Spending 9 hours and not pulling the trigger once is what marks a winners mentality.
Great. Your approach is really effective. Excellent decision.
I wouldn’t agree that those hours were wasted Matt. Without them you might never have reached these conclusions.
The black and white part of TP or SL is something I recognize very well. I was like that too. In my defence though, backtesting can’t be done with discretionary exits (it skews the results badly) and back then I didn’t understand that live trading should be any different. I think that’s why I used to think like that.
Nowadays I try to get my stop to BE as soon as reasonable and then hold on for what the market wishes to offer.
Well, welcome back… you’ve been away for a while hint hint 
Hi,
I’m one of quite the opposite, where I do indeed set SL and PL as black and white rules when entering trades. The frustrating aspect though of this approach is that quite allot of my trades hit my PL, but then to add insult, they keep on going. Sometimes they hit another three times what I took in the first place.
What tools can you use to track a trade that is going in your desired direction to aid you in the decision of ‘should i take my PL’ or ‘should I stay in for a while longer’
My PL limits are all based on the volatility prior to my order being placed. If markets are very volatile then my SL and PL will be wider. Obviously this is on the assumption that I want to allow for exaggerated market moves. The opposite is also true for low volatile markets.
I collect a volatile ‘measure’ each day and have done for the past three years, so I have a good benchmark to go against before I enter my daily trades.
I’m happy taking my PL limits, but it would be nice to catch a few more pips 
On making about 80% ROI each month, so its not a trading strategy disaster. However, it would make a nice improvement.
Kind Regards,
James
Actually I was referring to the personal news you posted on FB. Big congrats!
I’m looking forward a lot to hearing about your experience with the Kelly Criterion. I’m still very interested in it. If your experience is good I may even include it in the System of the month thread.
Watching that space I am, as Yoda would say
Thank you for the comprehensive post Matt. Your findings are pretty much what I expected they would be. I guess some form of a partial Kelly strategy might be useful then, to retain part of the edge but reduce the psychological strain?
All the old results show that I was taking a ‘set-and-forget’ approach to trading and using fixed profit targets. Sometimes they were R-multiples, sometimes they were fixed pip sizes, but in all cases they were fixed. This meant that if price went significantly in the right direction but didn’t hit the TP it turned into a loss.
It sounds crazy to say that a trade that could have gone some 80% towards the TP was chalked up as a loser but that really was the way I thought one traded - purely on the probabilities of the two outcomes, TP hit or SL hit.
This interest me quite allot, mainly because I had this same problem playing on my mind all the time. I agree how frustrating it was to see a trade hit 80% of the TP, and then turn back around and hit your SL, horrific.
I took a different approach to this problem. I have also spent hundreds of hours back testing; in fact it’s closer to thousands. I have spent the past two years doing so. Your most likely thinking why and I have a good answer for this.
Firstly I developed a trading system that I knew worked to an extent, all I wanted was a result somewhere close to 50/50. I soon developed a crude system that was rough around the edges…very rough.
This is when the back testing started, not by automated testing, but day by day candle by candle. I still have nightmares some nights! What I was looking for was a ‘middle ground’ to all my problems, such as what SL should I use, what PL I should use etc. Throughout my back testing I assigned each trading day a number, a number between 0 and 300 which represents the volatility taken place since the open of that day, to about 6.00am. I place my trades after 6.00am UK time, so it seemed reasonable to include as much of the data that has already taken place for that day.
I then looked at my trading system, and noted where the signal was produced to open a trade. It made no difference if the trade was a buy or sell. I then noted the maximum number of pips that would have been obtained if I stayed in the trade for long enough. This number was assigned to the volatility measure that I gave to this day (between 0-300). The same was noted for the SL; how many pips was required to set as my SL so that I would not get bumped out of the trade before it went into profit?
These were the two important numbers, and the same theory was applied to around 18months of data, day in, day out…Eventually I had a rather big set of data, which showed some correlation between the volatility measure prior to 6.00am UK time, and the expected PL and SL required for that day. All I had to do now was find the line of best fit by using a few mathematic equations, and my middle ground was found. I knew the maximising SL and PL to use for each different volatility reading gained.
Of course I still get trades to this day that run straight into my SL before even thinking about making a home run towards my PL, and I do also get trades that hit about 80-90% of my PL and then decide to have a fit and head-butt the SL wall….that’s trading I guess.
However, I now have confidence in myself, so when these instances do arise, I don’t have to worry so much. I constantly update this data each and every day, the more I have, the more self-confidence I can have when something goes wrong. In my view, that’s worth two years of back testing; and I still managed to keep my girlfriend 
Good to see you around Matt! Looking forward to what’s coming.
There is of course an infinite number of ways to trade the forex market. You could scalp or swing, take <1R profits often or hold for the rare home runs, trade with the trend or counter to it, and so on.
For me, I prefer to take trades in the direction of the prevailing trend. My setups tend to work more often and move further when with the trend compared with against. And I know this because I spent a long time recording and analysing both and determining what worked well - there is no substitute for hard work.
I also prefer to try and catching the slightly larger runs at the sacrifice of more break-evens and losses. All my profitable trades are at least 1R and now and then I’ll manage to grab more - 4R, 5R, maybe even 10R on rare occasions.
Each trade is different and I don’t believe in mechanical trade management - some setups simply have more potential than others and should be managed according to that expectation. Once you’re in a trade and it’s moving in your favour protect your position - reduce your exposure by taking some profit or reduce your risk by moving your stop up.
Trying to prove the market wrong is futile. We’ve all heard that before and think it doesn’t apply to us - we never really try to prove anything to the market do we? Well, whenever you’re in a losing position and ‘hoping’, whenever you pre-empt the market by jumping in a trade early, whenever you think you’re being ‘clever’ - those are the times when your sub-consciously trying to one-up the market, to prove it wrong. And if this becomes ingrained, it will slowly destroy your account.
Let the market prove you correct.
That one line has a lot of meanings. It means wait until the candle closes and the signal is clear - if the entry is no longer good value at that point, skip the trade. It means using limit orders above the market so that it has to trade in your direction before you are entered into a trade - and if the entry is no longer good value, skip the trade. It means not moving your stop to break-even too quickly - give it time to mature and prove your original position correct.
These conclusions seem to be reached by all consistently successful traders. For my own part I can say that I was not profitable until I learned and understood these things. It’s one thing to repeat like a parrot what everybody says all the time, like: cut your loser short and let your winners run, etc.
It’s a whole different thing when you really understand it and it becomes part of your thinking.
In the early days I would often be impatient and try to outguess the market by entering before a bar closed. Nowadays I would never even consider it.
I had a friend who always claimed that “learning by doing” was the best and most efficient way to learn anything. With some obvious exceptions he was right. Many things, trading being one of them, is best learned by making mistakes and learning from them. I’m happy to have moved past the beginner days but I shudder to think how much more there is still for me to learn…
There’s been some sideways action in a lot of markets in the last few days as trends ended and markets rolled over or consolidated. However things picked up in to the end of the week with a few opportunities of which this was one.
USDCHF was showing a good trend on the 60 min with lower highs and lower lows. The 5 min on Friday gave a pullback to enter on which coincided with a stochastic hook and a lower high on the 5 min 'frame. With plenty of range left in the tank the potential was good and everything stacked up to enter to test the forward momentum.
That’s a clever trade. Did you also notice it was setting up at the 9200 double zero level with a 123 bar pattern?
Do you use the stochastic indicator to help with your entries only on the 5 minute chart & only at specific points such as those?
How effective is this timing tool for you & what significance do you place on the moving average?
Indeed, the 1-2-3 is one of my favourite triggers.
I only use indicators as a confirmer to price action analysis. The moving average helps to visually highlight the trend direction and strength, size of pullbacks and so on, but is not used as resistance or an entry trigger.
The stochastics provide the impetus to look closely at the chart for a possible entry but again they are only used to confirm what I’m seeing. I wouldn’t take every stochastic hook, only those that are in line with the trend, at a lower high and provide a low-risk entry to test the forward momementum. Other supporting factors, such as large round numbers, help to add confidence to the trade.
The 1-2-3 provides a great entry method that fits in with my earlier post about letting the market prove you correct. You can place an entry order and then let it get triggered when the market moves in your direction.
I’ve seen your posts on the Technical Templates Continued thread & assumed you were using the stochastic the way it’s presented on there by a couple of the posters, but wasn’t sure hence the question.
I agree with your application & use of those indicators though. I can see how they will lead a trader into all sorts of trouble simply relying on them for entry & exit purposes, but viewing & applying them as background confirmation is probably the most sensible & practical way of incorporating them.
As I said in an earlier post, I prefer to trade with the trend. It’s not the only way to trade but it’s the way I like to do it. If a market is moving decisively in a direction then if you are trading in that same direction the odds of your trade working out are improved.
There is no one way of determining the trend it’s down to you to find what works for you. For me one of the easiest ways to tell at a glance if a market is trending is to use a simple 60 period moving average. By adding that onto the chart I can quickly flick through the various charts in the morning and determine which markets I’m going to focus on for the day.
We’re looking for an MA line that is trending relatively smoothly up or down whilst price is making clear higher highs and higher lows. Once I’ve identified the markets I want to focus on it’s then a case of dropping down to my entry timeframe and waiting for my preferred triggers.
Smooth Trend:
Less-smooth Trend:
No Trend:
Is that the tottering of three little ducks I hear? I’m in the process of backtesting what that approach, coupled with my own trigger, would yield compared to my Ichimoku approach.
The three ducks is very similar but my approach is actually pretty much Carll’s approach to the letter that I follow. However it’s a good method of determining the trend and it can be married up with any triggers the user prefers. You could do a lot worse than to follow Andy’s Ducks approach.
Do you trade the London session? In that case I envy you 
My work hours allow nothing of the sort, but I do feel that I would be able to trade 15 min charts during London and come out ahead. Maybe someday I’ll get to try it…
Is Carlls trigger the stochastic hook? I follow the ATT but I mix the different people up in my head. (and too lazy to serach for the answer :21: )