SUN TZU’S TRADING PLAN
Trading Rules:
1. Only trade when relaxed, confident and positive
2. Only the above systems are traded and are traded to the letter
3. Never let a profit become a loss
4. Set trailing stop once in profit
5. Cut losses before Stop loss if market conditions change
6. Never chase a trade, wait for it to present itself
7. Exit a trade if reason for entry no longer valid – no waiting.
The Pivot Point strategy:
Generally we aim to buy support and sell resistance regardless of the prevailing trend, as
often the biggest moves occur when the trend changes direction.
For this we always use the points calculated and displayed on MT4 using the fmm_pivots
indicator. We trade all pivot lines the M, R, S, L2, H2 and PP.
The idea behind it is to remain totally focused and enter a trade not expecting any
particular outcome, hence, we are happy to reverse our entry if proved wrong. Usually we
can expect a move to occur at all pivot lines, so that reversing the trade often places one
on the right side of the market.
The main advantage of this system is that costs are kept to a minimum, the max cost to
enter a position and SAR (Stop and reverse) it is 16 pips. However if entered 1 pip either
side of the line, the cost can be reduced to 4-5 pips each way. Having the Stocs at
extreme O/B or O/S can help the trade but is not mandatory. Bollinger bands must be at
extremes (20, 2 Dev).
When entering a counter trend trade enter in 2 ½ positions, 1st at the PP and second when
the price has moved 2-3 pips in trade direction.
Trading Hours (all in UK times)
07:00 – 11:00
15:30 – 17:00
Potential Turning times
The market tends to change direction around specific times:
10:00
12:30 – 13:30
14:30 – 15:30
Strategy Rules:
1. Trades taken before 07:40 are considered as scalps, never let a winning scalp
become a loser.
2. A long trade is initiated when a pivot point is hit from above, or stalls a few pips
above it; place a SAR trade short at the same time.
3. A Short trade is initiated when a pivot point is hit from below, or stalls a few pips
below it; place a SAR trade long at the same time.
4. Half a position is shed when the next PP is hit or stalls near it, the rest is set to SL
4 pips above/below the PP entered at.
5. Second half is always reversed at the second PP with a SAR in the continued
trade direction. If there are several tests of that PP then place your SAR 2 pips
below the lowest low or above the highest high. If this requires more than 8 pips
DO NOT SAR, exit at PP and re assess.
6. Watch the 10 and 20 emas on the 5 minutes charts, if the third bar fails to close on
the right side of the 10ema exit half, and if the 5th bar fails to close on the right
side of the 20ema close position.
7. After a big news event wait at least 2 5 minute bars to avoid the whipsaw, or enter
½ position with a SAR.
Notes:
The idea behind this method is to develop a good feel for the turnaround points so
that eventually trading is intuitive.
Read ‘Trading in the Zone’ by Mark Douglas
Read ‘Come into my trading room’ by Alexander Elder
Read ‘The science of getting rich’ by Wallace D. Wattles
Stop looking for the Holy Grail – the Holy Grail is internal, always has been.
This system does not allow for the losses, you only incur small expenses
occasionally.
Review every trade – see what you did well and what not.
Keep a spreadsheet with all entries and include an analysis sheet
Trading the London Open
Overview:
Trading is about the mind and how you apply it to the information the market is throwing
at you. You need to accept that the market is pretty much a random walk and that
anything can happen at any point, over which you have no control.
The only control you have is over your own reactions to what the market throws at you
and that is the basis of my trading.
I also recommend meditating for at least 30 minutes before you start trading, I use both
Theta wave music and guided meditations.
The trend is your friend until it come to an end, and let’s face it you have no clue when
that will happen, buyers and sellers with different views exist at all levels. Ultimately it is
all about probability so you need to deeply and wholly accept that.
Money management is what you live and die by – make sure you size your positions
based on your risk tolerance, if you hit your daily maximum loss go and do something
else.
I recommend trading 1 or 2 markets only and getting to know the instruments intimately,
so you know what they like and what they don’t, they should be as familiar to you as
your best friend. And just like your best friend they will sometimes let you down and
sometimes treat you like royalty – accept this.
The Method
I will not go into too much detail here; suffice it to say that I have studied many London
Opens and have a deep appreciation of the GBPUSD behaviour around the open. That is
not to say that I always make money, however, I use very small stop losses and even if I
only win 45% of the trades, I am in good profit.
I usually place my first trade between 06:45 and 07:15 London time, I look for either a
double top or double bottom formation or a hit on a recognizable support/resistance level.
For those I use a pivot calculator and draw the daily pivots on the charts.
I accept that I may be wrong when I enter a trade and set my Stop Loss 10 pips above or
below my entry point, and if it is taken I can still afford 2 more trades before I call it a
day.
Points to consider:
1. The market often reverses direction between 07:20 and 09:00 UK time, so these
trades are not set and forget, price action must be observed and reacted to.
2. Every action brings about a reaction, so unusual spikes in either direction are
often a sign of exhaustion and a trend change.
3. If the market retraces above 61.8% – it’s a good chance its not a retracement, its
probably a reversal, so if you’re still in (and you shouldn’t be) get out.
4. Today was easy but often it takes 2-3 trades to get in the right direction.
5. Once a trend is established it can go on for hours, watch out around 12:00 to
13:00 as the US opens and often reverses the trend. I do not trade the US session
as it is almost entirely driven by equities.
6. I use ema 10 20 and 50 for trend direction.
7. Don’t get fixed in your mind, the fact that the market has been on a strong hourly
downtrend, doesn’t mean it will continue.
Summary:
This is a non mathematical system and is based on price action, focus and a complete
acceptance of the market’s random nature. It is based on a perceived probability that an
event will occur at a given time/price junction, whilst accepting completely that it may
not. It is based on many months of following the market behaviour and tight money
management rules.
This trade descried here is only an example, look at 5 minute charts for GBP/USD or any
other currency pair you choose. I recommend looking at several months worth of data. If
you believe the method works you will feel more comfortable using it. Paper trade or
trade mini lots until you’re happy as Larry.
Note, that this is written for my own amusement and that I neither suggest that you
follow this system, nor apply any part of it.
So to recap:
Entry set up:
Enter between 06:45 and 07:15 London time
Entry based on either double top/bottom or a hit on a pivot (R1, M1, S1 etc)
Enter at extremes of Bollinger bands or stochastics (5,3,3)
Stop loss is 10 pips
Monitor trade:
Watch price action closely – once a pivot point is crossed, possible reversal
Watch for double top/bottom on 5 minute chart – again possible reversal
If price retraces more than 61.8% from your entry and you haven’t closed, do it, it
is cheaper to re enter than to lose your remaining gains.
Move SL to BE after 20 pips (remember commissions).
Between 07:30 and 08:00 the mini trend established may reverse, so you need to
watch the price action. Sometimes it is beneficial to reverse the entire trade (or
half if already exited half) on a spike up or down. What I tend to do is reverse on
the spike and place a SAR (Stop and reverse) below/above the spike that made
you reverse. That way you are either capturing the new trend or taking a small
loss and the trend then reverts to the original early morning trade and continues.
This is usually the most difficult decision to make.
Exit:
Exit half position at 40 pips (GBP/USD)
Exit second half at strong support/resistance or whole number (1.9500 etc)
Closing comments:
To quote from Sun Tzu:
‘Do not move unless it is advantageous
Do not execute unless it is effective
Do not challenge unless it is critical’
Watch the greed and fear factors, when a trade goes against you, don’t be greedy, close it,
its cheaper to re enter at a better price.
Don’t let your fear of loss determine your pre mature exit, let the market tell you when its
time to kiss it goodbye.
Remember, you will always leave money on the table, this is good and is your
contribution to other traders, Gratitude my friend.
Good Luck and Good Trading
Sun Tzu
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