After day trading stocks for years I recently decided to place my focus on currency trading. After revering strategy after strategy that implies that theirs is the best I’ve rounded it down to a few requirements.
Simple is better.
While EMAs/SMAs are great indicators, traders should not rely on those only.
Trends are important
I would like an almost definite entry price and exit price
I could find strategies that had most of these features but after reviewing strategy after strategy not really just gave me the “[U]thats the one[/U]” feeling.
Then I came across the Finger trap strategy. I’m not going to go into details about the strategy because you can google that. What i like about it is it uses pretty much higher lows and a set stop loss.
Here is the tricky part. If I set the risk/reward ratio to 1:1 I generally profit but however there are a few times I get stopped out before the profit is hit. If i set the ratio to 2:1 which every trader should do then I get stopped out half the time and profit the other half. Which is great and all but I hate missing out on profit when I’m at 1:1. Its also easier to make money at 1:1.
[B]My Money Management strategy.
[/B]
Ok. This is an idea I’ve been toying with lately.
Say you get an entry signal on the Finger Trap strategy and your risk reward is 1:1 and you profit or loss is $50. It works and you profit $50 and later you get another signal and profit $50 again. Up $100. That aside you enter another trade and you lose $50. Here is the part where it may seem tricky and very risky. I’m sure you’ve all heard of it and at least some of you have done this. Double Down. Now that gets very very expensive and risky. Instead of doubling down since this is such a good strategy why not take $50 from the previous trade and add 50% onto it. So you’re next signal you enter $75. If you profit you break even from the last trade and are up $25. However if you enter and lose the $75 then you’re down a total of $125. My idea is to take the first loss ($50) and add it to the 2nd ($75) and use the combined total $125 and enter it for the next trade. So if you win that trade you will break even from those losses and if you lose that trade you will be down $250. If you are down 3 trades in a row the JUST STOP for the day and start over again tomorrow. If you do break even then continue trading 1:1 ratio with original $50 profit/loss.
I really like the finger trap strategy and have won way more then lost especially if you follow the rules exactly. While it may be rare to lose 3 in a row it can happen as you all know. Since if I lose 3 in a row I’m out $250 my goal for the day is $500 using $50 wins. Which is a 2:1 ratio.
You can use this for smaller/larger wins. Say your profit/loss is $10 then if you lose one trade make the next trade $15 and the third $25 and if you lose that then stop for the day.
I want your opinons on 2 things please. Your thought on the Finger Trap Strategy and my Money Management Strategy
Lots of traders use this strategy on all the different time periods methods and applications. Personally as far as trading methods go, I like this type of strategy especially when you’re new because it is very simple. No matter what or how many moving averages you use, when they go from high to low, you’re going short. In reverse low to high, you go long. Don’t trade unless you find high to low, or low to high. I would only add a couple of things.
He talked about scalping on the shorter time frames then said to make sure you’re going along with the overall long term trend. If you want to trade on the shorter time frames but wait until the direction of the shorter time frames is going in the same direction long term, 2 things will happen. First you will miss a lot of good trades and you will get stopped out a lot more. For example if you are using his time periods methods and applications, on the hour time frame, then be more concerned about the direction of the 15 and 30 time frames not the 4 hour or daily. The other thing that I found is don’t enter or exit at the cross; enter after the first cross and exit before the next cross. The more you practice this the easier it comes.
With regard to your money management, your goal should be to protect your account balance first and always while at the the same time grow it. It doesn’t matter if you break it down by trade or balance but I found balance to be better. For example say your balance at the beginning of the trading week is 100, 1000 or one million dollars (it makes no difference) At the end of your first trading session you increase your balance by 2% or you make 3 times your starting trade, in your next trading session instead of increasing the amount you trade, if you’re using balance then keep the % the same as your account balance at the beginning of the week, if you’re using risk to reward on each trade do the same thing. Do that until the end of the trading week. Next week you start again protecting your new account balance the same way, you did in the previous week.
Risk is the most important part of forex trading, because risk (not reward) is the only thing you can measure for sure. Reward, and trading strategy are based on a balance of probabilities. After that it’s patience and discipline to follow your rules for the long term.
Anyway that’s only my opinion based on my experiences, hope it helps
Gp
gp00053, In my opinion using the Finger Trap works. I also agree that you do miss a lot of trades but not using the 15 min chart. Something else I’ve been looking at is regardless of the 8/34 EMAs on the hourly chart just focus on the current Hour candle stock. If its green (positive) then continue to the 5-minute chart. Look for the trend and once the ticker moves down below the 8 EMA then crosses back above the 8 EMA in continuation of the trend then go long with a 1:1 ratio using the money management strategy I mentioned earlier.
Because it makes absolutely no sense at all to allow the position-sizing for a trade to be determined by the previous trade’s result.
Either a strategy has an edge (net positive expectation) or it doesn’t.
If it [B]does[/B], then it doesn’t need any risky staking at all: you should just apply it to the market as often as is justified by its trading parameters and gradually increase its stakes as its bankroll grows.
If it [B]doesn’t[/B], then you can’t safely give it an edge by increasing the stakes after a loser: that’s eventually a certain route to the poor-house.
Further information: [I]Profitability and Systematic Trading[/I], by Michael Harris (Wiley, 2007).