As I told you earlier, I humbly announce the tweaking of my ITU Global Strategy – to ensure more effective risk control – pruning losses and optimizing profits. We can only start making money after we start losing too much. All the system rules remain unchanged except these minor changes:
a) Change the RSI to levels 70, 50 and 30. So that if it’s above 70, you don’t take a buy signal; and vice versa for a sell signal, i.e. if it’s below 30.
b) If you find yourself in overbought area when a signal is generated, you might wait for the RSI to go below 50 level or to oversold area and then cross over above 50 level again before you enter (the opposite is true for a short signal). This is an additional filter.
c) Change your stop loss to -75 pips. A trade that hits -75 pips has a high probability of hitting -100 pips.
d) Change your take profit to 235 pips (high spreads also considered).
e) Once you’ve gained between 70 – 100 pips, apply 60 pips trailing stop, if you now gain 100 pips plus, then adjust the trailing stop to any value between 70 – 80 pips. This is to put you in a risk-free trade while you try to run profits.
f) If you’ve gained up to 200 pips plus, you might close the trade (without waiting for your target to be hit).
g) The risk-to-reward ratio is still nearly over 1:3.
h) The EMA is now 50 periods in order to allow slightly faster reactions to price changes.
Why must we run our profits?
Look at the options below, chose one option per number.
1. A sure loss of $900 OR a 95% chance of a loss of $1000 plus 5% chance of no loss at all.
2. A sure gain of $900 OR a 90% chance of $1000 gain plus 5% chance of no gain at all. (Van K. Tharp)
3. You’re given $1000. With a guarantee to win an additional $500 OR you flip a coin; if it’s heads you win additional $1000, tails, you get nothing.
4. You’re given $2000. With a guarantee to lose $500 OR you flip a coin; if it’s heads you lose $1000, tails, you lose nothing. (Steve Ward)
Please see my answers: I choose the 1st option at number one, the 2nd option at number two, the 2nd choice at number 3, and the 1st choice at number 4.
Though my answers go against the mindset of the majority, it shows why people run losses and cut profits. The golden rule of trading is non-market specific. It’s what makes us survive in the long run. Both buyers and sellers on EURUSD (for example) may lose, and both may win – it just depends on the market conditions and the position sizes used. No-one knows what will happen next, whether you buy or sell into resistance or you buy or sell into support.
There is no perfect system and there’s no need for such. If there was, the person would have all the world’s money. We traders tend to think we’re smart, but markets will often remind us we’re NOT!
Edward Seykota is reported as mentioning the 3 elements of trading as: Cut losses, cut losses, cut losses. And with that, you may have a chance.” Personally, it doesn’t matter how you control your losses; the most important thing is to avoid letting them run.
Your questions and opinions are highly welcome.
Forex Signals Strategist, Funds Manager &Coach
NB: There is risk of loss in trading, but it is possible to be a successful trader.
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