So I got turned onto this by @dpaterso. Giving it a go since it’s easy and I need something easy to get me started and motivated to keep coming back.
Dale shared me a book by Kathy Lien and Boris Schlossberg called High Probability Setups for the Currency market. It’s here if your interested.
Rules for a Long Trade straight from the text
RSI reading must be less than 30.
Wait for an up candle to form and close with an RSI reading greater than 30.
Go long at market on the open of the next candle.
Place your stop at the swing low.
Exit half of the position at 50% of the risk and immediately move the stop on the rest
to breakeven.
Exit the rest of the position when one or the other following condition is met:
a. Stopped at breakeven
b. Trade first moves into overbought territory marked by RSI readings of greater than 70
and then eventually drops from that zone. As soon as RSI declines below 70, sell at market
on the close of that candle.
So let’s see where this takes me. I’m looking at pairs right now, so let’s see if I find anything. I’ll report back what I find, and what I’m watching, and also what trades I take and how they go.
I’d say I’m just going to watch a single pair, but then since I’m trading on the daily, that might turn into a waiting game. So maybe I’ll follow a couple pairs for more opportunities. My first journal, so if you have any tips, criticism, laughs, jokes, whatever, I’m game. Wish me luck!
Okay after my first look across all pairs offered in my Oanda demo, I came across these:
Overbought or oversold
GBP/JPY - long down trend, below 30
EUR/GBP - long up trend, above at 74
USD/CHF - just closed above 30
GBP/CAD - below 30, but recent trend is down
GBP/CHF - same as above, recent downward trend, on the weekly, might be looking for a reversal
AUD/CHF - below 30
CHF/ZAR - closed below 70
GBPJPY - closed above 30, weekly is down
So I’ll look to see what the weekly chart is doing for each and then see if the overall trend matches where the pair is currently at, over bought or over sold.
USDCHF long at .98995. Price just closed above RSI 30 today. The weekly chart is trending up. So weekly chart is trending up, and a trade that’s long sounds good to me. Price got close to the 200 MA, so I think that’s sitting as support.
Hopefully I’m catching it at the right place. I set my stop at around 150 pips and then a TP at 210 or so pips.
My issue with this system has mainly been due to the fact that more often that not and after your initial TP has been hit and you’ve therefore exited half the trade: price reverses and invariably takes out your SL. Which is fine because you’ve made a profit on the first half of the trade (unless you follow my previous guidance and move your SL to BE on the entire remaining portion of the trade in which case if your stop is taken out you make nothing).
In light of the above and since I saw you start this thread and are seriously looking at this: I had an idea. Take a look at the link below re: risk based position sizing and see what you think. It would have your initial stops placed really far away. But what it may accomplish is to keep you in the trade long enough to wait for a trend to develop and that essentially is ideally what you’re looking for.
Of course: if you don’t mind getting stopped out a few times until a trend develops then go for it and trade the system as is. Perfectly viable.
I’m struggling to see what you describe when I look at my charts - weekly trend remains strongly down, RSI (8, Simple) still only about 12, price well below 200EMA for a week now.
Actually he’s got a nigh perfect entry and something I mentioned before:
RSI(14) crossed above 30 on that previous long green bar (four days previous). There was then a pullback. Nothing more than hunting stops (by the banks i.e. forget about the broker issues if any for now). So RSI(14) dipped below 30. Then yesterday it closed above 30 again. Ideal entry actually.
Of course I’m not saying it’s GOING to start trending to the moon from here. Would be nice for anybody trading it. BUT as Kathy notes: this secret to this system is the way the trades are managed. If you’re lucky and it keeps trending until RSI(14) get to above 70 well then good on you. Can happen. If not: you should mostly always clear out with a small profit.
I don’t know if it’s just perfect timing right now but check out how this thing would be performing on most ???JPY pairs and something like AUDUSD. In all cases you’d have already taken profit on the first half of the position. And if you were happy to then use the now average price of the trades and use that as a BE stop then your stops would have moved away from those lows so if price does retrace but only enough to take out stops placed at pretty obvious levels almost making you immune to this nonsense. And if you are really lucky one could even end up riding trends until RSI hits the opposite side. Then stop and reverse and rinse and repeat.
Oh and one other important issue: don’t be tempted to jump in late on these trades. Only time this is valid is if price retraces to the initial and correct level where you would have entered the trade AND the origina trade had not hit the first TP level. Both conditions must be true in order to enter late i.e. if you see a trade that you have missed. If you don’t follow these two rules you are messing with the trade management rules and usually this just ends up in a loss anyway albeit that theoretically such loss should be limited to whatever risk percentage you are usin.
Yup, that was my thinking, wide stops. But what’s wide? 150 pips enough? I think this will need attention and some decision making. I’ll give the link a read. Thanks for the help!
I think my wording is off here. I was looking at the weekly chart, but going back several weeks to get a sense of overall direction. That’s where the MA comment came in, so going back to the start of the year. But maybe I’m looking too far back?
Yup, I understand this, thanks for making it clear.
This is a good point. I was tempted to do just that, jump in late but decided to stick to the system as posted.
I’m sorry, I was only looking back 3 months but I see now what you referred to. But looking back over 5 plus months is fine if you plan to hold for more than a month - as I only plan to hold each trade 2-10 days I find that 3mths gives enough of a steer.
USDCHF. Text book trade thus far. In just looking at the chart right now: should be approaching it’s first TP if I’m not mistaken??? Or was it half the distance from the bottom??? Cannot remember now. But anyway: suffice to say a nice trade.
I hit +53 pips but not the 50% of risk, which is at 75 pips. So I let the trade run. It’s turned against me a bit, still +35 pips. I guess this is where you have to stay patient and let the trade rules do there thing, right?
My stop was way wider than yours, at close to 150 pips versus your 45 pips. I think my version of “swing low” is definitely different than yours. I wanted to give the trade room to move and didn’t think 45 pips was big enough, so my “place stop at swing low” when all the way back to January.
Was your TP some multiple of your SL or did you see something on the chart at that price? .9918 kind of looks like support, where many of the days were hitting before I place my trade. Is that what you were seeing?
Oh, and with my original trade setup, I’m up 90 pips. Rereading the examples in the book, rule #5 is stating that our FIRST TP is at the 50% of our risk. I missed that. So half the position is closed when I hit +75 pips, which I’ve done.
On the “move stop to breakeven”, is breakeven at my entry price or where I just exited half of the position?
Not ignoring you. I just cannot access my trading platform at the moment. As soon as I can I will detail what I would have done on that trade (which I THINK would have been by-the-book based on the numbers I worked out earlier for you) (but could be that your idea of using a previous low point even better to be honest and not something I’ve ever thought about doing).
So far as I can tell: Ms. Lien says to move the stop to breakeven so that if the trade goes against you you have at least made SOME money. That’s how I have always interpreted things i.e. it’s not very clear is it.
But this is what I was saying earlier:
The above is fine if you want to be conservative and book some profits if the trade goes against you. My experience with this system: you will almost always get stopped out for “some profits”. I have found that by placing the stop of the remaining portion of the position at a price where you would lose your “some profits” AS WELL (in other words you would break even on the entire trade as a whole and book NO profits on the entire trade if stopped out) has the effect of the stop being further away and is some rare cases would have you move your INITIAL stop EVEN FURTHER away from where it was at the beginning of the trade. The logic behind this is that the trade is given a much more room to move so that if price does go against you for a time then you may not get stopped our just for the fun of it (and with “some profits”). Obviously: the hope is that (in this instance) the pair will trend until RSI(14) goes over 70 and then back down over 70 (in which case you would simply take profit and enter a new trade by stopping and reversing and repeating the whole process again for a short).
As I said: unfortunately not crystal clear in the book and subject to interpretation and preference I guess.
Except of course when he’s trying to learn a system that has clearly defined entries, exits, risk management, and trade management. Creativity and tweaking later MAYBE.
