i have demoed trend trading for a while now (about 1 year) and have developed what i feel to be a logical method which includes pyramiding ratios, scaling out plans and stop losses. I am going live now. Here's the method: 1) wait for a large move followed by a trend changing high/low on the H4 timeframe 2)wait for the NEXT pullback, risk 4% on this trade. 3)at the previous high, scale out 1/3, place a 3ATR trailing stop on 1/3, and keep 1/3. 4) at the next pullback, add 2/3 of the position you scaled out of, and then add another trade, with 7% risk, trail the stop up as well. 5)continue scaling in/out, but at each further pullback add another trade with 4% risk i will be trading retail forex, EURUSD/GBPUSD mostly. at the moment i am waiting for a short in eurusd, with a sell limit @ 1.305
When trend traders are correct about the trade, the profits can be enormous. This dynamic is especially true in FX where high leverage greatly magnifies the gains. Typical leverage in FX is 100:1, meaning that a trader needs to put down only $1 of margin to control $100 of the currency. Compare that with the stock market where leverage is usually set at 2:1, or even the futures market where even the most liberal leverage does not exceed 20:1.
yes, well risk management is needed, so same as stocks in that regard. i am using 20:1 leverage i believe. i'd like to express the advantages and disadvantages of my scale out, scale in approach disadvantages: when the market does trend, gains are less than not scaling out. more trades=more spread/commissions the market can fly up and you're only in 2/3 or 1/3 of the position advantages: gains are still good when the market trends when the market goes a bit choppy, you lose less