Everybody likes to have enjoyable with hypothetical “Desert Island” questions. You recognize those the place you’re sitting round with your folks asking one another what you’ll take with you or maybe who you’ll take with you for those who solely had ONE alternative and needed to be banished to an uninhabited / desert island for the remainder of your life?
In immediately’s lesson, I needed to have a little bit of enjoyable but in addition talk about with you what I might take with me if I might solely choose ONE buying and selling method for the remainder of my life. If I used to be going to a desert island (that had wonderful web connection lol) these are the buying and selling instruments that I might take with me…
Right here’s how I might enter the market…
If I needed to solely search for ONE value motion sample to enter the market from, it might be a really apparent and highly effective one, one thing that after you perceive, is difficult to overlook…
What I might be on the lookout for is a pin bar or tailed bar, ideally a long-tailed pin bar. These are patterns with an clearly lengthy tail (or shadow), it doesn’t should be a “pin bar” per say, though it’s higher whether it is, however a easy tailed bar positioned correctly will work too.
Let’s have a look at some examples of what I’m on the lookout for on a day-to-day foundation out there concerning tailed bars and pin bar reversals:
Right here’s an instance of a long-tailed pin bar (promote sign) inside a down-trending market:
Right here’s one other instance of a long-tailed pin bar. This time, it’s a bullish long-tailed pin bar (purchase sign) that fashioned at a key help degree out there:
As we will see within the subsequent instance, pin bars usually give us very straightforward to identify entries into highly effective traits. In actual fact, a pin bar after a pull again inside a pattern might be my favorite value motion entry setup:
Subsequent, let’s take a look at a tailed bar; a bar that isn’t fairly a “pin bar” however nonetheless primarily portrays and implies the identical factor. The primary distinction is the physique (distance between open and shut) of the bar will not be fairly as small as a pin bar’s in relation to the entire size of the bar:
From the examples above, it must be obvious what I might be on the lookout for if I might ONLY choose ONE entry sign to make use of for the remainder of my life. It also needs to be obvious WHY I might select pins / tailed bars; they convey a vital message about what’s more likely to occur subsequent out there, in a really clear and highly effective method.
For a extra detailed tutorial on tailed bars, see my tailed bar buying and selling tutorial
For a extra detailed tutorial on pin bars, see my pin bar buying and selling tutorial
Cash administration
It’s all the time amusing to me that the majority starting merchants appear virtually solely involved with their commerce entries when in truth the extra vital a part of buying and selling is cash administration. Cash is made or misplaced relying upon how properly you handle your trades and your cash, not a lot on how properly you enter the market (though entries do play an vital function).
No commerce entry technique or buying and selling methodology can be full with out a cash administration plan. A very powerful facets of cash administration for a dealer, are place sizing and danger reward. These are the cash administration elements I might be nervous about for my “desert island” method.
After I speak about place sizing, I’m referring to the variety of heaps (in Foreign exchange) or the commerce quantity / variety of contracts / shares (shares) and so on. We’re speaking concerning the SIZE of the place you might be buying and selling. Why is that this so vital? Properly, as a result of it determines how a lot cash you’ve got in danger; the bigger place, the more cash you might be risking. The opposite cause it’s so vital is as a result of correctly adjusting your place dimension to take care of your total 1R danger per commerce, is significant to long-term buying and selling success.
To learn extra about place sizing, take a look at my lesson on place sizing.
Threat reward is the opposite crucial cash administration part. This refers to discovering a commerce’s danger vs. its potential reward, which you sometimes need at 1 to 2 or extra (Reward at 2 occasions danger). It’s vital to think about the potential danger / reward of any commerce earlier than you enter it, as a result of whether or not a superb danger / reward is attainable might impression your resolution to take the commerce or not.
Discover within the instance beneath, the chance is 1R, the place R = the greenback quantity you’ve got in danger on the commerce. On this case, the chance is the gap from the entry (pin bar low) to the cease loss (close to pin excessive) and the reward is ready at 2R or 2 occasions danger. It’s vital to attempt to get reward of at the very least double your danger so that you simply make the most of winners once they come alongside and so they’re sufficiently big to offset your losers and nonetheless offer you a revenue.
Within the instance beneath, we will see what it seems prefer to plot out the potential danger reward of a pin bar commerce. Discover I’ve personalized the MetaTrader 4 Fibonacci instrument to indicate danger vs. reward of any commerce setup. I’ve detailed how to do that in an article on the danger reward instrument, so verify that out to be taught extra. Discover, this pin bar sign set off a possible 5R winner…
Each day time frames and low-frequency
A buying and selling technique wouldn’t be full with out one thing to carry it altogether, the X-factor, so to talk. For me, that’s buying and selling each day chart time frames in a low frequency buying and selling method.
One of these buying and selling primarily implies that we’re targeted on the each day charts and we’re not seeking to commerce usually, as an alternative, we’re on the lookout for high-quality setups (which are usually considerably uncommon). What this does is will increase our potential win-rate per commerce and thus provides us a greater probability of making a living over the long-run. It additionally permits us to extra simply maintain our feelings in verify and largely eliminates the potential to over-trade, which is often the primary factor that kills merchants’ accounts.
Within the instance beneath, discover the pin bar entry alerts that fashioned at a key help degree, what I would like you to actually discover is that this was the each day chart (as are all the opposite charts on this lesson and most of my classes). If I used to be stranded on a desert island, I might enter this commerce lengthy and let it set for 1-2 weeks and spend that point…attempting to construct shelter and collect meals…and are available again to an enormous revenue. Maybe a bit too hypothetical of an instance (what would you do with cash stranded on an island? Pay pirates to avoid wasting you perhaps?!), however the level remains to be legitimate – Finish-of-Day buying and selling means that you can scale back your time dedication and helps to subdue / tame your emotional responses to the market so that you’ve a greater probability at long-term buying and selling success, it’s a win-win!
If I used to be stranded on a desert island and will solely use one buying and selling method, it might be:
- Pin bars / tailed bars
- Cash administration
- Each day charts / end-of-day method
It actually is so simple as the three-point plan I outlined above, so cease over-complicating it.
To be taught extra about each day chart buying and selling and end-of-day buying and selling, take a look at these tutorials:
How one can commerce ‘finish of day’ buying and selling methods
Each day chart time-frame buying and selling tutorial
Conclusion
Whereas immediately’s lesson dealt in a hypothetical scenario of being compelled to choose one buying and selling technique to take to a desert island for the remainder of your life, the knowledge and methods mentioned aren’t hypothetical in any respect.
The methods I mentioned above are how I commerce 90% of the time in my day-to-day buying and selling. The ideas are transferable throughout all sorts of markets, from Foreign exchange to futures, shares and anyplace in between. They’re most relevant to the 1-hour time-frame and above, however as mentioned, I vastly favor the each day chart time-frame to all others. So, irrespective of the place you find yourself, on an island or a buying and selling desk, keep in mind that the ideas mentioned right here and which are expanded upon in my superior value motion buying and selling course, have stood the take a look at of time and can serve you properly in not simply surviving… however in thriving in all buying and selling environments.
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