ATR Derived Stop Loss

Feels like it has been quite a while since I made another post. Trading wise, this week has been better. I really focused on optimizing my entries and even scaling into certain pairs. I don't think doing a review of my trades will be the most productive. Instead, let's revisit the additional signals that I have been testing.

Before I fully jump into this, I do want to touch upon my new stop loss placement methodology. This is based on a 10-period daily ATR reading. When I take a trade, I would place my stop loss at half that ATR reading.

The reason for this is that I am a contrarian, often seeking reversal plays. If I sense price weakness and it continues against me by over half of the daily ATR, that would be considered a dominant move. Naturally, I only want price drifts to go against me. 

This methodology seems to work out so far as my stop losses are a bit wider than where I would've previously set them. Keeping that in mind, here's how I applied it to my EURUSD trade.

EURUSD 1-Hour

The first arrow represents my first buy trade entry. After price sold off, it started drifting. As soon as it bounced on this low, I dropped my position size and entered a position. 

Price tested a minor resistance and then started trending lower. Although I was giving back my profits, I held. The reason was because this overall move was weak. There wasn't a strong reaction off of that supposed resistance level.

After price drifted lower for a while, it spiked and made such a clean break above this resistance. This is where I scaled in. In my previous posts, I talked about not taking breakout continuation moves because they often don't work for me. I find that the exception is when there is a reversal move on a larger time frame because you have the short side profit taking and other traders scaling into this pair just like me.

The price action after my second entry doesn't look too good. Naturally, I managed this trade in real time and closed it out accordingly. However, the payoff is quite nice when the move happens. I caught this same setup over on NZDCAD.

NZDCAD 1-Hour

Not much to say. I think how this setup played out is quite self-explanatory. This breakout continuation play is one that I expect to continue testing in my live trading.