Many thanks for posting your work…food for thought and re-awakened an interest in Fibs 
Just curious…I’ve skimmed the posts on this thread and don’t see any reference to what I’m about to ask (if I’ve missed your references, please forgive me)…in your UBPUSD chart in post #10, are the green and blue dots identifying IBs and OBs together w/indicating potential long entries (green dots) or short entries (blue dots)? [I’m so new (at this), I haven’t been taken out of the box yet!!]
I don’t know what IB’s and OB’s stand for but those green and blue dots are just visual indicators of potential swing highs and lows I like to measure from. Nothing significant to the method at all. Not an entry signal by any means. Those dots are calculated via 3 higher highs or 3 lower lows, also know as the Trade The Markets Scalper Indicator.
Advanced Tactics…
Well, we set our stop losses outside of 85% right? That means that we believe we are wrong if price action breaks below 85%. Well, this knowledge allows us to put ourselves in a position to catch reversals and play counter trend trades.
This is always more risky than playing with the trend so you need to be quick to take profits.
Here is a trade I took tonight. Often times price action will stop running in a direction and consolidate and reverse, even if it is only primary. I have found that price action can be considered to be NEUTRAL if it is between the 89EMA and the 150 JTHMA (i’m sure there is a longer period SMA or something similar to spot this if you don’t have access to hull moving averages).
Thus, this is a good indicator of neutral price action where you can get in on the action on both sides and make some more pips. It requires you to dial down to a smaller time frame chart to be more nimble with your entry and exit. My smaller chart is a 144T (vs. 233T), roughly twice as quick, over layed with a quicker 50 period JTHMA, and the usual 89 EMA. I want to make sure i’m trading with the trend on this chart on these setups. So even though it may be counter trend to my big 233T chart, it is with the trend on our 144T (or similar) small time frame chart.
Image 1: Price action clearly in a point of neutrality between MA lines.
Image 2: Note how price action has broken the last dominant swing upward by breaking 85%. This adds to my confidence in playing a counter-trend short side play here.
Image 3: Pretty self explanatory.
Image 4: Dialed down to my quick chart I take the same pullback with the small time frame bias and take profit quickly (or at least reduce risk quickly). I took profit at a known level of resistance, being the 89 EMA line on the chart. But still good enough for a quick +18 pips.
And that is one way you can identify and play counter trend possibilities with Fib grids!
Cheers!
Alright, much has been asked, debated, argued, and discussed on this forum about having appropriate management of trades. I believe it to be one of the most misunderstood and sloppy areas of any traders system. Usually it is not defined, and if it is, it is subject to the whipsaw of an indicator or some other factor. Fib levels allow a specific advantage in this area because they MEASURE price action and thus give us visual price levels that we can utilize to take profits and reduce risk systematically on each trade we take, in the same fashion each time. I am going to provide you the exact way in which I manage my stops and profit targets. I had briefly talked about this before, but were going to go more in depth on this one.
First things first. I recommend trading using at least 2 lots. One of the hard things about trading with only 1 contract is you see profit, and you want to take it, but you know if you do you aren’t allowing your winning trades to develop fully which hurts your p/l, but also it keeps an additional risk out there that the trade could reverse and come back in your face for a loss. For this method to work, you really need at least 2 contracts. You could apply the same technique to 2000 contracts, but you need more than one for starters.
The idea revolved around using the first contract to take a quick profit at a HIGHLY probable price point. More than 90% (probably more) of the signals this method uses will hit a 38% price point. I also said before that price can reverse here and move against you, so what we have done is to take a quick profit by exiting 1 of your 2 contracts at the 38% level, and then putting your stop at the 62% level on the 2nd contract. So what have we done? We locked in a quick profit on one contract, and we reduced our risk ideally to nothing on our 2nd contract. This will allow us to take some profit out of each trade even if it doesn’t work and the 2nd contract stops out, or ideally will allow the 2nd contract to really work in favor and we can gain even more pips, but without any adverse risk to our p/l in our account.
It becomes a free trade, and PSYCHOLOGICALLY, this is KEY to allowing yourself to let your winning trades ride out for more and more gains. If that was the only contract you had on, you would want to be jumping out at every little bump due to fear. This management reduces your fear of loss, and thus will increase your profits.
READY TO LEARN? Here we go! I used a trade that just concluded on Friday in the AUDUSD. I walked away with +205 pips using this technique.
Image 1: Check our chart alignment. Bearish MA’s, last upswing broke 85%, meaning downside potential is there. So lets get ready to play!
Image 2: Flip the grid and measure the downside swing. Note how the first pullback into 62% blows through. There is no signal here.
Now note this: If price action continues upward and fails at the 75%, or 85% level and then REESTABLISHES back below the 62% level, i will take that trade. However, if price was to reestablish back below the 50% line, while downside is probable I won’t take the trade because price is outside of the 50%-62% area on the grid and there is too much risk from a management perspective to take the trade. I only want to enter if i get the signal and price hasn’t blown away from me beyond the 50% level.
In this case, price went up and tested 85%, but failed back below 62% and is still firmly between 50% and 62% so entering at the open of the next candle is A-OK! Entry at the open of the candle with the arrow above. Initial stops are placed at 85% like usual on both contracts
Image 3: Price action goes down to 38% without a fuss. This is the time that we take our first contract off at the .8780 level for a +32 pip gain. Furthermore, we move the stop loss on the 2nd contract from the 85% level down to the 62% level. Worst case scenario is we get stopped out on the 2nd contract for a nominal -9 pip loss leaving us still net profitable. This puts us in a winning trade regardless of outcome. Yet we have no risk to bear here because we know were walking away with profit, so why not let the trade continue to work from here for more money? We have NOTHING to lose, and EVERYTHING to gain. This is the kind of situation traders need to put themselves into.
Image 4: As price action continues downward our next stop loss movement occurs when price action hits 23.6% on the retracement. At which point we move our stop loss from 62% up to 50%. This locks in profit on the 2nd contract for a worst case scenario, but allows the trade to continue to work.
Continued Below in Next Post!
Trade Management Continued…
Image 5: Note how price action does retrace, but doesn’t come back into the 50% level. I have found it is more likely that price won’t pullback into that level if the move is solid. If there is no more room in the trade to work it will fail, but then again you have no risk and have locked in profit on both contracts so whats the harm? We again have no risk here!
So the next action point is when price action hits the swing low/high at 0.00%. We again move our stop loss on the 2nd contract to the 23.6% level to again lock in more profit on our 2nd contract. Price action commonly fails at swing highs or lows in forex, so I want to bump up my profit i lock in on the 2nd position. If it has more room to run here it shouldn’t retest 23.6%, if it does so be it, if not I walk away with lots of pips!
Image 6: Time to take profit on that last half position. I prefer to take profit at the -38.2% (or 138.2% extension depending on how you look at it). Note that if you choose to continue to let the trade go, I would again move the stop loss limit down to the swing low/high to again lock in more profits.
Image 7: You could choose to use some sort of secondary indicator for an exit on the last half position. I’ve found the slow stochastics on the base settings can be a good indicator of a trends exhaustion when the slow line (red line) enters the lower quadrant (<20) on the candle close. You could use a bunch of different indicators if you want, just one example of another way to exit the last part of your trade.
Image 8: A recap. Our inital risk is removed quickly and in the highest probability way. We take profits quickly and reduce risk to nill on the second part of our trade. We can have our cake and eat it too using this method and two contracts. Quick profit, and long term winning runners. All wrapped up into a systematic, consistent method to remove risk, lock in profit, and let profits run at the same time. And its a management technique that will work on any market, any time frame, and swing, big or small. What more could you ask for?!
Cheers!
Really nice step by step description of your trade management Daedalus, thanks
what about the golden ratio? can anyone explain more detail?
would you use limit orders with your trades?
You could if you want a more precise entry. Personally I just market order in as long as I can get in for a price anywhere under the 50% level on the retracement. Like always, its a double edged sword, you might get better fills on some trades, and others will blow away from you. I decided I rather be in on the action regardless of a couple pips discrepancy on entry.
Cheers!
daedalus,
I see you use tradestation for your charting, I’m very interested in the tick chart formations. You are right, they are very clean looking and are obviously more accurately depicting the market.
Does tradestation provide you with your data feed too or do you use a different source for that. I use ODL as my broker and I don’t think I can interface tradestation with them. I guess what I’m asking is, do I need to use a separate broker for trading and another for data feeds if I’m using Tradestation for charting? I see that Tradestation does provide FX but I think it’s a little more expensive to use their FX platform.
Yea i’m loving the tick charts. I just got rid of my 60 minute charts all together and am not trading those off a 512 tick chart.
Tradestation provides the data feed and the chart package all together for one price. If you use them as a broker you do X amount of trades a month and the platform is free. If you don’t, its 99 bucks a month for charts and various data (Forex data is free).
Currently i’m just using TS for my data and charting and I use EFX as my Broker because I didn’t want to setup a 5k minimum account with TS.
Hope that answers your questions!
Cheers!
Stumbled onto this video that talks about Fib Retracements. A couple minutes, but well worth the watch. Talks about the basics of Fibs, where they come from, how to apply them in a couple examples.
A look at Fib Analysis:
Profiting with Forex (PFX) - Watch Forex Professionals Currency Trade
edit Found some more by the same guys… good ideas in these videos.
Trading W/Fibs:
Profiting with Forex (PFX) - Watch Forex Professionals Currency Trade
Trading W/Fibs Pt. 2:
Profiting with Forex (PFX) - Watch Forex Professionals Currency Trade
Using Fibs to Set Stops:
Profiting with Forex (PFX) - Watch Forex Professionals Currency Trade
Cheers!
I had a look at the links you just posted and the other links on a different thread .They really have changed the way i view the markets and how i approach my trades. Thanks and keep em coming…:D:D
I should mention for anyone just reading this I have modified my chart settings a bit… The changes are as follows: Everything else remains the same!
The only thing I have changed is I now am just using a 21 EMA and 34 EMA for trend bias on ANY TIMEFRAME, and i tweaked my 85% stop loss level to 87%. I also ditched the 60 minute charts for a 512 tick.
Do you hold positions over night, or do you exit every session?
I’ll hold 4 hour trades overnight and some of my 512tick/60min trades. Most of my others I typically exit prior to the session close so I don’t get hit with rollover costs (kind of pricey with EFX).
To be honest, its pretty rare that I have a trade that either hasn’t stopped out or hit a profit target by the end of session. If I do however, and my profit target is going to be greater than the cost incurred by rollover rates i’ll hold. Or if the rollover rates are in my favor i’ll defiantly hold.
I’m actually looking into using FX Options to take my 4 hour trades with to reduce my risk to increase my overall risk:reward ratios. I think it will be a much more efficient trading instrument than the spot market on these longer term swing trades.
Glad to hear you’ve got questions, i’m happy to answer them!
Cheers!
im looking to be good enough so i can trade full time when i finish university your posts have been a great help, thanks.
ok, i determine the trend and the likely retracement levels on my daily chart.
Do you set you stop losses off the daily chart or do you set a new Fibonacci levels on your hourly chart and set stops and take entries off that?
If your grid is on the daily chart, that is what determines your stop losses. If your looking on a 60 minute chart, you need to be using that grid to set your stop losses. Basically, whatever the grid is, regardless of time frame, is going to determine your stop loss (a pip or 2 outside of the 87% level).
Make sense?
Fibs aren’t nothing but lies.