Q:  Do you take much notice of the longer term trends?   Currently I am looking at USD/CAD.  The monthly, weekly and possibly the daily trends are all down whilst there appears to be either a consolidation or a up trend on the intra day charts.  - John

A:  If I am day trading I don't care at all about the larger daily trend.   Here's why... 

Lets say that I notice that the daily trend is strongly up and that I am planning to day trade.   If my analysis shows a text book sell setup I might talk myself out of it because the daily trend is up.   Now here's what you need to keep filed away...  Just because the daily trend is up doesn't mean the market can't sell of a few hundred pips at any time.   As a day trader I am just trying to capture a piece of that move.

Another thing that you need to be aware of is that when you focus on the daily trend as  a day trader you can get a false sense of security. What I mean is...  If I find a day buy setup on my 30 minute chart, I may fail to recognize that the trade is not working out because I am so brain-washed into thinking about the daily up trend.  Remember, even though you may be trading with the daily trend nothing says the market can't sell off a few hundred pips against you. 

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Q:  I have read your course thoroughly and had a few successful trades with your strategy. My main concern is that this system is consistently a winner more times than not; otherwise, the account can dwindle to nothing if you trade the same number of lots each trade. Perhaps you can comment on the percentage trades this system is a winner compared to losers in your experience    - John

A:  John this is a concern with every system and the simple answer is money management.  First let me start out by saying that traders in general spend way too much time worrying about the winning percentage.  Sure I would rather have a high percentage of winners too, but the most important thing is how much I make on my winning trades versus my losing trades.

I always shoot to make at least 2-3x more on my winners compared to my losers.  For example, I don't like to risk more than 30 pips on a trade so I am looking to make 60-90 pips on my winners.  By doing this I can still make money when my winning percentages go down. 

Lets look closer at 10 sample trades...  If I have 5 winners and average 60 pips per trade, then I would make 300 pips.  I would also have 5 losers at 30 which equals 150.  My overall net would still be 150 pips. 

Even if my winning percentage dropped to 40% in the above scenario I could still make money. 

The key factor that will determine the winning percentage is market follow through. If the market moves slowly and is choppy you will find that your win ratio drops and you grind out smaller profits.  If the market lacks momentum then you are more likely to get stopped out more often which will also lower your winning percentage.

Unfortunately we always don't know when the market will lack momentum but...  Check out the material in the program that shows how to identify choppy markets.  When you see a choppy market it is better to stand aside. By simply doing this you should be able to raise your win/loss ratio.

The bottom-line is that winning percentages will shift depending on market momentum and follow through. As it increases you should find your winning percentages going up along with the size of the profits.

One last factor that will greatly effect overall performance is a traders ability to ride the trade up.  Many traders will get so concerned about losing money or giving back their profits that they will quickly bail out after they are just up 5,10 or 15 pips.  They have this thought process that says they are better to lock up some profits versus risking giving it back.  Inevitably what happens is they end up missing out on a big trade that went up 50, 100 pips or more. 

You really need to be able to hang in there so that you can catch the occasional trade that will run 100 pips or more.  These trades will eat up a lot of losers and mediocre trades.

One last tip...  You eventually want to get to the point where you are trading 2 or more contracts so that you can scale out of your trades.  This will help you capture greater profits.

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Q: After entering a trade, if the trade begins to run in your favor and then backs off before hitting your target and you get two histogram bars in the opposite direction, is that the time to exit the trade according to your system or should you let the trade run with your initial stop loss 10 pips below the low of the setup bar? - John D

A:  I would say get out because the 2 histogram bars are showing that there has been a shift in momentum against your position.

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Q:  Also, does this system recommend holding trades over the weekend break when the market is closed or to close out all positions at the end of the trading day on Friday? - John

A:  That really boils down to your comfort level.  Some traders can't stomach the idea of holding a position over the weekend in fear of bad news hitting the markets.  If this is the case for you then simply close all positions on Friday.   If you are ok with this then simply make sure you have a stop loss order placed in the market.

Q:  Just a quick question - I too am a Trade Station user.  I was  wondering, have you (or someone for you) written an indicator that  works in Trade Station to issue alerts when your set-up is present -  or a strategy to back-test it? Thanks,  Mindy

A: I am not aware of anyone that has done this, but will let you know if I hear of anyone.  

I have had many enquiries about back-testing and it is almost impossible to do.   There are 3 reasons why. 

First I talk about not taking a trade if the market is choppy.   

Second I mention that you need to use some common sense and if the market has already run a couple hundred pips in one direction that you don't want to jump in.

 Third,  I also give you an exit strategy for getting out near big numbers.

 Now hears the deal... All three of these strategies are vital to get the  most out of this program, but they are almost impossible to program into any software program.

You see, there are simply too many variables that would require pages and pages of code.  Interestingly enough, our eyes can see these variables in seconds.  Posted:  9/10/06

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Q: I think your Forex Profits course is great and is going to be a big help. I had a question. - Craig

If you look at a 30 and a 60 minute chart and on one the 5 histogram bars are down on the 30 and up on the 60 on the same forex pair at the same time would you take the signal on the 60 since it is probably the stronger signal being the longer time frame?

A:   Craig, in theory the 60 minute would be the stronger signal, but by looking to another time-frame for confirmation you are adding another element which changes the dynamics of the original program.  I have  found over the past 16 years that the more I add to a system the harder it is to trade. 

Another thing to consider is that looking at the 60 minute chart may help you trade with the trend and avoid some choppy market conditions but...  It will also keep you out of some trades because it is slower moving and less responsive.

Unfortunately in trading there is always a compromise and adding additional filters will give some advantages and disadvantages.

One last thing to consider...  Traders are always looking for some constant to base their analysis off of it. For example using a 20 period moving average to confirm the trend.  The problem is that there is no one official constant that everyone agrees on.  Some traders swear by the 20 period moving average, others the 50 or 200 or even an 89.  Then to further amplify the lack of agreement, some traders swear by a exponential moving average, others use a weighted or smoothed etc... The bottom-line is that all the different view-points make trading challenging.

It took me along time to get this whole concept through my thick head because I am a very logical person.  I always look for "2 + 2 to = 4".  In many areas of life that exists, but not in trading.

Think about this... If trading was based solely on logic then we could easily develop systems that never lose?

 Q1:  In page 14 you did show the initial entry (initial entry 1-2 pips) when to enter the trade and I would like to know did you mean that we enter the market by the same candlestick bar (higher high/low bar) or we wait for third bar whenever it reach the value point which equivalent to second bar(higher high/low bar) initial entry point ? - Nazim

For example (buy): Higher high = 1.2340(2nd bar)

 Initial entry will be -> 1.2341/1.2342

 Do we enter the market at the third bar when it reaches at 1.2341/1.2342?

A:  The answer is yes.  One thing to keep in mind is that sometimes the market may lack momentum and it may take 2 or 3 bars to hit the initial entry level.