Everybody likes to have enjoyable with hypothetical “Desert Island” questions. You realize those the place you’re sitting round with your pals asking one another what you’d take with you or maybe who you’d take with you if you happen to solely had ONE selection and needed to be banished to an uninhabited / desert island for the remainder of your life?
In right this moment’s lesson, I wished to have a little bit of enjoyable but additionally focus on with you what I might take with me if I might solely decide ONE buying and selling method for the remainder of my life. If I used to be going to a desert island (that had glorious 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 worth motion sample to enter the market from, it might be a really apparent and highly effective one, one thing that when you perceive, is difficult to overlook…
What I might be in search of 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 must 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 in search of 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 degree available in the market:
As we will see within the subsequent instance, pin bars typically give us very straightforward to identify entries into highly effective developments. In actual fact, 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 isn’t 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 might be in search of if I might ONLY decide 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 available in the market, 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 almost all starting merchants appear virtually solely involved with their commerce entries when in reality the extra necessary a part of buying and selling is cash administration. Cash is made or misplaced relying upon how effectively you handle your trades and your cash, not a lot on how effectively you enter the market (though entries do play an necessary function).
No commerce entry technique or buying and selling technique could be full with out a cash administration plan. Crucial elements of cash administration for a dealer, are place sizing and threat reward. These are the cash administration elements I might be frightened about for my “desert island” method.
After I speak about 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 concerning the SIZE of the place you’re buying and selling. Why is that this so necessary? Nicely, as a result of it determines how a lot cash you’ve gotten in danger; the bigger place, the more cash you’re risking. The opposite cause it’s so necessary is as a result of correctly adjusting your place dimension to take care of your total 1R threat per commerce, is important to long-term buying and selling success.
To learn extra about place sizing, try my lesson on place sizing.
Danger reward is the opposite vital cash administration element. 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 necessary to think about the potential threat / reward of any commerce earlier than you enter it, as a result of whether or not a superb threat / reward is attainable might influence your choice to take the commerce or not.
Discover within the instance under, the danger is 1R, the place R = the greenback quantity you’ve gotten in danger on the commerce. On this case, the danger is the space 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 necessary to try to get reward of no less than double your threat so that you just reap the benefits of winners after they come alongside and so they’re sufficiently big to offset your losers and nonetheless offer you a revenue.
Within the instance under, we will see what it appears wish to plot out the potential threat reward of a pin bar commerce. Discover I’ve personalized the MetaTrader 4 Fibonacci device to point out 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 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 typically, as an alternative, we’re in search of 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 likelihood of making a living over the long-run. It additionally permits us to extra simply preserve our feelings in examine and largely eliminates the potential to over-trade, which is often the primary factor that kills merchants’ accounts.
Within the instance under, discover the pin bar entry alerts that shaped at a key assist degree, what I need you to essentially 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…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 avoid wasting you possibly?!), however the level continues to be legitimate – Finish-of-Day buying and selling lets you cut back your time dedication and helps to subdue / tame your emotional responses to the market so that you’ve got a greater likelihood 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
- 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 each day chart buying and selling and end-of-day buying and selling, try these tutorials:
Tips on how to commerce ‘finish of day’ buying and selling methods
Day by day chart timeframe buying and selling tutorial
Conclusion
Whereas right this moment’s lesson dealt in a hypothetical scenario of being compelled to select one buying and selling technique to take to a desert island for the remainder of your life, the knowledge and techniques mentioned are usually not 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 kinds of markets, from Foreign exchange to futures, shares and wherever in between. They’re most relevant to the 1-hour timeframe and above, however as mentioned, I enormously favor the each day chart timeframe to all others. So, regardless 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 are expanded upon in my superior worth motion buying and selling course, have stood the check of time and can serve you effectively 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!
