Sunday, January 12, 2014

An Introduction to a JPY Pairs Pullbacks Trading Method

Selling the Rallies and Buying the Dips in Direction of Dominant Biases

“All you can do in the end is do your best, and keep building up your trading skills. If you keep trying to excel, but stay realistic, you'll eventually achieve lasting success.” – Joe Ross

In a recent article titled ‘An Introduction to a Demand and Supply Signals Strategy - Long-term Pending Orders at Effective Demand and Supply Zones,’ it’s mentioned that the signals from the strategy would be coming on a monthly basis. Another trading method explained here makes you trade like Smart Money does. It’s also the 2nd signals strategy that would be used to send signals and therefore, it is better to familiarize yourself with the strategy, so that when the signals come, you’ll know the principles and reasons behind them. 

Since the currency markets are the best trending markets that exist, it is rational to follow the dominant trends, also in a logical way. When a pair, say the GBPJPY, is dropping like a stone, it’s more likely that it’ll continue dropping for its loss of stamina. But the drop in price would be accompanied by occasional transient rallies in the context of the southward propensity. Someone who goes short on the GBPJPY could be stopped out by a transient rally before the price continues to go further downward in their favor. This would happen because a stop may be too tight and because the price doesn’t go in a straight line.

With this trading method, we’d be speculating on JPY pairs: USDJPY, EURJPY, GBPJPY, AUDJPY, NZDJPY, CADJPY, and CHFJPY. The JPY pairs tend to move in noteworthy manners; and since they tend to be positively correlated to one another, they’re easier to predict. We buy a pullback in the context of an uptrend or sell a rally in the context of a downtrend. This makes us sell dearer on weak instruments and buy cheaper on strong instruments – really good bargains!

This method doesn’t do well when a trend is changing. But soon the change would be confirmed and we’ll prepare to take signals in respect of that. This means a rally may signal the end of a downtrend, and vice versa for an uptrend. It also means either the hegemony of the bull or the bear is over. We would be behaving like the majority when we allow ourselves to be carried away by irrationality; for trading with irrationality can prevent us from realizing our goals, as it happens to the majority. We just want to make sure that the vagaries of the markets don’t have adverse effects on our portfolios. We can face transitory negativity triumphantly (negativity would always be transitory), and later recover quickly and move ahead when the markets smile on us. Such is trading. 

In order to understand this trading method, please see the details below.

Details of the Strategy
Strategy name: JPY Pairs Pullbacks Trading Method
Strategy type: Swing trading
Trading style: Systematic
Suitability: For full-time and part-time traders
Time horizons: Hourly chart
Currency instruments: JPY pairs
Order type: Instant execution
Signal days: Mondays
Period: Evening
Entry rules: Buy a pullback in the context of an uptrend or sell a rally in a context of a downtrend
Stop loss: 100 pips
Take profit: 200 pips
Position sizing: Please use 0.01 lots for each $2000 (and thus making it 0.05 lots for $20000); or 0.5 lots for each $100000
Risk per trade: 0.5% per trade minimum, depends on equity ratio
Risk to reward ratio: 1:2
Exit: Close any open positive trade which is 2 weeks old
Breakeven: You can move you stop to breakeven after you gain up to 70 pips
Trailing stop: You can set up to a 50% trailing stop after you’ve gained up to 170 pips
Maximum signals per week: 7
Duration: 2 weeks

More Explanation
Based on my experience, this would be done only on Mondays.  If there is a Monday in which the entry criteria aren’t fulfilled, no trades would be taken. Sometimes, it may even take a few Mondays before there are tradable signals. That is the peculiarity of the strategy. When the entry criteria are met, you’d know when to place your orders since you know the setups are clean. It’s when you smooth your orders that your account balance can be increased and therefore your exit criteria must be taken serious. This method netted me a profit of 500 pips (5%) in December 2013. Of course, there were losses which were smaller than the profits. Understandably, there’d be negative months or months when there would be flat performances. However, there’d be profits to show in the long run.

Below is an example of how a JPY pair order signal looks like:

Instrument: EURJPY
Order: Buy
Entry date: November 25, 2013
Entry price: 137.300
Stop loss: 136.300
Take profit: 139.300

The signals would be published on this website. The signals would also be traded live for Tallinex clients to see. These signals will initially be emailed to subscribers, but will soon be offered via the automatic trade-following feature of our upcoming social trading platform.

Conclusion: The aim of this trading method is to buy dips in an uptrend or sell rallies in a downtrend.  We need to respect the major bias always.

This piece is ended with the quote below:

“It is by watching and managing the losing trades that you will make money. The winning trades can be left alone (never, never, close out too soon).” – Alan Saunders

Eye-opening trading lessons: Lessons from Expert Traders

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