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Trading notes 08/03/11
Last night I had a setup on the 60-minute EURUSD that provides a good
lesson in stop placement around crunchies so I figured I would use it for
today's post. The setup was a range type play after three tags of a crunchy
including a probe beyond it forming a decent inverted head and shoulders
patten. Here is the setup look used prior to going to find an entry on my
entry chart. It shows the approximate projection for the H&S pattern as well.
From that look the risk and potential reward was mapped out and then the
trade was entered from the entry time chart using a simple system signal.
The important thing with regards to the stop placement on this setup is that
the stop doesn't just need to go below the recent lows by a tick or two but
instead beyond the level that held up the lows from becoming further lows,
in this case the crunchy at 1.4144. The stop needs to be far enough
beyond that level to withstand a second test of it and survive and the target
needs to be at least as much. If that is possible then the trade is allowed
from the current location. If the stop is not possible given your approved
risk tolerance then the trade is to be passed or shopped at a lower level for
further value.
In my case I took the next long on my entry time frame and set my stop
12-pips below that tested crunchy at 1.4132. I set my targets in chunks at
each crunchy all the way up to the crunchy just below the projection of the
H&S (below red circle). This lets the trade be closed at a real level rather
than a projection. Here is the entry chart and the first signal in line with the
read. You can see how the stop being in the proper place below the recent
lows and the crunchy it was testing allowed the trade to have a chance to
play out while I slept. It is really important to get the stops in the right place.
Please ask for help with that if you need it. If you find yourself getting
stopped out all the time and then watching the market go where you
originally wanted it to go then you need to ask for help with your stops.
There are two ways to fix that problem. Improve entries and improve stop
placement. I can help with either but for trading longevity I would suggest
first focusing on fixing the stop issue. That is what I am here for so be sure
to ask for help. We can meet in the trading room and work on live charts so
you can get it down better.
God bless you ~
Here is the prior post.
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Watts Trading Group
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