Advanced system #3 (Neat entry: RSI + Full Stochastic)

Hi Jo,

Stochastic based exits are often occur quite early when there is still some potential for additional profits. That's true.

If to turn to the explanation given by George Lane, the developer of Stochastic indicator, we may additionally learn that he proposes to exit when Stochastic RETURNS from oversold/overbought zone;
which in our case would mean we have to allow Stochastic to get above 70 line (when Long), stay there and then cross back below 70. Once it successfully crosses back below 70 - we should exit.

But, it still doesn't solve all problems. Stochastic indicator often won't be able to keep you throughout the whole trend, since it is only a momentum indicator.

To be able to stay with the trend much longer, you need this time a Trend indicator.
Might not be the best source, but still: Trend indicators.
Just choose the indicator and follow its basic signal guidelines - exits shouldn't be complex.

You also asked about ATR, for some reason Average true range doesn't work for me, so I use highs and lows. They are distant at times, but not as distant as the profits I look at.

Thank you.
Regards,
Edward

Dear Mr. Revy:

Very helpful website.

The Neat Entry is very impressive.

I am uncertain how the RSI is necessary. I have not been finding many set ups on charts where the RSI would exclude a trade. Am I missing something?

Trading only in direction of price with the moving average appears critical as it does seem to eliminate many false signals.

I noted your comment that exits shouldn't be complicated. That seems like very sound advice from a veteran trader.

As a novice I am stumped by exiting.

I see that this system, even applied on a 4 hour chart, can ring up 500 PIPs plus on a single move. But to get there one has to put otherwise decent profits "at risk". It seems a trailing stop could really hurt the ability rack up big moves. I will try to work in a moving average combo or one of the trend indicators you pointed us to, and see how that works out.

Beyond the sage advice to keep it simple, might you have any other commentary on exiting which can give a novice trader a good philosophy to employ.

The Forex community and industry is dominated by near obsessive focus on getting into a trade.

I did read the Tharp stuff on money management and am glad I stumbled onto that material. There is NOT enough emphasis placed on capital preservation and I think many new traders are not warned that reasonable per trade risk should usually be in the 1 to 2% range.

Finally, learning how to exit ( or should I say not exit too soon ) is very hard. I have found little sound advice on this subject, and I have no idea how to do it.

Sorry for length of this post, but perhaps it's interesting for more experienced traders to see how a rookie thinks.

Thank you for your feedback and a good question.

Your perception about trading is correct.
Exits as well as money management in many cases are the most important parts of the trading.
Entries are important too: should you enter late, our exit method won't stand a chance.

When we talk about a trading system, some tend to think that it consist of one set of rules, or rather one set of indicators, which we will be using for both entries and exits.
But the reality is different, at least that's how it works for me. To me a trading system should consist of the smaller systems: one for entries, one for exits, one, for example, for detecting sideways markets and so on. Each small system has its independent set of rules and own indicators. That's my model - simple systems combined into a final trading method.

Regarding exits for this particular system, I have a commentary.
In fact, I have a ready solution for you and everyone else. There is one exit system I use for my trading and this time of the year I've decided to share it with my great web site audience!

Should I give away a secret..?
There is a small exciting promotion coming in about 10 days time. I will be sharing 2 of my trading systems here... Well, shall we wait and see what my Team is preparing for this New Year holidays?

I hope you will like it.

Best regards,
Edward

Forgot to add regarding the role of RSI.
Let's take oversold zones:
There are some rare cases when RSI is late to dip below 20 while Stochastic is already producing a cross below its 30 level.
In this case we do not enter, since our condition of RSI being below 20 isn't met yet. What you will see on the chart: price will make an attempt to move higher after the first Stoch cross, but then it'll come back down (by this time RSI will catch up and be already below 20), then Stochastic will cross in oversold zone for the second time - it is our green ticket to enter Long.
Again, this doesn't occur often, but when it does, it'll keep you from entering too early.

Regards,
Edward

Thanks for answering the questions so precisely. I very much appreciate it.

Eric A.

hi

just wondering. do you wait for new candle or enter right after stochastic has crossed. cheers

john

Hi John,
I enter with a new candle, the one which comes after Stoch cross.

Regards,
Edward

Hello all and thank you Edward for this great site!

I was wondering about a situation, where 4h chart signals to buy, and 1d chart signals to sell. Looks like that on EUR/CHF at the moment. Well, the price has come down for 200-300pips already, but I'm not sure if you should exit the trade sooner than usually, or am I just reading the signals incorrectly..?:)

Thanks,
BR,
Jari