How Using Retracements Will Help Your Trading Results
#396: How Using Retracements Will Help Your Trading Results
In this video:
00:26 – The biggest difference to my trading success
01:06 – The many benefits of using limit orders
01:46 – Frees up your time
03:57 – A real time example on the EUR/NZD H4 chart
05:03 – Using retracement entries will massively help you
Using retracement orders can massively improve your trading success. Let’s talk about that more right now.
Hi Forex traders, it’s Andrew Mitchem here at the Forex Trading Coach with video and podcast number 396.
The biggest difference to my trading success
Now, next week I’m going to be speaking at a virtual trading week for a group of traders over in Singapore. I’ve been asked to speak as a special guest. And the guy who’s organising the events said to me, “Andrew, I want you to talk about on a topic that can help people, but choose a topic that made a huge difference to your own trading success. Like what helped you as a trader to change your trading around and what made it so successful.” So I’ve got quite an interesting topic and it is all about how you actually enter the market using retracement orders.
The many benefits of using limit orders
Now you see, there are so many benefits to using retracement orders.And when I’m saying retracements, I’m using what’s called limit orders, so buy limits or sell limits. So if you were to take a buy trade, for instance, a buy limit order means that you’re entering the market below the current price. If you’re taking a sell order, you are entering the market above the current price. So in other words, you’re getting in at a better price after the price has retraced from where it currently is, and then you’re anticipating it to then continue in the direction of your trade.
Frees up your time
Now, huge number of benefits to this. One, time-wise. Now a number of people stress about sitting and watching their charts all the time. You know, you’re missing out on trades, or you don’t know when to be at your charts. Now we simplify that here at the Forex Trading Coach by only looking at a candle at the close of the candle, that’s the only time we look at a trade.
So once you do that, then we get people that say, well, I cannot be there at at 12 o’clock or four o’clock, whenever the candle closes. But the beauty of taking retracement orders is you don’t actually need to be there. So, as an example on a buy trade, we’re still looking at using our same profit target, our same stop loss, but rather than entering at the market and needing to be there at that time and having a smaller reward to risk, we’re looking for the price to first fall, get our buy limit order filled, and then head up in our overall anticipated direction. Massive benefits time-wise. The other massive benefit also you can see, we’ve now increased our reward to risk of the trade. And that’s massively important psychologically. Now you don’t need to be winning 80, 90% of the time.
And you think about this in simple terms. If you have trades that are three to one reward to risk on average, and you take three trades, one of them’s profitable, you just made one and a half percent on your account by using half percent risk. You have two losing trades following that, you’ve lost 1% total. So out of the three trades, you’ve only making 33.3% of the time. You’re only profitable on a third of your trades, yet you’ve still made half of 1% gain by using half percent risk on each of those three trades. So people that say, “Look, I need to be profitable 80, 90% of the time.” Most of those people don’t make money. And you think about this, if you’re making one out of three profitable trades, what happens if you can expand that out to 10 trades.
And rather than three out of 10, let’s say you’re up to four or five out of 10. You see how with high reward to risk trades, you can make massive, massive gains.
A real time example on the EUR/NZD H4 chart
Now I want to give you a real example that’s actually going on right behind me right now as I’m recording this. So there’s a trade that Paul Tillman took in front of our clients on our live US webinar on Thursday, the 21st of January. And it’s now Friday the 22nd when I’m recording this here in New Zealand. The trades still open. Go and look at your charts, go and look at the Euro New Zealand dollar on the four hour charts. And we took a trade, or Paul took a trade, at the close of the 12 o’clock candle. Go and have a look at that great candle setup. Now, Paul’s got the trade on there, it’s almost a profit.
Right now it’s eight pips away from the full profit target. It’s got a 3.1 reward to risk. So that means with half percent risk, which Paul’s taken in front of our clients, hundreds of clients on the live webinar, if that trade gets the profit, which it’s almost there, it’s going to make us a 1.55% account gain. So you can see again, the importance of high reward to risk that you get from the benefit of using retracement orders.
Using retracement entries will massively help you
So it’s a very important part of my trading and my trading success and our client’s trading success. So I hope it helps you too. If you have any topics or questions that you’d like me to talk about on future videos and podcasts just like this one, just drop me a line to [email protected]. I’ll see you next time. Bye for now.
Episode Title: #396: How Using Retracements Will Help Your Trading Results