Long Term Trading, entrance timeing

Beginner Questions
1

It seems like long term trading is a pretty good way to gurantee a long term winning track record, or so I hear.

I am interested in giving it a shot, but am concearned about the wide stop loss spreads and how to time an entrance.

For example, on the weekly charts useing 5 and 10 EMA crosses, slow stochastic and RSI one can easily find sweet long term, and very profitable swings on things such as EUR/USD, GBP/USD and USD/JPY.

But how does one time the entrance?

You can’t just buy or sell a pair based on weekly chart, because the hourly or daily trend move against you and stop you out, and with wide stop losses you get wiped out.

So I would appreciate advice from those who have traded long term, how do you time the entrance, once you have a verified daily or weekly trend?

Do you check a 3 hour chart for the entrance? 1 hour, 30 minute?

On one hand if you choose something like 15 minute you may enter on a friendly trend, but if the 1 day chart is against you, you could still be stopped out.

But if you use the 1 day chart to verify a trend in the same direction you could still be screwed because the 3 hour trend may still stop you out if your stop loss is only 100 or so.

Checking all the charts, the weekly, daily, 3 hour and 1 hour means you will never trade, since all will never be alligned in the same direction.

So what is a good balance? Once I have a weekly trend, what other time frames do I need to use to time my entrance and MOST importantly, HOW BIG SHOULD MY STOP LOSS BE?

In the pip school there is an example of a swing trade, useing 1 day chart, (which is incidentally the system I plan to use) and the stop losses are 30 pips.

That seems small for a long term trade.

From some of the volatility I have seen 100 seems also too small for daily, 200 seems safe, but then what should I use for weekly trend?

300? Higher? Lower?

My concearn with such a wide stop loss is that you risk a massive amount of your principle.

How much is a good amount to risk?

Right now I am swing trading,(demo only) and risking 1% per trade, typically 3 or 4:1 leverage and useing 25-30 pip stops.

But If you need a 300 pip stop, then 3:1 leverage means risking 10% of your principle.

Now If I find a strong indicator of positive weekly trend in something like EUR/USD I am very confident I will make money in long term, but a 300 pip swing against me could still occur and then I am hurtin bad.

Of course lowering the risk/trade means lowering leverage, but 3:1 is already low.

But then so are the profits, such as the last 5 month EUR/USD 800 pip rally that is still going on!

So is 2:1 leverage ok? That is still 6.66% of principle risked/trade, too high?

In order to risk only 5% one needs 1.5:1 leverage.

I know Bazooka and some others use 5% risk/trade in short term, so it should be ok in long term trades, which offer stronger trends.

But perhaps, with fundementals and technicals and a strong weekly trend that could last months on your side, 10% may be ok to risk.

After all, when you hold for sya 6 months, the EUR/USD during a rally that nets 1000+ pips, you are then treating the EUR as a stock that represents the EU economy, not as speculation in regards to pure technicals.

10% stops are common on stocks so should they be ok as well? But then again are 300 pip stops also ok?

Please help! I am very confused!

2

The first thing I would suggest is that you do not go live for at least a year. Sounds like a long time but it goes fast. There is so much to learn and every time you try a new system you seem to go on a lucky streak for a month or two and then lose it all.

As for what time frame to use. In reality I like the day chart and the 4 hour chart. Anything less I look at just for fun. Try not to get hung up on too many indicators. Just pick one or two and learn how to use them after that, learn trend lines, support and resistance and candles. I also like fibos, I just discovered the fibo fans (available on mt4 platforms) I like the fan because it combines the support and resistance with the fibo. I have also started using two different macd’s.

As for how much risk. The way I see it, everyone is worried about leverage, trying to convert a pip and just doing way too much math. This is far too confusing. Here is what I do. 5% of my balance is the amount I am willing to lose on a single trade (some think that is too high). After I find a pair that I am willing to trade I find out how much a pip is worth. You can do this by going to your brokers website, or have a demo account open and trade 1 lot do the math, or you can do it the hard way and try to convert it (why). Lets do an example I have a $2000 account 5% is $100. I want to trade nzd/usd. 1 pip is worth $1.00 I usually want at least 100 pip s/l. So in this case I will trade 1 lot with a 100 pip s/l. If my account was at $4000 my risk would be $200 so then I would trade 2 lots on the same trade.

3

Welcome, adamgalas. I don’t know your level of experience, but I’m sure you already know that there are absolutely no guarantees in trading. However, with a good game plan you can put probability on your side. Your post poses several excellent questions! It’s good to see you’re thinking through these issues and laying out a solid plan. If you don’t mind, I’ll try to address just a couple items.

Time Frames: I think you are 100% right about trading on daily or higher TF’s - especially when you’re starting out. This allows you to watch more markets and cherry pick only the very best trades. It also reduces the amount of time you spend babysitting a trade once you enter.

Entry Timing: Let’s assume we have a tested method to identify a high probability trade. My preference is to enter and exit the trade based on a signal or set-up generated [U]in that TF[/U]. Daily entry = daily exit. Some traders I know prefer to drop down a TF or two to pinpoint their entry even further. (If you want reduced stops, this may be a technique to explore further.)

Risk and Stops: I strongly suggest reviewing the pip school lesson on leverage. As far as stops, some prefer to use a set number of pips or a dollar amount. I have found that risking set percentage of capital is more profitable over the long run. (Set up a couple spreadsheets and compare your compounded returns based on those two stop methods. I think it will be an eye-opener for you.)

How do you handle large stops? You can trade very small lots with some brokers. If you reduce the size of your lots, you can tolerate larger stops. Let’s say you want to risk 1% of your $1000 account. In a standard mini-account, with a $1 pip value, you would have a tiny 10 pip SL. However, using a micro account, you could make your lot size 1/10th of a mini-lot and have a 100 pip SL. Make sense?

When you’re starting out the first thing is to learn to take good trades. Micro-lots can help you learn to trade long TF’s, without having a significant impact on your finances (+ or -). When you have a good demo track record and a good micro track record, you can move up to larger lots with a good deal of confidence. Hope this helps.

4

Toptick thanks for the advice. I use Oanda so I can trade whatever amount I want. Right now I am testing multiple systems, including 1 that uses 1 day charts, the other uses 3 hour charts with 1 day trend verification.

So far the one day has resulted in 2 stop outs and the EUR/GBP which is up 8 pips and which the technicals say to stay put so I will.

As to the weekly or monthly charts, here is what I have found so far.

EUR/USD, since beginning of 06, has had 3 trend entries as per my system, including the current rally.

Feb 06, 06 short entry at 1.1912 exit Mar 10, 06 at 1.2083 for loss of 173 pips.

March 10, 06 long entry at 1.2195 exit oct 2, 06 at 1.2597 for profit 400 pips

Nov 03, 06 long entry at 1.2781 no exit, as of today profit of 1022 pips.

So from Feb 2, 06 through today, profit of 1247 pips.

I have calculated risk per trade at 1.5:1, 2:1, 2.5:1 and 3:1 leverage at, 3,4,5,6% of account/trade respectivly assuming 200 pip stop loss. (Which would have been sufficient for the last 17.5 months)

Risking 5% of my account on a trade useing weekly chart sounds ok to me, (please let me know if its not) which means 2.5:1 leverage.

Here is the info on other currencies.

USD/JPY since beginning of 06 there have been 5 different trends I would have traded including latest rally, lost on 4/5 all except the last one. Total losses 460 pips.

The worst thing about USD/JPY is the swings after you enter a trend are extreme! I would need to use 300 pip stops which means 2:1 leverage, and with results like these, this trading pair seems useless.

GBP/USD

since 1/01/06 there have been 3 buy in trends, including the last one which has lasted since april 15, 06 to today and netted over 2700 pips.

The two previous trends where losers, both stop outs losing 200 pips each.

EUR/JPY is a champion of champions, last trend began July 24, 05 at 136.58 and is now 3166 pips higher.

Unfortuantely you may be waiting years for a cross over, and then I would feel mightly nervous shorting this pair.

USD/CHF, since beginning of 06, 6 trends, 2 winners, biggest 500 pips or so, other only 50 pips, overall another really disappointing pair.

CAD/JPY overall 2-3 with massive profits from latest trend, unfortunately, this pair seems to be like most and lose more than it wins.

USD/CAD, 3-1 record, with sweet profits the last trend, small profits the other two times.

Overall thoughts, weekly trend entries are very rare, requiring cross over and often resulting in stop outs with painful 200 pip losses.

Most worrisome is the fact that so many stop outs, each one representing 5% of my account, means that draw down would kill any hope of solid profits.

This means I would have have 200 pip stop representing only 1-2% of account.

That means that each pip would have to be worth 10 cents, for 2% or 5 cents for 1%.

THAT MEANS LEVERAGE OF 1:1 for 2% risk, .5:1 for 1% risk!

.5:1 leverage is insane! Hell even 1:1 is nuts! The major selling point of Forex is that you can use leverage to increase your long run gains!

If I have a $10,000 account and can only use $5000 for a currency pair then why am I even here?

I suppose the saving grace is that you can buy/sell $5,000 USD/JPY and EUR/USD, GBP/USD , and others all at the same time, which could magnify gains,

but with weekly trends occuring so rarely, even looking at the 16 pairs with spreads of 4 pips or less, you would be in at most 3-4 at once!

And as has been described above, many of these would be losses of 200 pips! While the winners are often less than that!

This is all very dishartening.

toptick, bazooka, others who have traded long term before, please tell me I’m wrong, that there are currency pairs out there that win more than they lose!

And for god’s sake, PLEASE tell my what leverage you use, what stops and most importantly, HOW HAVE YOU DONE IN THE PAST!

Have you spent months waiting for a currency pair to enter a trend, jumped in and found your patience repaid with a stop out? If so how often does this happen?

Has anyone out there made sustained long term trade profits?

If so, PLEASE SHARE YOUR SYSTEM WITH US!

If no one replies I may have to give up on weekly charts and go with daily or 3 hour .

Right now only the 1 day chart method described in pips school seems to have a shot at profitability. ( useing 5 and 10 day EMA crossover with RSI above or below 50 and stochastic moving in same direction) 2 out of 3 trades so far stoped out at 30 pip losses with EUR/GBP up 8.5 pips after shorting last night.

5

This is going to be very general and vague. Please don�t be discouraged by the lack of specific advice. I can�t comment on your system itself or tell you what to do, but I can tell you that the work you are doing will get you on the right path.

It appears that your research suggests an insufficient number of trades generated and an unacceptable R:R using your current method. Take your research a few steps farther. What do you notice about the trends you have identified? Are there particular points along the trending runs where price paused and continued or temporarily reversed? Ask yourself why price did what it did. Was there anything to tip you off? This is where you will find places to scale in or take profits rather than taking a single entry and leaving your results to the mercy of the market. (I will offer that indicators are not the answer.)

I am not sure of your understanding of leverage and the distinction between leverage and percent of capital at risk. The babypips school has a fairly good introduction to leverage here: Leverage the Killer - College: The Number One Cause of Death for Forex Traders - Beginner’s Guide to Forex Trading, Free Forex Education, Learn to Trade Forex, Forex Training - BabyPips.com .

There are many resources on the topic of money management. Personally, I appreciate the work done by Mark Douglas.

There is no hurry to reach �forex professional� status. It is a long journey, but it�s difficult to resist wanting to be at the destination �right now!� I compare this to casual runners and weekend 5Kers that decide to try the marathon distance. If your highest weekly mileage total to date is 25 miles, how likely is it that you can jump to 100 miles per week immediately? You have to start your training progress from where you are right now, not where you think you should be or want to be in the future. You have to lay out a plan and do the work every day to reach to your mileage goal and complete the distance in your target time.