Hey Scotty,
Yes I’m trade on the longer time frame as well. Less chance of micro managing my trades and simply let the market do it’s thing. I would be posting trading setups, but first allow me finish presenting the material on this thread. Are we cool?
Rayner
Sounds good to me
Yeah good stuff I can’t wait for the rest. I do have one question on scaling in however. Is it scaling in, at the end of the day, just another trade with no certainty of success? in other words if my trend following system is say 40% accurate, scaling has a 60% chance of losing money. As a result, I would be eating away from my profits and not adding to it, or am I missing something here?
Hey Gang,
Since the questions are coming in, I figured I could answer a few of them through this video below.
It is a trade review on Crude Oil I took sometime back in October last year, whereby I covered entries, scaling in and exit.
As always, comments are welcomed and encouraged. Cheers!
Rayner
rayner,
I am not clear with your scale-in concept.
I see crude oil has a strong down trend in daily chart. …you have come down to 4 HR chart for possible entries and scale-in…this is good.
Now the question is when you are scaling ? which one of the below you use for scaling-in ?
(i)support broken in 4 HR chart …short here
(ii)price surges and goes to resistance zone …short here.
which one of the above you use ?
regarding stop , do you apply the daily chart stop in 4HR chart ?
Please comment. Thanks.
I have been following your youtube channel for a long time now. I went through your posts in forexfactory. It was wonderful.
glad to find you onboard in babypips. I read each of your posts with interest. Thanks man…keep up the good work.
Once again, thanks for your time.
Hi godzilla!
Thank you for your long time interest and support.
With regards to your question, i have a few ways of entering the markets. I do trade breakouts as well as pullbacks.
I place my stops based on the entry time frame, if i’m short on 4 hour i will place my stops on the 4hour.
The crude oil trade is an exception as i noticed the daily respecting the 20EMA, thus i used the daily chart to place my stops instead. Also i was greatly in the money and am willing to risk the extra profits for a further move lower.
I appreciate your questions and will go about finishing up the material i want to present.
Rayner
[B]Thinking in terms of R[/B]
You’ve probably come across traders shouting out the hundreds of pips they made in a day or the 10% gain in a week. But if you ask me, all these are noise. Why?
Well, you could be risking 1000 pips and made 500 pips, a risk reward of 1 to 0.5.
Or you could risk 20% of your account on a trade and earn 10%, a risk reward of again 1 to 0.5
Statements like these are misleading simply because they are relative.
A more objective approach would be measuring profits in terms of R.
[B]So what is R?[/B]
I define R as your initial risk on each trade.
If you long a stock at $50 with SL at $45, then your initial risk is $5. Thus this $5 is 1 R. If you sold your stock at $60, you made $10. Thus a profit of 2R. (10/5=2)
Similarly, if you short a stock at $100 with SL at $120, then your initial risk is $20. Thus this $20 is 1R. If you cover back your stock at $50, you made $50. Thus a profit of 2.5R. (50/20=2.5)
Once you’ve understand R then you can move on to the next aspect of position sizing. Risking a fixed % of your capital per trade no matter how many pips your Stoploss is.
We want to maintain risking a constant % of our initial capital ® on each trade. No matter what the volatility of the instrument or the size of the Stoploss.
And this formula will do just that.
[B]Position Size = R / (Stoploss in pips * Pip Value)[/B]
Let’s assume I’m risking 1% a trade on a $10000 account, thus i can risk up to $100 per trade. So R is now $100.
Also i notice a potential long setup on Eurusd that requires 50 pips Stoploss.
50 pips * Position Size = $100
And each mini lot is worth $1
So what is my position size? Here we have position size = 2 which means we can risk $2 per pip. Which is equivalent to 2 mini lots of Eurusd.
Is that simple? Yes!
By now you’d realize the larger your Stoploss the smaller your position size keeping R constant.
And the smaller your Stoploss the larger your position size keeping R constant.
Thus no matter what contracts you trade or how their volatility differ from one another, this formula will keep your R in check.
Once again,
[B]Position Size = R / (Stoploss in pips * Pip Value)[/B]
Rayner
Rayner I do have a question for you though. You said you had as much as 10 open trades on crude oil with a return of 45R for a 1R.
Could you please walk me through that conclusion? Isn’t it actually 10R for a return of 45R?
Hi Philip,
I didn’t open 10 trades at once.
I started off with 1 position and scaled in accordingly. All the while I keep my risk to a maximum loss of 1R.
What i did was risking the profits I had gained as price moved in my favor, and further scaled in my entries.
Rayner
Correct it’s the same as a trailing stop. Really but adding as you go. Scaling in leaves you with same risk but a huge profit when you cash in. The beauty of long term trading.
Yes that’s right scotty. Scaling in is a double edged sword. It’s advisable to only scale in if you’re in the money, that means the market is telling your trade is right.
Then it’s up to the trader to decide how much open profits he wants to risk to amplify his gains, and keeping his loss constant at 1R.
Rayner
I’ve presented all the material that I intended to.
So feel free to ask any questions if you have. Let’s roll!
Rayner
Yeah I do have a question. As you mentioned with trend-following you would have a very low success-rate.
As a result, do you trade a small range of comms and currencies so you make sure you capture all the moves in them? In other words do you have a set portfolio? Or do you capture any potential trade you see across the board?
Hi Philip,
That’s a good question. As a trend follower, one of the key principles we abide is to trade all markets.
Bonds, indices, fx, interest rates, grains etc.
That’s because markets don’t trend all the time, and by simply focusing on 1 sector of the markets, we are depriving ourselves opportunities elsewhere.
I tried to upload an excel file highlighting the markets i trade, but it failed. But basically i do trade all markets.
Hope that helps!
Rayner
Is anyone in a trade than. I’m long nzd/jpy from 88.410 110 pips so far. And nzd/usd 0.74290 up 120 at the moment. Both stops moved to get a few pips worse case scenario so I’m in free trades now. My eur/usd was up 100 pips but fell down to hit my stop for a 5 pip profit.
You probably know about Richard Donchian and his methods. I call them DMT. I look to follow trends using DMT. If NZD/JPY trades higher next week than this week’s high, it will post the first fresh break of the 4 week price range toward a new direction for 2015 (the last new 4 week high was in November).
I went long NZD/JPY at 89.042 when prices went above the Feb 11 high. My stop loss is at 87.152 which is just below the Feb 12 low. My reason for entry at this level is that the price rose above the high of the first day that rolled on MDMA (crossed above the 200 day moving average). My stop is just below the 3-day low of the day of entry and I will not groom it until the 10-day low rises above it which will come at the end of next week at the earliest. I will then groom the stop along the 10-day low until it breaks even and then let it sit at break even until the 4 week low rises above it. With this strategy, my trades do not actually lock in any profit until 4 weeks after entry at the earliest. I will then groom my stop just below the 4 week low until the 10 week low breaks even. Then I will keep the stop there until the 10 week rises above it if it does.
NZD/JPY facts:
In 2014 NZD/JPY broke the 04 week price range toward a new direction just 11 times.
In 2014 NZD/JPY broke the 10 week price range toward a new direction just 06 times.
In 2014 NZD/JPY broke the 20 week price range toward a new direction just 02 times.
In 2014 NZD/JPY did not break the 52 week price range toward a new direction at all.
Just did a short experiment showing how support & resistance could simply be random lines on your chart…
Feel free to try out this little experiment yourself. As always, comments are welcomed and encouraged. Cheers!
Rayner
FUCX YES!!! LOVE THE VIDEO! HAHAHA!!!
Dude, thank you for that. Hell yes. Support and resistance is BS. Bravo.
Rofl, that’s little strong buddy.
And you’re welcome glad you liked it!
Rayner
It was my honest reaction. I have become a jaded skeptic of everything but trend following. Keep up the good work. I am glad to see it. CHEERS!