Advanced system #1 (Midnight setup)

I just made one more observation/discovery about filtering reversals and consolidations in this daily chart, at least for GBP/USD. I'm sure it could be re-evaluated for other pairs just like the re-evaluation of the 90 pip daily candle size to allow or deny next day entries.

I was looking at the daily chart for the last few months following it along as if I were making trades on these rules, deciding when to get in or out or when not to trade next day, and so I suddenly realized that those big losses that occur at a reversal or conslidation are due to getting into a trade expecting or hoping it will continue in the same direction, having the automatic order placed just outside the previous day candle waiting to trigger, but on the new day after it triggers the order to get you in, the reversal causes a retracement far enough back along the "previous" candle to trigger the stop at the "wrong" end of it (price didn't follow the expected direction and reversed)...maybe this happens in one day or a few days, but the action has stopped moving so there's a loss coming there.

I noticed that if you add a new rule to the daily setup of stops and orders, losses may be cut in half on those days. In my observation, for the last few months at least, 120 pips sounds like a good length of candle including shadows, to apply this rule to. When placing a new daily order to get into a trade by triggering an order outside the last day's candle, if that candle was at least 120 pips long, then when setting the stop for that new order, don't set it all the way at the opposite end of the candle, set it half way.

I noticed when the market is in a specific trend and you're riding along collecting pips, the price action from day to day doesn't seem to retrace the previous candle as much as 50%, so it's a safe stop level....but when the trend is over, the price DOES retrace by 50%, and sometimes the full candle, taking out the stop, so why not save half the loss by getting out early if "normal" activity doesn't hit that 50% candle stop?

That's for new orders. I haven't thought about if you're already in a trade that you don't close out (less than 100 pips at end of day so stay in and move stops). Maybe open trades should also have their stops moved up to 50% of previous candle length rather than outside the whole candle if that last candle was more than 120pips to qualify for this new rule. It would lock in profit in a reversal.

I know there's times this would maybe cause an early stop that could have squeezed another day or something out of a trend before ending the original plan way, but maybe overall it is still more profitable than taking the bigger losses in the original method.

One other thing I noticed is my trading platform starts a new daily candle at 5pm EST instead of midnight so that's the time frame I'm basing my observations on. Maybe in a midnight to midnight daily chart, this 50% rule WOULD stop out more frequently because of the different way the times align? I haven't tested that.

And something else to think about when visually back testing on a daily chart like I'm doing, some days it may appear as if there were a big retracement during an uptrend that would have falsely triggered this 50% stop level because there is a shadow hanging down 3/4 of the length of the previous candle, but we can't necessarily disqualify that as a stop out because maybe when you look at those 2 days on an intraday chart, you'll see that the long shadow of the "new" day went dipping down early in the day and THEN proceeded upward, and only then initiated a new long entry (placed above the previous day candle) and so no false stop out at the 50% level really would have occurred.

How do I format these messages to add blank lines when I want? I enter new lines when entering the text but my message comes out as one big unformatted paragraph...

Once again thank you for valuable comment!
Please know that your contribution is greatly appreciated!

I suggest everyone focus on the comment above and read it over. There are several very good ideas that could be tested / added to the initial trading rules.

Happy trading everyone!

P.S. Right below the text field find Input Format -> change it to Full HTML

Well it is just before noon EST and I decided to close my open GBP/USD daily trade (edit at 3:40pm, I should have stayed in til end of day, it's gone up another 90 pips or so....but I can't complain)

So this is my very first daily chart trading experience and I used this method successfully. By the way I am just a beginner of sorts. I've had a mini account for a year and 2 months and that's what I've been using so far with just disposable play money, a few hundred dollars. Sometimes I've been up a few hundred pips and then I'd just as fast be down a few hundred, just trying to figure out a method that works.

For this week I started watching the chart on the 25th, then on the 26th the candle was within the previous day so there were no trades no matter what. On this day, on several time frames, the MACD 12,26,9 as well as the band of EMAs from 21 to 36, all were converging to a neutral flat line waiting to explode in any direction, and the daily candle on the 26th was more than 90 pips so I was willing to take a risk and try this method out.

I set orders outside the candle of the 26th and the long entry was triggered on the 27th with a stop placed at the outside of the other end of the candle. I did notice that overnight after that, early morning on the 28th the price DID retrace the 27th candle more than 50%, it was about 60%, so I could tweak my previous "rule" to allow 60% retracement plus some safe margin extra, but even if I got stopped out by placing a stop at 50% of the 27th candle instead of all the way at the bottom of it (100% retracement), I'd only lose 30 pips or so, which in my observations is a typical loss (20 to 30 pips) when a reversal occurs if you follow a few weeks of candles and make notes, and I'd have gotten in long again today on the 28th and made that back anwyay so it wouldn't matter.

Since I was still in the trade, having the stop set at 100% retracement, I was able to combine two days of a single long trade and today I chose a top after 11:30am EST and exited with over 160 pips for the two days.

This is the first time I gained that much WITH a plan, not luck.

So I think I'll stick with this method and keep monitoring and tweaking my methods. Thanks for an open forum where people share openly and actually give "working" advice unlike all the many books I've bought and read, only to be disappointed. I learned a lot about the basics but there is no magic book out there. I can apply the fundamental techniques to tweak my analysis methods but free sharing is the only way to be successful. I'm glad to be able to contribute back, not just take the info and run.

Thexder

The biggest disadvantage of this method is the risk/reward ratio!
When you're looking for 100 pips profit, and planning to take / manage +100 pips loss, then this is considered bad money management techniques...
If we assumed that any strategy will give us 50/50 success/fail ratio, then your profit will be very minor if your stop loss is just equal to your profit target!!!

I agree with lowering the stop loss by 50%, and maybe we'll have many bad trades, but they will be offset by the winning trades?

here is an idea. vegas, a hot trader on one of the forums, gave some very interesting advice, and said you should stop trading until you understand what he is saying, "trading is all about getting free trades."

what that means is that you move your stop to break-even or break-even plus 10 pips as soon as you are up 10 or 20 pips. then you let the trade run without worry.

i am thinking - though have not tested -that this might help manage the risk in this midnight trade.

you simply move your stop to break-even once your trade is triggered and in profit.

happy trading, gibson

hello edward, I am a bit confused regarding the candles, are the shadows and the wicks included in the 90 pip count?

Yes, they should be included: both upper and lower shadows/wicks.

Regards,
Edward.

I been trying to use this setup from Nov 5 to Nov 9 its been doing good for about 3 days, justlately this friday got big losses on this setup with my live account. Guess this setup needs buffers or parameters that when tells us when to exit if one of the order is triggered at level are we necessary to BAIL OUT. Got around 70 pips loss last time it is triggered pair GU.

But guess this system would be ok just need additional indicators when to BAIL if its not running on the direction.