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FOREX Targets, Stops and Entry technique, thoughts please.......


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Updated March 2nd 2011 by bnichols
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FOREX Targets, Stops and Entry technique, thoughts please.......

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  #1 (permalink)
Memphis,TN
 
 
Posts: 232 since Sep 2010

FOREX Targets, Stops and Entry technique, thoughts please.......

.ExternalClass .ecxhmmessage P{padding:0px;}.ExternalClass body.ecxhmmessage{font-size:10pt;font-family:Tahoma;}So I have been trying to determine a consistent formula/method for entering a trade, what my target(s) should be as well as what my stop(s) should be. I'm trying to come up with a proven method that works the majority of the time as to help narrow down the time it takes to look at and interput exactally where to ente, place targets and stops wnem entering a FOREX based trade. Reason being, say I'm trading between 4-6 Pairs at a given time, well that's alot to contend with at once and try to have seperate entries stops and targets. So here's my thinking........... onthe 4HR chart.....ENTRY TECHNIQUE........ Trading 1 Lot, then you just enter at the Market Trading 2 Lots, then you still enter 1 lot at the market , BUT, yo enter the second Lot at a FIBB level of ( 19.1 ) which is half of the strong 38.2 Fibb level. My thinking is, it's half one of the strong Fibb PB levels, and I want to try and make sure I get filled on my second Lot. But if I don't then so be it. Trading 3 Lots, then everything remains the same , EXCEPT, for this third Lot, are Limit order will be at a FIBB level of ( 30.9 ) which is half of the STRONG 68.2 PB Fbb level. TARGETS........ if only trading 1 Lot, then target is 10-20v Pips from what ever the ATR of the PAIR in which you are trading is. Trading 2 Lots, then the second Lots target is at the averag Max of that Pairs ATR Trading 3 Lots, then the third Lots target is at 1.5 - 2 x that pairs ATR. Keep in mind, that MAJOR support and Resistance levels will be where to tighten up or take profits if they occur before the Pairs ATR targets are Hit. STOPS.......... The initial Stop no matter how many Lots you are trading is 1 1/4 that Pairs ATR. If in a Long position, then the Stop on entry of that trade is initially the ATR + add 1/4 off the ATR to it. In this sense, hopefully if it does test it's max Range, it won't take you out if is just a normalPullback occurance. Anyways, this just came to my mind while reading earlier today, and all comments and suggestions on my thinking would be greatly appreciated. Thanks again - Mike

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  #2 (permalink)
Dartmouth NS
 
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I know the predicament and probably ought to mention there are alternate perspectives, including the one that works for me.

This might seem the view from 30,000 feet in light of the question but IMO trading becomes so personalized that one person's specific technical advice is not necessarily the best advice long term--may in fact hinder your development.

IMO you have to match your trading style to your personality & skill-set, and job 1 is to determine for sure what these are. For me, not being particularly gifted with trading skills or common sense, this was a process of elimination--trying everything and giving up on what didn't work soon enough to avoid bankruptcy.

Having spent a lot of money over the years to learn I'm a die-hard thrill-seeker and hence will always be a crummy to so-so discretionary trader (made a little but lost the equivalent of a university education in the learning process), and having switched from stocks to Forex and become strictly an auto-trader, my fortunes are starting to turn around.

Auto-trading takes all the emotion out of it, which is essential in my case. With this approach you can

- build a strategy that incorporates your favorite indicators (eventually personalized versions of these indicators); which is to say, built using indicators you'd rely on for discretionary trading, as well as personalized stop and target strategies based on what works for you rather than what's popular
- optimize on historical data
- confirm long term statistical performance **particularly draw-down** with live sim trading (preferably trading real time on your broker's paper account--in my case Interactive Brokers--to minimize dependencies & quirks of your trading platform's sim implementation--in my case NinjaTrader)
- then essentially fire and forget (i.e., trade live for a period of time watching but not touching).

Your job becomes not so much trading as monitoring the strategy, tuning it to remove those nasty losing trades and keeping it up to date (e.g., re-optimizing periodically on the latest data, incorporating new features).

This style of trading may work for me because while I've got decent math & computer programming skills I have what seems the emotional IQ of a 14 year old

I think the bottom line is we struggle at trading until we discover (and accept) who we are. Once that part (the expensive part) is over with, with determination to succeed one's trading style & knowledge should evolve more naturally, and profits accrue more predictably. As far as I know there are no short-cuts.

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  #3 (permalink)
California
 
 
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bnichols View Post
Auto-trading takes all the emotion out of it, which is essential in my case. With this approach you can

I ran a bot (a.k.a., EA) for ~a year; ended profitable (~45% ROI), but came away with some important lessons:

1) Never trust some else's code even if you dictate the design.
2) It's impossible, IMHO, to build a profitable EA without learning how to trade manually.
3) Writing and executing a profitable EA is much-much harder than manual trading.
4) Use a flow chart to map out the logic before writing one line of code.
5) Don't do timed back-test, i.e. the past 5 years or whatever. More important to test specific market conditions over and over like all variations of down trends, up trends, high/low chop... etc.

Yes, emotional control is paramount, but there is; sorry to say, no secret sauce of technicals that will make you money over the long haul. The market is simply too dynamic, and it would take thousands of lines of code to cover every eventuality.

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  #4 (permalink)
Dartmouth NS
 
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The market is simply too dynamic, and it would take thousands of lines of code to cover every eventuality.

Coincidentally my favorite Forex strategy is now pushing 3500 lines of code after a couple of recent mods and at the moment (live paper trading on the broker side to make sure I didn't break anything) performing as follows:

- maintaining 18% / month profitability on the leveraged investment (about 200% / month on the unleveraged amount)
- profit factor 4.2
- max drawdown -3.0 %
- percent profitable 60 %
- ratio avg Win / avg loss 2.7

It's based on a 4 hour bar so real time sim testing takes forever, but assuming nothing goes sideways should be ready to go live again the middle of next month.

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  #5 (permalink)
Near the BEuTiFULL Horse Shoe
 
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bnichols View Post
Coincidentally my favorite Forex strategy is now pushing 3500 lines of code after a couple of recent mods and at the moment (live paper trading on the broker side to make sure I didn't break anything) performing as follows:

- maintaining 18% / month profitability on the leveraged investment (about 200% / month on the unleveraged amount)
- profit factor 4.2
- max drawdown -3.0 %
- percent profitable 60 %
- ratio avg Win / avg loss 2.7

It's based on a 4 hour bar so real time sim testing takes forever, but assuming nothing goes sideways should be ready to go live again the middle of next month.

GOOD FOR YOU! Thaat is nice numbers ... I dont think I could handle a 4 hour bar LOL@me

Jon

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  #6 (permalink)
Dartmouth NS
 
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Trader.Jon View Post
GOOD FOR YOU! Thaat is nice numbers ... I dont think I could handle a 4 hour bar LOL@me

Jon

Have to admit being an impetuous sort it drives me nuts, but have learned the hard way to settle for profits instead of fun (and losses)....at least at this point in the learning process. The goal is to make money & have fun while lying on a beach somewhere

Considering what you said I'm live sim testing a 1 minute EUR:USD strategy on the broker side based on the 240 minute strategy in the dying hours of the market today. Indications are after a few tweaks it could be a heck of a lot more profitable than the 240 minute strategy if one could absorb the colossal drawdown (about 23%), but the proof is in the pudding. As an aside this is the Holy Grail--to take advantage of every dip and surge, increasing profits just as the coastline of Ireland approaches a limit with increasing fractal dimension.

The tweaks involved optimizing the quantities of 9 different types of orders. At the moment it's losing and still not exciting enough (in terms of order frequency), so time will have to tell. At this point not sure if its the strategy or the machinery or the time of day for the EUR:USD pair--Windows is in dire need of a reboot after a long hard day...already into the scotch. Will look at the logs in the AM--suspect there's a bug.

At the moment the 1 minute code is just over 4200 lines. When it starts earning its keep I'll prune it.

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Near the BEuTiFULL Horse Shoe
 
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bnichols View Post
Have to admit being an impetuous sort it drives me nuts, ... The goal is to make money & have fun while lying on a beach somewhere
...At the moment the 1 minute code is just over 4200 lines. When it starts earning its keep I'll prune it.

I'll stay off the beach and raise you a woodlands mountain peak where I can let off a few rounds without anyone complaining. Great stress relief after a day at the screen ... and keeps the wolves from getting too close.

Is that 4200 lines include comments and print/draw text lines as well ??

Jon

Writing to you from the wonderful province of Ontario, Canada. Home to the world's biggest natural negative ion generator, the Niagara Falls, and to those that dare to know how to go over it in a barrel. SALUTE!
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Dartmouth NS
 
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There are probably about 3500 active lines of code in the "beta" strategy, about 2600 in the working version (beta reworked for "better" order management)

It's basically a trend trader that tries to account for "ripples" in the trend in particular during trend reversals, ("ripples" being what I consider a nuisance but 1 & 5 minute bar traders make a living at ). As a consequence there are 9 individual order types (i.e., 9 different reasons to go long or short or exit part of a position or in its entirety , 4 instances of each order type in case we're in a panic & execution is taking a while) and that's what adds the lines of code.

That said, after a couple of weeks of testing it's pretty clear adding specific order management is not necessarily the way to go if one wants to profit from "ripples". Aside from adding to the complexity (hence development & maintenance cost of the code, hence subtracting from trading time) it appears any rules that may apply to longer term trading do not apply as the timeframe grows shorter (i.e. 1 minute or tick), although before I proclaim price action is not fractal and if I'm going to pursue this further (i.e., account for those annoying ripples) will probably upgrade the feed to DTN.IQ to rule out a feed issue (unless I'm missing something the IB data feed doesn't support cumulative delta; e.g., rendering GOMLadder attractive but essentially useless ), as well as upgrade from NT to MultiCharts for intrabar backtesting / optimization.

Edited to add: what I'm finding profitable during testing the 4 hour bar strategy is to manually trade the same instrument (in this case EUR.CAD to avoid the complication of not-in-play non-base currency amounts **) at 1 minute using the IB TWS interface (Book Trader and Chart Trader combo. While some don't like it I find TWS better than a poke in the eye with a sharp stick--at least it doesn't crash unpredictably and for Forex at least the play-by-play beats NT )

Every 4 hours the strategy interjects a trade, giving some idea what the longer term trend is. The guidance helps me plan manual short time frame trades--e.g., even in the short term don't go heavily north when the longer trend is south, or at least some idea whether support/resistance (MurreyMath daily, pivot recalculated hourly) is likely to hold-- which as Slack pointed out, I need to learn how to do if the strategy is going to handle the "ripples". In 24 hour markets the occasional surprise trade from NT also reminds one to look at the clock, take a shower, eat something, realize the dog has been scratching at the back door for the last 4 hours, etc.

Edited again to add: should mention the caveat with trading the same instrument simultaneously on the broker interface (manually) and on the trading platform (strategy), at least with TWS / NT, is that if the positions aren't synchronized at the moment the strategy executes OnBarUpdate the outcome can be "informative" to say the least--destabilizing to both the manual and strategy position in general and anywhere from wildly profitable to wildly costly in terms of the exercise.

** although IB makes it simple to flatten non-base currency positions manually by closing the non-base currency position from the Account window by right-clicking the position, choosing "Close Currency Position" and routing the auto-generated transaction to FXCONV rather than IDEALPRO. I mention this because it's not clear from IB documentation that the trade is not directed to FXCONV by default, and it took a while to figure out.


PS. Big 9 MM / .38 / AR fan myself, but as you know if you live in Ontario these are "restricted" if not prohibited and one has to belong to a club, have valid licences & authorizations to transport, and enjoy only at designated locations during specified hours, so that kind of excludes the mountains and woods (and beaches, come to think of it). In any event as usual even after all that legislation apparently the bad guys still didn't get the memo, which is also usually the signal to tighten the screws on the good guys.

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  #9 (permalink)
Italy - Roma
 
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bnichols View Post
...before I proclaim price action is not fractal...

At least in forex, price action is not fractal, for sure.

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Near the BEuTiFULL Horse Shoe
 
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I have almost enjoyed my visits to the east coast: actually remember spending a day in wolfville some years ago. I only say almost because my car got stolen the first time, and the next time the motor in the jeep blew up .


bnichols View Post
There are probably about 3500 active lines of code in the "beta" strategy, about 2600 in the working version (beta reworked for "better" order management)

** although IB makes it simple to flatten non-base currency positions manually by closing the non-base currency position from the Account window by right-clicking the position, choosing "Close Currency Position" and routing the auto-generated transaction to FXCONV rather than IDEALPRO. I mention this because it's not clear from IB documentation that the trade is not directed to FXCONV by default, and it took a

Does IB supply 'sampled' data for FX similar to their data for futures trading? This is the reason I never considered them as a data source for trades.


Quoting 
PS. Big 9 MM / .38 / AR fan myself, but as you know if you live in Ontario these are "restricted" if not prohibited and one has to belong to a club, have valid licences & authorizations to transport, and enjoy only at designated locations during specified hours, so that kind of excludes the mountains and woods (and beaches, come to think of it). In any event as usual even after all that legislation apparently the bad guys still didn't get the memo, which is also usually the signal to tighten the screws on the good guys.

I think the bad guys wrote the memo.

Jon

Writing to you from the wonderful province of Ontario, Canada. Home to the world's biggest natural negative ion generator, the Niagara Falls, and to those that dare to know how to go over it in a barrel. SALUTE!
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