Graviton, What is # 11 “Take no fliers in good account”?
I’ve given readers of this thread a framework for day trading in the previous posts. I did my best to explain things I’ve never tried to explain to anyone before. Where I fell short and confused or led astray I sincerely apologize. Most people think if they could just get their hands on that one good stock or futures entry they could be rich. They are wrong. They spend all their time looking for that perfect entry or perfect stock pick, and even when they find one, they lose all their profit and a good amount of their trading capital back to the market.
The fact is there must be 100 good ways to enter a trade. Some may be a little better or worse than others, but good entry is a only a small part of good trading. I once watched a trader demonstrate in a teaching session that he could take coin flip trades and make a nice profit. The problem isn’t with traders’ entries, it’s with their plans. Either they don’t have one, or the one they have isn’t improving and they keep making the same mistakes over and over. I’ve tried to show readers of this thread how to fix those problems. As I said, where I’ve fallen short of the mark, it wasn’t for lack of effort. Everything else you need to know you can learn from self study and practice. The learning never stops in this business. When you get to the top of the mountain, you must force yourself to keep climbing. I’ll be happy to try to answer any questions on day trading going forward, but it’s now time to move on.
So, finally, at long last, we’ll start long term trading. If you feel you can be successful at day trading, you might not want to try this. The good news is everything you’ve learned in day trading will be put to good use in long term trading. To make this work, you will need a separate account from your day trading account. If you want to try it, but can’t afford to fund a separate account, then demo trade it as if it were the real thing. We’ll start out with position sizing and entries.
Position sizing for long term trades is critical. Retracements of 200-300 pips are quite common. The trick is, to not lose 200-300 pips or more on those retracements. We’ll do that by only entering during the return to trend from one of those retracements, or more specifically just after the retracement is over. That’s very hard to time on day trades because things move so fast, but in long term trades, we have all the time in the world. So the entry method and position sizing work hand in hand. You’ll want to reduce your position sizing on long term trading by about 1/5 th that of day trading. If you were trading in standard lots in day trading, you trade in 2 minis in long term trading. If you were trading in 1 mini lots in day trading, you’ll trade 2 micros for long term trading. What? You think you can never get rich trading such small lots? Remember the 5 lot system? You can get rich slowly. The question is, can you keep your wits about you?
So, if you have your Long Term Trade account all set up, let’s get started. How do we know what is a retracement and what is a new trend? We can never know for sure, but we’ll play the probabilities. There are many retracements in a long term trend, maybe 5 or more, but only one is really a long term trend change. That gives us 5 to 1 or so advantage. Also, in long term trading, most trends move in channels and it’s easy to exit the trade if it moves out of the channel and get back in if it drops back into the channel. Spreads hardly account for anything in long term trading, so we just don’t worry about them. Kids birthday party? Lost your internet connection? No worries in Long term trading.
Let’s start now. Go to the weekly EUR/USD chart. Display the last one year of data from about April 2009 to the current date, May 20, 2010. You will see a nice steady trend going up 6 months or so, turning on Nov 29 2009 and then coming down steadily for 6 months or so. How convenient. Now if you just happened to be looking at these longer term charts on Nov 29th, you could have jumped onto the nice ride down. That’s what I did. But, you didn’t have to be right by your computer to get in. This is long term trading, we have all the time in the world.
Zoom in now to display a close up the last 6 months or so of the weekly EU chart from Nov 29 2009 to today. How many up weekly candles do you count in that time? I count 5. Those are your entries. And what do you know? We are in one right now. How convenient.
Thank you for the answer graviton!
Please can you explain this part of the post trade analysis.
A flier would be anything outside your normal trading plan. For instance, suppose you decided, gee, I bet I could make some money in this Mexican Peso trade, I’m going to give it a quick try. You need a separate account for fooling around. Otherwise you can’t evaluate whether your plan would have worked if you had stuck to it. If you’re anything like me, you will want to fool around with crazy things from time to time. Set up a separate account for it knowing you are going to do that.
Total # of trades, Win/Loss ratio, Risk/Reward Ratio
Out of all your trades for the period, divide the total number of winners by the total number of losers to obtain win loss ratio, over 1.0 means more winners than losers, good! The bigger the number the better.
Divide the total amount risked (total of all your stops) by the total number of pips won. Less than 1.0 means you are winning more than you are risking, on average, good! 0.5 means you are only risking half of what you are winning, very good! Smaller is better.
Total # of trades according to plan, Win/Loss ratio trades according to plan
This is only figured on trades that were taken just according to your plan, with no cheating at the edges or rule violations at all.
Total # of trades not according to plan, Win/Loss ratio not according to plan
This is figured only on the trades that had a rule violation or were outside your plan or somehow else you cheated on. If you never ever do any of that stuff, good!
The point is, if trades outside your plan are doing better than trades inside your plan, then your plan needs improvement. If trades inside your plan are doing better than trades outside your plan, you need to quit trading outside your plan.
Looking at the weekly chart for eu displaying the last 6 months of data, we see 5 retracements. We are in a retracement today. So price can do one of two things, it can consolidate and continue the down trend, or it can consolidate and reverse to an uptrend. We can’t tell the future but luckily we don’t have to. The market will tell us what it’s going to do.
If you will, draw a top trend line across the lower highs that and a bottom one across the lows form a channel about 600 pips wide. Now go to the daily chart and you can adjust the trend lines a bit and clearly see each of the 5 retracements in more detail. Price wiggles up for about 5 or 10 days or so, then breaks that small retracement uptrend and heads back on it’s steady march back downward. If it doesn’t break that retracement uptrend and head back down, it’s a reversal of trend for months of uptrend.
We are still well within the down channel, drawn earlier. Not like the retracement that occurred the 2nd week of April that went out the top of the down channel. I exited on that retracement, because I couldn’t tell if it was a true reversal when it broke out of the channel. About a week later it dropped back in the channel and I dropped back into the trade. It’s been a nice 1200 pip ride down.
On the right side of the daily chart you’ll see the last three up days, May 19, 20 and 21. dropping down to the H4 chart and displaying the last couple weeks from May 7th to May 21, you can clearly see the details of this latest retracement on the right occurring for the last three days, May 19, 20 and 21. Draw a trend line now along the bottoms of the big bull candle on the 19th through the bottom of the bull candle on May 20th. Move to the 1H chart and display about May 18th through the 24th. Check to see the trendline is drawn well. That is a trend line we will watch carefully over the next few days. We might not have to wait long. If it’s just a run of the mill retracement, like the 4 before it, it will continue back down in the down trend fairly quickly, usually in 7 to 10 days.
Reversals can happen quickly, like the one on Nov 29, 2009 that was clearly a reversal from up trend to down trend in a week, or they can consolidate at the end of the old trend for quite some time before completing the reversal pattern. There are two ways to trade this. The slow and easy way is just to wait and see if the reversal to an uptrend completes. There is no hurry on these trades, we have all the time in the world as they trend for months or even years. So if you were already trading the down trend, you can just lag around and wait. If price goes outside the upper channel line, exit and wait some more. Yes you might lose 300 pips out of the 1200 you’ve made, but that’s not unusual in these trades. If you are not already in this trade, you could enter on one small buy lot with a very wide stop as a swing trade. It could go up another 300 pips to the upper trend line before it turns. That would probably take another two or three days. Plenty of time to add a couple or few more lots as it drifts back up to the top of the channel. If it continues out the top of the channel and is an actual reversal (not likely), you are already positioned for the move up. If it breaks the retracement trend line we drew in and moves back down, we just cash in the swing trade and take the good retracement entry to the main down trend. We can think about for a while though. These trades move slowly. Spend a little time studying the past retracements and trend reversals in this pair. If you haven’t set a demo account for long term trading, this would be a good time to do it. Remember, most of the time, these retracements are really good entries to the main trend.
I´ve been following this pair, and this information you are giving us is very valuable! thanks 
This pair is been up for 3 days, you think is only a normal retracement? People are taking about central banks intervention that is moving the euro up
Zoom in now to display a close up the last 6 months or so of the weekly EU chart from Nov 29 2009 to today. How many up weekly candles do you count in that time? I count 5. Those are your entries. And what do you know? We are in one right now.
I see 7 retracements
If you will, draw a top trend line across the lower highs that and a bottom one across the lows form a channel about 600 pips wide.
Hi Graviton 
I am posting EU weekly chart, I have counted 7 retracement candles
I drew the channel, is everything correct ??
I’ll back, then I will try to post daily chart also
I’ve been trading currencies for over a year now and have been profitable for over 6 months, I’m not making a lot of money but I’m also not losing it. I’m also working on risk management as well as still trading with a small sum of money (I was a college student until a few weeks ago when I graduated).
Your post has stuck with me, and I think a bulb clicked for me last month, I was drawing some trendlines and slowly started seeing the chart in different ways, what I mean is I really saw the price. I would say prior to that I was just seeing what I wanted to see. Anyway, trading is getting less complicated and I’m getting into the flow of trading (I’m doing my best to explain but it’s hard)
Just the past two weeks I’ve had my most successful weeks thus far, nearly doubling my live account with minimal risk and minimal loss and for the first time I’m neither excited or anxious. I’m slowly starting to gain control over my emotions and it’s liberating in a way.
lol Just wanted to ramble for a bit and say that I couldn’t get that phrase out of my head, it really did click in my head, although hard to describe what clicked.
I guess the idea is to practice and practice, and gradually increase the win/loss ratio and decrease the risk/reward ratio. According to your experience, what would be a good win/loss and a risk/reward ratio?
thanks!
ok, here is version 1 of weekly channel adjustment I did on EU daily chart
and second version
I still not sure how correctly adjust trend lines 
Graviton, my daily lot equals 1$ for pip
If I do long term tranding would you count for me please how much for pip my lot should be? I dont know how much is micro, macro or whatever is
it doesnt tell me anything
I see 7 retracements
actually, four
Graviton, I would like to ask some of my questions
if you wouldnt mind how much trades have you made since November 2009? just interesting do you trade shorts only or long as well. Do you ignore some retracements to exit the trade? if you do why? do you ignore some retracements to enter long? if you do why?
What TF do you use for entry?
Can you post some of your trades
Like this, (TF you were used for entry) long(short) entry at …… , SL at …… TP at ….
What TF do you use to figured out TP and SL? Do you set TP at the time of entry or later?
Are you already in the long or are you waiting for some event?
thanks its really helpful topic
There have been 5 retracements in the current 6 month down trend, the first around Dec 24 lasted about 12 days. Most of the others have lasted about a week. The top of the down channel we’ve been moving down for the last 6 months is at about 1.2940, or up about 400 pips from where we are. There’s no way to know yet if this is a long term trend reversal or just a retracement to the long term down trend. What we know is most of these pullbacks turn out to be retracements. Only one will be an actual trend reversal.
In my opinion, if you have no position then it would be unwise to step in front of this moving train and take a long term down position at this time. One could take an up swing trade with the counter trend direction of this retracement, but I wouldn’t initiate a swing trade on a Friday, and taking swing trades against the direction of the longer term direction of the trend is also unwise. If you have a large down position, this would be a good time to take some profit off the table and wait it out. Since we are about 400 pips from the top of the down trend channel, I’d probably take about 1/4 of a large down position off for every 100 pips up from here to be flat by the time we exit the top of the channel. It’s easy to get back in if it’s just a retracement.
But if you have no position on, you hope this is just a retracement on the way to Euro parity with the dollar which would take the euro down another 2500 pips. This would make a great entry if it’s just a retracement and that’s what we look for in long term trading. Otherwise you have to enter these trades with too large of a stop loss and the risk is too high. So we wait. We do a lot of waiting in this business. It’s how we make or save most of our money.
[Img] [http://i1006.photobucket.com/albums/af188/hotnews/weeklyEU22.jpg / img] [/ QUOTE]
Renala Hello, I do not know whether you trade on the graph one week, but I think you should go short in the top of the channel, rather than down, because the position requires a low volume of transactions to make up, see the PA stabilize, while the upper channel, the AP goes down by gravity, while ago has little volume.
This is only my humble opinion.:o
To draw your trend channels on the site and seeks MQL4 SHI channel, it is automatically aligned with fractal and you can set the number of reference bars.
Good luck, and try to advance your trading plan, because soon the father Graviton, will meet the copies …
Regards Didier.
Yes, you have got it right. Some of these retracements are several candles long on your chart. My point is, there are many retracements but only one actual reversal of trend for each of these long term trends. If there are 7 retracements and only one true long term trend reversal, and you treat each as a retracement until it is proved to be a reversal, you will be right at least 6 out of 7 times. It’s just the probability of the situation. Of course, if you were in a large down trade, you should still protect your profits in the each of these events. That’s very easy to do since all you have to do is exit and re-enter when the retracement is over. If this does turn out to be the one retracement that is actually a long term trend reversal (not likely), then you will reverse your trade and trade with the new uptrend. Of course, that has to happen eventually.
A good win loss ratio is better than 1/1 or 1.0, which is to say you are winning the majority of your trades. 2.0, or 2 to 1, or winning 2 out of 3 trades, would be considered by most to be very good.
A good risk to reward ratio would be 0.5, meaning you are only risking half of what you are winning, say on average risking 20 pips of stop to win 40 pips. Anything below 0.5 would be considered by most to be very good.
You’ve done an excellent job plotting out the channels and retracements on this pair RenaLa. Now we are each seeing the same 5 retracements, including the current one. This is helpful to anyone who was having trouble seeing what I was talking about. Thanks very much for this.
So if you are trading 1$ per pip, that is 10 micros, or one mini, or 0.1 of a Std Lot. To start out, you would be trading 1/5th that amount, or 2 micros, or 0.02 of a standard lot, or 20 cents per pip. Of course, once the trade is going well, you will be adding more lots and when you get 5 lot’s on, you will be back to trading $1 per pip.
We’ll do a live trade right here soon. It’s easy since the trades move very slowly. Look at the retracement up trend line on the H4 chart that has formed beneath the higher lows over just the past few days. It’s been touched many times and held, so it’s a very solid trendline. Most probably we will be rejoining the existing downtrend when that retracement up trend line is broken in just a few days. For now we wait and watch.