Tag Archives: Exit Strategy

LTF Entry Patterns can also trigger Exit

 

Lower timeframe (LTF) entry patterns can also trigger exit.

Perhaps that's obvious? Perhaps not?

In any case, as I used an LTF trigger pattern for exit during the week the following thought crossed my mind – "I don't recall discussing this via the newsletter"

So here we are…

There are MANY entry trigger patterns. For those with the YTC Price Action Trader, refer to Chapter 4, pages 87-90 for a diagram summary of all the patterns I watch out for.

By far the majority of discussion with lower timeframe patterns is always with respect to entry.

So let's start with an entry example.

<image: LTF Entry Patterns can also trigger Exit>

<image: LTF Entry Patterns can also trigger Exit>

<image: LTF Entry Patterns can also trigger Exit>

<image: LTF Entry Patterns can also trigger Exit>

<image: LTF Entry Patterns can also trigger Exit>

<image: LTF Entry Patterns can also trigger Exit>

<image: LTF Entry Patterns can also trigger Exit>

<image: LTF Entry Patterns can also trigger Exit> 

 

BUT…

The exact same trigger pattern can also be used to trigger EXIT from an earlier (opposite direction) trade.

Let's assume now that we were SHORT much earlier, trading down into the lows.

<image: LTF Entry Patterns can also trigger Exit>

<image: LTF Entry Patterns can also trigger Exit> 

 

Happy trading,

Lance Beggs

 


 

The Key to Effective Active Trade Management

 

Here was the general plan:

The key to effective Active Trade Management

The key to effective Active Trade Management

The key to effective Active Trade Management

The key to effective Active Trade Management

I won't go into detail regarding the wider market environment and context within which the trade occurred. It's not the point of the article.

Truth be told – it was a marginal trade at best.

Ideally such a trade would be taken in a market with a strong bearish conviction.

But that wasn't the case.

The environment was poor. There was no clear trend structure in place. And the bias was uncertain, with price showing no clear dominant strength with either bulls or bears.

But I was aware of this. I was in "trade cautiously" mode. Standing aside mostly. With a plan that if I did take a trade it was to be with a smaller position size. This would continue until there was a clear trend structure and some good directional conviction.

We could argue back and forth all day as to whether or not the trade idea had edge. I will accept it was marginal.

But I took the trade.

And it contains a good lesson on active trade management.

So we will discuss it today.

Here are the charts just prior to my entry:

The key to effective Active Trade Management

Here's the entry:

The key to effective Active Trade Management

Here is what I'd like to see happen:

The key to effective Active Trade Management

But what we want to happen, doesn't always happen.

And that brings us to today's lesson:

The key to effective Active Trade Management is knowing what SHOULD NOT happen.

There are two outcomes that SHOULD NOT happen, if my trade premise is still valid.

(1) Price will immediately smash higher and stop me out. Should that happen, I'll just take the loss. It's unlikely that I will have the opportunity to work a better exit.

(2) Price will stall towards the upper edge of the congestion area and then break higher.

The key to effective Active Trade Management

Here's the outcome:

The key to effective Active Trade Management

The key to effective Active Trade Management

The key to effective Active Trade Management is knowing what SHOULD NOT happen.

Then recognising it.

And acting to contain any damage.

If your edge is gone, GET OUT.

Happy trading,

Lance Beggs

 


 

Is This a Stupid Trade?

 

Email from a YTC reader who I'll leave anonymous!  🙂

Hi lance. How are you? I wanted to ask you, do you use hard stops or mental stops? I had a trade today go wrong on me because I think either my stop was too tight or I shouldn't have used a hard stop. I'll attach the trade. Thanks!

Here's the attached image:

Is this a stupid trade?

NB. The horizontal white line at 32.78 is not an S/R level. This is simply the last traded price.

What I find most concerning here is (a) the trader referring to the trade as "stupid", and (b) informing me that this left him feeling out of sorts for the rest of the day.

My reply:

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One Trade – Multiple YTC Concepts

I particularly like this trade.

Not just because it wins.

But because of the reasoning behind the trade.

Immediately it was closed I thought it had to be the basis for a YTC article, simply to demonstrate the entry pattern.

But on further thought, it actually displays many of the concepts we have discussed here at YourTradingCoach.com over the last six years.

Let's check out the trade from last Tuesday's Crude Oil markets.

complex pullback trade

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Taking Profits – Adjust to Suit the Environment

Reader Question:

I've got a question related to taking profits. I'm having some great success with entries (finally) but am always torn between taking profit at 1:1, 2:1 (which I've found to be more common lately) or holding out until the next S&R.

I know you take 1 profit off the table at 1:1, move your stop to B/E & hold out for larger gains. From your experience was there any other methodology or have you found yours to be the most profitable?

I'm trying to read the price action after entry and it doesn't give too many clues, other than in hindsight.

Response:

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Apparently The Hanging Man Didn’t Make Any Difference

I'd like to share a great question received this week which highlights a number of recent topics that have been discussed via the newsletter or blog – the irrelevance of individual trades, the imperfection of ALL exit strategies, plus patterns vs context and the way price movement influences other traders' decision making.

Question:

I stumbled onto your website over the weekend and found it quite informative. I was trading the eur.usd today, June 5, 2012, and was long on a run that started approximately 08:15 est. at approx 1.2412. I was watching 5 and 15 min charts, macd, stoch. rsi. I made it through the first retracement without selling, but at approx. 9:30 est a hanging man appeared on the 15 min. chart. All other indicators except the 5 min macd looked positive. Although my gut instinct was to stay in, I exited at 1.24475 deciding not to risk the profit I already had. The run then continued to 1.2462 and started to pull back. Apparently the hanging man didn't make any difference.

I was curious about your take on the matter as you seem to have quite a bit of trading experience.

Let's look at the chart:

Please note: My chart timezone is different. The bullish price swing traded in the question commenced from the lows just after 22:00. 

hanging man pattern

hanging man pattern 

Response:

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Sometimes a Free-Trade is Not the Best Option

A trade is termed a free-trade once the stop loss is moved to breakeven, as it ensures that there is no longer a downside risk to the trade; only upside potential. However movement of the stop to breakeven is not always the best option. If done too soon it can take you out of a trade prematurely.

The following is some Q&A with a reader from earlier today which demonstrates this scenario. His trade setup and entry were great. Trade management though let him down.

Email Question:

Hi Lance,

Yesterday (2012.02.22) I took a BOF long on GBP (see attached chart for reference).

I have a couple of questions and would much appreciate if you provide some short feedback on them!

  1. I considered the setup at 17:10 (GMT+2 local time) a BOF long. I was aware that it appears in a trending market condition (downtrend), but I sensed market weakness below the 1.5656 area as the market found it difficult to move to new lows. So, I do not considered the setup as high probability, but also, it wasn’t a risky one (at least that was what I perceived yesterday). Your feedback here is much appreciated!

  2. Trade management:

    1. Market was choppy and overlapping (stalling at the area), so I decided to look for a limit entry order, rather than chase stop entry. I managed to enter at 51 (confident after seeing the bull candle from lows on lower timeframe) with S1 at 43 (two tick below swing L). Target was at swing H at 16:10 @ 1.5671 (4t below that high).

    2. After entry I expected market to test the swing H at 16:55 @ 1.5660 and find some res there, before going further to the target area. As market approached 1.5660 area strong selling came to the market, so I placed the stop at breakeven (BE) +1 in order to protect capital (here I am not sure if this is what I should have done right). Market went down and hit BE+1 to the tick and then reversed :))) Why I decided to be aggressive with moving stop to BE – I decided to be aggressive with that because I didn’t sense this trade as a high probability (given the context – we were still in a downtrend. if market was in a sideways trend, perhaps, I should have given more room to the trade). On the other hand, seeing that market is choppy, I should have expected some volatility around entry and hence, I should have been more patient in placing stop to BE+1. How could you manage such a situation? Just general feedback would be much appreciated. I know that each situation is unique, and there is subjectivity involved, but would be glad to here your thought on that.

Kind regards,

K

free-trade error - email question chart - 5 min

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Active Management and Defensive Exit – An Example

NOTE: Not for newer traders

Thursday 9th February 2012

Active trade management requires a constant reassessment of trade potential throughout the life of a trade, in order to maximise any opportunity and minimise any risk. Here's an example (as best I can recall a couple of hours after the fact).

The tick chart shows the price flow better than a range chart, so we'll make use of that.

The trade plan is for a pullback entry for continuation short. Ideally, given my expectation of strength continuing to the downside, I was seeking a pause in the pullback abeam prior low / ledge A (scenario 1). However I was willing to accept a deeper pullback to the base of the upthrust and trap candle B (scenario 2).

active trade management 1

The pullback continued a little deeper than my preferred plan, but offered an entry in accordance with scenario 2 as mentioned above. The stop loss was placed two ticks above the upthrust bar (B). The initial target was just above the prior swing low (99.50 region) although if price suggests continuation it will be moved lower to allow the trend to run.

active trade management 2

Did I ever mention that I hate scenario 2s!

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Managing Part Two of your Trade

The following is some recent email Q&A regarding the management of part-two of a trade (all-in scale-out), following the exit of part-one at it’s target.

EMAIL:

Hi,

I just started demo-trading and I’ve found out that I have absolutely no idea how to manage target two. I trade GBPUSD 30min/3min/30sec.

I like the idea of having two targets and thought it through and I believe it is better concept than single target, but I don’t know what is the logic behind managing the stop just after I hit T1.

I can’t leave it too far behind, otherwise the trade would often result in less than 1:1 R:R (1 on T1, but 0.7 on T2 for example). I can’t follow the price too close, because T1 is usually at a place where some opposing order flow will come and there is reasonable place where to put the stop.

What I’m interested in is the logic behind the stop management of part 2. I understand how to manage the first part and where to put T2, but I don’t know what to do with the stop at the moment I hit T1.

Thank you very much for explaining it to me.

Wish you good luck in trading,

REPLY:

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In-between Breakeven and Profit

The following is some great reader Q&A regarding a quite difficult part of the trade management process:

Question:

I have been trading for a long long time and always have had one obstacle I can’t seem to overcome.

I feel I can pick the Perfect or Near Perfect Trade setups.

I feel I can allow it to confirm to “take” the trade.

I always have “Money Management” stops in place.

I feel I can raise my stop to breakeven when I’m ahead enough.

Now comes the problem. I don’t know WHEN to take the profit and run.

Over the years I have tried all sorts of guidelines.

  • 50% retracement;
  • 100% retracement;
  • 50% out at 1st target with 50% at breakeven;
  • Middle bollinger bands
  • Middle Linear regression
  • Opposite Bollinger Bands
  • Opposite Linear regression
  • 618
  • gut feeling
  • Money management: gain of 1x; 2x risk
  • etc etc etc.

All of these are OK, IF I can pass the “in-between” area of uncertainty.

If I can get far enough ahead, I just follow up the stops to just below the previous pivot.

But it’s the “in-between” that haunts me.

Do I take the profit or put in a close breakeven stop.

If I choose either, sometimes the choice is great or terrible.

One time in the early 80’s, I put $750US into #2WSugar and in three weeks it was at $28,000US.

Didn’t know what to do.

Finally got out with $18,000US, which was great but it killed me to lose that $10,000 extra profit.

OK, this is an exception, I was stupid, I should have taken the money and run.

But even on the smallest trade I still have the same problem.

When to take the profit!

So after 45 years trading I’m still open to ideas and opinions.

Even now, I try to “listen” to many opinions about trading; some I reject immediately, some I ponder, some like yours I most appreciate.

I especially liked your thought conveyance that there is no Holy Grail, it takes hard work and experience to trade.

You make sense and deal in the “real world”; many many others don’t, they have gimmicks that work only for a moment then fail.

I have seen it over and over again. Your approach is most refreshing and “real”. Thanks!

So my long winded question is: When and How do you trade in the area “in-between” ? (In-between Profit and the breakeven point!)

 

Answer:

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