Trading strategy without stop-loss orders

Stop-loss orders are useful. They limit your possible losses and execute an automated cut in case if the prediction was wrong. Most of FOREX courses teach a beginner to use stop-loss order on every single position they open, and this approach has a logical background.

But I noticed that there are lots of examples, when the price action reverses right after triggering my stop-loss and goes exactly in my direction without me in the market. I have loss in such case, instead of having profit after generally correct prediction.

Moreover, I was wondering why brokers teach beginners about to put stop-loss orders so insistently? The answer is simple. They have information about levels, where the biggest volume of stop-loss orders is placed, and this information allows them to hunt. Just try to think what happens, when a stop-loss order is triggered.

For example, you have a long position of EUR/USD with an entry price at 1.24000 and stop-loss order at 1.23500. Imagine a big market player, who have enough liquidity volume to move the market by injecting sell positions. The result is the slide of the price, reaching and triggering your stop-loss, which is a sell action. If your volume is big enough, the price action continues to fall, moving even lower for some distance. Let’s say 10 pips further South. What is the next action of such a hunter? He closes his short positions with profits at 1.23400 and opens long positions, according to the general trend. The price reverses and moves back to the level where it started if not above 1.24000. What do you have as the result: stop-loss triggered -50 pips. What does have that hunter as the result: DOUBLE profit +120 pips.

Of course, small traders do not have even a chance to compete with huge market players due to the difference in volume. But they can have accounts deep enough to withstand such a temporary price actions. And small traders can be smart enough to realize that these movements are fake.

The strategy to trade without stop-loss orders is dangerous, so traders must have an accurate calculations of possible negative impacts like margin call, and use risk management rules in a highly disciplined way. Timing is also crucial. Traders who use weekly trading plan have to be patient enough and be ready to add a second barrel of their positions in the same direction on a reasonable distance from the first entry point, in case if it went underwater and in case if the main trend direction has been chosen correctly.

Weekly trading plan

Every successful FOREX trader has to have a trading plan. There are a lot of different strategies when it comes to timing. It is very important to coordinate your targets and stop-loss orders with the timeframe of your trading plan.

My experience tells me about an important cycle in trading, which is one week. I usually work on my trading plan for a week ahead, and main job during the trading is to check if the suggestions were right and execute the plan according to the price action. Of course it is tough to have an exact prediction about possible retracement depth and exact time of reversals. But this timing helps me to maximize the profits and balance them with potential risks.

Before starting to work on my weekly trading plan, I analyze the previous week and double check all of the levels, that I targeted on my previous plan. It is very important to keep the direction together with the trend, and not to position trading against the market. I usually choose one direction according to bigger timeframes like weekly and daily. And I try to avoid attempts to catch all of the market movements. So if the price action goes against my prediction, I just stay out and use wait-and-see tactics.

This approach requires patience. A trader has to be like a sniper, camouflaged in a bush position, waiting for his target. Once he sees his target clearly, and once he is confident about good chances for his bullet to reach the target with one shot, he pulls the trigger.

There has to be a plan B though. The sniper has to be ready for a possible miss and prepare for a second shot. But this is another topic to discuss in the scope of trading strategy without stop-loss orders.

TOP 5 skills of a profitable FOREX trader

Most of beginners lose their first investment due to very common mistakes. This post is dedicated to the main directions, that every beginner should work in, developing skills which can help to become profitable in financial markets. These ideas come from the experience, most of these rules must be executed on daily basis. It’s also very important to make the analysis of daily trading, underlying main reasons of possible losses happened. Such a habit could help to avoid the same mistakes in the future, which is the main purpose of learning.

Psychology.

It is the main direction of beginner’s work, it does not have to be on the last place of the list, as many educational courses indicate. “If you cannot control your emotions, you cannot control your money”. Warren Buffett.

Two common features of human being have the most impact on your daily trading results: FEAR and GREED. Fear has different options like ‘fear of missing out’, when traders have a good analysis but open positions too early; and ‘fear to pull the trigger’, when the situation with the analysis is the same but there is no enough willing to make the decision. Greed makes you running for more profits after having first successful deals, and you jump into overtrading or forget about risk management rules.

Traders should not fight with the emotional features of human being, it is impossible. The best way is to CHANGE them with some more useful features. For example, I use logic to deal with my fears. I’m asking several questions to myself before opening any position. Instead of being greedy, I’m trying to be thankful to the market for giving me a profitable possibility.

Think big.

I know it’s not easy to put yourself in a shoes of a hedge-fund money manager, which operates billions of dollars. Especially if your account is small. But I ask myself couple of simple questions before entering the market: “What would I do if I was at such position? Is the current price of an asset attractive enough for me to buy/sell? Or should I wait for a better price?”

Most beginners are like a crowd of small animals, they have the same emotional guidance to run in the same direction. Big market players set traps to catch as many of them as it is possible. Remember couple simple rules: You make profits when someone loses. Buy when there blood in the streets and sell to the sound of trumpets.

Simple analysis.

Traders should avoid overthinking when they analyse the market conditions before entering. This leads them to a point when they trick themselves and get into own trap of complication. Most of the profitable positions have simple explanations. For example, you determine a long-term trend on bigger timeframe, wait for a retracement and join the party. Of course, fundamental and technical aspects have to be taken in count, together with money management rules.

Usually it happens like this. Technical picture draws some setup, fundamental event plays role of a trigger to start the technical setup workout. Traders need to be on the right side of the market and this is exactly the main purpose of your analysis.

Timing.

Let’s say you’re in the market. You have convinced yourself to buy/sell an asset. You have several fundamental and technical reasons behind this decision. All you need is just wait until the price will reach your target. You can close your position if something changes especially on the fundamental front, like a force-majeure or any unpredictable event. But if the environment remained the same, why would you close your position too early?

Profitable math is very simple. Minimize your losses and maximize your profits. Sometimes all you need is just to be patient enough and control your emotions. However, in case if you were looking for a reversal, and the position you entered continues to move in the same direction during a very short period of time like 15-30 minutes, you should admit your mistake and close it. Cause waiting too long could make you stuck with a lose.

Strategy.

Always remember about your goals. Why are you here? Are you intended to have fun or gamble and become addicted? So why are you crying about your losses in this case? Or do you want to make profits? How much and how long? What is the amount you can afford yourself to invest?

Any success must be planned.

EUR resistance before ECB.

The strength of EUR is determined not only by the weakness of USD, but also by traditional political and economical stability of the European Union. Low unemployment, strong wage growth and consumption, sustainable manufacturing production and export together with easy access to financial credit market at accommodative low interest rates, makes Eurozone very attractive for foreign investors from all over the world, including Asian and Middle East rich regions. These capital flows create an additional demand for EUR not only versus the USD, but also supporting cross rates like EUR/JPY, EUR/CHF, EUR/NZD, etc.

This past week, Eurozone positive economical reports were released: November Trade Balance; German, Italian and Eurozone CPI; EU current account. EUR/USD, as the most heavy trading volume currency pair, gained 0.19%, testing 3-year high rates on past Wednesday. The pair closed the third trading week in 2018 above significant technical and psychological level of 1.2220, showing a potential trend direction for whole year ahead.

Such a comparatively slow appreciation of the currency versus the greenback, was related to the upcoming important political decision in Germany, the biggest economy in Eurozone. This Sunday vote will determine the fate of the government, which still has not been created after October Parliament elections. In case if Social Democrats will approve Grand Coalition with Angela Merkel government, EUR/USD could continue bullish trend. But if the politicians will fail to finalize negotiations, there could be a negative impact for the pair, creating additional uncertainty for upcoming months.

Next week’s economic calendar is packed with important reports and events. Main focus is ZEW survey and IFO report, but traders and investors will wait for European Central Bank interest rate decision on Thursday, followed by ECB President Mario Draghi press-conference. On one side, the market players noticed a tweak from the regulator about possible tightening decision in “early 2018”, much earlier than was widely expected previously. On the other side, there could be a concern, expressed by ECB officials, about rapid EUR appreciation since the last meeting. Export-oriented economies like Germany might have additional competition pressure because of currency gaining strength.

Cable's fall like a rock or rocket skyhigh?

British pound was one of the fastest growing currencies this past week, gaining 1.58% versus U.S. Dollar. Last time when we’ve seen the sterling above 1.3900, was the Brexit vote day in June 2016. On the fundamental front, except the USD weakness, analysts underline potential agreements between UK and EU for ‘softer’ divorce deal. This outcome of the historical decision could help British economy to avoid aftershocks and uncertainty, creating additional demand the currency, which has been undervalued during last 18 month.
Economical reports were mixed last week though: strong CPI in line with the expectations at 3.0% YoY in December, stronger-than-expected PPI, and disappointing Retail Sales declining 1.5%, the largest drop in 7 months. Next week direction will have an impact from Unemployment and Earnings figures and Q4 GDP report.

Trading sterling assets is traditionally lucrative, with the proper risk management due to high volatility. Most of the last week’s profits came from GBP/USD, GBP/JPY and GBP/NZD pairs. Potential technical retracement is likely, which should give traders a chance to consider re-entering to long positions, following the long-term uptrend.

Loonie correction?

There are also important events on the commodity currencies market segment. While AUD/USD and NZD/USD continued recent bullish run, hitting fresh 3-month highs this past week, USD/CAD performed profit-taking pullback right after Bank of Canada rate decision last Wednesday. The regulator hiked interest rates to the highest levels since 2009, with the strong economy growth noted in 2017. But the following statement caused high volatility on the market as BoC Governor Poloz underlined potential pause in tightening and noticed further data dependence. USD/CAD traded in wide range of 200 points during 30 minutes. The pair ended the trading week with modest gains of 0.30%.
Economic reports from Canada will determine further trend direction, so USD/CAD will be very sensitive for any changes comparing to the expectations. Next week calendar highlights Wholesale and Retail Sales, with the main focus at Inflation Report due on Friday.

 

Rand and Peso lead strengthening currencies

At the Emerging Markets, currencies like USD/ZAR and USD/MXN deserve a separate attention. While South African Central Bank kept the interest range unchanged at 6.75% on past Thursday meeting, USD/ZAR hit fresh lows at 12.07200 level, first time since June 2015. Weekly decline of the pair was 1.65%, one of the most sharp and rapid weekly FX movements last week. Mexican Peso appreciation is related to rising WTI Crude Oil prices and U.S. President’s Donald Trump decision to postpone NAFTA discussions till summer elections in Mexico. USD/MXN lost 2.26% of its’ value past week, declining more than 400 points.