Just two quick questions if I may. I am going through the course for second time and have been thinking;
1. Since it can take a while to gain an understanding of how far we expect price to move via news or macro events via ‘news impact method’. Can we use the strength of a move on a chart as a ‘proxy’ in the meantime. For example, if a piece of news is causing a intra day move and a up trend, can we assume the move is exhausting as the pushes up (each leg up) becomes less intense and vice versa.
2. In regards to stops being triggered, I know you have previously said focus on the bigger moves not the 5, 10, 15 pip moves. So in saying this I assume there is no point in marking off stops on say the 1, 5, 15 minute charts, as equilibrium may not be as strong (when there is no news/macro)and thus could break out and be supported as opposed to snapping back into equilibrium. Additionally if we rely on the news/macro orders to support our premise of tripping stops, and thus you have a pip range you expect a move to last, do you ever base a trade on a psych shift (momentum) that’s feeding on itself to trip stops, or is it better to just rely on the news/macro to trip them.
2. In regards to the stops on lower timeframes. I remember spending hours every day searching for every single stop loss location on every single website, news service, etc. I was wasting too much time on it because it distracted me from the more important, news, sentiment and macro analysis. That is where I just decided to create price alerts for the nearest topside level stops and nearest downside level stops. Usually I use the 15 min or 1 hour chart or so, but it depends on the currency pair, volatility, etc. I adjust these on an intraday basis if the market makes a key intraday low or high or as the price alerts are triggered.
If the market is in a big trend lets say USD/JPY, and if it breaks 103.50 barriers, and there is no clear upside chart based resistance point to find a stop location, then I just use the next barrier location which is 50 pips or 100 pips away. So I would set a price alert at 104.00. Unless the price hits 103.55, lets say, and pulls back 40 pips or so, then I would set the price alert to the 103.55 high. If price hits 103.55 and only pulls back to 103.45 or so, then I will just leave the price alert at 104.00. Sometimes it depends on how much the market retraces back from the previous high/low points.
When I get around to making the videos on the daily habits, you will see more clearly how I find and label the stops and price alerts. It really is quite easy once you get the hang of it.
I try to avoid placing trades after a big sent/psych shift, unless I think the macro is with it as well, because if the macro is not with it, then the market can get overextended. If I believe there has been a big sent/psych shift and the market ripped through stops, but I believe the market has reached the macro exhaustion point, then I will make sure to stay out, because the market can be very prone to short covering or profit taking. For example, take the Silver tripping of stops below $22.00 on Sunday, May 19, 2013. It was sent/psych shift and part stop cascade. I am bearish on gold and silver, but I know I should not sell after such a huge down move because the bearish macro forces can be exhausted, and it is a poor win rate and poor reward to risk ratio. You need to get the timing right and the proper macro model correct. Like if you should short the lows, or wait for a small intraday ret, or wait for a bigger ret, or topside tripping of stop above a key daily high, etc.
Yesterday, I was really thinking of shorting gold near the lows to play for a tripping of the key daily low stops, etc. I was fairly close to pulling the trigger on it, but I slapped some sense into myself. I convinced myself that the market was too sold out and vulnerable to some short covering, so I would have to hold off shorting and waiting for a rally and then re evaluating the situation. If I had shorted it, I would of suffered a great deal of pain with the huge rally that happened today.
So with the sent/psych shifts, you try to get in before they happen. Otherwise, it can be too late, unless there is the macro support with the trade. What is an example of the macro supporting the sent/psych shifts? Well the recent USD/JPY breakout about 100.00 is an example. You could of bought after the tripping of the stops around 100.40 and try to play for a continuation of the up move if you so wanted to do that.
So I just use the chart method for the most part for the stop losses. I am looking for the easy clusters. If anyone is using a stop loss based on some crazy mathematical calculation or esoteric methods, I really don’t care about it. I can’t waste time figuring out every single person’s weird trading systems. I need to focus on what I know is true about the market, and implement that. You don’t have to know everything. You just need to know the things that matter and then use that knowledge.
I remember a nice quote. It went something like this:
It is about what you know, and what you do with what you know.
Some people know a lot, but don’t do much with what they know for all sorts of reasons.
Other people know a lot, and do a lot with it and make something of their lives
Other people know a little, but relentlessly try to take advantage of the knowledge and opportunity they do have and thus can achieve wonderful things.
1. For the strength of the move on the chart – that is kind of what the ODVE, MDMM, and GM volatility movements are for. Also the one bar or two bar trailing stop above/below the daily chart high/lows also takes this into account. I have also seen Bruce Kovner and Michael Marcus and a few other Market Wizards use the strength of the move on the chart as a clue as to when to get out. If I remember correctly, they were in a trade and it was a MDMM in their favor and they were making a lot of money. But the moves were getting weaker and weaker. If they were long the market, every new up day was a bit less and less. So they used that as a signal to get out.
But there is no foolproof 100% method. Sometimes the strength of the move on the chart can be getting less intense and weaker, but a fresh catalyst comes into the picture to revitalize the price volatility. No method is perfect.