I had written in the past that I don’t put post all of the trading thoughts I have on the weekly free Forex setups page.
I’d much prefer teaching through the charts and not necessarily making the choices for you. I know many of you have used what I have taught and apply it to other Forex pairs that I may not cover.
You have asked in some comments (I don’t post them all) about how to scale out and trail stops and that information can be found throughout my trading blog. I think this current trade long I have in the USDCAD cross should shed some light on it.
First off, this trade was simply a pullback in a daily and weekly uptrend. On the four hour chart you can see a double bottom.
Once I determined a trade setup, my entry was simply a buy stop order that would trigger in when price moved in my direction.
As I explain the numbers, keep in mind how I positioned for this trade:
- I knew how many pips I was going to risk considering account size and percentage
- I split the trade up into two orders
- I set the one trade to take profit at 1R and the other was to trail
With that in mind:
- This was where the trade was entered and was simply a little higher than the close of the red candle.
- This was where the first trade was automatically exited for 120 pips which is a 1R winner
- This is the current stop which was adjusted slightly higher than the exact trail stop price due to the size and shape of the previous days range
At the time of this screen capture, the second position was up 200 pips.
Profits Will Disappear
The issue that most traders have with using a trailing stop is watching some of the paper profits disappear. If your trading psychology can’t handle that, you would be better of just using price targets.
But that is not the way to get alpha returns.
I started my trading with using price targets because the one goal was to build up my trading account. I was not after large returns but a steady increase of my trading account.
I would scalp (not something I recommend for anybody…ever) and day trade because the opportunities would present themselves every trading day.
My goal was to leave all that behind.
In order to do that, I needed my swing trades to have a position size where each pip (for my Forex swing trades), was worth something. It makes no sense to make 120 pips and make $60.
When I traded every day, I would never let the trade pull against me. I would get out when price action was not showing further intent in my direction. Letting profits disappear was not condusive to increasing my account – which was the goal that lead to the bigger picture.
Now, things have changed.
The profit potential on each trade is much better than a day trade will be but I have to withstand a pullback in price.
I have to accept that the market makes impulse moves and then corrects. When the corrections are starting to outshine the impulse moves, that is where protecting profits more aggressively come into play.
Right now, if price pulls back to my stop, I will only bank 58 pips on this trade. I suspect, given the formation of the current candlestick, my stop will move closer to price at end of day.
Trailing Stop Method
I recommend ATR generally but I also think the “Chandelier Stop” is better.
The Chandelier Stop uses the ATR and also used the highest high (or low) over a set number of periods called the look back period.
- Calculate the ATR of a specific range of days – 14 days, 22 days (Chandelier Stop default)
- Calculate the highest high or low of a specific range of days (default is 22)
- The stop will be, for a long, the highest high of the last 22 days minus a multiple of the ATR (default is 3)
This trade has a multiple of 2 for ATR because of the way price has been moving up (the stair step in the uptrend is choppy). If the high of day has already put in, I know in advance that my stop will increase to 1.3273 giving my 68 pips on this trade giving a combined total of 188 pips.