3 Nov 08 EURUSD Trade - looking for best entry point

[toyogo00]

Hi Neal,

Your last DailyForexCharts update has shown 4hourly EURUSD with resistance @1.2900. (see attached) - hourly chart is my trading time frame.

a. I entered short @1.2830 (initial SL @1.2900) when the uptrend resistance was broken, the TRSI for hourly (only SI) and 30mins (TR & SI) turned down. It went down to the low of 1.2787, so I adjusted the SL to BE+5 @1.2835. Too bad I was stopped out (only with -5pips).

b. I re-enter short @1.2850 after it retraced to 62% (Fib 1.2897 to 1.2787), it went down to 1.2831 and rebounced. I was not comfortable with the trade and exit at BE again (1.2855). It went up to 1.2880 before heading south again.

c. I re-enter short @1.2800 after it broke the previous low of 1.2787. I enter slightly early (before the break) as TRSI for hourly, 30min have turned down.

My question is:

a. Have I been too rash in trading in and out? or

b. Should I short @1.2830, put SL @1.2900 and let the trade play out itself? or

c. I realized that if I could have waited for hourly TRSI (both TR & SI) turned down, that inline with 30min TRSI (both TR & SI) turned down. I would have entered at a better shorting point @1.2820. (see attached) Do you think so? or

d. Do you have a better entry point? pls illustrate.


Regards,
Toyogo

[FibMaster]

I'm really struggling with this, can't find your entries and exits on the chart. Are they marked there? I think I'm looking at the wrong part of the chart?

Rather than spend more time on that aspect of the puzzle, I went ahead and posted some examples on how to trade that trend. I think this will answer your question.

See below.

[FibMaster]

Attached is a chart showing the 4-hour EurUSD with TRSI. The 4-hour trend is down during the periods of the blue vertical boxes that I have drawn there.

During those blue boxes, we can short this chart, purely based on a trend trade (TRSI), ignoring any other factors.

Now the trick is to determine where to enter, where to exit. If we are fortunate we make a profit, if not, the market will mess us around, at our cost..

[FibMaster]

When we check the 60 minute chart, there are no good signals during the 4-hour down-trend. The TRSI is barely crossing up in retracement, and not crossing down cleanly for clear shorting signals. See attached chart.

This happens when there is insufficient downward thrust, and/or the retracements are not significant enough to move the TRSI.

How to trade this? See next post.

[FibMaster]

For this type of price action, there are good triggers on 15 minutes charts and under. See the chart below for an explanation of an entry and exit trigger, on the same EUR/USD pair.

If you weren't quick enough to enter that trade, there was another, see the next post.

[FibMaster]

Here is a follow-on trade, still on 15 minute chart. Shorting the next retracement to SK Fibonacci resistance.

As long as the trend continues, we can short rallies. We are still within the blue rectangle that defined the 4-hour trend.

This follow-on trade was not as profitable, because the market lacked momentum, and provided a quick exit trigger. Unfortunately the marked does that sometimes. Still, a profit is in the bank...

There were more trades to be banked in the second 4-hour trend blue-box as well, not shown here. Note that this is a random example, based on a trader question. This is quite typical, a real-world scenario. This is not an ideal, stylized, pretty and perfect example. For that reason this is an excellent lesson.

In the next post I'll write some ideas, more advanced, about trade management etc.

[FibMaster]

This post is the result of a question from an actual trader. My response is to all traders, not just this one trader. So these suggestions are general for all readers, not addressed specifically to one trader.

The basics are that you want a trend, trade with the trend, and keep trading that trend. If the trend reverses, you will not be in that market anymore. That's the simple entry-level concept.

More advanced, is money-management and trade management. Whether you enter a full position on the first trigger, or add on subsequent triggers makes a difference. Whether you exit totally on the first exit trigger or you unload some of your position (partials) on multiple triggers also makes a big difference.

I am against "betting the farm" on each trigger. Eventually a losing trade will come, and there goes the farm. Better is to start with a small risk, add to positions on subsequent rallies, as the trend establishes itself. If the trend is taking out any FibLevels that get in the way, you can be more confident. If momentum increases, you can trade more aggressively. If the market is flaky, the trend is weak, subsequent Fibonacci levels stall the trend, then you have risked very little, and you can unwind your position carefully.

Control your risk based on market action. Trade small unless the chart is worthy of a bigger position, and let your positions build as the trend accelerates.

In this way, your winners are maximized, and your losers minimized. When the market delivers a great trend, you capitalize on it. When the market is bad for trading, you are not damaged as much because your risk is small.

[FibMaster]

Another separate concept. If you are nervous about your trading, or about the trend, you might exit on every TRSI trigger that is made against your position. If you are more confident about the market conditions, you may not exit on every TRSI crossing, as long as the pattern of price-action continues (swing highs and swing lows are in your direction), and also as long as major Fibonacci retracements are still holding the trend.

To fully take advantage of this, a trader must keep in mind that over-all context, the higher-time-frame picture, the strength of the market as it moves, and how the strength of the trend changes over time. TRSI is an excellent indicator for this, see details here;
http://www.fibmarkets.com/mem/archives/00000551.html
Once in a while I have a seminar/webinar on the TRSI indicator, check here for a listing;
http://www.fibmarkets.com/pro_seminars/index.html
.

[FibMaster]

On the subject of stop-losses... Novice traders will place a mechanical stop-loss that does not take into account market action, momentum, volatility. A Fibonacci based stop-loss takes all of those into account. Also, a novice trader will blindly cling to hope when the trade is not working out, wishing that the stop-loss will not be reached. It doesn't take much skill to realize that a trade is not working out. Watching price action and minor (lower-time-frame) Fibonacci levels, you can tell whether momentum is going against you. Why wait for your stop to be hit? You can exit well before the stop is hit, and you can re-enter if you like. As traders improve their loss management, the stop-loss will be merely a "disaster-stop", but the actual losses will be much smaller, because the stop-loss is not hit all that often.

[FibMaster]

This has taken a good part of my day, so I hope someone out there will gain something!

This series of posts contains powerful subjective techniques that you can learn, to give you a dramatic edge over the novice trader who mechanically bets the farm and blindly follows simple triggers.

Some of this will seem really simple and obvious, and some of it will not make sense yet. Some of it will not even be apparent, until the right moment, when you are confronting a situation in your trading day... If you are new to trading, print this out, come back and read this in a few months, you will be ready for some answers in the future.

Each trader has to compile the skills and techniques that will match his/her personality to best interact with the market & price action.

Yes, trading requires risk, skill and effort. Those who dream otherwise will be the people who put money into your account.

.

[toyogo00]

Hi Neal,

Thanks, it's a very clear explanation on both entry point and risk management. It is really not easy to illustrate the problem but it is even harder to answer it clearly. I'll try to improve the skill of illustrating the problem!

You have pointed out to use 4 hourly charts to determine the trend with TRSI (as indicated on your chart the tradable range). Then you found the hourly chart is messy on the TRSI as there is insufficient downward thrust. You therefore drop down to 15min chart to determine the entry and exit trigger.

My question is what is your main trading timeframe? Is it an hourly?

My understand from your seminar is that you use 4 hourly as a trend timeframe, hourly/30min as a main trading timeframe, 15min/5min for entry/exit (fine tuning). As you said before, "Then revert to the normal trading timeframe for the rest of the trade".


NB: I've read all your seminar videos, it's easy to understand individual one but it is not easy to combine/integrate/apply all of them seamlessly (Fibonacci, TRSI, multi-time frame). I believe I need a lot of practices in order to master it!!!

Thanks for your coaching, I really learn a lot!!!

Regards,
Toyogo

[FibMaster]

It is best to have flexibility in trading time-frames. There is no requirement to stick to one time-frame, even in the same trade. For beginners however, things can get very confusing. So for beginners I recommend staying in one time-frame, until there is some proficiency.

Which time-frame really depends on the trader. There are advantages and disadvantages to quicker and slower time-frames, this has been discussed here in other posts.

[Llamedos]

Hi Neal - thanks for the lesson. It will have been very informative for those who haven't quite got it sorted yet. And for those who are 'butterflies' (like me), it will serve to bring them back on course - again!

Perhaps you should post up this type of thing more often? Maybe use your Daily Forex Charts updates like you did with in the thread 'Winning Trades in a Crashing Market'? Purely in an 'after-the-event' context of course. :D Doing so will not only be very informative but it will minimise the amount of work you need to do as the updates are already done. Well it's a just a suggestion.

Just a couple of comments on the 'throw away' observations you made that, in reality, aren't throw away at all and contain more value than a lot of threads in their entirety.

On the subject of stop-losses... Novice traders will place a mechanical stop-loss that does not take into account market action, momentum, volatility.

Been there, done that but not anymore. But the real value in this comment should be the 'aha' moment that should hit a few readers when they realise the true value of using Fib levels as places behind which to put their stops.

Also, a novice trader will blindly cling to hope when the trade is not working out, wishing that the stop-loss will not be reached

Definitely been there and done that. :rolleyes: My stop loss fairy was conspicuous only by her absence on all of those occasions!

It doesn't take much skill to realize that a trade is not working out. Watching price action and minor (lower-time-frame) Fibonacci levels, you can tell whether momentum is going against you. Why wait for your stop to be hit? You can exit well before the stop is hit, and you can re-enter if you like.

For those members who have the discipline to follow this rule will find it invaluable.

I once read that 'getting out early' could be viewed as just closing a position early so as to re-enter it at a better price later. Works for me provided the criterion is there.

As traders improve their loss management, the stop-loss will be merely a "disaster-stop", but the actual losses will be much smaller, because the stop-loss is not hit all that often.

And what you can save by following this part will save you a fortune. In many cases it will double the bottom line or, with some traders, it may actually be the bottom line.

Thanks again.

[doc5]

Thank you Neal, for once again taking the time to instruct traders this way. I always learn and more importantly re-learn from your posts and charts. Your instructional videos and course are excellent, so having them as a background, when you post as you do here, it's easy to see what you are getting at. Your posts on this forum are always a mini course, worth a lot, and much appreciated. Doc5

[dj smith]

Neal
Wow this is a complete lesson with in itself with Q&A. I will review this over and over.:)

[toyogo00]

Hi Neal,

Based on what you have illustrated on "How to trade the trend". I've traded on 11 Nov 08. Pls comment on whether my analysis is correct or not.

1. The 4 hourly chart shows:

a. The breaking of triangle formation.
b. The Fibonacci level (from 1.3530 to 1.2329 and from 1.3004 to 1.2329) forms a SK level between 1.2746 to 1.2789 which is acting as a resistance.
c. The TRSI (dim dotted line) shows the crossed over down trend and forms a tradable area in blue shape (as defined by your last post).
d. The Fibonacci expansion (from 1.3115 -> 1.2653 -> 1.2927) projects two profit levels; FE61.8 @1.2640 and FE100.0 @1.2463.


2. The 15min chart shows three trades based on TRSI.

a. 1st short @1.2730 with stop loss @1.2790 (the upper level of SK resistance). The trade does not work out. (I exit @1.2740 when TRSI crossed up with -10pips).

b. 2nd short @1.2760 with stop loss @1.2800 (about the same as last level). I exit @1.2750 when TRSI crossed up again with only +10pips.

c. 3rd short @1.2720 with stop loss @1.2800 (about the same as last level). This trade works out very well as I finally exit @1.2550 with +170pips.

I hope my explanation is clear enough. If I've got your idea, thank you for your coaching and I will look forward for more trades like this one. Pls comment!


Regards,
Toyogo

[Llamedos]

Hi Toyogo – an interesting post and very well done on the 170 pip trade.

Before Neal wakes up and posts the (correct) interpretation of your analysis I’d like to give my version. Just so as I can see if I’m getting it almost correct.

I’ll work from the top down as you did and start with the 4 hour chart – chart 1 attached.

With this, in my opinion, you have got your Fib studies a bit wrong and to explain my thoughts I have shown your Fib levels in red and mine in blue.

As you can see from the attached chart I don’t think that the Fib sk you used was still valid. At least that is my understanding from Joe’s book. Although I do believe that there can be some leeway given to broken Fib levels provided the bar that broke it closes on the ‘good’ side of the Fib node with only the shadow showing past it.

On Chart1 I have shown, what I believe to be the only valid fib level on the chart just prior to your trade and from it you can see that the market actually turned at the 5/8th (12925) point.

So now we have the 240 stochastic turning down in response to a turn at a Fib node. Now I think the way to go is to look for confirmation of the change in direction on a 30 min chart.

As you can see on Chart2, the 30min chart, there are plenty of lower lows and lower highs on the down move after the 240min has confirmed a downtrend.

Chart3 is the 15 min chart you were using and on it I've drawn one 'controversial' Fib level I'm sure the Fibmaster won't consider to be correct. But I've seen quite a few examples of these past 'shadows' that have added energy to the more acceptable and properly drawn Fib studies. As you can see, its 3/8th level creates an sk with the 5/8th level from a correctly drawn Fib study (12925 to 12674). It is above this point I feel your stop loss would have been better placed for 3 reasons.

Firstly, as I said earlier, I believe that the sk level you used would have been considered redundant by the time you entered the trade.

Secondly, if you look at the move up from 12674 to the high at 12799, it performs an almost perfect OP zigzag.

And thirdly, yes I'm sure you saw it coming, my interpretation of the Elliott wave is that this is a perfect w2 up to the (much maligned) 50% retracement between the high at 12925 and the low at 12674.

Regarding you entries and exits, both profitable or not, I can't fault them. My only comment would be that, had you wished to sit through the 'pain and suffering' and waited for the XOP of the 'wave 1' from 12925 to 12674, you would have been rewarded with an almost perfect exit at 12392 at around about midnight (GMT) last night! Though that would be going against Neal's exit rule by just a bit and would require a great deal of faith in the powers of Fibonacci!

Something else that I find useful is to look at the various options for the expanded target. Above I used 12925 to 12674 and by doing so I got an OP of 12548 – 2 points away from your exit. And by using 12799 and 12692 I got an XOP of 12581. Both of which would have given you a narrower window (33 points) in which to look for an exit rather than the 177 point area you got from using the larger figures.

Now then all that remains to be seen are Neal's comments on our posts and another lesson in the making.

[toyogo00]

Hi Llamedos,

Thanks for your comments, I really appreciate it. It is exactly what I want to do, share the trade and get feedback from others. Re-read the course as compare to the actual trade. Hopefully one day we can trade as good as FibMaster - Neal !!!


As you can see from the attached chart I don’t think that the Fib sk you used was still valid. At least that is my understanding from Joe’s book. Although I do believe that there can be some leeway given to broken Fib levels provided the bar that broke it closes on the ‘good’ side of the Fib node with only the shadow showing past it.


This is what I am quite confused as I've read from few versions of Fib level study, some say that as long as the price moves within the high/low range of the Fib level, the Fib study is still valid.


Secondly, if you look at the move up from 12674 to the high at 12799, it performs an almost perfect OP zigzag.


I don't understand this reason, could you please illustrate further!


In your 15mins chart, you mark "Entry?", Do you mean how I get the entry point? If so, you can see from my 15min chart that my entry is based on the TRSI turning down (dim dotted vertical line). I notice your study purely based on Fib study without TRSI.


Regards,

Toyogo

[Llamedos]

Hi Toyogo - yes wouldn't it be nice to be able to trade as well as Neal? Perhaps one day. ;)

This is what I am quite confused as I've read from few versions of Fib level study, some say that as long as the price moves within the high/low range of the Fib level, the Fib study is still valid.Toyogo

I'm sorry Toyogo but I'm not sure I understand what you mean by 'high/low range of the Fib level'. Can you tell me exactly which levels you are referring to?

I don't understand this reason, could you please illustrate further!Toyogo

See the attached chart. I hope I've explained it a bit better on there.

In your 15mins chart, you mark "Entry?", Do you mean how I get the entry point? If so, you can see from my 15min chart that my entry is based on the TRSI turning down (dim dotted vertical line). Toyogo

Sorry to confuse you but I couldn't see the TRSI on your chart too well so the reason I put the '?' was because I had to guess from my stochastic where you'd put your entries.

I notice your study purely based on Fib study without TRSI.Toyogo

Well yes, without the TRSI certainly. But I do use the Stochastic a lot (supported by the MACD which I haven't shown). I believe these are the indicators that Neal used before he developed the TRSI.

I hope this makes it a bit clearer. Post back and reply regarding the Fib studies and I'll try to explain my thoughts. Hopefully though Neal will have posted back by then and he'll have answered all the questions.

[FibMaster]

Hi Neal,

Based on what you have illustrated on "How to trade the trend". I've traded on 11 Nov 08. Pls comment on whether my analysis is correct or not.

1. The 4 hourly chart shows:

a. The breaking of triangle formation.


Nice break!


b. The Fibonacci level (from 1.3530 to 1.2329 and from 1.3004 to 1.2329) forms a SK level between 1.2746 to 1.2789 which is acting as a resistance.


While that SK level does exist, I wouldn't place much emphasis on that Fib, since it has been violated so many times and is now relatively distant in history. It is not acting as resistance very well, with price crossing it so often and violently.


c. The TRSI (dim dotted line) shows the crossed over down trend and forms a tradable area in blue shape (as defined by your last post).


Yes, good trend identified.


d. The Fibonacci expansion (from 1.3115 -> 1.2653 -> 1.2927) projects two profit levels; FE61.8 @1.2640 and FE100.0 @1.2463.


Yes.


2. The 15min chart shows three trades based on TRSI.

a. 1st short @1.2730 with stop loss @1.2790 (the upper level of SK resistance). The trade does not work out. (I exit @1.2740 when TRSI crossed up with -10pips).


Smart to exit at the TRSI cross up, rather than waiting for your stop to hit. Unless you have strong reason to hold on (fast trend or thrust), perhaps moving to a higher time-frame TRSI, better to exit now and look for another entry.


b. 2nd short @1.2760 with stop loss @1.2800 (about the same as last level). I exit @1.2750 when TRSI crossed up again with only +10pips.

c. 3rd short @1.2720 with stop loss @1.2800 (about the same as last level). This trade works out very well as I finally exit @1.2550 with +170pips.


Nice one!


I hope my explanation is clear enough. If I've got your idea, thank you for your coaching and I will look forward for more trades like this one. Pls comment!

Regards,
Toyogo

Overall a good trade! There was a good follow-on, the 170 pip profit. Sometimes there is more struggle with a smaller follow-on. Your strategy is pretty good.

Note that the daily trend is quite flat, and the 4H chart as of today shows a continuing consolidation. Price is back up to the triangle level that you were trading. Because of this weak trend, best to exit as soon as the trade goes against you, rather than being stubborn.

Something I would like to add.. It is best if your entries are at TRSI plus SK resistance levels (obtained from lower time-frame, say 15 min charts, or even 5 min charts).


I see Llamedos has given some good constructive input too.

[FibMaster]

Hi Llamedos,
This is what I am quite confused as I've read from few versions of Fib level study, some say that as long as the price moves within the high/low range of the Fib level, the Fib study is still valid.
Regards,
Toyogo

That Fib level does exist technically. It was violated substantially, up to 1.33, so can be ignored. Though even today Nov 14th, price is still resisting at that SK Fib area. So it is a debatable point, and worth keeping in mind as broad context.

I'd place more emphasis on the new SK level, that you used as a stop-loss tool, it had more immediate effect on the price action at that time. See attached 15 minute chart.

[FibMaster]

I hope this makes it a bit clearer. Post back and reply regarding the Fib studies and I'll try to explain my thoughts. Hopefully though Neal will have posted back by then and he'll have answered all the questions.

This is a great thread, even if time-consuming lol !

Thanks for participating.