Items Tagged With profit

I was reading an FXstreet session transcript and wanted to post the information contained about determining trends mainly because it is similar to how I gauge what the trend is.   This method applies to trading shorter time frames since it only takes into account the previous two days.  What data do you need to determine the current trend?

1. Pivot Point
2. LOPS1 or the low of the previous session
   
3. HOPS1 or the high of the previous session
4. LOPS2 or the low of the session before the previous session
5. HOPS2 or the high of the session before the previous session

I define a session as one day.  Here are the trend criteria:

Possible Uptrend with range-bound bias

• Price above pivot point
• Price below HOPS1 and HOPS2

Possible Downtrend with range-bound bias

• Price below pivot point
• Price above LOPS1 and LOPS2 

Strong Uptrend

• Price above pivot point
• Price above HOPS1 but below HOPS2
  

Strong Downtrend

• Price below pivot point
• Price below LOPS1 but above LOPS2

Very Strong Uptrend

• Price above pivot point
• Price above both HOPS1 and HOPS2

Very Strong Downtrend

• Price below pivot point
• Price below both LOPS1 and LOPS2

The 4 Tips To Increase Profitability are:

1. Effectively Determine the Trend
2. Use Indicator Signals
3. Use Price Behavior
4. Consistency is the Key

Yen Trade

I decided to trade the Asian session and shorted the USD/JPY.  I was just stopped out at 0 profit/loss. 

I shorted the pair on a break of the support trendline and a break of RSI trendline.  It was good entry execution.  I waited for the price to break the trendline and then waited for the 15 minute candle to close.  After I was up 20 pips, I moved my stop to break even at 111.52.  My limit was still 111.05, right above a lower support line.  The trade was up as much as 28 pips where I typically would have closed the position.  Tonight, I wanted to show a little restraint and patience so I waited.  The pair never made it back down before stopping me out for a scratch.  

Should I have taken the 28 pip profit? Would you have?  

The graphic below is the weekly EUR/USD chart with corresponding candlestick patterns.  As you can see, going into next weeks trading, we are following an engulfing bear.  Care to play the odds that this week will see more bearish action? Since 1999, here are the pip profit/loss if going short for the week following an engulfing bear:

 +51, +266, +21, +124, -58, +132, +38, +8, +11, +46, -10, +136

Out of 12 weeks, only 2 of the weeks were losing and they were small losses of 58 pips and 10 pips.  The average profit was 83.3 pips over the other 10 weeks. 

This information is already stale but good for those of you who want exposure to Rob Booker's style. 

GBP/USD 1 Hour Chart 

Friday, the pair broke below the redline, and created a really nice short trade.  Here’s what I would consider now: a short trade on a break below the low of Friday, with a target of EITHER of the blue lines shown below.  The lowest blue line is the more aggressive target.  One way to handle this is to initiate the position immediately on a break below Friday’s low, then move the stop loss to break even when the pair hits the FIRST blue line below.  Then use the lowest blue line as the profit target.

Funny how I was able to squeeze out a 11 pip profit on a trade that was absolutely discretionary.  I was watching the GBP/USD and it was highly overvalued on the short-term charts with solid resistance at 1.8400.  Even though the pair had reached a new high today, the MACD histogram failed to reach new highs (negative divergence on the 5 minute, not shown below).  The I shorted the pair at 1.8380 with a stop 30 pips above at 1.8410.  Once the pair ran up 15 pips, I set my stop to breakeven.  It ran up as high as 26 pips but started losing momentum.  I was watching for an exit on the 5 minute charts and once I noticed momentum and inertia decreasing, I exited.

15 minute chart below: 

Continuing the spotlight on backtesting, there are 3 different indexes that can be calculated in your backtested results or your live trading results to give an indication of the chance of success.  I mentioned 1 last week, Buy and Hold.  The other 2 are the risk/reward index and the profit/loss index.  

Calculating the profit/loss index gives you a general idea of the success your trading or trading system is having.  A simple example is best suited to illustrate this. 

1. Calculate all of your winning trades in dollar amount.  For this example, I had 5 profitable trades, each $90 for a total of $450.  
   
2. Calculate all of your losing trading in dollar amount.  For this example, I had 7 unprofitable trades with the following losses: $ -45, -30, -110, -25, -30, -90, and -55.  The total losses amount to $385.
3. Subtract the losing dollar amount from the winning ($450 - $385 = $65)
4. Profit/Loss index =  ((Winning trades + Losing trades)  ÷ Winning trades) * 100
   

So the profit/loss index for my example would be calculated as such: ($65 ÷ $450) * 100 = 14.4 %

The profit/loss index for this example is 14.4%.  The following key translates these results into something more meaningful:

+100          High Profit/No Losses

+50            Profits > Losses 

0                Profits = Losses

-50             Profits < Losses

-100           No Profits/High Losses

Using this key, the above example would be on the lower end of the 0 - +50 range, not great.  Ideally, you want the index as close to 100% as possible.  If your index is negative, you're losing more than you make.  If your index is 100%, your perfect.

On the surface, this calculation can seem kind of useless but what it does best is give a clear meaning to all of your profits and all of your losses.  How would you otherwise interpret a number like $65?  Yes, it's a profit but in the example case, not a very good profit.