I’m newb just finished the school, and in the sim. There is a member on here called @tommor whose posts I’ve been reading a lot of lately, and in one of them I found a reference to him scaling stop losses, which is something I had also intuitively felt made sense (he sent to use higher time frames). I’d like to talk this out and ask for others thoughts if possible. So here goes…
Let say you open a long trade and looking at the charts you decide that it makes sense to put your SL at -50 pips. You say to yourself that your trade idea will be invalid if price hits this point. Just to note here that this is a binary setup, you are saying your trade idea is either valid or invalid.
So the trade moves against you by say 35 pips. Could you sell part of your position down at this point and have that be a decision that makes sense as part of your normal process? You get to stay in the trade somewhat, but you have also adjusted your sizing to acknowledge that at this point its looking less likely.
My additional question around this is the use of ATR. Lets say this trade is taking place on the daily chart, which currently has an ATR of 75. I understand you can’t expect to use ATRS as predictive tools, but still, they must give some small useful indication of what might be likely to happen.
As you are 35 pips down, is it not the case that at this point, on a non high impact news day, the price is now more likely to complete its move downward by roughly 40 pips (reaching the ATR), than it is to reverse and travel upwards by 110 pips? (also hitting the ATR in the originally desired direction). And if this is true, why can’t I employ scaled stop losses?
Would love to here from other on this, scaled stop losses, and my little ATR thought experiment. Thanks for listening to a newb everyone.
Right now I’m using 2 x ATR20 as an initial stop-loss level and sizing my position based on this. However, I then bring the SL closer to entry using the last daily low (for a long) or high (for a short) - without increasing the position size. This often puts the adjusted SL at about 1 or 1.5 x ATR20 from entry.
I have always found that if price gets halfway from entry to SL, it isn’t gong to come back into profit before it hits the stop.
And so, are you beginning to scale out at that point? It seems to me that being able to accurately call a loss early and get a little but of money back on the way out should have a significant expectancy in reducing losses in the long run. Thanks for responding.
I don’t scale out (or in). If price reaches the adjusted SL, I close the whole position.
Of course, this makes sense as I am currently trading as my trades are all trend-following and if I get stopped out by a pull-back, that same pattern is also probably going to be my entry signal back into the same trend.
Too much writing on trading treats each trade as if it were a stand-alone transaction and unrelated to the trade before and the one that will follow on the same chart. This makes for nice simple chart pics and boosts the importance of entry patterns and especially reversal patterns but is not the full reality.
My reality is I expect to close a long position in an uptrend on a pull-back which I see at the London close and get back long into the same trend during the Asian session through a buy order I set after the NY close.
All very interesting thank you, and a lot to think about here. I guess maybe you are like me trading in AEST zone.
I heard you once say that higher time frames encourage trend following over reversal. I think this is because reversals happen at higher time frames possibly many weeks apart, so you could be waiting for a long time? In my own very short time of dabbling I have concluded that trying to pick reversals always end badly for me, so I’ve decided to practice trend following.
Just now I was trailing stopped out of a good short GBP/USD and I’m convinced my 25 pip trail was too tight and robbed me of a bigger move. I’m mentioning this in regard to talking about charts in isolation. My current fledgling trading plan doesn’t allow for hopping back into a trend really, perhaps I will iterate it as time goes on.
Reversals on the longer-term time-frames like daily only make sense if they become a trend-following trade after the reversal. Entry at or around a potential reversal point on a chart is notoriously high risk, with a low % win rate. So it always looks really dramatic on a short chart time-span but the real pay-back comes after the reversal, when price continues in a new trend.
This is very interesting. This is probably obvious to many, but not to me. I continually find chart reading and trading is so nuanced.
This is something I have been working on and not to successfully. I am finding the setting of exit parameters is just as, if not more, important than the entry. I have so much work to do!
You’re absolutely right I am sure, its the exits that make the money, not the entries. Countless times in the past I have let good profits dribble out of a good position or out of a basket of mediocre positions because I had not exit plan. Now I am super-sensitive to exit timing. If in an uptrend, I exit at -
the close of any day with a lower high
the close of the 5th consecutive day with higher highs
This is balanced by an aggressive entry strategy. If price is in an uptrend I will get long via a buy order at the high of any day with a lower high. you’ll see of course this means that I sometimes get out of a trend during the evening and get back in again overnight or the following morning. Not a problem, at least I sleep well.
This is interesting as a trend trader. I trade - still demo - D/W/M - but once in, I’m in. I have had passing thoughts about this approach but have never implemented. Any thoughts/regrets about getting in at a higher price if trend continues over night? I certainly can see the benefits of a pull back.
Price that made a new lower daily high low during London/NY doesn’t often set new highs on the Asian session - seems to be less than 1 time in 10. If price does go higher after my exit but before I can set a new buy order, I just wait for the next pull-back, it won’t be far off.
What is much more common is that price sets a second new lower daily high the next day. In which case, I just move the buy order lower accordingly (as long as the trend remains intact).
Ok… I have to write all of this down. This is “GOLD Jerry! Gold!”
Based on your posts I have added the 50ema to my charts. VERY interesting how price move in relation to this MA. I can now see the benefits of having that on a chart for a longer term trader. I will say that my strategy of the past number of months has gone from a 100% borrow to a quilt of different pieces that seem to be working for me. The 50ema looks like I’ll be “sewing it in”. It’s amazing how much rubble and smoke one has to go through to develop a fairly simple strategy that works and isn’t bogged down with all sorts of cr@p.
I keep reminding myself Price goes up and down. I want to be on the swing with price not the teeter-totter!!
Tx @tommor, I always have a “take-away” from your posts.
