Hello everyone i was looking at GPB/CAD and saw this pattern (well i think its a pattern). can anyone confirm this is a wedge or a triangle or neither??? i have only been trading for about 2 weeks. i added an entry below the pattern because if a breakout would occur it would get me in on it.
i cant add images yet because i dont have enough posts so tht is the link.
thanks
The decline in volatility (the 3-day range dropped from over 350 pips on 9/23 to around 100 pips on 9/29) does not tell you the direction to trade or that you should trade. But it does help you choose a position size.
I would trade this pair, but ONLY short. I would NOT take a long position in this pair at this time. The price is below the 200-day moving average and on 9/3 it confirmed the end of an 18-month uptrend by breaking below the the 2013-FEB-05 minor low. This was only a few trading sessions after breaking the first 100-day low since 2013-MAR-08. The likelihood is that the 2014-SEP-24 high will turn out to be the first minor high in a new downtrend.
I am set to short the next break of the 3-day low at 1.8055 with my initial stop just above the 3-day high at 1.8162. If volatility goes lower before such a break, I will increase my position size accordingly.
About position sizing: Choose a dollar amount to risk on the trade, this could be a percentage of your net account value (NAV). Take a look at position sizing algorithms, a fixed fractional position size scheme is a well known one. Suppose you have an NAV of $1000 USD. You decide you will risk a maximum of $25 on the trade (2.5% of your NAV). With my 107-pip stop at 9 cents a pip per mini-lot (1K lot) I could buy two mini-lots (2K) to risk $19.26 (.091072). If the volatility drops to the point that I could take a 92-pip stop, I could take 3 lots (.09923) and risk $24.84. I could take 4 lots with a 69-pip stop (.09694) and risk $24.84 (but I wouldn’t for reasons below in “Another Caution”).
I personally risk less than that percentage on a single trade. In fact, I am set to risk only 0.7% of my NAV on the way into this trade. I do that because I hold many positions at once that add up to a total open risk of slightly over 10% of my NAV (probably too aggressive).
Another Caution: When volatility falls noticeably below typical levels for a given pair, don’t get too excited about putting on a big position size. Under circumstances of remarkably low volatility, the range can widen without direction giving you a quick loss. This pair is right at a typical level here around a 100-pip 3-day range. If that falls to some unusually low level like 60 pips, I would keep my position size at the 100-pip or maybe 90-pip level and maybe give the stop a little extra breathing room like a 5-day high or so. This will keep you out of the noise.
I will update this thread when I go into a trade in this pair. Guard your capital, may the force be with you, and don’t be Fooled by Randomness (read that book)