No Reason 2

noreason

BarroMetrics Views: No Reason 2

  • ‘Once the reason for a trade is gone, exit’.
  • What’s the best trade? ‘Being wrong and not losing money.’

These are among my two favourite sayings by Pete Steidlmayer. In today’s blog, we’ll see both principles in action.

Figure 1 shows the USDCAD setup:

  • The Rule of 4: on the 4th attempt at an extreme, the odds favour a successful breakout. If the breakout fails, expect the start of the move to be breached. In this case, the extreme is 1.33650 and the start, 1.3005.
  • The reason for the trade: because of the Rule of 4, I was expecting a valid breakout. For this to be true, we should not see acceptance below the FTP (yellow rectangle) low (1.3318).

The early morning manipulation first saw a breakout. So, now it was time to enter.

I enter on a retest of the FTP zone. I decided to reduce my position size to 50% (because of the pattern I mentioned in ‘No Reason‘). I had my stop below the start of the latest 1-d swing directional move (1.3226).

After entry, the USDCAD broke below and accepted below the FTP low at 1.3325 – the price action negated the assumption behind the valid breakout. For this reason, when the pair rallied, I exited the position at breakeven.

So, what now?

The trade is still on with a slightly lower FTP low (1.3368). My process:

  1. I wait for a valid breakout;
  2. Then I look for a retest of the FTP within
  3. (Usually) 6-16 bars (of the execution timeframe) of the breakout.

Let’s see what happens.

2016-10-27_08-41-38-usdcad-290-min

FIGURE 1 USDCAD 290-min

 

 

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