Everybody likes to have enjoyable with hypothetical “Desert Island” questions. those the place you’re sitting round with your folks asking one another what you’d take with you or maybe who you’d take with you for those who solely had ONE selection and needed to be banished to an uninhabited / desert island for the remainder of your life?
In at the moment’s lesson, I wished to have a little bit of enjoyable but additionally talk about with you what I’d take with me if I may 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’d take with me…
Right here’s how I’d enter the market…
If I needed to solely search for ONE worth motion sample to enter the market from, it could be a really apparent and highly effective one, one thing that when you perceive, is tough to overlook…
What I’d 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 situated 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 available in the market 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 shaped at a key assist stage available in the market:
As we are able to see within the subsequent instance, pin bars typically give us very simple to identify entries into highly effective traits. Actually, a pin bar after a pull again inside a development might be my favorite worth motion entry setup:
Subsequent, let’s try a tailed bar; a bar that’s not fairly a “pin bar” however nonetheless primarily portrays and implies the identical factor. The principle distinction is the physique (distance between open and shut) of the bar isn’t fairly as small as a pin bar’s in relation to the full size of the bar:
From the examples above, it must be obvious what I’d be on the lookout for if I may ONLY choose ONE entry sign to make use of for the remainder of my life. It also needs to be obvious WHY I’d select pins / tailed bars; they convey a vital message about what’s prone to occur subsequent available in the market, in a really clear and highly effective manner.
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 at all times amusing to me that almost all starting merchants appear nearly completely involved with their commerce entries when the truth is the extra essential a part of buying and selling is cash administration. Cash is made or misplaced relying upon how nicely you handle your trades and your cash, not a lot on how nicely you enter the market (though entries do play an essential position).
No commerce entry technique or buying and selling technique could be full with no cash administration plan. Crucial points of cash administration for a dealer, are place sizing and threat reward. These are the cash administration parts I’d be nervous about for my “desert island” method.
Once I discuss place sizing, I’m referring to the variety of tons (in Foreign exchange) or the commerce quantity / variety of contracts / shares (shares) and so on. We’re speaking in regards to the SIZE of the place you’re buying and selling. Why is that this so essential? Properly, as a result of it determines how a lot cash you might have in danger; the bigger place, the extra money you’re risking. The opposite purpose it’s so essential is as a result of correctly adjusting your place dimension to take care of your total 1R threat per commerce, is significant to long-term buying and selling success.
To learn extra about place sizing, try my lesson on place sizing.
Threat reward is the opposite vital cash administration part. This refers to discovering a commerce’s threat vs. its potential reward, which you usually need at 1 to 2 or extra (Reward at 2 instances threat). It’s essential to contemplate the potential threat / reward of any commerce earlier than you enter it, as a result of whether or not threat / reward is attainable could affect your resolution to take the commerce or not.
Discover within the instance under, the danger is 1R, the place R = the greenback quantity you might have in danger on the commerce. On this case, the danger 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 instances threat. It’s essential to try to get reward of not less than double your threat so that you just make the most of winners once they come alongside and so they’re sufficiently big to offset your losers and nonetheless provide you with a revenue.
Within the instance under, we are able to see what it appears wish to plot out the potential threat reward of a pin bar commerce. Discover I’ve custom-made the MetaTrader 4 Fibonacci device to indicate threat vs. reward of any commerce setup. I’ve detailed how to do that in an article on the threat reward device, so examine that out to be taught extra. Discover, this pin bar sign set off a possible 5R winner…
Day by 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 every day chart time frames in a low frequency buying and selling method.
The sort of buying and selling primarily signifies that we’re targeted on the every day charts and we’re not trying to commerce typically, as an alternative, we’re on the lookout for high-quality setups (which are typically considerably uncommon). What this does is will increase our potential win-rate per commerce and thus provides us a greater probability of earning profits over the long-run. It additionally permits us to extra simply hold our feelings in examine and largely eliminates the potential to over-trade, which is usually the primary factor that kills merchants’ accounts.
Within the instance under, discover the pin bar entry alerts that shaped at a key assist stage, what I need you to actually discover is that this was the every 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 may enter this commerce lengthy and let it set for 1-2 weeks and spend that point…making an attempt 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 save lots of you possibly?!), however the level continues to be legitimate – Finish-of-Day buying and selling permits you to scale back your time dedication and helps to subdue / tame your emotional responses to the market so that you’ve got 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 could be:
- Pin bars / tailed bars
- Cash administration
- Day by 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 every day chart buying and selling and end-of-day buying and selling, try these tutorials:
commerce ‘finish of day’ buying and selling methods
Day by day chart time-frame buying and selling tutorial
Conclusion
Whereas at the moment’s lesson dealt in a hypothetical state of affairs of being pressured to select one buying and selling technique to take to a desert island for the remainder of your life, the knowledge and techniques mentioned will not be 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 forms of markets, from Foreign exchange to futures, shares and wherever in between. They’re most relevant to the 1-hour time-frame and above, however as mentioned, I tremendously favor the every day chart time-frame to all others. So, irrespective of the place you find yourself, on an island or a buying and selling desk, do not forget that the ideas mentioned right here and which might be expanded upon in my superior worth motion buying and selling course, have stood the check of time and can serve you nicely in not simply surviving… however in thriving in all buying and selling environments.
What did you consider this lesson? Please share your suggestions within the feedback under!
