Based on few weeks of reading and playing with ButtonTrader/IB simulation mode, I've come up with following simple strategy. It is by no means revolutionary and it is based on the kind advice of many contributors, especially ESResistance from ET and BillyRayValentine and Ironman from ForexFactory.
It's basically A simple method for fading moves at previously identified support/resistance levels. Finding the S/R levels and deciding which ones to trade is completely discretionary. Trade execution is mechanical and automated once entry points are selected.
Strategy goes all-in at entry and scales out as trade progresses.
Setup
Before day starts, look for S/R lines and zones on daily, 60 minute and 15 minute charts of the previous 3-14 days.
When price approaches a S/R level, decide whether to fade the move or not. There are no hard rules for this, but some guidelines I follow:
- If the S/R level has been 'used' a lot lately, it is more likely to fail
- If the S/R level has failed recently in the same direction, don't take the trade
- If the move has gone for along without significant rebound, take the trade
Execution:
Enter with 3 contracts. All orders, including targets and stops are entered in advance.
I usually enter limit orders one tick above/below the S/L line, or fine-tune the entry based on price action and DOM.
Targets
#1 Target is at entry +2 points, set as limit order at entry
#2 Target is at entry +4 points, set as limit order at entry
#3 Has no set target, will be closed when trend changes (visually) or at the end of the day.
Stop
Initial stop for all 3 contracts is 1.5 points from entry.
When #1 target is filled (at +2 points), move #2 and #3 stop to breakeven
When #2 target is filled (at +4 points), move #3 stop to +2 points
Analysis:
Risk/reward depends on which targets are hit:
- All stopped out, risk of 4.5 points
- Only 1st target met: Reward of 2 points (2+0+0)
- 1st and 2nd targets met: Reward of 6 points (2+4+2)
- 3rd target closed higher ... anything goes
Conservatively assuming that 50% of the times the strategy fails (all 3 stopped out), 20% reach only 1st target, 20% the 1st and 2nd target and 10% go to +6 points, the average gain of the strategy is 1 point for 3 contracts traded.
Slippage should be almost non-existent on entry and target as limit orders are used. It can happen in stops. If I account for that, the average gain is 0.5 points.
This is not too impressive. How to improve it?
- Improve odds by selecting higher probability entries
- Use indicators to identify high momentum
- Optimize target/stop levels
- ???
Comments? Help? Ridicule? :eek:
It's basically A simple method for fading moves at previously identified support/resistance levels. Finding the S/R levels and deciding which ones to trade is completely discretionary. Trade execution is mechanical and automated once entry points are selected.
Strategy goes all-in at entry and scales out as trade progresses.
Setup
Before day starts, look for S/R lines and zones on daily, 60 minute and 15 minute charts of the previous 3-14 days.
When price approaches a S/R level, decide whether to fade the move or not. There are no hard rules for this, but some guidelines I follow:
- If the S/R level has been 'used' a lot lately, it is more likely to fail
- If the S/R level has failed recently in the same direction, don't take the trade
- If the move has gone for along without significant rebound, take the trade
Execution:
Enter with 3 contracts. All orders, including targets and stops are entered in advance.
I usually enter limit orders one tick above/below the S/L line, or fine-tune the entry based on price action and DOM.
Targets
#1 Target is at entry +2 points, set as limit order at entry
#2 Target is at entry +4 points, set as limit order at entry
#3 Has no set target, will be closed when trend changes (visually) or at the end of the day.
Stop
Initial stop for all 3 contracts is 1.5 points from entry.
When #1 target is filled (at +2 points), move #2 and #3 stop to breakeven
When #2 target is filled (at +4 points), move #3 stop to +2 points
Analysis:
Risk/reward depends on which targets are hit:
- All stopped out, risk of 4.5 points
- Only 1st target met: Reward of 2 points (2+0+0)
- 1st and 2nd targets met: Reward of 6 points (2+4+2)
- 3rd target closed higher ... anything goes
Conservatively assuming that 50% of the times the strategy fails (all 3 stopped out), 20% reach only 1st target, 20% the 1st and 2nd target and 10% go to +6 points, the average gain of the strategy is 1 point for 3 contracts traded.
Slippage should be almost non-existent on entry and target as limit orders are used. It can happen in stops. If I account for that, the average gain is 0.5 points.
This is not too impressive. How to improve it?
- Improve odds by selecting higher probability entries
- Use indicators to identify high momentum
- Optimize target/stop levels
- ???
Comments? Help? Ridicule? :eek:
