New Signals 9/25/14

Current Positions:
Buy GBP/USD 1.6327 +12
Buy EUR/AUD 1.4418 +28

Closed Positions:

Short EUR/USD 1.2856 +129
Short XAU/USD 1227.72 +110
Long EUR/JPY 139.39 -70

*Stops are based on the previous swing high or low prior to the signal and require an hourly close above or below this swing high or low; they are not based on a strict price.

Today's Signals 9/22/14

Nice morning action as the loss from Friday has been over taken with a really nice pop in EUR/AUD

Exit USD/CHF .9350 +35
Long USD/CAD 1.0967 +30, stop to break even
Long EUR/AUD 1.4363+113 stop to break even

New positions
Long GBP/USD 1.6331 or lower
Long EUR/JPY 140.08 or lower

*Stops are always based on the previous swing high or low prior to the signal.

Trending or Ranging? Stops or Cost averaging? Zero loss trading? Wake the fuck up.

There are a few basic unanswerable questions in intraday trading. Is the market trending or ranging? Do I use hard stops or average in? Has the market volume dried up for the day? Only the left side of the chart can give any clues. I've tried at various times to achieve some semblance of a complete system. One which avoided the draw-downs necessary in institutional standard systems popular in the trading community but I have never succeeded in achieving any level of certainty about my trading.

Last week I modified one of my basic exit criteria from using swing high extreme price levels to relying on a very good but nonetheless, delayed indicator called "supertrend." This resulted in disaster for my account. Instead of having a fixed stop loss range in place (because fills can be dubious in the forex world), I was giving myself back to the fate of the markets. Huge fuck up. Markets don't "respect" indicators. They are just tools to help confirm what you are already positioning for. Once you let indicators decide your sole entry and exit you are fucked and feeble. That's not trading, that's more like tossing a chinese star in the air with your bare hands below it. A bad idea set in motion. Sometimes I wish I had a very close trading ally. Perhaps this is why most great traders don't actually pull the trigger, they have clerks who do the "dirty work" for them.

March was a decent month. I only traded 2 weeks but came out with a 20% return on equity. Very pleased. But then I went and messed with a sound risk metric, employing "supertrend" as a stop loss rather than simply a trailing stop. This caused me to give it all back to the market. Back to humble pie for me grandma.

In addition to battle tested methods of meantrade, I have always been focused on finding a way to trade ORB (opening range) breakouts on the same chart as reversals. I finally discovered that using a trailing indicator such as the cci, stochastics or rsi on a larger time frame as a directional indicator of the current market (yes, still a lagging metric but trends tend to persist in forex for at least a few hours which is all I need to take profits on a weekly basis) creates very robust breakout trading opportunities on my constant range charts. I have been using 10 pip ranges for both my EUR/USD and GBP/USD charts as of late as I find the market is as whippy as ever and the 20 crb's were giving back far too many pips.

I am now taking the pre-London range as my two trade levels (long and short). I only trade in the direction of the 4 hour indicator (in this case the 4hr reading of the CCI should be above the 0 level). The results are not bad. With this method it enables two trade opportunities per market per day. If the market breaks out I can enter at first break and if it pulls back to a trade level I am watching, I can enter for a nice reversion trade. Now I have both sides of a good market on my radar and on the same chart. This is somewhat encouraging for me as I was often sitting staring at the screen waiting for a meantrades setup to occur while the market just takes off without any retrenchments. Not a particularly useful way to trade the forex market these days.

So I will take this massive hiccup in stride. I will stay the course, I won't take this as an indication that I have failed once again. But a very sound reminder that I have a decent system, which works but requires that I take my medicine. And everyone knows a traders medicine is their stop loss.

Meantrades Exit Strategies; taking huge swings with zero risk

In the past few years I have observed some of the debates which spring up regarding how to take a profit in intraday trading. There are 2 basic strategies.

1. Take profits at a pre-determined level and go flat.
2. Exit half a position at a predetermined level and move stop to break-even (or break-even plus enough to cover commissions).

There might be a slightly better way to achieve ideal profitability. It will require that you know the strengths and weaknesses of your system.

With regards to meantrades, there are two basic exit strategies when combined, are quite effective at maximizing profits.

The two basic techniques are as follows:

1. When price reaches the opposite keltner band from entry, we can take our profits, go flat entirely.
2. When price reaches the opposite keltner band from entry, we can move our stop to break even and begin using the supertrend stop as our trailing exit. 

The second option creates far more profits but it is not a smooth process. Perhaps 70% of all trades will be stopped out for zero gains. That's not an easy way to trade intra-day and can lead to overriding the rules of the system.

One solution to this is to work with a very rudimentary wave structure to determine which exit method to use.

One of the more effective structures is a double top or a double bottom. When taking the initial topping short trade take the keltner touch as the profit exit. However if price trades back up to the original top area and either stops you out for a loss and creates a fresh signal OR price simply tests the top, the second touch of keltner should be considered an opportunity to trail the trade and shoot for the moon.

Here is an example of the double top trade scenario:

As you can see the second short trade went much further and allowed us to benefit in several ways. By already having a nice profit for the day we could take our chances on a huge run with our stop at break even. This is what we should always strive for: take huge chances with zero risk.

A second technique, which I am toying with is to use a uniform exit strategy until the weekly target objective is met and then to switch over to the opposite one. In other words, if your goal is 100 pips a week and you started off the week using supertrend exits, once you reached the 100 pips you would then switch over to keltner exits for the remaining trades for that week. This allows you to trade with much less indecision and fear that you will miss potential profits. 

Something else in the back of my mind, although not yet tested, is to take some average of the MPE (Maximum Positive Excursion) and use that as the absolute exit for trades. I never really thought this was an ideal method to exit as it does not adjust according to volatility the same way that the Keltner bands do but I still remain curious as to the relative performance of applying keltner exits versus fixed exits. In order to create this exit strategy I would need to record the MPE as well as the MAE (Maximum Adverse Excursion) in my trade journal (which I don't do at the moment.)