MoneyTec 2.0 - Online Forex Traders & Brokers Social Networking Community » Trading Talk » Beginners Forum

[FOREXFORKAREN]

Looking at a EUR/USD 4 hr. time chart it clearly shows that the average price movement ranges from 200-500 pips in any given trade, assuming you are trading with the trend. At first I was thinking of setting my profit limit at 200, but then thought maybe keeping the limit open and just using a trailing stop. My question is what I should set my trailing stop to without suffocating the market and getting stopped out prematurely I normally will use a 100 pips stop loss, if that helps. Would a 2:1 or 3:1 Profit/Loss ratio be in order here? EJ

[TheWolf]

Tough one. Do you trade the big news? I'd say at least a 50 pip trailing stop, but your P/L ratio will suffer as you'll often get stopped out before the 200 pip take profit target.

[JR97]

Does your analysis provide a technical target? If not, then how can you gauge risk/reward before going into the trade?

Here's what I do... I have 2 targets. The max I think price is going to go and then a conservative target that gets me in the 1.5:1 to 2:1 r/r area. I don't trail my stops until the conservative target is surpassed by 20-30 pips or so. When price reaches the max target area, I put on a limit and trail stops by about 10 pips or so and drop to the lower time frames. This is what I call a squeeze play. More often than not, I'll wait to squeeze until I think price has made it's high.. which is usually beyond my max target. I then set set the limit and wait for price to retest it. It works beautifully 7/10. The other times I either manually close the trade based on other criteria or I'm stopped out on the trailing stop. Using this method, I've closed trades within10 pips or less of the absolute high.

I documented a short term trade that has a picture perfect example of a squeeze play at the end.

http://www.moneytec.com/forums/showp...3&postcount=36

[s2b1]

Great lesson, even for a beginner, I look forward to hearing more from you

[fxquest]

JR,

This is very interesting. Could you shed some light on how you construct the channel on your spread sheet?

http://img239.imageshack.us/my.php?i...usd88718da.gif

Thanks,
fxquest

[JR97]

Originally Posted by fxquest

JR,

This is very interesting. Could you shed some light on how you construct the channel on your spread sheet?

http://img239.imageshack.us/my.php?i...usd88718da.gif

Thanks,
fxquest

Nothing complicated. The channels are based on 24 periods with a median line and +-1 and +-2 standard deviations.

[fxquest]

Thanks JR,

What I don't seem to understand is how the channel lines are so straight and where the angle (up or down) of the channels comes from ? (e.g. if I plot BB on any chart which is also based on std. deviation the channels look anything but straight.)

I am probably missing something simple...

thanks,
fxquest.

[JR97]

Originally Posted by fxquest

Thanks JR,

What I don't seem to understand is how the channel lines are so straight and where the angle (up or down) of the channels comes from ? (e.g. if I plot BB on any chart which is also based on std. deviation the channels look anything but straight.)

I am probably missing something simple...

thanks,
fxquest.

Yeah.. I"m using a straight line between 2 points... current close and close 24 periods ago instead of an averaging curve. Best fit line is nothing more than y=mx+b stuff we learned in school. But.. most charting apps can't do it, so that's why I use excel.

A good proxy is to use 2 sets of bollinger bands with a setting of 60. One set at 1 deviations and the other at 2 deviations. The long setting of 60 straightens them out to a point, but not so much that they're lagging too much. To make up for the lag that there is, use multiple time frames. You'll find that when there are lines that correspond to lines in the other frames that you have a pretty solid target for entry exit. IE the +2 line on the 1H and the Mean on the 4H or day.