XBP Method Setup: When to enter a new trade?

This post explains the action setup that we are looking for to enter and exit a position.

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“One characteristic I’ve found among successful traders is that they function effectively when they’re not trading. When markets become very quiet and range bound, they occupy themselves with a variety of activities, from sharing ideas with peers to conducting research. Traders who do not tolerate inactivity well inevitably feel the need to trade, often when there is no objective edge present. For them, losing money is less onerous than experiencing boredom.” – in Trader Feed

The XBP Method is not a method that you will enter 20 positions per day, just the opposite. The objective is to wait for the right setup and then enter following the indicators. the setup is simple, it consists of 3 main steps (all assuming you are using a 4,500 ticks chart):

  1. Wait for the Big Money players to enter the market. You will see them thanks to the XBP Tape Players indicator, that will paint a price bar either blue or green when an unsual big volume enters the market.
  2. After the Big Money have entered the market, wait for the market forces to show a clear direction. The XBP Bulls and Bears Support and Resistance indicator analyzes the market forces and prints either a support (red line) or a resistance (white line). Once the line is solid (first it will appear as 2 disconnected dots), enter the position. Long for a support; Short for a resistance.
  3. The Exit. Here there are 2 possible ways:
    • Profit target of 3 to 4 points for the most conservative traders
    • Ride the trend until a contrarian support/resistance is plotted

This setup runs better during the morning session after the first half an hour, i.e. 10 to 12 New York time, but also can be used in the evening session (2 hours before the close). During the lunch hours you could have erratic signals as the volume is so low that there is no clear direction in the market.

Some more examples:

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Does it ever fail? Of course it does! Never accept a 100% correct trading method, algorirthm, etc. Instead you need to understand how to identify when the method is failing and understand why.

First let’s see an example of failure:

20160318_Setups_51.png

As in the market there are always 2 forces fighting against each other, in some occassions one force passes over the other and starts a new trend, instead of letting price do a u-turn. You will see this action clearly when a support is plotted very close to a resistance (or viceversa).

Whenever you see this happening, close the lossing position, assume the loss and enter the new trend. Normally when these breaks occurr the resulting trend will be a quite extended one that will yield good returns on your new position. The key is to react quickly and reverse to profit from the new trend.

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