Tess is right, if your rules don’t permit you an entry then it’s a non starter.
What alternative staking options have you experimented with when trading these types of breakouts?
Have you for instance tried phasing or feeding in your postion when price breaks hard through a level you’ve been watching?
By allocating a reduced size to the initial move & feeding the rest in on a successful confirmation, you get the oportunity of testing the resolve of the level.
If it fades & fails it doesn’t cost you a full stake. If it catches hold & trips enough stops above or below the level it will usually slow sufficiently for you to add in as it absorbs & sorts the order flow to next level.
DoubleEcho’s post #405 for some reason reminded me of a money/trade management riddle that’s bothered me for some time. This thread’s trade management philosophy is to add to winning trades (except bracket trades where an AIAO approach is often used) & only paring back when the market closes in on its intended target. But there’s a large group of trading educators out there advocating the direct opposite. Their technique varies - but it usually goes like this -
Open a full position (100% trade allocation) when a trade trigger is activated.
Liquidate 1/3rd of the positiion once the market moves 4/5 tics/pips to cover commission/slippage.
Liquidate another 1/3rd once the trade moves into profit by an amount equal to the distance of the stop loss from the entry price,
Move the stop loss to breakeven & then trail it behind the remaining 1/3rd (usually called the runner) until finally stopped out.
The idea here is to remove trade risk as quickly as possible so as to get to a point where the trade is essentially “riskless” and the profit potential is open-ended.
Certainly sounds like a no-brainer. But the problem I see is that if a trade turns into a home run, the trader takes a profit on just 33% of the trade allocation. But the loss on a losing trade can often be 100% of that allocation. Not so sweet huh?
I tried doing some math on this (and believe me I’m no statistician), assigning probabiliies to various outcomes from my backtesting (e.g., the odds of the first target been hit = 75%. The 2nd, 60% etc.,) but I gave up figuring that I was making too many half-assed assumptions (e.g., what profit to take on the runners, where to place the iniital stop loss etc.,etc.,).
I’ve tried to broach this topic with some of these educators - but for some reason I never here back from them. Anybody any thoughts on this??
Depending on the entry, and direction, I do a little something different.
If my entry rules show me an entry in the opposite direction of the current long term flow, I’ll enter, but with a feeler. If it grows legs, I’ll dump a little more in, but then I’ll move my stop up to keep my original balance intact.
If the entry is in the direction,of the long term flow i.e. current Aussie, or euro longs, I go all in early on.
I move my stops up very quickly though. Some would say too quick. I get a lot of stopouts at spread +1, but I do get in on the runners, and add as I see fit.
Once I’ve got an open trade on someone else’s nickel, I’m a bit more risk tolerant.
I can’t speak for the rest of the real pros around here, but that’s been working very well for me.
That’s a very valid option for those looking to exploit a potentially aggressive shift up/down in momentum. It won’t suit all tastes, but then what does.
I can’t speak for them but I guess a lot of it comes down to risk attitude & trading objectives. You’ll usually find those two items are high on the agenda when preparing structure & specifics.
Whatever management style you utilize to engage with particular market conditions, you’re never going to get a perfect fit. The fickle nature of the market simply doesn’t allow it.
The core of your style will pivot around your attitude to risk.
Some will be more averse than others & nobody can really impose a certain trade management style on you. You have to work that one out for yourself from the available options.
Scaling in carries its own downside, just as scaling out does. Even the option DoubleEcho posted above re; the breakout entry isn’t a perfect fit for that specific example, but it is an option worth considering.
As long as you’re happy with the objectives you’ve set to engage with the market you can begin laying down your foundation. Once you’ve achieved that part you then start building the structure, which will include the deployment of trade management style(e) linked to your risk attitude & objectives.
That’s one of the parts that will require experimentation.
You’ll see the word compromize scattered around these 3 threads an awful lot. If there’s one word I had to pick that sums up the various trials & tribulations of this business it would be that word.
I’ve been considering this as a possible addition to my arsenal but haven’t yet got to the stage of physically testing it out. It might be a sensible option to consider when trading one or two of these momentum type pullback triggers.
It certainly looks like it might have merit in breakout situations. I suppose as Tess points out, if a trader uses one or two different strategy options to trade certain market conditions they will require a particular style of bet & management style to attach slot alongside it.
Excuse my ignorance but what is AIAO?
I can’t recall seeing that abbreviation before.
“The core of your style will pivot around your attitude to risk.
Some will be more averse than others & nobody can really impose a certain trade management style on you. You have to work that one out for yourself from the available options.”
When I posted that money management question I was trying to answer the question as to what was the “better” money management strategy. – But you’re right Tess – what is better depends on the psychology of the individual employing the strategy & their attitude to risk. Although I can’t prove it, I suspect that the scale-in, scale-out strategy makes more money over time. The Turtles, for example, one of the most successful trading groups in history, used a SIAO (scale-in, all-out) strategy and many people feel that it was their aggressive money management style & not their trading strategy that was responsible for their success.
The alternative strategy mentioned in my previous post probably has a higher win/loss ratio though - since 2/3rds of the initial postion is taken off by the time a 1-R profit is achieved. A high win percentage usually means lower drawdowns + fewer consecutive losses, so this money management style is probably more suited to newer and more risk adverse traders. Never mind that it may make less money over time. If a newbie trader still hasn’t shaken the need to be “right” about his/her trades and gets totally discouraged & depressed after 5 or 6 losing trades in a row, that trader is not going to stick around long enough to gain the experience necessary to master this game.
So I guess that rule #1 should be “Trader Know Thyself” - then go select a money/trade management system, a set of trading vehicles, an appropriate time-frame template to determine market structure, an execution-time frame, suitable setup/trigger mechanisms etc., etc., Most of us tend to do it the other way around.
I’m not trading that pair at the moment Matt due to its recent choppy, directionless behavior. It’s struggling to make any headway this week as evidenced by the reluctance to attack last weeks high with any real conviction.
If you compare the last couple weeks price action with eurusd, you’ll see why that pair offers potentially better value of late to play it v/s the dollar.
If you need further evidence of that just run a quick check on eurgbp (recall what I said about checking relative strength of one currency v/s the other in that last post to assist with a bias?)
I guess it depends on what you’re looking to achieve with your model, but sometimes it’s too much like hard work trying to trade chop when you can leg into potentially smoother price action.
Set ups & triggers (& also risk location) tend to work more efficiently in those types of market conditions.
Gold is also offering good value of late too with smoother & cleaner technical price action opportunities.
I wouldn’t personally look to trade that kind of set up even if I was considering a pop at Cable in current conditions, certainly not counter bias on micro timeframes.
I’d be looking for opportunities to get long this pair via my usual technical guides (moves off prior day & week high-lows….pullbacks to visible demand zones etc), only changing my bullish view on a determined break & consolidation of last weeks lows at c1.5650.
Since the move up in May it’s pulled back approx 1/3rd of its bullish ascent & re-engaged the near term directional bias, hence the continued bull outlook.
Did you spot this technical play rolling out yesterday?
Prices moved up & tested the activity just under the round number at 1.3790. We haven’t breathed this air since 1st quarter, so it’s a pretty big deal.
Likely to be a lot of nervous orders changing hands around here. Definitely a good stack of buy orders tiered the other side.
Sometimes the cute play is to try get aboard slightly ahead of where you assume the herd is looking to play ball. It offers the opportunity to catch an excellent value ride if the stops above a critical level get fired off without reply.
If offers are strong above, then you also got a little time to fold your hand & check out the afterburn of the order flow before picking your level to get back in the (long) saddle if circumstances dictate.
That level also tagged last weeks high where it consolidated, printing a bull flag.
That consolidation step also offered up a 1-2-3 continuation opportunity in line with the current bias.
That’s not to say you could or would have taken the bet, but it’s a typical set up scenario to keep a watch out for.
It is nice for this flag of bullish price to plan around your wekly highs, yes?
I see on the threds of yours that you talk on this levels a lot. I have noticed alredy this is always in your analisis when your are presenting to the forum traders on your threds.
I am impresive of this part of yours analisis and have checked my chart often with these levels to find the price action is here or ther on the day and the weeks lines. I am enjoying this parts of your work to the forum and am enjoying also your chart presentsation showing this levels often.
Do you thinks it is the most important of what you present with your charts?
Thank you for keep mentioing this analisis often so we can see how it afects the price movements.
Yeah, you wouldn’t be far wrong in assuming I rate the day & weeks high/low levels as pretty important technical signposts.
I doubt you’ll find many posts across the 3 threads that don’t refer to, or physically highlight via a chart example, either a prior days high/low or a prior weeks high/low level.
These are incredibly important & consistently reactive (each-way) technical zones.
You could literally wrap short & medium range strategies around those 4 lines alone & have a ball playing away from, & back to the outer boundaries, dependant on your game play.
Just take a run thru this week’s typical activity as an example.
Gold bowled thru last weeks high during early London trade on Tuesday without so much as a second glance, [B]trading with directional bias.[/B]
aud/usd pulled back to, & reversed sharply away from last weeks low [B]trading with directional bias.[/B] It’s now being blocked & smothered by last weeks high up at .9750
eur/gbp has today breached last weeks high after flirting with it since Mondays open, [B]trading with directional bias.[/B]
usd/chf vibrated last weeks low during Monday’s trade & finally shook it off during yesterdays New York shift, [B]trading with directional bias.[/B]
Matt mentioned toying with an intraday possibility on Cable, & even though its throwing a teenagers moody fit this week, it still offered an intraday play bouncing off Mondays low, [B]trading with directional bias[/B] during Tuesdays early european shift.
You’re going to witness a good selection of trade candidates popping up each week on your radar on & around just these 4 key levels. That’s without introducing & including other influential technical spotlights into the equation such as round numbers & big figures.
If your arm was really being twisted up your back regards punting Cable, then this is the type of opportunity that would likely offer you better potential value.
Mid term bias on the pair remains bullish.
You’re executing on the back of a pullback to yesterdays low.
Visible & acceptable risk placement to test the initial potential up to & through yesterdays high.
Current average daily range on this pair rolls in around 150pips, so you’ve got +75% of upside to play with.
Added benefit of taking this type of trade is it gets you seated ahead of the breakout crowd waiting to jostle for position up at last weeks, Tuesday & Wednesday’s high.
Of course you have to balance that opportunity against the forthcoming release of all the gbp data during today’s London shift, including the midday rates & accompanying statement etc, but if the wind is in your favor you get a nice kicker up the ladder.
It’s all about measuring & computing your own personal risk v/s value ratio!
That’s very cool. The risk is actually being borne by those traders further up seeking to catch a blind breakout or hoping for a break & pullback to the previous 2 days & last weeks highs.
There would probably have been a few who would have jumped in as price began moving up sharply around 1.5900, seen clearly on the 5 minute chart, using a tight stop loss, afraid of missing the boat who are now stopped out & unsure what to do next.
If the price action now breaks through this resistance level they’ll be having to take the risk back on while those who entered down at your highlighted level have been sat watching it all shake out.
No, I’m not personally trading Cable at this level Matt. Andre has a core stake & one of the guys took that one in the room to highlight an exercise in the benefits of adhering to a framework & structure.
I snaffled his chart & copied it here to help consolidate the comments I made yesterday about observing the background, bias, psychology & potential of triggering low risk, higher value opportunities around key levels.
That was a perfect example of what I was referring to regards getting aboard an intraday pop for a test of a key level.
We are if the conditions offer up value opportunities. It depends what’s going on & how the market psychology is being influenced.
Jimmy & a couple other guys will roll in to trade the Tokyo pm shift if something is looking to play out or the volatility is elevated. That timezone can be an effective period for legging additional bets to a core stake.
As we’ve said before, it’s all about the level or zone, the bias & what’s influencing the current price action. Those influences play out right across the regional trading hubs.
Sure, there always are. But would that be the action of someone possessing a plan comprizing a framework, structure & a clear objective?
I very much doubt it.
That type of operator represents a large section of the candidates you’re up against out there on a daily basis, & providing you’re adequately prepared & equipped to operate effectively & efficiently, they will consistently hand their bets in the form of stop losses & equity across to the likes of you.
tess, thank you for your anser to my post yestarday it was quite exellent reply for me. You are kind as your sister for your help at me and other traders here at babypips.
I wish for one day to have this skills of you. It is like for you can see inside the dark sometimes to tell us about the place where the trades will start best and go to. But of course it is all over your threds how you show these situatons.
tess, pleas can you for me repete the next stage for how to see your level that the price can go to? Now we are at this 15970 coud you plese once again ramind me of how to put on your chart your level for to gage the next action.
Ok, I’m assuming you’re asking me how I would now begin preparing the next upper & lower zones of potential reaction?
Sure, no problem.
It’s highlighted all through the threads, but it doesn’t do any harm to recap every now & then.
Remember, they’re only guides to assist in spotlighting & focusing potential reaction zones.
Use your additional price aids (such as prior days high/low + prior weeks high/low…avg day range numbers….continuation/reversal set ups & triggers) to help determine higher probability opportunities in tandem with the dominant bias, market psychology & current price influences & drivers.
I’d bring up a Daily chart to give me a heads up to the next likely upside reaction zones. I’m only looking for the next couple levels.
Don’t overcomplicate the exercise, you don’t need to fill your charts with tons of lines or information.
You can quite clearly see the support/resistance flip at 1.6050-70 that resulted in a steady move away from that zone, so that would rank as my first likely contender.
The second zone would be the next level up at 1.6240-70.
For the downside potential reaction zones I’d pull up an hourly chart & look for the swing lows on the way up where traders stepped in with continuation orders & grabbed stops from those attempting to short tops.
They would flag up levels where trailing stops would be mixed in with fresh bid activity.
Below those swing lows, sell stop interest would also begin building to take advantage of any lack of absorption from renewed long bets.
They’re clearly visible from an hourly perspective.
Hi Tess, is there any possible ways for traders who trade from daily timeframe to position themselves into the directional bias before the masses? Currently, I can only trade from a daily timeframe due to my day job. From what I see, only ppl trading from hourly or microtimeframes can position themselves in to the directional bias before the masses.
that is exactly what I was asked you for yes. Great fro me to see this live as you are following from your chart at the mornings post.
Thes posts of yours like this is wonderful for me to understan what you mean about the levels. thank you again for your time to help me I know you are busy persons. i am happy about you and joc welcome me on this thred to learn and sorry for my bad english in asking for you and you sisters help :o
You can still get the same info from your daily via the wicks moving up & down into the prior days or weeks high/low & accompanying supply & demand zones, + you’ll still get a read on the bias via the closing & structure of the daily bar when you’re assessing it at end of day.
The only thing you’re not going to see is the inside structure of the daily bars as they play out back & forth thru the levels.
How do you currently operate when assessing trade entry, management & exit potential?
Don’t worry about it hawkmoon.
You’re coming across loud & clear!
Your English is fine, don’t let it stop you from contributing to the thread or asking questions. I’m glad you’re finding the material helpful.
