GBP Trading System
by Trader Rich
I mentioned this simple GBP/USD system a couple of weeks ago. Since then, I've been following its' progress and I've been using it live if I have time to check out the charts when I wake up in the morning. I haven't had many opportunities to do so in the last couple of weeks but I did today and I made a quick 30 pips again. These trading opportunities may not pop out on the screen if you don't perform one simple step before hand. All you need to draw are horizontal lines indicating the high and low of the GBP/USD from yesterday. This system does not require any indicators which I try to stay away from.
I've posted a picture with four trading opportunities generated by this system in the last week, all of them profitable. Let me just mention that I am still working on this to try to gauge what the optimum limit and stop/loss levels are but I'm never greedy. I always shoot for about 30 pips with a GBP/USD trade which from my experience is a very good target and not greedy whatsoever. The risk/reward on this trade is typically 1:1 but I've found from backtesting that it definitely wins more than it loses. Money management is still a quandary I face with trading the GBP/USD. It doesn't pay to be greedy and like I've said, I found that 30 pips is an optimum profit target based on my experience. But I've also found that anything tighter than a 30 pip stop is not recommended. There are other ways to go about trading this system such as using breakeven stops or multiple lots with multiple targets but it's still a work in progress and I can't really comment any further on it.
Here are the simple rules or procedures for a short trade:
- Draw horizontal lines on a 1-hour GBP/USD chart indicating low from yesterday.
- If a price candle closes below the low of yesterday you have a possible trading opportunity.
- We are now waiting for the price to reverse back into yesterday's daily range. Place an order to buy 6 pips above yesterday's low.
- Set your target at 30 pips and your stop at 30 pips.
I've circled 5 trading opportunities but the fourth is questionable because the price barely closes above yesterdays high.
Ok..this is weird. Im using the exact same system which i discovered a few weeks ago in a Mark Mcrae video..Coincidenc??lol..
Anyways there are a few things i agree with and a one thing i disagree with. Wanna take a guess?…ok ill just tell you..its your money management dude. 1:1!!! are you kidding me???
Dude risking 30 pips to make 30 pips is not gonna benifit you in the long term..think about it. You are willing to loose 30 pips to gain 30 pips..Dude Why not risk 10-15 pips to gain 30 pips??..thats what i do….
Here is the Main benefit
You can trade more units within your 1-2% risk margin, Personally i risk less than 1% of my account on each and every trade. This might sound crazy but let me explain.
EXAMPLE.
You have two traders. trader A trader B. They both have a $10000 Account. and they both Risk no more that 1% on any given trade.But thats where the similarities end.
They both risk 1% of their account on every trade but in different ways. Trader A uses a risk management of 1%/15 pips which allows him to trade more units Within his 1% Risk margin.On the other hand trader B is still risking 1% of his account but he is using a risk Management of 1%/30 pips which is not so good. Here why.
Trader A Buys Gbp/usd @ 1.9000 with a Stop of 15 pips and a target of 30 pips. With his money management rules he is able to buy 60,000 units.
Trader B Buys Gbp/usd @ 1.9000 with a Stop of 30 pips and a target of 30 pips. With his money management rules he is able to buy 30,000 units.
So in the end the 30 pip targets are hit. Trader A makes $180 while trader B only makes $90.
If the trades did go bad trader A would loose $90 and so would trader B. I hope you understand what im getting at here.
I have considered all of your suggestions… Who is Mark McRae? Are you a profitable trader?
I think realistically, I’m not at all comfortable with a 1:1 risk/reward as I stated in the post. But from my personal experience, it’s hard to find such opportunities. For instance, the trading signals I get from Lien and Schlossberg always have a decent reward/risk, more than 1.5:1. But in reality, they always close positions before they hit their targets because of what they say are changing market conditions. If you compute the reward/risk taking into consideration their actual close trade price and their stop loss, a lot of their trades would be worse than 1:1. I’m still learning here so I don’t know what the answer to all of this is but unfortunately I haven’t found a system from backtesting or forward testing where I could get a 2:1 reward/risk and be profitable. ???
Sorry i didnt change the name in the first post. My bad. Umm..a tiny suggestion is that you leave the name field blank and dont allow any comments to be submitted without something in the name field.
Anyways to answer your questions…
1)who is mark Mcrae? he is my mentor in most ways,, he basically thought me how to understand the market and some ways to trade it. You can sign up for his free educational vids at his website http://tradeology.com/ they are really good.
2)Am i a successful trader? Well that depends on how you define success.Im not making a living trading forex but personally i consider myself successful cuz i been doin this thing for 9 maybe 10 months now and havnt even lost half my account yet. Sooo, i think im doin pretty well.
No to Lein and whats-his-name,,,i think they suck Period.There is only 1 good thing i learned from them and that is to lock in profit as the trade progresses.
Anyways you said that you havnt found a system from back testing that constitutes a 2:1 reward risk ratio. well the most i can do is explain to you My newest and seemingly most profitable way of trading the market, as thought by a good friend of mine JOseph.
Anyways this is what i do.
1) I trade the european session.
a)Pairs i trade (gbp/usd Eur/usd Usd/jpy)
b)i only trade two of them at any given time.
2) I identify points of support and resistance (PSR) including yesterdays high and low.
3) When i find a trade this is what i do.
a) Enter the trade with no more that a 10 pip stoploss + spread.
b) as soon as the trade reaches 6 pips i move my stop to break even.
c) At 10 pips i lock in 1/3rd of the position.
d) At 30 pips i lock in 2/3rd of the position.
e) Now i have locked in a good amount of profit on the first 2/3rd of the trade so i leave the rest to run until i think price is going to retrace significantly.Then i close the trade.
Now this might sound like suicide…thats what i thought when joseph told me what he was doing.
But after suffering several 30-40-and 50+ pip losses in a row leading up to a 400 pip loss in 2 weeks, i just decided to give it a try,,and it is healing my account very well thank you…..
oops i did it again….i failed the security check..who knew that most of the earth was covered with land.
i forgot to mention the loosing side.
Worst case scenario i lose 15 pips…less that 1% of my account. big deal.
Second case scenario i get stopped out at break even.
Third case senario i get stopped out at break even after locking in 10 pips…Oh kill me now.
thats basically the bad side to this strategy. which as you can see is not that bad at all.
Oh i forgot to mention,,i use the 15 min 5 min and 1 min chart to trade. occasionally i zoom out to the larger time frames but that just to see the action from a distance.
Is the explanation of this system merely a repeat or addition to the original post of a couple weeks back Rich? I tried searching for it, but to no avail.
I assume the trade can also be executed from the top down (shorting on a resumption back into the prev days range on a false b/o at prev days high)?
Must have missed the original mention of it along the way. If it’s merely a “repeat” then fine, if not, do you have a link to that post at all?
Cheers.
Graham, yes your assumption is correct on shorting on a resumption back.
Graham, previous post is at http://www.forexproject.com/Blog/Investing_and_Trading/My_New_System
I think that if you change the risk reward, your whole system’s profitability changes. So lets say trader A loses 15 pips, and Trader B loses 30 pips ( and the target for both is 30 pips. However what if, because of the change in parameters Trader A does achieve a Risk/Reward ratio of 2 ON Paper, but in reality he is more prone to whipsaws, and say his percentage of winning trades falls dramatically. In the long run Trader B is a breakeven trader BUT only if we look at his risk/reward. What if his percentage of winning trades is 75%? What if changing the stop loss to 15 pips results in a better risk/reward of 2, but decreases the profitability to 50%?
I havea question regarding this system.
How would you trade the system on a monday, where you have a gap up or dawn opening?