Let’s immediately point out an important point: there is no method that allows you to get out of the castle 100% without loss. I know that because of this wording, I can seem to you to be a trader trying to convince everyone of the impossibility only because he himself did not succeed. Therefore, we will do this: I will explain why it is impossible, but if you do not believe it, try it yourself, write about the results in the comments below.
Why it is impossible (proof by contradiction): because if it were possible, it means at some point it is 100% clear (that is, without risk of mistakes) where the price will go. And this cannot be for the reasons indicated at the beginning of the article. The end.
In fact, in order to leave the castle “without loss”, it is necessary, in fact, that after closing one of the orders, the price covers the remaining loss. Those. went in the right direction the desired number of points.
In any castle and in any case, it is. If there is no 100% guarantee of this, therefore, the price can go both in the right direction and in the unnecessary. As well as the desired number of points, and less (if not lucky) or more (if lucky). There is no guarantee that such an event will occur if we do not know the future.
Just in case: I’m not saying that leaving the castle without a loss is impossible. I say that such an operation is probabilistic – maybe it will work out, or maybe not.
When we figured this out, let’s try to evaluate how to tip the probability of leaving the castle with a positive result that can be in our direction.
First, we need:
1) Understanding what a “time frame” is
2) Trading strategy. Any. You can indicator, you can indicators.
3) Understanding the interaction of supply and demand. More specifically, the types of price movement.
Let’s analyze the most discouraging case – when a trader was trading at random, the deal went negative, he blocked it and now is in shock 🙂
First, we need to figure out how much loss will need to be covered. Suppose it is 100 p.
Next, we need knowledge of what a “time frame” is. You can use an indicator like ZigZag for clarity. Standard indicator parameters are quite suitable.
So, we need to understand roughly what timeframe we will look for the entrance to the transaction, which, theoretically, can be profitable and thereby help to block the loss that arose in the castle. If our loss is 100p, and we will enter by a signal on the M1 timeframe, then even in the case of a profitable transaction, we will block points 5-10. And we need a profit comparable to the current locked-up loss.
So, we put ZigZag on the chart and see what is the average value of the pulses. This is how the indicator looks on the M5 timeframe:
We see that on average on this timeframe the distance of each impulse is about 30 points (in the example, the pair is EUR / USD, but in general you need to look at the one where the position is in the castle). And we need to block 100 p. Therefore, go to the timeframe above and look there. Based on the results of this study, we determine that, on average, 100p pulses occur on the H1 timeframe:
In this timeframe, we will wait for the entry point to the deal according to the chosen strategy. Let’s analyze the indicator, otherwise, I’m talking about an empty chart, but I’m writing about an empty chart.
I found a strategy in the search engine with the following parameters:
Moving Average SMA with a period of 5,
Moving Average EMA with a period of 20,
Moving average EMA with a period of 30.
Purchase while fulfilling 2 conditions:
- Green is higher than blue
- The red line above the green
Sale while fulfilling 2 conditions:
- The green line is below the blue
- The red line is below the green
We put the whole thing on the chart and wait for the input signal. I suggest waiting for a signal in the direction in which your losing position is open.
Example: if in the castle a purchase brings a loss, and a sale brings a profit, then we are waiting for a buy signal.
After that, we need our understanding of how demand interacts with supply and how it looks on the chart.
In short, this is what the “deficit” of something looks like and the lack of a strong desire to sell at a price that has just risen.