We will see in this article how to enter and how to exit our positions on the Forex market to earn money consistently. Entering it is far easier than exiting it. The aim is to simplify the issues in order to solve them.
How to enter the market
First, the entrance. I already explained the properties of the 2 price pattern my trading system relies on : the pinbar and the engulfing bar. The entry will be directly correlated to the pinbar or engulfing bar itself. We will put stop order above or below our bar. That’s all.
Here’s an example with the pinbar :
Since it is a bearish pinbar, I put my sell stop order just below the low of the pinbar. The stoploss is at the opposite side of the candle : above its high. It’s easy. For information, it’s a trade I took recently (last week). We can see the price brushing past the Stoploss and reversing to go to the “right” way. Of course, for a bullish pinbar, you do exactly the contrary : buy order above the high and the stoploss below the low.
This is the same procedure for the engulfing bar :
No difficulty here. However, we have to choose the Take Profit location in order to make money over the time in a consistent way. All the difficulty is here. The exit of the market involves plenty of psychological biais. The money is made on the proper exit of the market. A full book could not cover entirely this topic.
We will simplify the issue by aiming a static target by default. Our position will aim only an easy R:R of 1:1. It means that the profit target will be at the same distance than the stoploss from the entry price. Nothing easier.
If we take our previous trade, the take profit is now :
Really easy to do. However, your psychological biais could make it more difficult than you can think. So, the default Take Profit target of this system is really easy to follow. For information, the market prints retracement really often on these level of 1:1 from a heavy price pattern, like good pinbars and engulfing bars.
This a the default profit target in this system. However, we can move the Take Profit under certain circumstances.
If the price pattern printed in a strong trend, it’s possible to set the Take Profit at a reasonable Risk:Reward ratio of 1:2.
If the price pattern printed in a certain way that the origin timeframe becomes a subset of a larger pattern timeframe, it’s possible to move the Take Profit to earn more money. For example, I took this trade on a Daily basis because of this beautiful engulfing bar on a significant resistant with a “Pincer” price structure :
When the current week closed, the chart looked like that :
The Daily candle transformed itself in a valid Weekly engulfing bar. In this rare case, my system authorizes the extension of the Profit Target. In this example, the profit target is at 1:1 from the Weekly entry engulfing bar, which is around 1:3 from the Daily entry bar.
The main principle of this entry/exit system is to keep it simple in order to avoid the full set of psychological biais. Moreover, if we use a simple 1:1 R:R, the winratio of the system will become higher, around 0.75. But having a good trading system without a good risk management is useless.