (Obsessssss much? as Ace Ventura would say). For three consecutive weeks this pair has tried to move higher and failed. Last two weeks are nice dojis in a swing high location.
So, if up isn’t where we’re going, might it be down?
I do have a PPZ in the way at 0.85, but the setup is so good I’m willing to play this anyway, hoping/expecting a break.
After looking through the charts it’s clear that other USD pairs also seem to be about to roll over.
EURUSD and GBPUSD both look very nice.
EURUSD is essentially forming an evening star at a swing high. Bit of a lower wick on the bearish candle, but looking at the daily chart shows us that NFP volatility accounts for it. Still it’s on the chart, but all in all the setup is good enough for me to trade.
GBPUSD spent last week retesting and failing at the 1.61-1.615 zone. After a break of 1.58 there’s no major support until 1.50 which makes the potential target very attractive. Clearly I’ve missed part of the move but there’s enough potential left to be a good trade.
I’ve decided to risk 2% on the AUDUSD, 1% on EURUSD and 0.5% on GBPUSD. That’s essentially a 3.5% bet on USD strength. A bit more than my standard 2.5% but still within acceptable boundaries, especially given that the risk is spread across three pairs.
These are the pending orders I’m placing into Oanda:
AUDUSD short @ 0.8565 EDIT: SL 0.8890
EURUSD short @ 1.4465 SL 1.4715
GBPUSD short @1.5760 SL 1.6130
Targets are open for now. Just to be clear again: I’m not a pro, these are not recommendations. This is just me sharing the best trades I’ve been able to find this weekend, trade them at your own risk (and reward :D).
AUD/USD bounced directly off the price you’re using as a stoploss back in July '07. I don’t have the patience for trading weekly charts, but if I was going to trade this I would put my stop higher, just in case this turns into an S+R area. I’d want my stop above the S+R, not right on it.
But then again I’ve never traded weekly charts, so I might have no clue what I’m talking about.
If price does activate my order it will then have to turn up and make a new yearly high in order to take me out. Still, you’re right, maybe 0.8890 would be a better SL level.
As long as we’re happy with our analysis and trade planning work, these things will happen. When we’ve done our analysis, then it’s out of our hands. I’m still happy with the analysis I made and that’s all that matters really.
My backtesting has now forked into two different methods. For me there’s just one problem with this that I’m working on and that is that it requires you to sit and stare at the screen for hours.
The benefits do make it seem worth it though so that’s something I’ll have to work out.
I’m still a looong way from done and I’ll post all about it when I’ve finished. I realize that I’m starting to sound like some sad guy who’s gonna try to sell something one way or another, but that’s not the case - I swear. All free, always, in MacGyver’s world.
Not removing them yet, it’s still weekly charts that I based the setups on and I’ve made the mistake before of thinking on Tuesday night: Well, that ain’t gonna happen - only to (of course) watch the trade happen having removed my orders.
This time though, what with the RBA rate hike, it’s unlikely that any of the trades will get hit. Still, should they get hit now, that would mean that there’s been one mother of a reversal to get me into those trades.
Depending on tomorrows chart action I’ll decide whether to remove them or not. In case I leave them they’ll get deleted on Friday afternoon if they haven’t triggered.
I decided to remove the AUDUSD and EURUSD pending orders. I’m considering whether to make it a rule to only ever take trades that are in the direction of the daily trend and both these trades were attempts at picking the tops. GBPUSD order still standing, GBP looks weak still and I see no reason to remove that order.
On the backtest I’ve about come as far as possible on one of the two forks. The conclusion is that it sometimes is vastly superior to the standard method and on the right entry you can virtually double your account without using more than normal risk.
The drawback is that on the majority of trades, the standard method will do as well or better. Another drawback is also that once you initialize trading this way, you have to monitor the charts constantly, and I mean constantly.
I’ve been secretive enough, so I’ll try to explain the idea (If you can even call it that) that I’m investigating.
Imagine that we have a high quality pin bar on the 4H, location is at a swing high and it seems that the daily trend is about to resume with this pin bar. There’s at least a 1R profit possible, maybe more.
What would we normally do here?
Well, something like this: place a pending order a few pips beyond the high or low of the pin bar. Place a SL corresponding to our risk, for instance 2%, a couple of pips beyond the other side of the pin bar.
That’s logical right? No other sensible way to do it?
Ever since I began looking into trading I’ve been thinking about (like everyone else I guess) how to maximize profits without having to take too big risks with your account.
Logically, we would want a huge risk:reward ratio and a high win rate. But to manage to combine these… Oh if only life was so easy we’d all be putting in orders for that Ferrari.
Still, it’s clear that this is what we need to aim for.
The situation I mentioned with the high quality reversal is the best setup I’m aware of. It has a very high win rate and the trades can turn into long runners.
The technique I’ve been experimenting with and testing is simply to place a horizontal line at the same place we’d normally put our pending order. Then we open a 1min chart, or even better a 30s chart (available in Oanda) and wait for price to cross the line and close beyond it. When that happens we enter with something like a 3-4 pip (spread included so broker spread is of major importance) SL. That SL will correspond to something like 0.1-0.3 percent risk.
What happens next is that we keep taking these 0.1-0.3 percent losses every time price retraces to hit our SL, until… until the trade starts running. For easy math, let’s say 3 pip SL and 0.3% risk -> 0.1% per pip.
Simple math tells us that after 10 pips we’re in a 1% profit and if we’re able to hold for 200 pips, that results in a 20% account increase.
This is one of the two versions of this I’ve been studying. The trick is to manage to catch real runners that more than outweigh all the little losers.
One way to smooth the equity curve is to take partial profit at, say 4R, which dramatically reduces losses but also reduces the size of the big winners.
This means sitting in front of the screen for an undetermined amount of time and on many trades we will find that results would have been better with the classical approach.
There’s no question in my mind that this works when ONLY the best setups are chosen. When I get to a place someday where I can trade full time, I’m going to use this approach to try to get in on the trend with a huge position while still having kept a conservative risk.
Unfortunately I’m not in that place yet and it’s not even on the horizon yet, so for now this will have to be an extra spice to add when opportunity happens to knock, like during vacation and such.
Until that day comes I’ll dream of surfing the trend for 500 pips, I’ll leave it you to figure out how many percent account increase that would be…
Strange thing - I’ve never seen this being discussed anywhere else, which either means that I’m missing something and will feel like a complete idiot when I figure it out, or I’m really clever to have thought this up all myself. I think I’m clever!
Yeah, I see it too. You mean the daily right? I’d call it a doji-like small candle. Not exiting as you said.
I quickly flipped through the charts, seems like a potential reversal on EURGBP. The trendline on daily from Sep 15 may be about to break. Could be a potential trade if it develops nicely.
Otherwise some possible yen reversals. No trades tonight, bedtime!
It’s hard to backtest when so much psychology is involved as you mentioned. If you have the guts to hold on to the winners, then results are out of this world. The many small losers don’t stand a chance.
Realistically though it may well be a losing story in spite of the great potential. It’s all a matter of psychology.
Numbers are almost useless. For instance, if we had happened to start on Aug 19 on EURUSD, we would have had a bunch of losers first, but today we’d be sitting on roughly a 45% account increase - if we had the guts to hold on to the trade all the way… Numbers will lie easily in a backtest like this. The potential is indisputable though.
Unlike you and Matt I don’t have a day job so I can monitor the trades. I’m going to start demoing this tomorrow.
I’m assuming EUR/USD would be the best pair because of the low spreads?
I also think this type of system is a great candidate for an Expert Advisor. An EA that would automatically reenter the trades would be extremely helpful. I’m sure it would be abused by other people because they’d use it on less than ideal setups, by that’s their own fault…
It’s the counter trend part that bothers me about them. They’re fine to trade if we can only use tight risk management, being ready to take profit at the first sign of trouble.
I guess EURGBP might also be counter trend, but there’s at least a potential double top along with a potential to break that trendline.
Please, don’t listen too much to me, I’m not worthy of that (yet, maybe in a few years).
Once the trade gets into say 40-50 pips profit I’ll simply start switching up to higher time frames and track it for as long as it seems to want to run, basically switching to normal S/R, trendlines, etc. And gut feeling too of course - willingly or not…
At what point would you put the trade to break even? There are going to be times where the trade moves many pips in your direction but still comes back to hit the SL.
Also, at what point would you call it quits? Presumably, if each entry is 0.3%, you still want to run a total risk of 2% so you have 6-7 strikes?
If no-one else is a programmer, I can have a look at this for you…
Ok, here is my trading plan for testing out this system. Let me know if your backtesting has already shown that anything I’m considering will not work. No need to reinvent the wheel…
For the entry points I’m going to use the same criteria that I’d use to place NickB scalp lines, but I’m only going to pick the strongest lines. I know that might be a meaningless description to a lot of people reading this, but to MacGyver, Matt, SanMiguel and a lot of others that sums up about a page of rules in one sentence.
I’m only going to take counter daily trend trades if it’s a really, [I]really [/I]good setup with a good potential for profit. I’m also going to give every trade a 5 pip buffer to help avoid fakeouts.
Because I’m trying to use an EA to help with the entries I’m going to be using IBFX, which has slightly higher spreads than Oanda. Since that’s the case I can’t do a 2-3 pip SL, so I’m going for 5 pips as my stoploss. I’m going to risk .25% per trade, with a max total of 8 trades per setup, making a total risk of 2% per setup.
I’m actually going to be testing this on my live account so I don’t have to switch back and forth between live and demo. That being said I’m going to ignore my MM rules and enter each trade with .01 mini lots (since it’s real money). I’ll limit my trades to 8 per setup and record which trade, if any, went into profit so I can figure up what my profit would have been had I been using the real MM rules.
As for breakevens and takeprofits, I’m going to use good ol’ fashioned chart analysis (S+R lines, trendlines, candlesticks, etc), just like I would on a conventional trade.
So that’s my plan… Is there anything I’m missing, or anything I misunderstood about “Project MacGyver?”
Right now the only setup on EUR/USD is a long trade at 1.4844. There is a short line at 1.4650, but I’m throwing it out because it’s counter-trend and has a minor S+R area and a major trendline blocking any good profit potential.
