I’m being careful on this one. Lot’s of chatter in the market about big names, options and asian central banks playing with EUR over the last couple of days. EUR/USD uptrend not really supported by fundamentals, accordng to some pundits. 
what is the rule for entry - any bounced off event as an option?
my notebook laud speakers still dont work, I will watch the video once I reinstall the system
thanks Graviton and gasanvill for the reply (s) 
Usually everyone hits a wall just before the light bulb comes on. None of this would make sense if you hadn’t experienced it all first hand. Now that you have, I’m in a good position to shed some light on these subjects. I’ll try to do so in my next few posts. Keep asking good questions and I’ll try to give the best answers I can
Yes, you are right NB. That was a sleepy post. Thanks for the correction.
Yes, this is the most tremendously difficult entry to make. Of course, it is also one that can make lots of pips. I’ll discuss it in the near future, don’t let me forget. It’s ok to ask the same question over and over. I’m so old I’ll probably not even remember.
Wow! Good thing someone told me that. I made 736 pips today on eu,ej,gu,gj. I guess I have to give them back. Who should I give them to? The pundits?
Just kidding. I listen to the pundits too. But I realize they are only correct 45% of the time. Any that are right more than 50% are already trading for a living. Just something to keep in mind 
RenaLa, the best rule is wait and see what happens. Sometimes price will bounce off s/r and keep going the other way. Sometimes it will go back up and retest and make it through on the second or third test and take off after it blows through and hits a bunch of stops set just on the other side. If the test ultimately fails, price will trend away from the s/r line a long time. If it penetrates, price will usually run for a long time. So wait and see. Better to miss 10 good trades than to make 1 bad one. You might miss a few, but you’ll avoid a bunch of head fake stop outs.
Graviton,
This was the best week for me. First week i´m positive. I´ve been trading against the us dollar the hole week and it was great. I´m looking to counter trade tomorrow friday since a lot of profit taking will take place. i will only take one trade, because i dont want to give all my profit back. Any advice? is it ok to start looking for trades around london open? when do people start taking profits? 
Yeah it was fun for a while today wasn’t it. I was long EUR/USD, made some good pips. Got out around 1.27 on a small retracement and then was too scared to get back in because I looked at some (obviously wrong in hindsight) news feeds talking about 1.28 being a resistance point. :o
It wasn’t till later that I found out all the big players had been buying EUR since Wed. The question now is; will it blow past 1.3 or retrace. There is supposed to be lots of option protection at 1.3. Keeping my powder dry for now and see what happens when Tokyo opens.
I was also short on USD/JPY and got out of that too soon as well. 
First at all, one of the things take improved my trading was when i stopped to paying attention to “news feeds”. Of course i consider the fundamental aspect, but i make my own analisys.
And about being scared and getting out. You would have to be a wizard or a magician to know when the market will reverse. In order to make some profits, you have to give some of them back to the market. There is no trader in the world can get all the pips. You have to analyse if the profits you are making will keep you alive in the long term.
For example, i have a new rule: close my position at risk/reward 1:3. I shorted the usd/chf at london open and went to sleep. Before NY opened i look at my trade and it was 1:4 so i closed my position inmediately. The price kept going down after that and i could have exited at 1:8 but i cant predict the future. I´m happy with my profit because that is the ratio that will make profitable in the long terme. What would have happened if i got greedy and didnt closed the trade, and price reversed and had to close at 1:2? or at 1:1?
Analyze your ratios and decide when to exit.
I´m sure Graviton will give a better advice
I need to get back to discussing profit taking soon. I’ve taken off 1/3rd of my lots at good profit now. I’m letting 2/3rds run for the moment as I expect eu to test 1.3000 Whether it bounces off or blows through will depend on two things, the euro and the dollar. I amuse myself.
Seriously, right now, many US banks are willing to lend dollars to good customers at very low rates. The euro is paying great intrest and there is no sign that the ecb is going to drop rates any time soon. So borrowing dollars at very low rates and buying euros to purchase high euro interest bonds and commercial paper is like printing money. Unless there is some terribly bad news on the euro that we don’t know of (unlikely), or some great USD news that we don’t know of (also unlikely), the euro will continue to rise. There will be retracements on bits of news now and then, but these fundamental trends tend to run for months. The retracements make great buying opportunities once they end. Make no mistake about it, we have transistioned to an uptrend in the euro. Just look at the eu monthly, weekly and daily charts. They scream long term trend change to up trend. The way to trade the euro is buy on upward breaks of retracements down, and sell on peaks up top. Buy low, sell high. This stuff is simple, eh?
Plan to be out of the market by 11 AM Eastern time tomorrow. If you chose to trade tomorrow, only take very short time frame trades for small pips. Keep risk very low. Don’t take any chance of ending the week a loser.
If you lose for small pips right off the bat, quit for the week and have an adult beverage and a good cigar, or the treat of your choice. If you win for small pips, don’t get the big head. Just keep trading short time frames for small pips with very low risk. If you get ahead and lose half of it back, quit for the week and have the treat of your choice. Have a great weekend.
Nope, that’s very good trading. Congrats on a great week! Just don’t mess it up if Friday gets a little crazy. I mean really, don’t let Friday mess it up. Don’t say I didn’t warn you, twice. Now, go for two in a row. That’s not twice as hard, it’s about 10 times as hard. You will have to fight the King Kong effect left over from this week. Even if you know it will be there, it will still mess with your head. If you end next week just 1 or more pips ahead, it will be the accomplishment of a lifetime. Don’t underestimate the magnitude of the challange facing you next week. Get lots of rest.
Yes graviton, you are absolutely right! i wont let friday take all my profits back! and besides i want to give my mind and body some rest I will leave my soul and my heart next week so i can finish positive!
thanks!
how many years took you to be positive two weeks in a row? and 4 weeks?
A year to get two weeks positive in a row. Two years to get four weeks positive in a row. I suppose some are quicker, but most quit and never get there at all, so I’m probably about in the middle somewhere.
Let’s go back to the beginning for a moment. I’ve had many questions lately about timing of entries, risk reward ratios and entry losses. These items are all interconnected. For instance, you can improve your risk reward ratio one of two ways, by finding trades with better reward possibilities, or by reducing entry risk. Either works just as well, but you can do things to reduce your entry risk. You are in complete control of how much you choose to risk on an entry. You can’t force more reward out of a trade than the market is willing to give, so let’s look at reducing entry risk.
If you look at an old chart, it’s easy to see where the perfect entries were in hindsight. Those tall peaks on a down trending pair would make perfect entries. Looking at the 4H chart you can see many peaks where you could have made a perfect entry for just a few pips risk and made hundreds of pips. Of course, none of us are perfect, so we will rarely enter on that most perfect point, but most of us can improve if we understand the goal and have some basic tools and a good way to measure our progress. If I make a mistake, feel free to correct me. So let’s get started.
Your entry risk is related to the efficiency of your entry. As we noted, if you were perfect, you would only enter at the very highest peak in a downtrend. You’d still need a stop loss, just in case of an unexpected spike caused by some unexpected news, but you would be entering so well the price would go in your direction right away so you wouldn’t need to depend on the stop loss to take you out of the trade if it goes against you. Measuring how far we are away from that goal, having the tools to work toward that goal, and measuring our progress will be the subject of this post.
First we’ll look at the measurement tool. You’ll remember that long ago I told you to collect data on how far each entry moved against you, whether you won or lost the trade. I called that a Maximum Move Against, but since others (John Sweeney) call it a Maximum Adverse Excursion, we’ll use that MAE term. This term is just price movement. Don’t include spread as that changes from pair to pair and will mess up the calculation. Of course, if you hit your stop loss on a losing trade the MAE=SL, but if you don’t hit your stop loss and at some point the price goes say a maximum of 6 pips against you before turning in your favor, the MAE for that trade is 6 pips. You can just average the MAE for a week’s trades and get a pretty good idea of your true risk per trade, or you can calculate it a little more accurately as I try to do below. You will naturally face more risk for a 4H chart trade than for a 1H chart trade, so to use the MAE more effectively you need to record which time frame is your home chart for the trade. Since different pairs trade differently in different times of day, you also need to record the ATR of your home chart at the time of entering the trade. Any other data you will need, like your stop loss setting and win or lose should be recorded in your platform trading logs. You’ll need a spreadsheet program like excel to help with these calculations.
So now let’s measure exactly where we are. I’ll do this a bit simpler than the academics would. I haven’t had time to check this well, so someone out there that’s a math wiz check it for me, ok? First separate your trades by home chart time frame. Now, for a single time frame, say 1H, we will adjust the MAE for volatility; call it MAEv, by dividing each MAE by the ATR at the time of entry to the trade. So the higher the volatility at the time of the trade, the less MAEn will be. So the result for a trade with an MAE of 20 and a ATR of 30 would be an MAEv of 0.6667, or 20/30.
Now we will add all the MAEv’s together and divide by the number of trades to get an average MAEv. We will now renormalize that avg MAEv by adding all the ATR values, and dividing by the total number trades to get an average ATR. We then multiply the average ATR by the average MAEv. This gives you a number that is normalized for volatility at the time of the trade, call it MAEn.
In my simple example of 1 trade above, MAEn would go back to 20, but if you have many trades, it will represent your average MAE for a trade adjusted for volatility. This is your measurement tool. We will work to reduce this measurement to as near 0 as possible. Of course, if you had all perfect entries, MAEn would be 0. You won’t get quite there, but you’ll be surprised how far you can go to improve that number once you start measuring it.
You’ll want to plot your MAEn each week on a chart. Looking at your MAEn, you will see that the greatest contributor is when you hit a stop loss. The easiest way to reduce your MAEn is to reduce your stop out losses. I wrote several posts on that and you might want to read them over again. You will need to keep track of which of the four categories your stop losses fall into and work on reducing that category to reduce your MAEn. If you have questions about any of that I’ll try to answer. In the end your goal is to trade without ever hitting a stop loss. I’ve managed to do it this week. Last week I was caught with a quick spike and stopped out for 20. NB has traded the entire week without a loss, so don’t think it can’t be done.
Now we’ll go into more depth on the main cause of stop out losses and large MAE’s, that is, bad entries. The main reason for bad entries is over trading. Over trading is stopped immediately on the spot if you always require three good reasons to enter a trade. One reason must be a direct price action confirmation of the entry, like a CBL or the breaking of a retracement trend line. The other two can be anything that makes sense to you, but keep a record of the reasons to enter a trade and you’ll find some work better than others. Keep using those that work for you and toss those that don’t.
It’s not enough though to just not hit stops, though that will greatly reduce the MAE’s. The trades must be entered at just the right moment to minimize the MAE. Timing is everything. It doesn’t help to have done great analysis and have a trade go 80 pips in your favor if it goes 30 pips against you and hits your stop first. So how do we keep that from happening? Timing is the key. To time an entry, get everything lined up as you usually would but just before entering; quickly start dropping down time frames. Say it’s a trade on the 1H, drop to the 30M and verify it’s going in the right direction for your trade, if it isn’t, wait until it is, when it is, drop to the 15M and verify it’s moving in the direction of your trade, if it is continue, if not wait until it is, then drop to the 5M and verify it’s moving in the right direction, if it is continue, if it’s not, wait until it is, finally move to the 1M, if it is moving in your direction, enter, if it’s not, wait until it is then enter. This is all there is to timing an entry. Moving down one timeframe at a time and making sure each is going in the right direction for the entry. There’s no guarantee price won’t reverse the moment you enter, but the odds are sure a lot less than if two or three time frames below you are already moving against you at the moment of entry. If you time every entry, you find that the majority will go in your favor upon entry, at least a little. Practice makes perfect, so practice it on every entry.
So say a good entry moves 10 pips in your favor before it moves 10 pips against you. If you look back in your journal and you’ve been tracking when you get a good entry and when you get a bad, look at the win loss and you’ll see many more losses come from bad entries than good, and many more wins come from good entries than bad. So the odds are against you if the price goes 10 pips against you on entry. It only costs a few pips in spread to get out quick and you can always re-enter. So why let the trade run against you to the stop loss? It makes no sense. You are risking 20 or 30 pips in stop loss to save 3 pips in spread. Exit the trade quickly and cut your loss as short as possible. Evaluate your trade and re-enter only if you decide you just were caught in a little retracement. Go through the whole timing exercise again. If you get two bad entries in a row, just move to another pair, something is wrong. Don’t waste your time and margin.
But suppose it’s a good entry? With practice you can get mostly good entries. It goes in your favor right away. Lots will turn back around on you. Never let those go negative. There’s no reason to take a loss on a trade that was a good entry. You should have zero of those losses. You may have to exit with one or two pips profit, but don’t let it go negative.
That’s all I know about entries. There’s probably a lot more to learn, but up to now it’s been enough to work well for me. I measure my MAE’s and work to minimize them. I exit early with small pips profit on lots of trades. On about half I re-enter again and most of those are good entries. On a few trades I take a small loss. I never wait out a bad trade until it hits my stop. I never take a big loss. Never again. If you have any questions or corrections, fire away. Happy trading.
Thank you for the encouragement. Seriously, this learning journey on forex makes me feel stupid, silly all the emotions that we humans hate to feel.
Fear greed and stuff.
Now i can see why many traders wanna be quit before even getting there.
Its simply taxing on the mind!
But hey im not giving up now, never.
Im glad with your positive words and teachings, i find myself getting better bit by bit, day by day.
I’d be sure to remind you of the topics you mention earlier, as im sure many of us with benefit from your long time experience!
Hi graviton, you mentioned that you look down intro lower TF and get optimal entry. You would wait till the lower TF are turning upwards before entering the trade right? What about our cbl entry? The specific entry that we have set for ourselves. If we were to screen into lower TF, wouldn’t we miss our CBL entries to wait for that optimal timing?
Please shed some light on that, thanks.
And also, you mentioned on 1HR TF you would let a trade go against you about 10pips. And you set your SL at 1%, so may i know the 10pips is how many % of your total SL? Say around 0.2?
And to add on to you earlier post, i realised for each pair to its own. Before an entry, i will look at the earlier cbl entries of the pair im currently trading on that TF. I will want to know how much it retraces before heading my direction. Some pairs retrace at most half, but the more volatile ones can retrace 3/4 or more. That’s one thing i look out for too, similar to your mae teachings.
Thank you once again
Wow, this is getting better and better graviton!
I´m incorporating MAEn to my trading next week!
I have a question: when do you consider a good trade and move your SL to BE so you dont lose in case it revereses. When it moves 5 pips in your favour? 10 pips, 15 pips? I ask you this because my rule tells me to move my SL at BE, but sometimes my SL is 15 so i have to wait 15 pips to move my SL to BE.
A cbl is valid until a more extreme candle is set or price hits the opposite BB. If a more extreme candle is set, it means price reversed just after the cbl was made, in which case you don’t want to enter and watching the lower TFs kept you out of a bad trade. To hit the opposite BB, the price must have gone a long way in the direction of your trade and there would have been many times along the way that the lower time frames would have lined up in your direction for a good entry. So the answer is no, using the lower tf charts for timing an entry will not keep you from taking a good cbl entry, it can only keep you from taking a bad entry. Therein lies it’s power to improve your entries.
I’ll usually enter a 1H trade with a SL from 20 to 35 pips, depending on volatility of the pair at the time of entry. Sometimes less, like 15 pips in a very slow market. The goal is to keep the sl outside the normal volatility while the trade develops. Please understand, I can’t tell you where to set your stop loss. It depends on too many factors, including your own personal entry efficiency, or MAEn number, the pair, time of day, volatility of the market, etc. I have given you some round starting numbers and the tools to figure that out for yourself. You will have to use the tools given and figure this out for your particular trading method and style. How far you let price run against you before declareing it a bad trade and exiting is also a number you have to figure out for yourself. I know at 10 pips it’s a bad entry because of everything I’ve done to time and perfect my entries. That number may be 7 or 15 or 20 for you. Collect your data, and do your analysis and decide where you should cut your losses. This may take weeks of analysis to perfect for your particular trading style. Remember you can always re-enter the trade for just a few pips spread, so risking a 20 pips stop loss to save 3 or 5 pips spread is a very poor risk return ratio, even if you are right. To get a 1:4 risk reward ratio on that bet with a 4 pip spread, you would have to see the trade turn back in your favor and go on to produce a win something like 90% of the time. That’s unlikely, but you can examine your own trading and see how often that occurs. Work out the numbers for yourself. If you can’t figure it out, tell me and I’ll do the math for you one time, but it’s best if you work it out yourself.
You will get very few major retracements just after entry if you follow the three good reasons to enter a trade rule and time your entries using lower TF’s. For those that occur, you will be much better off exiting early and letting the retracement complete and if the trade basis is sound re-entering again. I don’t know how else to say it. I do this 5 to 10 times a day so it’s second nature to me. Trying to give hard and fast rules that fit everyone in every situation is a lost cause (quick prayer to St. Jude, patron of lost causes).
All I can do is give you the tools to work it out for yourself. If you don’t understand how to use the tool to figure this out for yourself, I can probably help with using the tool, but doing the analysis to the depth it needs to be done would take lots of data and many days of work for each trader. I simply don’t have the time to do that. But I will answer any questions as to how to use the tools you need to implement to work it out for yourself. This is one of those cases where I can teach you how to fish, but I can’t catch your fish for you.