We regularly hear that ‘Money Management’ is important for success and we all (should) know it. However very rarely do I see specifics of what anyone means in any given context. I would love to know what the specific money management techniques are which are used with such a random entry system. I suspect there is more to it than just ‘risk no more than 2% per trade’.
Answers on a postcard (or maybe a new thread :D)
Actually Dale, I think it’s more about exit strategy than money management. I define the difference between the two as the first being mainly about the rules for exiting an open position vs. the second being largely about the size of position you take. I don’t claim to have seen all, or probably even most of the research, but the stuff I have seen has clearly been about exits not position size.
Do you happen to have any urls on the subject or was it in books?
Hey Dale, nice to hear from you :)…good job with the shorter posts…lol 
I used to think butterflies and gartley’s weren’t for me either cause I didn’t understand them…now I do and they’re so easy…what a paradigm shift that was for me. :eek: Patterns, I love patterns…lol.
So the money management side of [B]this[/B] strategy is coming …later, after we get to the entries… which is after we get through the 4 parts of the setup… when we actually have something to manage here. So like Matt suggested…it’s a more appropriate subject for another thread…like why are we posting general random MM strategies here? 
Hello,
My shorter posts: I guess I’ve just run out of things to say!!! LOL!!!
I hope you don’t mind me addressing the issue the issue of money management that I brought up here on this thread i.e. I don’t think that the money management stuff to which I was referring is worthy of an entire thread AND I furthermore actually need to correct myself as John has pointed out.
John: you are 100% correct in what you are saying and I now fear that my previous post is confusing at best so here is clarification on the random entries to which I referred (for everyone else).
Mostly the random entries to which I referred would only ever be taken in a single direction e.g. you would only ever go long the Dow or the S&P 500 i.e. equities have a long bias (BELIEVE IT OR NOT). In other words: we EXPECT the prices of stocks to rise over time. So you would take only long random positions on these instruments setting your stop loss at a multiple of the Average True Range e.g. 3 * ATR(14) as an example. Money management would now play a part i.e. your potential loss if your stop loss is hit should not exceed 2% of your account. Come to think of it: I may very well have been referring to trade management and not money management. That said: WITHOUT money management a strategy such as this could easily wipe you out in a heartbeat.
My references for this type of strategy (if it could even be DEEMED a strategy that is) are Chuck Le Beau and Richard Dennis.
Sorry for the confusion.
Regards,
Dale.
Well don’t underestimate yourself…lol… you might as well go ahead, have at 'er…too late now anyways
If you stop believing in Santa, he stops coming…lol.
I haven’t yet read about cycles…that’s still 2 chapters ahead. The chapter is entitled, “Beyond Cycles”…(maybe that’s the astro part ;)…I dunno…lol.)
Ok, this may be a good opportunity to back up a little and discuss momentum, indicators and multi timeframes. Quoted from Miner about oscillating indicators…
[I]“Different indicators manipulate and display their output differently, but all price-based indicators represent about the same thing: [B]the rate-of-change or how fast the price trend is moving[/B]. The indicator reversals represent the change in momentum—the increase or decrease in the rate-of change of the price trend. The first and most basic concept is this: [B]Momentum indicators do not represent price trends. Momentum indicators represent momentum trends[/B]. This should be obvious, but I can’t tell you how many new traders over the years expect a price reversal every time a momentum indicator reverses. It just doesn’t work this way, because the indicator does not represent the price trend.”[/I]
So when price trend and momentum trends aren’t going the same way, they diverge…thus where/when divergence trading strategies apply.
So to answer your question, no I’m not using an indicator to label the waves. I manually insert a text label where I figure a wave point is.
I am using stochs and Joe’s CCI for dual time frame “momentum position” as the filter to identify probable trade setups.
A key to identyfing a correction over a trend is that,for the most part, [B]corrections have at least 3 “overlapping” sections/swings (ABC), [/B]trends do not. Complex corrections have several overlapping sections (consolidation). Of course there are exceptions.
Yes e-wave analysis can get complex. We’re not going to examine any particular complex correction patterns because it serves little purpose for practical trade strategies. [B]All that we want to do is recognize that a correction is probably being made[/B]. If we can do that, we know to orient our trade strategy to trade against the direction of the correction for a probable continuation of the trend to a new high or low once the correction is complete.
So then we put the 2 parts together…the momentum position with the market position…but it’s not enough yet…lol
Thanks Amanda for the vote of confidence. I started out scalping on a small demo account…not a $50K one…which for a while there really seemed to work for me to the point where I opened a live account. Then it changed, big part due to psychology, and I lost a little. So I figured the psychology part was because I really didn’t understand [B]why[/B] I was so successful with my “system”. Maybe I just happened to hit when a “cycle” was in my systems favor while I was demoing, but apparently cycles change…lol. Plus I wanted to use stops, which I wasn’t. Stops are a necessary evil in my opinion, like paying for certain types of insurance, but just in case something bad happens you’ll be glad you did.
Yes there is something to tweaking your indicator settings. I’ll get into that next.
Fibos will come later as first I want to get more examples of identifying corrections and trends.
Any pair will do/any dual timeframe will do…I monitor the 6 major low spread ones, and I like to use the 15min/1H t/fs.
This strategy can be a part of just about any trade plan, not just this one. If you already have a trade execution strategy, this can be used with it.
Momentum is measured by a variety of oscillators…stochastics, RSI, CCI, MacD etc. These indicators measure momentum, not price.
[B]Higher Time Frame:[/B] You use the position of the momentum indicator on the higher timeframe [U]to identify the momentum trend…up or down[/U]. This timeframe does not signal that a trade should be executed. While the momentum indicator is moving up, we only consider long trades; while moving down then short only trades. If the indicator used has overbought or oversold zones and momentum is in those areas, we stand aside.
[B]
Lower Timeframe:[/B] The smaller timeframe is used for execution [U]setups[/U]. Trades are only considered in this timeframe when the momentum indicator makes a “reversal” in the same direction as the higher time frame. That ups the odds big time…lol.
[B]To recap: [/B]The initial conditions for a trade entry are met when the smaller timeframe momentum indicator makes a reversal in the direction of the higher time frame’s momentum trend. Again, these are the setup conditions that must be met before a trade is even considered.
[B]So what are the best indicator settings to use?[/B] There is no magic setting. There will usually be different settings for different markets, and in different timeframes of the same market. Each market and time frame will need it’s own settings. The primary setting for any indicator is the “lookback” period which is the number of bars back from the current one the indicator uses to make it’s calculations.
Longer lookback periods are less sensitive to price change than shorter periods and tend to give less false signals, but as we learned in babypips school, also tend to lag more which makes our entries too late and our stops too big. Shorter periods can give earlier entries and smaller stops but more false signals thus hitting our stop more often. Trick is to find a happy medium.
So you have to experiment with a few settings and find one that best meets the following characteristics:
The indicator reaches the extreme zones (overbought/oversold) at most of it’s reversals.
The indicator reversals are within a couple of bars of price swing highs and lows.
There are no false indicator reversals between the overbought & oversold areas.
The setting that best meets the above characteristics on recent data is the best fit. These setting may need to be “optimized” when market volatility and cycles change. So test out a few lookback periods over 2 or 3 different periods of time to see how much it might change, if at all. Then assume the setting will continue to be useful because it will never be perfect and that’s best you can do
Ok, so once you’ve selected your pair(s), time frames, and optimized an indicator for each, what next? You need to consider when the most optimal times to trade a dual time frame setup would be. Without any other rules, guidelines or factors, common sense would say…soon after the higher time frame indicator made a reversal and then when the smaller time frame is making it’s first couple of momentum reversals in that new direction. Remember, waves (lower time frame) within waves (higher time frame).
So homework assignment is to pick a pair, any pair…sounds like a card trick saying…and then pick an oscillator and try to best fit the oscillators swings with the price swings for the 2 time frames you’d like to use.
Hi Sweet Pip,
Thanks for the info. I would like to consider the following if I may:
Cheers
EURUSD_daily_20091023.pdf (60.1 KB)
EURUSD_hourly_20091023.pdf (56.9 KB)
Hi Mich,
I have a couple of replies to your comments which I’ll address individually.
Yes ewaves can be advanced, but there is a simple and reliable way to determine if a section/wave is complete. It’s called the greater in time & price guideline.
For example, we have counted 5 waves in eu. So now we need to know when wave 5 ends. The guideline says if a correction is greater in time (number of bars) and/or price than any previous correction of the trend section, then we can consider it completed.
Therefore being that wave 4 low was the last completed corrective section with wave 5 making a new high, if price then proceeds to rally down and closes below the low of wave 4, then wave 5 is considered complete.
Here is current chart of audusd hourly. I labeled a 5 point trend, and now it’s displaying the characteristics of a correction.
As well, it’s forming what looks like a flag pattern, and a channel can be drawn above and below.
What usually happens after a correction? A continuation of the prior trend which was up. Therefore that would mean price should go up after the correction is complete, however, not always…lol.
So now we are waiting for the correction to complete. It looks like it may develop into a complex correction, but I’m not counting further than what I have. There’s no need to.
We can only work with the information we have at hand, and make decisions on what it usually means. This chart was to show what a most of us look at everyday, not the perfect “after-the-fact” chart examples that we don’t have the privilege of knowing beforehand. It may not conform to what “should” happen, but again, that’s the risk we all face too when we decide to execute a trade, based on the information we see on the chart at the time.
Thanks for that great info! Do you use this strategy along with gartleys?
Well I haven’t yet cause I’m still processing this way of chart analysis…lol. I mean I’ve read about systems using dual timeframes before and it made sense theoretically, but instead of using price to figure out the current direction in the higher time frame, this uses momentum.
However, I don’t see why it couldn’t be. If we check the higher timeframe, say H4, and it’s momentum is moving up, then in the hourly t/f we’d be looking for a bullish gartley, because when it reverses up, it will be in sync with the higher timeframe. Therefore, logically, the bullish gartley is a corrective wave pattern and should continue the bullish trend once it completes.
I’ll have to check for any proof of that theory but it sounds good…lol…
Good! I’ll give it a shot on my trading style in order to see if this actually reinforces better signals.
I’ll tell you how it works, thanks!
Good stuff
Here is the same audusd hourly only zoomed out. I found a current bullish gartley possibly developing. The H4 momentum is currently down.
Now rethinking it, it’s the AB=CD part that is the corrective pattern, not X part (XA leg is the trend). Instead of putting ABCD, I’ve adapted it to the ABC, so then in gartley terms I’ve renamed the gartleys BCD swings to ABC…everyone rolling their eyes right about now :eek:
Whether it’s C or D, that’s where a possible long entry setup will be, but we’re not into entries just yet, just trying to get good at seeing the waves while they are developing in conjunction with momentum and a higher timeframe’s momentum.
Now I know what you’re talking about! (rolling eyes) :eek:
I’ll practice this the next few weeks in order to get to a conclusion. I’ve tried divergences along with this method and is great. Also trying channels to manage the trend, but that only results redundant to me to the fib levels.
Anyway thanks a lot for sharing this information and I’ll keep you guys informed of my results.
Have a great weekend 
Wrtm…just had to share this with you! I’m working my way through chapter 4 now entitled “Beyond Fib Retracements” and lo & behold, right there in black & white, it says an ABC correction is also called a Gartley pattern…how cool is that!..lol
Ok…back to reading now
So far we’ve covered 2 strategies.
Using 2 time frames as a filter for trade direction, long or short, using the lower timeframe to look for trade setups in the same momentum direction as a higher time frame’s momentum direction.
Trying to identify when the market is in a trend and when it’s in a correction of that trend. Usually a market will continue a trend after a correction. What we are looking for is a correction in the form of a geometrical pattern of swing highs & lows called an ABC pattern.
The goal of the next part, “Beyond Fib Retracements”, is to determine, in advance, where (at what price) the corrective wave C will end, and reverse back into the main trend. This is the price area where trades are executed.
For this section, I [B]highly recommend[/B] reading the 301 Moved Permanently thread. It explains [B]exactly[/B], how to use the fibonacci tool to find the corrective support & resistance areas for Wave C based on converging fib levels. This deals with another very powerful geometrical pattern called a Gartley222 of which the ABC pattern is part of.
Then once you fully understand it, I just learned a short cut fib tool for those using MT4 called a Fib Expansion.
Going back through the thread, it became apparent that I didn’t really cover how to recognize trends and corrections …yes, based on Elliott Wave theory.
There are a few pattern guidelines. They may not hold true in all cases as nothing is guaranteed. However, since we are dealing in probabilities, they happen to have a high probability of forming and repeating in any time frame and market.
I like to use the ZigZag indictor…I don’t really classify it as an indicator because I think of it as more like a tool. It’s purpose is to draw lines connecting swing highs and lows.
You need to find out whether the market is in a trend or a correction when you open your chart. To do that, you need to find what completed last…a trend or a correction?
[B]12345 Trends:[/B] Trends usually consist of 5 waves (also called swings, sections, or legs). Here’s a pic from BabyPips school illustrating an almost completed pattern.
When looking at a set of 5 swings, you need to recognize if it qualifies. It will if you can say the following about it (the guidelines):
A trend is considered complete when price moves (overlaps) back into and past wave 4 after wave 5. So where does a trend start? Usually at the end of a correction.
[B]ABC Corrections:[/B] Corrections usually form at the completion of a trend.
Here’s a pic from BabyPips school illustrating the ABC pattern…
When looking at a set of 3 swings, you need to recognize if it qualifies. It will if you can say the following about it:
The following picture is a Up ABC correction in a down trend. it illustrates the first 2 guidelines which again are the minimum conditions the waves must meet in order to be considered a correction. From this point it could either develop into a complex correction, totally reverse the past trend, or proceed to move down below B and be considered complete. If it’s a complex correction, it will continue to make a series of overlapping ABC patterns, until it finally completes or totally reverses the prior trend.
So what usually happens after a completed correction? A trend!
These strategies have really got my mind working overtime…lol.
I’m beginning to view and regard this as “Wave Action” trading.
Trend and Corrective wave characteristics can be encompassed into 2 geometric shapes. Triangles. A larger trend triangle, then a smaller correction triangle. Join them together at an axis point and you get a Gartley pattern.
Now the way I’m beginning to see it, “Price Action” is then the techniques/methods/triggers to enter into “Wave Action”.
