Forming a definable S/R strategy

[Zulu89]

Hi,

I'm writing this journal to document and obtain feedback on the way i im planning to trade and on the trades i take. I think the best way of learning is to try something for yourself and ask for advice if you get stuck. So thats what im doing and i welcome all forms of criticism.

I've been reading and soaking up everything i can about the the currency markets for the past two months now and i finally feel im ready to start trading from a small account. My strategy will revolve around S/R areas, at the moment it is quite a broad strategy but im hoping to tighten it up in due course. I wont be using any indicators on my chart at this point, not for any particular reason, mostly because i dont know how to use them and secondly because support and resistance levels seemed to make the most intuitive sense. I often think if i had to explain why i took a trade to someone who knows nothing about trading they'll probably grasp it quicker if i talked about price.

OK down to business.

I'll be following 7 pairs (this will probably change), gbp/usd ,gbp/jpy, eur/usd, eur/jpy, usd/chf, aud/usd & cad/jpy.

Being a university student my schedule is such that i cant sit and watch the markets so ill be taking all my trades off the 4hr time frame chart.

Depending on the fundamentals at the time i will decide what direction i want to be on.

Ill wait for price to break through and retest a level before entering or if price is vibrating in a tight range ill place an order in the direction of the trend and my stop will be placed above the range area. Thats it really !

An example of what im talking about is attached bellow.

These kind of trades seem to work out quite often , but the trick for me is to try and trade them live because as they say hindsight is 20/20.

I would prefer a tighter stop in such cases but Im not sure as to what significance i should put on individual candle prints. Any suggestions would be helpful

Ill be risking 2% per trade and taking half of at 1R and so i can let the other half run.

I'm kinda against the idea of using a demo platform to gain live exposure as there's no real fear of losing. I've deposited $100 with oanda as they allow me to control my risk up to the cent.

Look forward to hearing any comments.

 

[timsk]

Hi Zulu,
Welcome to T2W!
It sounds like you've got your head screwed on straight with a simple plan in place. (Simple is good - so that's a compliment and not a criticism, btw!) Unless you pose specific questions, you may find you don't get a lot a feedback. That said, peeps will want to know what your studying at Uni? Attaching charts showing entries, stops and exits is always helpful and, even if you don't have a particular query or concern, others may comment on your decisions and say what they would have done differently. A good start - enjoy your journey!
Tim.

 

[UKtradergirl]

Hi,

I'm writing this journal to document and obtain feedback on the way i im planning to trade and on the trades i take. I think the best way of learning is to try something for yourself and ask for advice if you get stuck. So thats what im doing and i welcome all forms of criticism.

I've been reading and soaking up everything i can about the the currency markets for the past two months now and i finally feel im ready to start trading from a small account. My strategy will revolve around S/R areas, at the moment it is quite a broad strategy but im hoping to tighten it up in due course. I wont be using any indicators on my chart at this point, not for any particular reason, mostly because i dont know how to use them and secondly because support and resistance levels seemed to make the most intuitive sense. I often think if i had to explain why i took a trade to someone who knows nothing about trading they'll probably grasp it quicker if i talked about price.

OK down to business.

I'll be following 7 pairs (this will probably change), gbp/usd ,gbp/jpy, eur/usd, eur/jpy, usd/chf, aud/usd & cad/jpy.

Being a university student my schedule is such that i cant sit and watch the markets so ill be taking all my trades off the 4hr time frame chart.

Depending on the fundamentals at the time i will decide what direction i want to be on.

Ill wait for price to break through and retest a level before entering or if price is vibrating in a tight range ill place an order in the direction of the trend and my stop will be placed above the range area. Thats it really !

An example of what im talking about is attached bellow.

These kind of trades seem to work out quite often , but the trick for me is to try and trade them live because as they say hindsight is 20/20.

I would prefer a tighter stop in such cases but Im not sure as to what significance i should put on individual candle prints. Any suggestions would be helpful

Ill be risking 2% per trade and taking half of at 1R and so i can let the other half run.

I'm kinda against the idea of using a demo platform to gain live exposure as there's no real fear of losing. I've deposited $100 with oanda as they allow me to control my risk up to the cent.

Look forward to hearing any comments.

Hiya,

Nice to see someone here looking to trade in a realistic manner and you are definitely going about things in the right way. It sounds like you are quite disciplined and that is brilliant! I hope to see over time that you refine your strategy and improve. Keeping tight control over losses and managing your money is the best way to go and i see you are doing that- even if you have lots of losses in a row you will still be alive and ready to trade again.

Regarding the point you raise about stops. At the moment it is hard to place stops- due to the volatile nature of the markets at the moment a bigger stop becomes a necessity. Volatility can also produce big gains too- so it swings both ways. You should find that in the years to come when everything settles down again (hopefully) your 'outside the range' stop may not be so big after all. You can experiment with stops inside the range too-over time you will get more of a feel for where to place them.

Good luck and i look forward to reading more from you.

 

[Zulu89]

Theres two charts im taking an interest in at the moment, namely the usd/chf and the cad/jpy.

cad/jpy is in a vibration zone im looking to initiate a trade if any of these two scenarios occurs:
1. Price breaks through this zone and falls back to retest the break
2. Price falls back below this zone and tests lows of the 12th. I'll look to set an order at this level (76.00) with my stop above the most recent swing high ~300pip stop.

The usd/chf has printed a rejection candle at a level which it has reacted to before. As stated before im not yet so certain about the reliability of single candle prints so it'll be interesting to find out how this turns out.

Thanks for the comments guys. Keep 'em coming.

P.S Im a physics student :smart:

 

[nine]

Personally I'd suggest using a sim first.

Why? Because you have a discretionary method that you haven't forward tested ... and maybe not even really backtested.

Why? Because Brett Steenbarger points out that most psych issues traders have come about because they damage themselves early in their careers. Even a small amount of money increases damage when you are uncertain about what will happen - I suspect that the excitement of committing unreal money and your ego here will be enough for the first month or so.

Train yourself to trade slowly. Or be a gambler. Your choice.


PS. I have degrees in physics, engineering, and finance. And I recommend spending some time reading Trading in the Zone (Douglas) and Enhancing Trader Performance (Steenbarger) before you commit real money. Your physics and your intelligence give you some skills in designing strategies. Against you: your youth makes you impatient to try it because you don't yet know that trading is about two things - working on your strategies and working on yourself.

 

[rathcoole_exile]

It sounds like you've got your head screwed on straight with a simple plan in place. (Simple is good - so that's a compliment and not a criticism, btw!) Unless you pose specific questions, you may find you don't get a lot a feedback.

hi Zule, I echo Tim's comments above and I'm impressed at your methodical, cautious approach, it's a great start !

there is nothing wrong with your strategy, the only feedback i would dare venture is to perhaps study and implement Pivot Points - many times they will line up with your S&R anyway, but there may be times when PPs and your S&R diverge, which may serve as a red flag to urge a note of caution.

other than that, all I can say is "good luck"

r_e

 

[timsk]

cad/jpy is in a vibration zone im looking to initiate a trade if any of these two scenarios occurs:
1. Price breaks through this zone and falls back to retest the break
2. Price falls back below this zone and tests lows of the 12th. I'll look to set an order at this level (76.00) with my stop above the most recent swing high ~300pip stop.

Hi Zulu,
1. This is the most probable IMO, and also the better of the two trades should it occur. It will confirm the recent swing low as a reversal and provides price with the two zones of resistance to aim for that you've marked up on your chart; at 83.00 and 87.00 respectively.
2. This is less probable and, even if it does occur, could prove to be a difficult trade to manage, although this does depend on your timescale and objectives.The recent swing low didn't get as far as testing the late October lows around 71.00. (This is one of the reasons why I think a reversal is on the cards.) Clearly it was important at the time, evidenced by price having multiple stabs at it. The most recent swing low is around 72.00 and, as I understand it, you're looking to go short below 76.00. My feeling is that price could chop around in between these two levels - i.e. consolidate - and then it's anyone's guess as to which way price will break out.
So, to conclude, I think your long is fine and your short isn't. If I was looking for a short, I'd wait either for price to break the Oct' lows and pull back, or rise to the Nov' high and be rejected by it.
In case you haven't seen it already, this thread will be of interest to you:
http://www.trade2win.com/boards/for...5-phil-newton-s-range-break-out-strategy.html
Tim.

 

[shadowninja]

Where exactly would your order be? Your first attachment seems to be quite a way after the test of the level.

 

[Zulu89]

Personally I'd suggest using a sim first.

Why? Because you have a discretionary method that you haven't forward tested ... and maybe not even really backtested.

Why? Because Brett Steenbarger points out that most psych issues traders have come about because they damage themselves early in their careers. Even a small amount of money increases damage when you are uncertain about what will happen - I suspect that the excitement of committing unreal money and your ego here will be enough for the first month or so.

Train yourself to trade slowly. Or be a gambler. Your choice.


PS. I have degrees in physics, engineering, and finance. And I recommend spending some time reading Trading in the Zone (Douglas) and Enhancing Trader Performance (Steenbarger) before you commit real money. Your physics and your intelligence give you some skills in designing strategies. Against you: your youth makes you impatient to try it because you don't yet know that trading is about two things - working on your strategies and working on yourself.

Fair points and it'll probably be best for me to trade on a sim the only reason i didnt was so i develop good habits from the start with real conditions. A sim couldnt hurt for a month or two i guess.

I'll also look into that book you suggested, thanks

 

[jeffsmith]

Zulu.... i have read all about Zulu it is a very nice site and also a nice trading pltform with many indicators.

 

[Zulu89]

hi Zule, I echo Tim's comments above and I'm impressed at your methodical, cautious approach, it's a great start !

there is nothing wrong with your strategy, the only feedback i would dare venture is to perhaps study and implement Pivot Points - many times they will line up with your S&R anyway, but there may be times when PPs and your S&R diverge, which may serve as a red flag to urge a note of caution.

other than that, all I can say is "good luck"

r_e

Thanks r_e I'll definitely read up on pivot points and see how best i could implement them into my strategy.

1. This is the most probable IMO, and also the better of the two trades should it occur. It will confirm the recent swing low as a reversal and provides price with the two zones of resistance to aim for that you've marked up on your chart; at 83.00 and 87.00 respectively.
2. This is less probable and, even if it does occur, could prove to be a difficult trade to manage, although this does depend on your timescale and objectives.The recent swing low didn't get as far as testing the late October lows around 71.00. (This is one of the reasons why I think a reversal is on the cards.) Clearly it was important at the time, evidenced by price having multiple stabs at it. The most recent swing low is around 72.00 and, as I understand it, you're looking to go short below 76.00. My feeling is that price could chop around in between these two levels - i.e. consolidate - and then it's anyone's guess as to which way price will break out.

Thanks Tim, i was thinking 1 was the better of the two but given the current climate i thought that taking a short was the only think i could do. I'll wait to see what happens with this one as suggested.

I'm quickly learning that patience is a virtue as far as trading is concerned.

 

[Zulu89]

Where exactly would your order be? Your first attachment seems to be quite a way after the test of the level.

Hi, ShadowNinja
The order i was referring to was a sell order on the cad/jpy chart. The usd/chf chart that i put up was for reference, i just wanted to know whether trading rejection candles at S/R zones would be a good strategy to follow. I'm tilting toward tight consolidation ranges but i'm looking closely at rejection and indecision candles as well.

For the usd/chf would need to reach ~1.2080 before the candle be considered worthwhile for me.

 

[Zulu89]

Zulu.... i have read all about Zulu it is a very nice site and also a nice trading pltform with many indicators.

I dont know what exactly you mean, but thanks for taking the time to post

 

[timsk]

. . .i was thinking 1 was the better of the two but given the current climate i thought that taking a short was the only think i could do. I'll wait to see what happens with this one as suggested.

I'm quickly learning that patience is a virtue as far as trading is concerned.

Patience is certainly a virtue in this game and so is NOT thinking, IMO. One of the biggest problems I have is thinking about the market and what it's done, what it's doing and what's likely to do next. I've lost a small fortune doing this and expect fully to make a large one as and when I stop doing it! Example: I wake up in the morning to Radio 4 and hear that the indices in the far east have suffered sharp falls overnight and Robert Peston is spouting his usual doom and gloom. When I trade later that day, I'm predisposed to going short rather than long. 'Big mistake, huge' - as Ms Roberts said in the film Pretty Women. 'Look at the evidence before your eyes and trade what you see and not what you think' is right up there with the best advice I've ever received. Sadly, it's also the hardest (for me) to follow.
Tim.

 

[Zulu89]

As nine suggested ill be using a simulator for a while until i have results that prove i should do otherwise.

I pulled up a USD/CAD chart, even though this is not a pair i initially considered i've placed a sell order at yesterdays lows with my stop above the high ,targeting a the lows on the 4th nov . That will give me a stop of around 250 pips, given that theres a zone between 1.2090 & 1.1980 would this kind of entry be optimal or would it be more prudent to wait until it reaches this zone.

 

[timsk]

I pulled up a USD/CAD chart, even though this is not a pair i initially considered i've placed a sell order at yesterdays lows with my stop above the high ,targeting a the lows on the 4th nov.]

Why wait for price to breach the lows? Go short now - with your stop in the same place - then if it doesn't work out you'll only lose half what you would have done. If it heads south as you expect - then you're in early and your profit will be bigger. I would actually have taken the short on the breach of the low of the inverted hammer whose high you're using as a stop. I've explained how and why here:
http://www.trade2win.com/boards/trading-journals/43898-simple-inside-bars.html
(My post #21 provides the detail.)
Tim.

 

[Zulu89]

Thanks Tim, i haven't really looked at inside candles before, I'm just worried that i'll start to see them everywhere and start over trading. Would they be used as a trigger for the break pull back set up? Or are they used in any other way?

 

[timsk]

Hi Zulu,

. . .i haven't really looked at inside candles before, I'm just worried that i'll start to see them everywhere and start over trading.

Fair point and, in retrospect, I ought to have kept my big mouth shut. Ignore them - and me - for now.

Would they be used as a trigger for the break pull back set up? Or are they used in any other way?

You can plough through that thread I referenced in my earlier post or, better still, ignore all that stuff and continue as you were. You could just be aware of them, observe them and draw your own conclusions. Essentially there are just three elements to them:
1. the inside candle / bar itself
2. the previous candle whose high and low contain the inside candle
3. the breakout candle. Most people use the high / low of the inside candle for this purpose. I don't, I use a breach of the high / low of No.2 - what I call the 'holding candle'.
Cheers,
Tim.
P.S. I hope you're not getting behind in your Uni studies and spending all your time doing this? Apologies if I sound like a patronizing parent or tutor, but your Uni studies are MUCH more important than any of this stuff!

 

[Zulu89]

Trade Management

When managing a trade should i only consider binary outcomes, i.e. im in the trade until my stop is hit or my profit target is reached or should i learn to recognise when a trade will turn against me?

The USD/CAD trade i took yesterday is experiencing some to-and fro motion in a previous vibration area, i could get stopped out on this one, but ill think ill wait to see what happens.

 

[timsk]

When managing a trade should i only consider binary outcomes, i.e. im in the trade until my stop is hit or my profit target is reached or should i learn to recognise when a trade will turn against me?

You're a class act zulu, I was trading for about three years before I even thought to ask this question! Unfortunately, there's no easy answer. A purely mechanic 'stop or target' exit works for some people and certainly makes for stress free trading. The drawbacks to it are obvious; you'll be stopped out of some trades that were once in profit (but never reached the target) and you'll be stopped out on some trades that you could have closed earlier for a smaller loss using a more discretionary based approach. Horses for courses. My preferred option is to respond to what the market is doing and have a dynamic strategy which is adaptive and sensitive to price action. Sounds great doesn't it? ****kin' hard to put into practice though! I suggest you test both approaches and opt for the one that gives the best results and you're most comfortable with. I don't want to make the same mistake I made with the inside candles, so I won't suggest anything yet. Play around with ideas of your own and, if you get really stuck, post asking for help. I did exactly this today on another thread, wanting input on a specific problem I have with fast moving trending instruments.
Tim.