Potential swing trades

[Chorlton]

Chorlton my friend - some information is classified!

Early in my trading career an older experienced trader told me you shut yourself in your office, you study your charts, you don't listen to the financial news or read the financial pages, you don't tell anyone what you're trading or how much you're trading or what your profit or loss is. You adopt a lone wolf approach to trading, and you'll trade a lot better as a result.
Well I can't claim to follow his advice exactly, but for the most part I do.

Regarding what rules I use to determine the number of contracts......I look at the size of the stop loss, then decide how many contracts I can trade without exceeding 2% risk of my account.
Example...An intraday trader with $1000 USD in his account - if he trades 1 mini contract with stop of 20 points or less, he's within his 2% risk parameters (20 points X $1 per point per mini contract = $20 = 2% risk of his trading account.

If he has 10 grand in his account, and his stop is 20 points from entry, he can trade 1 full contract - his risk would be 20 points X $10 per point = $200 risk = 2% of his 10 grand account.

Hi Bunyip,

Apologies for the probing questions as it wasn't my intention for you to divulge any "specifics" about the way you personally trade.

I asked in response to your previous comment about giving back too much profit once in a trade. If you were trading multiple contracts for example then one solution may have been to trade one contact using a target stop of say 2-3x your risk, while attempting to let the other 1-2 contracts capture as much of the trend as possible. In combination with adjusting your stop to break-even at the appropriate time one may be able to achieve a free-trade and at the same time capture some of that initial trend.

Just a thought......

Chorlton

 

[Chorlton]

1. That's correct...a pip/point/tick is the minimum price movement that a currency pair can make.

2a. Most pairs are quoted with 4 decimal places, even though the price scale on the right of the chart may show less than 4. When you put your cursor over a price bar, a data window pops up showing 4 decimal places. On a quote screen they also show 4 decimal places.
Those with 4 decimal places are...USDCAD, GBPUSD, USDCHF, EURUSD, AUDUSD, NZDUSD, EURGBP, AUDGBP, AUDEUR.

The Jap crosses are quoted with two decimal places...AUDJPY, USDJPY, EURJPY.

The 'front currency' is the first of the pair being quoted, the 'back currency' is the second of the pair.
Example... USDCAD - $USD is the front currency, Canadian $ is the back currency.

Contract values...
A full contract is valued at 100,000 of the front currency. Example....EURUSD - one full contract is valued at 100,000 Euros.

A mini contract is one tenth the size of a full contract, and is worth 10,000 of the front currency. Example...USDCHF - one mini contract is valued at $10,000 US.

Pip values...
For the Japanese Yen crosses, a pip is valued at 1000 Jap Yen for a full contract, and 100 Yen for a mini contract.

The other currency pairs are valued at 10 of the back currency per pip for a full contract, and 1 of the back currency per pip for the mini contract.
If the AUDJPY pair moves from 75.76 to 75.77, that's a 1 pip move upward. If EURJPY moves from 133.33 to 133.13, that's a 20 pip move down.
If USDCHF moves from 107.75 to 107.76, that's a 1 pip move upward. If the contract moved from 107.98 to 107.12, that a move downward of 86 pips.

2b. The number of decimal places is standard across brokers. However, there seems to be some difference in how they express a quote. Some will quote the AUDJPY at say 75.66, while some will leave out the decimal point and simply quote it as 7566. It seems that you have to know to insert the decimal point yourself.
In fact I've seen IG quote a pair both ways - sometimes as 7566, and sometimes as 75.66

It sounds confusing, and it can be, but as you become familiar with currencies you get to know how to interpret the various ways of expressing quotes.

3. Post 69 shows a chart of AUDUSD. This pair is quoted to four decimal places. Therefore a price of .835 is actually .8350. And a price of .800 is actually .8000
The difference between .8350 and .8000 is 350 pips.
If this pair moved from .8350 to .8850, that would represent an upward move of 500 pips.

As I said earlier - It all seems confusing at first, but when you involve yourself with currencies you soon learn how to interpret the various quotes and contract values.

Hi Bunyip,


Thanks for the detailed reply. You've cleared up a lot of my initial confusion....


Kind Regards,

Chorlton

 

[bunyip]

Hi Bunyip,

Apologies for the probing questions as it wasn't my intention for you to divulge any "specifics" about the way you personally trade.

I asked in response to your previous comment about giving back too much profit once in a trade. If you were trading multiple contracts for example then one solution may have been to trade one contact using a target stop of say 2-3x your risk, while attempting to let the other 1-2 contracts capture as much of the trend as possible. In combination with adjusting your stop to break-even at the appropriate time one may be able to achieve a free-trade and at the same time capture some of that initial trend.

Just a thought......

Chorlton

I don't mind detailing my trade setups and strategies or my risk management etc. But I won't divulge specifics about my position sizes and I rarely mention how much profit I've made.
Even if I made 100 grand in a week, you wouldn't get to hear about it.

You're quite right.....trading multiple contracts gives you the ability to be quite inventive in the way you exit, by taking profit on part of your position while letting the rest run in the expectation of bigger gains.

To do this with IG you'd need to place multiple entry orders to allow yourself to bail out in stages once certain profit targets have been met.
If you bought four contracts in the one order, then attempted to bail out of one or two of them, you wouldn't be able to do it. But if you bought four contracts via four different orders, you can quit them one at a time if you wish.
Entering multiple orders is no problem when you trade from daily charts and you have all the time in the world for placing orders. Different story with intraday trading when the market is moving fast and you barely have time to enter one order, let alone several, before your entry price is reached.

 

[Grep]

Hello Grep


I find the three moving averages do a better job. Like Bollinger Bands, they contract when the market becomes directionless, and expand when the market starts trending.
The more daylight (space) between the averages, the better the trend.

Dave Landry told me in email correspondence that he too has abandoned ADX for the same reasons.

Bunyip

Hi Bunyip,

Ok sounds fair enough.I like the bollinger bands analogy.Also fits in with Landry's 'Bow Tie' pattern, the one when all of the MA's cross near a trend change point.

I am a complete convert to only trading with the main trend in your chosen time frame.Many hours of backtesting has proven this to me.

 

[Grep]

Hi Bunyip,

If you were trading multiple contracts for example then one solution may have been to trade one contact using a target stop of say 2-3x your risk, while attempting to let the other 1-2 contracts capture as much of the trend as possible. In combination with adjusting your stop to break-even at the appropriate time one may be able to achieve a free-trade and at the same time capture some of that initial trend.


Chorlton

I am not sure if this is a good idea.Getting smaller while your position moves in your favour is cutting your profit.

I try to get my stoploss to breakeven as soon as I can, then look to add.
This way you can maintain a constant initial risk while building a larger position size.

Mind you, a gap against you brings tears, but no risk, no reward.

 

[stevo58]

Hi Stevo,

Can I ask how you are only risking 0.5% of your account size on these trades? How close are you placing your stop?

Hi Chorlton.

Sorry for the late reply, work has been manic this week. I use Oanda as a broker for its capabilities for one to use odd lots as a position size. Just makes it easier to practise Fixed Fractional position sizing. You can size the positions on a contract basis as Bunyip outlines but coming from a stock background it prefer to size positions this way for the time being. Alex Douglas wrote a good spreadsheet to size such positions and this has been replicated in the website below, makes the whole process a lot easier if you've spotted an opportunity on the lower timeframes and you need to move quickly to place the trade.

http://www.forexcalc.com/forex_risk_calculator/

Hope this helps.

Steve

 

[Chorlton]

Hi Chorlton.

Sorry for the late reply, work has been manic this week. I use Oanda as a broker for its capabilities for one to use odd lots as a position size. Just makes it easier to practise Fixed Fractional position sizing. You can size the positions on a contract basis as Bunyip outlines but coming from a stock background it prefer to size positions this way for the time being. Alex Douglas wrote a good spreadsheet to size such positions and this has been replicated in the website below, makes the whole process a lot easier if you've spotted an opportunity on the lower timeframes and you need to move quickly to place the trade.

http://www.forexcalc.com/forex_risk_calculator/

Hope this helps.

Steve

Hi Steve,

Personally at this stage (whilst getting experience with FX) I would like to have the flexibility of still being able to take a particular trade set-up while placing the stop at my choice of level AND still maintaining my level of risk, so I too would prefer to use Fixed Fractional Positing Sizing.

The ability to only trade contracts/mini contracts meant this could not really be achieved so knowing that Oanda offers this is great news. I'll go and check them out.....

Many Thanks for the reply....

Chorlton

 

[stevo58]

Steve

If you want to trade the 1 2 3 setup by the book, you'd follow the rules and put your stop below Point 3 of a bullish 1 2 3 pattern.
Bear in mind though that this stop can be quite large, meaning that you'd need to cut back the number of contracts to stay within your chosen risk parameters. Either that, or bend the rules by using a smaller stop.

Alternatively, if you lean towards a more conservative approach then you'd wait for the first pullback or pausing pattern after price moves above Point 2.

I advise against bumping the risk up to 3% until you prove conclusively to yourself that you're consistently profitable.

Good luck with developing your system for trading ranging markets.
But when you have a market like FX that trends more often than not, I see no need to mess around with ranging markets. They're difficult to trade and they have smaller profit potential.
A good trending market like FX gives you plenty of trend trades over the course of a year.

Hi Bunyip,

Well the EUR/USD was kind to us last night, didn't get as much as I hoped but a couple of opportunities a week is all you need. I'd never risk 3% on these kind of setups but will consider them on the A+ setups. First comes the forward testing and if I can't replicate success in demo then I've got buckleys when I go live. When I do go live I will start with a smaller % of capital and if that works will move to the full alotment. I'm still in a drawdown at the moment but it will come, I had a go at the USD/CAD trade short this week which didn't work out, loads more trades to come.

You're dead right about just waiting for the trending opportunities and the A+ setups, some of the trends have been unbelievable this year. Just need to identify one, wait for a low risk entry and ride it. Trading is simple, we make it hard. Maybe thats what I'm doing thinking about trading ranging markets, leave alone and wait for the trends in open blue sky. That said, I would like a ranging tool for the arsenal and if I can't make it work in demo then I will fully jettison the approach, us human beings are curious beasts by nature! I'm simply researching an approach using price action near major Support/ Resistance levels - simple for a simple mind like mine.

I'm having quite a bit of joy with the 1-2-3 approach but trading short term certainly stirs up its own set of emotions. Quite incredible how the markets come to life during the London open. Might drop down a timeframe to 15 mins like yourself just makes it easier to manage the trade. So far the results have been good but am very aware its early days.

All the best,

Steve



Grep,

Welcome to the forum. Good thread going here, listen to Bunyip, the guy has several good theories with which to approach the markets. Thats what attracted me to the thread in the first place.

Thanks,

Steve

 

[Grep]

Hi Bunyip,

Grep,

Welcome to the forum. Good thread going here, listen to Bunyip, the guy has several good theories with which to approach the markets. Thats what attracted me to the thread in the first place.

Thanks,

Steve

Steve, thanks for the welcome.
Yes I agree, its pretty clear to me that bunyip knows what he is talking about.

(Also long EUR/USD and CHF/USD ,daily bars, futures contract)

 

[bunyip]

I am not sure if this is a good idea.Getting smaller while your position moves in your favour is cutting your profit.

I try to get my stoploss to breakeven as soon as I can, then look to add.
This way you can maintain a constant initial risk while building a larger position size.

Mind you, a gap against you brings tears, but no risk, no reward.

Yeh, that's my approach too......get the stop to break even, then look for further setups to add to my position.
I don't like the idea of reducing my exposure by quitting part of my position just when the trade is moving in my favour.

Forex rarely gaps - when it does, the gap is usually between Fridays close and Mondays open. Fortunately the gap is usually in the direction of the trend, so if you trade with the trend you can actually benefit from the gaps in Forex. But gaps are, as I said, quite rare in FX pairs.

 

[Chorlton]

Hello All,

For all those that trade FX using Daily charts could someone clarify a few points for me please.

(i) As FX is a 24hr Mrkt, what time/timezone is used to determine the Open of each daily bar and is the same time/timezone used by all providers? I have read that in the case of Oanda this time is 00H00 New York Time but have been unable to find out about IG Mrkts and other Brokers just yet.

(ii) Depending on your own graphical location compared to the timezone used by the broker to determine the Open for each Bar, how does this affect ones strategy if it is based on Daily bars?

For example, assuming that (i) I was using Oanda (which uses 00H00 New York Time) and (ii) I lived in Australia, then the last Daily Bar that I would see on my Oanda's Daily chart would be different to the current "latest" prices. Consequently, if ones strategy was to buy at the next open following a trade set-up then potentially this price level may have already been breached, which would affect your entry point.


Apologies for the questions but as I'm in the process of opening an account I thought I would clarify some concerns in the meantime.


Many Thanks in advance,

Chorlton

 

[bunyip]

Here's a swing trading system that uses candlestick reversal patterns exclusively for snaring some decent moves in the Forex market.
A candlestick pattern is comprised of two or more candles, however I'll stretch that definition to include single candlesticks.
There's a lot of misinformation printed about candlestick reversal patterns. Every candlestick book or candlestick website you look at will show you a trend that magically reversed direction after the appearance of a candle reversal pattern.
The fact is that candle reversal patterns are far more reliable as trend continuation patterns rather than as trend reversal patterns.
This system uses them only as trend continuation patterns. Therefore, a trend must by established when the candle reversal pattern shows up. The slope of 10, 20, & 30 EMA's show the direction of the trend.
Knowing where to look for certain patterns is just as important as knowing how to identify the pattern itself. The most reliable candle reversal patterns occur after there's a brief pause or a brief retracement during the trend.
The appearance of the candle reversal pattern shows that the pause or retracement is finished and the trend is about to resume.

My eyes glaze over when I read that there are more than 50 recognised candle patterns - I'd run myself ragged if I searched for 50 different patterns, many of which are very subjective and have questionable reliability.
In keeping with my preference for simple, bare bones trading strategies, this system focuses on just six of the most reliable candle reversal patterns. In fact there's really only three, since the first three are simply the mirror image of the second three.
All of them are easy to recognise and are quite reliable when used according to the system.

The six candle reversal patterns are....

In downtrends...
Bearish Engulfing pattern
Shooting Star
Gravestone Doji

In uptrends...
Bullish Engulfing pattern
Hammer
Dragonfly Doji

Once a candle reversal pattern shows up after a pause or retracement during the trend, an entry order is placed a few points on the trendward side of the pattern, with an 'if done' stop loss a few points on the opposite side of the pattern.

As a profit-taking exit, the system trails a stop 0.1% above the high of the last 3 candles (for shorts), and 0.1% under the low of the last three candles (for longs).
In keeping with a true swing trading system, this exit strategy does a handy job of keeping you in while the trend moves in your favour, and taking you out as the next swing starts moving against you.

The system is simple and logical, and follows the three tenets of profitable trading...
1. Trade with the trend.
2. Limit your losses.
3. Let your profits run.

It produces both winning and losing trades. Stop losses control the losers so they don't turn into massive losses. The winners are sometimes small and sometimes big. Overall, the average winner is significantly larger than the average loser. On end of day charts it produces plenty of trades over the course of a year if you follow 8 to 12 pairs. On intraday charts of 15 minute timeframe, it averages at least a couple of trades most nights if you follow six currency pairs.

To best illustrate the system, I've given only examples of trades that produced good profits. Of course, not all of them work out so well, and some of them actually lose. But as long as you win more pips than you lose, you have a profitable system.
A picture is worth a thousand words - the charts below show the workings of the system.

 

[bunyip]

Hello All,

For all those that trade FX using Daily charts could someone clarify a few points for me please.

(i) As FX is a 24hr Mrkt, what time/timezone is used to determine the Open of each daily bar and is the same time/timezone used by all providers? I have read that in the case of Oanda this time is 00H00 New York Time but have been unable to find out about IG Mrkts and other Brokers just yet.

(ii) Depending on your own graphical location compared to the timezone used by the broker to determine the Open for each Bar, how does this affect ones strategy if it is based on Daily bars?

For example, assuming that (i) I was using Oanda (which uses 00H00 New York Time) and (ii) I lived in Australia, then the last Daily Bar that I would see on my Oanda's Daily chart would be different to the current "latest" prices. Consequently, if ones strategy was to buy at the next open following a trade set-up then potentially this price level may have already been breached, which would affect your entry point.


Apologies for the questions but as I'm in the process of opening an account I thought I would clarify some concerns in the meantime.


Many Thanks in advance,

Chorlton

To be honest I really don't know the answers to your questions.
All I can tell you is that my end of day data is available for download at around 8 - 8.30am each day.
Price usually has not reached the level of my intended entry by the time I download and place my entry order.

 

[Grep]

Hello All,

For all those that trade FX using Daily charts could someone clarify a few points for me please.

(i) As FX is a 24hr Mrkt, what time/timezone is used to determine the Open of each daily bar and is the same time/timezone used by all providers? I have read that in the case of Oanda this time is 00H00 New York Time but have been unable to find out about IG Mrkts and other Brokers just yet.

(ii) Depending on your own graphical location compared to the timezone used by the broker to determine the Open for each Bar, how does this affect ones strategy if it is based on Daily bars?

For example, assuming that (i) I was using Oanda (which uses 00H00 New York Time) and (ii) I lived in Australia, then the last Daily Bar that I would see on my Oanda's Daily chart would be different to the current "latest" prices. Consequently, if ones strategy was to buy at the next open following a trade set-up then potentially this price level may have already been breached, which would affect your entry point.


Apologies for the questions but as I'm in the process of opening an account I thought I would clarify some concerns in the meantime.


Many Thanks in advance,

Chorlton

I dont know how they work out the open close times either.

I place stop entry orders so the market has to move to my entry price from wherever it is when I place the order.I couple that with an 'ifdone' stoploss order.Many times I never get filled because the market turns and moves away from my stop entry price.

All this basically means that I don't have to worry too much about open/close times and prices. I wouldn't get too hung up on the exact price you enter on. I concern myself with handling the trade once its on,particularly if its losing money !

 

[Chorlton]

To be honest I really don't know the answers to your questions.
All I can tell you is that my end of day data is available for download at around 8 - 8.30am each day.
Price usually has not reached the level of my intended entry by the time I download and place my entry order.

I dont know how they work out the open close times either.

I place stop entry orders so the market has to move to my entry price from wherever it is when I place the order.I couple that with an 'ifdone' stoploss order.Many times I never get filled because the market turns and moves away from my stop entry price.

All this basically means that I don't have to worry too much about open/close times and prices. I wouldn't get too hung up on the exact price you enter on. I concern myself with handling the trade once its on,particularly if its losing money !

Thanks for the replies Guys....

 

[stevo58]

Hello All,

For all those that trade FX using Daily charts could someone clarify a few points for me please.

(i) As FX is a 24hr Mrkt, what time/timezone is used to determine the Open of each daily bar and is the same time/timezone used by all providers? I have read that in the case of Oanda this time is 00H00 New York Time but have been unable to find out about IG Mrkts and other Brokers just yet.

(ii) Depending on your own graphical location compared to the timezone used by the broker to determine the Open for each Bar, how does this affect ones strategy if it is based on Daily bars?

For example, assuming that (i) I was using Oanda (which uses 00H00 New York Time) and (ii) I lived in Australia, then the last Daily Bar that I would see on my Oanda's Daily chart would be different to the current "latest" prices. Consequently, if ones strategy was to buy at the next open following a trade set-up then potentially this price level may have already been breached, which would affect your entry point.


Apologies for the questions but as I'm in the process of opening an account I thought I would clarify some concerns in the meantime.


Many Thanks in advance,

Chorlton

Hi Chorlton,

I like your name, takes me back to kiddies tv in the 70s. There is a little problem here as I see you've realised with EOD data incorporating the FX world. Markets open at 05.00 am aussie time (NZ Open), I know as I have to cover them for my job.

One thing I've learnt is that a lot of people discount this time in their analysis and refer to it as a Sunday bar and concentrate on the London open as the start of the week. So if you were looking to trade a Bullish Engulfing pattern then you would take Fridays bar as the benchmark to compare with the Tuesday bar. I'm not saying this is right but a lot of people appear to follow this thinking which lends it some credibility. A lot of the liquidity comes onto the market from the London open so in my mind its a good way to start the working week. If you are going to use MT4 as basis for your data and charting then there are different versions which cover different time periods. I think its Alpari that covers the London open and can be downloaded free. Sorry, you're using Oanda of course, not thinking, I use Aplari to scan for daily and 15 min setups and Oanda to demo trade.

Theres no easy solution to this and I understand your concerns but unfortunately we have to live with the bogus Sunday bar which often misleads. Also data on a Friday afternoon (EST) can be slow and liquidity drains from the market.

As I mentioned I use the UK open as the benchmark but I guess we all have to find the methods that suit. I know this doesn't totally answer your questions but its my line of thinking.

Thanks,

Steve

 

[bunyip]

(Also long EUR/USD and CHF/USD ,daily bars, futures contract)

Grep....Do you trade currency futures?

 

[bunyip]

Hi Bunyip,

Well the EUR/USD was kind to us last night, didn't get as much as I hoped but a couple of opportunities a week is all you need. I'd never risk 3% on these kind of setups but will consider them on the A+ setups. First comes the forward testing and if I can't replicate success in demo then I've got buckleys when I go live. When I do go live I will start with a smaller % of capital and if that works will move to the full alotment. I'm still in a drawdown at the moment but it will come, I had a go at the USD/CAD trade short this week which didn't work out, loads more trades to come.

Win some, lose some.
Your timing was a bit unfortunate with USDCAD Steve, since you came in near the end of the trend.
That pair is now in the early stages of a new uptrend and there should soon be opportunities on the long side if the trend keeps going.
Patience is the name of the game.....sit and wait for the setups to come to you. When they do, stack the odds in your favour by controlling the losses and letting the profits run.
It's difficult not to make money if you keep doing that consistently.

 

[Grep]

Grep....Do you trade currency futures?

bunyip,

Yes, well CFD's over the futures contract, not the spot market.
Thats why the CHF quote is the other way around.

Why futures and not spot, well I have the historical data for futures and I also use Amibroker for charting and backtesting so its just easier to trade the futures contract at this time.

It also trades 24hrs (well its about 23 hrs I think).

 

[Grep]

I'm still in a drawdown at the moment but it will come

Steve

I am used to that. I have just closed out my 23 loss in a row.(CHFUSD Trade)
This has produced a drawdown of 5.34 percent.This is a longer than usual run of losses for me.Around five or so losses in a row is more normal.Average win percentage is about 40%.

I am ruthless with stops.If a trade doesn't start working for me right away, it gets the flick.It gets maybe two days,three if I am in a good mood and if its not in profit, its closed. If it is in profit, move stop to breakeven.

I get a low winning percentage, but my win/loss ratio is big.Two or three winning trades will erase that drawdown and hit new equity highs.