Recordings from intraday chat Dec 9th 2008

[FibMaster]

These are some recordings made during the chat session today.

Discussion of a better exit technique, using Fibonacci and TRSI.
http://www.dailyforexcharts.com/charts/081209_EurUSD_tutorialtoyo/081209_EurUSD_tutorialtoyo.html

Excellent discussion of a possible trade, how to evaluate a chart, decide on whether to scalp small or be aggressive, when to move to a higher time-frame, when to lose interest due to lack of momentum and due to the expired trading session in London etc.
http://www.dailyforexcharts.com/charts/081209_EurUSD_chat02/081209_EurUSD_chat02.html
http://www.dailyforexcharts.com/charts/081209_EurUSD_chat03/081209_EurUSD_chat03.html
http://www.dailyforexcharts.com/charts/081209_EurUSD_chat04/081209_EurUSD_chat04.html

These are excellent learning opportunities, you really should join us in chat! See this video about joining the chat room.
http://www.dailyforexcharts.com/charts/081208_chat/081208_chat.html

[supra]

Hi Neal,

Thank you for posting the chat recordings.

I have a question on that potential EUR/USD 5-min trade: Say price found support on the 1.2960 fib SK support and made a bullish TRSI crossover, where would you place your initial stop loss?

Please kindly advise. Thank you.

[toyogo00]

Hi Supra,

Let me try to explain using an actual chart, see the attached chart.

The 5min chart has SK level @1.3218. The entry point is around 1.3235/40. There are two posible stop loss - SL points:

a. SL1 @1.3210, few pips below SK level which is very tight (20pips). You have to plan your target to ensure a good reward ratio.

b. SL2 @1.3195, few pips below the last swing low which is a safer one but you must watch your reward ratio as well.

The target can be either at TRSI cross down or Fib expansion at P1 or P2.


Overall, it is a planning of your trade with respect to fib study and TRSI.

Hope this will help!

Regards,
Toyogo

[supra]

Hi Toyogo00,

Thank you for your detailed explanation.

In the example you gave, I would opt for your point (b) to give it some room.

Am interested to know Neal's thought on this, particularly on the potential trade on the chat recording, whether he would hide his stop behind the second or third fib SK support.

Cheers.

[toyogo00]

Hi supra,

come and join the chat room, it's really really fruitful. You would pay thousands of dollars for some "mentor" to coach you but Neal just does it without any financial reward. He just wants to help traders!

He is very good in using fibonacci and multiple time frame to analyse the chart for a very high probable trade. I like this trading system as it suits my personality.

I really learn a lot from him and thank him for his relentless efforts in conducting the chat room! (it would be better if you view all his video seminars)

Regards,
Toyogo

[supra]

Hi Toyogo00,

I completely agree with you, you could hardly find a trading mentor as good and caring as Neal.

I have bought & attended all of his video & live seminars and have learned a lot from him along the way. There was one time where I felt Neal's method didn't suit me (drilling down to very low time-frames to find trades) and tried James16's price action and PPZ. But in the end, I found that Jim's method is harder to implement as basically I find it hard taking trades based on price action & PPZ especially when they are against the trend, so I am now back to applying Neal's teaching and this time with better results.

I trust that many here find Neal a great help.

Cheers.

[FibMaster]

Great question and great answers. Placing stops is a complex issue. Usually I don't wait for a stop to get hit, I exit on a TRSI cross against me. It would require a strong conviction, strong belief in a trade for me to ride it to a stop-loss. So mostly a stop-loss is for disaster-protection, as in a chart melt-down. So my stop can be uncomfortably far away, but it will not be where I get out.

Toyo made a good suggestion about a tight stop just below the first fib-level, which is great if you want to minimize risk. The disadvantage is that it will be hit more easily. If you want to allow more room, then a lower fiblevel is a better place for a stop. However, I'm usually out or lightening up a position well before the chart reaches there, because TRSI will have crossed against, at least once!

If entry was on a TRSI (or MACD, or Stochastic) crossing up, it must cross down before your stop is hit...

Here are some guidelines..
1) Money management. How much risk can you handle?
2) Trend-line. How far below a supporting trend-line will you allow the market to go before you finally admit that your trade is not working?
3) Moving average (say 3X3 on a higher time-frame). At what point does a retracement prove to be a reversal?
4) (A favorite of mine) TRSI. You can judge the likelihood of a Fiblevel holding by studying TRSI. This takes some knowledge and skill.
5) With 1-4 above, they are all just guidelines to help you pick a Fibonacci level. They are not the determining factor, Fibonacci is.

In summary, if you don't get out on a TRSI cross against you, then definitely consider exiting on future crosses against you if the chart continues dropping (long trade). So, weak rallies in a move against you are for exiting, once you realize the trade is not successful.

Here is another psychological trick, when a chart makes a move against you. Imagine you were not in this trade, and the chart made this (deeper) retracement. Would enter at this retracement? Could you justify an entry on this dip (ie long trade going bad)? If this looks like a really good place to enter, say on a higher time-frame, it may not be the place to exit. However, if a subsequent rally is weak (small), you really should reconsider, take the TRSI cross against you, restrict your risk, and reassess from the sidelines. Exiting on a rally can give you better price than exiting on a dip (long).

I know that you both are not novice traders, so you could take advantage of these advanced ideas. For novice traders, it is best to have simple rules, to avoid confusion and being the victim of emotions. Add flexibility and complexity as you gain experience.

[supra]

Hi Neal,

Thank you for a clear, comprehensive and enlightening answer.

I was actually expecting a short answer and prepared to lead it on to my next question on how you would manage the trade as a whole, but it seems that you took the fun from me :).

Cheers.