That’s sensible advice Andy.
Quite a few pairs are transitioning this week on the back of conflicting greek comments & as you say, upcoming statements from Bank officials. Stocks are flying around all over the place too & there’s no real hurry to jump into trades whenever the calendar is setting up for a busy week.
It always settles down again when the market begins to digest all the conflicting news & data.
Used green throughout, I will make clearer going forward (Green = entry, Red = stop loss or trailing stop)
I skipped all GBP and EUR pairs today, there where just to many high impact news on those two pairs:
Economic Calendar | FXStreet
I wouldn’t really consider the news if I was trading the D1-chart or something like that, but on M5 or even H1, so many high impact news may whipsaw you out of every trade. So I made me the rule, if there is an upcoming “very high impact” (3 exclamation marks on fxstreet calendar) or more than two high impact news at the same time (2 exclamation marks, like it was today with GBP), then I will skip the trade. If the news release is more than 4 hours ahead, I may set a pending order with the following rules:
Added to my little rule book, that seems very sensible especially after todays practice sessions.
With today’s sharp move higher in the majors (EURUSD, GBPUSD, AUDUSD and lower on USDCAD), we’ve entered one of the most challenging phases of a market, for me:
No Man’s Land.
No Man’s Land in this case is when price is below the 4hr SMA but above the 1hr SMA, like in GBPUSD. Or, like in EURUSD, when it broke above the 4hr SMA and is in the early stages of changing direction, where I’m still not sure if it’s too early to start taking longs.
Basically, by breaking above the 4hr SMA, the market indicates that it is in transition, with the following options:
In my experience, we cannot tell which of the three is the case, at this stage.
So the wait begins: waiting for the new trend to assert itself, OR waiting for the old one to continue.
At this stage, I don’t have a clear view of which way to trade the majors (EUR, GBP, AUD, CAD). So I’ll sit on the sidelines for the next few days. In any case, the next 3 days are full of news and I tend to reduce my trading - another golden nugget I got from Andy which has served me well.
As Andy says above, play it safe. You don’t have to trade every day. I believe things will be clearer about the future direction of the trend after Friday’s NFP, one way or the other.
How do you trade trend changes?
I agree with your approach in principle, especially for any news related to Central Banks.
Unfortunately, some of the better moves are during news, especially in the direction of the trend. For example, during the recent bearish trend, a lot of the news coming out of the US were US-dollar positive and fueled the move down.
Furthermore, you will find that market makers tend to move price opposite to the final direction - if the news are expected to move GBPUSD short, price will move upward in the couple of hours before the news. This allows them to create liquidity by hitting stops, and thus positioning in the market for the directional move. In this case, your stops might get hit prematurely.
I agree with staying out on 3 !!! news (fxstreet calendar). But 2 !! and below, especially if not related to Central Bank news, I might just ride them if I think they will be supportive of the current trend.
It’s more of an art than science.
You obviously don’t with the 3 duck strategy so instead just trade one of the many other pairs where the ducks are in line like EURJPY, EURNZD and GBPJPY etc
Fxsnowball is on the money. Sometimes the best money making strategy is to rather wait for confirmation, this keeps the money in your bank as apposed to someone elses. The temptation is to always want to be in a trade. My limited experience is to wait for proper confirmation, rather bank the “middle” pips and nto always risk trying to be the hero at the top or bottom of market turns. That said in all setups use a little common sense. If the price is right in a major support or resistance zone, rather wait for a few extra confirmation candles. May it rain pips on all ducks today!
I often find cross pairs challenging to trade, with lots of back and forth spikes / momentum bars against me, when the majors are going through a consolidation or change of trend.
But you are right, they are an alternative option.
Sterling is back on the bearish track following today’s news - if it holds, early next week should be interesting. Want to see close below 1hr SMA and a pullback, first.
I’m trying to do some back testing on the 3 ducks, however I’m struggling abit setting appropriate stop loss and take profit. Can anybody suggest a mathematical approach to the best place to set stop loss and take profit?
Good luck attempting to back test what is essentially a discretionary approach in which risk & profit management will always be different for each individual.
Can you explain that please?
There are no hard and fast rules on exactly where to enter/leave a trade, how many pips to target, what risk/reward to target etc, its up to each trader to work within his own comfort zone.
You could look at 100 Duck hunters records and see 100 different results
Surely that is the point of backtesting, to find a set of variables that you are comfortable with. I’m a techie by trade so I like numbers, I don’t like to go by look\feel and gut. Once I get some numbers\formula, something quantifiable I can test it, at the moment I can test the 3 ducks, and it is a good way to slowly lose money, however I will be the first to admit, that my testing is not really realistic, I need a better way find entry and exit point, rather than just when all the SMAs are in the right position. That’s the trigger I now need to find a way to calculate an entry, a target, and a stop loss.
Im not a techie, so apologies if this is not feasible.
Could you not run several simultaneous backtests, each with different parameters? I.E., enter short trade when price is minimum X% below sma on all 3 timeframes, close trade after Y pips movement or after Z minutes (whichever comes first), with X, Y, Z different on each test? Something along those lines?
Are you trying to make an automated backtesting? Because I think that won’t work.
Thanks Eddie, there are some good ideas there, I’ll try some of those see how they pan out, at the moment I’m take stop loss and take profit as percentage of position held, which really equates to pretty much the same as a set amount, but it is easier to judge risk as a percent of funds etc. I like the x% below the SMA I’ll give that a try, not sure about the Z minutes to me if position is more important than time, but again it is something to investigate.
If there are rules to stick to, why won’t it work when done automatically? Surely that means the rules are wrong.
Surely that means the rules are wrong.
Yes, that’s the only possible reason…
Or maybe because the rules won’t apply the every single market condition. There are times where it is better to stay out of the market, for example massive news announcements, heavy consolidation, well respected support or resistance near your potential entry point and so on. You won’t be able to catch all of these conditions in a strict ruleset to handle that thing automatically. These are things you have to see and then you have to decide if you want to take the risk or not. An automated approach will ride you through all of these conditions an all of the whipsaws coming with that.
I have to disagree, how do you decided when to stay out the market? You have rules, you might not call them rules, but in your mind, you’re thinking the news from the US later today could be risky, or I don’t like the shape of the graph, or it’s friday afternoon, etc. all these are rules, if it’s a rule that you can describe in appropiate terms, I can probably program it eventually, it won’t be easy, if it was everyone would already be doing it, but if you can define a rule in specific terms and not just “It doesn’t feel right”, then it can be programmed.
I can identify news events (currently the ones on the forex calendar) and part of backtesting should identify which ones to stay out of, or which can safely be ridden. The other two I haven’t crossed yet, but I’m working on, the point is if your rules don’t cover a situation, your rules are not sufficient. That’s not to say that we can cover everything in the future, but if my rules say “Keep the money in the bank when XYZ is true” I have more chance of still having my money at the end of it, on the other hand I also have less chance of a profit those days. That is what back testing should be all about, not only tuning the strategy, but also deciding when to forget the strategy and go home. Several people on here have already stated that this week, is to busy with news events etc. So they’ll be keeping out of the market. That’s fine, that’s not a failed strategy, that’s a strategy tailored to their personal risk level.
