DIBS Part 2

Peter Crown’s Word of Wisdom

Method – DIBS

My Simple Method: Directional Breakouts

I traded simple, robust directional breakouts breakout setup that I had to wait for. I probably have taken more than 70,000 individual trades. It’s not hard to do when you have a unique vantage point with limited risk

Definition of breakouts: @ high price: High plus spread plus one pips. @ low price: Low minus one pips. Range is low minus one pips + high plus spread plus one pips..

The Best Market To Buy: “Hot Hand” market

Trading the strongest/weakest market is actually simple. For example if you saw the EU was up more proportionately than the UChf was down. This was because the UChf wasn’t even a down day. It’s not down relative to last weeks close. The EU was up, up an away. This is the market you Buy.

Definition of down day: Current price is below the today’s open.

Definition of up day: Current price is above the today’s open.

Definition of long term trend up: Current price is above last weeks close.

Definition of long term trend down: Current price is below last weeks close.

The most important trading rule

The first thing you should learn, when you are ready to actually make money and stop bleeding is:-

Only be willing to buy a market if it is up on the day.

Only be willing to sell a market if it is down on the day.

So obviously, it would logically follow that the currencies which are up more are better buys and the ones down more are the better short. So if you get a buy setup forming on two strong currencies, take the trade on the one up most on the day.

This actually means that you never go short a currency unless it is "down" relative to yesterday's close; or go long for any reason unless the market is "up" on the day.

Review for yourself how many large losses you could've eliminated from your past trades if you followed these rules. At the same time, I am certain you would have eliminated very few of your biggest winners by doing this. And the power of this simple concept still amazes me.

I'm sure this sounds simplistic to everyone, and maybe this stuff is obvious to you all, but I doubt it. How many times do you find yourself buying a weaker currency instead of the stronger one, thinking that the weaker one "has" to catch up, or the stronger one has already moved as much as it is likely to already.

Always take buy setups in the strongest daily markets, always take sell orders in the weakest daily markets.

My Simple Method

And yes, I have come up with very simple methods to exploit this. A breakout of inside bars on hourly charts is one very useable technique I use a lot. Once you know which markets to trade, and in which directions--- it is a pretty simple job. After all, trading is just risk control. Unfortunately it can take a while for us to learn to use the simple tools we have available.

Definition: Hourly breakouts refer to hourly chart.

Definition of know market to trade: Shot Hand on Strongest versus Weakest currency.

Definition of direction: Current price relative to open price at start of day.

Risk Control: Free Ride Strategy.

The chart I am attaching is a snap of the hourly GBP/USD for this week. The white dotted lines, which are 24 hours long, start at the close of the previous day, at midnight. I am only looking to go long on a breakout (blue line) of an inside bar if that breakout is above the previous close. Likewise, I am only interested in selling a downside breakout (red line) if the breakout is below the previous close.

Definition 24 hour long is from 1.00 est to next day 1.00 est.

You will notice that almost all of the breakouts were significant enough for you to make a very good shorter term trade, some you could have trailed most of them with a form of trailing stop (moving average) and still be in hundreds of pips after entry with a small stop at the other side of the inside bar.

Important Tips: You want to be particularly interested in the inside bar breakouts which meet the conditions early in the session, namely the first 9 - 10 hours.

Note: A method is pretty hard to trust if it only works on one timeframe. For the 4hr, 6hr, 8hr hour or daily charts you check to see if you are up or down versus last week's close. Take buys if you are above, sells if you are below. Depending on how long term you is willing to be in trade and select the timeframe. Personally, I am not willing to remain in a trade 1 minute longer than absolutely necessary if it is going against me, but I'm willing to hold for months if a trade is going my way in a larger trend. Swings and all…You do get used to them after you start collecting some gargantuan profits.

I definitely don't know everything; in fact I know very little for sure, and even less the longer I live. When I'm wrong, I correct myself quickly with no ego involvement. Hesitation has little reward in life and none in trading. In trading I stay wrong for only brief periods of time and encourage you to act the same.

When you want to buy, there is someone, for some reason--- willing to sell.

Breakouts are terrific entries and usually simple in practice. I've found directional breakouts trading are "elegantly simple" and in trading the simple is the best. The first 6 - 9 hours of the trading day are the most powerful, so the best trades are usually early in the day..., buying breakouts of inside hourly bars if the prices are "up" on the day, and selling downside breakouts of inside hourly bars if the prices are "down" on the day. ("early" in the day, meaning within 6 - 7 hours of the open.)

These types of trades are simple, low-risk and potentially high reward. The only problem is you do have to be conscious when they happen so you can take the trade!

I personally took every one of the indicated breakout trades-- sells or the buy, obtaining at the bare minimum a 1:1 reward/risk ratio per trade, and on most of them, a 2:1 or 3:1 reward to risk ratio.

This is my latest money management strategy for DIBS:

First Half: reward/risk ratio 1:1 per trade – to allow free ride on second half.

Second Half:

Reward/risk ratio 1:2 per trade (lock one pips) if no support from long term trend (based on weekly closed)

Reward/risk ratio 1:3 per trade (lock one pips) if have support from long term trend (based on weekly closed).

Only for GJ on Second Half:

Closed 2/3 of second half position and keep reward/risk ratio 1:2 per trade (lock one pips) if no support from long term trend (based on weekly closed)

Closed 2/3 of second half position and keep reward/risk ratio 1:3 per trade (lock one pips) if have support from long term trend (based on weekly closed)

Keep 1/3 of position for free-ride….

What I like about these simple trades is the tendency to be able to cover your risk quickly by exiting half of your position at 1:1, allowing you to hold the remaining position with the initial stop (the other side of the inside bar) as a virtual "free trade".

In a larger term time frame you can stack on quite a position over a period of a few weeks with these "free trades". If the market quickly goes against you, you have the stops already in place. Then it is back to work building these structures up again until a huge move which is your payoff move of thousands of pips on large size.

Just for reminder…

I only believe that 01:00 EST is the only official day's open, I've found that you are always better using an opening time period that fits closely to the normal biological tendencies of the greatest amount of people who control the money in the world.

As traders we have no idea if a day will be an "up" day or a "down" day. However, if you know what the opening price of the day (and the closing price of yesterday) is, you know at any moment if the price is "up" or "down" vs. yesterdays close.

RULE:

For the "Daily IBar Setup" or DIBS Method--- Only take an upside breakout of an hourly inside bar if the breakout price is higher than the day's open and downside breakouts of an hourly inside bar only if the breakout price is lower than the day's open.

And as mentioned a number of times before, the resulting trades have a higher potential if they take place in the first 6 - 9 hours of the day.

Basically, it just a simple case of waiting for an inside bar to form, then placing an order to the topside (on an up day) or downside (on a down day) and wait for it to be filled

All stops on longs placed just below the low of the inside bar and vice versa for shorts. There is no need to be discretionary with the stops.

However, every trader should learn to get discretionary with how they handle the profits. That is one of the beauties of the DIBS method. The trades happen often enough that the opportunities exist for you take similar trades over and over again. If a trader gets comfortable with a take-profit concept and a decent trailing mechanism, incredible things can happen because of the operation of time improving the value of the surviving trades.

DIBS work on various timeframes but I personally would never use it for less than 1 hour bars.

Most of “free trade” will be stopped out. That is the result of many of these trades, but definitely not all. So if you enter these trades in the direction of a longer term trend, and trail a number of them, the position you can accumulate over a few weeks and months can be tremendous. So are the profits!

We use simple definition of trend here… i) We determine weekly trend by looking at weekly closed and; ii) We determine daily trend by looking at the open of the day.

A large percentage of the best trades do happen while most of America sleeps. What is good about the DIBS method is that after you get entered you can usually go to sleep. Either the trade will go 1:1 (or whatever your target figure is for 1/2 of your position) or it won't and you will get stopped out.

The trade is simple and perverse at the same time. It also gives some of the best risk/reward trades possible and always ensures that you are with the daily trend. If you are also in tune with the weekly and monthly trends is when it gets exciting!

Trading during the active hours is the key to the best trades.

If the trade fails, ie: gets stopped out – no problem. There will be others that will work.

I will use the daily 20 period moving average as a trailing stop for free ride trade on GJ.

The best pairs to trade

The European pairs seem to work better than average then. The UJ trades just fine using DIBS and I don't trade the Aud/Usd that much. What follows is the likely explanation. Currency pairs that have more money interest behind them move more. And they will move more when the locations that house the money have daylight.

So, when the first major money center opens, Britain and Europe-- that is when the viable currencies get their boosts, up or down. As the sun moves to the Americas the final major thrust of money flows into monetary concepts, either bullish or bearish.

As a simple rule of thumb, look at the spreads to trade a certain pair. If it is wide there isn't as much interest. That doesn't mean that it can't be volatile, but the risk may well overwhelm the potential. I know that the main currencies are these: Eur/Usd, Gbp/Usd, Usd/Chf, Usd/Jpy. I trade them almost exclusively. I will occasionally plant long term trades in Gbp/Jpy to take advantage of carry.

Something to think about that…

No one forces anyone to trade any style or quantity or system or timeframe. So anything or any method you chose is by your own discretion.

I trade to be on the winning side, and to make money, period. When you trade, it’s not because for you to see the elegance of a trading method. The only elegance I care about is a much larger elegant account after my efforts. I will use any true advantage I can get, inside information, perfect mathematical tipping points in the direction of where the market is destined to go (my usual edge), bad traders, and any news from major banking institutions (when they are forced to tell their positions it gives you a HUGE edge).

All winning traders that I know of are systematic in their trading. Either they trade a "system" or they trade a market concept virtually perfectly over and over.

My edge was a longer time frame. At the very least, DIBS makes sure you are with the daily trend, which means that you have a good chance of being in the direction of the main trend because the market should go up a higher percentage of the time when the trend is up and the market should go down a higher percentage of time when the trend is down.

Some choose to trade DIBS only as a daily trade concept, taking all trades it offers, long or short according to the concept and they exit big daily winners at the end of the day.

Others extend their potential by virtually turning DIBS into a swing trading method---by holding on to their winners, only getting out on a following day if there is a DIBS reversal trade. You would be surprised how many times you can get into a DIBS trade at the beginning of one day and not get any reversal DIBS trades for many days after. It is usually due to major developments hitting the market. DIBS traders are natural profit recipients of one-way market actions. That is when your tireless actions of taking your low risk trades over and over get paid off, when the "world" now wants the position you put on with a tiny little risk days before.

Only action gets rewarded, even if your action is handing off what you "know" to someone else who will act.

I am sad to say my experience has been that most people in forum environments just want something for free or for someone to do all the work for them (for free) and aren't willing to put forth the real work necessary to get the benefits. So this posting adventure reaffirmed to me that it is likely a waste of time for me to continue posting.

Key Points Peter Crowns:

"Buying breakouts of inside hourly bars if the prices are "up" on the day, and selling downside breakouts of inside hourly bars if the prices are "down" on the day; these types of trades are simple, low-risk and potentially high reward. The only problem is you do have to be conscious when they happen so you can take the trade!"

"What I like about these simple trades is the tendency to be able to cover your risk quickly by exiting half of your position at 1:1, allowing you to hold the remaining position with the initial stop (the other side of the inside bar) as a virtual "free trade".

"I've found 'elegantly simple' in trading is best."

"Simple works in the markets, because they are very simple. Most traders complicate things incredibly. Because their minds probably can't handle the truth yet that the markets basically feed where the orders are."

"Win rate is not the most important factor in finding a good trading method. Profit potential/risk is."

"The best trades for us are the ones that don't give you any retracement after the breakout"

"The trade is simple and perverse at the same time. It also gives some of the best risk/reward trades possible and always ensures that you are with the daily trend. If you are also in tune with the weekly and monthly trends is when it gets exciting!"

The DIBS method is one of the surest "unknown" methods available for making money in Forex. I wish I had invented it. Having traded the concept personally for more than 15 years, I know how good and also how irritating it can be. As you mentioned, trading during the active hours is key to the best trades. It is hard to beat the combination of low risk and high probability. Yet it stays in obscurity, which is the way of all good methods."