OK… Let me preface this by saying, I’m still working within a demo account. So, please try not to flame me as I’m still learning.
I’ve come to the conclusion that your biggest friend is leverage in this game, but your biggest enemy is LEVERAGE in this game.
Recently, I’ve been manually trading and looking for momentum plays. Getting in for a short time and making a small amount and getting out. The demo account size is $500, because I wanted to test the viability of starting with $500.
My trades have gone pretty well. I’m sitting around an 80% win rate, but it’s only been a couple days, so we’ll see what happens long term.
I have not been using a SL at all and instead just been using small amounts. Or, I thought that they were small, but after reading on this forum they seem to be too big (Lot size = 0.1 for $500 account).
Anyway… The few times that I have put in a SL. Without fail it stops out only to then go the way I originally thought. So, had I of not used a SL, I would have profited but instead booked a loss.
Now, that said, I’m not advocating that I shouldn’t use a stop loss, because I had tried an Expert Advisor I created an it made a trade (in error) but I left it there just to see what would happen with the current ES drawdown. And… I see what an impact leverage can be against you. That EA traded a 0.15 lot of ES and it is down about $250. So, I see the importance of a SL.
My question… How do pick your SL level without getting stopped out everytime. Can someone give me an example of the process they use to pick their SL?
There is no simple answer to your question, but I am sure you will get plenty of advice on this one. It is something every trader who uses SLs has to deal with.
From what you describe it sounds like your SLs are just too close to the current price movements and are not giving price enough breathing space to wiggle around, as it does!
Expressed in words, your SL should be at a point where, if reached, the reasons or setup why you entered the trade originally are invalidated. However, there will always be occasions where even the most sensibly placed stop will get hit on a sudden reactionary price spike to some unexpected news or event.
Here are a few points to consider:
Your SL should normally be in proportion to your risk/reward profile - which also takes into account your win rate. E.g. if your win rate is around 50/50 then there is little point in having a stop value that is 1:1 with your target levels.
Your stop level is also somewhat dependent on your trading style and time frame used. Generally, a longer timeframe will be used for longer term trades that are looking for a bigger profit. Here, there is room for a deeper stop level that can then be moved up in stages towards the entry level as the trade progresses. But a 15m=>1m type timeframe generally looks for very fast and smaller profits. This means more frequent trades and a need for closer stops - and a very precise entry system!
Again generally, stops will typically be placed above or below recent high/lows or through a significant S/R line or trend line.
Another technique on longer TFs might be to take the ATR and place the stop beyond that normal range.
Whatever method you use it is always worth comparing the value of the stop loss with the potential profit you are seeking. If it is not realistic then rather than just tighten the stop and hope for the best, just ignore that trade as non-optimal and wait for the next set-up…
I do use some support/resistence for my stops. But, I guess I need to got outside of the s/r lines? Because they quite often get “tagged” just to reverse and continue in my expected direction.
It is worth remembering that S/R areas are not precise lines. There is nothing that determines that price should stop precisely on any line. Rather, these indicate [I]regions [/I]where price has previously on a number of occasions found renewed buying or selling and reversed direction. It is usually when certain S/R areas become widely recognised that they tend to become more precisely defined since trader’s order get concentrated close to that area.
Also, S/R lines are smudged by the fact that different traders draw their S/R lines in slightly different ways, e’g’ either connecting high/lows or connecting candle body extremes and ignoring the wicks, etc.
So certainly your stop level should be on the other side of the S/R area. It is prudent to perhaps wait until price actually bounces off these levels rather than pre-empt it by entering before it is hit, but in either case the stop can be relatively close on the other side. Of course, no line lasts for ever, and it will certainly break eventually…
Price Action (PA) in its simplest form is everything that you see on a chart. Learning PA is like learning a language before moving to a foreign country. Without it you will fail at anything you intend to take part in (lets ignore that they could well speak your local language for now)
Every tick of movement on a chart is PA - so if your trading decisions are based from visible charts, regardless of the financial instrument, you are trading PA. You are a technical trader. Without learning the solid foundations of PA then how do you intend to become profitable: luck runs out sooner rather than later!
I’m not suggesting that you have to learn all ares of PA, it is a huge topic after all. As you become more experienced you will naturally progress towards learning a niche area of PA, an area of PA that works for you, an area of PA that suits your individual requirements.
Don’t be fooled though, PA is easy at first glance, but correctly applying it takes years of practice and real chart-time experience.
Learn the basics and perform the basics well - this is 50% of the battle.
Support and Resistance areas, trendlines, patterns, formations, I guess these are all PA - as opposed to indicators that are the result of a formula of some kind like Ichimoku, MACD, RSI, etc.
Yes higher TF, to me anyway, means for example a Daily or 4 Hour when trading off 1 Hour. I usually start with the Daily TF and identify areas that I consider significant and then drop down to a 4H TF and see if these areas need fine-tuning or if anything else appears. I don’t normally look at S/R below that TF except maybe the usual whole numbers etc which tend to have some psychological relevance, at least on a temporary basis.
@RISKonFX: I have been trading for about 2 years now. I’ve been investing in stocks, etc for 20+ years.
About 2 years ago when I started trading, I went around everywhere. Probably the same path as everyone else. I started with stocks, then went to leveraged ETF’s, then went to options. For a while I was doing Tasty Trade for options (basically selling options). That’s where I really learned a ton. I was doing ok until September when the market exploded. However, I later learn of the tax ramifications of it (living in Canada and not being able to claim income as Capital Gains). Which led me to more longer-term (but not long term) trading with deep ITM options. That is working well for me.
The PA that I have been using is looking at the charts for overall trends, then trying to decide if I feel there is a possible reversal coming. If it is breaking through some target then I enter the long trade and hold it. I’m using options that are expiring 9months to 1 year out, deep ITM (about .75 delta to enter the trade). When I get a decent return (usually around 50%) I close the trade. The other thing I have used to enter trades is drawing trendlines and when it breaks that trendline entering the trade.
Overall, it’s working. But I think I can do better which is the reason I want to read up more on PA.
Are there any good resources (video, websites, etc) that I can review PA?
Many old school traders who still trade today consider the following publication to hold a lot of validity, even in today’s markets (the book was first published in Dec 1998) : Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications (New York Institute of Finance). It’s been nicknamed the “bible” of trading from a PA/TA prospective.
Admittedly, it does start from the absolute basics up to more in-depth information; although its real benefit comes from the fact that everything is quantified (which in my personal opinion should be the number one goal of any PA trader). Without quantifying your trade plane from entry, exit and all of in-between it becomes incredibly difficult to replicate success and avoid loss making decisions. You really don’t want to have a subjective trade plan, rather it needs to be an objective trade plan which agrees with a fixed non-negotiable set of rules that must be apparent in the market place at a specific time for a trade entry to be validated. This rule set is applied to the market every time - ultimately the only variable is the market - your trade analysis is identical every time with no discretionary element.
At the end of the day I don’t need to know how you trade, i’m sure as time moves on you will be able to paint a picture of your performance and evaluate the areas that you might want to focus more attention on. This is perfectly normal.
Trading really isn’t difficult - what’s difficult is learning the correct material!
CRA has a rule that if you are an active trader that you must declare your income as regular income. You do not qualify for capital gains. Day traders, active traders, etc. There is a bulletin they put out. I can’t find it right now, but I found another article that explains it in detail.
The market sees the SL as another order and tries to fill that. That simple it is.
If the market is in accumulation phase it will get to the SL eventually.
So be patient to enter a trade or do swing trade with 100 to 300pips SL based on higher timeframes or trade smaller timeframes with a tight SL.
In that case…based on what i have read through…some says thats the market market stratergy to gain profit…which is to hit ur stop loss and reverse back the trend…because theorically and logically…if u put stop loss at ur trading…it will visible at their system…or thats what i call it…thus, by hook or by crook the so called market markers will eventually try to hit ur stop loss to gain profit by manipulating the market…instead of clicking or visibly put ur stop loss…my suggestion is that u keep ur stop loss amount regardless based on PIPS or money mentally…just keep it to ur self…by yhe time it hits ur set in mind stop loss…u can just close the deals…to minimize the market manipulatiin by so called market makers…
I’ve also tried it in backtesting mode in which there is no counter party or market maker. So, that “visible” thing I don’t feel is applicable.
I’ve decided to change my strategy and manage my risk by going ridiculously small in lot size and then just riding out the market until my target is hit.
It is a good strategy though…but as far as profit making concern…its all come to rules of thumb…high risk high return…sometimes we just have to accept the losses in order to gain more… so far i used 1h time frame to determine the trend and closed order when against the trends around 100-150pips…its a 60-40% chances actually but there is risk management…capital will be protected…
Well, we’ll see what happens. With this strategy I’m using now (very small lot sizes), I’m using the 15m time frame and 1d time frames. The backtesting has worked well, with 100% win rate. Although, the drawdown has been huge on the account, I’ve figured out some sizes that even in Auguest of 2015 (double dip) that I didn’t stop out at the account level. Big drawdown, but it came back.
I know you can’t use the percentage return in the backtest to determine anything, but the return is roughly 50 times from 2012 until 2017. Starting with $1000 USD and ending up with $50000 USD. The number of trades is about 270-ish over that time frame with, as I said, a 100% win rate.
If I use way more conservative sizing, I can get the drawdown cut in half, but then the return goes down to 300% over the same period of time. Much smaller return, but still an amazing return if you look at it as an “investor”.
Either way, I feel confident enough in the EA I created to put $1000 in and see what happens. Fingers crossed, so far so good, but it’s only been since Thursday. But, it is acting exactly as I expected it to.
