All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Review: Trade Invalidation Management

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

Last updated 1/25/2010 7:50 PM EST (GMT -5) 8 Comments

• Share this:

Bradley W. Gareiss

Technical Analyst, GFT

Whenever I post a trade, I usually include a list of conditions that could invalidate the trade.  These conditions invalidate the trade because they each would suggest that the reason for the trade is no longer present.  This short list of conditions that would invalidate the trade isn't a substitute for experience, and they aren't always perfect.  However, this list is the best way for us to quickly and easily explain what invalidates a trade.

I have heard from some customers that they have had trouble determining when a trade is invalidated, or they occasionally enter a trade that was clearly invalidated.  Today, we will go over some simple steps to take that will decrease the odds of entering a clearly invalidated trade.  The best way to accomplish this is by setting price alarms at key levels before the trade's entry.  GFT's DealBook 360 software can send alarms to your email or your cell phone, so you do not need to be near your computer to be aware of an alarm being hit. 

The first alarm set helps reduce the odds of entering a trade that has long bars.  I typically put an alarm two-thirds of the way from point C to point D.  I usually do not enter the trade into the platform until that alarm goes off.  Usually if the trade makes it to that alarm without long bars, there will not be long bars in the trade.  I put this alarm on right after I initially draw the pattern.

The second alarm should be set just before the entry.  We often write something to the effect of "If the pair comes within 8 pips of reaching our entry, does not enter, and reaches T1 before entering ,the trade is invalid."  In this case, we would put the alarm 8 pips before the trade entry.  If the second alarm is hit, we then place an alarm at T1.  That way, if T1 is hit before the trade enters, we know the trade is invalidated and we can cancel the order. 

The third alarm is also set right after we initially draw the pattern.  We typically warn something like "The trade is invalid if it falls below 0.8554 before reaching our entry".  We simply put an alarm at that level, so we know the trade is dead if that alarm goes off.

Once placing alarms becomes a habit, it takes less than a minute to place all three of the initial alarms, and it makes it much easier to track which trades become invalidated.  While using these invalidation rules isn't 100% perfect, they usually get the job done and will greatly increase the odds of success when followed.

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

• Share this:

Comments (8)

schmidyad

January 26, 2010 at 12:27 AM ET

Thanks for another great article. Do you keep statistical data on what percentage of the trade recommendations turn out to be successful trades. Thanks

bgareiss

January 26, 2010 at 01:43 PM ET

Please see my response to Capri above. Brad

Capri

January 26, 2010 at 02:53 AM ET

I would also be interested to know what percentage of trades are successful.

bgareiss

January 26, 2010 at 01:43 PM ET

I have tracked every trade I have made on FX360. I have quite a bit of analysis regarding the trade recommendations on this site. However, at this time I am not able to post it. Brad

NeoFX

January 26, 2010 at 02:05 PM ET

Brad, I'm having a hard time understanding why neither you nor Roger have pulled the trigger on USD/CAD. This is a sell if I ever seen one.

also a buy of AUD/JPY (61.8% fib ret on daily plus bounce off main upward trendline extending from march.)


just a thought
R

bgareiss

January 26, 2010 at 02:12 PM ET

I am sure there are people who might agree with you, but it doesn't fit my trading plan. Same thing with the AUD/JPY, doesn't go along with my plan. That doesn't mean you are wrong, and don't let me stop you from doing what you think is best. Brad

NeoFX

January 27, 2010 at 04:16 PM ET

well i don't know what the priority on these trading techniques are then....Having trouble understanding exactly what you mean by "trading plan." Though I have an idea (as I've followed several recommendations with the related rationale behind it), I'm still uncertain as to everything else I've been taught now. Looks like you trade mainly off of complex patterns and not necessarily go off of trend lines that much. Candle stick formations are also rarely mentioned in your analysis.

The USD/CAD short trade i asked you about yesterday is a bit risky now especially after the Fed's announcement today that made the dollar skyrocket. so i exited that (with no loss fortunately). And the AUD/JPY is still in as far as i'm concerned and i'm basing that on a 61.8% fib bounce on daily at around 80. but then again, it poked thru a bit so it may reach the 78.6%. not sure.

either way, your method's obviously more soliid and i'd love to know exactly what takes higher priority in your "plan" (be it fibonacci levels, patterns, trendline breaks, etc....)

can you briefly comment or is there something out there you recommend I look up, such as books, sites?
Thanks

bgareiss

January 27, 2010 at 04:26 PM ET

Every trader should have a trading plan that has a set of rules. A trade should only be taken if it corresponds with the rules in the plan. If you don't enter trades for the same consistent reasons, how can you ever expect consistent results? Furthermore, how can you expect for positive results to continue if you are using a different method than the one that you used to attain results in the first place? But I digress...

I use a variety of tools to determine trades including trend lines, Fibonacci, harmonics, etc. I look for convergence of these levels rather than just one or the other. There is a lot that goes into how I determine what fits and what doesn't, so it would be hard to explain on this post. However, that irrelevant anyway because everyone should come up with a plan that fits them. With that being said, the first books I would recommend are "Trade What You See" by Larry Pesavento and "Trading in the Zone" by Mark Douglas. Both of those are great resources if you want to learn more about trading using pattern recognition.

Brad

Add Your Comment

Please login to post a comment or sign up for an FX360® account.

Loading...