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Scale-in To Key Reversal Bars
Here's something I've been doing for ages that has produced a good amount of pips for me. What I firstly look for is a key reversal bar back into the trend that has some fundamental event that was its cause, such as surprise comment by Bernanke or Trichet, or shock Non Farm payroll number etc... I basically want news that shows that the trend is right and we should still be with it. I developed this due to the fact that the news happens over night for me, so when I wake up I see something like this, and then I read the news and find out what happened...
I then decide on my maximum loss, say 5% (or it could be 2%, what ever you think is reasonable), and I divide this number up into 3 (or more) positions. So if I'm going to risk 5% I will be entering 3 positions at 1.66% each. I then fib the key reversal bar, and using fixed fractional position sizing I enter a buy stop 1 tick above the bar high, then I enter a buy limit at the 38.2 fib and the 61.8 fib. Due to the nature of fixed fractional position sizing, the 61.8 order is of course the largest, and the buy stop above the high is the smallest.
Price will either race off and trigger my buy stop, or else pull back, triggering my buy limits and then take off. My stop is one tick below the low of the bar. Depending on how far the pullback is, I will decide my target. If price breaks the high without a retracement, I will target the 2.618. If it triggers my limit at 38.2 I will target the 1.618, and if it reaches the 61.8 I will target the 1.382... If the retracement goes as deep as the 78.6 fib I regard this as being a sign of weakness so I will cash out at the 38.2 fib. Most of the strategies I use now came about as a work around of my lifestyle and how often I have for trading. I guess thats what they mean by finding the style that is right for you. I do not trade against the trend, but in consolidation I will go either way to support and resistance levels. |
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