Price Action Hero

Great going Gunner:

Picture size is perfect and your commentary on how you traded should benefit anyone willing to read and learn. Good stuff here even if one trades a variation. I like the clean chart & I hope you grow this thread. Thank you. d

USDJPY has been on a bit of a downtrend. I drew fibs from the high of yesterdays consolidation to the low of the breakout that followed. Price retraced back up to the 61.8 fib and spun around. The candle ended up turning out to be a nice doji pin bar. Price started moving down from there and broke my trend-line. If price continues to go down I plan to enter around 95.95 and ride it down for about 30 pips.

There is some news that’s set to release in the next hour. If the CB Consumer Confidence beats the forecast, that could prove to be good for USD and push this price up instead of down. If that happens, that I would consider getting in a few pips past the high of the doji and ride it out until the momentum falters.

Don’t have time to post a chart at the moment, but USDCHF is of interest. It hit some significant resistance, bounced up and the current candle is threatening to break the high of the previous candle. Also, there’s a bit of bullish divergence with RSI as well.

I look a long position at 1.1375 and plan to ride it up to about 1.1440. However, it’s more of a higher risk entry s there’s some resistance it needs to crack through before reaching it’s target. A more conservative entry would be 1.1410.

Last night I was having a conversation with a fellow trader and he mentioned to me he has wide stops because price eventually goes on to where he wants it to go. He specifically referenced a point where he had an open position that was down 130 pips and when he closed it at 100 pips profit.

My question is how can one sit there and let a trade go against them 130 pips. At what point does one realize that the trade is not going their way and it’s time to bail.

There’s a false sense of security when people think that a price will return to them. I assure you if in the end it will bite you back hard. That’s when you see the topics on the forum, “HELP! WILL EURUSD BOUNCE BACK UP TO 1.4000!”

This particular trader in question, makes entries solely based on indicators. Granted thus far his system has shown positive results, however at times he experiences nasty drawdowns and has to close out at losses. His solution was to widen the stop loss.

Price action will let you know when to exit a trade. If price went down 130 pips there had to have been an opportunity to short. And when it went all the way down, there would have been an opportunity to profit on the way up. So while this particular trader profited 100 pips on the trade, he had opportunities that could have rewarded him with up to 360 pips without concerning himself with a loss.

Today I took a loss. As told by my previous thread I had taken a riskier long position on USDCHF. My apologies for not posting a chart, I was being rushed around this morning. Price went up about 8 pips then it did a complete reverse. And while prices dropped nearly 100 pips, I was able to sustain a 20 pip loss.

If you use indicators in any system. Let them only provide for your set ups. Let price action dictate your entries and exits.

The question is why are you are you berating that trader for making 100 pips profit when you closed your trade for a loss ? Second this person could be trading longer timeframes and if he is you have to set your stops much larger to catch trends longer timeframes could see a 100-150 pip pull back before going back into the main trend most 150 pip moves on a weekly chart are a blip when you see the trend that form on the weekly charts running for thousands of pips and it really depends on his money management and risk profile .

I see your point though he had an oppurtunity to catch 360 pips if he could sit in front of the computer all day and time the price movement but he might be a
person that has a life and only checks price on the 5pm close . I turtle trade myself and personally I would never take more then a 50-75 pip stop to catch a nice 500- whatever pip trend on the weekly charts these trends last for years and return thousands of pips sometimes. Not to mention if you can get in a trade that carries an interest rate roll over in your favor like the GBP or the EUR or the AUD if it is trending upwards. Imagine that you could be collecting interest everyday while collecting pips there for making two sources of profitt
before you berate other traders for taking 100 pip gains I would ask them there objective becuase it may be to be longer term and to catch both sources of profit. PIPS+INTEREST you’d be supprised how much interst you can catch while playing the trends on a weekly chart some of then last months and years.

Gunner was not berating another trader, he was questioning the trader’s strategy which, with all due respect, may be perfectly sensible. I took a much bigger loss on the same pair on the 4H TF. The loss occurred in the wee hours while I was asleep. I use a combination of Gunners & Nial Fuller’s strategies and I do very well on the D. but only about 50/50 on the 4H. Scrapping the 4H may be my next strategy! This thread and the KISS one is very beneficial for me, keep the postings coming. d.

As dobro mentioned, by no means was I berating this trader. Just pointing out a leak in his trading strategy. This particular trader was trading off a 4 hour chart. However, a larger timeframe doesn’t justify the ideology that you should allow price to run so far away from you before you think it has the potential to turn profit. Price action can only refine a better entry as well as exit.

Also, do not fall for the belief that you have to sit in front of your computer all day long for you to monitor price action. By paying close mind to solid support and resistance areas, you don’t have to worry spending a lot of time watching charts or about large stop losses as you already have a good idea which way price will go.

So yes, I would conclude that my 20 pip loss coupled with my strategy has a higher expected value of return over his 100 pip gain based on his methodology of trading.

Price turned rangebound a bit yesterday before finally making a failed breakout above 1.3340. Price started to drop from there. I drew two trend-lines on RSI and price only for the purpose of illustration divergence. After the failed break, this divergence set up to me would have been tradable. However, that was for the Brits to take a stab at. I was sleeping like a baby at the time.

Now that price has made it’s moved, that didn’t imply I’m still late to get into some action. I drew a horizontal line to what was the bottom of the prior range and waitied for price to not only break that but to break the 38.2 fib line. At that point I felt it was a bit safe to take a short entry And I plan to exit a a little before the 50.0 fib line.

If price continues to fall after that, I’ll wait for it to crack the 61.8 fib line before getting back in to ride it down 50+ pips.

Price stalled at 1.3200 and I took profit for 15 pips. Depending on how things look, I might consider taking a trade between 50.0 and 61.8 as well. However, I just as well just let it break the 61.8 where I see as better opportunity to clear some stress free profits.

A couple of questions:

Even though you don’t usually draw TLs, when you look for a trend do you look at the 1H or go up to the 4H? I’ve never been too clear in my own mind if a higher TL is appropriate for a shorter TF.

Also it appears you trade the NY session primarily so what prs do you concentrate on? Only the E/$ or others?

Thank you for posting your strategy as I’m thinking of using it on Oanda’s 1H and keeping my daily on FXDD. Good trading, d.

I will look to 4HR and Daily to have an idea of overall trend, but I stick to trading off the 1HR mainly. How I trade just as well could work just fine if one stuck to a 4HR, Daily, Weekly, or even Monthly chart. I like to get in a trade about once maybe twice a day, so the 1HR suits me well.

I trade low spread pairs for the most part. On my platform I have up USDJPY, EURUSD, GBPUSD, USDCHF, AUDUSD, EURJPY, and GBPJPY. I rarely trade GBPJPY. I like to have it up though to get an idea of momentum in relation to the other yen pairs.

Many thanks for the response.

The one hour was looking a bit sideways on a lot of pairs, so I looked to the 4HR last night and this morning to get a better look at price direction.

I spied this current set up. Provided that this candle closes a decent amount below the previous candle, this is a classic candlestick reversal pattern. Also take note of the slight divergence with RSI.

After a little bit of a run up the previous high failed to be a higher high, then a huge bear candle reared it’s head.

Price clearly wants to be pushed back down at this point. Zooming in on a 1HR would help to pinpoint an entry. After that a profit target would likely be a bit above the low of the range.

Okay, price has to give at some point. Price has been stuck under 99.5 for days now. If it can have a solid break up, I wouldn’t say it’s unreasonable to set a goal between 50-100 pips before any solid resistance.

Notice the 17:00 candle on May 1st on a 1HR chart. That candle set the range for the price for the last 20 some candles after that.

A clear break below the low of that candle would have me start looking for a solid short entry. I would draw fibs and look for an area to take profit depending on how price reacted around each fib line going down.

A 2 to 1 ratio is a great rule of thumb for all forex beginners. However, as you learn to understand the charts better, it’s not always so black and white. What will generally happen is that someone will set a TP and a SL, ensuring that their risk/reward ratio is met and just let the trade run it’s course.

I don’t necessarily think it’s all cut and dry like that. For one, beginners tend to have larger stop losses because they feel that they need price to move around a lot. Also, most times they just don’t want to accept a loss. In doing so, they end up having a huge take profit.

How many times have you heard the tale of a beginner where they are frustrated because price seems to have gone up a lot, however it failed to reach their profit target and they let price fall all the way down until it eventually hit their stop loss. Once upon a time, I was that very trader.

Managing risk/reward can be a bit more complex than just plotting a 2 to 1 ratio and letting the price run itself.

Now I’m not saying to forgo all logical money management principles in regards to risk reward. You just need to be more practical about it. Price isn’t going to move in a certain direction simply because you want it to. Nor is it always going to go back to a price simply because it’s been there once before.

You need to pay mind to what price is going. And you need to know what’s happening around price in regards to support and resistance. Price doesn’t just stop and turn around for no reason at all. Whether it be divergence, trend-lines, Fibonacci, bollinger bands, or a simple candlestick reversal pattern, price will tell you what it’s doing.

So yes, the goal is to exceed in rewards than risk, however, don’t let price move against you to the point where you aren’t taking profits where you have the ability to.

I can certainly also relate to the huge stop loss from back when I was just starting out.

Currently I’m looking at the very interesting subject of how to minimize S/L while still getting high probability of winners. It’s no easy work and you easily break a sweat if price starts to move against you when S/L is tight.

Also very true not to let winners turn into losers. Another mistake i’ve been guilty of more than once.

That’s definitely a struggle to maintain. When you have tight stop losses, you have to be confident in knowing that price will head back your way. Tight stop losses will obviously result in more losing trades, however give you a greater risk/reward ratio.

Generally, when I’m monitoring a trade, I’m more quick to exit a trade when it starts turning against me. The way I see it, is that I just as well can get back into the trade once it starts going my way.

I find that I tend to let profits run more when I’m not actively watching the trade. I’m more apt to pull a quick 10-20 pips as opposed to just letting it run for 50-100 pips at times.

Today is a great example. I pulled 40 pips out of the market this morning with the set ups that I illustrated today. A 40 pip gain is a good thing, however, I pulled some a bit too soon and had an opportunity to be 100+ in pips. Now the mindset a trader must obtain, is to allow profits to run when they can, however understand that in nearly every case you’ll leave pips on the table.

So right now while I’m a bit discontent of my shortcoming, at the end of the day I will be more than content that I have had a 40 pip gain.

Because of this and another thread I now see price action instead of letting some lagging indicator getting me in late. I had 3 short term trades at 07:00 CDT this am and all went into profit. I left a lot of profit on the table with the E/$ but I have a lot of ground to recover so like MG said, at the end I had profit, not a loss. Looking forward to more commentary from all of you. d.

Great thread! After studying indicators and systems non stop for the past few weeks, I have blown out my first practice account, and already got a nice dent in my second. I decided to stop with all the indicators and all the systems, and just try this price action. I just made 43 pips on the e/u while I was reading your posts. I definitely am going to be focusing on this type of trading for awhile. You make it so easy to understand, thanks for your posts.

Just stumbled across your thread MG, excellent stuff. Like the way you encourage people to think through whats happening. Traders should always be aware though of the bias to only see what confirms your preconceived ideas