Chart of the Day - Page 25

Thomas Long · #**361** (**permalink**) 08-07-2009, 11:02 AM

If you bought on yesterday's move up through resistance, the NFP release has been kind to your position. When I get some follow through on my trade, I like to get into a position of strength by moving my stop from below support up to breakeven as soon as possible. To me, that means a move of about 75 pips on the EUR/GBP, a move of about 100 pips all most other pairs, but a move of about 150 pips on the GBP based pairs. So if this pair moves to about the 1.3875 level, I would move my stop to where my entry was. This means that I could breakeven or profit on the trade. That is a nice position to be in. But then I could also look to take that 5% risk that I limit my account to and find another trading opportunity. If the markets get into a strong trending mode, I can find myself with a few open positions. But my risk is limited to 5% of my account balance or less.

JForex · #**362** (**permalink**) 08-11-2009, 11:03 AM

Hi Tom,

I saw your comments that once you have a Daily trend you wait for the 4-hour Stochastic to cross the 20/ 80 levels for entries.

I was analysing the charts and found that there will be rare moments when the 4 hour crosses these 20/ 80 levels inside a Daily trend. The Stochastic lines will cross, but the 4-hour timeframe is too close to the Daily to cross the 20/ 80 levels inside the Daily trend. You can draw a colored box on the Daily trend and move to the 4-hour chart to see what I am saying.

We can see the 1-hour Stoch crossing these levels many times, and looking back, these points form great entries.

So my question is, don't you think that waiting for the 4 hour Stoch to cross 20/80 levels inside the Daily trend is demanding too much. It might not happen in days and days, and not even at all sometimes.

Can you please comment?

Thanks,
Jaspreet.

Thomas Long · #**363** (**permalink**) 08-11-2009, 11:12 AM

Quote:

Originally Posted by JForex

Hi Tom,

I saw your comments that once you have a daily trend you wait for the Stochastic to cross down from above 80 and up from below 20 on the 4-hour.

I was analysing the charts and found that there will be rare moments when the 4 hour crosses these levels on a daily trend. At most, the Stochastic lines cross indicating a dip.

On the 1 hour though, we can see many crosses from above and below these levels. Any timeframe below this would be immaterial to catch on the Daily trend.

So the question I have is, dont you think waiting for the 4 hour Stoch to cross 20/80 levels is demanding too much. It might not happen in days and days and not even at all sometimes.

Can you please comment?

Thanks,
Jaspreet.

It is true that by using the 4-hour chart you probably limit yourself to two or three trades a month. However, that is enough for me as I tend to stay in trades longer than most would prefer. The 4-hour chart also potentially provides a higher win percentage than the shorter-term charts. Having said that, we do recommend traders use the hourly chart to find their trades if they want to be more active. Most likely the win percentage will be lower, but with more trading opportunities, one might end up with more in actual profits than by using the 4-hour chart. If you do trade on the hourly chart, I would recommend trading in the direction of the 4-hour chart to maintain some continuity between time frames. I would also make sure that the daily chart does not show the opposite trend of my trade on the hourly chart. Either choice is proven and it is really a matter of personal preference which one to use. I have tried the hourly, but felt I missed too many trades that set up during the London session, which is in the middle of the night for me. Rather than miss some good trades, I simply switched to the 4-hour chart and accepted less trades. That is fine for me, but all traders should decide what is best for them. That is a big part of successful trading.

Thomas Long · #**364** (**permalink**) 08-11-2009, 02:24 PM

Most currency pairs are in a countertrend move which can mean a trading opportunity. I think it best to wait until after Wednesday's US FOMC meeting to see if the Fed has anything new to say about the US economy. Having said that, I see the NZD/JPY as being fairly strong which means that buying this pair might increase our chance of success. We have seen a small bounce already, but it too early to consider this a sign that the buyers are back in charge. Traders are most likely better off waiting until the US central bank meeting ends and then use their favorite indicator to better time their entry. We will take another look tomorrow after the 215PM Eastern FOMC announcement.

JForex · #**365** (**permalink**) 08-11-2009, 11:44 PM

Quote:

Originally Posted by Thomas Long

If you do trade on the hourly chart, I would recommend trading in the direction of the 4-hour chart to maintain some continuity between time frames. I would also make sure that the daily chart does not show the opposite trend of my trade on the hourly chart.

1. Basically, are you advising to wait for the hourly, 40hourly and daily charts to come in the same direction?

2. You trade the H4. What do you do when the H4 and Daily are in the same direction but the hourly is not?

Thanks,
JForex.

Thomas Long · #**366** (**permalink**) 08-12-2009, 08:43 AM

Quote:

Originally Posted by JForex

1. Basically, are you advising to wait for the hourly, 40hourly and daily charts to come in the same direction?

2. You trade the H4. What do you do when the H4 and Daily are in the same direction but the hourly is not?

Thanks,
JForex.

Basically, if I am trading on the 4-hour chart, I don't even look at the hourly chart. I start at the daily chart and work my way down to find a trade. If it is there on the 4-hour chart, then I take the trade and manage it on the 4-hour chart. All of the time frames do not have to be moving in the same direction. If I am buying a pullback down to support on the daily chart, then the hourly chart will zoom in on that pullback and make it appear to be a downtrend. That is why it is key for me to work from the top down...meaning that I start with the daily and work my way down.

Thomas Long · #**367** (**permalink**) 08-13-2009, 09:44 AM

This morning's release of US Retail Sales resulted in a pullback of the NZD/JPY (and most other USD and JPY pairs). This is where blind faith of the trend comes into play. Traders who still think we are in an uptrend on this pair can buy in this area and place their protective sell stop below yesterday's post US FOMC announcement low in the 64.12 area. What are the chances of this market reverse and continue the move up? Who knows for sure, but we can start with a 50/50 chance. This is why money management is so key to profitable trading. The use of a 1:2 risk:reward ratio makes the 50/50 propositions a solid trading opportunity. If we risk 75 pips on the trade, we should look for at least 150 pips in profit. Trading is really a numbers game where you find these situations and consistently take them. We have no control over the market, but we do control the way we position our trades to take advantage of these emotional moves against the trend. Sometimes we win and sometimes we lose. There is no way around that, so we have to accept it and make it work for us.

JForex · #**368** (**permalink**) 08-17-2009, 11:06 AM

You mention several times to seek 1:2 R:R ratio in our trades. I completely understand the motive behind it, and there is no doubt that this is the way to go.

However, I see two problems with this idea.

One, that no matter what reward level we seek, it enforces nothing on the price. We can seek just anything - I would love to have 1:10 R:R ratio in my trades. But 1:2 or 1:10, the setting might not even come to play. The fact is that Price does not have to respect it and can just turn back anytime. So how does this decision even matter?

Two, on occasions when price does make it to this reward level, that is the only time when this decision gets a chance to help, if anything. In those cases, again, price can continue to move on when we only took 1% of the trade.

Even if we exempt the second problem since it gives us something, I see a fundamental problem with the first part.

Can you comment on it?

Thanks,
Jaspreet.

Thomas Long · #**369** (**permalink**) 08-17-2009, 01:53 PM

Quote:

Originally Posted by JForex

You mention several times to seek 1:2 R:R ratio in our trades. I completely understand the motive behind it, and there is no doubt that this is the way to go.

However, I see two problems with this idea.

One, that no matter what reward level we seek, it enforces nothing on the price. We can seek just anything - I would love to have 1:10 R:R ratio in my trades. But 1:2 or 1:10, the setting might not even come to play. The fact is that Price does not have to respect it and can just turn back anytime. So how does this decision even matter?

Two, on occasions when price does make it to this reward level, that is the only time when this decision gets a chance to help, if anything. In those cases, again, price can continue to move on when we only took 1% of the trade.

Even if we exempt the second problem since it gives us something, I see a fundamental problem with the first part.

Can you comment on it?

Thanks,
Jaspreet.

Sure....you are right that the market doesn't care what we want and it will do what it wants whenever it wants. But we have to adopt the thought that we want to make alot more when we are right than we lose when we are wrong. This is the challenge in successful trading. It is the hard part. But we are not likely to be consistently profitable without always trying to get a bigger gain. I would say that most experienced trend traders do not trade with a price target in mind. They are instead looking for those big moves which can take care of a couple of losses, not just one or two. But this is hard to teach to new traders who instead prefer to have their approach quantified. Using a 1:2 risk:reward ratio along with the recommendation of moving your stop to breakeven if/when the market moves halfway to your target is one way to quantify the approach. There are better ways, but there are many more poor money management approaches. The markets don't usually move too far without a corrective move, but research has shown that the 1:2 risk:reward ratio is valid in that we are not asking for too much or risking too much. Also, by trading with the trend, we put ourselves in a position of getting twice the risk in profit and that also plays a big hand in our trading results. This money management approach may not be perfect, but it is better than what the vast majority of new traders use. That is our goal. You may be ready to move onto a more advanced approach and that is bound to happen with time and experience. But for those who have no approach or like to automate their money management approach, the 1:2 risk:reward ratio is a solid approach to managing your trade.

JForex · #**370** (**permalink**) 08-17-2009, 05:32 PM

Are you saying that it will even be better than 1:2 to ride the trend until it exhausts? And more experienced traders would do that than setting measured limits?

In that case, until which trend exhausts? The reference, or the timing, e.g. , Daily or the H4?

One approach of exiting the trade, other than setting a 1:2 limit, is to keep moving the stop to the newer swings that occur as price moves on. We only exit when out stop is hit. I have not got to a winning level of trades yet, so cannot say if it works or not.

Thanks.

JForex · #**371** (**permalink**) 08-17-2009, 08:21 PM

Hi Tom,

Another question. Stochastic crosses on H4/ H1 do a good job in location pullbacks. However, when they occur, I am away.

How do you get alerted on them?

I have coded MT4 alerts but having the computer on at all times and uninterrupted connection is not possible. I wish there was a website that could let us create custom alerts based on indicators. Are you aware of anything that can solve the purpose?

Thanks,
JForex.

lissyking · #**372** (**permalink**) 08-17-2009, 10:02 PM

Hey Thomas, long time we dont talk!
I have a question for you.
Where is the best place to place our stops? For example in an uptrend, do we place the stop few pips below the support line or the previous low below the support line?

King

Thomas Long · #**373** (**permalink**) 08-19-2009, 09:30 AM

Quote:

Originally Posted by JForex

Are you saying that it will even be better than 1:2 to ride the trend until it exhausts? And more experienced traders would do that than setting measured limits?

In that case, until which trend exhausts? The reference, or the timing, e.g. , Daily or the H4?

One approach of exiting the trade, other than setting a 1:2 limit, is to keep moving the stop to the newer swings that occur as price moves on. We only exit when out stop is hit. I have not got to a winning level of trades yet, so cannot say if it works or not.

Thanks.

If you enter on the 4-hour chart, you should exit on the 4-hour chart at least until you can incorporate other time frames in your money management approach successfully.

Manually trailing your stop based on new lows/highs is exactly what it means to work a trade. This is what you want to do. Some of the best trend traders in the world dare the market to reverse and stop them out (hopefully with a profit). But the idea of trend trading is to let it ride and take what the market is willing to give you instead of setting a target. But this does take some time to master. So until you get to that point, we recommend a 1:2 risk:reward ratio.

Thomas Long · #**374** (**permalink**) 08-19-2009, 09:37 AM

Quote:

Originally Posted by JForex

Hi Tom,

Another question. Stochastic crosses on H4/ H1 do a good job in location pullbacks. However, when they occur, I am away.

How do you get alerted on them?

I have coded MT4 alerts but having the computer on at all times and uninterrupted connection is not possible. I wish there was a website that could let us create custom alerts based on indicators. Are you aware of anything that can solve the purpose?

Thanks,
JForex.

We use Intellicharts from FXtrek to send trading signals to our cellphone via text message, but you can also have an email sent to you. It is usually the premium charting packages that have this feature. Here is a link to some that have the FXCM price feed:

Forex Trading Charts | Currency Charts | ProRealTime | FXtrek Desktop

Thomas Long · #**375** (**permalink**) 08-19-2009, 09:45 AM

Quote:

Originally Posted by lissyking

Hey Thomas, long time we dont talk!
I have a question for you.
Where is the best place to place our stops? For example in an uptrend, do we place the stop few pips below the support line or the previous low below the support line?

King

Hello there.....you can do either. I typically will use the most recent support line for my stop placement. But if the previous low is not that far from the most recent support line, I will sometimes use that to my advantage and place my stop below the lower low. If my risk is not that much larger, I will take the added protection the second support line should offer.