P2: A batch of FX market trades

[sasch]

Regarding a “mechanical” stop, this can be a rules based stop (example: higher lows for a long on your chosen time frame, value area lows and highs) or an indicator (SAR, ATR Stop, SMA). The point is that you do it consistently and journal or log what you do so that a review process can allow you to see how this method is performing and what other methods could be used to improve performance.

Great thread Pete!

Thanks, CanOz.

This has given me some ideas regarding testing stop strategies. I think I will keep it simple
at the moment and focus on setups, and let the price hit my target or stop without interference.

 

[aus_trader]

Lets say I learnt the hard way on this one, but the lesson is going to stick.



Thank you, Peter for taking the time out of your day to teach, and post examples.
This thread is becoming a great resource!

p.s. I am a he.

Market broke out hard in your direction, good predicting !
I was staying out of the Euro in this choppy section of bars (red box) since direction was not clear.

 

[peter2]

My latest review of 4hr charts shows me that there are plenty of strong trends at the moment. The AUD and NZD are booming along with the USD and JPY weakness pushing EUR and GBP higher. Trends in EURJPY, GBPJPY and NZDJPY are going to the moon.

If you're not in already, well you've missed out. Our role now is to be patient and wait for our setups to form. As it's late in the week it's unlikely we'll have another trade setup. Remember I don't like holding over the weekend.

Knowing this, it's best to take some time off. Forget about trading and enjoy life. I'll take a few hours off, watch some footy and be ready for the US open later on this evening.

If you're really keen on becoming a profitable trader there's always work to do. For example, if you're creating a trade plan based on the systems I've outlined in this thread then it would be worth reviewing the charts and noting the setups that you could have used to get into the current trends. In some charts a pull-back setup formed in others you needed a break-out setup as the pull-backs were too shallow. Make notes on these setups and add them to your list of setups in your trading plan. You can make them new "plays" in your trading "playbook".

You'll need to define them clearly so that you'll recognise them when they form next week and in the future. Don't think you'll remember them so there's no need for a written outline. You need a written TP.

Get prepared for next week. When a trend changes, are you going to get into it? How? If a pull-back doesn't setup will you be prepared for the break-out?

I've only mentioned setups so far, but if you've followed the trading in this thread you should know how important trade management is. Are you going to use targets? How will you trail your exit stop? This must be written so you'll know when you've made a mistake.

The weekly update: only two trades, but a good week.

 

[Habakkuk]

IMy stats in this thread will be approx W% 60%, AW 1.3, AL -0.65, Exp 0.52. Those textbooks you mention have stats like this, W% 50%, AW 2.0, AL -1, Exp 0.50. There's no significant difference in the expectancy (or edge).

Something puzzling. In your P2 Momentum thread your average edge/expectancy was around 0.5 in a fairly inefficient market, trading mostly small-cap stocks. That's an excellent result.
Now in FX, the most liquid and efficient market of all, you're looking at a similar number.
How is this possible? I'm not doubting it as such, just asking the question. I would expect any edge to be very small.
By the way, I think the calculation in this example was incorrect. You need to normalise the risk to 1. That means AW = 2 and AL = 1 which gives an expectancy of 0.8 !?

 

[peter2]

Thanks for your interest. Lets look at the stats, then we can tackle the puzzle.

P2: ASX equity momentum trades: 260T, W% 45%, AW 1.47, AL -0.57, Edge 0.353/1R risked
P2: A batch of FX trades: (hopefully) W% 60%, AW 1.3, AL -0.65, Edge 0.52/1R risked

The "hoped for" edge in this thread is anticipated to be larger than the earned edge trading ASX equities. I don't know if this is surprising or not. It's what I get. The difference may be due to having a lower number of correlated trades in these markets compared to the higher number when trading ASX equities. I don't know. Is this the puzzle?

Or is the puzzle the different calculations for expectancy?
I don't "normalise" the AL to -1, because I don't lose an average -1R on every losing trade.

100 trades using my hoped for stats will result in 52R gained not the 80R if I "normalise".

I've noticed this different calculation of expectancy when comparing my stats to others. I personally refer to your normalised version of expectancy as a theoretical expectancy. My calculation is actual or realised expectancy. I also refer to my calculated result as an edge rather than an expectancy.

 

[Habakkuk]

The puzzle is that you have such a large edge in the most efficient market. That is not just surprising but astonishing.
Even considering the much lower trading costs compared to ASX stock trading, I can't understand how there can be such a large exploitable edge but I want to know if I can find one too.

The other surprising thing is that you seem to have started only recently. I've never heard you mention that you ran any back tests - everything you do is discretionary. You just looked at the fx charts and started trading. Why can't I do that?

The expectancy calculation is a non-issue. Van Tharp only ever uses hypothetical examples with either bags of marbles or made-up trades. There are no fractional marbles and no trades with fractional risk. Risk is always 1.

100 trades using my hoped for stats will result in 52R gained not the 80R if I "normalise".

You're right. Now if you let your losses run to 1 and your wins to 2, you would make 80R …

 

[andymac]

Sunday update. following up last weeks AUD 4hr chart. a low was found at the .62 retracement and a new leg to higher highs followed. The form of the new leg up is a bit messy from an elliot wave point of view, and was a bit messy to trade this week. i.e. not a profitable week, at least losses were minimal The new wave up can be counted as an unfinished 5 waves up and looks unfinished to me even though it has already surpassed the 100% extension of the first leg up. If it was going to be an A=C leg up it probably would have stopped right at the 100% ext. Looking at the waning MACD i am thinking 1 or 2 more small legs up to 1.23 or 1.38 ext before a larger pullback. The blue lines on the chart are a fib retracement of the whole move down in the AUD for this year. The blue line very close to 1.38 ext is a .238 retracement of the whole move down.
Lets have a look at the bigger picture. Second chart is the US dollar index daily which has been trending up for 6 months into august and correcting down for the last 5 weeks. It too shows a nice 5 wave move up into august and now what could be an A-B-C correction down. Again as per last week the 5 wave move up cannot stand alone from an elliot wave point of view, it can only be the first wave of a larger move up. So, i am expecting more upside. However, a 5 week correction down that has only retraced .38 of the move up is not usually enough of a retracement for a 6 month move up.
In fact it is a shallow enough retracement that another minor new high is possible, and that i have put my wave 5 label on the chart too early.
Assuming this is not going to happen, then i still expect a lot more downside in the US dollar before it starts a new larger leg up.
So, taking this analysis back to the AUD chart i am going to be looking up for at least another few weeks on this one and also the euro and gold which are all following similar paths in relation to the US dollar.
As an aside there is also a very nice inverse head and shoulder pattern pointing up on the daily Euro chart targeting hi 1.21's-1.22.

 

[peter2]

I post some of the trades I do but I don't show all the orders that I place trying to get into the 4hr trends. Many pending orders don't get triggered. A few orders need to be modified after price action and some orders need to be cancelled as the trend changes.

Here's an example of two pending orders to get into the existing trends in EURUSD and USDJPY. They haven't triggered yet because JPY is in demand at the moment. They'll trigger if JPY weakens once again.

 

[peter2]

Both trades have triggered as the JPY resumes it's trend. What's pleasing to see is that the entry bar on both charts has formed a bullish outside reversal bar.

T11: EURJPY: long System 4T pull-back setup
Buy 132.32, SL 132.00, risk 32p, T1 132.64, T2 132.96, logical target recent high 132.86.
As this trade has started well I've raised the exit stop to reduce open risk.
As the 4H bar formed a bullish ORB I've raised the target to T2. Price has just reached T1 as I type.

T12: USDJPY: Long System 4T pull-back setup.
Buy 112.65, SL 112.45, risk 20p, T1 112.85, T2 113.05.

Note: 11pm ECB Pres Draghi speaks, I might keep a tighter exit stop on the EJ trade or take +1.5R
JPY monetary policy meeting tomorrow am. I'll exit both trades before then.

 

[peter2]

T11: EURJPY long, hit my target (132.86, +1.7R) once Mr Draghi started talking.
Price was drifting lower (red bar) prior to his speech and I was ruing not taking the easy +1R earlier.

The EURUSD has moved more than the EJ pair but I wasn't going to open another trade with the pending news.


T12: Raised exit to 112.54 below the last 4h bar. This reduces the downside exposure to -0.5R.

 

[peter2]

Had a quick look and the only interesting charts were GBP pairs (long).
It's best if I just get out of the office and play tennis as I'm frazzled by the ANZ->CMC debacle.
Don't trade when you're frazzled. Old rule.

 

[aus_trader]

Had a quick look and the only interesting charts were GBP pairs (long).
It's best if I just get out of the office and play tennis as I'm frazzled by the ANZ->CMC debacle.
Don't trade when you're frazzled. Old rule.

Hope they sort it out for you Peter, sounds like a poorly organised platform migration from ANZ to CMC markets. I've seen in the media that ANZ was outsourcing it's technology side of trading platform to CMC markets. I think ANZ should have put more effort into seamless migration so that customers will not be inconvenienced.

 

[peter2]

Looking around the fx markets and the currencies are drifting ahead of tomorrow's FOMC news. NZD spiked after their trade balance news earlier this morning.

I've placed a few orders to catch any small moves to recent highs (EU, GJ). EU looks the most promising.

That puts the focus on the indices. The trend in the DOW is down, while it's up on NDQ and Russell. If the market falls in the US session I'll short the DOW (weakest) and if it rises I'll buy the Nasdaq.

Oil is also looking bullish and I'm stalking a buy setup. Gold is drifting aimlessly even after a surprise spike up in silver.

 

[peter2]

T13: WTI(oil) long, System 4T, trend is up with a shallow pullback.
Buy 72.30, SL 72.07, risk 0.23, T1 72.53, T2 72.76 Targeting T2 prior days high



Oil has a nasty habit of switching direction in the early UK session as the traders try to fake out each other. I use a tight stop and am prepared to have a second go because when oil moves it moves big.

 

[peter2]

T14: EURUSD, long System 4T: has just triggered
Buy 1.1773, SL 1.1755, risk 18p, T1 1.1791, T2 1.1809 targeting T1 recent high

Currencies may just drift around tonight waiting for FOMC news tomorrow. Value of R halved.

 

[andymac]

quick update to weekends post. after starting a possible new leg up to new highs yesterday it appears to have stalled, see peter's comments above re FOMC, am no longer confident either way and standing aside for now.
actually short gold this arvo.

 

[sasch]

Nice pin bar on the 4 hour AUD/NZD chart. This appears to be a support level. The tail is quite long, so I am placing my stop loss at the 50% point and entry at 1.09047. It is grinding higher ever so slowly.

 

[peter2]

I mentioned my intention to trade the US indices, Dow short, NDQ long. There was always going to be one that would trigger although I preferred the long.

T15: Nasdaq triggered after the opening 1hr bar of the US session.
Buy 7592. SL 7562, risk 30pt, T1 7622, T2 7652.

DOW setup didn't trigger as all market went up.
The Nasdaq made new highs, but didn't go on with it, prob waiting for the FOMC news.
btw: I didn't start any currency trades even though tempted.

As it happens I'm awake for the FOMC and can monitor the trade closely. FOMC news sent the markets higher in a rush and prices are past T1 and I'm going to take +1.5R (at 7537). Done.



Other trade results:
T12: USDJPY long -0.5R
T13: WTI-X8 long -1R
T14: EURUSD long -1R

Happy taking the +1.5 to partially offset the other losers. Small loss on the day.

 

[peter2]

I cancelled my DOW short and went to bed. This morning I'm surprised to see that the US markets sold off immediately I shut down.

There are a lot of ugly bars in the currency charts. I'm going to wait until the 4hr trends are clearer.

 

[sasch]

Stopped out on previous pin bar setup at -1R. As Peter noted earlier, there was an initial push upwards in the currency price after the FOMC announcement, and then it deflated.

Pete, I don't know how you have the stamina for so many late nights!

I have tried to get in once more with a buy at 50% retracement level. Entry at 1.08805, SL 1.08605, T1 1.0905, and T2 at 1.0925.