How to change the mindset - EURUSD pair review 24-30Oct08

[toyogo00]

Hi Neal,

I've read your review of EURUSD pair from 24,27,28 and 29:

a. The weekend review on 24Oct08 chart show two shorting points; break below 1.2500 and after swing high to 1.2800 area.

b. On 27Oct08, the price broke 1.2500 to the low of 1.2329. The trend remain bearish and the shorting point was after breaking 1.2330.

c. On 28Oct08, the price rebounced from 1.2329 and form a double bottom base towards 1.2750/1.2800 area. The review shows three shorting points; break below 1.2330, swing high to 1.2800 and swing high to 1.3050. The outlook remain bearish.

d. On 29Oct08, the price broke 1.2800 and reaching the high of 1.3000. The review remain bearish that the shorting point was after breaking below 1.2800.

However, on 28Oct08 the base was formed at 1.2330, the TRSI has started turning up at the point of around 30 on 4-hourly chart, the strength of TRSI built up on 29Oct08 to above 50 and reaching 60 on 30Oct08(today).

My question is, if my trading time frame is based on 4 hourly chart, should I be bullish and trade LONG starting on 28Oct08 when TRSI has headed up? If I were to wait for bullish confirmation of higher high and higher low, should I be bullish and trade LONG staring on 29Oct08 after the price has taken up the last swing high at 1.3004?

So far, the price has been going up more than 950pips from the low of 1.2330 and reach the high of 1.3288. I missed all these LONG trades as my mindset is remain bearish and it's hard to change that even the indicator TRSI and price action (higher high and higher low) has proven it. pls advise!

Regards,
Toyogo

[FibMaster]

Ahh, that is a great question.

Here are some important points.

1) We cannot hope to catch every move. We want the easiest most likely trades, not every trade.
2) Trading against the trend is very difficult, painful, and easy to make losses..
3) A counter-trend trade has profitable opportunities, but for a relatively short time. When it turns back in synch with the trend, those profits are easily eroded. If you really are compelled to trade against the dominant trend, you must drop down to lower time-frames, scalp, be nimble, and be very aware of the dangers. Manage your risk very carefully, and don't hesitate to get out.
4) It is difficult for me to focus on lower-time-frame scalp trades because the moves are over so quickly. Traders then are disappointed to see how they could have made money, but they were asleep in that time-zone etc.. So I tend to focus on the bigger, more profitable, slower moves.
5) The moves in the direction of the dominant trend are faster, bigger, more profitable, less risky. If life is too easy for us, we can try the counter-trend moves, there are many counter-trend opportunities for challenge and suffering haha..
6) My video update of this morning has a green arrow for a bullish zone. This is where we can start having confidence that the counter-trend rally is possibly going to overpower the dominant down-trend.

See the attached Daily chart. There is a huge down-trend. Compare how well the shorts have been doing since July (many thousands of pips), to the relatively small rallies in July, August, September and October. Note the daily TRSI is still below 40, this indicates internal weakness in the market.

Given some more time, we may switch to a bullish stance, but this chart has a lot of sellers ready to short if this little October rally shows any weakness. It will take some work for those sellers to be convinced that they should switch sides. I prefer to profit from the crowd, rather than to fight them.

[Bert]

Neal, this has to be one of the best posts I've read. Taken all seminars and love your work.

Thanks,
Albert

[toyogo00]

3) A counter-trend trade has profitable opportunities, but for a relatively short time. When it turns back in synch with the trend, those profits are easily eroded. If you really are compelled to trade against the dominant trend, you must drop down to lower time-frames, scalp, be nimble, and be very aware of the dangers. Manage your risk very carefully, and don't hesitate to get out.
4) It is difficult for me to focus on lower-time-frame scalp trades because the moves are over so quickly. Traders then are disappointed to see how they could have made money, but they were asleep in that time-zone etc.. So I tend to focus on the bigger, more profitable, slower moves.
5) The moves in the direction of the dominant trend are faster, bigger, more profitable, less risky. If life is too easy for us, we can try the counter-trend moves, there are many counter-trend opportunities for challenge and suffering haha...


Hi Neal,

I fully understand your explaination. I used to trade a larger time frame - weekly-daily-4hourly. However, what used to take 2-3 months to move 1000pips has lately taken only few days due to extreme volatility. See attached. In 200 Nov-Dec and 2002 Apr-Jun, the monthly TRSI only moves slightly which is quite similar to the daily TRSI movement in last three days. Whereas the weekly TRSI has moved with a full swing (low to high), which is equivalent to the TRSI movement on the 4 hourly swing.

I used to have 50-100pips stop loss when I trade weekly-daily-4hourly but it doesn't work now due to extreme volatility.

a. If I were to use TRSI to determine the trend, is that true that I shall use smaller time frame during extreme volatility period and keep the 50-100pips stop loss? i.e. trade on dialy-4hourly-30min as the equivalent of weekly-daily-4hourly.

b. or I shall remain trade on weekly-daily-4hourly time frame but increase the stop loss to 150-300pips and reduce the size to keep the risk under control. (with proper money management).

Regards,
Toyogo

[FibMaster]

I used to have 50-100pips stop loss when I trade weekly-daily-4hourly but it doesn't work now due to extreme volatility.

a. If I were to use TRSI to determine the trend, is that true that I shall use smaller time frame during extreme volatility period and keep the 50-100pips stop loss? i.e. trade on dialy-4hourly-30min as the equivalent of weekly-daily-4hourly.

b. or I shall remain trade on weekly-daily-4hourly time frame but increase the stop loss to 150-300pips and reduce the size to keep the risk under control. (with proper money management).

Regards,
Toyogo

Toyogo,

After reading my earlier reply, I should clarify that trading the lower timer-frame trend, counter to the dominant trend can be appropriate. Just be sure you know that it is counter-trend, and trade accordingly. Life is easier when you are the direction of the dominant trend though. Just want to make that balanced perspective, not totally against counter-trend trades, just realize the risk.

As far as stop-loss, I recommend that they by Fibonacci based, not a fixed pip-stop. When you have volatility, the Fibonacci dimensions automatically adjust (swing points). A fixed pip-count is not flexible enough.

If in a lower-time-frame trend that is counter to a higher time-frame dominant trend, you should lower your time-frame to reduce risk. You will then have quicker trades with smaller profits, and closer stop-losses. The stop-losses can be based on the lower time-frames.

Volatility is often a sign of a weak trend. In a strong trend, you usually have solid moves and shallow retracements. In a weak or changing/failing trend, you have smaller runs and deeper retracements, ie volatility. A counter-trend move is usually weaker than the dominant trend. In a weak trend, consider having a closer stop instead of a further stop (trade lower time-frame). This is my personal suggestion, your preference could be to take bigger risks in a weaker trend, we all have different personalities and different goals. I respect that there is more than one way to trade, but my way suits me better.