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What would you do in this trade setup?
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What would you do in this trade setup?

  #1 (permalink)
Trading for Fun
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What would you do in this trade setup?

So I am fairly well on in my way to creating an extremely comfortable method for intraday trading in the forex markets.

I use constant range bars as the foundation of any setup as I find the reduction of noise in the price bars creates a very clean trend.

I normally look for mean reverting setups back to a previous pivot but lately I have been really excited by my odd willingness ) to check out the 'dark side' as I call it.

I'm not by nature a very good "trend trader" since I suffer from terrible 'recency bias'.

So I am entertaining the radical notion of trading without horizontal price levels. Just pure trend baby.

I present a setup to you here with a small problem. I invite you to give your feedback as to how to resolve this hiccup on the way to profitability.

Please try and focus on the highlighted blue box area of the trade setup. This is what I hope you'll do anyways.

If the first trade is taken as a long once it closes above the supertrend level stop band and the immediately preceding fractal level is considered the stop, what to do once price crosses back below without having any chance at profit? After all the cross back below the supertrend stop band is a new opposing signal (at least in this case I want to keep with that possibility).

So I see I have 2 clear choices here and I hope you can suggest some other ideas I had not considered yet.

1) I will reverse the trade and take 2 losses. As you can see the 3rd trade here is the real winner.

2) Do I ignore the opposing signal to go short since the intial stop was never reached? And assume this manor of honoring the original stop is a good way to avoid overtrading while keeping stops as reasonably tight as possible on this time frame.

I know there is no right answer. But perhaps there are traders who have considered this problem before and came up with a novel solution.

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  #3 (permalink)
Market Wizard
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peglegtrading View Post
...
Please try and focus on the highlighted blue box area of the trade setup. This is what I hope you'll do anyways.

If the first trade is taken as a long once it closes above the supertrend level stop band and the immediately preceding fractal level is considered the stop, what to do once price crosses back below without having any chance at profit? After all the cross back below the supertrend stop band is a new opposing signal (at least in this case I want to keep with that possibility).

So I see I have 2 clear choices here and I hope you can suggest some other ideas I had not considered yet.
....

don't be to quick to consider you have a signal 'once it closes above the supertrend level'. How about 'once it closes above the supertrend level' and a pull back/retest 'the immediately preceding fractal level' in order to have a valid signal. Of course in strong trend there is barely a pull back/retest of a prior fractal.

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  #4 (permalink)
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cory View Post
don't be to quick to consider you have a signal 'once it closes above the supertrend level'. How about 'once it closes above the supertrend level' and a pull back/retest 'the immediately preceding fractal level' in order to have a valid signal. Of course in strong trend there is barely a pull back/retest of a prior fractal.

ok got it, wait for a divergence. problem with waiting for a pattern is, as you say, you miss the screaming winners.

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  #5 (permalink)
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I would have placed a long on the 1st Fractal.

It is because there was a price action formation, in confluence with a pivot point, or a previous support/resistance as I can see from the chart at the left side.

Then, to confirm things a bit more, I would drawn out a fibonacci and see whether the Price action signal is bouncing from a fib retracement of that wave.

And perform the same, but fib is drawn on a higher TF's wave to see whether there are any confluencing Fibonacci retracements.

After all that is confirmed, I would have placed a buy order at the close of the bar(the 1st fractal)
I would then place me stop loss 10 pips below the low.
And I would have placed my tp at the 161.8 level fib extension of the fibonacci retracement(which was hit)

I would not have exited when the market reversed for awhile mainly because I had already placed my sl, and my tp and would have shut off my screen and went out to watch a movie or something, it pays to trade with discipline, you have already done your research, placing SL and TP, so why bother manually closing your trade? You need to understand that in order for the market to go up, it has to go down first.

With that in mind now, you would have let the trade run and would have succeeded. Remember to follow your trading plan.


Edit:
Btw, the chart actually just shows a price bouncing off from the 61.8 level, just to come back and hit the 50.0 level to bounce off again,
the reason it came back is probably because the price probably had hit a Fib extension level of a few waves before
, or it was a retracement of the downtrend(or retracement, in this chart), a lower TF's trend is a higher TF's retracement.

Another thing is that, from what I had mentioned above, the RR ratio would have been about 1: 10 or so
Since the SL was just below the low by 10 pips and the TP seems to be much much higher than the SL which is 196 pips
And yes, the 161.8 FE level was hit, and as we can see the price reversed after that.


Last edited by Nasdin94; October 15th, 2011 at 12:09 AM. Reason: Just adding more points
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  #6 (permalink)
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Nasdin94 View Post
I would have placed a long on the 1st Fractal.

It is because there was a price action formation, in confluence with a pivot point, or a previous support/resistance as I can see from the chart at the left side.

Then, to confirm things a bit more, I would drawn out a fibonacci and see whether the Price action signal is bouncing from a fib retracement of that wave.

And perform the same, but fib is drawn on a higher TF's wave to see whether there are any confluencing Fibonacci retracements.

After all that is confirmed, I would have placed a buy order at the close of the bar(the 1st fractal)
I would then place me stop loss 10 pips below the low.
And I would have placed my tp at the 161.8 level fib extension of the fibonacci retracement(which was hit)

I would not have exited when the market reversed for awhile mainly because I had already placed my sl, and my tp and would have shut off my screen and went out to watch a movie or something, it pays to trade with discipline, you have already done your research, placing SL and TP, so why bother manually closing your trade? You need to understand that in order for the market to go up, it has to go down first.

With that in mind now, you would have let the trade run and would have succeeded. Remember to follow your trading plan.


Edit:
Btw, the chart actually just shows a price bouncing off from the 61.8 level, just to come back and hit the 50.0 level to bounce off again,
the reason it came back is probably because the price probably had hit a Fib extension level of a few waves before
, or it was a retracement of the downtrend(or retracement, in this chart), a lower TF's trend is a higher TF's retracement.

Another thing is that, from what I had mentioned above, the RR ratio would have been about 1: 10 or so
Since the SL was just below the low by 10 pips and the TP seems to be much much higher than the SL which is 196 pips
And yes, the 161.8 FE level was hit, and as we can see the price reversed after that.


I like your style of trading for ease of entry and exit. You are suggesting that first fractal is tradeable because of the daily pivot? I have tended to trade with fixed exits in the past but I find that this actually works against long term profitability. Consider a series of small gains and then a series of larger losses. Trading with targets is how this happens I believe.

You got to have some runners or trailing stops in the market to outsize the losses imo. I realize it's the psychologically harder way to trade though. The stress of watching profits shrink with a trailing stop is pretty difficult.

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  #7 (permalink)
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peglegtrading View Post
I like your style of trading for ease of entry and exit. You are suggesting that first fractal is tradeable because of the daily pivot? I have tended to trade with fixed exits in the past but I find that this actually works against long term profitability. Consider a series of small gains and then a series of larger losses. Trading with targets is how this happens I believe.

You got to have some runners or trailing stops in the market to outsize the losses imo. I realize it's the psychologically harder way to trade though. The stress of watching profits shrink with a trailing stop is pretty difficult.

Hmm, I think you misunderstood me for a bit here.
I do not see the fractals for the entry I made.
I made an entry based on PRICE ACTION in confluence with a price pivot but not the daily pivot and also what seems to be a fibonacci retracement level. This price pivot is your normal S/R level. I identified it from the fact that price reacted to it as a level or resistance/support as seen on the left of the picture(historic data)

As for the fixed exits, this is no random fix exit, this is a fib extension exit.
If the price bounced off from the fib 61.8 level, it would most likely head to the 161.8 level before making a major retracement down or reversing down.
Here is a list.

- 38.2% Goes to at least the138%
- 50% Goes to at least the 161.8%
- 61.8% Goes to at least the 161.8%
- 78.6% Goes to at least the 0.0%
- 86% Goes to at least the 0.0%

After the price hits the 161.8 level it would make a major retracement till the 78.6 level, if it bounces off, it is headed for the 261.8 level. If it pierces through it is a downtrend.

Forex is not a guessing/gambling game, you don't guess your exits, you know when to exit, based on your entry.

As for the getting smaller profits rather than bigger losses. This trade actually has a Risk/Reward ratio of 1: 10 since the stop loss would be about 20 pips~ and the TP is at 196 pips.
In forex, we shouldnt measure our profits as in pips, we should measure our profits against our losses, which is the R/R ratio.
Who cares, if you make 20 pips per trade or 2000 pips per trade if you're also risking that same 20 or 2000 pips per trade each time. Then you'll just be at break even and won't profit no matter how much pips per trade you make. R/R is the name of the game.

As for the Trailing stop, I don't really use a "pip-ed" trailing stop. My trailing stop is actually a manual trailing stop which is set to the previous S/R level that the price pierces through, what this means is that, whenever the price meets a resistance, and finally breaks through it, I set my new stop loss below that previous S/R.

This method of trailing stop is actually quite effective because from the picture, the price did not take out our Trailing stop this way and continued moving upwards till it hits the FIb extension level.

Lastly, I also think its better to just make a single trade rather than multiple trades at a short time, its better to lose opportunities rather than risking your capital, no?

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