Hello and welcome to another edition of the bulls versus the bears. Today ‘s post is a simple piece of advice.And it goes something this: Don’t jet out of a good trade too soon. See it through til the end until there are only fumes left. I’m merely stay stay in the trade for as long as possible until it plays out.
You know a lot of traders are totally confused as to how long a trade is supposed to last on the market. Consequently they set traps for themselves such as exiting too soon, trading with emotions,and even worse, taking bread crumbs(small profits)as profits. It may please you to know that good trades play out a longer than you realise. It’s especially so for trading strategies such as higher higher time frame trading , trend trading and swing trading.
It’s also important you understand how long the market moves from one point to the next. For instance the EUR/USD pair average about 250 pips of movement in a pip range So the pair may shoot up 150 pips and slide down another 100 pips. So if you are trading this same EUR/USD pair on the daily chart, and you are aiming to making between 250 and 500 pips, expect a week to two weeks for this trade to play out. You also need to understand the forex does not drive fast like a Ferrari. It takes its own jolly good time to allow trades to play out as long as possible.
So we’re going to do two things today. We are going to prove to you that markets move in small pip ranges using the. Average True Range(ATR for short) And then we are going to see examples of how long trades play themselves out.
So let’s start of with:
Average True Range
Now the Average True Range(or ATR) is a popular tool found on the MT4 platform. Its prime responsibility is to show you the moving average of the true range of a market over a fixed period of time. In layman’s English, a market feeling a high level of volatility will sustain a higher ATR whereas a market feeling a low level of volatility will attain a lower ATR. Now this piece of information is absolutely crucial because it gives you an idea of how much movement a market is likely to accumulate over the next week or so. We can also use this information to establish how long a trade might take move from one point to the next and also determine where to place a stop loss.
For instance you wouldn’t want to place your stop loss placed within the ATR of a market.Why?Because you’d suffer a Mike Tyson-type knock out in case the price suddenly fluctuates on your trading position. Logically, the best spot to place your spot is outside of a market’s ATR and beyond the vicinity of any support and resistance levels.
The typical value of an ATR is 14. It shows you on the daily chart the Average True Range of the last 14 days. Just remember that ATR is a gauge of volatility over a fixed time frame. It has absolutely nothing to do which direction price is heading. It’s all about the volatility of its movement and the range of its movement.Now because ATR moves in small pip ranges you need to temper your expectations as to how long a trade is supposed to play out.
So without wasting much time, we’re going straight to the MT4 platform to learn how to insert the ATR on the price chart.
First click on the “Insert” button”, the third button at the top.
After clicking on the “Insert” button, a pop-up menu “pops” up on your screen.Next you select “Indicators” and then click on Average True Range. It’s just above the “Awesome Oscillator”option.
Once you click on “Average True Range” The ATR properties box appears on your screen. There are only two properties you need to concern yourself here – the color of the ATR line(or style) and the field labelled “Period”.
Now lets see how the ATR works by first taking a look at the 14 day ATR period applied to the EUR/USD pair.
Here we have the 4 hour chart for the EUR/USD chart. Here price breaks through the bearish channel during a relatively low ATR period. you then do two things: Put in an order to buy and then place a trailing stop under the previous bottom, roughly 90 pips.
Now you have to feel sorry for the upper channel. Because it suffers another hit from the price, which in turns ricochets further upward as ATR values take a sharp increase. In that case you tweak the distance of your stop loss to accommodate the price’s volatility. How do we do this?By measuring the distance between the breakout point and the low of the previous bearish channel and you have your new pip distance.This new distance should be about 140 pips.
See how the trailing stop is absorbing the vicious hits from the price? That’s because the distance of the trailing stop has been tweaked to absorb the darts price might throw at it. Failure to do that and trailing stop get hit, and you will miss the next big wave. Anyway, the trailing stop eventually gets hit after the second wave, and price goes into consolidation mode.
So as you can the trailing stop comes in handy when dealing with ATR in channel trades. Why? because there are no specific rules when trading channels You will most certainly need the stop loss when deciding to go all out or holding back on your profit target. Of course you have to keep the values of the ATR in mind when deliberating over where to place your trailing stop. For more informatiion on trailing stops and other forex trading orders look up Forex Trading – Basics Part II. I’d strongly suggest you learn Part 1 also.
Wanna watch the video? Here it is
A Few Examples of How Long Trades Linger On
Counter-Trend Fakey Trade
Right in front of us is a counter-trend fakey/false break pattern. As you can see the bearish move worked its way all the way down to the next level of key support just above 1.38220. You don’t need to be Albert Einstein to deduce that this trade took months to unfold. So just be patient and you will be handsomely rewarded. And your stress level will be less of a headache.
There are three things you need to look at when trading the fakey pattern:
- Is it on a daily chart
- Is the fakey formation obvious
- Is it happening at a core resistance level?
If it answers all three criteria, you’re in business.
Next up is
Pin Bar With Trend Trade
Nest is a classic illustration of a pin bar with a bearish trend persona. As you can see this pin bar pattern took weeks to form.And as you can see, pin bars form after pullbacks.When this scenario unfolds, nobody has to tell you need to put in your trade entry. However, not all pin bars are created the same. So if you see pin bars forming without pullbacks, HOLD YOUR FIRE! You could end up incurring a nuclear-sized blowout.
Just a little reminder, pin bars are reversal signals. And these signals only form during pullbacks. Please Please Please! pin bars are not continuation signals. Trade them as such at your own peril.
Next example is
Pin Bar With DownTrend Trade
Right in front of us is a NZD/USD pin bar sell signal at the downtrend, circled in white. As you can see the signal shows up at the top of the trend around the level of resistance. This is definitely the perfect time to make your entry after waiting for so long for this signal to line up. If your attitude is “I want the money right now”,You’d definitely miss this opportunity and risk incurring an atomic-sized hole in your trading account. This is yet an example of how traders last longer than we realize.
Having problems with trading trends?Consult Trade Trends with Price Action Analysis
Last but not least
Pin Buy From Key Support
This is a another example of a downtrend pin bar signal(labelled ‘BUY HERE’ featuring the AU/USD pair at the level of support. And you have upper and lower channels. As you can see there was several weeks of slow grinding before the downward slalom took shape. Some of you, upon seeing this slow grind will probably have bolted at the first instance. Or you’d have taken a profit only big enough for pocket money for the day before the market really hit top gear.
The last thing you want t to do in this setup is to think too much. Just set the trade and go to the beach. The market will do the rest.
Wanna know more about staying in good trades until they play out ? Consult How To Spot High Probability Trades
That’s a wrap for ”Don’t Jet Out Of A Good Trade Too Soon-See It Through Til There Are Only Fumes Left” As you just saw, sometimes trades take weeks, maybe months to play out. The moral of this story is don’t be in a rush to rack up the cash or you’ll make very little, if any at all. Just as in life,forex trading is a marathon,not a sprint.You need to take your time and wait for the right time to pounce.
Even more importantly stay relaxed when you trade. Dont get glued in front of your screen all day. Just set the trade and go to the beach. The market will take care of thing for you. You need to give the market time and room to maneuver in your favor and roll the money in your direction. If the market were human it would probably say”Chill, I’ve got this.” So the formula, is hold your trade, gather patience, and have the courage not freak out whenever there is the slightest fluctuation against your trading position.
Til next time take care.
Looking To Join The Forex Trade Gravy Train?
If you’ve stumbled in here looking to join the forex trade gravy train, here is what you need to do . First, look up Why Forex Trade Is So Popular. Next, you learn the fundamentals of forex trading by reading Forex Trading Basics – Top To Bottom Part I and Forex Trading Basics – Top to Bottom Part II .
Next, you need to learn how to read candlestick patterns. They are the main feature of price action analysis. And you need to know what these patterns are telling you. To be able to do that read the following on Fundamentals of Reading Candlestick Patterns, Single Candlestick Patterns, Dual Candlestick Patterns, and Triple Candlestick Patterns . Also You Need To Know Ten Of These Candlestick Patterns .
And finally If you want to give your trading skills an edge by relying on pure price action trading/analysis, instead of fancy forex robots and fancy indicators, get started with What is Price Action Trading?
Looking to get a leg up on price action analysis,?you need to learn How to Identify Support and Resistance Levels. And if you want to learn how to interpret trading zones, read up on Identifying Dynamic Support and Resistance Levels. Finally you should know How To Read Candlestick Patterns using Support and Resistance Levels.
However, if you only want to trade once a month and watch your entry rack up huge profits over a stretch of several weeks, consult How to Spot High Probability Trades. And if you are still not sure about price action trading, find out Why Price Action Trading Still Rocks . Dont let me stop you from reading the other posts as well. But the suggested posts above are the most important posts to get you started.
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if you want to know everything there is to know about price action trading, Download for free The Ultimate Guide To Price Action Trading by Rayner Teo. This brilliant ebook will change your life. It sure did mine.
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