Advice please..

[Jas82]

All,
Could anyone give me some advice on my current approach to Forex trading.
Over the last week or so I have amended the way I place my trades. Below is what I have been doing and wanted some input/thoughts.
Strategy/Process I use
Pairs I place trades on: eur/usd, gbp/usd & usd/chf. Why do I use these pairs? Well, the first two of these (when in strong trends) are good trends to trade from what I have seen so far. Plus as I am in the UK and I am better placed I think to get a steer of what is happening in the UK than say in Australia. Usd/chf will typically move in the opposite direction to eur/usd so generally can sense what will happen to this pair if there is a strong direction on eur/usd.
Previously I have been trading on 30 pip take profits but then was introduced to the concept of risk:reward ratios. I am a newbie to Forex. So I have introduced this to my strategy but on a 30 pip reward trading strategy, on 1:3 or even 1:2 this will not work very well (because the stop loss was being hit far too often). Instead over the last week or so I have started to trade 1:1 risk:reward ratios on 100 pip trades.
As I have limited time to assess/place my trades (I have about 30minutes or so) before going to work each morning I look for trends on 1hr/4hr/daily charts. In terms of what I have found generally these pairs tend to trade between a range before continuing on longer trends on these charts. Typically when I see this early morning I place pending trades (i.e. if eur/usd is at 1.32500 and has been range trading between say 1.32300 and 1.32600 overnight for instance) then the trade would be triggered at 1.32800 with a take profit of 1.32900 (stop loss of 1.32700). I only get to check this the following morning when I can log back into my account.
I also look at the following weeks fundamental releases over a weekend and try and assess what major releases would impact these pairs (more eur/usd & gbp/usd). Also based on this and a fairly basic technical assessment (RSI indicator, Bollinger bands and support/resistance on 4hr/daily charts) if I am unsure as to which way a pair will go (but I feel it will move during the day based on data releases and past performance and I don’t want to miss out!) then I would place trades either way (one sell stop and other buy stop again just outside of the current range using a 1:1 ratio). But I do not tend to do this very often.
I have used this approach on a live account for last week but with quite small trades (i.e.30p/50p trade) on £70 account. So would only ever have a loss or gain of £3 or so. When I am sure the trend is going to go one way it on occasions takes a few days to trigger a trade but I don’t mind this as I can be patient if it will happen.
The following is a summary of my pip return based on this approach over last couple of weeks.
200 pip take profit & 300 pip loss – total of 5 trades placed using this method
Questions I have are:
What are your thoughts on this type of approach? Does anyone with experience on these pairs feel it could work (i.e. have a higher pip take profit than stop loss)?
Can I improve this method in the time I have as currently I have lost more than gained? Is there anything that will help in assessing markets better (i.e. technically in charts)
Does anyone have more experience on these pairs that can help?
Is placing a trade both ways a good idea?
What should I change if I only had 30 minutes each day in the morning? Is there anything I can do to better judge when to place my pending trades as I have a feeling these are not quite right?
Any input on this would be very helpful and appreciated.
On my last couple of trades the stop loss has been hit very quickly (early this week) so have been a little unsure as to whether 100 pip ratio is sensible.

 

[Liquid validity]

OK first thing, I'm not going to tell you how to trade.
Thats for you to work out as its entirely personal.

Good starting points would be (buy) support & (sell) resistance,
current day open, high, low and previous day OHLC levels as well.
Big round numbers - always watch them carefully - 1.3600, 1.3400
0.0050 levels as well.

Pairs - firstly ditch EURCHF, reason, its almost 100% inversely correlated to
EURUSD and spreads are wider.
Also if you ever trade both at same time, you are effectively trading EURCHF:
EURUSD
USDCHF
USD is cancelled out.

Risk reward - generally I would say never less than 1:1 as you need to be
right more often than not for it to work.
If you do go for fixed RR, somewhere around 1:1.5-1:2.
Running winners will not give a fixed RR and is more flexible - trailing stops for example.
Another would be stop below support, with resistance further away from price than stop - exit at resistance level.

Thats just a few basic pointers, you have to work out what is best for you.

 

[timsk]

Hi Jas82,
Welcome to T2W. Also, well done on your introductory post - saying what you're doing and then asking specific questions relating to your approach is something of a rarity these days. So many new members just say they want to trade forex but don't know where to start!

That's the good news. The bad news is that I'm not going to attempt to answer all your questions for a number of reasons. Firstly, I don't trade forex and most of them relate specifically to this market. Secondly, I doubt anyone can give you the black and white definitive 'yes' or 'no' type answers that you're seeking. That's because there aren't any (well, very few anyway) in trading. Members can offer their views based on their experiences - but that doesn't necessarily mean you should follow in their footsteps. I realise this isn't too helpful - as you've come to T2W looking for direction and advice - so here are three things to consider . . .

1. Instruments
There is strong evidence to suggest that EUR/USD is a poor pair to trade for newbies to the Forex arena, not least because it's character isn't especially 'trendy' - compared to other pairs that is, e.g. AUD/JPY. Have a read of this thread as it will help you focus on which pairs to trade and why: Why do traders fail?

2. Methodology
I may be wrong but, reading between the lines, I sense there may be a few gaps in your knowledge - especially in terms of what you're trying to achieve. Essentially, most of your questions regarding methodology are ones you have to answer for yourself, based on your back and forward testing. For example, "Is placing a trade both ways a good idea?" is a good question. The answer will be to look at a statistical meaningful number of your trades (say 50 or more) and analyse what happened. I could say it's a great idea and you should do it because it works for me. Liquid validity might say tell you that it's proved disastrous for him and to avoid it like the plague. Your results are what count - based on your own trades which will tell you whether or not it's a good idea for you.

3. Risk reward & money management
You state that you've been "introduced to the concept of risk:reward ratios". This may or may not be a good thing, depending on what you've been told! First and foremost though, you need a solid grasp of success and profit ratios. Until you've done this, playing around with risk:reward ratios is putting the cart before the horse. To help get you up to speed on this essential topic, check out this Sticky: Essentials Of 'Risk & Money Management'

Hope all the above is of some help!
Tim.