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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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My style within a strategy is to get into the trade all at once and then scale out as the trade goes my wayAs with most of the scenarios, I'm speaking directly from the painful and frustrating experiences all newer traders have. This particular scenario is where the following often quoted trader saying comes into play; Don be a dick for a tick. I keep this somewhat crude phrase handy so that when I see a setup, I just get into the trade and try not to finesse my entry. Entries are a dime a dozen. It's the exits that make you money. Forex Markets AUDUSD, May 30,2005 1. On this |20-minute chart of AUDUSD we get a first test of the highs at 0.7638 (see Fig. 14.8). Once the market sells off from this level, I draw a horizontal line across the high. 2- The market sells off and pushes as low as 0J584.1 start off drawing a line at this level. The market bounces and retests this level again before moving higher 3. Ar point 3 we get another test of the highs, pushing up a little bit above the previ ous highs. 4. Once this high is tested, the markets stair-step their way back to the lows at point #4. After the four price tests are complete, and prices rally about 25 percent back into the box (the width of the box is 54 pips, so 25 percent of this is about 14 pips), 1 place a buy stop order at 0.7639 and a sell stop order at 0.7583. Prices rally almost all the way to the top of the channel before rolling over and heading lower. Finally, on May 30, 2005, my sell stop is hit. It is important to remember that f had to wait patiently for this setup to execute. After I placed my buy and sell stops, I had to wait 44 hours before one of them was hit. 5. After my sell stop is hit, my original buy stop becomes my stop loss on this trade. My target is the width of the box, which is 54 pips away at 0.7530. The markets move quickly down to this level but don't quite make it. Then they bounce all the way back to my entry, pause, and then reverse back lower, plunging violently into my buy limit order I'm out for 54 pips, a gain of $540 per lot being traded. I want to emphasize again how important it is to be patient in trading and waiting for the right setup. This trade took 76 hours to setup. Then, once I placed my orders, it took another 44 hours for one of them to be hit. And after I was filled, it took another 34 hours for my target to get hit. This one trade spanned 154 hours. In trading, patience is a virtue, while impatience triggers devastation. 1. On this 120-minute chart of EURGBP we get a first test of the highs at 0.6867 (see Fig. 14.9). Once the market sells off from this level, I draw a horizontal line across the high. 2. The market sells off and prints a low of 0.6848 before bouncing higher. I draw another line beneath this level. 3. Prices firm and rally back up to the highs. Once this level tests and prices roll over, I wait to see if a retest of the lows will hold. 4. And we get another test near the lows. Once the four price tests are complete, I wait to see if the markets can rally at least 25 percent back into the box. Since the width of the box is 19 pips, 25 percent would be about 5 pips. Once this happens I place a buy stop order at 0,6868 and a sell stop order at 0,6847, This box is pretty clean. 5. Prices come back up to retest the highs, sell off to the middle of the box, come back up yet again to test the highs, and then finally rollover and go through the lows, filling my sell stop order. My buys stop order stays in place as my stop. EURGBP sells off quickly and my target is hit on the second bar at point 5. (Of course, quickly is a relative term as these are (20-minute bars). This currency pair is worth around $18 a pip, so the 19 pip target yields a gain of $342 per lot. Forex MarketsUSDCHF, June 10, 2005 1. On this 60-minute chart of USDCHF, thene is an initial test of the highs at 1.2577 (see Fig. 14.10). Prices quickly fall from this level and I draw a horizontal line across the high, 1. USDCHF sells oft to 1.2519 at point 2, Once prices start to rally oft this level I place a horizontal line across the lows. 3. Prices shoot up and retest the highs at point 3. 4. This is quickly followed by another test of the lows at point 4. Once prices rally about 25 percent back up into the box, 1 place my orders, wilh a buy stop at 1.2578 and a sell stop at 1,2518, Twenty hours later, after retest ing the lows yet again, prices firm and bust out through the highs, triggering my buy stop order. My sell stop remains in place as my stop loss on the trade. Prices plow forward and it doesn't take long for my target to get hit. The gain is good for 58 pips, or roughly $464 per lot. Forex MarketsEURJPY, April 7, 2005 1. On this 60-minute chart of EURJPY we get a first test of the highs at 140.03 (see Fig. 14.11). Once the market sells off from this level, 1 draw a horizontal line across the high. 2. The market sells oft to point 2 at 139.66 and bounces. I draw a line underneath this level. 3. We rally quickly back up to the highs for the third test. 4. Once prices test the highs, they quickly roll over and test the lows and we now have the fourth test of ihe box in place. Once prices rally back 25 percent into the box, I place my orders, a buy stop ai 140.04 and a sell stop at 139.65. 5. Prices rally to just beneath my buy stop, and then roll over and trigger my sell slop. My buy stop stays in place as my slop loss order. Prices consolidate near the lows for about 5 hours before breaking lower and hitting my target at 139.30 for a gain of 36 pips, or about $288 per lot. Forex MarketsGBPJPY, May 16, 2005 1. On this 240-minute chart of GBPJPY, we get a first test of the lows at point I at 197.86 (see Fig. 14.12). Once the market rallies off of this level, I draw a horizon tal line across the lows. 2. The market rallies and stays in the upper part of its range for a long lime. We test the highs three times before selling off to test the lows again. Even though we test the highs three times, this only counts as test 2 of the box. For this upper part of the range to become an official part of the box, it has to be offset with another corresponding test of the lows. (For example, three tests of the highs and one test of the lows does not make a box). I keep my line across the highs at 199.24 and wait to see if we will get another test of the lows. 3. At point 3 the market finally sells off and retest the lows. 4. It doesn't lake long for the market to rally back up and test the highs of the box at point 4, and once prices fall back to within 25 percent of the boxes range, I set up my buy stop order at 199.25 and my sell stop order at 197.85. 5. Prices continue lower and hit my sell stop order. My buy stop order stays in place as it is now my stop loss. Prices proceed quickly and without pause down to my target, and I'm out for a gain of 139 pips or about $1,112 per contract. 1. This play was particularly fun as it occurred while 1 was finishing the rewrites on this chapter, and I was able to capture this live on my execution platform. On this 15- minute chart of EURJPY we get a first test of the highs at 1.3784 (see Fig. 14.13). Once the market sells off from this level, 1 draw a horizontal line across the high. 2. The market sells off and pushes as low as 137.63. Once prices rally off of this level, I draw a horizontal line across the lows. 3 Here we get another test near the highs at point 3. 4. The markets drift back down and retest the lows. Once prices rally back about 25 percent into the box. I place a buy stop order at 137.85 and a sell stop order at 137.62. 5. The market rallies right off the lows to and through the highs. My buy stop order is triggered, and shortly thereafter my target is hit for a gain of 21 pips, or $168 per contract. 4. Ringing the Cash RegisterScaling Out of a Position as It Goes Your Way My style within a strategy is to get into the trade all at once and then scale out as the trade goes my way. My goal is to still have one third to one half of my position left if and when the strategy hits my target. This is one big advantage in trading multiple lots. With one lot, I would just stay in the trade from start to finish. With multiple lots, a trader can start peeling off contracts so that if the trade does reverse and gets stopped out, the overall loss will be offset by any gains already booked, thus increasing a traders risk-to-reward ratio. On this particular play, my buy stop order was for 75 lots. Once the markets triggered my buy stop, I scaled out in thirds all the way up to my target (see Fig. 14.14). This snapshot of my execution platform shows that I sold 25 lots at 137.93, another 25 lots at 138.05, and the final 25 lots at 138,07, for a total gain on the play of $14,957.62. Because I literally executed this trade while scrambling to make the deadline for this chapter, it put into perspective how much writing a book really is a labor of love, albeit painful. This is my first book, but I' m guessing that my year of toil in trying to fill hundreds of blank pages with semi-useful material will probably net me about the same amount as this two hour trade. (I'm sure there is a lesson in there somewhere.) If you wish w drown, do nor wrture yourself with shallow water |
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