Letting your winners run

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After you have grown accustomed to the beginner strategy, you can begin to look for ways of increasing its profitability.

When you enter into the markets, you are looking to make a return, however, you do not win or lose money when you enter the market – you win or lose money when you exit the market.

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Exiting a trade is therefore generally considered to hold more importance than the entry. If you want to enhance the performance of the beginner strategy, the most effective way is to enhance the exits – that is, letting your winning trades run.

You make or lose money when you exit the trade, not when you enter and so it is more important to concentrate on the exits when looking to make a strategy more profitable.

The beginner strategy works best when there is a trending market. The nature of the beginner strategy is to capture part of that trend and make consistent profits. To know when you can let the winners run, you need to be able to recognise when a potential trend can occur.

A breakthrough of any swing highs or lows can indicate a potential trend

One way to decide this is on the 30 minute chart, when you are determining the market direction. You go to the 30 minute chart and determine the market direction, using the last break of either an up fractal or a down fractal, as normal.

If you can determine when the market is likely to enter into a trend, then you can look at letting your wining trades run.

The difference is to look at the most recent price action and see if there are any recent swing highs or swing lows that may act as support or resistance, potentially stopping the price.

Take a look at the chart below:

Resistance level on the 30 minute chart

number_1 Last break of an up fractal indicating the direction is up
number_2 Recent swing high to the left
number_3 Resistance line that can potentially stop the price
number_4 Price finds resistance and the price stops

A recent swing high or swing low to the left of the current price action can have the potential to stop the price going any further.

Let's say that the time that you first opened the 30 minute chart is represented by the black vertical line at 8:00. The last break is of an up fractal – this break is shown at number_1. Looking to the immediate left of this break, you can see that there is a swing high, shown in the red shaded area at number_2. This has the potential to act as resistance, shown as the red resistance line labelled as number_3. In this scenario, the market has not broken past the most recent swing high and the price could stop at this level. This indeed happens after a brief period, shown in the red shaded area at number_4.

In this instance, you would simply trade the beginner strategy normally and take your profit at the next pivot point.

Now let's take a look at another example where the price breaks through the most recent swing high:

The price clears the most recent swing highs

number_1 Break of an up fractal indicating that the direction is up – there are no recent swing highs or lows to potentially stop the price.

Let's say that in the above scenario, you opened the 30 minute chart at the time represented by the black vertical line at 13:30. The last break was of an up fractal where the break is shown as number_1. Looking to the left of the chart, you can see that there are no recent swing highs that can act as resistance. In this case, the price has the potential to carry on in a trend – this indeed happens after the black vertical line.

In the scenario above, you can now let any potential winning trades run further than the next pivot point up on the five minute chart.

Let your winners run by ignoring the pivot points and only use the fractals

After you have established that the price has the potential to enter into a trend on the 30 minute chart, instead of taking your profit at the pivot point, you can trail your stop using the fractals only, capturing as much of the trend as possible.

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A practical example of a short trade

Take a look at the following chart:

No support on the 30 minute chart

number_1 Price breaks the most recent down fractal indicating the market direction is down – there are no recent swing lows to the right that can potentially stop the price.

The last break was of a down fractal, shown as number_1. There is no recent swing low that is acting as support – the way is clear for a potential trend to the downside.

You would then switch to the five minute chart. Under the normal rules of the beginner strategy, you would take your profit at the next pivot point down after you have entered into the trade, as shown below:

Entry on the 5 minute chart using the normal rules

number_1 The up fractal was broken – you can enter a pending Sell Stop order
es2 The entry is triggered when the down fractal has been broken
sl3 The stop loss is placed at the tip of the last up fractal
tp4 Profit target is placed at the next pivot point down

The green shaded area represents the duration of the trade. First you would wait for an up pointing fractal to be broken, shown as number_1, indicating that you can enter a pending Sell Stop order. Your entry would trigger once the down pointing fractal has been broken, shown as es2. The initial stop loss would be placed at sl3. Your profit target would be the next pivot point down shown as tp4. This trade would have resulted in 7 pips (minus the spread).

By ignoring the pivots and trailing the stop above the tip of the up fractals, the trade would unfold as follows:

5 minute chart with trailing stop

es1 Entry when the down fractal has been broken
sl1 Initial stop loss is placed at the tip of the last up fractal
sl2 Stop loss is moved to the tip of the next up fractal that appears
sl3 Stop loss is moved again to the tip of the next up fractal that appears
sl4 Stop loss is moved again where it is eventually triggered and the trade is closed

The shaded green area represents the duration of the trade. In this case, the entry, shown as es1, is triggered when the down fractal has been broken. The initial stop loss is placed at sl1. As the trade develops, the stop loss is moved to the tip of each new confirmed up fractal, shown as sl2, sl3 and eventually sl4 , where the price hits the stop loss and closes the trade. Note that the stop loss is only moved when a fractal that is lower than the previous one appears. This scenario would have resulted in a 17 pip win (minus the spread).

You can see from this example that when there are no swing highs or lows on the 30 minute chart to potentially stop the price, the trailing stop method can capture more of the trend, resulting is greater profit potential.

Summary

So far you have learned...

  • ...after you have grown accustomed to the beginner strategy you can look for ways to enhance its performance.
  • ... you can do this with the beginner strategy by letting your winners run when the market is likely to enter into a trend.
  • ... to determine if this is likely, you can see if there are any recent swing lows or highs that may act as support or resistance.
  • ... if the price on the 30 minute chart has broken through the most recent swing lows or highs, then you can let your trade run and capture more of the trend, than if you took your profit off at the pivot points.
  • ... you can let the winners run by trailing the stop loss above or below new tips of the new fractals.

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  • Would it be a good idea to use Parabolic SAR for trailing stops instead of fractals?
  • Hi pucilpet
    Yes you could use Parabolic SAR as your trailing stop. This strategy is open to personal modification of course. Have you seen the 15 minute Trend hunter strategy
    which uses Parabolic SAR for its trailing stop loss ?
  • Hi Tobester,
    I've not seen the 15 minute trend hunter strategy yet but I will as soon as I reach gold status. smile
  • Getting remedial activity before your failures intensify is always a good technique. Discover out how to keep your investment failures little and let your champions run.
  • Parabolic Sar will give an earlier indication of when the trend is coming to a point of congestion, and can be used to find good stops fractals on the other hand give an early signal 3 candles on 5 min chart is 1 candle on 15 min chart. It often comes down to you which indicator works best for you, they both interpret the same data after all.
  • Is this lesson for silver status?

    There is a message indicating the content is restricted, but I'm bronze and can read it.
    Maybe a bug, or there is more content in the same lesson?
  • Hi pnkthrepwood,
    this lesson is not restricted, any member can read the whole lesson. Regards.
    Peter
  • I think he video might be restricted, I get the same message at start of the page. 'Unfortunately, you don't have the required member status to view this content. By collecting tradimo points you can reach a higher member status.'
  • I feel that swing high/lows tend to be more solid levels of support/resistance so I use these as S/L instead
  • Interesting strategy. Can it be used more general? On stocks? On commodities?

    S
  • Hi Steffenled,
    Do you refer to the Beginner Strategy or the trailing method or both?
    I would say pretty much these principles can be applied on other assets as well. They are based on very general observation on the behaviour of the markets.
    Regards.
    Peter
  • Thanks, yes I referred to The Beginners Strategy ... smile
  • Hi.
    I have a question: in the case where there is no swing to the left of the vertical line on the 30m chart, wouldn't it be better if i enter the market immediatly instead of waiting for a broken fractal to form ?

    Thank you.
  • Hi Martin,
    are you talking about a situation where price is in such a strong trend that you are confident to enter without any technical signals?

    According to the Beginner Strategy rules you cannot do that! But it is important to adopt every strategy to create your own style so i guess if you test it and find it works for you then why not?

    Regards.
    Peter
  • Yes, applying the beginner strategy when there is as strong trend makes me enter the trend late, after the great action ( strong trend ) is over, and most of the times the trend loses it's momentum because some economic indicator is released.
  • If a trend is in a "late" phase it is not ideal to enter or if you do, you would need to take profit and trail stop more aggressively. Is there maybe a strong resistance ahead on larger time frame 1h/4h? That could also be something worth checking.
  • Let you winners run sounds appealing, but what is right moment to get out? I guess that is due to each individual trader goals.
  • Hello TRADIMO team, just made my first 40 pips using the beginner strategy, two trades 2 positive out of two, must say I am trading it confirming the trend on the 30 minutes and my trigger the 5 min or Renko 5 pips each brick.... clean method to be honest, I have been struggling a lot on the forex market changing from system to system but i have decided to forget everything and learn the material you offer, thanks a lot for making this happen

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