Dear All,

My short was filled at 192.50 sometime last night, but woke up and don't like the lack of follow-through on 192.50 break...my stop at 193.50 was saved by a few PIPs, watching the price trying one more attempt lower (needs to drop below 192.50)...if this fails, will exit my short at market or 192.75 for upto 25 PIPs loss..

EDIT: Ok, closed the short at b/e ... will reenter short on break of 192.25 or failure at 194+ levels..

__________________
"The market can stay irrational longer than you can stay solvent" - Keynes

I am somewhat surprised that you would enter a short at such an oversold price. Im curious where you think the price action will stabilize. How low can it go? Personally, I doubt it will stay this low for long, but as they say, talk is cheap.

Some wild swings going on the last few hours!
I would agree with Fish that shorting at around 192 is probably(or highly) risky as a short term bottom could well be in already.

any one seeing an end to this downtrend ??
pair came down too fast but not moving up that quick.

Of course, the question is, how low can it go. Looking at the weeklies, there is resistance around 189.6. There is nothing in the fundamentals to give rise to a GPB strengthening. However, the monthly BOE rate decsion is due out tomorrow. I'm short right now and plan on closing out at the open of the Tokyo market at the latest and stay on the sidelines until after the BOE decision... see how the market reacts....

Been a daily viewer of the forum for the last 12-15months, have to say to all you guys with big posts on Gbp/jpy hats off, some very insightful commentary for novices like myself, thanks to you all.

Justy, very interesting to read your advice over the last day or two, developing a system is something i have continually struggled with and you outline a very simple approach that clearly works well for you. The more i learn about trading the more i realise its about finding a system that works for you as an individual as everyone is different, i for example have to trade around a day job which presents different challenges and requires a different approach to somone who perhaps does not.

Here is my two pennyworth, not clever enough to post a chart so i'll type instead.

Being into elliot wave i'm trying to use this starting from its simplest form, breaking down the waves within as i go, if i can't see clear waves i've learnt the painful way to stand-a-side!!:

Wave I 07/07 - 08/07 251.00 - 219.00 - 3,200 pips
Wave II 08/07 -10/07 219.00 - 241.00 - 2,200 pips
Wave III 10/07 - 03/08 241.00 - 219.00 - 4,850 pips
Wave IV 03/08 - 07/08 - 192.50 - 215.70 - 2,320 pips
Wave V.....07/08 - ......?? - 215.70 - 183.20 - 3,200 pips (....if equal to wave I)

I'm short from 08/31/08 at 196.46 with a trailed stop currently at 194.... targeting 188-190 zone before a bounce, some move in just 30 days ehh?!

Thanks again guys, all comments good or bad a learning experience for me.

JC

To reiterate what someone else said earlier, you are to be commended for taking the time to write these posts. Trading can be daunting for the beginner - as well as for the experienced when the market goes against you... Your explanations are very clear and reasoned.

My only question is, considering how strongly this market is trending, don't you think that the EMA may be a little slow? Quite possibly by the time 195.3 is seen again, the bottom may have formed and a reversal be well under way. In the meantime, quite a few profitable pips to the downside may have been lost.

Quite a strange day... very little follow through beyond 192.50 despite two attempts and the second especially surprised me during the US after a probe higher and reversal but no frantic selling.

Still, price closed below previous trend low and daily indicators continue to make new lows. As I have said before, there is tremendous interest to sell on any rallies, so at the very best the trend the pair could be in for some consolidation.

195 doesn't seem a bad selling point unless we see some serious traction upward in the GBP.

Good point, that's why MAs are best for following long term trends and oscillators are best for following short term trends.

Me, I like to follow those 100 pip intraday trends using 5, 15, 30 minute and hourly charts and so use a few oscillators and observations of price action to get a high probability entry and exit, short or long regardless of trend (though I prefer the trend obviously). Having an idea of classic support, resistance, and fibo points helps. I combine that with strict money management, since that is what has royally screwed me in the past. Using two orders, I can ensure a quick profit on at least one that pays for the risk on the remaining one. If the trade survives a while, I may add on a pullback.

For example, during yesterday's Asian session I shorted at 194, set the first to take profit at 193.10 (previous low), added again at 193.40 during US morning, and closed both at 192.20 in the US afternoon. It was a helluva day.

I tried following the longer term patterns and trends but I just don't have the patience or confidence. On the other hand, my disadvantage is often missing major moves since I do not always have an open position in the direction of the trend and cannot man the computer 24 hours a day. I'm less interested in 1000 pip type of trades over the course of a couple weeks and more interested in making a couple of fast money 100 pip trades each day since odds are price will retrace and I can re-enter at prices I passed by at 100mph the day before. Maybe it's the rush I dunno.

Seriously though, I sleep better at night knowing for sure I made money that day and if I do have a position on knowing it will likely at least break even.

I just thought of another benefit to my system: making a trade every day or nearly so classifies your trading activity as a business and lowers the tax rate on gains from personal income to something lower (if you trade with a US account). I can't remember the rate ATM. However, I would never advise making investment or business decisions based solely on taxes.

Hey Guys,

I hope everyone is doing well with their trading today.

So here's the next part of building a trading system. So far we've determined that buying or selling the 5 EMA could be a profitable trading system. We have gone ahead and added a few 'filters' to the basic idea that increase the chances of successful trades. Now it's time to look at the most important factor in the system: Trade Management. Once we enter the trade we need to know where to put the stop loss and limit orders.

In order to see be able to know where to put the stops and limits, we have to know what the setup typically offers. We will need to find out the average amount of pips price goes both in favor of the trade and against the trade. Rather than just arbitrarily use, for example, a 100 pip target and a 50 pip stop we want to know what the market typically would give us. This lets us tailor the trade to the market it's used on. So you have to go back through price history and look at each and every point you would have entered a trade. From the entry price (the 5 EMA), how far did price go against the trade? How far did price go in favor of the trade before bottoming/stalling? So what I do is take a calculator and pen and paper and just start making a list. On one side of the list I write down all the max profit targets and on the other side I write all of the maximum draw-downs. The table below shows those numbers from November 2007 up through today. I've arrange them in numerical order just to make it easier to decipher. There's also a chart depicting what I'm talking about as far as determining max profit and max draw-down. On the chart are two different trades. The target number that I use as the max target is the distance between points 1 & 3, while the distance between points 1 & 2 is the max draw-down.

You can see on the target side of the table, the minimum amount of pips price moved in favor of the trade was 170. The higher end of the spectrum would have netted 780 pips on the trade. I don't count that 1066 pip number because that's not the norm. Looking at those numbers you can see that there are just a few 100's, some 200's, a lot of 300's, and some 400-700's.

The question now is where would you place the target for the trade? Do you take the average? Do you only use one target or do you have multiple targets? If you use a target of say 400 pips, then all of those trades below 400 pips could have been losers. But if you put the target down at say 100 pips then you really limit your profit potential. So here's what I did. On all of the currencies I use this setup on, multiple targets of +100, +200, and +300 work the best. I'll talk about why I do that later. But the way I manage the targets is to trade with 4 lots. I close 2 lots at +100 pips. Then close 1 lot at +200 pips and close the remaining 1 lot at +300 pips. For the time being, take that for what it is and later I'll show you how setting up the targets like that reduces risk. Let's look at the stops now.

The range for the number of pips the trades would have gone against us runs from a measly 4 pips all the way up to 482 pips. The two that say 'end' were at market bottoms, and there is no way to avoid those losses. The majority of the time you'll take a losing trade at market bottoms. Anyway, let's say that we just decide to use -200 pips as a hard stop. Looking at the data, what does that do for us? You can see that there are only 4 trades that would have resulted in a loss. That's not too bad. That means losing only 12% of the trades. That's a ~4:5 win loss ratio. You win 4 out of 5 trades. Again, I've found that with all of the other currency pairs, that a -200 pip stop works the best.

Okay, by going through price history and finding how many pips price will typically move both in favor and against a trade, we have decided where the stops and limits should be placed. So what do we have up to this point now? We've identified a pattern that repeats itself over and over again in the markets. We've added some filters that increase the number of profitable trades and more importantly decrease the losing trades. The entry to the trade is by either buying or selling the 5 EMA depending on which way the market is trending. And now we know where to place stops and limits: -200 pip stop, and +100, +200, & +300 pip targets.

I've got one more chart I want to show you that explains why those stops and targets work. I'll put that in another post.

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Ichimoku cloud: Tenkan crosses over Kijun below the cloud. This is a weak buy signal. However, such a crossover is found in both JPY AND GBP. Therefore, it could be a bullish turning point for GBPJPY. Bullish trend might be confirmed above 194 if true.

This diagram shows how I manage these trades. The real key to this trade setup is in trade management. You'll see how only getting your first target hit gives you a risk free trade.

The red/green/blue lines are basically a flow chart of the trade progress. Starting on the left is where you enter the trade. And again, entering the trade is done by buying or selling the 5 EMA. Enter the trade with four lots, or multiples of four. Once you have a position, the next thing to do is to immediately set your stops and limits. The initial stop loss is -200 pips on all four lots. The targets are as follows: +100 pips on 2 lots, +200 pips on 1 lot, & +300 pips on the remaining 1 lot.

So now that you are in the trade with stops and limits set one of two things can happen. 1) price can go and hit your stop for a loss of 200 pips on 4 lots. 2) price can go hit your first target. Let's say that's the case and that price has moved 100 pips into your first target (T1). When this happens. the order to sell 2 lots is hit. Now you have 2 lots remaining. At the same time, you are going to move your stop on those two remaining lots from -200 pips (SL2) up to -100 pips (SL1). Just for ease of explanation, let's say that each pip is worth $10 on your P/L. Our first target of +100 pips on 2 lots was hit netting us +$2,000.

Alright, now we're sitting in the trade at (T1) with 2 lots. Looking at the diagram you can see that from (T1), price can do one of two things 1) go down and hit your stop (SL2) or 2) go up and hit your second target (T2). Looking at this both ways, let's say that the stop was hit. That means that on the remaining two contracts, we'll take a -100 pip loss. That's a loss of -$2,000. Combined with the 2 G's we made on the first 2 lots, that's a break-even trade. So you see that just getting your first target hit gives you a completely risk free trade. But lets also see what happens if the second target gets hit (T2). When that happens the order for 1 lot gets closed out at +200 pips. Making +200 pips on the 1 lot gives us +$2,000. Add that to the +2 G's from the (T1) and we're sitting with a floating P/L of +$4,000.

Looking back to the diagram, price is now sitting at (T2). At this point there is 1 lot remaining in the trade and we go ahead and move the stop to break-even. And again, price can do one of two things: 1) price can go down and hit the stop (SL3). or 2) price can go hit your last target (T3). If the stop gets hit, we don't lose anything because we had moved the stop to break-even. So with the +4 G's we had from the first two targets + the $0 we just lost, we end up with a +$4,000 profit. Now lets say that the third target did actually get hit. The order to close the remaining 1 lot would be hit giving a gain of +300 pips. That's +$3,000. Adding that to the 4 G's from the first two targets gives a total gain on the trade of +700 pips or +$7,000.

The big thing with this trade management is getting that first target hit. When that happens you are sitting with a risk free trade. And that's the goal. Once you get that, then who cares what happens. If you get stopped out, oh-well. You didn't lose anything and you can try it again. Not only do you get a risk free trade, but getting that first target hit gives you one other thing. Look back to that diagram and you can see that the distance from (T1) to the stop-loss (SL2) is 200 pips. So at that point you are sitting there in a risk free trade with 200 pips of wiggle room to let the market do its thing. That's an incredible state to be in. And if you go back to the previous post with the list of targets and stops, you can see that the majority of trades will hit the first target. Rarely do you not get the first target hit. The result of that is a trading setup with a great probability of success.

And so that's pretty much it on that setup. Whether or not you use this setup, or you tweak the parameters, or if you don't use it at all, Those are the basic steps to go through in developing a trading system. Find a repeatable pattern that you can take advantage of. Tweak it to increase your odds of success. And set up a sound money management system that reduces risk. Once you have that system, focus your energies on trading that system and before you know it, you'll be making pretty good money.

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Hi Donkirk,

You are right in saying that the EMA's are slow signals in trending markets. When used in their 'traditional' method, EMA's will often cause a trader to miss a large portion of any trending move. But the way I use EMA's isn't to position for a trending move. The idea behind this setup is that more times than not, when the 5 EMA is tested, price will behave in a predictable way. And I'm just trying to take advantage of that predictable behavior.

Hi justy,
Do you do other setup also? or just this setup? why I ask is this setup isn't happen very often. I wonder if you do trading use other type of setup?
Thank you very much, I have follow you well so far.
As I type this, this pair just broke its new low, I wonder if there is any bottom for this pair for now?
Thanks again.
Paul

I have two other setups that I use as well. One is a longer term swing trading system that does give you more exposure to the markets. The other is a short term setup that gets you in the market as it's breaking out or breaking down from consolidation periods. Believe it or not, but the setup I've been describing does actually generate quite a few signals. I got into a short position just about 15 minutes ago in the CAD/JPY using this system. And if you take a look at daily charts of AUD/USD and NZD/USD, you can see that this setup has been performing extremely well during these declines.