Multi-Time Frame Trend Trading

Beginner Questions
1772

Hi Grav,

Nathan here.

Just a question regarding the 5 lot system for trade management. I’ve been working hard on my trading plan this week, and I’m struggling to define my method for adding lots. I understand the pip based method eg enter lots and move stops at preplanned pip increments.

My problem is that I have chosen to manage my trades by trailing the trade via it’s merit as a valid trend. As you’ve taught me, ill step the stop up to follow behind the last higher low or lower high, and once im in enough profit to place my stop behind the higher low/lower high on the next higher timeframe without risking more than 50% profit, i step up the timeframe.

What im struggling with is how to define, mechanically, the point to add a lot. Of course, i want to add a lot on the formation of a new lower high or higher low. However, if we use the example of a long, this higher low may occur 15 pips from the previous higher low, or 40 pips from the previous higher low, where the stop must be set.

So, I could add my lot and place my stop behind the previous higher low which in the first case would by a 15 pip stop plus spread, and in the second case a 40 pip stop plus spread. However, if my new lot and original lot retrace to that point and the trend breaks, i take a 80 pip hit in the second case, and if i exit early, ive exited before the trend is broken.

I could run a short stop on an entry, timed on a lower timeframe, but then the risk of chipping away at a profit through a bad entries into already well running trends could result in overtrading, whipsaws or poor profit efficiency.

So my question is, if were following the trend, how do we determine when its okay to add a lot, knowing the method of step trailing the trend can produce very uneven increments? And when do we decide when its time to start pulling them off?

My ideas so far- 1) wait until the total retrace for the original lot and the first added lot to the previous higher low won’t exceed total profit. Then add first lot. From this point, add lot’s at every higher low, and exit when retrace hits 50% of profit.

  1. Wait for three higher lows to be formed to confirm trend strength, then add a lot at each higher low onward, pulling off profit at predetermined increments. Exit when retrace hits 50% profit.

  2. After three higher lows have been formed, add a lot at every new higher low with a 10pip SL with a timed entry. If the stop is hit, wait for the current higher low (whose end ive misread obviously) has finished forming and try again, or exit at 50% retracement.

  3. Add lots only after the last added lot is at breakeven or better when the stop is placed at the previous higher low.

Sorry for the long winded question…hope it makes sense. I don’t expect a ‘do this or that’ answer, because i understand in a system like this, there are always exceptions and different situations to account for. But some light on the matter of adding lots while trend stepping would be great :stuck_out_tongue:

Thanks!
Nathan

1773

Thanks for the ansewr grav, very impressive as usual :smiley:

1774

Hi Nathan. The method you have outlined is actually an excellent way to trend trade. Sometimes I’ll draw in the trendline on say a long trade after a couple higher lows just as a visual aid. Unfortunately, half the time, half the pairs aren’t really trending but ranging or consolidating, so no method of trend trading will work. But we’ll assume you have done your homework and are convinced the pair is trending and is likely to continue in a sustained trend.

The general rule of thumb is if you want to use this method to combine trading long with a series of higher lows (and short with a series of lower highs, but we’ll just consider long trades and reverse everything for short), and you want to always capture a minimum of 50% of your profits, and you want to use multi-lot, you will need the first lot to move in your direction 4 X sl. Since most good trades will move 1X sl and many will go 2X sl and some will go 3X sl and only a very small number will go 4X sl, the times you will be able to get multiple lots on will be rare, like once a week on average if you are actively trading, but these can be very profitable trades.

It works out like this, say you are trading with a 15 pip sl, you will probably have to wait out 2, 3, or even 4 new higher lows before your maximum favorable excursion (max profit point) goes to +60 pips or 4X sl on the first lot. This is the 4X sl trigger point to put the second lot on, but you don’t want to buy at the peak high price, so now you have to wait until price comes back down to make another new higher low, and reverses back up toward rejoining the main up trend, to put the second lot on with momentum moving up in the right direction, just after the new higher low is made. You won’t be able to buy right at the very bottom very often, but that doesn’t matter as long as you follow the system. The longer you practice this, the better you get at buying closer to the very bottom. I’m actually trading this very system with a 25 pip sl on au as I write this. I’m +50 now and just having to wait patiently to see if I’ll exit +25 or put a second lot on if price should get to +100 on a peak.

But in the above example with a 15 pip sl, say price hit +60 pips on a peak, then dropped 15 pips to make a new higher low at +45 pips, and turned back up 5 pips to +50, that is where you would put your second lot on with a 15 pip sl. If both lots now immediatly drop 10 pips, or making your total trade now 50 - (2x10)=+30 pips, you would have to manually exit because you hit your 50% profit point. That will happen about half the time. But don’t cry (no crying in Forex), you traded smart, made 2X your total risk (15 pips) on the trade, never risked any of your trading capital once you had the risk removed from your trade, took 50% of your profit, and you had an opportunity to make much more if price had continued it’s direction and moved up another 30 pips or more.

You can toy with these numbers till you get them all just like you like them, but I’m sure you get the general idea. Happy trading!

1775

Thankyou! helps alot.

a couple more question if you don’t mind,

With regard to stop loss, I have made a rule in my trading plan (from your teachings) that any entry which moves -10 (plus spread) must be exited and another entry sought (maximum 2 attempts) or the trade abandoned. Therefore, can i just set my stop at -10 + spread for every trade, or is this a bad habit?

Thanks for your help,

nathan

1776

Welcome to the new readers of the thread. I think I caught the teaching bug and will continue to help new traders as long as I am able. I will probably be continuing this thread at a new location which I will announce later this week, but not to worry, the only thing that will change is the location of the thread and a little better security to help keep out those who aren’t really interested in trading. As always, everyone of all experience levels will be welcome to discuss trend trading in all it’s joy and glory. also, please feel free to join our trading group chat room at Bollinger Band DNA - FOREX Trading using the Tymen Bollinger Band Strategy

Tymen and Kockneerebel and myself and many other good traders go there to exchange ideas just about every day. It’s a boiling cauldron of good trading ideas.

Happy trading :slight_smile:

1777

Yes, we have discussed that rule lots. While it might be right for trading some timeframes, some pairs and some sessions, no fixed sl will be good for every situation. So if trading a fairly stable pair like Uchf on a lower TF like 30M in a slower session, 10 pips may be just right. Right now is only NY session and the Uchf 30M TF ATR is 13, so a 10 pip stop is probably a little tight. The ATR is a good indicator of about how large a stop should be, + or- say 25% of stop. But right now, the ATR for 1H is 23 and for 4H is 44, so it would be hard to get in a longer TF trade and stay in it until it gets well ahead. You might not want to lose that much before exiting, but you would probably need to have that much in your stop to be sure a quick spike doesn’t take you out while you aren’t looking at the screen for a few minutes.

If I am actively trading, I will always manually exit before my stop is hit. It’s a good habit to form. If I’m going to be away from the screen, I will set the stop where I would have exited anyway and let it auto exit if it goes against me. The point is you can use a stop to auto exit when you must be away from the screen, but you don’t want to use it as a substitute for trading discipline. So technically, setting the stop at 10 pips is the same as setting it at 15 and manually exiting at 10. The only difference is psychological. In the former case, the market and the mechanical stop controls the fate of your trade. In the later case, you control your trade directly with mental discipline. It’s just the way I trade, it might not be right for everyone :slight_smile:

1780

I’m moving my thread to a new location. It will be located at:

The Golden Forex forum -
I hope to see everyone there.

Graviton :slight_smile:

1781

Sorry, admin removed the link to my new location. We’re now located at the Bollinger Band DNA forum. We meet up most every trading day in our chat room for discussions of these methods. PM me for locations.

1789

Why had you stopped the thread here?
You can start it here in one place, in this way all the followers and especially newbies will find it difficult to follow you threads at two different places.

1790

They stopped it around 3 years ago and you are asking a question: why did they do it? ahh ha hah haha

1791

OK, moved to Forex Factory now with the same screen name. You can meet me over there.