Thanks for your comments Manxx. My intention with this post was to convey to newbies that one should not fear taking on trading. That it can be done safely and with minimal risk if one concentrates on the process alone while in learning mode. Most new traders (myself included) come to the table with great trepidation and fear. These can be easily mitigated as I’ve outlined. I wanted to provide a possible path forward. I had to discover the path after much trial and error.
MA crossovers are known not to work, however, if you qualify that by saying that one should only take trades at MA crossovers in the direction of the greater trend then that works very well indeed.
As mentioned, I have a lot to learn and I’d be very interested to know about the other exit approaches you mentioned. If you would please list some of them I would appreciate that very much.
Sorry, but I would have to qualify your qualification there! Any MA crossover method requires the same thing to succeed, i.e. a sufficiently large move between the entry and the exit crossovers in order to leave a slice in the middle as the profit. Naturally, by definition alone, MA crossovers will always work when there is a long enough trend.
But, unfortunately, we never know at the start how long a trend will end up being until it has occured. So at the entry crossover you have to enter the trade regardless of not knowing whether that trend will continue or not - and since markets only trend about 20% of the time then the same crossover system will often give back some, or all, or even more profits from a large trend during the interim ranging periods.
Regarding exit strategies, there are many specific tools for these but they can be perhaps classified into at least five different categories of tools, and I’m sure others can add a few more:
a fixed number of pips per trade, depending on the TF being used, combined with a stoploss.
a variable number of pips based on a mathematical formula built on prior data, e.g. Pivot levels
a trailing indicator that stops the trade on a pre-defined pullback or manually adjusted level, e.g. trailing stops, previous high/lows, etc
a prediction of a likely ultimate high/low e.g. S/R levels, Fib ratios, etc
a stop-and-reverse strategy such as you mention in your OP
Some people may opt for a combination of these, such as closing a half position at a fixed interval and then the other half with a trailing stop. All of them work best in some markets and worse in others!
Maybe others will have some more thoughts here since exiting is a very underdeveloped, but hugely important topic!
If you’re looking at the greater trend then you’re looking at a course grain chart. Then, executing on a finer grain chart will yield stellar results. Typically, your analysis chart is course grained and your execution chart is fine grained.
So, for example, if you observe a down trend on say the 1h chart and if you take shorts on the 15m chart when the fast MA cross below the slow MA then you have an extremely high probability of success.
Could the trend on the 1h change before you anticipate it to? Sure. And in that case you may make less profit or suffer a loss. But that is true of any trade that you take. It is a matter of probabilities.
I ride trends all the time in the manner explained above and I have an over 95% success rate doing so. This is one of my tried and true bread and butter strategies that is simple and easy to execute and very predictable.
I don’t use MAs however since I’m a pure price action technical trader and as such I don’t typically use indicators. But I’m sure that my entries will correspond closely with an MA crossover.
Perhaps, if I find time, I’ll write up my trend following strategy using MAs in the free strategy section if it has not already been written up by someone.
Thanks for those. My comments below are not intended to be argumentative. I’m honestly just trying to gain more knowledge from experienced traders. Hopefully, I have not misunderstood anything. If so, please do correct me.
#1, #2, #3 are too arbitrary. I look for more precise exits so as to not leave too much on the table. That was the whole point in suggesting that some other system other than a fixed risk-reward system be used.
#4 suits a price action trader and he/she should have been able to determine that in advance through analysis and therefore conforms to what I said in my OP.
#5 I did not suggest a reversal strategy, only an exit strategy based on a hypothetical reversal.
Scaling in and out is a more advanced topic so I won’t address that in this thread.
Not true at all. Sure, sometimes it might have a slightly better chance of success, but on a 1H/15m TF there is actual trend, just short movements up and down - and this is very often Precisely where MA crossovers do NOT work consistently!!!
And since you say you do not even use MA crossovers then you already know it does not work with a high probability of success!!
Maybe you should do that. It would be more tangible for others to work with than these general textbook “truths”.
They are categories of types of exits, not specific strategies. You asked for more details and I just offered you some alternative approaches that people use. They are not ranked or recommended - just groupings.
Furthermore: Larry Williams made those gains by trading purely technical trading systems of his own design (as did his daughter). Fundamental Analysis, Quantative Analysis,and Technical Analysis and the like did not factor into the equation(s) ever. In addition: Larry Williams’ risk management techniques and position sizes were a major factor in those gains.
Now you don’t know me. And I really like your initial post. But I think that you and anybody else is fooling themselves into thinking that any of that is possible trading retail spot FOREX (and needless to say I’m an Equities and Commodities trader and a profitable one, daily, at that).
So I commend you on your initial post. And I’d even go so far as to thank you for it. But just bear the above in mind is all.
But and so as to not totally rain on your parade:
Pretty consistent and substantial gains are indeed possible (caveat mentioned above aside). For instance: the likes of John F. Carter have no problem in turning a 10K account into a 50K account in a matter of months. So decent gains are possible. And no need to settle for a pittance nor think that it cannot be done. But again: these guys trade Futures (and mainly the @ES i.e. S&P Futures). This being said: there is no reason for those that cannot afford to open a Futures trading account to not trade CFDs that track the underlying Futures market.
@anon46773462 Take a look at the AUD/USD pair. On 7/22 on the 1h it became clear that it was trending down. It is also confirmed on the 15m. I’ve pasted a screen shot of the 15m with samples of short opportunities. Several more short opportunities exist further down too which I have not marked up.
I did one better than mere MA xover. To make it simpler for inexperienced traders, I add an 11 period Weighted MA and an RSI indicator. When the RSI goes above 80 and then comes back down below 80 you place your short order. For additional confirmation make sure you have 2 closes below the WMA. Short at the close of the bar when you get this signal.
Now, for the exit, price action analysis suggests that you take profit at or before 0.6861. I would close the trade at 0.6865. Or you can choose to trail your stop and see what price does after 0.6861.
If the trade works out you have about 180 PIPs of profit. If you were going short at the first short point indicated then you would already be in profit.
EDIT: On the chart, it should say RSI “Overbought” not oversold.
I have never traded anything other than FX. I would love to branch out to other markets, especially index funds and ETFS but I don’t know anything about them.
The reason I chose to start with FX is because it allows me to trade with a very small account and I can trade in either direction without requiring a huge capital outlay.
When I’m ready to look at other markets may I rely on your assistance to help me get started?
@Rickster99 I forget that the settings that I use on indicators are not available on all platforms. I smooth out the RSI by using a WMA 7 period as input rather than the “close” value. Unless you are using Multicharts this is probably not something that your platform allows you to do.
I placed a simple RSI using the “close” as input but it was too erratic and if I increased the period over 4 then it never got to the 80 mark. And fiddling with the values to give me what I want did not seem like the right thing to do.
Too much curve fitting is no good.
So, let me show you how you can place your entry orders using pure price action, without any indicators. Indicators lag in any case and you will get in at better prices without using them. I’ve pasted a screen shot below outlining the process. It’s really simple.
Basically, once we determine that a downtrend has formed or is highly probable to continue, we look for price to go above a previous high and then place our sell limit order 1 pip below a previous low. If a new higher low is formed we moved our order to 1 pip below that and so on, until we get filled. Order 1 and 2 are both depicted on the chart. Just follow the sequence numbers. Let me know if you have any questions.
Recent noob in trading. I’ve been trading for just over 2 years and the more I learn the more I realize that I have so much more to learn. My goal is to become a pip perfect trader.
Our trade has concluded. We got 180 virtual PIPs out of it. Yay!
New traders following this thread should take away the following:
How to spot a price action setup for a developing trend
How to enter the market using price action
Use price action analysis to exit (this will take time to learn)
If you were to exit at 2x or 3x even, you would leave too much on the table. Let’s say that your stop was at 20 pips or even 30 pips. You would exit with 90 pips at 3x when you could have had twice that number. If you’re unsure about where price will reach then scale out of the position but do this using price action analysis too.
So, get away from using arbitrary methods of exiting. If you trail your stops then make sure that you set your stops based on the chart used to analyze the trade (in our example, the 1H). Don’t set your trailing stops based on the execution chart (the 15m). If you do then chances are higher that you will get stopped out. Placing stops is a different topic and I have not covered that at any length here.
It was not my intension, with this post, to walk you through how to trade a trend as it was unfolding but as it turns out that’s exactly what I’ve ended up doing, so please take note and practice this method on your demo account before you go live with it. Lose those lagging indicators. Gain some confidence with a pure price chart. This single method will help your account a lot.
You can do it! Believe it! Good luck and Happy Trading all!
Price, as you might know, is fractal in its movement. Typically, price will move from a significant swing high to a significant swing low and vice versa. When price breaks to the downside/upside of a significant swing low/high it is to capture liquidity available beyond that region.
Look left and you will see the swing low which I used to predict the reaction at 0.6861. The market had taken out the liquidity above and therefore it continued to move beyond the swing low. This was an analyzed probability that prompted me to suggest that you could trail your stop beyond 0.6861.
It is difficult to explain how I arrived at that exact price point without providing you with a lot of background information first. That is not something I can do in a forum setting as it requires me to show you charts and walk you through examples of the concepts that you would need to familiarize yourself with in order to conduct precise price action analyses. And even after you gain that knowledge you will need to study and practice quite a bit to get to that level of analysis. It is for that reason that the PA concepts discussed in this thread are very rudimentary.
Howdie nice post Quadpip; do you or anyone have the exact trading methodology that Larry Williams used; I had been trying to find that out for some time; but from the sound of it, he must have traded with the trend and just continually scaled in over and over, building positions overtime etc…?
