FX Trade Setups, Entries, Management and Exit

gbp/usd stopped 6221 for +19 on 13 risked. MAE 0 / MFE 32.

That felt more like a punt than a trade.
 
Six trades today. On two I shorted into support. Clever. On three I went with momentum, but from a level which suggested the move was potentially played out – by potentially played out I mean the price was a long way from the mean.

One trade I spectacularly messed up the risk/position sizing and ended up with 2.5X my intended position size – on the 2nd biggest loser of the day. Nice.

One trade, a long cable, had all the hallmarks of a long setup and I flagged my interest ahead of time. I’m trying to establish a basis for at least some integrity for what comes next. What happened was a minute or so before the ADP employment data at 13:15 BST I took what can only be described as a punt. Sure, all the criteria for a long were in place – except the entry signals. I figured if I waited for the entry signals on the data release, OANDA would ramp the spread plus I get in half way up the 50 pip candle as it runs away from me – after all my hard work spotting it, planning it and waiting for it. As it was, it was only a 32 pip candle and it could just as easily have been a down candle and taken my stop. Really stupid. That it gave a (decent, by my standards, 1:1.45) profit on an otherwise dismal day for smart trading or profits, is a consolation, but I’m sure the gods will make me pay for this particular trade. Maybe they already had?

Someone suggested I was shooting at anything that moved in the hope of getting a hit, and they were right. I didn’t select based on quality – I went for quantity. It deserved to be a down day – and so it was.

As for the P&L, I was only trading a quarter normal size, risking 0.5% capital per trade. On most trades. Screwed up on one today because I was in a rush. My net gain for the day had I not messed my position size calculation on that trade would have been +.0.37 of standard risk which would have equated to a +0.17 of capital. Not bad given I was trading like a chimp on whizz. Factoring in that errant size trade I have a net loss of -0.22% of standard risk which equates to a real net loss of -0.11% of capital. Far better than I deserved all things considered.



Key points from today’s trading:-

Take only those trades which are of the highest quality. If all boxes are ticked – mandatory and nice to haves, that’s going to work a lot better in the long run than scatter gun approach with only borderline criteria being accepted.

Don’t short into support or long into resistance. Look on a higher timeframe to get context in addition to technical s/r levels. Often the s/r levels that actually exist in reality aren’t near any of the technical ones I have on my chart.

Keep calm. Calculate your position size with care and ahead of time - not on the run.

Don’t take trades that have moved so far from the mean that there is no way to calculate what’s left to play for. Only go for sensible R:R – sensible for me is 1:1 not sub 1:1.



Rationale/Raison d’etre Crisis
The long, sweeping trending moves I see on my charts at the end of the day are mysteriously absent in real time – which has me wondering why I’m grabbing at a handful of pips and slamming the stops in so tight when there are these long, luscious trends that only appear in retrospect. As I look now, for example, at aud/jpy on my 15 minute trading timeframe, there is a nice downward trend in place from 02:30 to 09:15 this morning. I wasn’t around to trade all of it, but…if I had been, I can see me chopping that sequence into 3 maybe 4 trades and scratching a handful of pips on each and very possibly not even taking more than one, possibly two of those small opportunities. Why am I not trading more of the trend start-to-finish?

I don’t think analogy or metaphor are particularly useful when applied to trading as it’s a subject that, for me, requires empirical data, structure and observable events and criteria rather than subjective interpretation or introspection, but the image I get is of a giant ocean swell, the underlying trend, and instead of trading the swell, I’m trying to trade the ripples from stones, sometimes rocks thrown into that swell. When the ripple subsides I exit with a few pips profit - or loss if I’m took quick to see the end of the ripple, and miss the swell upon which is existed, but the swell continues rolling on, and had I just sat tight, that swell would have carried me on to a far more substantial result. You can see why I don’t like analogy and metaphor – I’m no bloody Hemmingway.

The bottom line is I appreciate it’s a trade-off between sharp stops and not getting caught on the end of a move and looser stops – getting more of the move – if there is more of the move to get. I’m happy to chip away if that gets results, but I’m not sure if I shouldn’t be looking to take a more relaxed position and go for longer runs allowing the price to come back on me to signal the end of momentum. Longer runs, more pips, larger stop, smaller position size. It all comes out in the wash the same, surely? I’m totally confused. Can’t see the wood for the trees probably.
 
Purple Brain said:
Rationale/Raison d’etre Crisis
The long, sweeping trending moves I see on my charts at the end of the day are mysteriously absent in real time – which has me wondering why I’m grabbing at a handful of pips and slamming the stops in so tight when there are these long, luscious trends that only appear in retrospect. As I look now, for example, at aud/jpy on my 15 minute trading timeframe, there is a nice downward trend in place from 02:30 to 09:15 this morning. I wasn’t around to trade all of it, but…if I had been, I can see me chopping that sequence into 3 maybe 4 trades and scratching a handful of pips on each and very possibly not even taking more than one, possibly two of those small opportunities. Why am I not trading more of the trend start-to-finish?

I don’t think analogy or metaphor are particularly useful when applied to trading as it’s a subject that, for me, requires empirical data, structure and observable events and criteria rather than subjective interpretation or introspection, but the image I get is of a giant ocean swell, the underlying trend, and instead of trading the swell, I’m trying to trade the ripples from stones, sometimes rocks thrown into that swell. When the ripple subsides I exit with a few pips profit - or loss if I’m took quick to see the end of the ripple, and miss the swell upon which is existed, but the swell continues rolling on, and had I just sat tight, that swell would have carried me on to a far more substantial result. You can see why I don’t like analogy and metaphor – I’m no bloody Hemmingway.

The bottom line is I appreciate it’s a trade-off between sharp stops and not getting caught on the end of a move and looser stops – getting more of the move – if there is more of the move to get. I’m happy to chip away if that gets results, but I’m not sure if I shouldn’t be looking to take a more relaxed position and go for longer runs allowing the price to come back on me to signal the end of momentum. Longer runs, more pips, larger stop, smaller position size. It all comes out in the wash the same, surely? I’m totally confused. Can’t see the wood for the trees probably.
Click to expand...

I'm like a broken record here...have you written a plan and tested it and shown it to be profitable over a decent size number of trades? To test the profitability it is required that you have actually stuck to the plan on each trade. If emotions are an issue in following the plan, demo trade the plan. Until you write and test a plan, you're most likely going in a circle - big stops or small stops.
 
Listen to the advice Shakone has given. It will serve you well.

If I may, the following really helped me as I can relate to your woes:

1. Choose a time you wish to trade, whether that be the UK open, US open or Asia and stick to it. Limit the time you spend. There is no need or any benefit to spending excessive time in front of the screen. The markets will still be there when you return. Once that timeframe closes, walk away and do something else.

Sitting for endless hours in front of the charts is not going to help you. If you can't see the trades, they're not there. It's that simple. The more you try to force a trade the greater the likelyhood that it's not in line with your plan and will fail.

2. Following on, don't look back at what you might have done on a move that your weren't around to see. I doubt there is not a single trader that has experienced those thoughts. As an example; I trade the UK session for FX, some of the AUD/NZD/JPY pairs really move overnight and can trend really well. However, they can also move during the UK/US times, so take into account what happened during the asian session and ask yourself: "What has the overnight move done to the price action that happened in my time zone?" Deal with what is happening right now, not what you might have done 6 hours ago.

3. Define your plan as Shakone describes. Test it, if you're confident in it's results then trade it. Start with the smallest amount possible, if you feel no emotion across a set of trades , not 1 trade but 20-30 trades increase your size gradually. If you start feeling the emotions scale back the size and repeat.


4. Keep a diary, a trade log. Detail everything relating to the trades you take. Entries, Stops, exits, your rationale for entering, your emotions, your feelings, your thoughts. Commit to keeping the diary. At the end of the 20-30 trades look at your results and then compare that to your diary. You'll be surprised at what you find.

good luck
 
Shakone said:
I'm like a broken record here...have you written a plan and tested it and shown it to be profitable over a decent size number of trades? To test the profitability it is required that you have actually stuck to the plan on each trade. If emotions are an issue in following the plan, demo trade the plan. Until you write and test a plan, you're most likely going in a circle - big stops or small stops.
Click to expand...
I stated writing a trading plan on the method I brought with me to these boards. In the process of doing that, in conjunction with additional suggestions on the use of momentum which I attempted to integrate with the existing method, I realised what I was doing didn’t make sense. Square One.

Now I’m hitting momentum, but failing to recognise s/r that doesn’t fit with any technical derivation. And getting into a move without assessing likely R:R. And my original assessment of what constitutes a value entry area is gone. Blown.

All the ‘key points’ I note at the end of each trading day get incorporated into my trading plan. Tonight I realised I am in a constant state of rehashing my plan – which means it isn’t a plan at all – which is underlined by my poor trading results. I’m adding/changing as much if not more than is being left in.

Threw the plan away after screwing it up into a ball about an hour ago.

Tabula Rasa. Perfect.

I’m going to write and test a plan and then I’ll come back after I’ve run 100 trades through it without modification. Otherwise, I’m just wasting everyone’s time and efforts to help me.
 
Progress. I’ve convinced myself that attempting to catch a better value entry (selling into a down trend that has had a minor upward retrace which has lost momentum or buying into an up trend that has had a minor downward retrace which has lost momentum) while carrying greater potential reward in terms of pips-per-move has a trade off against lower probability of the move going my way i.e. the minor reversal becomes a major reversal AKA change of trend.

In trying to get ‘value for money’ by achieving a ‘better’ entry level I was attempting to satisfy my ego rather than my bottom line. I am genuinely surprised to find I had an ego in all this, but that is probably an irony in itself in that the ego tells you that you don’t have one.

This stuff, it creeps up on you - you don’t know it’s there.

So I’ll let the clever boys and girls catch the tops and bottoms and I’ve adjusted my trading plan to only take those trades where the resumption of the underlying trend has been confirmed. I’ll look on wistfully I’m sure at those peaks and troughs that I could theoretically have entered and exited at, but take comfort, I hope, in giving up those extra pips for an improved W:L and a stronger bottom line.

I’m sure many make a good living from trading the way I thought I wanted to trade and my backtests still show that as a more profitable strategy, but taking a losing trade takes energy out of me and results in my being less motivated and ready to take the next trade. Those backtests didn’t factor in the reality that I don’t carry on taking trades with the required enthusiasm after one or more losers.
 
Long Post Alert

My entry criteria and setups are unchanged since the recent major overhaul which I started trading a week ago. The need for those changes came about as a direct result of inputs from a number of members over the last few weeks with their experienced, seasoned and expert advice. The best way I could think to repay them was to incorporate their advice into my methods and not bother them any more with my floundering about until I’d at least got to a stable configuration with my trading plan – regardless of its performance profile. My technical exits have not changed either. I stated I wouldn’t come back to this thread with live calls until I had run 100 trades without any change to my plan as to do so was a waste of your time in coming here to read my stream of consciousness.

What I have added to my plan today and which means another reset of the 100 trades without change is the in-trade management of profits. There is some really good stuff over on the DAX30 thread which is proving extremely useful to me as I run my trading plan through its Nth iteration.

Trading the current market conditions there are a disproportionate – by my reckoning – number of scratched trades as the long trending moves seem fewer to locate and hitch a ride on. When they do occur, they are relatively short lived. While a scratch trade isn’t a loss, neither does it pay me for my time & energy in getting in, managing it and exiting it. I’m still struggling with the trade-off between the viewpoints of snatching small profits versus protecting my capital from loss – which view is correct? It seems largely to be a function of whatever happens next. If price continues to move counter my closed trade them I was protecting my capital – if it moves back off in the original direction – I’ve snatched profits. I suspect that’s more of a psychological issue than a methodological one so I’m coming to terms with remaining uncomfortable by leaving that issue unresolved for now.

What did grab my attention last night and hence the modification to plan today is the idea of paying yourself for your trouble. To have a trade go into reasonable profit and come back into loss is unforgivable. Did it all the time until fairly recently and I am (almost) cured of that now. But having a trade go into reasonable profit (my definition is double digit pips – yeah, I know, sad) and to sit and watch it come back to breakeven is heart breaking after all the effort involved in getting in in the first place and hanging in there. So now, once I am into profit of half my risk, I place a limit order to remove half my position at 2/3rds my MFE which I adjust I in line with increasing MFE. Effectively a trailing stop on half my position. The other half I adjust the stop as per my standard metrics.

{fishing story alert – fishing story alert – fishing story follows}
I sat through a long eur/jpy this morning doing precisely that. In at 06:47 (BST) at 134.03 with a 30 pip stop. Got to MFE +15 at 07:39 and put in a limit sell for half my position at 134.13, moving stop up on whole position to 134.04 just 1 pip better than breakeven. At 07:48 my sell limit got filled and I’d made a small profit on the trade AND even if it came back on me now, I wouldn’t lose any money, in fact I’d grab another pip’s worth for my trouble. Which is exactly what it did at 7:59.

The quantitative difference between this trade yesterday which would almost definitely have been a scratch and today which was a handful of pips is negligible, but the qualitative difference couldn’t be greater. As soon as I had locked in some definite yet unrealised profits and set my stop on the remainder to not lose any money either I didn’t really care what happened next. All I had to do was monitor the MFE and make sure I kept my limit order at 2/3rds of it and keep an eye on moving the stop on the whole position to sensible levels. I was going to be paid a retainer for my efforts and I wasn’t going to lose any money either. Did I grab at profits or did I protect my capital? In this case, as it turned out, the latter.

The other thing I have incorporated into my plan today is some specificity around price action which had in the previous version simply received a scant one sentence heads up to pay attention to it – whatever that might mean. A topic that many have contributed to, some unwittingly others very directly, which has resulted in an exponential increase in my learning in this area. Both in terms of getting in, staying in and getting out. While I don’t currently see any benefit in trading without indicators, I get a sense that price action alone could well provide sufficient information for the very experienced trader to make reasonably accurate trading decisions.

I look forward to the next two major milestones in the development of my trading career:

1. Getting my trading plan into a position where there have been no major modifications in the last 100 trades. Conscious competence. I’m increasingly of the opinion that a trading plan is never actually finished – it’s a permanent work-in-progress, but providing the fundamentals are sound and remain essentially unchanged, I think that’s a fair target for which to aim.

2. Getting to a point where I don’t need to check my trading plan ahead of and during every single trade. Unconscious competence.

And one for yours:
Reading one of my posts to the end without becoming totally unconscious.
 
In attempting to tie down this beast of a trading plan I’ve discovered there isn’t for me personally a one size fits all approach to trading the forex market, or possibly any market, that can be encapsulated into a static document. While it’s possible I’m copping out and simply giving up on having a fixed trading plan, I don’t think that is the case.

After a bunch of trades with no change to the plan, I’ll find a reasonable basis under which to justify amending the plan to allow for specific situations where I can improve my bottom line. I add in more and more and take out less and less. I presumed that was a good sign. It’s not.

What I was doing was simply making my trading plan more complex in an effort to be comprehensive but in the process making it totally unworkable trading at the 15 minute level – there was simply too much, even in checklist form to run through effectively.

The last couple of days I’ve been trading the basic structure of my plan and found that I get in well enough and my MAEs are looking small to non-existent (excepting the initial spread of course), but there are so few pips up from grabs on each confirmed move that I’m getting out for a fraction of my risk, but making reasonable profit on the day. My W:L is good and by R:R is dire by normal standards. This is where I came in…

The fact is, when the market offers long trending moves, my basic methods get me in and keep me in for a good part of it. When the market offers quick chips onto the green, my methods identify that and I get out for a handful of pips as soon as it hits a s/r level and/or starts to show price action which does not support my opening bias and intent. Surely that’s a good thing? The constraint of only going for ‘reasonable’ R:R is a delusion anyway – you can never know what your likely reward is going to be – you only get to control the risk and to select what you consider are the trades with the highest probability of going with you from the off.

I ripped out all but the basic entry and exit criteria and, a bit like Dodd-Frank, provide a framework to allow unlimited amendments of a discretionary nature. Before anyone howls that discretionary is not the way to go and as a relatively inexperienced trader I should be formalising and codifying and sticking to basic written rules – I have been told by a few experienced hands that at their level, all that good stuff has to have been unconsciously inculcated and the basic methods run primarily on the basis on insight and intuition. I get that. I’m still trading exactly the same method I did when I arrived at this site with the addition of a number of techniques such as momentum and price action which reduce the number of trades I take and cause me less concern when I take a discretionary exit. My risk control is much sharper - my relatively few losing trades go nowhere near my initial stop and when I take a few pips profit, regardless of subsequent price action, I no longer feel like I’m grabbing pennies or taking a quick profit as the basis of my decision is the same in each and every case, regardless of its subsequent development. I’m right more often than I’m wrong. Not crowing about how good I am – far from it, just that I have a sound and tested basis for being OK with what I’m currently doing and the way I’m doing it.

Where to form here? I’m just going to trade it. Do the next 100 trades and see where I stand.
 
Almost half way through 100 trades without any changes to trading plan. Not paying any attention to W:L, P&L, avg. win or avg. loss – just concentrating on trading what I think I should be trading and trading it the way I think I should be trading it– and even more importantly since joining this site and finding out how many beans I was short of the customary five – not trading what I shouldn’t be trading – which has actually made the biggest difference.

It’s been a revelation.

I’d love to say each and every trade so far has been a monster win, but they haven’t. Without checking the stats (which I don’t intend to until after I hit trade 100) my gut feel is the losers have been smaller in % of initial risk than have the winners and there have been more winners than losers. But that’s just the quantitative side.

On the qualitative side, each trade I get into, when I do get into it has significantly more confidence from me when going in and when it doesn’t live up to expectations I have far less angst (none in fact) getting out for a loss. Quickly and with much smaller damage to capital base.

Judging by others trading calls and comments over the last few weeks we’ve all been having a tough time in a difficult market. If I can come through that same period showing a not too shabby performance I’ll consider I’ve made it to the first level of the trading ziggurat.
 
I’m probably not a lot different to other technical analysts when looking at whatever combination of factors seem to work most of the time in attempting to find out how to modify them so they work more of the time or in more instances. And to maximise their working so to get in earlier and out later and balancing the risk:reward with that effort.

Looking back over my notes where I started out with a simple combination of factors which worked more often than not and gave me a reasonable slice of the move and protected me from major reversals and then how I modified this setup over time to be more expansive, give me more of the move, more often; I find in almost all cases where I have done this, my bottom line has actually been negatively impacted because of it. Not necessarily manifesting as a loss, but more trades taken than were perfect, and the aggregate profits were less when averaged out per trade than they would have been had I kept the original, simple, clean, pristine version of the setup.

Every trade is a risk exposure and if you can make the same return on fewer trades that means far less overall risk per lump return which makes a lot more sense.

Not that this observation requires a change to my trading plan as I allow a discretionary decision on just how many tick marks the setup needs to be before taking a trade. While waiting for all the ducks to line up means I’ll miss a few trades which – in retrospect – would have been just great to have been on board for, I’ll also have taken fewer trades of which a far greater majority will have produced a useful profit.

The power of cherry picking.
 
Just entered my 100th trade with no change to trading plan. Started the process on October 2nd. A few learnings along the way. The basic technical aspects upon which my method is based hasn’t changed a great deal – which initially concerned me, but now gives me a great deal of confidence. I started simple and that simple method is still the basis for my trading. The complications made it – more complicated. What is radically different is that a great deal of systematised, codified, rules based checklists and suchlike have gone – to be replaced by a far more discretionary approach.

The upside is that there are only a few basic criteria I am looking for to get my interest in taking a trade and staying in it. All the other stuff I do to decide whether to go in or not or get out or not are discretionary and based upon what I know and what I know I don’t know.

I’m no longer looking for certainty and absolute confirmation - just a decent batting average with the occasional home run by pure luck to keep the spirits up.

Still got a few moving average and lights to let me know I’ve got a potential setup, but the mess of screen space taken with clutter and confusion has now disappeared. Which is a bit disconcerting as the bars look bigger and fatter – a mirage which I removed by resizing my Y-axis. Absolutely no rational sense behind that, but it makes all the difference – to me.

My losses are a fraction of my initial stop for the most part and I now take more losing trades out of every 100 trades than I used to (if this last 100 are anything to go by). My winners though fewer in number per 100 trades each provide me a significantly better R:R than previously. This is primarily due to the smaller stop size I’m now using rather than finding longer runs or staying in longer. I’m still averaging round 6 bars (15 min) per winning trade, but now around only 2 for losing trades which probably not surprisingly used to last for around 15 bars (and take all my risk!).

Extremely pleased with the results – both financial and intellectual.
 
There is a tide in the affairs of men.
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat,
And we must take the current when it serves,
Or lose our ventures.
 
eur/cad long currently 4433 looks doable but with a likely solid line of resistance at 4455 and over 30 pips for safe stop, it isn't worth the risk.
 
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