Good observation! I too am anticipating the shorting opportunities, and I’m waiting for the close of the current candles on the 4H and 6H time frames, to possibly provide me with an opportunity for both a DNA Method and a Macro Method trade respectively. I’ve been wanting to ride it down for quite some time. I am also looking at [B]EUR/GBP[/B] on the 4H time frame, as well as [B]GBP/USD[/B] on the 4H and 6H time frames, for further possible shorting opportunity.
Happy pipping!
My Macro Method Trade 2 on the [B]GBP/USD has finally been closed.[/B] I have updated the post with the chart, showing the stop-out of my final contract. The trade was closed overall for +103 pips.
Happy pipping!
Thanks for the detailed explanation Trizzle! While I agree that potential losses may be greater compared to just setting the PCI stoploss at the high/low of the extreme candle, I believe it helps to reduce the number of times when you get stopped out too early (which is a major problem I’m facing now).
Your use of an ‘ideal’ stop is intriguing. From your example, you are assuming that an entry is made on the next candle just as it opens, at the same level as the extreme candle’s close (100.50). Sometimes this doesn’t work and the entry price may be higher/lower than the previous close. [B]Just to clarify, am I right to say that when calculating your position size, the amount of risk is defined by the difference between the ‘ideal’ stoploss and the actual entry?
Also, why would you say its preferable to work with micro lots?
[/B]
Hey there [B]TimberWolfMk2[/B], let me try to address your queries in the best way I can.
While I agree that potential losses may be greater compared to just setting the PCI stoploss at the high/low of the extreme candle, I believe it helps to reduce the number of times when you get stopped out too early (which is a major problem I’m facing now)
My sentiments exactly. 
From your example, you are assuming that an entry is made on the next candle just as it opens, at the same level as the extreme candle’s close (100.50). Sometimes this doesn’t work and the entry price may be higher/lower than the previous close
The trade [B]must[/B] be entered at the high (if you are going [B]long[/B]) or the low (if you are going [B]short[/B]) of the extreme candle, since this is where the CBL is drawn. The close of the extreme candle, is [I]effectively irrelevant.[/I] At the close of a candle which looks to be extreme, we simply set up a Pending Order with our Entry at the high/low of the extreme candle, and our appropriate stop-loss, and wait to see if the Price Action will hit our Entry or not. If it does not and a new extreme candle is made, we cancel the initial Pending Order, and set a new one, using that new extreme candle. Thus entry may not be on the next candle, but provided that no new extreme candles are formed, it will be whenever the Price Action hits the high/low of our designated extreme candle. I hope I was able to explain this clearly - don’t hesitate if you would like re-clarification!
Just to clarify, am I right to say that when calculating your position size, the amount of risk is defined by the difference between the ‘ideal’ stoploss and the actual entry?
That is absolutely correct. The idea behind the ideal stop, is that we cannot determine beforehand where the candle which stops us out will close. The location of the ideal stop-loss therefore assumes a 50/50 chance that the trade may be stopped above it, or below it, which ultimately pans out for money management considerations.
Also, why would you say its preferable to work with micro lots?
In a nutshell, it basically provides you with greater precision and trade flexibility with regard to your position sizing. Micro-lots offer a greater degree of precision as compared to Standard lots, since they are two decimal places greater, and thus round-off errors are eliminated. For example, you may calculate that a position size should be 1.44 standard lots, which would be 1 standard lot when rounded down. We are obviously missing out on the extra 0.44 standard lots in doing this. However, by using micro lots, we are able to open a position of 144 micro-lots, which would be equivalent to 1.44 standard lots. For a more detailed explanation, see this post.
Happy pipping!
I remember Tymen mentioning that we also needed to wait for a signal entry candle that closes above/below the CBL and whose body is smaller than that of the extreme candle, before we enter. Not sure if my understanding is correct, but by setting the pending order just after the close of the extreme candle, the order may be triggered before the close of the entry signal candle and subsequent price action may retrace.
So if my understanding is correct, instead of the PCI stoploss which is set 1 candle length from the high/low of the extreme candle, you utilize an ‘ideal’ stoploss as a fixed stop, as well as a dynamic stop at any point should a subsequent candle close beyond the high/low of the extreme candle?
Thanks for the link explaining minilots! Halfway through it, it also dawned on me that trading 33 minilots will garner slightly greater profits compared to 3 standard lots, pip for pip.
I remember Tymen mentioning that we also needed to wait for a signal entry candle that closes above/below the CBL and whose body is smaller than that of the extreme candle, before we enter. Not sure if my understanding is correct, but by setting the pending order just after the close of the extreme candle, the order may be triggered before the close of the entry signal candle and subsequent price action may retrace.
Your understanding is correct, except for one drawback! These rules are a somewhat [I]outdated[/I] method of using the CBL! Previously we used to have entry rules like what you mentioned, but it was found that this would result in several missed opportunities, or would not maximize profit. Thus we enter as soon as a candle crosses our CBL line.
So if my understanding is correct, instead of the PCI stoploss which is set 1 candle length from the high/low of the extreme candle, you utilize an ‘ideal’ stoploss as a fixed stop, as well as a dynamic stop at any point should a subsequent candle close beyond the high/low of the extreme candle?
Almost correct!
[ul]
[li]Our PCI Stop-Loss, is used to protect us from those incidents where we have unexpected spikes in prices, such as news reports, where waiting for the close of the candle would present us with huge losses.
[/li][li]Our dynamic stop, takes precedence over of PCI Stop-Loss, and as you have stated correctly, should a candle close beyond the high/low of the extreme candle, the trade is closed.
[/li][li]Our “ideal stop” plays [I]no part[/I] in our trades, and is only used for Money Management purposes, to calculate our Position Sizing.
[/li][/ul]
Hope this clears things up for you!
Thanks for the link explaining minilots! Halfway through it, it also dawned on me that trading 33 minilots will garner slightly greater profits compared to 3 standard lots, pip for pip.
Yes, it is these finer points of Money Management that have recently dawned upon me, and I know they will assist me in maximizing profits!
Happy pipping!
Ah I had no idea the rules I was using were outdated, thanks for pointing that out!
One other question - say at the close of an extreme candle, we set a pending order which is then triggered by the price action of the next candle. What if that next candle proceeds to form a new extreme candle with higher highs/lower lows? Do we still stay in the trade that has already been entered?
PS: on a sidenote, the EURGBP H1 seems to have entered a squeeze.
Using the original DNA Method, where the Stop-Loss is the high/low of the candle, would result in the trade being stopped out as soon as a new extreme candle is formed. However, using the [I]dynamic stop-loss,[/I] we can allow new extreme candles to be formed, and stay in the trade, so long as they close above the low of the extreme candle, or below its high.
Regarding the EUR/GBP H1 trade - it is a textbook set-up :). Unfortunately, I would be unable to trade it because I do not trade time-frames lower than 4H, and it goes against the long term time frame given with the Daily Chart. I hope that you were able to grab some pips though!
DNA Method Trade 2
This is a trade that I entered last night, while scouring pairs for available set-ups. It is on the [B]GBP/USD,[/B] and the trade was executed using a CBL drawn from candle highlighted in red. The Price Action however proceeded to continue upwards, closing above the high of the my extreme candle, thus stopping the trade out. Overall, two contracts were closed for -39 pips.
Really appreciate you clearing my doubts Trizzle! Yes I managed to grab 35 pips off the EURGBP H1 chart, was following the BB walk when it retraced and hit my readjusted SL though.
Very pleasing to note that your analysis has netted you some positive pips!
Happy pipping!
Macro Method Trade 4
This is a trade on the GBP/USD, on which I placed a Pending Order last night before going to bed. A 2 Candle CBL was used, and the first profit target will be the Outer Bollinger Band, while the next one will be executed via the Fibonacci Method.
EDIT: The trade was stopped out to the pip - 79 pips per contract. I’ve always read about such ironic situations, but never thought it could happen to me! 
Happy pipping!
Macro Method Trade 5
My bias for EUR/JPY, is short, and so I also placed a Pending Order for the trade below. Unlike the above trade, I accidentally erred in making the CBL entry, and used one candle instead of two. The profit targets are the same.
While reading Graviton’s thread, he alluded to [B]good entries[/B] and [B]bad entries[/B]. The former can be identified by a trade which goes quickly into your favor, while the latter does the opposite. This type of trade fell into the latter category, as can be seen from the chart, and according to Graviton, such entries should be canceled. However, this is contrary to my Trading Plan, and thus it will be interesting to see which one will prevail.
EDIT:
After briefly recovering from the loss, and going into a small profit, the trade was indeed stopped out - 2 contracts for -98 pips each. Perhaps I can take a little lesson from Graviton’s thread. Gives me something to ponder on ;).
Happy pipping!
Macro Method Trade 6
The GBP/USD however presented yet another entry signal, which I took again, my confidence increased slightly, since it is nearing my trend-line.
It seems that the Macro Method of Trend Trading has a larger portion of draw-down than I initially anticipated! :eek: I am thus faced with a dilemma, as to whether or not I should include it in my Trade Plan, or stick to my regular DNA Method, which I am [B]psychologically more comfortable[/B] with, due to the smaller draw-downs it produces. Part of me wants to think that the draw-down will easily be alleviated when the market actually hits a good steady trend, but will the size of my account at that time, be sufficient enough to fully capitalize on that opportunity - since I only risk 2% of my capital per trade!
I have also come to the revelation that the DNA Method is a method of high positive expectancy. From my adventures in the realm of Poker, it is only prudent to play as many positive expectancy hands as possible. Thus my initial decision to only trade the DNA Method in the direction of the prevailing trend, would perhaps reduce my trade frequency of that method by approximately half, while not increasing [B]the already high Win:Loss ratio[/B] substantially enough to compensate. I will thus be amending my Trade Plan for the DNA Method, to include trades in the opposite direction of the main trend - it should not hurt the success rate significantly anyway, since these trades are rather short-term.
I am also looking at implementing a new method of setting Stops, which may increase my Risk:Reward ratio for the DNA Method further. I hope that I will be able to achieve this without compromising the Win:Loss ratio too much.
Happy pipping!
Hi xXTrizzleXx,
Many thanks for your open dialogue on trading Tymen’s methods. I am very new to Forex & am still amazed at how many traders are happy & eager to help others, even newbies with silly questions.
While I have read most of Tymen’s thread (I’m about 3 days behind) I am still learning how to implement his ideas. So I looked at your GBP/USD chart from yesterday for some time trying to determine if you were going long or short.
I eventually noticed the “sell” on the left hand side.:o May I suggest for us newbies that you maybe include which direction you are trading and also your entry & stop loss levels. That way I can study your entry & hopefully determine exactly how & why you took each trade.
I hope the trade does the ‘right thing’ for you! Thanks again for your time & effort. It really does make a difference!
madpipa
Thanks for your encouragement, madpipa! How silly of me to overlook such a simple aspect of the journal! :o I will be sure to include such helpful information in the future - you can count on it!
Happy pipping!
With this I come to the close of this phase of my development as a Trader. I have come to that inevitable point, when one realizes that it is not necessary to have several trading plans - just the one will do. I will be choosing the DNA Method over the Macro Method, as it is psychologically more compatible with my persona.
It will thus be necessary for me to close this thread. But do not worry, I will begin a clean slate, at my new thread here. Moderators can feel free to lock this thread.
Happy pipping to all!