P2: A batch of FX market trades

[willoneau]

Thanx for the reply Peter2 ,
I can understand emotional reasons for doing it but if hinders making money then I will continue to chase the minimum 1.5R.
Following your system and money management keeps my emotions in check.

 

[peter2]

A comment: You made a reasonable observation on the AUDUSD chart yesterday. You mentioned that price was too far from the moving averages and dismissed the chart. I agree with your observation, but I take this observation as a potential opportunity and place this chart on watch throughout the UK/US sessions. What I'm waiting for is a pullback so that I can buy it and trade it back to the prior high and above. Unfortunately AUDUSD and AUDJPY didn't pullback enough and form an acceptable RR for a trade.

I wanted to mention this for your consideration as we want to be trading with the stronger trends and we want to trade them on our terms.

 

[willoneau]

A comment: You made a reasonable observation on the AUDUSD chart yesterday. You mentioned that price was too far from the moving averages and dismissed the chart. I agree with your observation, but I take this observation as a potential opportunity and place this chart on watch throughout the UK/US sessions. What I'm waiting for is a pullback so that I can buy it and trade it back to the prior high and above. Unfortunately AUDUSD and AUDJPY didn't pullback enough and form an acceptable RR for a trade.

I wanted to mention this for your consideration as we want to be trading with the stronger trends and we want to trade them on our terms.

View attachment 120175

How do you determine acceptable RR , is it looking at potential support or resistance near which can stop the move?
I noticed the depth of the pullback but on the hourly chart.
So looking at the depth of the pullback within the daily TF determines if RR is acceptable?

 

[peter2]

For a pull-back I look at the prior high. What is my RR if price goes back to the old high. If it's > 1.5R that's acceptable because there's the possibility that price may go a little higher.

In the AUDUSD chart, the deeper PB got to +1.5R near the old high and went a little higher the next morning in the Aussie session giving us +2R.

Yesterday's shallow PB did go higher the next morning but reversed during the Aussie session. This trade would have been a break-even result depending on when we got in. Our assessment that price was too far from the MA proved correct in this case. Notice that the price reversed near the even number 0.7800.

 

[willoneau]

I made the mistake this morning of going long after the 4hrly broke yesterdays high getting hit for-R1 instead of waiting for the pullback.

 

[peter2]

No problems if we stay solvent and learn.
Looking at the 4hr AUDUSD chart I want to show you three shallow pullbacks from last week that were good setups. We knew the daily trend was UP and these 4hr bars were very small making excellent RR opportunities. This week or next week it'll be another currency pair that provides these types of setups. Keep an eye on them. I'd be very careful doing this with indices as the small bars are formed when the exchanges are closed. Openings can be a bit volatile.

 

[willoneau]

Thanx for the heads up on the indices as i am following
AUS200
GER30
UK100
EUSTX50

 

[willoneau]

No problems if we stay solvent and learn.
Looking at the 4hr AUDUSD chart I want to show you three shallow pullbacks from last week that were good setups. We knew the daily trend was UP and these 4hr bars were very small making excellent RR opportunities. This week or next week it'll be another currency pair that provides these types of setups. Keep an eye on them. I'd be very careful doing this with indices as the small bars are formed when the exchanges are closed. Openings can be a bit volatile.

View attachment 120177

The ema's on the second two are down, do you disregard them on 4hrly when daily is still up?

 

[peter2]

Yes, I try to apply some commonsense. The daily trend is UP and the 4hr trend is up if you judge the trend by higher lows and higher highs. In this case the pullback did reverse the EMAs but the low was slightly higher than the prior swing low. If it had gone lower then I'd need a stronger reversal signal to go long with the daily trend. I might find it on the 1hr chart or wait for a reversal bar the 4hr. This is a subtle modification and I hope I've explained that clearly.

I hope you're collating these notes and recording them in your trading plans.

I hope you've noticed that gold is going down with the daily trend still being down. There was a nice 123H reversal setup on the 1hr chart. It formed while I was playing tennis so no trade for me.

Did you notice the quick pullback in the USDJPY chart? Daily trend is up, 4hr trend is up, a quick pullback then BOOM past the old high.

These setups are our bread and butter that lead us to caviar and champagne if we're ready for them. We don't need anything complex, just simple trend following strategies work well if we apply them consistently.

I've got to prepare for the US open, it looks likely to be volatile tonight.

 

[willoneau]

I noticed daily , 4hrly and 1hrly up on USDJPY and currently long with my trailing stop at 1.5R looking to trail on 15 min bars until stopped out . I will re read this thread and update my trading plan giving it much thought about your points.
USDJPY closed for 1.5R

 

[willoneau]

I was in the gold move, took 2R . I wasn't watching it so unable to trail stop .

 

[willoneau]

I have started to put a lot more effort into my record keeping and added comments to my trades.
I try to keep my daily trades to around 4 unless I go to BE and I have completed 28 trades in 5 days a little high but I went to BE ten times which allowed me to take another trade.
I have noticed that I might be moving to BE a little early which is reducing my edge and highlighting my over trading (over trading = FOMO)
currently my win rate is 54% and my edge is 0.19R

 

[willoneau]

One question, with the different markets and pip sizes should the edge be calculated on pips at risk or cash?

 

[peter2]

Your trading edge is calculated from a batch of results. Each result can be expressed in dollars or R multiples. An R multiple is the initial downside exposure that you're willing to risk in the trade. When trading across many market types (equities, fx, commodities) with different pip/point values, the trader should position size each trade to be the same or similar dollars at risk.

If I trade an index with a 20 point initial risk and a currency pair eg. AUDJPY with a 35 pip iSL I'll position size each trade so that I'm risking a similar dollar amount in each trade. The initial risk in each trade is one R multiple.

In intraday trader who starts many trades during a session may employ a fixed size position model (eg 1000 shares, 1 FX contract, 2 futures contract). This is done to make entries quicker and not have to worry about position sizing. This trader will look at the whole session result rather than each trade. It's unlikely that this trader would trade across many market types. They'll tend to specialise in equities, fx or futures.

 

[willoneau]

Thanx Peter , I risk same dollar value just not sure if I should use dollar value or pip valve to give me R multiple as I would rather look at pips not dollars at risk especially at dollar risk value increases and may play on emotions.

 

[peter2]

Good point and I should have mentioned it. If you only consider your results in R multiples then each trade has the same initial risk and the same potential reward. As your account grows the next trade risks only 1R, the same as your first trade.

 

[willoneau]

So I guess what I am asking is does the different pip values of the different FX markets affect the edge calculation when using pips ?
or because I relate it to dollar value at risk it doesn't?.

 

[peter2]

I went long the TQQQ a few days ago and it's started well but I need to let the trade go. So what's that got to do with this thread that's all about FX? I needed a diversion to prevent me from meddling with the trade, so I've reread this thread.

I posted a lot of detail and plenty of examples at the start of this thread. I'm pleased to note that my FX trading hasn't changed much from what I've posted 2.5 years ago. My charts look the same.

My trip down the rabbit hole of system coding didn't end with an automated system. I researched many that looked promising for a while (even up to one year) but when examined over longer periods failed. That project was interrupted (things happen) and I haven't resumed that work.

It was good the reread the contributions of Captain Black and I even reread his references again (Marwood's work).

I see the TQQQ had a nasty dip but is being dragged higher by the BO-NH of the SP500. Yeah the DOW30 is charging higher as well.

While our ASX is trading sideways I've been thinking about restarting this thread. However I want something to push me a little. A goal or target so that the readers can follow along as I attempt to get to a destination. It'll have to be something that grabs my imagination. Money won't do it. An extra 50K or 250K won't change my lifestyle. Turning a little into a lot doesn't do it for me as it's just pushing the risk side of trading and I don't think that should be emphasised in a public forum. A 50R or 100R challenge is interesting. A real money trading competition is interesting. The joy for me is posting the journey and the events that happen along the way. If you have any suggestions PM me.

edit: Trading for charity or a worthwhile cause? hmm..

 

[peter2]

@ducati916 has me thinking about trading FX across different timeframes and I'm thinking I can do that by myself.
[My subconscious mind is laughing its head off, thinking I bet you can't. ]

Can I trade the 4hr setups using two timeframes for the exits. The 4hr setups trade with the daily trend. Trade one set normally and the other using an exit determined from the daily chart. If the daily trend goes for a few weeks then the results should be much better. The disadvantage of using the larger timeframe means that when the trend does change a lot of open profits will disappear.

Brief research project on back of an envelope. The AUDUSD went for a rally a few weeks ago (0.765 - 0.800) why not use this to test the idea to see if there's any merit in it.

The AUDUSD chart shows five 4hr setups (rectangles) trading with the daily trend (ribbon in bottom pane). These 5Ts would have earned 8.9R over the period which I'm pretty pleased with.



The daily trend ended at the black line top right. This is used as the exit for the four 4hr setups. One of the 4hr setups is redundant and not included. These 4Ts would have earned 17.5R. Can you believe it, that's almost double. This makes me think about the folly of taking small profits.

I know, very small sample and probably a best case example. A few months ago the AUD went from 0.70 to 0.78, a much bigger rally. However this small example does highlight the potential that must be researched further. Back testing discretionary setups is always flawed so this might be a better project for a live test. Could this be the spark to get me posting here again?

Note: More open positions means more margin required and the new ASIC limits on leverage will cramp my style. I'm applying for non-retail status to keep the leverage level higher. There will be a delay until this is sorted and account properly funded.

 

[peter2]

I've spent the past few hours paper trading my 4hr FX method with the new lower leverage limits. Shite, they make a huge difference on the number of open trades. I'm going to need margin of 300 - 500 for every $50 of trade risk. If I start a trade with a tighter iSL I'll need >$1000 for every $50 risk.

This is going to curtail the FX and crypto trading by a huge amount. I see the new limit for the cryptos is only 2:1.

Edit: There's no use keeping accounts with small amounts in them. I'm consolidating them into just one.

Further comments on the effect of the new ASIC limits on leverage for FX and CFD clients.

I think the lower limits will reduce the trading volume significantly. Small account holders won't be able to trade with a risk amount that will make it worth their while. Normally, we can increase our position size when we use a smaller initial stop loss size or when trading smaller time frame charts. The lower leverage limits won't make this possible.

These changes will significantly reduce the trading activity. How will the providers react to this? I think they may increase their commission costs and widen their spreads. Some of the old "bucket shop" dirty tricks may return. The new non-retail trading group won't be able to complain as they've signed away some of their previous retail protections.

I can see myself going back to the futures markets as the leverage, volume and protection will be greater in many markets.

It's definitely going to be a users beware environment.

Regarding this thread. I was considering operating two accounts. One for the shorter term trades and another for the exits managed by the daily charts. The idea being to place the exits for the daily trades and close it up and forget them. Having them all in the one account will test my discipline and I know I'll fail. "A man's got to know his limitations".