Following the rules

I’ve had a few queries from members about risk levels and different profit targets on Heikin Ashi Mountain, so thought I’d run through the way I trade (and why).

One of the (many) things that irritates me is when traders promote a set-and-forget, rules-based system to other users … but then don’t follow their own rules. I expect you know the kind of thing I’m talking about – fuzzy profit targets, changing rules on the hoof, and that general feeling that someone is just making it up as they go along!

It infuriates me when others do it … so I’ll always follow my own rules to the letter.

So getting back to Heikin Ashi Mountain targets …

As laid out in the manual, there are three distinct profit target scenarios for our trades:

Risk 2: 1 Reward – this means that our profit target would be half the distance to our stop level. I do NOT recommend using them method in isolation, it simply doesn’t give our trends room to stretch their legs.

Risk 1: 2 Reward – this means our profit target is 2x the distance to our stop level. Back testing shows this to be the most profitable way to trade. With recent volatility in the markets, we’ve seen a number of trades easily run to their full targets, but this isn’t always the case – and I appreciate that psychologically it can be tough waiting for the big wins, which is why we have a compromise option …

Combined method – This uses half stakes on 2:1 method and half stakes on the 1:2 method. Note that you’re NOT increasing your risk, but taking two trades for every signal, with half stakes.

Which method do I prefer?

My trading personality is at the more aggressive end of the scale, and I’m fairly relaxed about drawdowns because I know that this trend-following method will deliver long term – therefore, I’m naturally drawn to the more aggressive Risk 1: 2 Reward method.

However, in my trading account (which I report updates on in my emails to you – and sometimes include screengrabs of my results) you’ll probably have noticed that I’m trading the combined method. The reason for this is that I want to provide Heikin Ashi Mountain traders with a full track record for both methods.

So, if I’m reporting a +2% gain when my trade runs to its full target, that’s because I’m using a half stake on this trade (and will have already bagged a 0.5% profit when it hit its first target). If you’re trading the more aggressive method, you can expect to make +4% when a trade hits its full target.

What I’d urge you to do is to consider which is the best trading method for your own trading style and approach to risk. Just because I’m using the combined method doesn’t mean that’s the right one for you.

I hope that makes the choices a little clearer. If you’ve any questions, just drop me an email.

Mark Rose