Thursday, November 24, 2011

Pullback Setups

I'd like to share with you a kind of setup that I use on my day-to-day basis. This type of setup happens almost every single day.

Even in low liquidity days like today, one is able to squeeze a few pips here and there.

I will demonstrate two setups (GBPUSD & GBPJPY) that I actually took today. Both of these fell into the optimal conditions state that is to be satisfied by trend, average daily range size, stop loss proximity and timing.

There was a potential third trade I chose not to take because it violated one of these optimal conditions requirements: timing. In order to take the GBPCHF trade, I would have to open a position after or right after or at London close. Therefore, it violated my own set of rules eventhough it would be a profitable trade after all.

Here are the trades:


Pound Dollar - the vertical line breaks the market into daily sessions.


Pound Yen - Much alike the previous day, all conditions were present.


GBPCHF - The pattern repeated itself once again. However, timing was an issue.


I usually take profit at around 80-84% of the average daily range of the particular instrument or a few minute prior to the end of the trading session (NY close). However, it's not necessary for a trade to reach TP every single time in order for a trader to be profitable. As mentioned before, this pattern occurs ina a day-to-day basis. The combination of small profitable trades like these, will surely add-up in ones monthly statement. A mechanical/systematic approach will also provide a very stress-free way of trading.

All the best to you all.

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10 comments:

  1. PoocherNovember 24, 2011 at 11:10 PM

    Many thanks Mauro!

    Especially here today on Thanksgiving Day.

    ReplyDelete
  2. Mauro AndradeNovember 29, 2011 at 9:23 AM

    No problrm my friend. Hope it can be of any help.

    ReplyDelete
  3. TPRDecember 2, 2011 at 8:03 AM

    Thanks for sharing this. If you don't mind, please could you explain how you choose the exact position of your entry - market order?

    Also, you could explain a bit more about the optimal conditions.

    Thanks.

    ReplyDelete
  4. Mauro AndradeDecember 2, 2011 at 5:54 PM

    Hello TPR,

    I usually set a buy limit/sell limit order some 30%-40% of the pairs ADR (Average Daily Range) away from the Low/High of the day with stops a few pips below/above the high low of the day.

    The high/low of the day are to be considered 'fresh' support and resistance levels.

    About optimal conditions:

    Trend (Main Move) : You are to only open positions in the direction of the prevailing trend. This is where the buy on strength and sell on weakness moto works at its best. To better understand the concept of main move, please refer to this thread:http://www.forexfactory.com/showthread.php?t=21887 and this video provided by a fellow trader of mine: http://www.youtube.com/watch?v=8AgJDCDxXYU

    Timing: You want to trade only when there is the highest trading volume in the FX market. London, by itself comprises the highest trading volume by itself. When London combines with NY, you have the highest combined trading volume in the FX market. Therefore, the optimal timing is closer to London Lunch time (10-11 GMT). However, if you want to be even more conservative, opening trades @ NY open (13:00 GMT) is also recommended. I do not take trades after London close.

    Daily Range Size: The daily range cannot be too small or too big. Too small, you don't have enough market information yet. The 'noise' area is too small in order to determine the intraday intentions. So I usually take positions with a current ADR no smaller than 40% and not bigger than 60%.

    Stop Loss Proximity: Off course I will only enter a trade if the market reaches my buy/sell limit order that is set between 30-40% of the Adr to be counted from a few pips above or below the high/low of the day.

    Lets say a particular pair has an ADR of 100 pips.Now lets assume that you want to you are willing to risk 30% of the ADR on a BUY trade. You should place your stops 1-2 pips below the low of the day (30% - 1 or pips). so your entry will be 28 or 29 pips above the low of the day and the SL is to be placed 1-2 pips below that low (outside the daily range).

    Hope this could be of some help. If you need any further clarification, I wil try my best to suit your needs.

    Best,

    Mauro.

    ReplyDelete
  5. TPRDecember 3, 2011 at 4:54 PM

    Hello Mauro,

    Sincere thanks for such a detailed reply. Although I am very new to Forex, I have already decided to follow Igrok's method (as outlined in his book). Am I correct to think the pullback is as Igrok's 18.4?

    Something you could help me with, if you don't mind, is finding a suitable ADR indicator: I dl'd one from Forex Factory (Igrok indicator thread) but I am unable to adjust the session start time to coincide with the Asian session. Similar problem with an indicator that shows different colours for each day: it doesn't coincide with my platform time.

    Anyway, thanks again for your help.

    All the best
    Toby.

    ReplyDelete
  6. Mauro AndradeDecember 6, 2011 at 10:48 AM

    Hi TPR,

    That indicator works fine as long as your broker/feed is adjusted to GMT +2 (GMT +3 during DST). MT4 has this specific limitation that is very sketchy in my opinion. Other software can divide trading sessions according to the Forex time template.

    I will try to come up with a video explaining the pullback setup better.

    And yes, it's 18.4 from Igroks book.

    All the best to you.

    Cheers,

    Mauro.

    ReplyDelete
  7. TPRDecember 9, 2011 at 7:15 AM

    Thank you Mauro. I look forward to your video.

    If you don't mind, can I ask for a little clarification re. the trend/main move, when opening a position.

    Should I be looking at the main move of the day, or the previous day? Igrok mentions in his description of 18.4 that the position should be opened in the direction of the main move of the previous day (or the medium term trend).

    I am also uncertain as to the timeframe of the medium term trend. I read Pring and he mentions the intermediate trend as being 6 weeks to 9 months. Does this equate to Igrok's thinking?

    Thanks and all the best,
    Toby.

    ReplyDelete
  8. Mauro AndradeDecember 9, 2011 at 8:25 AM

    Hi there Toby,

    The position should be taken in the direction of the weekly move for intraday setups. For intraweek setups, the position should be taken in the direction of the monthly move.

    Therefore, you should be taking into account what price is doing during a week to have the idea of what direction should your intraday positions should be opened. In this case, a week is a week. It starts Monday and ends Friday. The process restarts again every Monday. The same goes for intraweek setups where the month serves as guidance for determining the prevailing move.

    Of course that the main move of the day should be 'aligned' with the main move of the week for intraday setups and the main move of the week should be 'aligned'with the main move of the month for intraweek setups.

    Therefore, the daily move should be the same as the weekly move for intraday setups.

    Have a look at the latest pictures I posted and you will have no toruble seeing that I only took short positions in after the days MM changed to down and there was an obvious move down.

    Hope this helps.

    Best,

    Mauro.

    ReplyDelete
  9. TPRDecember 9, 2011 at 5:25 PM

    Thank you Mauro. Your explanation helps a lot. I have watched Andre's trend video and together with your explanation, my understanding has greatly improved.

    Best,
    Toby.

    ReplyDelete
  10. AnonymousApril 8, 2012 at 12:11 AM

    Hey Mauro, keep the blog going. You have a good way with words for explaining things (especially since I guess English is not your first language.

    I never made sense of the main move indi until this blog. Thanks.
    (Now I'll have to go back to FF to find it again!)

    Dave

    ReplyDelete

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