I have been trading FX for >3 yrs. Let me use this forum to trade usdyen over the next few days in a mostly systematic rule-defined way. Hopefully, markets will cooperate and it will be a good exercise. Rationale for Set-up Today's range 200 pips from 88.14 to 90.14. Looking at the chart it has gone parabolic. Breached important level of 90 today. Prices tend to collapse after such parabolic moves. Good time to start scaling-in for a short in small size. I am thinking of doing something like below: Scaling-in the position Initiate short at 90 with 0.25% risk(0.25% loss for 1 big figure = 100 pips move), keep adding to short at each 25 pips in increments of 0.25% risk. So, if yen reaches 92, we will have 2% risk with average price at 91. So, we will be at 2% loss with yen at 92. After 92, add 0.25% at every 50 pip increment. So, if price goes to 94, we will have total risk of 3%. Our average for 1st 2% risk would be 91 and for last 1% risk, average would be 93. So, total loss with price at 94 would be 2%*3+1%*1=6+1=7%. This will be my full position. Target Target is below 88, so if price reverses after touching 92, we will make 6% (=2%risk * 3 big figures) on the trade. Trade Management and Scaling-out I am willing to have a roughly 10% "worst case loss" on this trade. So, I will scale-out of the add-ins at every 80 pip correction. Why 80 pips, well no definite reason, with high volatility, getting a 80 pip correction won't be too hard. This 80 pip scale-out will happen only for trades entered beyond 92. So, for scale-ins entered below 92, we will not scale out. We want to have a core 2% risk position at the minimum, with average at 91. Stop and Worst Case Loss I want my STOP to be at 96. This is comfortably above important levels of 95, 95.5 etc. where barrier one-touch options might be present. Worst case - parabolic move continues without any 80 pip move correction. The total loss would be: 7%+3%*2(from 94 to 96) = 13%. Let us see how this trade goes. So, sell orders 0.25% risk per big figure at 90, 90.25, 90.5, 90.75, 91, 91.25, 91.5, 91.75, 92, 92.5, 93, 93.5, 94.
i'd love to follow.. as i've only dipped my toes in with currency trading and had them burnt off several times..
So you want to martingale from 90 to 94, let it ride up to 96, with an 88 target? Seems lopsided in terms of r/r? I do understand that you are speculating that it will turn around before 94 and trying to stack the probability heavily in your favor by betting on some type of reversion.. just wondering if it makes more sense to try to catch a top via tight stop and timed entry, instead of fade into it, hoping it finally occurs. I've gotten burned quite badly trying to martingale into a bigger position, even doing small size at each step as you pointed out. Even if you have the capital relative to your position to stay solvent, you still have a fairly significant downside if it hits 96 before 88. High(er) probability (due to martingale), high risk, low reward it seems. But given the parabolic move, how good is the probability here? Wouldn't it be better to play martingale on an instrument that is currently moving more sideways or predictably?
Good luck with the trade. I think you could have easily made over 10% today alone on say UJ or better yet EJ quite easily and much quicker going with it, but to each there own. Barrier option interest at 95 may be present? One just got taken out at 90 today. I would assume one at every 25-50 pip increments or so up here.
The lack of entry signal witnessed by the countless scale ins implies you have absolutely no idea on how to enter a counter-trend trade. I like 90.40s as an area, but then I would need to see price tell me, I'm not the only one who sees this, and have price confirm my theory. Then and only then a solid entry is applied, with stop and solid money management, this average down crap is the mark of an inexperienced trader, regardless of how many years of trading. In fact, I don't think years mean much in this business, more like a matter of decade and beyond. The way you are developing this, you would actually need to be wrong, suffer unnecessary heat by quite a bit to get added fills, and then be right to actually make some good money. Being right from the get-go, what would be a marvelous feat, would also net you almost nothing because you only using a fraction of your capital. Clearly the whole plan has wrong written all over.
If history has any chances of repeating itself ... ... look at a weekly, similar parabolic upmove in October .. December 2005. Back then, it stopped exactly at the 50% expansion of the "cup". Doing the same now, would reverse around 90.50 ... but in 2005, the level was ~matching with a prior Resistance level, the closest R. level I see on the weekly is right at 95, which would conveniently be just before 100% expansion of the current "cup". Anyway, no need to sit in front of a freight train ... why not wait for a signal on the daily, either a break of 20 MA, or a break of 10-day Low, or ...
You seem to do well in ES.... I'm scaling as a beginner currency trader in the euro... and your spot on... I don't know what I'm doin
I agree about the parabolic/collapse idea, but I'd rather wait for yen to show a turn before trying to trade the opposite way. But yeah, when it does turn (and it will at some point), the potential is large.