In this episode of Truth About FX, Walter talks about taking market signals, patterns, and the two important scenarios that you should examine when considering if you should or should not call it a day. Walter also shares a good spot in determining a “range-bound market” versus a trending market and the different candle behaviors for each one.
Hugh also shares his approach of pulling different methods into his platform.
Download (Duration: 6:00 / 6.87 MB)
In This Episode:
00:54 – gangbuster trades
01:35 – Acapulco System
02:44 – a subtle difference
04:12 – momentum-based system
05:26 – ATR exit
Tweetables:
Wait for the pullback or wait for the market to go even farther. [Click To Tweet].
If the market has been on strong trend, take the trade. [Click To Tweet].
You can have this really tight stop loss on your trade. [Click To Tweet].
Hugh: Hi, Walter! What happens if the markets has already moved the average range of the day and you get a trading signal? Do you ignore it and call it a day?
Walter: This is an interesting point. Basically, it depends on what the chart looks like.
I am a technical trader so I do not really pay attention to news. In fact, as I was recording this, Hugh, there was some massive moves on the GBP.
So, I got a GBP/JPY trade and a GBP/NZD trade and I am thinking about a GBP/AUD trade. My GBP/NZD and GBP/JPY and I have a GBP/CAD trade, too. All my GBP trades are like going gangbusters, right?
I know there is some news that happened last night or whatever that probably feed it and everyone is talking about it but I didn’t actually know what it is. I do not even care. I haven’t logged into FXStreet.com to see what is going on or whatever.
I have no idea. Someone could’ve been assassinated or kicked out of office or…
You know what I mean?
Somebody took over the Bank of England. I do not know, I have no idea.
All I am saying is that I based it on the charts. To answer your question, if the market is in like a runaway trend and it’s broken through… Let’s say, the market has fallen through a really critical support level, for one of my assistant has called the “Acapulco System” which is, basically, a breakout trade.
If I see something like that and it’s already moved the range of the day, I might still place my order in to take a trade.
It may not necessarily get triggered today, it might be triggered tomorrow. It’s because the candles are starting to accelerate and look really big that I sort of throw the ATR out the window.
Remember that ATR, at least the way that I look at which isn’t very often but if I do look at the ATR, it is a ten-day ATR. Those small candles that were printing last week, going to the calculation of that ATR, it’s not really that important.
The last two candles, for example, were really big. You know what I mean? It didn’t really move the ATR that much. To answer the question, if it is a really strong trending market, I disregard this idea of the market has already moved the range of the day.
If, however, the market is quiet and then it breaks out and just takes off, I probably won’t get in on that really aggressive candle. It’s a subtle difference. If the market has been on strong trend and it is really accelerating and there is a lot of momentum behind it, then I am happy to take the trade.
If it has been really, really quiet and it just did a breakout, like just like the first candle is today, then what I’ll do is I’ll actually wait for the pullback and get it on a pullback or I’ll wait for the market to go even farther.
So, it’ll pullback and then bounce and then keep going beyond that big candle, if that makes any sense. There is a couple of ways to do it but I really based it on what the charts look like.
If anyone out there, if you are interested in the way that I look at this, I can post a video on the shownotes here of the difference between what I would call a “range-bound market” versus a trending market.
There is actually candle characteristics that you can see in the trending market. If you see those characteristics then you should expect those big trending candles to print. You can actually trade off of those.
I’ll post that in this episode so you can see that, see if that resonates with you. That is my approach. Do you typically pullback if the market has gone really far and you are thinking “Well, I don’t know. It has already moved quite a bit so I won’t place this target, this trade?” Or, do you just put them all onto your platform?
Hugh: I just put them on all in. I found that ATR, at least for me, only really works if I’m hitting a stop in a momentum-based system but, otherwise, I am more with you that pattern is more about what matters than the actual range of the day.
Walter: You bring up a really good point. Using the ATR on a calculation of stop is a really cool way if you, especially if you are using a trailing exit. For the traders out there, that is something, that is a really fruit flare that you can explore.
It makes sense to a lot of traders like, you are basically saying “If the markets been going wild, I need to give this trade a little bit more room”. Whereas, if the markets been really tight “Well, I can use a tighter stop”.
The problem with that, of course, is that as we all know, the market fluctuates between this really tight range bound markets to the very volatile ones. It goes back and forth and vacillates. You can get caught in that.
If the markets been exceptionally tight, you can have this really tight stop loss on your trade and then like you get a signal and then take it but because it’s been so tight, the signal is like a wild break out. It’ll actually, maybe it goes up and then it goes down and then it stops you out.
It would stop you out if you have a wider stop. It is tricky but it makes the math behind that makes sense to a lot of traders to use the ATR in their exit or in their stop calculations. It makes a lot of sense. I can see why it is popular with traders. It makes sense to me. Cool.
Hugh: It just depends when you test it, right?
Walter: Exactly. You’ve got to have that. I know you’ll have that confidence because you’ve done your testing. You are right about that.
Hugh: Cool. Thanks, Walter.
Shownotes: http://fxjake.wistia.com/medias/m8m0ecgub8?embedType=iframe&seo=false&videoFoam=true&videoWidth=500
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