My “picture” or belief about what price should do is formed from chart and fundamental study. I study a pair until I form an opinion on what price will do, then I trade that belief. If I’m confused and can’t form an opinion, I keep studying until I can. I don’t trade pairs that I have no firm opinion on. Price can only go one of two ways, so it’s clear quickly whether I’m right or wrong. If I’m right, I will trade that belief until it is proved wrong, usually by a reversal.
Many retracements will occur in a sustained trend. Of course, if it hits your stop you are out because you never move your stop against the direction of your trade. When a retracement is over, you hope you can gain entry back into the main trend often at a better price because of the retracement.
I will ride out most retracements smaller than my stop. But if my stop is wide and it’s clear that a reversal is underway, I may move my stop to minimum or just exit rather than wait until the wide stop is hit. The problem with this is it changes the outcome of your trades, sometimes for the better and sometimes for the worse, and it makes it difficult to evaluate if your trading plan is setting stops and exiting correctly.
Overall I’d say new traders need a very mechanical way of exiting and re-entering to avoid mistakes. The mechanics of that method can then be studied and optimized through post trade analysis, but deviating from those mechanics is more likely to lead to disaster than to profit.
Retracements can be of any size. I’m just saying if I’m well into profit on a trade, I will exit before I give back 50% of my profit. That’s just a personal rule. I think it’s a good one, but you do need a rule or you’ll wind up giving back way too much profit on retracements.
I don’t pay any attention to the interest charges at all. They are so small compared to the pips at risk and for reward as to be insignificant. The only interest I look at is the way central banks change their rates which affects the value of one currency against another.
MP, I look at the value for the stop under the extreme candle as that is often the last higher low for an uptrend, reverse for a down trend. I’ve discussed before that by definition as long as price remains above the last higher low, it’s still in the uptrend. So it’s a very valid method to trail stops from underneath one higher low to underneath the next higher low. Of course you would want to allow for spread in this method. Also, the stop may be 15 pips below price at one time and 30 at another. But the stop will always be below price as long as the uptrend continues by the definition of a series of higher lows.
In my presentation of the 5 lot strategy I just assumed 15 pip stops for illustration, but that should be adjusted to suit the situation. I’m using 20 pip stops right now because that sets the stop below the last higher low on usdchf. So for me, the stop necessary to be beneath the last higher low is a good estimate of a correct stop. If that is obviously too small, like 9 pips, I’ll add some to make it more reasonable like 15 or 20 pips. If that is way more than I want to risk, I will either cut it down to something I think is reasonable or not take the trade at that time.
Almost all my stops on day trades run 15 to 30 pips. I really can’t see much difference where I chose to put them in that range. I do make them closer to 30 in very volatile situations and closer to 15 in slow markets, but beyond that, I don’t think you’ll make your fortune by setting a stop more precisely. In my opinion, this is one of the things people get hung up on that really won’t change their results that much. Using post trade analysis to improve your trading plan would be a much more profitable use of time, in my own opinion…
Find a good reversal candle on a daily chart, like a hanging man with a long pin top wick, then look at the candles on lower timeframes that formed it. You’ll see the Long pin top wick was formed when price went up but couldn’t hold and came back down during the same daily candle. Look at the top of that lower TF candle formation, the top of the hill where price went up and came back down during the one daily candle that formed that hanging man with the long wick. On top of that hill, somewhere in the middle of the formation of that daily candle, you’ll likely see another reversal candle like a doji as price went from increasing to decreasing. This goes up and down the TF’s. Zoom in on that doji and you’ll see the pattern repeated at a lower TF.
But this is looking backward, which is easy. As you say, looking forward is more challenging.
Graviton,
With reference to pin bars, are you referring to a shooting star at the top of an uptrend and a hammer at the bottom of a downtrend?
Not trying to be pedantic, just want to make sure we are all talking about the same candlestick patterns.
I have attached some explanatory exhibits from Steve Nisson’s book on Japanese Candlestick charts so you can point out which ones you are referring to.
MP, I’m currently using an ATR of 14. My SL then = current ATR X 2 + Spread.
So, if the ATR is 11, and the spread is 2, then the SL = 11 X 2 + 2 = 24 pips.
This has been working out rather well.
I have also found that when the ATR reduces after you have entered your first lot, then you can reduce the sizes of the SL for subsequent lots if you desire (ie, get the lot onto the board earlier) because the ATR is suggesting that a smaller stop will still be successful. This reduces the chances of getting stopped out by reversals.
If that last paragraph doesn’t make any sense (I’ve only just woken up) and you’re interested then I’ll expand upon it.
Yes, as in his example 5.19. I was very sleepy when I posted this, so I’m not sure if it makes much sense. My point was a valid reversal candle corresponds to a whole formation of candles on a lower TF. It’s easy to look backward and see that after it has formed, but harder to look forward and see it will form. I just use these as a visual aid as I trade like a Stoch indicator. There are almost as many false signals as good ones in candle patterns and I don’t consider them to be a magic bullet. They do always serve to focus attention on price action. The magic bullet, as you have personally experienced, is a good trading plan. If you are losing it can make you a winner, and if you are winning it can increase your profits many times over. That’s as close to magic as we are likely to get.
I am using the standard ATR that comes with MT4. The current ATR value might be displayed as 0.0014 or something similar. I have got an ATR trailing stop indicator too. If you’d like it, I’ll upload it here.
Just for info, it’s an indicator not an EA, so it just shows a trailing stop line on the chart - you still need to manually close trades. So, if anyone else would like to see it, let me know.
Hammer pattern has been formed yesterday on EU daily.
Right now price is at 1.2355
I have place few orders for thr daily chart they are
Buy at 1.2415 SL at 1.2350 TP1 at 1.2900
Buy at 1.2415 SL at 1.2350 TP2 at 1.3250
Right now SL = 65 pips
If PA will hit my entry first then I will leave it like it is, but if the PA will go down I will reduce my Entry and SL value
well, I am looking at 15M chart and I drew downtrend line. Actually, once this downtrend line would be broken I will reduce my entry and SL
Am I right?
Graviton, when you look forward at the PA what do you pay your attention to?
some I know its doji as you said
what else?
do you enter at doji level?
There are a few variables you can alter within it to get as tight or as loose an ATR as you require.
From watching it in action, I would say don’t close trade on the PA just crossing the line, but wait for the candle to close. Seems better odds of getting more pips this way, but see what you make of it.
RenaLa, I use CBL entries in the direction of the higher TF, I also enter after a good retracement on a reversal candle. I enter on squeeze breakouts (a favorite) and a few other things.
Not sure what your reasoning is for the EU buy. Looking at the weekly chart, the higher reference TF for trading the daily, I would only sell EU long term until it breaks above it’s long term downtrend. You can’t just jump into these long term trades because of the larger risk. It takes a bit more preparation. I’ll post on it soon. In my opinion, you would be better off practicing your skills in day trading and refining your trading plan for day trading right now. If you feel you must jump the gun and trade the daily, do so on demo only.
