Seeking consistency

This is a discussion on Seeking consistency within the Trading Journals forums, part of the Reception category; Both my daily and 4 hour time frame are indicating short at the moment (moving averages) Price for this pair ...

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Old Jul 11, 2012, 7:57am   #425
Joined Dec 2009
GBP AUD potential to short

Leia started this thread Both my daily and 4 hour time frame are indicating short at the moment (moving averages)
Price for this pair has retraced into the 50/61.8% fib level of the previous 4H down leg

Whilst there is no obvious trigger, there have been three unsuccessful attempts to get above 1.52 54 this week, which acted as daily support in April and may now act as resistance

I have placed an order short at 1.52 20 with a stop above this apparent resistance at 1.52 60 (40 pips risk) and a target of 1.50 00 as this provided strong support at the end of 2011 (220 pips reward) R=3.6

As this trade is with the dominant trend on both of my time-frames, I am happy with the lack of a clear 'set up trigger' candle to trade off and the ambitious target
Attached Thumbnails
gbp-aud-d-chart.gif   gbp-aud-4h-chart.gif  
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Old Jul 11, 2012, 8:16am   #426
D70
Joined Nov 2009
Re: Seeking consistency

You cover a lot of pairs?

GBPAUD has a very big spread. Do you think you're return over 1000 trades is enough to "beat" the spread you're incurring?
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Old Jul 11, 2012, 9:21am   #427
Joined Dec 2009
Re: Seeking consistency

Leia started this thread
Quote:
Originally Posted by D70 View Post
You cover a lot of pairs?

GBP AUD has a very big spread. Do you think you're return over 1000 trades is enough to "beat" the spread you're incurring?
Hello D70

Thank you for your post

I look at what I consider to be the seven 'major' currencies pairs (thats is USD vs.: EUR, JPY, GBP, CAD, CHF, AUD, NZD) and all of the combinations thereof.
I also look at (but very rarely trade) SnP, DJ, FTSE, DAX, Gold, Silver & Oil

I can easily review all of these on a weekly basis and filter out those which I think are worth looking at more frequently on each day (and some times after the close of each 4 hourly candle bar if the price has reach a level, which I have marked and alarmed as a good area for a trade entry) to identify if a 'trigger' candle (usually I like to use 'hammer' and 'shooting star' or 'pin bar' candle bar formations as 'triggers' to set my trade orders as they provide clear entry and stop levels (which are vitally important, to know that I'll be out of a trade if the set up I have decided to use is proven to be invalid).

With reference to the spread, on my platform the spread is 6 pips, which I am comfortable with.

My strategy is to 'broadly' identify set up 'triggers' with 50 or less pips risk and a realistic potential reward of at least 100 pips

If we assume every trade set up provided either -50 or +100 and 50% win ratio, then I would have lost
500trades X -50pips
and won
500 trades X 100+pips
which would have cost me 500 X 6 pips 'spread'

500 X -50 = -25,000pips
500 X +100 = 50,000pips
'profit' = 25,000 pips
'cost' = 6,000 pips (spread of 6 pips for 1,000 trades)
'result' = 19,000 pips
cost = 24% of total won

24% of total profit is significant I agree, especially compared to other pairs, but
If some of the winning trades ran to more than R2, the 'cost' in percentage terms would be lower
If the win ratio was higher than 50%, the 'cost' would be lower

If my 'set up' shows up more frequently on pairs / indices / commodities that have lower spreads than my average 'cost' of trading, over a sample 1,000 trades would be lower

Finally, if I only traded this pair and made the example risk reward and win ratio used above I would be very happy, despite the 'large' spread:
If we assume a risk of 50pips @£1 per pip represents 2% of my starting capital, then the capital 'investment' is £2,500
A 19,000 pip return (ie after the 6 pips per trade 'cost) is £1 per pip £19k, or 760%
Clearly that s a phenomenal return, but there is no way my strategy would offer 1,000 trade opportunities in one year.

To make the numbers easier, if I took 2 trades a week for 50 weeks of the year (more realistic) I would have exactly 10% of the 1,000 trades scenario.
Assuming I only took the GBP AUD pair (or others with the 6 pips spread) then I would make a net (after spread) profit of £1,900 on my £2,500 capital (assuming no compounding during the course of the year, such as increasing £/pip each month to remain the 3% of capital risk), which is an annual return of 76%. I still find that phenomenal for an "after all costs and charges, before tax" return (and if you spread bet in the UK, there is no tax due!)

So, yes I agree with you that this pair have a large spread, but not prohibitively so, given my hypothetical example described here. Does that make sense?

Last edited by Leia; Jul 11, 2012 at 10:50am. Reason: additional thought re annual return (blue font)
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Old Jul 11, 2012, 10:51am   #428
D70
Joined Nov 2009
Re: Seeking consistency

Quote:
Originally Posted by Leia View Post
Hello D70

Thank you for your post

I look at what I consider to be the seven 'major' currencies pairs (thats is USD vs.: EUR, JPY, GBP, CAD, CHF, AUD, NZD) and all of the combinations thereof.
I also look at (but very rarely trade) SnP, DJ, FTSE, DAX, Gold, Silver & Oil

I can easily review all of these on a weekly basis and filter out those which I think are worth looking at more frequently on each day (and some times after the close of each 4 hourly candle bar if the price has reach a level, which I have marked and alarmed as a good area for a trade entry) to identify if a 'trigger' candle (usually I like to use 'hammer' and 'shooting star' or 'pin bar' candle bar formations as 'triggers' to set my trade orders as they provide clear entry and stop levels (which are vitally important, to know that I'll be out of a trade if the set up I have decided to use is proven to be invalid).

With reference to the spread, on my platform the spread is 6 pips, which I am comfortable with.

My strategy is to 'broadly' identify set up 'triggers' with 50 or less pips risk and a realistic potential reward of at least 100 pips

If we assume every trade set up provided either -50 or +100 and 50% win ratio, then I would have lost
500trades X -50pips
and won
500 trades X 100+pips
which would have cost me 500 X 6 pips 'spread'

500 X -50 = -25,000pips
500 X +100 = 50,000pips
'profit' = 25,000 pips
'cost' = 6,000 pips (spread of 6 pips for 1,000 trades)
'result' = 19,000 pips
cost = 24% of total won

24% of total profit is significant I agree, especially compared to other pairs, but
If some of the winning trades ran to more than R2, the 'cost' in percentage terms would be lower
If the win ratio was higher than 50%, the 'cost' would be lower

If my 'set up' shows up more frequently on pairs / indices / commodities that have lower spreads than my average 'cost' of trading, over a sample 1,000 trades would be lower

Finally, if I only traded this pair and made the example risk reward and win ratio used above I would be very happy, despite the 'large' spread:
If we assume a risk of 50pips @£1 per pip represents 2% of my starting capital, then the capital 'investment' is £2,500
A 19,000 pip return (ie after the 6 pips per trade 'cost) is £1 per pip £19k, or 760%
Clearly that s a phenomenal return, but there is no way my strategy would offer 1,000 trade opportunities in one year.

To make the numbers easier, if I took 2 trades a week for 50 weeks of the year (more realistic) I would have exactly 10% of the 1,000 trades scenario.
Assuming I only took the GBP AUD pair (or others with the 6 pips spread) then I would make a net (after spread) profit of £1,900 on my £2,500 capital (assuming no compounding during the course of the year, such as increasing £/pip each month to remain the 3% of capital risk), which is an annual return of 76%. I still find that phenomenal for an "after all costs and charges, before tax" return (and if you spread bet in the UK, there is no tax due!)

So, yes I agree with you that this pair have a large spread, but not prohibitively so, given my hypothetical example described here. Does that make sense?
I'm just happy to hear that you've considered it in some detail. Most people dont include spread in their thoughts. It can be the difference between 'make or break'.
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Old Jul 11, 2012, 5:34pm   #429
Joined Dec 2009
Re: GBP AUD potential to short

Leia started this thread
Quote:
Originally Posted by Leia View Post
I have placed an order short at 1.52 20 with a stop above this apparent resistance at 1.52 60 (40 pips risk) and a target of 1.50 00 as this provided strong support at the end of 2011 (220 pips reward) R=3.6
Order removed as price has moved through 1. 51 40 (over 2 times my risk from my entry). In other words, I was too late in spotting this one
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Old Jul 12, 2012, 2:43pm   #430
Joined Dec 2009
GBP NZD potential short opportunity

Leia started this thread My daily trend is down and although the 4H chart has recently 'crossed' long, I have placed a short order at this level due to the combination of previous daily support and resistance and a very clear 4H trigger candle, of a 'shooting star' type formation

I have placed an order approximately 50% back into the trigger candle at
1.96 10 with a stop at 1.96 60 (-50pips risk) and a profit target of the previous weekly swing low @ 1.91 70 (+440) R8, if seen
Attached Thumbnails
gbp-nzd-d-set-up.gif   gbp-nzd-4h-trigger.gif  

Last edited by Leia; Jul 12, 2012 at 2:46pm. Reason: forgot to add charts
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Old Jul 12, 2012, 3:08pm   #431
 
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Joined Nov 2010
Re: Seeking consistency

Hi leia,
Nice simple method, not too dissimilar to a positional strategy I used to trade off just the daily.
Have you checked to see if some of the pairs trend more/longer than other pairs?
Similarly some analysis on setups - do some pairs who trend same amounts offer different number of setups?
Thks
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Old Jul 13, 2012, 6:15am   #432
Joined Dec 2009
Re: GBP NZD potential short opportunity

Leia started this thread
Quote:
Originally Posted by Leia View Post
I have placed an order approximately 50% back into the trigger candle at
1.96 10 with a stop at 1.96 60 (-50pips risk) and a profit target of the previous weekly swing low @ 1.91 70 (+440) R8, if seen
This trade has opened and moved to R1 @ 1.96 10, I have moved my stop to breakeven

I now see that this level (1.96 10) has formed a good high on the 4 hour chart to trail my stop to and that price has achieved R2 (+100pips @ 1.95 10)
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gbp-nzd-4h-trailing-stop.gif  
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