Hi Tommor.
Yeah, that’s interesting. Comparing this to, say, the Dow.
So I did a little comparing. This is the best I can do (not all that good).
First off. The DOW.
Well, their similar, anyway.
So, I tried to put all three of them together. To compare them.
Mike
Market normality for the week -
After 4 consecutive positive days, Monday to Thursday, the week not unexpectedly returned a positive score. This is very encouraging for us trend-followers and strategies that respect long-term trending.
Be cautious: the week has been positive but the three prior weeks were negative and they were more negative than this week has been positive if you see what I mean - the 4 scores have been 45%, 44%, 39% and now 55%.
But I still aim to get a small selection of entry orders set over the weekend in case we’re at a recovery point in trending. I’ll be careful to use confirmation price action, limited positions, no correlations.
Hi Tommor
From the duration of your trades, it appears you are swing trading. Is this correct? Do you have another long-term trend following system?
I’m using a similar approach to market normality and SW analysis on each pair. However, my positions are usually open for a number of weeks, if everything is going well.
I only take trend-following long-term trades and they are all from the D1 time-frame chart. I have no duration for positions in mind and when the trend is strong I aim to pyramid the winning trades and just keep adding to them. But in forex trends are often not robust enough to stay in past the retracements: I have no problem getting out on a Wednesday and getting straight back in on the following Tuesday when the trend resumes.
Hey Tommor.
Can you address change?
The market changes. Trends change. The normal changes. Right?
Every EOD you go through the list. Which tells you what’s normal (high or low trend). And then see whether the closing price closed in that particular direction. I get it. But are you keeping track of what’s changing? For instance, when a pair switches from being trending high to now trending low, are you aware of that? And are you noticing how many are changing?
If your not, that’s fine. I’m just curious where you’re coming from in this regards. Cause maybe you don’t even need to know who and what’s changing, for your trading. Or even, for instance, how many USD pairs have turned from one trend to the other.
While I’m on the subject, are you aware of how many of the 7 pairs of a currency are trending one way or the other? Cause if all 7 pairs are trending high, then you would think that’s a strong trend in place. But, you know, eventually that’ll have to change. Like, it’ll go down to 6 pairs trending high and 1 trending low. Then next down it will change to 5 pairs trending high and 2 trending low. And so forth.
I guess the easiest currency, in the present time, would be to look at the JPY. We all know that they have been trending low against every other currency for a long time now. Well, are you seeing that change now? In fact, my earlier post up above, did show that against the AUD, and the NZD those pairs are at a dead heat.
Ok. I dug it up.
So. I would see the JPY at 5 trending low, and 2 too close to call. Well, I guess my whole point here is that whether you are taking notice of this dynamic?
That’s the change I’m talking about.
Cause if the JPY would start trending higher against the AUD, and the NZD, then that’s gonna start to be considered normal. Surely we wouldn’t know to what extent the JPY could go. Like, how many other currencies would change their respective trends from low to high. I know back a couple years (and I’m sure you remember this also) that the Yen did make some complete turn-arounds. From totally weak (7 other currencies trending higher against) to totally strong (7 other currencies trending lower against). And well (I think it’s possible) that a trend can be seen in how those numbers change also.
Just curious, of your thoughts on the subject.
Mike
Tommor.
One more thing.
I guess the whole entire reason why I brought up all that nonsense, is because I believe the market is going through some changes.
Remember that complete backwards move the market performed that entire week, a couple weeks ago? Well, I’m thinking it’s indicative of change coming. And in my mind, that makes all kind of sense.
Sure, we had end of month and end of quarter flows. Maybe that’s all what explained it. But, I think it was such a major move that the market just might want to go there.
And exactly what am I talking about?
Just look at what happened that week. It was all about the Comms.
AUD,NZD, and the CAD. They moved the market. And that hasn’t been what’s normal lately.
I think it’s gonna go that way.
Your thoughts, on the subject?
Mike
Hi Mike -
Actually I don’t pay any attention to the rotation between strongly trending and weakly trending market, pairs or currencies. I was trying to do this a couple of years ago but found it didn’t have any predictive potential. For example, it would happen that the market was strongly trending because the commodities currencies were being aggressively bought during a risk-on period. But when this tendency was at its peak or when AUD, NZD and CAD were at their strongest, that did not indicate either that this environment would continue or that it would reverse. So I dropped the whole thing and just use normality and currency strength/weakness as a unique snapshot with no time correlation. I would love it to bits if there was such a correlation and I genuinely expected to see it - but I can’t find it.
One correlation I did note which sometimes pays dividends to be aware of. That is the correlation between what I call sibling currencies - AUD and NZD, and EUR and CHF. Often the junior sibling will change direction more rapidly and be bought/sold more energetically than the senior sibling. So if you see NZD changing from neutral to bearish to very bearish, expect AUD to follow. Likewise with CHF and EUR. The minor sibling currency experiences change before the major sibling currency. This is the opposite of what economics says - that for example the economy of NZ is dependent on and follows the economy of Australia.
I admit I have not been able to pin this theory down with precision, it needs more record-keeping.
Onwards and upwards,
Tom
Hi Tommor
Your approach seems different to what I think most trend followers would do. That is, typically they would set a wide SL that would allow them to stay in the trade past a retracement.
Do you find that statistically it is better to set a narrow SL?
As I understand it, you only look at very strong trends. So, wouldn’t that indicate higher probability of continuation past retracement.
I’m not questioning your approach - just trying to understand it.
Yes your point is right, most trend-followers will fight to keep their position open through minor retracements. For me this objective is a distraction: no statistics, just rationale.
Most trend-followers have a single position which they opened on a pull-back. That entry was a really risky move for them as entry on what turns out to be a serious pull-back or the start of a range or worst of all a trend reversal, spells the end of their entire invested TA, capital and emotions in this trend - whereas I always aim to pyramid the first trade and all the subsequent ones on a strong trend, but also only in a strong and widely “trendy” market.
For me the entry pattern and the entry price and the entry timing are not so key, so I don’t fell compelled to keep it alive and “make it pay”. Length of a trend after entry isn’t for me the main indication of profit: I’m very happy to close all trades on a trend if it accelerates for 2-3 days, and then get back in as the trend resumes after a minor pull-back. Wide SL’s would restrict my position size and make pyramiding very slow, making it unviable I should think.
Hi Tommor
In terms of risk management, I assume that you would only pyramid when you are at or above the break even point on the existing position. Is this correct?
Yes when I’m trading forex that is correct, and I move the SL to break-even on the first trade when the second one opens. Likewise I move all the SL’s forward by the same amount when the next new trade opens. So the capital risk on the collective set of trades in the pyramid is always the same as the initial risk.
But when going long on the Dow and finding the trend is especially consistent I will at times set the additional pyramid trades at 0.5r above entry, instead of 1.0r, where r is the initial capital risk. Its rarely worth the risk to do that in forex these days.
Hi Tommor
In relation to your entry and SL points, could you please provide an example. I usually enter at market and have a wide SL but your strategy is very interesting and I would like to paper trade it to see if it works for me.
A reliably bullish market is the Dow. On the recent D1 chart 18/06 was an obvious swing low. A long entry order just above that day’s high would have been a rational entry point, say 33630, with a stop-loss just below the day’s low, say 33265. Price made a bullish run to 02/07 without breaching the SL so it would have been very possible to hold all the way.
However, there are several rational exit rules for these trades - I use either a daily range with a lower high or two consecutive higher closes. These rules allow profits to be banked with limited damage and almost always offer a re-entry opportunity, often lower than the exit price just taken. The idea is that Instead of riding a single uptrend with a small position with a wide SL, you telescope large positions and pyramid trades so that you maximise the potential of the trend.
Market normality for the week just ended -
This week has ended weak and its a slight statistical anomaly. The same pattern was shown this week as mentioned a week ago - although there were 3 positive days this week to just 2 negative, the negative days were more negative than the positive days were positive.
This means that the final score for the week was just 49%. This is so close to 50:50 that price movement with respect to trends can be said to be random. So we are still in a frame that demands great caution in tactics for trend-following strategies. I don’t yet see an exit from this market scenario; 7 of the last 10 days have been positive and yet we’re still in random territory. Take care.
Hi Tommor
Using your example,
Why did you select that day in particular to place your buy order? The day before was also a swing low, so was the day before that. Were you looking for a certain number of down days or a large candle with a close price approximately equal to that day’s low.
As I understand, you set the stop-loss for this trade at 33,265. However, you are suggesting exiting prior to your stop-loss being hit. Could you please explain a little more on the rationale behind this. Is this because this stop-loss is too wide and in a real trade your stop-loss would be much tighter, Also, I am assuming a daily range with a lower high is referring to the high of the previous day. Is this correct?
In addition, you are also suggesting you would exit on the next candle after two consecutive higher closes. Why? Doesn’t this indicate a strong up trend continuing? Wouldn’t you consider moving the stop-loss to break even and pyramiding instead?
I understand your thinking in respect of a wide stop-loss having an impact on the size of your position but I am confused as to why you would exit a good trade in a strong uptrend instead of pyramiding. I think I maybe missing something.
With regards buy orders on the Dow, I always set these as soon after the close as possible. The buy stop order will be executed at the breach of the last full day’s high if price rises through that level in the next session. If the price does not rise through that level before today’s close I simply drop the level down to today’s high and re-set the SL using today’s low. And I keep lowering the buy order price until either the uptrend fails in which case I cancel it or it is triggered.
I try to avoid setting a new entry buy order until we have had two days with lower ranges than the last swing high day and each other. The bearish retracement that led down to 18/06 started from the swing high 01/06. This was the last day in the bullish run from 19/05, so let’s assume that by the close of 01/06 I was in cash - the actions would then be -
02/06 - inside range day: ignore this bar
03/06 - first day with lower range than the swing high 01/06: mark it on the chart but otherwise do nothing
04/06 - price fails to print a lower range than 03/06: do nothing
07/06 - price fails to print a lower range than 03/06: do nothing
08/06 - price fails to print a lower range than 03/06: do nothing
09/06 - price fails to print a lower range than 03/06: do nothing
10/06 - price fails to print a lower range than 03/06: do nothing
11/06 - price prints a range with lower high and lower low than both swing high 01/06 and 03/06: set a buy stop order just above today’s high
14/06 - range has a lower high and buy order not triggered: lower the order to today’s high and re-set SL
15/06 - range has a lower high and buy order not triggered: lower the order to today’s high and re-set SL
16/06 - range has a lower high and buy order not triggered: lower the order to today’s high and re-set SL
17/06 - range has a lower high and buy order not triggered: lower the order to today’s high and re-set SL
18/06 - range has a lower high and buy order not triggered: lower the order to today’s high and re-set SL
21/06 - price rises through Friday’s high and the buy order is triggered
From the time of entry the trader brings in their own choice as to whether to use a trailing stop or to ratchet the stop higher as price rises or whether to use price weakness to allow an exit and quick re-entry or just hold until an indicator says over-bought. Likewise there is personal choice on pyramiding, though obviously the longer you hold the more opportunity that comes from pyramiding.
I like to exit at a high price rather than wait for a deep retracement to slice off a good chunk of my profits. Often I will exit at the second successive higher close early in a new bull run and hope for a lower high or lower close the next day that will allow me to set a new buy order. It is sometimes better to take profits and look for an earlier than usual re-entry early in a new bull run, and then hold longer after that first trade when price resumes rising. I know I could not say there is a right way and a wrong way to do these things.
Just to add of course that after the Dow made a new daily high on 02/07, it printed a first bearish day on 06/07, then an inside day on the 7th, then the second bearish day on the 8th. At that point I set a buy order just above the high of the 8th’s range and this was executed on 09/07, meaning I am currently long. I have a pyramid order set at entry +0.5r (r being the distance to the stop-loss at the low of 08/07). If the pyramid order is triggered I will set another at another 0.5r up.
Hi Tommor
Thank you for your detailed reply. I really appreciate your help.
In relation to your current pyramid order:
. according to my calculations, entry+0.5r is around 34790. However, the close on 9/7 is at 34870. Did you set your pyramid order prior to the close and it was triggered on 9/7 or did you move it to the close price of 34870?
. Once your pyramid order is triggered, I am assuming you will move your stop-loss on your current position to the entry level of around 34575. Is this correct? Would your second position have the same stop loss?
. Would you still be looking to exit your first position on the second successive higher close? If you are, do you count the close of the entry candle on 9/7 or would you be looking for 12/7 and 13/7 candles to make successive higher closes?
. I think you also mentioned in one of your earlier posts that for your exit point you use either a daily range with a lower high or two consecutive higher closes. Is the choice between the two purely discretionary or does it depend on the instrument and/or market conditions etc…
I understand your rationale in respect of an early exit so you can bank the profits early but I am concerned that it conflicts with the setting of your stop-loss, which in turn is used to calculate your position size. Also, you said that often there is another re-entry opportunity shortly after the exit. This indicated to me that more often than not it would have been just as or more profitable to hold and pyramid than to exit and look for re-entry. Could you please clarify this point for me.
When I get a pyramid order triggering, yes I would move the first trade’s SL to the pyramid trade’s SL price level. The same rule applies no matter how many trades are in the pyramid - the latest trade has a SL at the same distance back from entry as the first trade, and all trades have the same SL as the last trade opened.
Whether to enter on a second higher close or hold longer is a personal choice and the strength of the trend might inform the decision, but an individual trader might have other factors of their own that tell them to either exit or hold. When choosing to exit a pyramided position, I close all the trades in the pyramid simultaneously but there might be an argument for taking them out one at a time - personal choice.
Thanks, Tommor
Did you pyramid the second time at 35000?
I’m still confused in respect of your “two higher closes” rule. On the one hand you are saying you would close your position when there are two consecutive higher closes but on the other hand (using Dow as an example) you are pyramiding the second time. There must be other factors I’m missing. Again, I’m not questioning the validity - just trying to understand fully.
