In this episode, Walter digs into the subject of exploiting market points and increasing positions. He gives some insider info on how you can build and create your own approach and define your trend. Walter also talks about having the right mindset. Who are you as trader?
Download (Duration: 05:27 / 6.24 MB)
In This Episode:
00:32 – exploited
02:40 – scary and big
04:42 – in and out trader
You just have to know who you are. [Click To Tweet].
Just know that you are going to have some losers. [Click To Tweet].
Find someone who knows nothing about trading to test your ideas with. [Click To Tweet].
Announcer: Sometimes, forex trading is a wild and wooly place to be. That’s why Hugh is here, to post your questions to Walter, the naked forex guy. Hugh’s got questions and Walter’s got the answers. Here at the Truth About FX Podcast.
Hugh: Hi, Walter. This is an interesting question. These persons wrote in and said “I’ve been doing some backtesting and I’m trend trading” and they want to know if you’ve ever exploited the points in the market, or points in the move when the market breathes in.
I guess they were asking, do you ever take that advantage on a pull back to pyramid in and increase your position? They would love to get your perspective on this.
Walter: Yeah, this idea of the market breathing in and breathing out. Actually, the first system I ever did like when I started making money for the first time, I was basically doing that and so there’s a couple of elements to it.
I’ll be happy to post a video in the shownotes here so you can see my perspective on this and maybe you can build on that and create your own approach but, basically, what I like to do is first of all you need to define your trend.
The easiest way to do that is to find someone who knows nothing about trading or get a little kid and just ask them, put them on a line chart and say “Is the line going mostly up or is the line going mostly down?” or, “Is the line going up and down?”
If they say the line is going mostly up or the line is mostly down on the line chart then, you know you are in a trend. That takes you out of the equation, you didn’t have to worry about finding the trend. As traders, we got sucked in there, really complex ways of doing that.
That is good, right? So, you’ve got the trend then what you needed to do is break it down into a structure and, typically, what you will see — and I learned this from Martin Pring.
If you want a really good book, there is one called “Pring on Price Patterns” which I found really fascinating. I like the way Martin Pring approaches things. What I learned was that when the market is moving in a trend, always see the big candle or trend candles and then this little retracement candles against the trend. Or, if it is a really strong trend, those candles are just going to stay flat, sort of a flat line and they get really tiny and then they’ll give some more big trend candles.
You can time your entries based on pullbacks. What I learned from Pring was that the last exhaustive candle, the sort of last gas of the counter trend move whether a retracement move against the trend, that last candles are often quite scary and big.
It looks to a lot of people and into thinking “Oh, the trend has reversed”. Then, boom! You get the big trend coming that’s off the races again in the direction of the trend. I think you can exploit this and it is probably a little bit too much to go into right now.
I will post a big video in the shownotes here for you to see. You can go down and take a look at that. It’ll be a 40-minute video or whatever where you can see my approach to that — and I am not saying it is the best way.
I am just saying it is one way that you might build something to do that. Like you say, Hugh, a lot of traders will hold on to these positions. They are saying “Look, I am in a trend. Every time it pulls back and get a signal to get back in, I am going to go off and roll with it.”
Actually, a lot of successful traders in my forum, one of them who started his own fund, he’s actually just building on this principle. Exactly what this question is about which is, basically ,getting in on trends on the pull back at the end of the pull back in trend.
A couple of really successful traders in that forum are doing that. That is how they trade. I think it is a really cool approach if you are a trend trader and you want to add to your position.
Obviously, you work on your risk and all that when you move to break even and how much do you take. Are you allowed to take a new position if one has not moved to break even and all of that stuff comes into it?
I think it is a really cool way of trading and you can live without any indicators quite easily and you’ll see that in the video below so, hopefully, that makes sense. Do you do the same thing? Do you add to position and get in on trades? Are you kind of in and out, Hugh?
Hugh: No, I kind of in and out. I haven’t really worked up to that. It takes a little pretty guts to actually do that so I have not gone there yet but I know it can work and that is where all the big money is made.
Walter: Yeah. There are many successful funds and traders that do that.You just have to have the right mindset. I do not think there is anything wrong with to be an in and out trader. I am a lot like that now, I don’t do a whole lot of trend trading.
I occasionally do on a one-hour chart but that’s pretty rare. You just have to know who you are. Are you the kind of guy or girl or are you the kind of trader who wants to really ride the trend and take advantage of that?
Just know that you are going to have some losers. I think Bill Williams has written some books…
Hugh: Yeah, it’s a great system.
Walter: Yeah, and that is the similar thing. Take a look at that Bill Williams and if you are interested in the structure of the trend, take a look at Martin Pring’s book. Pring on Price Action, a video down below.
Hopefully, that will help you if this sort of resonates with you. That is a great question. Thanks.
Hugh: Thanks for that, Walter. See you next time.
Walter: See you.