Explanation of a method to minimize stop-losses

Good evening everyone.

My name is Ku (Kuu), an amateur trader.

Recently my day job has been忙しくて, so I couldn't write articles.

I recorded a video two weeks ago, but transcribing it took too long, so it became today.

I apologize to everyone who has paid for Invest Navi+.

With that said, let's get to the main topic.

The first half is an article for general readers about setting stop-losses.

Currently, I am offering five trading rules as a beginner-friendly method using indicators such as “Ajinitchi” and “Nanairosky”; among them are stop-loss at 50 pips, take-profit at 50 pips, and a trailing stop of 10 pips.

These values are preset in Ajinitchi EA by default.

If you are not using Ajinitchi EA, you need to set them yourself at entry.

And the greatest feature of entries based on signals is that for long signals you confirm pullbacks, and for short signals you confirm rallies.

Once you confirm those pullbacks or rallies, you place a stop-loss in the same direction as the signal as a trading rule.

Speaking of which, today I received a record or review from a user of Ajinitchi who traded according to this rule, so I’d like to share it with everyone.

At present, it hasn’t appeared in Gogojungle’s Ajinitchi indicator review section, so I’ll copy and paste the content emailed to me.

The content was as follows.

A new review has been posted for the Hybrid FX Trade System [Ajinitchi].

I bought it because it reportedly doesn’t generate many up-down signals in a ranging market.

I thought it would be easy to grasp the market flow by shrinking the chart.

One week of demo trading, monitoring 12 currencies, with TP50/SL50, trailing stop 10, I verified it.
There were 19 entries: 16 wins (237 pips), 3 losses (-160 pips).

I had set the stop-loss to 50 pips, but with discretionary judgment I could have cut it even shallower, so in reality I think more profits would have remained.

Although the stop-loss is 50 pips, there is a possibility to cut it earlier based on the discretion, so...
In practice, more profit would likely remain.

In a ranging market, signals may not occur often, which is indeed a factor suggesting selling pressure, but there is no perfect no-dillusion in ranges.

As a method to cover that, I have written paid articles for Invest Navi+ about correlation and anti-correlation.

Nevertheless, it is very encouraging that such positive results can be achieved with just these five simple trading rules, without these techniques.

Reviews like these are a source of joy for a developer and motivate future version upgrades.

In fact, I am currently progressing with a version upgrade for the Ajinitchi indicator.

The logic is that the five trading rules’ pullback or rally must be recognized by the indicator before the signal is confirmed.

In other words, whether to add another filter to Ajinitchi’s current indicator is under consideration; however, the programmer says that the current system already confirms signals using several complex filters, so adding one more filter would be too difficult...

Whether it can be done is not yet certain, and it is under review.

There are various issues, so it is not yet clear what will happen.

There is another project underway as well.

That is a fully automated trading prototype of Ajinitchi that automates these five trading rules as an Expert Advisor (EA).

As with the reviews you provided, if the logic’s accuracy is high, it would be only natural to automate it as an EA.

For discretionary traders, you can manually enter or semi-automatically exit with “Semi-Discretionary Ajinitchi EA,” and for those who prefer full automation, there could be an “Ajinitchi Auto Trading” EA that operates on a VPS using these five rules.

Of course, this would only be available to users who are using the Ajinitchi indicator.

If you purchase the indicator at the same time, you will likely add the auto-trading EA after purchasing the current indicator.

Since I do not program myself, it would have to be outsourced, which means a fee.

Currently, users of Ajinitchi will be offered at a very affordable price, of course.

Well, at this stage, I cannot say more.

Even after completion, it will take some time to backtest and forward-test, so it may take a little while.

Nevertheless, I would like to try Ajinitchi full auto trading, one of the things I want to do.

Now that the preface has become long, here is a video on minimizing stop-losses.

As mentioned in the initial user review, this is the method to minimize stop-loss.

Stable trading performance requires a stable method, and a stable method can be visualized and quantified; otherwise, the term stability cannot be used.

It should yield profits over a long period.

Now, I’ll explain a little using still images.

The lines above and below the purple candlesticks are the high/low auto-drawn lines.

The logic is simply Dow Theory applied to the method, so it relates to the five trading rules mentioned earlier.

In other words, it’s an applied version of the five trading rules.

The five proposed trading rules are for entries, but if you think about them upside down, they’re also a stop-loss logic.

New highs or lows in the same direction indicate trend continuation.

Among the five rules, Rule ② is especially important.

And the stop-loss minimization is based on the same rationale as this rule.

According to Dow Theory, a stop-loss for a long position occurs when the price falls below the most recent low, and a stop-loss for a short position occurs when the price updates the most recent high.

The line of recent highs/lows can be substituted with MT4’s default ZIGZAG indicator, or with an indicator that automatically draws high/low lines, like the one introduced here.

Ajinitchi does not allow changing the high/low parameters; it uses the average of 48 candlesticks.

As shown above, since there have been no new highs, the 48-candle average declines, and the high line moves down like a staircase.

There are two ways this downward movement of the high line can occur.

One is, as described, the average declines and the high line follows downward.

The other is when price falls below the low line, causing the average to drop and the high line to move downward.

Similarly for the lows rising or falling.

In the middle of the figure, the high line being pushed down is followed by a new high breakout of the candlesticks beyond the high line.

The red Conversion Line is not broken down, and the highs continue to rise (center of the figure).

Subsequently, the low is updated and the low line moves downward (see the lower figure).

In this case, because the first low was followed by a lower low, you would need to re-update the low line at that time and recognize the loss, meaning you must close the position.

In other words, positions are liquidated based on subsequent lower lows.

Definition of consecutiveness is to revert, the candlestick body stays above the red Conversion Line, then falls again and updates the low line, at which point you stop out.

Regardless of where you entered, when using Dow Theory as the logic, you stop out after the first new low.

In reality, the price fell more than 30 pips after this.

Then it rises again, and while backtesting it makes you think, “If only I had held on a little longer, I would have made more money...”

If you face situations where you cannot endure unrealized losses, you will inevitably experience a forced liquidation wiping out almost all funds in one trade.

From 15 years of FX trading experience, this is particularly relevant when leverage is high and capital adequacy is tight.

Thus, when the long position is held and prices begin to push the lows lower, during the subsequent rally you can move the SL lower or set a new stop to minimize losses down to the initial 50 pips without waiting, based on this line.

That concludes today's topic: how to minimize losses.

Thank you very much for watching until the end.

From here, the content becomes a paid article for Invest Navi+.

If you are interested, please try subscribing to Invest Navi+ via the link below.

Invest Navi+ (the first half is free articles, the second half is subscriber-only articles)

https://www.gogojungle.co.jp/finance/navi/series/1543

Secret techniques for the paid Ajinitchi indicator purchasers are here. [Password required]

https://www.gogojungle.co.jp/finance/navi/series/1565

The subscription starts with a free first month, and from the following month a subscription fee of 2,980 yen applies.

If you cancel within one month, there is no charge, so you can read for free for one month.

Updates are made at least once a month with new articles.

A new, restricted video for subscribers will cover topics such as the following.

MT4 Indicator “Ajinitchi” sale location

https://www.gogojungle.co.jp/tools/indicators/36476

Top tool for discretionary traders, “Ajinitchi EA” sale location

https://www.gogojungle.co.jp/tools/indicators/37373

From here on, the content becomes a [Members Only] paid article.