Multiple Envelope Trade Strategy

[Will Duxon]

At 08:33 GBPJPY has hit what I regard as a rather significant level of statistical support (130.116) so I'm going to enter a long position here and hope for the best.



What I saw as a zone of statistical support was unable to keep GBPJPY from dropping below my entry level, but I'm not sure exactly how to use my envelopes to get closer to the true bottom without missing out on too much of it.

Recently, I was informed that someone who does not know how to let profits run should not trade, and of course, I’m all for anyone who uses that approach successfully, but as I continue to work to perfect a multiple envelope trade strategy, I just don’t feel like I’m seeing profits “run” so much as they appear to pop, snap back, advance, retreat, grow, shrink, reverse and continue on.

It strikes me that if I’m long a position and I can see it has hit resistance, I should take my profit, let price retreat back to support, and then re-buy the asset as many times as it wants to repeat this kind of an ebb and flow action (as I did twice after exiting at break even) rather than watch my profits repeatedly disappear as I wait around hoping they come back.

 

[Will Duxon]

Why I "Scalp" rather than "Run"

This one-minute chart is a perfect example of what I was writing about in my last post:



I'm currently short GBPJPY from the initial circle (via a separate account) based on the four-hour chart, but if I had traded this pair the way I normally do (which I did not have time to do anyway) note that I could have bought AND sold the pair for a profit a total of six times already rather than sitting around waiting for this stupid thing to drop for good (if indeed, that is what it ultimately does).

If this trade doesn't make at least six times what I typically make on a single trade, I'm going back to scalping exclusively. It's faster, it puts money in my pocket on a daily basis, and it eliminates the irritation of watching my profit disappear over and over again.

 

[Will Duxon]

If this trade doesn't make at least six times what I typically make on a single trade, I'm going back to scalping exclusively...

Well, now I have to give up my belly-aching given that GBPJPY hit my Take Profit target while I was sleeping:



So who wins when is comes to scalp vs. run? For me, it still depends on what's most important to the individual. Since GBPJPY more than met my ultimatum, I have no grounds for returning to scalping exclusively, but I still have a ways to go before being completely comfortable trading from more of a "buy and hold" point of view...if ever.

 

[timsk]

Hi Will,

At 08:33 GBPJPY has hit what I regard as a rather significant level of statistical support (130.116) so I'm going to enter a long position here and hope for the best.

At the risk of sounding like a smartar$e - I think your problem is embedded in this remark - especially the part highlighted in blue. The fact that price is at a "significant level of statistical support" doesn't mean that it will reverse. It might do but, equally, it could just continue to waterfall straight through it or meander sideways. In my experience, (trading the Dax), it's quite rare for price to have a large move (down) and then instantly reverse to form a perfect V. So, it looks to me as if your long entry was highly speculative. That said, if you've tested it and it works out to provide you with an overall positive expectancy - then ignore my comments as they don't apply.

What I saw as a zone of statistical support was unable to keep GBPJPY from dropping below my entry level, but I'm not sure exactly how to use my envelopes to get closer to the true bottom without missing out on too much of it.

At the point of your entry, price was completely outside your envelopes. In your shoes, if I wanted some confirmation that it's probably reached the bottom of the move, I'd wait to enter until it crossed back inside one or other of the envelopes. Again, this needs to be tested, but I'd wager that once this happens, more often than not price will move some way in the desired direction - even if it's just a dead cat bounce and ultimately goes against you. At the very least, it might give you some breathing space so you're not left hanging - frozen like a rabbit in a car's headlights - watching price plummet while your (paper) loss mounts. Just an idea that might merit exploring?
Tim.

 

[Will Duxon]

...Just an idea that might merit exploring?

Thanks for the advice!

 

[Donovann]

Nice article. Thanks. It helped me a lot.