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Potential False Break – High Risk/Reward Ratio Trade Setup

February 10
18:16 2014

UPDATE:  I Thanks for all the emails in regards to this post. Since I had a few emails that were roughly the same I figured more probably had the same question….how do you manage a trade that goes sideways. I have 3 basic criteria that will cause me to exit a trade. First if my limit or stop loss is hit….pretty obvious. Second, is if I see a stop run/manipulation against the trade that I’m in. What applied to this trade was the third criteria which is what we call the session change rule. The session change rule is quite simple. If you carry a trade from one session into the next you want to protect that trade by either moving the stop loss to break even or closing the trade out. Therefore if I’m still carrying a trade at 5PM (going into the next session…close of the trading day) I close the trade out. Some prefer to simply move to break even…either way the result for this trade would have been roughly the same as the price at 5PM was right around the entry point.

In my opinion the biggest advantage to tracking smart money has nothing to do with winning a high percentage of trades. Rather, the high potential reward as compared to initial risk that often comes with these setups is the true gem. The trouble for most retail traders is they focus on win/loss, win/loss, and win/loss…did I mention win/loss? The bottom line is we all have the same goal which is consistent profit. There are two ways to achieve that goal. One is a high win/loss and lower R/R, while the other is a higher R/R and a lower win loss. In all the years I have been trading every successful trader I knew had a great reward as compared to their average risk. That is why I often refer to a high R/R as the forex traders holy grail.



The chart above gives a nice example of searching out high R/R scenarios. Today the Euro created a new high during the London session. Later in the NY Session they come back and take out the previous manipulation point and provide a confirmation entry trade setup. So what is the true beauty of this setup. Is it a win/loss of of 70%….NO. I never win 70% of the time….in fact I don’t remember that last month I did. The true beauty of this setup is if you truly did catch a manipulation move then you know your in a high R/R scenario.

I would rather win 50% of the time with a 2 to 1 R/R as compared to winning 70% of the time with a 1 to 1 R/R. Psychologically it is much easier to trade that way as well. If you take 2 losses in a row with a high R/R strategy you know 1 successful trade wipes that out and possible more. Digging yourself out of a hole is plain and simple much easier which keeps you from making the stupid decision such as over leveraging or over trading to make back losses.

Ok I’m jumping off of my high R/R soapbox…


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  1. Dimadjo
    Dimadjo February 10, 22:07

    Hi Sterling,
    I do agree with this manipulation but since they created it after London closed (being out of the 8-11am time frame) and after a second push to the upside, I stayed on the sidelines here. There’s room for this trade to develop and go down to take stops below 1.3617 before moving back upwards but if I look at the 1hr chart seems like a triangle forming, suggesting they may not let the price go deep down and keep the push up for a 3rd cycle tomorrow.

    I’m with you guys since the dawn of my trading career and I was lucky to find you at the very beggining. I’ve been applying your strategy for over an year and I’m preparing to go live trading soon. Once I make consistent profits I will surely join your community at DTFL and become a member. Until then, keep up the good job you and Chad have been doing.


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  2. Sterling Suhr
    Sterling Suhr Author February 11, 21:28

    Hey Dimadjo,

    Thanks for the reply. I would agree that cycle reversal trades by their very nature tend to have less potential room to move. With that being said we have to vigilant to trade management criteria…I walked through that a bit in the update at the top of the post.

    As far as signing up once you make money. What I recommend to people is if you can learn the strategy without signing up why not just keep your money:) Let me give you a quick analogy. When I learned to fly an airplane I had read all about “how to fly”. Even with all the book knowledge I had I can assure you I would never have tried to fly on my own.

    In forex people try to fly on their own. In general I think we all have to test it out because that is human nature. The key is remembering that in every other profession we all accept that an education is needed. In forex however most people feel it is the exception and all that is needed is a self-education.

    In my opinion nothing is more previous than time. After all why do we trade forex? We do so to control our own time and have more of it. Therefore keep in mind the cost of time in the learning process….time is the one commodity that cannot be replaced and is invaluable.


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  3. Dimadjo
    Dimadjo February 19, 21:18

    Hi Sterling,
    Thanks for your reply. I think that joining your community at DTFL is the least i can do as a compensation for your free education provided on this site 🙂 Moreover, i think it will be beneficial for me to be part of a trading community, where i can chat with other traders, exchange ideas and opinions. I’m planning on starting with a micro account and trade with micro lots (0.01)but if i work my way out within three months i will invest more and start trading mini lots(0.1) for 3-4 months. If im successful then will add on and start trading lots(1+). I can’t go hard from the very beginning and trade full lots as i don’t know if i’m mentaly strong enough to hold such trades in real account. But let’s imagine i’m already doing it, then why not spending the money of 1 successful trade on signing up with you?! You guys rock and i’m thankful to have found you on the net when i first decided to deal with trading.

    Take care guys!


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