No Nonsense Trader (Forex)

I see the following gaps:

USDJPY Short down to  107.86

EURJPY Short down to 167.72

GBPUSD Short down to 1.9746

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Update:

I’m closing this out for a 20 pip loss.  It filled about 80% of the gap and turned around hard.  This is the first time I’ve lost money on a gap.   

Update 3:00 pm CST: 

I’ve entered a Short order on AUDUSD.  I’ll ride this down to .9701 for 25 pips of nearly risk-free profit.   

Update: 

I’m still looking at several f these.  But, GBPUSD and USDJPY are the most promising at the moment.   

I’ll be looking at the following pairs, which all have current gaps. 

EURUSD:  Down to 1.5841

GBPUSD:  Down to 1.9987

EURJPY:  Down to 169.39 *

GBPJPY:  Down to 213.60 *

These will likely change before the market opens, so keep that in mind when placing orders.   I’ll update this post before the market opens.   

Tags: Results, Trade Calls, Gap Trading // 2 Comments »

Update:  This trade closed the entire 30 pip gap within a couple of hours of trading. 

Update:  The only decent gap i see is:

USDJPY:  Long to 106.38 (30 pips) 

Here is what the market is currently looking like: 

EURUSD:  Long up to 1.5923 (Currently 24 pip gap)

GBPUSD:  Short down to 1.9867 (Currently 26 pip gap)

EURJPY:  Long up to 169.40 (Currently 46 pip gap)

These gaps may fill, change directions, etc. before market open.  If you take any, please kep that in mind.  As always, do your own analysis.  I will personally trade every gap over 10 pips plus spread.  I have never lost money on a gap trade. 

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One of my mentors, An old man who’d traded pork bellies for a living, once told me that entering a trade should be as routine as getting ready for work in the morning.  The Blue Zone trading methodology is pretty much all he traded.  Well, it has been tweaked a little bit to accomodate my tolerance for risk, but this same basic method is how he made his money day in and day out.  I don’t mind sharing this with you.  Most of the traders reading this post will change things.  They’ll modify entry rules, exit rules, time frames, etc.  They’ll add twelve indicators that promise to get back those pips that I leave on the table.  For the most part, they will take a methodology that makes money, and lose money with it.  If that’s what you want to do, please feel free.  This system’s profitability depends on long holding times and higher timeframes.  I only trade the daily and (sometimes) the four hour charts. As you will see, I close half of my trade when the profit equals the stop loss, and let the rest of the position stay open until price hits the 100 SMA.  I still have AUDCAD contracts open from January.  I have no intention of closing these until I have a reason to.  That reason is quite simple.  My rules tell me to close the positions on that currency pair.  Once an order is placed, I never move a Stop Loss until the next trade on that pair is opened.  Eventually, most of the position has its Stops placed at the 100 SMA.  I get into trades late.  In fact, I sometimes leave 50 pips on the table.  I just don’t care about finding tops and bottoms.  I care about profit.  I care about not getting stopped out of a good trade.  Okay, here it is.  Other than Opening Range Breakout (ORB) systems and gap trading, this is about all I ever trade.  

If you have a modification, or enhancement, please feel free to write it into your own system, rename it, and enjoy.  I won’t change the way I trade this system.  I’ve traded this way since my stock market days back in 1996.  There are MANY systems available that use similar techniques.  There’s nothing unique about what I do.  SMAs used for S/R, Fibs, and Inside Bars, or Harami if you prefer, have all been used together for a very long time.  I make no claims to this system.  I just ask that if you reproduce parts of it, that you absolutely rename it.  I don’t want my system altered, posted to forums, then be exepcted to take the criticism for it’s misuse of the fourteen indicators and spaghetti plate full of EMA, SMA, and WMAs!  Thanks all!  Enjoy  

This is a “trend trading” methodology. 

Indicators:  27, 55, 100 SMAs.

Trigger:  Inside Bar

Filter:  Trending market.  Trend confirmed using the 27, 55, 100 SMA Trend Confirmation System.

Trend Definition:

My definition of a trend for this method is more specific than looking at the left and right side of the chart.  This definition has kept me out of many bad trades.  

1. SMAs are aligned, have no recent crosses, and pointing in the same basic direction.
2. Price Action is retracing into the Blue Zone, then continuing the trend.
3. Price has not breached the 100 (RED) SMA.

Entry: 

I look at the market when Inside Bar has formed in the timeframe that “owns” the trend.  This means that if the four-hour timeframe meets the definition of a trend using the SMA system, then the four-hour timeframe owns that trend.

     If the Inside Bar forms before dipping into the Blue Zone, you can enter the trade        within 4 bars, if it enters after the Inside bar.  In fact, unless the Inside Bar appears inside the Blue Zone, you must wait until price dips into the Blue Zone before placing the pending order.  This will keep you out of trades that stop out because of the whipsaws that often occur inside the Blue Zone.

Once the price drops into the Blue Zone, place a pending order a few pips above (for a long trade) or below (for a short trade) the Inside Bar.  Place the Stop Loss on the opposite side of the Inside Bar.  If price continues without dropping into the Blue Zone, forget it and move onto the next trade!  Price MUST drop into the Blue Zone after the Inside Bar or there is NO ENTRY!  This system’s success depends on strict adherence to this entry rule! 

Filters:

1. If price breaches more than half way (estimated) between the 55 and 100 SMA, cancel your order.
2. If the next higher timeframe is approaching a retracement level that is counter to your trend, cancel your order.        

Exit:

Close ½ of your position when Profit is equal to your Stop Loss.  The rest of the trade is risk free and will not be closed until the price hits the 100 SMA.     

Trade Management: 

When your trade is positive by the amount of the SL, you close ½ of your position.  The rest will remain open until it stops out, or price reaches the 100 SMA.   

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AUDCAD:  Long @ .9813 / SL @ .9718

As you can see, as Inside bar presented itself on the 3rd of July.  The IB, to me, is the price action winking at me saying “come look at me!”  It then entered the Blue Zone.  An entrance into the Blue Zone within four bars is my filter.  So, I placed a pending order a pip or so above the inside bar, and a stop loss a few pips  below it. 

Trade Management:

If this trade gets picked up, I will wait for the price to run up to .9915, then I will close 1/2 of the position.  This will provide a completely risk free trade for the rest of the trend. 

Caveats:

If another Inside bar presents itself before this trade is picked up, it will negate this trade, and I will re-evaluate the new trade.  This often happens and gives me a much better entry point.   

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One of my subscribers asked me to evaluate a Forex trading system before he purchased it.   I’m glad he did.  The system is well marketed and boasts an 80% win rate. 

The following simple formula explains why money management can be more important than percentage of winning trades:

E = (WP * AW) - (LP * AL)

E = Expectation per trade (Edge)

WP = Winning percentage

AW = Average winning trade

LP = losing percentage

AL = Average losing trade

Let’s plug some numbers into it:

Assume a system advertises a respectable 80% winning percentage.  Anyone who buys this system is “guaranteed” to win 80% of their trades.  Would you buy this system?  I can tell you that MANY people do!  Why not?  It’s 80% effective.  Buy the system, quit your job, open  Forex account and grow wealthy beyond your wildest dreams.  Hmmmm…  What’s wrong with this?  What is seldom advertised is the “Expectation.”  Expectation is the amount of money, over time, that you can expect to earn per trade.  Let’s assume that you win an average 20 pip gain 80% of the time with the system.  Let’s also assume a 100 pip stop loss.  Believe me, there are MANY systems for sale that have a 100 pip Stop Loss and have an average 20 pip gain…  Or less.  So, how much will you make with your new system?  What’s the E value? 

E = (.8 * 20) - (.2 * 100)

E = 16-20

E= -4

You can expect to win (-4) pips per trade with this system.  Does the 80% sound good now?  I haven’t checked, but I’d guess if you placed a “long” trade at the opening bar of each day with a 20 pip Limit and a 20 pip Stop Loss, you’d have a better E value than -4.     Aren’t you glad you haven’t quit your job, cashed in the kids’ college funds, and put it all on the table?   

Let’s look at a simple system with reasonable results…  Something you can put together yourself, maybe.  How about a system that has a 50% winning rate.  Let’s say that you develop a simple breakout system in which you place a 35 pip stop loss, which has an average winning trade of 50 pips.  How much can you expect to win per trade over the long term using this system?

E= (.5 * 50) - (.5 * 35)

E = 25 - 17.5

E= 7.5

You can expect to win 7.5 pips per trade over the long run. 

Now, you can have an edge of 100 pips and STILL blow your account.  How do you do this?  You can adjust your position size up and down at the wrong times.  If you are trading one lot when winning and five lots when losing, you’re going to blow your account.  You should strategically plan changes in position size.  it’s not to be adjusted on a whim.  Pick a milestone, a date, a phase of the moon, etc.  Just make sure it is consistent with your tollerance. 

Good Trading!

Tim    

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Update:  I only took the USDCAD Short trade.  After a very painful wait it finally closed the gap down.  I closed this trade at a 21 pip profit.   

Hello!  I hope everyone had a great weekend.  It’s time to make some money.  In the spirit of the extended weekend, I am posting several gaps.  Of course, it is early, and thee may close, or even go the other way.  At any rate, these are the pairs that are moving and have current gaps:

GBPUSD:  Short to 1.9811 (currently 20 pips)

GBPJPY:  Short to 211.51 (currently 28 pips)

USDCAD:  Short to 1.0180 (currently 20 pips)

If the market stays where it is now, that’s 68 “nearly risk free” pips to open your week with!

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Update: 

The price did not make it to 169.00.  The trade is closed out.  This was a very profitable trade if the plan and trade management were followed. 

1 contract closed at a 36 pip profit

1 contract closed at an 86 pip profit

3 contracts closed at a 45 pip profit. 

For the system-reporting, I only claim the highest level at which I actually took a profit less any losses in that trade.  That is 86 pips.  There were NO losing contracts in this trade.  With full sized contracts you made $2,570.00 o this trade.  Not bad for a high probability trade.       

— 

 So far, the EURJPY Swing trade call has given up 86 pips.  The SL was moved to BE at 168.00 along with the closing of 1 contract.  The second contract was just closed at 168.50.   Move the SL to 168.09 at this point and let this either run to 169.00 and close it out, or let it stop out. 

Tags: Results, Trade Calls, Inside Bar, Swing Trading // Add Comment »

EURJPY - Long @ 167.64 / SL @ 167.13 / TP1 @ 168.00 (Move Sl to BE) / T2 @ 168.50  / T3 @ 169.50   

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Update:  3:03 pm CST

I am not taking any gap trades today. Everything closed below my risk to reward threshold.   

Update - 12:48 pm CST

The market opens in a little over two hours.  I will be monitoring several gap trades today.  The free gap trade call for this week is:

EURJPY:  Long up to 167.60 (Currently 46 pips of potential profit) 

I’ll be looking to take at least 70% of the gap before closing my trade.  If i see no weakness in the move, I’ll let it ride.  However, EJ has been retracing short.  It has a long way to go down to complete its retracement on the daily timeframe.  Do not get greed with a long trade right now.  Take what the market gives you !

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