Revisiting 'Price Action'

[Vaco]

I've read it twice and i'm still not sure, maybe you could clarify with another example or just tell me if i've got it right

if using a 4h and 1h chart 4h fails to break the previous low.

would you then

A. enter long on break of new high on 1h chart

or

B. enter long on break of new high once formed on 4h chart.

thanks

 

[pimplico]

Nunrguy, thank for this, I am finding it really useful as I am sure others are, especially as I am studying the Jankone thread and believe it is the right system/method for me.

However can I check I understand you. In the first graph, if we take a 'dumb' entry (on break of bottom of pin bar) we need to look at lower time frame to see momentum down and confirmation (what exactly would that look like?). But for a smart entry we can just stay on this time frame as we are waiting for the next candle to confirm reversal?

On the second graph, are you saying as the market came off, the highlighted levels are where our stop should be moved too?

Hope that makes sense. Thank for your time.

 

[nunrgguy]

That's because I've not got to that bit yet.

If we're considering trading based on a four hour TF wait until price makes a new low.

Where that low is located may well be where someone who trades from a daily or weekly perspective is already holding profit from.

Wait to see that the new 4 hour low really is a low. i.e. wait for at least another bar, preferably also observing some long momentum.

Some considerable money is going to have to stop the market stone dead, turn it around and move it in the other direction for four whole hours+

Now, at some point what do traders tend to do? They tend to move their stops to break even so that they feel safe. This occurs after they they have some profit on the table, i.e. price has moved 'enough' beyond their entry. So at that price we know there's likely to be a lot of sell orders in the market. For the market to continue going long, buyers will need someone to buy from and the nearest price known with lots of sellers is where?

If we are looking to enter a '4 hour trade' long where MIGHT price go to as a rough target? Buy orders sitting somewhere in the market would be needed for the short sellers? Where will they be? Where daily traders who were short moved their stops to b/e? Where weekly traders moved their stops?

We need someone to buy from to go long, and there are all the juicy sell orders at the place where break even stops will be. So, look for pullback to that general area. If 1hr chart for our entry is our preference, that is what we use. If price pulls back and seems to turn before reaching that area, it may be the pullback we are waiting for BUT it is a risker trade.

If price doesn't pull back to that first area, sometimes it does blow straight up (more momentum, the pull back will likely be to the next area that stops will have been moved up to, keep in mind all the time, "Where would I move my stop?" because that's where you are looking to enter.

Some traders will want some kind of bar confirmation from the smaller time perspective and therefore use stop orders to enter (I do this, amateur hour I know), others will target the price with limit orders as it's still coming down.

After entry we DO NOT MOVE OUR STOP, if we do, someone is likely to do exactly the same thing as us to us. We enter on the 1 hour? OK then traders who perhaps trade on 5 minute know exactly where we have entered, moved our stops to and look to capitalise on that.

At any point in time, for the market to move in any direction there has to be both buyers and sellers as well as an imbalance in buyers and sellers.

Where to place our stop is a personal thing but again I don't necc. recommend the usual practice of putting them a couple of pips below the low. How often does that low get spiked out one or two time periods later, again for the same reasons already mentioned? Maybe a volatilty based stop is a better idea?

BTW by no means am I saying that you can't bottom pick and trade a pin bar itself but know what went on INSIDE the pin bar because that is where the entry was from that time perspective.

You don't even need to know they why's and wherefores which is why I didn't start with them, it's enough to say, look for low on 4hr, see it go up a bit, look for pullback on 1 hr or less, see that go up a bit, go long. BUT knowing where price is likely to pull back to will help stop a few whipsaws that you will otherwise get.

 

[nunrgguy]

[Nunrguy, thank for this, I am finding it really useful as I am sure others are, especially as I am studying the Jankone thread and believe it is the right system/method for me.

However can I check I understand you. In the first graph, if we take a 'dumb' entry (on break of bottom of pin bar) we need to look at lower time frame to see momentum down and confirmation (what exactly would that look like?). But for a smart entry we can just stay on this time frame as we are waiting for the next candle to confirm reversal?

On the second graph, are you saying as the market came off, the highlighted levels are where our stop should be moved too?

Hope that makes sense. Thank for your time.]



Well hopefully what I'm now showing is that you don't move your stop. Where you place your stop is where you want to get stopped out yes? The only time you should really be moving your stop is if you think 'Ive made enough on this trade, don't think it will go much further but I'll put my stop here and see if we can eek a bit more out of it'....Greedy so and so
What makes you move your stop? Fear of losing your profit? Take your profit then.

Momentum is a subjective thing but consider inside a four hour pin bar signalling a short, does it contain 1 large 15 minute up bar followed by three small down 15 minute bars.
Does that look like downward momentum? It looks like a pin bar but it's fooling you.

 

[nunrgguy]

I used to move my stop to B/E for 'safety'. I had a lot of 1 and 2 pip trades for my time.

 

[Pi3141]

I move my stop loss to break even after it has moved 12pts in my favour and I usually get stopped out, only for the trade to shoot off in my direction *sigh*. However, I believe this is the best approach to take because its a risk free trade. By not moving my stop loss to breakeven, I run the risk of turning a winning trade into a losing trade, which is sooooo bad psychologically for me.

You mentioned before that you used to move your stop loss to breakeven, but now you dont. May I ask why? - had you found out that it was in fact more profitable not to move it?

Thanks

 

[Splitlink]

I move my stop loss to break even after it has moved 12pts in my favour and I usually get stopped out, only for the trade to shoot off in my direction *sigh*. However, I believe this is the best approach to take because its a risk free trade. By not moving my stop loss to breakeven, I run the risk of turning a winning trade into a losing trade, which is sooooo bad psychologically for me.

You mentioned before that you used to move your stop loss to breakeven, but now you dont. May I ask why? - had you found out that it was in fact more profitable not to move it?

Thanks

The psychological part of it depends on how many losers you have over a given time. If you have good wins, it becomes easier not to move your stops to B/E.

I get a "feeling", when the trade starts to retreat, whether the trade will turn out to be a loser and, quite often, decide to cut it. I consider that trade to be a loser, even though I managed to close while in profit, even at B/E. Sometimes, I wish I had not done that but, in general, I believe that the market tries to take out stops in both directions. That, really, is all that the retraction, pullback, area--call it what you will--- is.

Your job, if you are not a scalper, is to get your trade out of that area. IMO, the only way to do that is to cut trades as soon as they reverse. Whether you open in the reverse direction afterwards depends on what your view of the longer trend is but I try not to change my original view. If I am wrong, then I try to keep my losses small and better luck next session.

 

[mb325]

Pi, an option you could try is to close half your position once price has moved in your direction the same amount of pts as your stoploss, i.e. if stoploss is 12 points, close half at +12. This ensures a risk-free trade but gives price much more room to re-test your entry.

 

[nunrgguy]

I move my stop loss to break even after it has moved 12pts in my favour and I usually get stopped out, only for the trade to shoot off in my direction *sigh*. However, I believe this is the best approach to take because its a risk free trade. By not moving my stop loss to breakeven, I run the risk of turning a winning trade into a losing trade, which is sooooo bad psychologically for me.

You mentioned before that you used to move your stop loss to breakeven, but now you dont. May I ask why? - had you found out that it was in fact more profitable not to move it?

Thanks

Are you really sure you want to move your stop to b/e?

Thought 1, you do not have to enter after a bar has closed, repeat that, you do not have to enter after a bar has closed: this is in the realm of back testing, not live trading, of course you CAN trade this way. I've done it but it certainly isn't optimum, you greatly increase your risk by insisting on a bar closing for starters. You can back test trading that way and make it profitable, stop moving added but you need to realise that you're relying on luckily catching the occasional big run...but doing it live is different and there are smarter ways to trade.

More things to to think about:
You say it's psychologically difficult to see a win turn to a lose. How large a win? 10 pips?, 15 pips? Lots of punters feel the same way. Imagine someone with enough power to move the market knowing roughly where you entered, knowing roughly where you will start sh*tting your pants (when you have some profit) and that you will move your stop to b/e in order to feel safe. Where will they enter for less risk and more profit?

It's not a win until you close.

You had 15 pips on the table, got fearful, moved your stop to break even and the market rewarded your fear by taking away your profit. If you are fearful enough to ruin your trade in that way,take your profit. Why don't you take your profit? Fear AND greed, you are not satisfied with 15 pips and want more, you are also fearful of the market moving and missing out on a big run.

Are you sure your trade IS 'risk free'?. You risk your stop to enter. You then 'win' just enough to make you feel fearful of losing it. You then lose it. You then have to enter the market again, risking your stop to enter. Is this a free trade?

The more time you are in the market the greater your risk. There is always a time component involved.

How much more psychologically difficult is it to see trade after trade stop you out? And whoops, missed the entry on the one that turned into a runner.

Why does this keep happening?

Have you never analysed why?

Roughly how many pips are you targetting?
So far I've only shown 'trailing' logic to give you confidence to stay in a trade but what if the market actually generally moves to an area where it will be removing someone elses money from their pockets?
If we are in a long trade, at some point eariler someone else was in a short trade. The market generally moves in a way to ruin all participants. When all breakeven stops have been removed the market will tend to move to the next big level.

So if we think the market might give us 100 pips, we've risked 30, why are we cacking ourselves when the market has moved 10 pips in our favour and moving our stop?

Why is it that we are confident when we enter and fearful when we are in profit?
Where is the greatest risk? Why are we not confident when we are sitting with profit and fearful when not?

Why do traders enter the market, gain a small profit and then give it back. Likewise why do they enter the market having set their risk with their stop then when the trade doesn't work out sit there like rabbits in the headlights and wait for their stop to get hit, because they are giving the trade 'room to breathe', or it 'might come back'.
If the bar you enter on closes against you, you are wrong, get out. Either get out immediately or try to get out as close to b/e as you can get don't EVER take a full loss unless momentum blows straight past you and into your stop.

If your trade is in the red do not dare think about profit, think about minimising loss. If a trade is in the black do not think about loss, think about maximising profit.

 

[Chartsy]

gold H4 has a killer setup

 

[barjon]

Yes, you can think of it all rather differently.

Think of it that your bet is your stoploss size and not £x per point. So at £1pp and a 20 point stoploss your bet is £20. Let's say you see 60 points in the trade so that's odds of 3 to 1.

If it was a horse race with the bookie quoting FTSE Demon at 3 to 1 you might back it and you'd have to put the £20 up front. You'd then either not get it back or go down and collect your £60 winnings.

jon

 

[Pi3141]

Thanks for your response.

If I could just clarify a few things: I trade the Dow Jones & FTSE. Regarding my money management strategy - I use 3 lots on my trade. The stop loss is set at 20pts away. If the trade moves 12pts in my favour I will take one lot off the trade and move my stop to breakeven, leaving the remaining 2 lots to run. I feel that 12pts is a reasonable amount to let the trade 'breathe'.

I suppose all this boils down to is how risk-averse we all are. For me, I'd say Im fairly risk-averse, if the trade stops me out for b/e and continues to move in the opposite direction then I usually think *phew* at least I managed to get a few points. I think I will try MB325's idea though. This is perhaps the best compromise as it means not moving your stop loss (which is what you're suggesting) and at the same time ensuring a break even trade and minimising losses.

Could you just elaborate on the point you made about not ever taking a full loss (unless momentum pushes the price straight past your trade instantly)? Are you suggesting to use mental stops and hard stops then?

Thanks,

Pi

 

[nunrgguy]

Thanks for your response.

If I could just clarify a few things: I trade the Dow Jones & FTSE. Regarding my money management strategy - I use 3 lots on my trade. The stop loss is set at 20pts away. If the trade moves 12pts in my favour I will take one lot off the trade and move my stop to breakeven, leaving the remaining 2 lots to run. I feel that 12pts is a reasonable amount to let the trade 'breathe'.

I suppose all this boils down to is how risk-averse we all are. For me, I'd say Im fairly risk-averse, if the trade stops me out for b/e and continues to move in the opposite direction then I usually think *phew* at least I managed to get a few points. I think I will try MB325's idea though. This is perhaps the best compromise as it means not moving your stop loss (which is what you're suggesting) and at the same time ensuring a break even trade and minimising losses.

Could you just elaborate on the point you made about not ever taking a full loss (unless momentum pushes the price straight past your trade instantly)? Are you suggesting to use mental stops and hard stops then?

Thanks,

Pi

If you are taking partial profits why are you also physically moving your stop? You have already effectively moved your stop by taking partial profits so why kill the trade by giving it less 'room to breathe than you had if room to breather is your thing'? Are you being ruled by fear of losing unrealised profit? If you're going the partial liquidation route why don't you take more off the table than you already are and leave your stop where it is? If you move your stop that is where you are expecting to get stopped out.

I don't know how long you expect to hold a trade: 12pts is reasonable based on what fact?

Indices are not going to move quite the same as the Forex but...how often does your 'free trade' get stopped out?

What is a mental stop? A hard stop is nothing more than a level you use to hopefully set your risk.

By not taking a full loss I mean exactly that, unless price blows straight past your entry within 1 bar of the timescale you are trading I'm suggesting you should not allow your stop to get hit. If going long on the 4hour, the entry bar will be red at point of entry, also often pretty close to the average range: someone is going stop hunting, i.e. if it goes much lower we're well wrong. Within that bar we would be expecting stops to trigger and the bar to go back up. If it doesn't and closes against us it's likely we are dead wrong. Hopefully you can you see that by entering where we are, already by definition our stop is MUCH smaller than if we'd have just taken the break out of a previous closed bar.
So price has closed against us but we should also be observing how fast price is moving and in which direction when the bar closes.. Three choices, close immediately, try to get out at a better price or if price now seems to be moving the right way, wait but noting that if price starts down again, get out immediately.

 

[Splitlink]

Yes, risk aversion is what separates us.

Let me put my version. I'm thinking of Footsie now.

If I use 4 hour peaks for identifying entries but use a 3 min bar for the trigger, nunrgguys argument for not waiting for a bar finish would make sense for the 4H bar,but would it not be reasonable to use a bar finish on the 3M, which would involve a smaller SL?

There is something about entering when the price is rising, or the bar finishing, that is a bit hairy. The sky might be the limit, but I guess that is what separates the men from the boys. Changing to a lower TF from which to get some kind of pattern and reversal might be more palatable.

In any case, I am going to try this next week.

 

[DionysusToast]

If you are taking partial profits why are you also physically moving your stop? You have already effectively moved your stop by taking partial profits so why kill the trade by giving it less 'room to breathe than you had if room to breather is your thing'?

Absolutely :clap: :clap:

It took me a while to figure out the impact of scaling out on average price.

Until that point I was a huge fan of scaling in.

 

[Pi3141]

If you are taking partial profits why are you also physically moving your stop? You have already effectively moved your stop by taking partial profits so why kill the trade by giving it less 'room to breathe than you had if room to breather is your thing'? Are you being ruled by fear of losing unrealised profit? If you're going the partial liquidation route why don't you take more off the table than you already are and leave your stop where it is? If you move your stop that is where you are expecting to get stopped out.

It never really occurred to me that taking partial/half profits and leaving the stop loss in its original place would result in a breakeven trade if the original stop loss got it - I think I just never worked out the maths for it and so I was pleasantly surprised when I found this out today ^^, . I suppose I dont take more off the table due to the risk/reward ratios because if I take more off at +12pts but my stop is at -20pts then I would be continually risking more to achieve less in the long run. By leaving more on the table, then the reward would be greater if the trade was favourable.

Regarding the point about never letting a full stop loss to be hit. Am I right in suggesting that as soon as you enter a trade you are actively monitoring it, so that if the trade moves against you it is your aim to get out as best as possible to minimises losses. In other words you aren't a 'set it and forget it' kind of person? - This is another reason why I move my stop to breakeven. I know I've banked +12pts so I just leave it and it's rather reasurring feeling. Again this is my personality reflected in my trading style I guess.

On Monday I will try out what been suggested. Thanks for the advice, really appreciate it!! ^^,

Pi

 

[nunrgguy]

No problem
Don't get me wrong, I'll reiterate I'm by no means some kind of expert: I used to do exactly the same thing and was doing OK with it BUT mentally it was challenging esp on 4hr trades, watching them through the night (only every 4 hours) only for them to come back and stop out for b/e, or sitting through a drawdown waiting for it come back, sometimes it does and you win big time, others you lose an amount that is hard to handle: Reasonable win, couple of breakevens, loss, right back at where you were at the start of the week is very tough to handle. It wasn't until I thought 'what on earth is happening here' that things started to click a little bit more.

I WAS a set and forget kind of guy but not any more. While I don't advocate watching the market so closely that you are freaked out by every move I do believe that a certain level of focus IS required.If your trade is not in profit watch it like a hawk.

Only on Friday I entered a trade on the hourly with an idea where it would go before pulling back. Thinking it would take longer to get there than it actually did I left the screen, made breakfast etc etc etc - came back to the screen to see that it had indeed hit my point of interest, turned and retraced about 20 pips, as the next point of interest was below my entry I got out with a smaller profit and told myself off for being lax
Price did then go to that level before turning but no pats on the back for a duff trade.

 

[sneha123]

Hello guys,,,,,sneha hare,,,If I could just clarify a few things: I trade the Dow Jones & FTSE. Regarding my money management strategy - I use 3 lots on my trade. The stop loss is set at 20pts away. If the trade moves 12pts in my favour I will take one lot off the trade and move my stop to breakeven, leaving the remaining 2 lots to run. I feel that 12pts is a reasonable amount to let the trade 'breathe'...I suppose all this boils down to is how risk-averse we all are. For me, I'd say Im fairly risk-averse, if the trade stops me out for b/e and continues to move in the opposite direction then I usually think *phew* at least I managed to get a few points. I think I will try MB325's idea though........Thanks lot....

 

[nunrgguy]

Hello guys,,,,,sneha hare,,,If I could just clarify a few things: I trade the Dow Jones & FTSE. Regarding my money management strategy - I use 3 lots on my trade. The stop loss is set at 20pts away. If the trade moves 12pts in my favour I will take one lot off the trade and move my stop to breakeven, leaving the remaining 2 lots to run. I feel that 12pts is a reasonable amount to let the trade 'breathe'...I suppose all this boils down to is how risk-averse we all are. For me, I'd say Im fairly risk-averse, if the trade stops me out for b/e and continues to move in the opposite direction then I usually think *phew* at least I managed to get a few points. I think I will try MB325's idea though........Thanks lot....

Is there an echo in here?

 

[nunrgguy]

Of course I may have this completely wrong. All ANY of us do is trade our beliefs, right?
What helped to first realise this was looking at standard s/r then seeing when it comes back the next time,and the time after that etc and thinking, "so why doesn't it pull back quite as far as s/r, it never gets there and turns", "sometimes it blows straight through...why?" etc etc

Just to be clear 090 is a longer term area of interest where it may fall. Initially following this mornings PA looking for a pullback to 7785-7600ish