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Money Management ******************** |
STF image
When market conditions meet certain criteria in our analysis techniques the trading system generates STF, which is delivered to clients via email as a price chart snapshot. The image is delivered as an attached file in a GIF format.
Entry signal
The STF image with an entry signal contains the price and the time at which the signal is generated. At this price level the entry criteria of our trading system is triggered.
It is recommended to enter a trade by market order as soon as possible after receiving STF (which is usually sent within 1-5 min after generation).
Also, an SMS alert can be sent notifying about an STF email delivery. It contains just two words "STF BUY" or "STF SELL", so one should have access to his email box to get more detailed information.
Profit target forecast
The profit target forecasting lines (Targetmin and Targetmax) give a trader an early indication of where potential opportunities are forming. They are visual investment tools that provide a precise, calculated way to measure a potential market's price movement. In most cases an exit signal is generated when the market reaches the Targetmin line.
Drawdown forecast
The most important thing for a trader should be a drawdown (DD). Our trading system enables you to identify a potential drawdown from the trade entry point.
The DDMax and DDMin drawdown lines (rays) begin at different points in the imaginary vertical line drawn through the last price bar on the chart and, throughout the time period, either converge, diverge or remain parallel. As usual an opposite DD line has the same slope but with the negative sign. In most cases the drawdown forecasting lines (DD lines) have got the same forecasting power as the profit targets forecasting lines (Target lines). It means that there exist a rather high probability that the market can first hit the DD lines. A trader can use these lines to determining the risk/reward of a potential position, to apply a pyramiding strategy or a stop-loss strategy.
Exit signal
The STF image with an exit signal contains the price and the time at which the signal is generated. It is recommended to exit a trade by market order as soon as possible after receiving an exit signal (which is usually sent within 1-5 min after generation).
Initially the trading system was configured to generate exit signals when either the Targetmin (more often) or Targetmax line (more rarely) was hit or, in other words, when either the prediction of the minimum or maximum profit target level was fulfilled. The choice between the minimum and maximum target depended on market behavior in each case, i.e., when the market met an exiting criteria of the system by hitting any of the profit target lines, an exit signal was generated. In most cases an exit signal occurred when the price hit the Targetmin line.
In March 2010, the system was re-configured to determine the trade exits by market price activity not only at the moment it hit any of the profit target lines, but at any other times. It means that now the exits can also be triggered at any place between the entry level and the Targetmin line or between the Targetmin and Targetmax lines.
It is crucial to have good timing in trading. This new system function enables to identify the likelihood of a change in price movement at the exact moment it begins, and thus helps avoiding sometimes a considerable drawdown before the market will reach the profit target. These signals can be thought of as early exit signals.
Stop-loss concept
It's important to realize that stop-loss orders do not guarantee you'll make money in the forex market; you still have to make or follow intelligent investment decisions. If you don't, you'll lose just as much money as you would without a stop loss, only at a slower rate.
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Although a choice of where to place a stop-loss order is always up to a trader, you can also take advantage of the drawdown forecasting lines when placing a stop-loss or making a decision of exiting out of a position. We, for example, set the stop-loss level 60 pips away from the DDMax line's starting point and thus consider a trade as lost if this level is hit before you will reach a profit target or before a profit exit signal will be generated.
Below we suggest another concept of stops placement (more tight) that is connected with the DD lines geometry.
1.Symmetrical triangle As the two converging DD lines meet to form an angle, the pattern resembles a symmetrical triangle. In this case it is recommended to place a stop-loss order not less than 50 pips outside of the DDMax line and shift it in dependence with the slope of this line.
1.Reverse symmetrical triangle As the two DD lines can be extended to the left to form an angle with a common point at which they diverge, the pattern resembles a reverse version of a symmetrical triangle. If the vertex angle of a triangle is relatively small, it is recommended to place a stop-loss order min 50 pips from the starting point of the DDMax line. In case the vertex angle is rather big, you can shift the stop order parallel to the DDMin line.
3. Broadening and narrowing formations These formations differ from the triangular ones because (1) The DD lines (rays) starting points are usually more distant from each other, and thus the formation's width is bigger; (2) The lines have a smaller inclination angle.
The most important is that the DD lines forming those formations have the same forecasting power as the Target lines.
Pyramiding concept
This concept would
be useful to those who prefer an aggressive way of trading, or to those who want
to breakeven or increase their profit. Our trading system ideally fits such a
style of trading.
Pyramiding refers to adding lots/contracts to existing positions within a market.
An investor may consider taking a new entry (entries) in the same direction as an already open position
when the market moves against this position in the direction of the drawdown
forecasting lines (DDLines).
The fact of drawdown should not mean that the initial profit target forecast was incorrect and the position will not be able to recover. While the profit target forecasting lines model the positions of future market's highs (in case of the long entry) or lows (in case of the short entry) through time, the probability that they are penetrated only increases with time .
In this situation pyramiding can be used to either increase profit or to breakeven. The best time to take a new entry is when the price has reached the DDMax forecasting line, although it can be done at any moment when the price is on its way to the drawdown targets.
FAQ
- Did you send the exit signals only for targetmax or did you send two exit signals (targetmin and targetmax)? The reason I asked because, lets say I got the entry signal and took the position. Then when the targetmin is hit, lets say you send the exit signal. Now should I exit the trade or should I wait thinking that the trade will hit targetmax ?
Only one exit signal is always sent. It can happen
anytime when the market is between the entry level and the targetmax
forecasting line. The profit target forecasting lines are given to enable you
to assess the perspectives of the trade and are not strictly connected with
the exit signal. We are concentrating on the trading signals, while the
forecasts are being given with the informational purpose only.
- Once the targetmin is hit, does the system generates new signal or does it wait until the targetmax or stoploss is hit?
Again, an exit signal can be generated anywhere (in most cases it happens when the targetmin is hit). In case an exit signal is triggered at the targetmin, the system can then wait until the targetmax is hit, or it can generate new entry signal of any direction. It is very easy: you receive an entry signal and open a position, then you receive the exit signal and close your position. That's it.