I switch it up based on both the setup and price behavior. I may start with a 1:2 and if price barrels toward my target, I'll move my target another 1x or 2x the risk. If price just keeps going, I'll then trail a stop so I get my initial target at the very least, but have a chance at hanging onto a real runner. My target (and resulting R:R) if I wait for a lot of confirmation before entry will be smaller than if I jump into a trade very early and get a tight stop in.
Decision support? If you can't make a decision wthout referring to your indicator(s) then the indicator(s) become the sole reason for your decision, otherwise you would be trading PA only. Do you understand what i am saying?
Maybe being a self fulfilling prophecy is sufficient to provide an edge. MAs are possibly the most commonly used indicators by technical traders. I prefer to think of them as dynamic support and resistance, I also use angles (specifically of the 50 period simple) to define the existence of a trend on which ever time frame I happen to be studying. Notice on the attached chart how price has used the white 15 EMA and red 50 SMA as resistance during the down move. Sure sometimes price overruns and pulls back just as it does with horizontal levels. PS. This is the most recent data from Friday, just so you don't think I'm being selective.
Yeah I understand. It's a bit of additional confirmation to merely reading PA, it increases probability, but if you're only prepared to think in black & white extremes then let's just agree to disagree. I can't see any benefit in persuading you to my way of thinking. The bottom line is; if your method works for you great, all the best with it. I'm satisfied that my method works for me.
If you want my two cents worth... I scale out, first 50% of the position at 1:1 the next 25% at a minimum of 1:2, if the next obvious reaction level is further then all the better and the last 25% open with your preferred method of trailing. The first 50% is critical as it's more about adjusting risk and cost position on the trade than it is about profit. I still haven't nailed the best exit strategy for that last 25% will be experimenting with MA crosses this week, notice on that chart I posted earlier that waiting for the white MA to cross above the red would have kept me in through the pull back, which I actually got shaken out on.
I think the MAs do become a self fulfilling prophecy as long as a strong move is not underway. In a strong trend, you have to make a decision to participate or not; rarely is there a pullback deep enough to give you "comfortable" entry. If you want into a strong trend on a pullback, cross-reference a chart one or two time frames shorter and use THAT 20-bar MA for a pullback entry. Sometimes (such as Friday pre-market selloff) you don't even get that. You have to jump in river or miss the boat. I trade a 5-min chart and cross-reference a 1-min chart for early entry into a variety of encroaching 5-min setups. In a gradual trend or a trending range, the 20-bar MA becomes a "value point", the price zone at which a pullback finds more buyers/sellers with the expectation that price will then make a higher high or lower low than it did on the last leg. Another use for a 20-bar MA is to confirm entry into a new trend. Double tops/double bottoms, and failed final breakouts (usually 3rd or 4th pushes that leave only a very slightly lower low or higher high in a strong trend) are great reversal signals for aggressive counter-trend traders. If you're more conservative, you wait for the first bar that closes beneath or above the 20-bar MA. That will almost always signal continuation of the new trend. For example, look at a 5-min chart of ES Friday following the pre-market news. A major selloff with two deep pushes down followed by a very shallow 3rd push (9:05am bar). The 9:10am bar tests that low to the tick and leaves a double bottom. The aggressive trader is immediately long @ 1071.25, the aggressive trader looking for a wee bit more confirmation is long @ 1072.00 by way of the 9:20am bar, and the conservative trend follower who wants complete confirmation that a new trend is underway waits for a bar to close above the 20-bar MA. This occurs at 9:35am with a long entry 1074.50 or so, stop at 1072.25 (below the 9:35am bar low) and a target of 1081.25 or better.
Hey mate, fair enough. I don't expect you to explain every detail. You seem quite defensive about your usage of indicators, maybe there is an online stigma attached to them, but if you are making money.... I'll tell you why i do not like indicators. The markets have an inherent frequency, but this frequency can change, hour to hour, day to day, week to week and so on. Indicators can not cope with the change. Indicator systems are by logic more prone to drawdowns than PA only systems. The reason for this is that any trader using an indicator system will rely on the indicator(s) more than the price, otherwise they would not be using the indicator(s) in the first place.
Once you realize you have a real runner on, I think the optimal exit strategy is to trail a stop just outside the high or low of each preceding bar until you're ready to take profits at a specific level or you're stopped out. Had I done that with my confirmed 20 MA breakdown short on CL Friday @ 74.60 (10:53:55am), I would've been in the trade until I exited at the previous pivot low of 73.88 (9:35am bar) or was stopped out @ 74.08 (11:20am bar); either way with a lot more $$ than I took by making assumptions.