Hi, I am doing some paper trading and it seems that I just can’t get the position sizing right… I am trying to do a swing trading approach, mostly entering on the pullback after a breakout. I am focusing on EUR/USD mainly. I do fail a lot of the time, it just seems that right after I enter my position it goes a my direction a few pips and the it just 180 the other direction and hits my stop loss.
And I don’t know exactly how to approach the whole thing, if I put down a small amount so the stop loss hits don’t hurt as bad but then the few times it goes my way I barely make any profit.
Now if I increase the position then my stop loss hits hurt much more but then I do make more money on the few trades that win… the problem is that my account will not withstand a 10-15 stop loss hits in a row at this rate.
It seems that I am at the mercy of the market but I really don’t want to feel like this because I might as well flip a coin and pray for the best. What is the point in technical analysis.
I just want to know what I am doing wrong. If I ignore the market noise and put a bigger stop loss I just loose 60-70% of the whole move or it reverses in my face out of the blue as EUR/USD tends to do. If I put a tighter stop loss it gets hit non stop. I know I can always move the stop loss manually to adjust it as the price moves but I don’t want to spend the whole day in front of the screen. It must be another way or using a trailing stop loss somehow. I don’t know it just seems like nothing makes sense… Should I change pairs to something less volatile?
For me, position size is determined by the entry to stop-loss distance divided by the percentage of my account capital which I am willing to risk. The risk in capital is the same per trade, but the stop-loss distance varies according to the chart - my stop-loss distance might be 20 pips or it might be 200 pips, but the money I lose if the stop-loss is hit is always the same… The greater the distance the smaller the “stake” per pip.
Of course, a 20 pip stop-loss is more likely to be hit within a certain time period than a 200 pip stop-loss.
EUR/USD reverses more than anything else it seems, and even often spends many days going nowhere fast. People have said this is because these currencies are in such demand through banks worldwide that a strong trend is impossible, these currencies are bought or sold in the millions as soon as the rate moves a single pip from where it was a minute ago. Try GBP/USD. For a roller-coaster ride try GBP/JPY.
Thank you for the answer! So because of the high reversal chance of the EUR/USD I should try GBP/USD or GBP/JPY?
Also are you a fan of target price, manually moving the stop loss or trailing stop loss for taking profit?
EU does gyrate a bit but it sounds like you are trading off a short time frame? like 5 mins? If so, then it might help to move up to a higher TF like 1H or 4H?
Also it sounds a little like your approach is equivalent to chasing the market. Buying when it is on the move going up and selling when it is going down? If so, then that is a natural tendency but does tend to mean you will be whipsawed just by the normal see-sawing of price just reacting and wobbling to current buy/sell pressures. Again, moving up to a higher TF might help avoid this and also give you the option of buying into dips on the upmoves and vice versa.
Just some thoughts.
PS here is an EU 4H chart with just a couple of EMA’s. I am not suggesting you might trade this but it does, I think, demonstrate that longer moves are more frequent and with more certainty of a follow-through in the direction of your trade.
I find trailing stops always get hit but do tend to move the stop-loss according to gains, but a maximum of only twice. If the risk (entry to stop-loss distance) is r, I move the SL to the entry price when the gain is +r and then aim to move the SL to +r when the gain reaches +2r. After that it depends on the trend strength - if it stays strong I add more positions, if it weakens I close everything.
By the way, GBP/JPY is so volatile and moves so many pips that it is known as The Beast or The Dragon. Its worth demo trading this first to make sure your tactics are up to the test.
Actually, I skimmed past your important mention of taking profit - this is by a long way the most important and difficult question in trading.
Its your thread, do you want to share how you have been deciding where to get out with your gains on good trades?
Hi, can I ask you what criteria are you considering to work out the stop loss on each trade? Is it just flat number like 20 pips or are you taking into account recent volatility and ATR?
I never use a fixed number for the SL distance. Its usually possible to use a chart price level - for example if I wish to enter on a buy order at the high of a bar my SL would be at the low of the bar. In cases where this would be too far down to be a sensible SL and/or it would mean the risk would exceed my capital percentage limit, ATR is a substitute and I would probably use 2 x ATR14.
Yes so almost every time I get a profit from a trade is because of a trailing stop. I get less but more constant and when I move the stop loss manually I get a bit of a bigger win but it happens less often because the price turns against me more often then I manage to act.
I usually place SL and TP points next to Support and Resistance. And I tend to risk around 20-50£ per trade. So yeah I’m not too flexible with the position sizing just because I really don’t want to get a 60£ win for a 100 pip move… I know I am risking a lot (usually 1£ per pip) but I just feel like I won’t be satisfied with less…
No, I’m against using off-chart indicators. To me they’re like stabilisers on the back of your bike - you won’t fall off but you’re not riding. Plus they encourage lazy behaviour - dependency.
But this question about trends is key. I trade off the daily charts and have been using some daily chart and some weekly chart criteria to gauge the strength of a trend - for example the slope of the 50EMA, whether last week’s weekly close was above, below or within the prior week’s range etc.
But by the time any of these weakens, the trend is already weaker
Therefore I have been thinking up a tactic to get me out with profit. So far this says exit an uptrend at the close on the third day after an entry signal with higher closes or with both higher highs and higher lows. Its not very common in forex daily charts to find 4 consecutive days with higher closes, or 4 consecutive days with higher highs and higher lows, or even 4 out of 5.
Of course, the aim is then to re-enter on the next weaker day, such as a day with a lower close or with a lower high and low, as long as the daily and weekly charts still look strong.
Oh wow, super interesting exit plan and certainly novel to me. So in a way I would describe this strategy as ‘scalping the daily chart’!!! Hehe. Thanks again and I need to paper test this
Maybe changing the strategy that generates signal is the way for improvement. Try S/R lines, incorporate RSI as momentum indicator and yes generally volatility is our enemy because it’s even less predictable that price movements themselves.
When I was starting out, there was a guy on YouTube called NoNonsense Forex. He is a professional trader, in the sense that its his livelihood. I’m not saying hes the best trader in the world or his content is unrefutable, but man did he clear up a lot of beginners traps and nonsense that I think it essential for learners to hear.
Also, if you don’t even know something as important, basic and fundamental as correct risk to position sizing, (and absolutely no disrespect intended, we all started somewhere) then it’s essential you watch his videos on this.
