Step #7 | TP placement | Stay In – Exit Criteria

Take-Profit placement is based on the principle that “Successful Trader is not the one who MAKES the most pips but the one who KEEPS the most FASTER”. That’s why it is of critical importance to secure our profits as fast as possible before price action cancels most part of them during its minor fluctuations or major moves.

Having set our Trading Plan, we already know that we can turn $1000 into $1Million after 10 Doublings and have already estimated the 10 Doublings’ Milestones and noted them on our Calendar.

Therefore, by securing each Day’s Pips we’re on our way to our GOAL already and any extra pips we can make are a BONUS.

A practical rule to maximize profits within the shortest possible time interval is to place our TP at the 2/3 of estimated Move’s -REWARD’s- length. By doing this, we keep more pips than our Daily Pips Target, FAST.

STAY-IN and EXIT Criteria are the two sides of the same coin and actually coincide.

1) STAY IN while candlesticks CLOSE above/below Tenkan Sen. EXIT when one candlestick CLOSES to the opposite side of Tenkan Sen.
2) STAY IN while Median BBand goes UP/DOWN. EXIT when Median BBand turns FLAT.
3) STAY IN Long while Stochastics go UP. EXIT if they make a Bearish Crossover above 80-level line. STAY IN Short while Srochastics go DOWN. EXIT if they make a Bullish Crossover below 20-level line.
4) STAY IN Long while Kijun Sen goes UP. EXIT when Kijun Sen goes DOWN. STAY IN Short while Kijun Sen goes DOWN. EXIT when Kijun Sen goes UP.
5) STAY IN Long while PSAR Dots go UP. EXIT when you see the first PSAR Dot above price action (ideally on the immediately smaller Time-Frame). STAY IN Short while PSAR Dots go DOWN. EXIT when you see the first PSAR Dot below price action (ideally on the immediately smaller Time-Frame).
6) STAY IN Long while price is moving above the KUMO. EXIT when Kijun Sen starts going DOWN. STAY IN Short while price is moving below the KUMO. EXIT when Kijun Sen starts going UP.
7) STAY IN Long while MACD Bullish Histogram Lines grow taller ABOVE Signal Line. EXIT when MACD Histogram falls below Signal Line (ideally EXIT when there is inconsistency between Bullish MACD Histogram’s Line and Signal Line because Bullish Histogram’s Line is shorter but Signal Line goes UP). STAY IN Short while Bearish MACD Histogram Lines grow bigger BELOW Signal Line. EXIT when MACD Histogram jumps above Signal Line. (ideally EXIT when there is inconsistency between Bearish MACD Histogram’s Line and Signal Line because Bearish Histogram’s Line is smaller but Signal Line goes UP)
8) STAY IN Long while candlesticks are closing ABOVE Alligator. EXIT when one bearish candlestick closes below Alligator’s Lips (Green Line). STAY IN Short while candlesticks close BELOW Alligator. EXIT when one bullish candlestick closes above Alligator’s Lips (Green Line).

Depending on Market’s Condition and the Strategy we’re using, there may be some additions or modifications to our STAY-IN /EXIT Criteria.

STEP #7 Rules :
Two Traders can trade the same pair simultaneously, one BUYING, the other SELLING and BOTH of them can be profitable. The difference is in the TIME OF EXIT and in Traders’ Mentality. Lets say that Trader A BUYS from DAILY Time-Frame because he sees a nice Upward Move. He EXITS 5 Trading Days later having made 260pips. Trader B SELLS from H1 Time-Frame trading a Downward Correction. He EXITS4 Hours later having made 80pips. I mention this REAL LIFE example -which you can DEMO Check for yourself anytime you want- to prove to you the fact that everything depends on Your Way of thinking. The Market is always the same just like the Sea is always there. You determine your way of trading just like a captain determines his way of sailing. If you are an extremely energetic individual, Scalp from M5/M15 keeping your finger ready to hit the mouse giving the “close position” order, trade from M30, H1 or H4 Time checking when each Candlestick Closes to see if your EXIT Criterion is met and BE FAST. If you are a sophisticated Trader with the mentality of an investor switch gradually from lower Time-Frames to Higher Ones, slowly trail your SL to Break Even level and then… PATIENT. Let the time work for you. As trade matures, accumulating pips, you’ll be checking your trade only to see if you can add position.
While you are a Beginner, trade only Trending Market’s Conditions, Trend-following from relatively higher Time-Frames (Daily, H4 or H1) that give you enough time not only to check if your Entry Criteria are met before you Enter, but also to make sure that your STAY IN Criteria are met and EXIT the right time. Trend-following may last days or even weeks. Trading a Range-Bound Market or Swing-Trading is a good match for a more experienced Trader , not because of its technical skills requirements -it’s based on extremely simple principles- but mainly because Swing Traders have no Bullish or Bearish Biases on the pair they’re trading. They don’t hesitate a single moment EXITING when the move is over and RE-ENTERING by Reversing Position. Scalping from M5/M15 Time-Frames is a trading style you should follow when you are an experienced Trader. I would suggest you go Scalping only after you have successfully DOUBLED your Account’s Equity at least 4 times. When Scalping, everything is allowed. You may enter when a M15 candlestick opens and EXIT three candlesticks later without waiting for the last candlestick to close. With Scalping, you practically RE-WRITE the rules and you’ve got to EXIT at FLASH-SPEED 🙂
Most Traders experience LOSSES not because they Entered Wrongly or they Exited Wrongly either. They are hit by the Market’s Euphoria Syndrome right after they EXIT keeping profits. This Syndrome disarms reasonable thinking, you forget about Entry Criteria and the only deafening voices shouting inside your mind are the ones saying “I WANT MORE PIPS….AND I WANT THEM NOW!” The result of the Euphoria Syndrome is that you RE-ENTER to the Wrong Direction and as Market starts moving against you, your reflexes are still numb from the winning feelings of the previous profitable move and you hate the idea of jumping out with minor losses which soon turn into ….devastating ones. When you realize you’re trapped in a Reversal, your profits have turned into losses and now your Equity is bleeding. In most of the cases, your Euphoria-damaged psychology doesn’t allow you to think reasonably and hedge your losing position making the necessary effort to recover your Account. Most killed accounts died right after a period of great profitability due to the Euphoria Syndrome that led to Wrong RE-ENTRIES after Right EXITS. To avoid that, if you are so filthy ambitious that you want to take ONE MORE TRADE after you just EXITED a profitable one, WAIT at least 5 CANDLESTICKS till you make a new Trading Decision. You can thank me later 🙂

Step #6 | Entry Criteria | SL Placement | SL Trailing

We want to Enter EARLY either at the beginning of a Reversal – preferably on a relatively high Time Frame such as H1, H4 or DAILY- or a Correction – only from M15 or M5 Time Frame. On ICHIMOKU KINKO HYO, the earliest Signal that price is changing direction is Price/Tenkan Sen Cross. But this is not enough because if price just closes above/below a Flat Tenkan Sen, it can continue to the previous direction right after. So we need a confirmation about price’s intention to go to the new direction and that is Tenkan Sen’s inclination. If we are going to BUY , we want to see Tenkan Sen angled or curved UPwards and if we want to SELL, Tenkan Sen must be angled/curved DOWNwards.

But since our money is at stake, using multiple confirmations before we Enter is IMPERATIVE. One of the most useful Indicators we’re using is Bollinger Bands System. BBands show price action’s volatility, and range but they also show direction. If Upper and Lower BBands are price action’s “muscles”, Median BBand is price action’s “bone”. So when the Median BBand is forming a “knee” going Up or Down, we get a very strong confirmation about a change in direction.

Furthermore we need to look at Chikou Span (ICHIMOKU Green Line which is price action’s clone shifted in the past) because this magical line makes things happen when it crosses past price action and here is where another extra confirmation comes from.

And of course Stochastics must both go to the same direction confirming our Entry.

So here are the Basic ENTRY Criteria we should be looking for :

BUY if :
1. price CLOSES above Tenkan Sen
2. Tenkan Sen is angled/Curved UPwards
3. Median BBand is curved UPwards
4. Chikou Span has just crossed above past price action going UP
5. Stochastics are both going UP

SELL if :
1. price CLOSES below Tenkan Sen
2. Tenkan Sen is angled/Curved DOWNwards
3. Median BBand is curved DOWNwards
4. Chikou Span has just crossed below past price action going DOWN
5. Stochastics are both going DOWN

Depending on the Market’s Condition and the Trading Strategy we’re going to use, we may be looking for some extra confirmations or even fewer.

SL Placement is based on the basic principle that we only take a Risk to allow price fluctuation to go as low as a strong Support Level can allow when we BUY, or as high as a Strong Resistance Level can allow when we SELL.

SL Trailing is an essential part of Trade Management serving the 3 priorities :

1. Eliminate RISK
2. Lock Daily Pips
3. Maximize Profits milking the Trend.

Depending on Market’s Condition :

1. There is no need to Trail our SL on a Rangebound Market
2. We can use Kijun Sen or Fractals corresponding to Higher Lows on Uptrend and Lower Highs on Downtrend when the Market is Trending and of course there are detailed SL Trailing Criteria per Strategy
3. When trading the Breakout after a Consolidating Market, we can either pick one of the various SL Trailing options or EXIT as soon as possible either using the Take-Profit placement Rule (placing TP at 2/3 of expected move’s length) or using one of the STAY-IN/EXIT Criteria.

STEP #6 Rules :
Successful Traders make more money WAITING than Entering Trades. This happens because they’re true “Bosses” of their trades. They WAIT for ALL Entry Criteria to be met before they Enter. They WAIT for the move to get exhausted before they EXIT. They don’t rush. They’re extremely slow -turtle slow- with their Entries seeking multiple confirmations.
For every Trade Set Up, you should be aware of the Market’s Condition in order to pick the right Strategy and in most cases you must see candlesticks CLOSE -except if your Strategy’s Criteria mention cross and no close or if you see a Breakout Candlestick which has a body bigger than the last 10 candlesticks and moves to one direction only- before you Enter.
SL Trailing is not always a blessing. It can be a Trader’s Plague when applied wrongly. Some of my best trades were the ones I neglected Trailing my SL. I know there is the reasoning that “well, if I’m stopped out, I can always re-enter” which is correct but impractical. Because if you are stopped out of a great trade that took you hours to study and Enter because a silly spike hit your Trailed SL, you may FREEZE, you may make all possible mistakes and invent even more, you may get out of sync out of tune out of balance with your own thinking as you’ll be watching price going to the initial direction making hundreds of pips for other traders but not for you. Except Swing Trading -RangeBound Market’s Trading- and Scalping, where SL Trailing doesn’t apply, there is plenty of empirical evidence that you should let the trade evolve without Trailing your SL. I know this sounds contradictory to what I have already described as “SL Trailing benefits”, but I suggest you Trail your SL till you reach the level of confidence to let the trade breathe freely and evolve without you approaching or almost “touching” price action in a rather masochistic mood.

Step #5 | Picking Strategy

Depending on the Market’s Condition we currently see on DAILY Time-Frame we pick the appropriate Trading Strategy that goes with it . Below are a few Strategies we can use per Market’s Condition :

#1 Range-Bound Market : when price is moving in a ZIG-ZAG MODE within a Range
1a. Trading the Zig-Zag Daily to H1 TF
1b. Trading the Zig-Zag H4 TF to M15 TF
1c. Bollinger Bands + Stochastics on Daily TF
1d. Bollinger Bands – MACD -PSAR
1e. Bollinger Bands -Heiken Ashi – ADX

#2 Trending Market : when price is moving UP making Higher Highs and Higher Lows or DOWN making Lower Lows and Lower Highs
2a. ICHIMOKU 4 Time-Frames
2b. Bollinger Bands – Fractals – Alligator
2c.“Catching the Bus”
2d. Fibonacci Retracement Tool
2e. Scalping from M15 with ICHIMOKU & BBands
2f. Rainbow System
2g. Trendlines

#3 Consolidating Market : when price is in a stasis moving sideways in a horizontal mode maintaining the same price level
3a. Bottlenecks and Funnels

STEP #5 Rules :
Trading is not about fashion and variety. Which means, you should learn ONE Trading System very well and always look for Market’s Conditions ideal for you to apply it. Don’t look to trade ALL Market’s Conditions, ALL Pairs, ALL the time. Be selective and monotonous. Be deadly boring doing AGAIN AND AGAIN what’s making you pips. Be like a hammer hitting a nail and hit that damn nail NON-STOP! If you want to specialize on trading Breakouts after Consolidation, using for example “Bottlenecks & Funnels”, become a KILLER on “Bottlenecks & Funnels” and trade NOTHING ELSE. By the way, it’s not bad to seek multiple confirmations before you enter with one System, by checking another System too making sure they both agree.
When you’re in , be 1001% confident with your Strategy -1000% is not enough-apply its Criteria and Rules religiously and don’t mess with your Trade. Set it and forget it. (Check it only as often as the Time-Frame you monitor the trade from requires. Remember that candlesticks are valid ONLY when they close. While they’re open, they behave like electrons, being everywhere at the same time.)
Remember that there are no “A’s” in FOREX Trading. It is a SOLO Sport. You are the athlete, the coach and the audience. Don’t pick the sexiest or the most sophisticated Strategy. There is no one to impress. Pick the SIMPLEST ONE that you are extremely familiar with and will stack more money to your Bank Account. And if your personality is more a Bull than a Bear, go only for Long Trades. If on the other hand you are a Bear, well….that’s your problem….hahahaha…

Step #4 | Market’s Condition | Picking Time-Frame

So far we know the DIRECTION of the Price Action and have estimated the REWARD it represents.

Now we want to determine Market’s Condition so we can use the right Trading Strategy for it and we also want to find the Highest Time-Frame we can Enter from, placing our Stop-Loss at a level which is immune to spikes and also keeps the RISK as low as we can take it. So our RISK determines the Time-Frame we will Enter from. The reason we want to enter from the highest possible Time-Frame with the lowest possible Risk, is that higher Time-Frames are more reliable.

***Important TIP to remember regarding the choice of Time-Frame : we start from DAILY TF and go down first checking which is the ideal SL placement level depending on the Signifcant Support/Resistance Levels and then measuring the pips-distance and checking if it is equal or lower than the Risk we can take. It’s NEVER the other way around !

Below are the Market’s Conditions we may see on DAILY TF :

#1 Range-Bound Market : when price is moving in a ZIG-ZAG MODE within a Range

#2 Trending Market : when price is moving UP making Higher Highs and Higher Lows or DOWN making Lower Lows and Lower Highs

#3 Consolidating Market : when price is in a stasis moving sideways in a horizontal mode maintaining the same price level

STEP #4 Rules :
Ideally we want to enter from the highest Time-Frame where we can place our SL without exceeding our RISK limits. So going down to smaller Time-Frames till we spot the one where we can enter from with minimum RISK looks good but isn’t the best practice because smaller Time-Frames have lower reliability and higher volatility especially the kind of unexpected Spikes that can hit our SL. So it is preferable to not take a trade at all and check another pair, if we can’t spot a nice Entry on a relatively High Time-Frame.
When looking for our SL placement in order to determine if we can take the trade from a Time-Frame or not, our RISK is the last thought that should cross our mind. FIRST come Market’s dynamics and price action fluctuation. Then comes the measurement of the RISK. If it is within our limits, we take the trade. If it is higher, we drop it without second thought.
A trick we can use in order to enter from a higher Time-Frame -such as Daily- minimizing RISK, is the candlestick-per-candlestick approach. We want to ENTER with explosive momentum. That means, we want to see a strong candlestick to the new direction and the next one opening to the same direction with all our tools confirming it. We place our SL just below/above the opening of the strong candlestick and ENTER when the next opens.

Step #3 | M/W TF Overview | Reward Assessment on DAILY TF

Monthly & Weekly Time-Frames Overview : looking at our Charts we want to see the following :

#1 : The idiosyncrasy of the pair
#2 : If the move is young and strong
#3 : If there is a Reversal in progress

Going down to DAILY Time-Frame, using ICHIMOKU, BBands, Fractals and Stochastics, we can evaluate price action direction regarding the half cycle it is moving on and here are the HALF CYCLES SCENARIA :

1. Price moving from Lower BBand UP to the Median BBand
2. Price moving from Median BBand UP to the Upper BBand …….OR…..DOWN to the Lower BBand
3. Price moving from Upper BBand DOWN to the Median BBand
4. Price moving from Median BBand DOWN to the Lower BBand …….OR…..UP to the Upper BBand

Using ALL our tools, we can make the assessment of move’s pips-value and this is the REWARD.

If the REWARD is TWICE as much as our RISK and 3-4 TIMES our Daily Pips Target, we take the trade. Otherwise we drop it. For example, if the REWARD is 80pips, it is more than TWICE our 30pips RISK and 4 Times our 20pips Daily Target, so we will take this trade. If the REWARD is 50pips, it is less than TWICE our RISK so we drop this trade.

Conclusively, at this step, we find out which is the main trend on higher Time-Frames and whether the move on Daily is following the main trend or is a correction and how much of it remains till the next BBand. We also determine the direction of the Trade we’ll take and whether it is worth taking or not.

STEP #3 Rules :
Market doesn’t move as fast as we want. It moves as fast or as slow as it wants. That’s why WAITING for ALL our Criteria to be met is GOLD.
Market is an Ocean of Opportunities and just like the Ocean never runs out of water, Market never runs out of Opportunities either. So if we miss a nice Trade, there will be at least ten more waiting out there.
We never stress about Trades we might have taken but didn’t. We use REAL Time, REAL Tools, REAL Criteria, not wishes, assumptions, opinions and hypotheses.
We Enter SLOW, we Exit FAST. That means we study ALL our Entry Criteria and check if they are ALL met before we Enter but we only need to see our Exit Criterion met to jump out and save our pips.
Being the BOSS of our Trades, we are in absolute control of them. There is no Stress and no Rush. And if the Market’s Pistolero points his gun to our head pushing us to jump in a trade fast, we get rid of him IMMEDIATELY even if we have to shoot him 🙂

Step #2 | S/E Ratio & Margin Level % | Daily Pips Target | RISK

Keeping the S/E Ratio fixed is KEY to the success of FXHOLIC System which is applying the geometric progression/compound effect which catapults our $1000 up to $1Million. That means, if I trade 1 Mini Lot (s=0.1) per $1000, S/E = 0.1/1000 and if I double my Equity up to $2000 , I can double the mini lots I trade to 2 so now trading 2 Mini Lots (s=0.2) , S/E = 0.2/2000 therefore the Ratio remains unaltered.

Daily Pips Target ideally should be no more than 20pips for two reasons. First because going after 20pips makes our life easier because it is an achievable task and second because even if the body of a Daily Candlestick is not bigger than 20 pips, the Accordion Effect is in full play if we switch to M15 with its 96 Candlesticks and on average 3 or more moves of 30-40pips each within a day.

RISK is the pips-distance between our Entry and our Stop-Loss and it corresponds to the maximum loss we can afford per trade. It has been statistically estimated that if RISK is less than 3% of Equity, Account is safe. Therefore for an Account with $1000 Equity, I can’t take more than $30 RISK which reflects to 30mini pips if my Account’s Leverage is 100:1.

STEP #2 Rules :
Trade ONLY ONE PAIR at a time. Actually, trade ONLY ONE PAIR every time for the first 117 Years. You don’t need more than ONE PAIR to build true wealth with FOREX Trading, because price never stops moving and while it’s moving you can make money no matter if it goes UP or DOWN. Babies have a weird phobia. When their mother leaves the room they think she left forever and cry. Don’t be like babies. Just because you closed a position, it doesn’t mean Pair stopped moving and just because you don’t monitor a Pair, it doesn’t mean Pair doesn’t exist or can’t give you nice money.
Daily pips target should be no more than 20 as we’re starting out. When we build confidence after at least 3 Doublings, we can increase our Daily Pips Target.
Positive Psychology in Trading is KEY. So it is more important to FEEL like a winner than to reach certain numerical milestones. That means, it is better to go for 20pips per day and make 30 than go for 50pips per day and make 30. The amount of pips we make is the same, but psychology is totally different. When I go for 20pips and make 30 I feel like being at the top of the world. When I go for 50pips and make 30 I feel like a failure, I lose self esteem and I also lose focus. I either run the risk to start chasing trades with the sole purpose to make those extra pips, ignoring the rules and criteria and acting like a gambler, or to quit feeling frustrated and inadequate.
Going for 20pips per day doesn’t mean that we should trade every day. We may have to WAIT 3 trading days for a trade that may give us 120pips in two days. That means we made 120pips in 5 trading days, therefore we’re 20pips ahead of our goal for the week. Our calendar serves as a point of reference, not as a decree.
If our SL gets hit and we lose 30pips one day, we don’t take another trade that day and we don’t chase 50pips next day. This is gambler’s attitude and we’re not gamblers. By sticking to the rules and the criteria, we’ll find out that Market gives us way more than 20pips per trade in at least two out of every three trades we take. So losses will take care of themselves.