A lot of catFX50 followers ask me about the stop-loss. I said a lot of times too that a fixed one is 34 pips. But I said too that my stop-loss was not always 34 pips. Here is what I do:
As you know, CatFX50 has not a fixed exit strategy. We have fibopivots and we scale. We use too a 34 pips stop-loss just in case.
But all that should be taken into account in relation to our Money Management.
It is well known that you can not trade seriously if you have not any kind of Money Managment. So, to be quick, we need to know our Risk/Reward ratio before placing a trade. A ratio used by many investors to compare the expected returns of an investment to the amount of risk undertaken to capture these returns. This ratio is calculated mathematically by dividing the amount of profit the trader expects to have made when the position is closed (i.e. the reward) by the amount he or she stands to lose if price moves in the unexpected direction (i.e. the risk).
For instance, we buy now eurusd and we place a stop of 34 pips. OK, done it.
What do we expect? We are risking 34 pips. How many pips do we want for that risk?
Lets say we are happy with 15 pips. OK. That's a 1:2 R/R. Horrible!!!
A R/R below 2:1 is not good. Then, it is up to you to be happy with 1:1. Of course, I prefer a 3:1. On EURUSD, that 3:1 means 102 pips. If we look at its daily range, we'll see that we will not make that amounts of pips easily.
So, we need to know all that before placing a trade.
What do I do?
Today we had a validated level 4 buy on EURUSD (08:00cet) @ 1,2799. OK. I was ready for that long, cause I had done before my homework or let me say "tradework". First of all, I wanna know where price is in relation to EMA50 (more of 20 pips above it?). Then, I want to know EURUSD daily range, the low of the previous bar or a previous significant low and then I want to know the stop-loss I should use.
It was very clear that EURUSD had been building a support at 1,2775. So, my stop should be placed at 1,2774 or 73. That is a stop-loss of 25/26 pips. A stop of that amount of pips means that we need to make at least 50 pips to have a 2:1 R/R. Of course you can go for a 1:1, but that is up to you. EURUSD daily range is between 77-90 pips. It had opened at 1,2780, so it had room to go up for that 2:1 ratio, but it had no room for achieving a 3:1 ratio, that is a 75 pips target. And it was more than 20 pips above EMA50.
Well, where did I place my stop-loss?
Today is Friday and a Friday without news and a Friday after a day where EURUSD had a range of 116 pips. Time for consolidation or, perhaps, a reversal or a retrace. Taking all that into account, I looked at the low of previous bar: 1,2783. I placed it at 1,2779. That is a stop-loss of 20 pips. A 2:1 is then 40 pips and a 3:1 is 60 pips.
I closed half when I got 15 pips and I placed stop-loss then at b/e + 2. So, I ended that trade with a profit of 17 pips.
Each trade has its own preparation, its own cooking. Do not trade as robots. You are not a robot. I hope this will help catfx50 followers.
I'm not inventing anything new with that "strategy" on stop-loss. But I think that I needed to stress that the stop-loss we use must be linked to the amount of profit we expect. Otherwise we'd be gambling.
A lot of times I said we need to feel the market. Well, to know where to put the stop-loss is a way of "feeling it".
I attach an EMA made by FX Sniper. It does the same than standard EMA, but it changes its color. Try it. You need to write 50 where it says MAPeriod. You can change its colors too.
Thought you'd like to read this.
More homework for the weekend.
WOW - long thread
I have been reading through this thread and it looks like a great simple system. So now, Where do I get cat 50? and how do I put it on auto pilot? Never used ME4 and have 0 programming exp....Please help. I will give 10% of profits for the first month to whoever helps me out first.
Signals so far 09:45cet:
EURUSD, level 1 buy (08:30cet) @ 1,2813. Closed at 1,2785. - 28 pips.
EURUSD, level 1 sell ( 10:00cet) @ 1,2785. It has made a low at 1,2765 so far.
We know that eurusd is topping at 1,2820-30-50. And we know is bottoming at 1,2780-60. So if we have an entry at 1,2813, we know it could top at 1,2820. Are we going to risk 34 pips? Why do we want to trade this signal?
If we know is bottoming at 1,2780, why do we want to sell it at 1,2785 and risking 34 pips?
Maybe it goes down 500 pips , I do not know. But I do not like it.
So far, trading EURUSD is like having a pimple in you ass.
EURUSD, level 1 sell ( 10:00cet) @ 1,2785. It has made a low at 1,2760 so far.
USDCHF, level 1 buy (11:30cet) @ 1,2363 (pivot at 1,2369). It has made a high so far at 1,2372.