Fib Retracement Trading...

[hypnos63]

Originally Posted by daedalus

Thanks Cowaboi! Its nice to get positive feedback. I spend a lot of time writing posts for this thread and its nice to know that some people out there appreciate it (whether or not they like the method).

As a side note I just thought I would mention that I have switched MA values once again on all the charts. Not a big deal, and i'm sorry to keep doing this, but i'm now using a 61 EMA and a 78 EMA for trend bias. Keep in mind that the MA's are just a guideline and because of that, its really not that big of a change. The old MA's work just fine, I just wanted my charts to hold the trends a little bit longer so I wasn't getting flipped around as much. As with any setting, changing the MA's will cause you to miss some trades the other settings would catch, but catch an entirely different set of trades with the new settings. The point is, that over 100 trades, it will probably work out to be about the same.

Remember, respect the chart pattern FIRST AND FOREMOST and you will be just fine!

Cheers Folks!

hi again, do you use these EMA's on all time frames? if not, which ones are they best suited for?

thanks

hypnos

[daedalus]

tonymand - You're the man. The 78.6% is actually what the GBPUSD prefers most of the time. Thats why i'm actually taking trades that confirm at the 61.8% putting my stop at the swing high (as you pointed out), making sure they hold 87% and go, or if they blow through the 61.8 originally and then respect the 78.6% (or 75%, its the same more or less) then re-establish below the 61.8% i'll again take the trade. You pointed out great examples! And if you are taking trades at the 78.6 and then go all out at the 38.2, you are essentially keeping the same risk reward as going from the 61.8 to the 23.6, you've just shifted the profit curve further down.

Also, thanks for bringing up the swing high stop placement, that is actually the next installment/revision I wanted to bring up. I hope to have that mini novel and examples up today if I don't get too bored.

hypnos63 - Happy to help and confirm, and likewise i'm happy to hear that my findings are confirmed by you as well. Maybe i'm sane after all Cheers to you!

Originally Posted by hypnos63

hi again, do you use these EMA's on all time frames? if not, which ones are they best suited for?

thanks

hypnos

I am now using the 62/78 EMAs on ALL time frames. After some more backtesting I came to the conclusion that the trade off of the longer time frames was you stayed out of some more counter trend plays - BUT that those counter trend plays were less likely to work, and thus it was easier and more profitable to use the longer time frames and just keep with the bias as price action permitted. The original post has been edited on the first page to include this information.

[daedalus]

Stop Loss Revision

I'm going to keep this short, simple, and too the point. When i'm putting on trades these days i'm actually placing my initial stop loss 1-2 pips outside the swing low/high level (100%). The reason is simple. I have had one too many trades come up and test that 87% level, stop me out, close back under the grid and go onto work for profit. But it kicked me out at the worst possible time, it ended up that I wasn't wrong about the trade, but my stop was just a SMIDGE too tight to hold. This can be simply cured by relaxing the initial stop to the swing high or low of your measurement.

Now before you jump up and call FOUL - this changes our Risk:Reward! Let me explain how i'm managing the stops. Yes - worst case i could have a candle just spike straight through my stop and it would hurt. But in my backtesting if price action tests that 87% level I give it ONE more candle to close back inside the grid. If not, i exit the position for what should be roughly the same amount of loss than if I put the stop right at 87%. But i've increased the likelihood of a successful trade by not getting high or low ticked out of a successful trade.

My end trade results have been better than if I was using stops at 87% simply because i've had a number of trades stop me out for max loss just as they go onto work if my stop was at the swing high or low.

Forgive the examples below, they were the first couple I found in the charts. By no means great trade setups really but they illustrate the point fairly well.

Image 1: First move into the area holds the swing low stop. But on the next candle it closes up INTO the grid, but NOT back inside it. Time to say "Yup, i'm wrong" and exit the position. Notice it should be fairly close to where your exit would've been anyway.

Image 2: Notice how price action spiked into what would've been my stop but held the grid. This is the scenario i'm talking about. What would've been a max loss turned into a profitable trade. These scenarios GREATLY outnumber the trades that stop you out right away at a swing high/low and thus, i'm advocating this stop placement to improve the overall results of your trades.

Hope this helps... I'm working on some more material to help confirm grid pullbacks, i'll see if I can find something I really like to show you guys later today or not.

Cheers Folks!

[daedalus]

Lesson of the Day: Adding a secondary indicator for confirmation

One of the hardest things to understand when you first start looking at fib grids is trying to weed out the setups that are going to work from the setups that aren't. Essentially all we are doing here is buying pullbacks with a trend in a measured, reliable fashion correct? Well what i've found CAN help is using a simple confirmation indicator to identify areas on a chart to look for our grids to come into play. A foreword - You don't need to do this. You have all learned thus far without it, but I think it can help identify areas to look for trades in a simple fashion that should increase your profitability.

Try adding a 6,3,3 Slow Stochastic to your charts. Thats it. Simply start looking for grids to come into play when the indicator shows it getting severely oversold or overbought (around the 20 and 80 areas) on the charts. Play the grids exactly the same, look for the same adherence to the grids and enter the same way. The idea is simply to pick out those MAJOR pullbacks and leave the lower odds minor pullbacks alone.

The other nice thing is it is really easy to skim through your charts and see which pairs are in these areas very quickly so you can pick out the one or two that are and start looking for grids to play there.

Image 1: The naked chart... which pullbacks are major and which are minor? Its hard to tell.

Image 2: By adding the stochastic and simply waiting for severely overbought/oversold areas to be hit we can identify the two setups that represent the highest odds setups.

Image 3: More example trades.

I hope this can help you guys. Like I said, its just the icing on the cake - you don't need it, the cake will make you fat either way, but it can make the entire process of eating it that much better.

Cheers!

[tonymand]

Interesting the way you are moving on this Daedalus. This latest change now brings it to a point where it is very similar to one of James key set ups on the IB system. Basically he is looking for a fib retracement, extreme on a stoch (8,3,3) and an inside bar to trigger. Perhaps not surprising when you are playing price action direct that different approaches give similar points of interest on the chart

[hypnos63]

Originally Posted by daedalus

I don't agree with babypips on that one point. I think grids play the most significant role in price action out of any indicator or methodology i've seen. But then again, I am slightly biased. That being said, I do use a couple VERY simple indicators only to indicate trend bias.

*EDIT UPDATE 1/13/07*
I have revised my MA's for trend bias... the above work, but these tend to hold the trend a bit better for my type of trading. Only indicators on the charts are:

62 EMA
78 EMA

Same principals still apply, just make sure your trading with the trend of the MA's which means the fast ma is above/below slow ma to establish trend either up or down.

The chart examples below were created when I was using different MA's. Since then I have revised the system slightly to be more efficient using the above EMA's.


The 62 and 78 are there to establish the overall trend, up, down, or sideways.

Thats it... nothing more. That being said, here is the most important point of all. These pullbacks work extremely well when the markets are trending. Sideways and consolidation points in the charts are not the best place to enter a position be it off a grid, or any other indicator. This means that the first thing we look for is either higher highs or lower lows with our MA/RSI bias.

Until I have a chart pattern like that there is no point in playing. Far too often traders of any methodology are constantly looking for the best place to be in at all the time, 24/7 with no mindfulness of the chart pattern they are trying to trade within. Consolidation chop is consolidation chop, and until movement occurs I don't have anything to do. This is the biggest point that I cannot stress enough.

Also, keep in mind you need to keep track of your risk:reward ratio to have good success here. I put my stops 1 pip outside of the 85% level. If there is too much risk between where I can get in at the 61.8 level and the 85 level, i stand aside. You have to think of EVERYTHING in terms of risk a reward. If you don't you're a dead duck before you get off the pond.

I've added a couple examples here... Hopefully they are fairly self explanatory. I'll add more later on... There is sooo much I want to discuss, i'll add more as thoughts hit me.

I wait for the pullback to come back and TEST the level... if it doesn't touch, it doesn't count. Entry is after close of the candle that interacted with the grid, entry at open of the next candle.

I also will play 38% pullbacks, but i'll go into the specifics of them later... I don't use them nearly as often, and you need to set different stop losses, and I also require the grids to come into contact with price action 2x's and hold before entering the position.

hi

which time frame is best for fib retracement techniques? 15, 1hr 4hr or daily? is it effective on 15? which time frame do you use?
thanks
hypnos63

[daedalus]

Originally Posted by tonymand

Interesting the way you are moving on this Daedalus. This latest change now brings it to a point where it is very similar to one of James key set ups on the IB system. Basically he is looking for a fib retracement, extreme on a stoch (8,3,3) and an inside bar to trigger. Perhaps not surprising when you are playing price action direct that different approaches give similar points of interest on the chart

Yea... I have to admit it is a lot like that after spending the afternoon reading that thread. IB's are just another way to find entries probably no better or worse. At the end of the day we are all trading the same movement, we're just looking at it in a million different ways. I mean how many different ways can you take pullbacks? lol. Like I said, its just the added icing on the cake.

Keep the input coming Tony - I value your advice!

Originally Posted by hypnos63

hi

which time frame is best for fib retracement techniques? 15, 1hr 4hr or daily? is it effective on 15? which time frame do you use?
thanks
hypnos63

They will work on ANY time frame. I personally prefer a something around a 15min, 30min, 60min, 240min, daily... anywhere in there and you'll be just fine. I trade tick charts which aren't time based so its kind of hard to say definitively, but i've trade a 10min, 15min, etc before. The longer the time frame - the less trades - but the less fakeouts.

Cheers!

[tonymand]

The big yen moves today (which I missed) came off good retracements but not quite so easy to get in off the fibs although there is a 78.6 retrace to 213.45 on GY but difficult to take given the weekend interruption means the data isnt continuous.

For fun I looked at the EY and GY using the same approach as GU yesterday

For the run since 27 Dec EY gives 8-8 but remember a win is about twice a loss.

For GY from 12 Dec it is 11-6 which is spectacular. Remember this is without any fancy attempts to monitor trends so some were taken when in real time it is likely that one would at least question the trend direction. In addition I again noted the importance of Daedalus' observations. A significant number of trades stopped out on a spike only to resume their downward motion to profitability.

[tonymand]

I have perhaps hounded this idea to death but thought that this is an interesting set up taking place now. Whether you go with the general uptrend or not the 78.6 could have given you some tight trades on this timeframe. I didnt take these but I think it answers the questions about timeframe

[tonymand]

And against the trend