Forex Trading - 3 Proven Strategies: You Can Start Using Today by Jon McFarlane

Author:Jon McFarlane
Language: eng
Format: mobi, epub
Publisher: Forex Useful
Published: 2014-10-06T23:00:00+00:00

Chapter Eleven

“The way to build superior long-term returns is through preservation of capital and home runs...When you have tremendous conviction on a trade you have to go for the jugular. It takes courage to be a pig.”

- Stanley Druckenmiller

We have spent a considerable length of time in the last few chapters looking at ways to enter the market in anticipation of a large move. We like the idea of entering the market on trendline breaks or retests, allocating risk (stop losses) on a lower timeframe, but always remaining mindful of the large move that could be coming. If we are anticipating that price is going to move to the downside, we look for breaks of bullish trendlines to sell; if none occur, then we simply don’t trade.

Not every trade we take will turn out to be one that can return hundreds of pips, but we believe that as long as we control risk, opportunities to make large gains will inevitably arrive, sooner or later. The gains from the large winners should be more than enough to not only compensate us for the small losses, but to return a good profit also.

It’s time now to begin to look more closely at techniques we can adopt to let these winning trades stretch their legs.

Once we have a successful trendline break or retest, and price has made its way some distance away into profit, the first thing we should consider doing is taking risk off the table completely for the trade, and setting a stop loss order at the entry price, i.e. at breakeven. This is sensible trading practice; at least if price retraces and triggers the stop we will have lost nothing. Remember, the first rule of good trading is capital preservation.

Of course, how far we allow the trade to get into profit before we bring a stop to breakeven is a matter for each individual trader to decide. You will find that after some practice you will get a good feel for it. If we were to specify a good rule of thumb, perhaps allow the trade to get the same distance in profit from your entry as your stop was. So if your stop was 20 pips, once your trade is 20 pips into profit, think about bringing your stop to breakeven. Again, this is just a suggestion, after some practice you will be able to get a good feel for when the time is right to tighten risk.

Secondly, we need to define in advance the criteria that will need to be met before we will close the trade. Sometimes traders use criteria that are based on what they are feeling or doing rather than what the market is doing. The PAST Strategy encourages us always to listen to the market first - we do not get into the market unless the market gives us a signal (longer term candlestick reversal signal) and we should not get out unless the market gives us a signal.

What should the signal be? Traders

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.