Not so squeezy (3)

Entries are so often the focus of most traders systems, with the assumption that as long as there is an opportunity to make a profit (i.e. as long as the trade goes my way), then all will be ok. Unfortunately in practice this is often not the case, knowing when to exit is harder than knowing when to enter as greed can be a more powerful force than anything the market can throw at you. Bad exits can be the cause of most frustration for beginners especially when closing a trade with a small profit only to see it take off straight after that.

Having set exit rules, with the discipline to stick to it, as well as the knowledge that you may give up some potential profits to protect yourself against much larger losses is one of the greatest trading challenges for the early trader. Remember, you can lose money from a profitable trade as well.

“Exits should be the most pleasurable
part of your trading, it is after all
when you make your money ...”

The Not So Squeezy method has only one hard and fast rule for exits, and one optional exit strategy. The hard and fast rule is to close at least half of your position at the opposite Bollinger Band. In Illustration 9, these exits are marked with red cicles, and as the trend is shown to be up, these are all long positions.

The optional exit rule is to let half of your position run for the 161.8 fibonacci extension level. This is especially relevant if the move from one Bollinger Band to the next has high acceleration (excitement).

The main thing is to stick to your exit strategy as closely as your entry strategy, you should not let elation, greed or ego let you forget that the market can turn on you just as
quickly as it is currently rewarding you.

For those not familiar with fibonacci extensions it is simply the height of the correction, or the swing into the main move, multiplied by a derivative of the golden ratio (0.618). So in Illustration 9, we have a swing down, before the major move up as shown by the red diagonal line. That swing down multiplied by 1.618 results in the line that corresponds to the blue circle (exit level). (more info at AdvFibonacci.asp)

If this optional strategy is employed, be sure to lock in at least +1 (might as well make something) with that last half lot you have open, we don’t want to make an otherwise winning trade a losing one.

Stop Loss Placement

Stop loss placement is one of the most widely disputed aspects of trading. Where to place stop losses? Should we place stop losses? Do people hunt stop losses? etc. etc.

First of all, stop losses are hunted, especially in the Retail Forex world, there is no hiding that fact, and no use winging about it either, as it has been going on as long as Adam was a boy. Illustration 10 shows areas where stops runs occurred. This fact makes some believe then that it is best not to place a stop at all, but instead place a mental stop so they brokerage houses don’t know where your stop is sitting.

There is some merit to this, however there are many more failings of this thought process, especially if you are not an experience trader with an iron will and unfaltering discipline. First of all there is the question of whether you actually will close the trade as you have promised yourself, ego can be a very strong force, and it is against human nature to admit defeat.

Secondly, what happens if there is a sudden news event, natural disaster or economic event that sparks a sudden violent move against you? If you are away from the computer you will not see it and the first you know if it is a margin call from your broker (and a dressing down from your partner). If you are in front of the charts at the time, your chances of getting a closing price right where you want it is slim. This is the classic time for retail brokers to re-quote, widen spreads and suffer “server problems” as they watch client accounts dwindle away. The sheer volume of traders trying to do what you are doing means you need a lot of luck and quick fingers to get out with your pants on (excuse the pun).

Stop losses should be placed at a point you view your trade idea to be wrong. I am not a fan of necessarily placing stops right behind chart patterns such as previous peaks and valleys. If price has moved that far, in most cases chances are your trade idea was wrong and you are now relying on luck. Also, these are the exact areas market makers try to move price to trigger stops and liquidate their positions, every man and his dog (smart dog) has a stop there, so it becomes an attractive target.

This is where the 100 and 200SMA can come in handy, placing a stop behind these levels provide a small level of protection, without necessarily being where everyone else’s stop are. Another area might be the 78.2 retracement level of the current move, to me a point of no return if price is going to bounce.

Illustration 11 shows some possible areas to place stops on different trades, in this case mainly behind the 200SMA. Which area you choose is up to you according to your risk profile, where the trade is opened, and market conditions, but remember, place a stop where you view the trade idea has been proven wrong.


What is contained in this document is the very basics of the Not So Squeezy system. I have not touched on Money Management, Risk/Reward or Trade Management, however below are some links that should help you in those areas.

I make no claims that it is the blueprint for your road to riches, but I hope it gives you an insight into how I think when placing a trade. Feel free to add, take away and hack this system to death, until you feel ownership of a system, you won’t truly be able to trade it with the confidence that is needed to be successful in this business.

I do not view this as being complete, my research continues on different ways to get the edge we are looking for in the markets. This system does not break new ground, but it tries to utilise the known factors of human behaviour, that ultimately, runs all marketplaces around the world.

In coming months, I will look at extending this document to incorporate one main factor I feel is ignored in mainstream trading systems, that being time. The markets move to a beat, that much is clear to me, but utilising that to trade profitably is a challenge I am yet to conquer.

I wish you all luck in your trading expeditions, remember you do not need to be smart to be successful in trading, you do not need a PHD in mathematics, to pay for expensive courses or mentorship. What you need is determination, discipline and an undying faith that you will succeed.


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