I used to pick tops and bottoms. I did because I saw a lot of traders doing it. Some do, some do not. But I want to maximize my profits, so I took the path of picking tops and bottoms before. Plus, there is an old trading adage – “buy low, sell high.” Those were the times that my winning percentage is very low. Don’t get me wrong… I believe there are some traders who are profitable picking tops and bottoms. I am open to that notion. But, I think catching a falling knife is not for me. On my earlier trades logged here in meetpips, I was picking tops and bottoms. But I did not use SLs because I do not know how low it will go (for buy entries) before heading my way. And sometimes, it does not go my way at all.
Ok, so, on winning trades, I maximized my potential profit. Take for example the GBP/USD chart below. On the chart, I will try to look for buy orders because it is on an uptrend for some time. For me, the perfect buy entry will be on point E, if I am picking a bottom, because point B and C formed a good support. My TP will be at point F, because point A and D formed a good resistance. Yippee! I won around 130 pips there. After point F, price went down again towards the support. Trying to pick another bottom, I set another buy order at the support again (point G). But this time, well, you know what happens.
Let us scroll back a little on that same chart (image below). Point A and B formed a pretty good support. If I was trying to pick a bottom, I would have set a pending buy order at point C, which is at 1.4854. Well, the support held, but it never really touched 1.4854. I would have missed a good… no… a great trade!
Trading is not exact science. If there is a support at 1.4854, it does not mean that it has to touch that price before it goes up again. It also does not mean that if price touched the support, it has to immediately go up again. Price may go down a bit more, hitting your SL, then go back up again. For both situations, the support at 1.4854 might still be valid. Unless price plummets outside the vicinity of 1.4854, then that is the time that we can say the support did not hold.
If it was me, I would have put my buy order somewhere at 1.4980, AFTER it made the dip towards point C. Never mind the 100 pips missed. Now, I already know that the price wants to go up. The only problem now, for me, is will it go up high enough so that I could at least move my SL to BE price?
Do not even get me started on the following charts:
The charts above are from EUR/USD H1, and if you will notice, I made my examples “continuous” instead of handpicking specific samples. (If handpicking specific samples, anyone could make the worst trading strategy in the world appear like it is the best strategy out there. ;-) )
Thinking that trading is exact science is probably one of the main reasons why it took me a long time before I got a groove on my trading. You see, I was exposed to a lot, I mean A LOT, of mathematics when I was in college. But I think, this time, my brain is already inclined and ready for trading (I hope! :-) )
I am not conservative in missing pips in order to confirm that the price has indeed bounced before I enter a trade. Meaning, sometimes, I set a buy order a hundred or more pips (depending on chart formation) above a support (or dip) just to confirm that the price is indeed heading up.
My winning percentage today is probably around 50%, I think, and I am not picking tops and bottoms anymore. Imagine what will be my winning percentage if I still try to catch a falling knife.
Never will I pick tops and bottoms ever again. As I have mentioned before, there are some traders who do, and I believe some of them are profitable. But if you are picking tops and bottoms, how many trades have you made throughout your trading career and how many times have you caught a top or bottom?
Green pips, everyone! :-)
PS – I do not consider myself as a professional trader (yet). I am just voicing out my personal experience. :-)
On Tuesday September 14th, 2010 at 06:11AM by buruguduy - Like - 0 People
i really like what you said about "not conservative in missing pips for confirmation". This is something i am lacking. i am afraid that i am in a bad price...but you're right, just adjust position size right?
how do u adjust position sizes btw depending on sl? tips?
On Tuesday September 14th, 2010 at 06:12AM by buruguduy - Like - 0 People
On Tuesday September 14th, 2010 at 10:49AM by virgiliolayug - Like - 0 People
On Tuesday September 14th, 2010 at 01:17PM by erib - Like - 0 People
I don't know how other traders do position size adjusting per trade (told you I'm not a pro. :-) ), but I'd like to keep it simple. I just use a constant position size. As long as my SL doesn't go beyond 150 pips (ok... sometimes I do go beyond that, but very rarely. LOL!), I use the same position size. Even if I trade with 15-minute charts wherein SLs are smaller, still same size.
One of the most important things I consider when opening a trade is that I should be able to shrug it off it goes against me. I do that by picking a position size that suits my risk tolerance. If I can ignore and shrug off a 30% loss on a single trade, then why not! (But I can't ignore a 30% loss :-) )
You loved the charts? I actually think i did a bad job on the charts. Haha! I thought it was too small. Next time I'll post bigger charts. Thanks, though. ;-)
Hey Paolo,
Thanks and best of luck to you, too.
Green pips to both of you. :-)
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