Creating boudaries where there are none

An important aspect of successful trading is the concept of creating boundaries and rules to help present the market to yourself.  There is no exact correct way to do this but I will share my general view of this using a current EY chart to demonstrate.

First off , define a trend, theres many ways to do this, just pick one.  In the attached chart, starting at the left the first horizontal line defines a trend moving to the upside . simple as breaking the swing high.  what follows is 3 tradable moves up.  each move up was significantly longer than the moves down.  First sign of a trend change the other way is when the leg down is longer than the previous ones, and as long as the last up leg.  I like to wait for a break of the new swing low ( the second horizontal line ) and my brain switches to down.  My bias is down as the market consolidates before giving a couple of short trades.  The pair then makes a bit of a stonger move up giving me my first indication the trend may change again, it  retraces , fails to make a new low and breaks the swing high to motivate me to look for long trades again. I take the signal I like and that brings me to where I am today ( up 272 ). 

Be real with your expectations.  In the first 3 tradable moves the up legs were around 400 pips each, the down legs 200 or less . ( that's why I trade with the trend). of those three 400 pip moves ( and I traded all three) I squeezed out about 300 ( total ) with no losses.  that's it , 300 out of 1200 or more.  don't focus on what you didn't get, focus on what you did get.  On the next move down on 2 signals I had one loss ( about 70 ) and 1 break even.  down 70 on the move.  the current run up has me up 272 with the stop around 185, so a guaranteed winner.  And it goes on and on more or less like that.  Note this pair only offered me about 6 trades since November.  that's it, but im a net positive and that's what counts.

For the pattern guys out there theres 2 head and shoulders ( one is inverted ), for the wave counters theres nice 5 wave moves ( with a couple of complex corrrections).  you can do what ever you want , it will all work if applied consistently.

For those interested the actual trades are followed on a 1 hour chart, but it doesn't really matter, that's just what I like.

The rubber boots take home message of the day is create firm boundaries and stick to them.  Anything that lacks objectivity is likely to fail.

Hopefully the picture says a thousand words

Views: 129

Comment by Indy on March 9, 2014 at 7:09pm

Nice post Talisman,

simple, understandable approach, very interesting



Comment by talisman on March 9, 2014 at 7:28pm

thx indy, means a lot to me to have your input

Comment by talisman on March 12, 2014 at 1:08am

heres how it ended up. 185 in the black. my personality doesn't like targets as a rule,  and my experience is overall i gain more than i lose trading this way, but it takes a little practice to get used to giving so much back.  it is a tough sell for most people to buy into the idea that for the greatest gains you must also give the most back.

i shall look for a retracement now and reenter long when i see a value entry as long as the retracement does not exceed the swing low


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