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Fractal method
There is no need to jump right into the market during trading setup (whatever it may be). Smart traders spend some time figuring out the size of average intraday rotation before entering the market. Additionally, one should also consider the option of entering after a pullback. Average intraday rotation Suggested entry point Before entering a trade, take a look at the clock—what time is it? Recall from Chapter 4 that volatility may increase during the European and US session openings, so it is advisable to not rely on current volatility (which can be low). Instead, try to capture possible “noise” that may appear soon after. Additionally, as a good practice, consider the placement of stop loss order to limit losses, a subject that was also discussed in Chapter 4. ATR method Table of Contents 35 Forex tips and tricks: 10 ways to improve your trading strategy In the graph below, we built a buffer zone close to the entry point by multiplying the ATR by two and adding it to the entry price. Entry order was placed in the center of the zone. Buffer zone (24 pips) Center of the Buffer Zone Value of ATR is 12 (ATR”2 = 24 pips) Pullback and Signal to buy 1.06245 1.06115 1.0580 1.06015 1.05845 1.05715 1.05580 1.05445 1.05315 1.05180 1.05045 1.04915 1.04780 1.04650 0.0016 0.0005 2 Mar 13:30 2 Mar 17:30 2 Mar 21:30 3 Mar 01:30 3 Mar 05:30 3 Mar 09:30 3 Mar 13:30 3 Mar 17:30 3 Mar 21:30 6 Mar 00:30 6 Mar 04:30 Table of Contents 36 Optimize entry points by measuring the average volatility of intraday price action with the fractal or ATR methods. Observe and analyze the results. Key Takeaway Forex tips and tricks: 10 ways to improve your trading strategy Table of Contents 37 Chapter 08 Adjusting stops according to market’s volatility Forex tips and tricks: 10 ways to improve your trading strategy Adjusting stops according to the market’s volatility is a pretty simple and straightforward principle that many traders follow. Unless the intention is to go with a breakout or the market is expected to move quickly at that moment (momentum trading), stops should not be too tight; traders typically prepare for pullbacks and conduct tests before the market moves. Doing so allows them to hold a position and stay in the game. A 5-minute USDJPY chart is shown in the example on the next page. As the price was going up, a buying position was entered after a pullback and an engulfing candlestick pattern was spotted. Taking risk management and position size into consideration, the stop loss implemented in this case was, again, ATR multiplied by two. Adjusting stops according to market’s volatility Table of Contents 39 Forex tips and tricks: 10 ways to improve your trading strategy In general, part of the entries are usually made in both the active and comparably less active (rotational) phases of a trend. When the trend is active, one can place any stop—even four to five pips—which makes sense should the market move towards the rotational mode. This is also why most traders advice against tight stops, which can unintentionally jeopardize positions. Entry points Stop-loss level Table of Contents 40 Not adjusting stops to current market volatility can lead to whipsaws. Using market volatility for stop placements is a common method employed by traders. However, one should monitor the changes in trading results to gauge the suitability of this method in one’s trading style. Key Takeaway Forex tips and tricks: 10 ways to improve your trading strategy Table of Contents 41 Chapter 09 Widen profit objectives Forex tips and tricks: 10 ways to improve your trading strategy Today, the most consistently successful traders are those employing high frequency trading robots (quants) which are used by large hedge funds and trading firms. Their edge is built on fast access to marketplace. For retail traders, such technologies are unavailable. However, the real edge of a retail trader lies in the ability to leverage volatility and unexpectedly large moves. Quant traders simply switch off their algorithms during that period, leaving the cake to retail traders (if, of course, the trader positions himself correctly at the right time). This is also why quant traders sometimes find themselves trapped, leaning against the doorframe while trying to exit their current trades. Widen profit objectives Traders know that there are trading opportunities when they stick to their positions in volatile and turbulent phases of the market. “Let your profit run” is not just an old adage; it is a trading wisdom which can really help one bring his trading performance to the next level. Table of Contents 43 Forex tips and tricks: 10 ways to improve your trading strategy A large sell-off, supposedly initiated by algorithmic activity, presented a retail trader with an opportunity. Should a trader have had a short position on his account, he would have seen a rapid growth on this day. Although the price bounced back later in the day, the trader would have had more than enough opportunities to fix increased profit. A key observation here is that the price consolidates with very low volatility near the extremes of the intermediate term for a period of three to five days. This usually happens before massive breakouts. There is no evidence that a breakout will necessarily occur, but should it happen, the payoff would be substantial. Traders who seek such opportunities usually let some of their profits run (see Chapter 10) and work in the direction of the trend (Chapter 3). Take a look at the GBPUSD chart below, taken in October 2016: “Flash Crash” (large algorithmic sell off) Table of Contents 44 When trading with the trend, keep an eye on tight trading ranges located close to the intermediate term’s extremes over a period of three to five days. It is believed that the price can break from this range with unexpectedly large volatility. However, do note that trading in volatile markets can lead to greater losses. Key Takeaway Forex tips and tricks: 10 ways to improve your trading strategy Table of Contents 45 Forex tips and tricks: 10 ways to improve your trading strategy 46 Table of Contents Chapter 10 Manage the size of winning positions Forex tips and tricks: 10 ways to improve your trading strategy In an ideal world, allowing winning positions to run is perfectly fine, but reality works differently. Usually, only a portion of what you predicted happens—and that is only if you are lucky. Some of your trades may close with a loss (if they are managed with a stop loss), while some may give you profit, then take a turn when the market reverses, leaving you with a loss. How, then, does one effectively manage winning positions? Also, does this mean that one needs to manage all winning positions? Firstly, there are two simple methods—the use of trailing stops and partial profit-taking. Doing so can help one smoothen his/her equity curve. Secondly, there is no hard and fast rule when it comes to the management of winning positions. Traders on the 5-minute day trading setup with close targets (15 to 30 pips), for example, may choose to not manage their winning positions as price actions can be rotational on small timeframes. By placing trailing stops in such a setup, the trader actually risks experiencing whipsaw. Manage the size of winning positions Most traders do not manage their winning positions, allowing them to run to take profit orders. While this sounds like a good idea, one should always manage his/her winning positions to avoid losing the entire profit made from positive trading. Table of Contents 47 Forex tips and tricks: 10 ways to improve your trading strategy You may have heard that good traders add to their winning positions and never to losing ones.The latter part of this statement is true (adding to losing positions is not a good practice), while the former requires further analysis. When setting stop loss, it is wise to keep it beyond reasonable levels as one can never know exactly how deep a correctional move will be. So, when should one make an addition or partial exit? Target Area Retest Entry point Table of Contents 48 Forex tips and tricks: 10 ways to improve your trading strategy Logically, adding to day trades and swing trades (one to three days) is typically not recommended.In most circumstances, professional traders make partial exits with two or three intermediate targets. Buy Here Add to position here (buy somemore) Statistically speaking, adding to a relatively long term (two to three weeks) winning position makes sense. The forex market rarely moves forward without pullbacks and consolidations, and it needs time to confirm a trend. Buying immediately after the price reaches a new high may result in disappointment as there is a possibility that the price will get better in the days to come. Table of Contents 49 Forex tips and tricks: 10 ways to improve your trading strategy In addition, the odds of capturing a big move in short-term trading is very limited, which is why smart traders take profits as soon as they can. Below is an example of a partial take profit (achieved by placing a limit order that is half the size of the initial order) upon reaching the first target. The second target was a miss. 1.25390 1.24960 1.24540 1.24120 1.23700 1.23270 1.22850 1.22430 1.22010 1.21580 1.22940 Entry point (short position) Second Target First target (Daily ATR) Fix 50% of your profit Table of Contents 50 Flexibility is key to smooth and consistent trading performance. A good trader knows when to maintain his positions (e.g. in active day trades), make partial exits (e.g. in swing trades), add to his positions (e.g. in long term trades), and most importantly, to not let greed get the better of him. Key Takeaway Forex tips and tricks: 10 ways to improve your trading strategy Table of Contents 51 A professional trader and trading coach with more than 15 years of cumulative experience, Stanislav Bernuhov specializes in various trading methodologies including price action, market auction theory, and unconventional chart analysis. Currently, he manages his own capital and mentors traders worldwide. Yüklə 1,56 Mb. Dostları ilə paylaş:
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