GLEM Trading Strategy

Introduction

My trading strategy is bar by bar price action, with a good appreciation of context, provided by the previous 100 bars or so, on a single timeframe chart. I observe two other charts, each the next appropriate higher timeframe, for price action that may confirm or conflict.

My main tools are: (1) My GLEM, a configuration of a fibonacci retracement, and (2) a mirrored rule. The only indicators drawn are the 21, 55 and 200 exponential moving average (EMA).

An important aspect of ‘price action’ trading is that the trader is reactive rather than predictive. By that, we base measurement (our GLEM) on signal or entry bar(s) in relation to context, not trying to determine where price is going through news events, extension lines, feelings or the like. Moreover, “consider the alternative outcome, and manage accordingly”.

Note:

  • “Before a trader can use this entry and management strategy they must first be very proficient in all areas and methodologies of the detail, and wider view, of what is commonly known as Price Action trading.”
  • “This page is under daily change and development; mostly minor tweaks, but, occasionally, something more.”
  • “I treat this ‘GLEM trading strategy’ page as a computer algorithm – develop, add, adjust – but most important, qualify.”
  • All snips are from my own chart. The words and arrows on all the charts are written-in afterwards.

Clarification:

  • Probability: is about the belief in an alternative outcome, it is not about the odds.
  • Market cycle (MC) is broadly the recognition of a trend or trading range (TR).
  • Context is the picture the accumulation of 100 or so bars on the screen provides.
  • Setup: such as a second entry, a wedge and many more.
  • Price action: the indication through shape and length a single bar, a few or a group of bars provides.
  • R refers to reward/risk: (It’s worth mentioning here that actual R can be many times in my favour, but not worse than planned R, minus the spread).
    • 1R is a target at 100% measure.
    • 2R is a target at, not less than, 150% measure.
  • Green line entry measure (GLEM) (note: my GLEM is a measuring tool for trade entry, target and stop positions: but like all good tools its successful use depends on the options I take – basically, which bar(s), closes or wicks, I decide to measure).
  • Swing: is 2R.
  • Scalp: is 1R.
  • R is always used to determine price per pip/tick.
  • ‘Break even’ is zero loss.
  • Spread: is the difference between the sell and buy price (bid-ask or bid-offer) and defines us, in my view, as ‘retail’ traders.
  • ‘always in’ is represented by a price close that is beyond a change of premise point and may be with or against trend; the stronger the change of premise point (minor or major) the stronger the ‘always in’.
    • GLEM must be with the ‘always in’ direction.

Premise

A premise line can be minor or major. A major premise will (usually) also be identifiable on a higher time frame chart.

Spread

Spread is the difference between the sell and the buy price (also known as the bid and the ask price). In this USD/JPY example the difference between the 41.8 and 42.5 is 0.7

In FX (currency pairs) the spread is usually provided as indicated by the yellow arrow. In times of high volatility the spread price increases on many brokerage sites. The 0.7 spread may jump to, say, 1.5

Within the strategy half spread is mentioned. In this example half spread would be 0.35 (0.7/2 = 0.35) this is then rounded up to 0.4

Stop, entry and target (swing and scalp):

  1. From my GLEM decide on a stop-limit position
  2. Entry point is not less than 1R with respect to one measured move
  3. Set target at 1R (scalp) or 2R (swing)

An example of a swing target:

The success of a trade will more often than not depend on the placement of the entry. I consider each of these points before every entry:

  1. Trend or TR
  2. ‘always in’ direction
  3. GLEM
  4. Spread & distance 
  5. Context

Trend or TR:

The market is always in a trend (either a breakout or channel) or a TR. This is in regard to the 100 or so bars we are viewing on our screen. If we are trading the 5-minute bars, for example, then we are concerned about the market cycle that is evident on our 5-minute array of bars, this will often be in contradiction to the market cycle of a higher timeframe. Not that we ignore the higher timeframe, but we need to be clear which cycle our trading screen is showing, and then trade with the appropriate strategy for that cycle.

Always in:

See under ‘clarification’ above for a definition of ‘always in’. The ‘always in’ is a key aspect to grasp to be a successful ‘price action’ day-trader. The difference between trend and ‘always in’ with context is important too . For example, we may have a ‘always in’ trade against the trend for a scalp, or a ‘always in’ trade with trend for either a scalp or a swing, again depending on context. If I had a ‘always in’ trade with trend, I may hold for a swing; but in the same example if the context shows two pushes up within my observable trend (meaning what I can see on my screen and, normally, without zooming out) then I may only take a scalp thinking that the third push will be the last before a PB.

GLEM:

My GLEM is a configure of the Fibonacci retracement tool. But as with any tool, the success is in knowing how to use it. This comes with lots and lots of practise. Please note, however, that these are not Fibonacci numbers other than the red dashed lines, the 61.8% and 38.2%. These I simply use, under certain conditions, as entry and exit positions. The accuracy gained from my GLEM, if we measure the right bars, is regularly phenomenal.

Spread & distance:

Minimum trading distance means distance from entry to exit: for EUR/USD this may be 10 pips and USD/JPY slightly less. However, I’m not incumbent to a strict minimum distance rule but more to the understanding that my trade, in terms of entry/exit distance, is not restrictively influenced, in terms of cost, by spread.

Context:

By far the most difficult to grasp and is outside of this brief strategy detail. I would suggest all the works by Al Brooks (his 50 hours of videos and three thick volumes of books) as an excellent start.

Scalp example:

A scalp can include a PB on the timeframe traded. In this example, the scalp was an adjusted entry; this was done to achieve an acceptable trade distance and to make the trade more favourable in terms of reward and risk, achieving at least a 1R. An adjusted entry can be a PB to the 61.8% of the measured bar(s).

A scalp is defined as a 1R measurement from the GLEM. In the example below, we achieved more than 1R, but it is still a scalp. With the adjusted entry, the stop could have been repositioned above the previous high to make a 1R and provide a less vulnerable stop position.

A measurement may be made with the higher time frame bar in mind. Below is an example of a possible third ascending push, therefore a scalp (rather than a swing) was measured. Bars 1,2 and 3 are 5-minute bars and represent the open and close of a complete 15-minute bar. This can afford a better measurement depending on context. Entry could have been at any point, but not above the close of bar 3, to provide an acceptable traders equation of not less than 1R. The GLEM, in this example, simply determines a target.

Swing example:

A swing can, and usually does, include a PB. However, in the example below, and on these 5-minute bars, the swing went to target without a PB. Swing criteria is determined by measurement and not whether there is a PB or not.

GLEM, scalp and swing:

  1. GLEM, with 5-minute bars, can include:
    1. a PB bar if represented within one 15-minute bar
    2. bars from more than one 15-minute bar as long as no PB 5-minute bars are within the measurement
  2. GLEM can be re-measured after entry to include a subsequent bar if the subsequent bar is within one 15 minute bar, any PBs are then considered with regard to the revised measurement.
  3. Entries are either for 1R (scalp) or 2R (swing) from a single GLEM:
    1. from another (independent) GLEM in the same direction, another trade can be entered while the earlier entry is still open
    2. not more than two open positions at any one time
    3. with two entries open, and one entry is break even, then the other entry is also put to break even

Scalp can be taken when:

A scalp can be taken at any part of the cycle, but a scalp-only is allowed when:

  1. TR.
  2. PB against trend.
  3. late in a trend.
  4. When a swing or scalp is already open, a scalp can be taken.
  5. Prior to important news, where insufficient time to run a swing, scalp entries only.

Swing can be taken when:

  1. If a TR is not clear, and context allows, I take a 2R swing target.
  2. Not more than one swing to be open at any one time.

Early entry:

An early entry without an actual GLEM – which is also an entry on a signal rather than an entry bar: (note: such entries, by definition, have a lower probability than an entry with GLEM)

Of note: the GLEM above was correct for a scalp rather than a swing as a zoom out, or a look at a higher time frame chart, shows that this is the third measured ‘bull’ push so a PB is probable. 

  1. An early scalp or swing, taken from a signal bar (rather than an entry bar) from a set-up, but before the ‘always in’ direction is established, can be taken prior to an anticipated momentum move in the direction of an anticipated ‘always in’ trade.
  2. Measure risk to one pip beyond a change of premise (a major change of premise is preferable).
  3. An expected GLEM is then drawn to determine estimated target.
  4. Once an entry bar(s), that satisfies GLEM, forms – remeasure R and adjust the trade accordingly. (note: the remeasure of GLEM, once GLEM is confirmed, requires some flexibility in the initial R).
  5. I do not take early entries on double tops/bottoms that are 20 bars or more apart, I wait for an entry bar.

Spread on entry (swing and scalp):

It is through the spread that a broker makes money. To my mind, it is like the casino taking a small percentage (say 4%) from lots of customers. I reduce spread cost at entry by entering a trade a half-spread beyond my desired position and thus achieve an entry at, or near to, my desired position – a neutral entry. However, I adjust target and stop so I pay the half-spread. Which means I always have a negative difference of a half-spread.

  1. From my, not less than, 1R entry point:
    1. I enter for a neutralized spread entry and if:
      1. entry bar is on PB, and is too close to my entry point for a on-limit entry, then I take an on-market entry with best judgement of half-spread allowance
      2. entry bar not on a PB, or on PB but not close to entry point, then I take an on-limit entry set at the entry point (note: entry on the unintended side of the trade is possible if we’re not watchful)
  2. GLEM that is measured from open and close (not wicks) I can enter on market if actual entry (with half-spread) will not be beyond the close.
  3. GLEM that is measured from wicks (trend only and rarely done): I can enter on-market if actual entry (with half-spread) will not be beyond the wick.

The example below shows a PB entry at the 61.8% mark. A subsequent bar closed lower but not below the 38.2% mark, so hold the trade. This was a scalp only due to the confluence of a channel line, not shown.

Of note: with lots of practise it is acceptable to enter before the current bar closes. However, this can lead to a very unfavourable entry. If I’m happy with context then I may enter before the close in the following circumstances (advanced only):

  1. Within one-minute to go, and before close of a 5-minute bar, ‘always in’ established, with trend and a TR is not clear.
  2. Early in a breakout bar, but realise that most breakouts from TR’s fail.

Breakout bar

Stop is at the start of the breakout bar (in the example above I included the small bar before the breakout bar as it closed slightly above the previous high), adjusted by at least one pip and half spread. However, for the breakout bar to be valid, my GLEM has to still provide a suitable (validation only) stop from the zero% measurement.

A breakout bar is not defined by size but by context. A breakout bar defines premise for that moment. Many fail to follow through. Watch carefully for the signals provided under ‘management of my trades’ and trade accordingly.

EMA

The EMAs’ drawn are 21, 55 and 200. These are drawn to provide confluence only and can be useful with confirmation of trend. Depending on the time frame of the chart, other EMA’s may be considered, such as the 100. I do not trade from an EMA in isolation.

Management of my trades

The following are guidance only. If we are happy with context we can say, “thank you very much for the rule, but I’m applying a bit of flexibility right now in favour of what the chart is telling me, overall”. However, if we are uncertain, or the chart is not clear, then these rules help minimise our number one objective of ‘do not (unnecessarily) lose money’.

Exit:

(out of the money) when to set break even, 50% loss or on market exit:

Each trade is to have a stop and limit order set. I normally enter from the chart with a set stop and limit order for the particular market and then, once I’ve entered the trade, adjust the stop and limit positions to my exact requirements. Exits detailed below often give me a measured loss, that I accept as part of the trading experience, or (better) a break even opportunity:

With Trend:

  1. PB negatively closes in relation to the entry bar, having first closed positively in relation to the close of the entry bar, then: 
    1. break even, or
    2. if (negative) PB continues exit on-market at the 1st close that goes against a (positive) PB attempt at break even
  2. If the first PB bar is beyond the 38.2% PB:
    1. exit at the 61.8% PB on my GLEM
    2. if close is beyond a change of premise, then exit on-market
  3. If a PB bar, other than the first PB bar, closes at or beyond the 61.8% PB on my GLEM, then set break even.

In the example below, the PB is below the GLEM of 38.2%; therefore, if we’re not happy with context, we set our exit at the 61.8% which provides a break even if entry was at the 61.8% or a small profit if early entry was taken.

TR or against Trend:

The same as with-trend, with the addition of: If close is beyond 100% PB on my GLEM exit on-market.

(out of money) breakout bar exit:

Exit from a breakout bar (on my GLEM the stop is one pip plus half spread beyond my measure point) with a 38.2% or more PB on my GLEM, with either a close or wick only:

  1. set exit at 61.8% PB, or
  2. (if price action favourable) exit at break even

The observant of the ‘(out of the money) breakout bar exit’ example below will notice the possible exit criteria on the close below the 100% mark, after a positive close. A break even was acceptable on bar 2. Not taking that, the loss, if entry was at the 100% mark, must be taken at or about the 61.8% mark once the 38.2% mark was breached.


(In the money) when to exit or set break even:

  1. Strive to exit on-limit, at target, less half-spread.
  2. Exit on market when:
    1. a move to target can be considered as ‘close is close enough’
    2. price action indicates a change in ‘always in’

A faltering early entry and when to exit:

Signal bar only, no entry bar, and with an estimated GLEM this entry is low probability. 

Exit at break even on an early entry (signal bar only) if: Close is (negatively) beyond the open of the signal bar but not beyond a current change of premise.

Exit on market on an early entry (signal bar only) if: Close is (negatively) beyond the open of the signal bar and beyond a current change of premise.

Management of a scalp, as it happened:

Considerations

Scalp:

A 60% success rate is required for this strategy to be profitable:

  1. A scalp is a minimum of 1R.
  2. I enter TR scalps from the first third of the TR, the first third is determined by the direction of the trade.
  3. Do not move scalp stop to breakeven.
  4. I allow PB’s and assess them when the PB bar has closed.
  5. As the trade progresses a new GLEM can develop and traded. The rules for the new GLEM apply to the open scalp.
  6. An adjusted entry is allowed (I consider this an advanced trade) to achieve a minimum distance; the adjusted entry is 61.8% PB on my GLEM.
  7. If I notice a mistake with my entry, unnoticed wedge for example, I look for best out.
  8. If 11 bars since the entry (at the close of the 11th bar not including the measured bar), I set break even.

Swing:

A 40% success rate is required for this strategy to be profitable:

  1. A swing is a minimum of 2R.
  2. I move swing stop to breakeven after a premise level is formed between break even and target.
  3. New premise points, and therefore possible change in the ‘always in’, are continually generated as a trade progresses – I take breakeven, or best out available, on a ‘always in’ direction change.
  4. As the trade progresses a new GLEM can develop and be traded. The rules for the new GLEM  (a scalp in this example) apply to the open swing.
  5. As new bars are generated I measure with my GLEM and adjust (albeit rarely and reluctantly) swing target and stop – adjustment of stop being in direction of trade only.
  6. If I notice a mistake with my entry, unnoticed wedge for example, I look for best out.
  7. If my swing entry goes on so long I’m now concerned about a significant news event I set break even or look for a revised exit.
  8. If 11 bars since the entry (at the close of the 11th bar not including the measured bar), I set break even.

Scaling into a winning trade

I will only scale-in to a winning trade when:

  1. The entry makes no more than a total of two open entries at any one time.
  2. The scaled-in entry stands on its own merits, independent to the already open entry in terms of:
    1. trend or TR
    2. ‘always in’ direction
    3. GLEM
    4. spread & distance
    5. context

Scaling into a losing trade

Usually not taken. However, the following scenario is a consideration: I’m in a swing that, contextually, I get wrong. The trade has gone against me and I’m looking for an out. A scalp, that in itself is good contextually, and that can be entered to minimise the probable loss from the swing. (I consider this advanced trading).

How to calculate size traded per point

Constant amount, variable risk

For simplicity, some traders like to trade a constant amount (therefore variable risk) for every trade, regardless of distance. A 10 point trade (usually a minimum) would represent the same risk as a 30 point (or pip) trade: say, £10 per point in each case making the risk, in this example, £100 and £300 respectively.

Eyeball

Other traders realise that a variable risk is too, well, variable. they trade a constant amount per trade, with an ‘eyeball’ adjustment to control risk when entering, for example, a far-away from stop breakout bar.

Cost rule (example is 5-minute chart USD/JPY)

The ‘cost rule’ reduces amount traded, and therefore risk, for both the smaller and larger trade distances and provides maximum amount traded for the most favourable median distance. Most favourable varies for each market. USD/JPY for example may have a most favourable trade distance of 25 points (or pips) therefore we use a ‘cost rule’ of 50 (25 x 2 = 50). Trading low for a 25 point risk the calculation is: (50-25)/4=6.25 in this example we would trade with £6.25. The same example but trading medium is: (50-25)/2=12.5. And, finally, the same example but trading high is: (50-25)/1=25 (or use any divisible number that suits our risk requirements).

The important point is that risk reduces on a logarithmic scale down to zero either side of median. With an early entry, use the ‘mean’ amount per point. In the ‘trading low’ example above the mean is £6.25.

 

One thought on “GLEM Trading Strategy

  1. Great strategy. Good to refer back to every so often. “It helps the ego but rarely the pocket”, funny how it often seems easier to overcomplicated things. The best strategies are always the simplest.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s