How a ‘set and forget’ strategy lessens trader pain and how it can work for a high probability set up method

Mar 26 • Between the lines • 3839 Views • Comments Off on How a ‘set and forget’ strategy lessens trader pain and how it can work for a high probability set up method

shutterstock_107816852There is one aspect of trading that none of us are prepared for once we discover trading and immerse ourselves in the process – trader pain. There isn’t a trader we’ve met through the years, conversed with over the telephone, or through email who hasn’t experienced the emotion of pain when trading.

For the vast majority of us this psychological and emotional hurt diminishes over the years with experience and exposure, similar to being a boxer in the ring we eventually have to learn to condition ourselves to taking a blow or two in order to get our own shots in. The more we dominate our ring (our trading environment) and the more accurate shots we make (trades), versus the less we take and we should come out as overall winners. At times we’ll experience a bit of a battering, at times we’ll be a bit ‘bloody and bruised’, but after a bit of recuperation time we’ll be set and raring to go once more.

But is there a way we can lessen the emotional pain of trading, can we, as one esteemed martial artist stated in the 1970’s, develop a fighting style without fighting? Yes we can by automating our trading through the effective use of: entries, trailing stops and take profit limit orders. This method will lessen the emotional pain and hurt we experience by a significant reduction. We term it a “set and forget” strategy and in this article we’re going to discuss what set and forget strategies clearly work best based on what we term high probability set ups, or HPSUs.

How to set up set and forget strategies as the market comes to you

Naturally our set and forget methods will involve placing orders into the market. These could be placed at some of the following levels, for example; the 200 SMA, the 100 SMA the 50 SMA and we would be looking for price to react at these key levels. We’d be anticipating that price would either break through these key levels or ‘bounce back’ by rejecting these key levels, either way we’re involving ourselves in an exercise of price discovery. Or we could calibrate the daily Fibonacci levels on an end of day basis and look for retracements back to the first two key levels of 23.6% and 38.2%. We could look for price being close to key looming round or psyche number such as 90.000 for the AUD/USD. Finally, we could look for the key pivot level points of: the daily pivot, resistance levels of R1-R3 and support levels of S1-S3.

There’s the beginnings of four key methods of inputting our set and forget orders into the market. All the aforementioned mentioned requires some EOD (end of day) trade management skills and we may have to wait some time for any of the orders to trigger.

Aiming for a R:R of 1:1

In order for our set and forget strategy and method to be successful we’ll need to concentrate on two other important aspects of our trading, namely take profit limit orders and stops, dynamically trailing or fixed stops. And when working around any form of key levels we’d be best advised to rein in our ambitions with regards to the expected R:R which is why, on a set and forget strategy, aiming for an R:R of 1:1 would be advisable.

How do we go about looking for our HPSUs?

So now we’ve outlined the overall method and strategy how do we go about identifying what could be high probability set ups to match our fire and forget strategy? One of the key phrases that’s worth bearing in mind is that “the market will come to you”. We will be in control in as much as we’ll place market orders around the afore mentioned key levels and wait for those orders to be triggered, what we won’t do is chase the market, or engage with it in the normal way many retail traders would. Our high probability set ups may occur as we’ve laid out in the following examples…

Example one

We triangulate the latest Fibonacci retrace by plotting the high and recent low. If the market has made new highs or new lows in terms of the trend were calculate and recalibrate our Fibonacci measurement. We can then place market orders to perhaps sell through the 23.6% or 38.2% retrace, or we can place orders for these key levels to be rejected and place buy orders around these key levels.

Example two – live example Tuesday March 25th

We noted that at the end of day yesterday the price of the Aussie – AUD/USD was edging towards the 200 SMA when plotted on a daily time frame. We place a market order to buy or sell depending on our sentiment, based on either the market participants believing that price will push through the 200 SMA, or be rejected by this key level. Supposing our preference is for price to breach the 200 SMA to the upside at 91415, then we may prefer to place an order a pip ahead of the 200 SMA with a trailing stop of 25 pips and a take profit limit order of 25 pips. Should price break through and hit a new monthly high then we’ll have taken 24 pips minus commissions and spread.
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