questions about momentum...risk/reward/safety and timing.. I know alot of you use tape reading in the forex.. im reading a couple books so that in 5 years from now when i figure it out ill be able to do it but until then i use a momentum 5 minute strategy in the forex now. where i wait for the price to close above the 20 ema while looking at rsi and MACD for change and ability to continue. so far im about 70% on my trades and i use a 1 to 2 risk/reward ratio for my stops and exxits. my question is would it be better for me to look to longer windows in the forex like 1 hr 4 hr charts to allow more profits per trade when riding a momentum wave?
tell me more about this system that has a 70% hit rate and .5 risk reward. p.s. if you really do have a system like this, dont change a thing, you should be retired in a year, and have more money than you know what to do with in two.
Not necessarily better, longer time frames take longer for a trade set-up to appear and to play out, in the same period you could have been in and out of a dozen short-term trades. Although targets are bigger on longer time frames so are stops, trade size needs to be adjusted accordingly to maintain the same risk, it's swings and roundabouts. If you don't enjoy watching charts and trading the market intraday, or if you have a 'real' job, I guess one benefit of longer term trading is it takes up less screen time. How about using shorter time frames to identify trade set-ups and then letting profitable trades run using longer time frame targets, you get the best of both worlds and risk:reward improves significantly.....perhaps that's what you meant?
yeah i work at night so sometimes before i leave ill see a longer term set up and buy in set my stop and limits and then i leave for work... im not sure i like the quicker time windows because when i was paper trading to figure out my strategy it seemed like using my strat on shorter windows i was actually less accurate. im about 70% in the 4hrs and im about 50% in less than 30 min
If you have relatively tight stops - then longer term trades are very prone to being stopped by volatility. When markets are greatly affected by news - like now - then longer term becomes very risky - even with wide stops, and that means that you need to be right on longer term trades, you cannot withstand the pain on those - unless you use so little/no leverage that you can sit out until a retrace happens.
I guess that says it all, you're strategy obviously works better in longer time frames! How does it perform in daily or even monthly, or is that too long?
The risk (or pain as you call it) shouldn't be any different for longer term trades than it is for intraday.
That is true when you adjust to lesser size, wider stops and target. However, in some market conditions - where there is great volatility and very abrupt moves can happen, as well as no clear trend is apparent - then longer term trades are much riskier. That is a simple consequence of "the future" itself; it is inherently much more difficult to predict the future "longer term" - especially with many strongly influencing factors.
On the contrary, wider stops have less chance of being hit by intraday volatility, abrupt moves, and noise. There are some extremely adept long-term forecasters, for example BNP Paribas' Hans-Guenter Redeker who features regularly on Bloomberg (I posted a video here) Most strategies are adaptable to longer time frames, in fact some traders say shorter time frames are just noise.