Trading Strategies Explained

Ever wondered what Huck, Cyclopip, Pipcrawler and I mean when we talk about using 100/1/1 STA, WATR, or DATR?

What the heck is the STA Strategy?

The Stop-Trail-Add (STA) strategy is basically a scaling technique used to maximize profits while minimizing risk. The idea is to take advantage of a favorable price action by adding to your position, but still limiting the risk by moving your stop loss. It is usually expressed as the S/T/A ratio. (ex. 100/1/1, 50/2/1, etc.)

What do the three letters stand for?

When you use the S/T/A, you’re really just expressing the ratio of

1. The size of your initial STOP loss in pips;

2. The size of your TRAIL as a ratio of your original stop; and

3. The units that you ADD as a ratio of your original position size.

For example, a 100/1/1 STA means that you initially have a 100-pip stop, a trailing stop 100 pips wide, and you’re adding the same amount of units as your initial position size every 100 pips. Consequently, having a 50/2/0.5 STA means that you initially have a 50-pip stop, a trailing stop twice as wide (100 pips), and you’re adding half the size of your original position size every 100 pips.

How do you determine the size of your STA?

Currency pairs have unique behaviors so the size of the STA should be appropriate for the pair you’re trading. You don’t want to get stopped out too early with an uber tight STA, knowing that you could’ve caught the move with a larger STA.

One way to determine your STA is to experiment with the pairs that you usually trade and keep track of the STA sizes that would’ve profited. Through consistent and deliberate practice that Dr. Pipslow always recommends, you’ll be able to gauge which STA works for your favorite pairs.

Another way to determine your STA would be to use the pair’s average true range (ATR). My trader buddies use a fraction (say ½ or ¼) of the pair’s ATR as the size of their initial stop and trail it by the same amount. Of course, this also depends on whether you’re in a day trade or a swing trade.

Wait a minute. What is an ATR?

As the name implies, the ATR measures the pair’s usual range based on the highs and lows of previous price action. It comes with a parameter X, which determines how far back on previous price action you’ll go. For instance, if you’re using ATR (10) on a daily time frame, the indicator will give you the value for the pair’s average range for the past 10 days.

ATR can also be used to determine support and resistance levels (just like pivot points) for the day or the week. In fact, I use the daily and weekly ATR a lot in my trading, especially when they line up with psychological levels or previous highs and lows.

How do you calculate the daily and weekly ATR?

It’s really simple. Just take the cube root of the differential between the factorial of the highs and lows… I’m kidding! You don’t have to worry about the calculations since there’s an indicator that would churn out the figures for you.

You just have to make sure that you know what the ATR is measuring and what the parameter stands for, and then apply that ATR to the appropriate time frame.In my case, I use the ATR (20) for both daily and weekly charts.

To get the DAILY ATR (DATR), I get the ATR (20) value on the DAILY time frame and divide it by two. I add this figure to the DAY open price to get the top of the day’s range and subtract the same figure from the DAY open price to get its bottom counterpart.

For the WEEKLY ATR (WATR), I get the ATR (20) value on the WEEKLY time frame and divide it by two. I add this figure to the WEEK open price to get the top of the WEEK’s range. Then, I subtract that same figure from the WEEK open price to get the bottom of the WEEK’s range.

When is it ideal to use the STA?

Since the STA strategy is about adding positions for every X number of pips, it is best used in a TRENDING environment.Here’s an example from my Best Setup of the Week trade:

AUD/USD Trending STA

In the AUD/USD chart above, I used a 100/1/1 STA and closed it at .9700 for a 21:1 reward-to-risk trade. If I hadn’t taken profits manually though, I would’ve ended up with only a 14:1 risk ratio!

Now let’s take a look at the STA applied to a RANGING environment.

USD/CAD Ranging STA

In the USD/CAD chart above I used a 50/1/1 STA. I added another position at .9850 after shorting at .9900, but I got stopped out when price went back up to my adjusted stop loss at .9900 and hit the trailing stop on my second position (now around .9880). I ended up with a 30-pip loss. Yikes!

There you have it my friends! Both STA and ATR explained! You’re gonna have to do your own experimenting to get comfortable using this strategy, but just give me a shoutout if you have any more questions on STAs or any indicators. I’m always available in one of my pages below!

@Happy_pip Twitter
Playing with Comdolls Facebook page
Happy Pip Comdoll Corners
MeetPips.com

Chips, dips, and many pips!

Happy time

39 comments

  1. yh

    Hi Happy Pip, May I know the reasons why you use ATR (20) instead of ATR(14) or ATR (10)?? and why divide by 2 ?? =).. *Happy Trading*

    Reply
    • Happy Piphappypip Post author

      Hey yh!

      I personally use ATR (20) because it represents 20 trading days (1 month) when I use it on the daily chart. I also divide ATR by 2 because half an ATR usually represents the pair’s move in one direction.

      But that’s just me. The strategy has worked well for me and my strategy. It doesn’t necessarily mean that you should use it though. You should try our other settings! Are you using different parameters? :)

      Reply
  2. Steve Grycko

    I am confused about your USD/CAD example.  If you open your #1 position as a Short at 9900 and then double  it  at 9850, then the average is 9875.  Plus the 50 pip trailing stop made the TS about 9890 with that continued down to 9840 or so.  Then you should have hit the TS at 9890 for a pip loss of 15 pips and a USD loss of 30 dollars.   You say a Pip loss of 50 pips.  I think you meant 50 dollars and 25 pips and you left out the fine details.    Yes No.. or what? 

    Reply
    • Happy Piphappypip Post author

      Hey Steve!

      Thanks for spotting the trailing stop bit on my USD/CAD example! I already changed the image and text to reflect a 30-pip loss assuming that price went down to .9830. Hope you’re having luck with this strategy! :)

      Reply
    • Happy Piphappypip Post author

      You’re welcome!

      For those who are wondering, this post is inspired by this Best Forex Friend (BFF) of mine who asked  about the STA on my Facebook page. Keep ‘em questions coming! :)

      Reply
      • Happy Piphappypip Post author

        Hi! Is this comment for me or for my friend Digitalgypsy5720? In any case, we’d be happy to help! Do you have specific questions? :)

        Reply
  3. Pingback: Comdoll Trading Kit (October 7-11, 2013): Market Preview | Forex Blog: Playing with Comdolls

  4. Pingback: Comdoll Trading Kit (October 7-11, 2013): Potential Trade Setups | Forex Blog: Playing with Comdolls

  5. Pingback: Comdoll Trading Kit (October 21-25, 2013): Market Preview | Forex Blog: Playing with Comdolls

  6. Pingback: Comdoll Trading Kit (October 28-November 1, 2013): Market Preview | Forex Blog: Playing with Comdolls

  7. Pingback: Comdoll Trading Kit (November 4-7, 2013): Market Preview | Forex Blog: Playing with Comdolls

  8. Pingback: Comdoll Trading Kit (November 11-15, 2013): Market Preview | Forex Blog: Playing with Comdolls

  9. Pingback: Comdoll Trading Kit (November 18-22, 2013): Market Preview | Forex Blog: Playing with Comdolls

  10. Pingback: Comdoll Trading Kit (November 25-29, 2013): Market Preview | Forex Blog: Playing with Comdolls

  11. Pingback: Comdoll Trading Kit (December 2-6, 2013): Market Preview | Forex Blog: Playing with Comdolls

  12. Pingback: Comdoll Trading Kit (December 9-13, 2013): Market Preview | Forex Blog: Playing with Comdolls

  13. Pingback: Comdoll Trading Kit (December 16-20, 2013): Market Preview | Forex Blog: Playing with Comdolls

  14. Pingback: Comdoll Trading Kit (December 23-27, 2013): Market Preview | Forex Blog: Playing with Comdolls

  15. Pingback: Comdoll Trading Kit (January 6-8, 2014): Market Preview | Forex Blog: Playing with Comdolls

  16. Pingback: Comdoll Trading Kit (January 13-17, 2014): Market Preview | Forex Blog: Playing with Comdolls

  17. Pingback: Comdoll Trading Kit (January 20-24, 2014): Market Preview | Forex Blog: Playing with Comdolls

  18. Pingback: Comdoll Trading Kit (January 27-31, 2014): Market Preview | Forex Blog: Playing with Comdolls

  19. Pingback: Comdoll Trading Kit (February 3-7, 2014): Market Preview | Forex Blog: Playing with Comdolls

  20. Pingback: Comdoll Trading Kit (February 10-14, 2014): Market Preview | Forex Blog: Playing with Comdolls

  21. Pingback: Comdoll Trading Kit (February 10-14, 2014): Market Preview | Forex Trading Brokers

  22. Pingback: Comdoll Trading Kit (February 17-21, 2014): Market Preview | Forex Blog: Playing with Comdolls

  23. Pingback: Comdoll Trading Kit (February 24-28, 2014): Market Preview | Forex Blog: Playing with Comdolls

  24. Pingback: Comdoll Trading Kit (March 3-7, 2014): Market Preview | Forex Blog: Playing with Comdolls

  25. Pingback: Comdoll Trading Kit (March 10-14, 2014): Market Preview | Forex Blog: Playing with Comdolls

  26. Pingback: Comdoll Trading Kit (March 17-21, 2014): Market Preview | Forex Blog: Playing with Comdolls

  27. Pingback: Comdoll Trading Kit (March 24-28, 2014): Market Preview | Forex Blog: Playing with Comdolls

  28. Pingback: Comdoll Trading Kit (March 31-April 4, 2014): Market Preview | Forex Blog: Playing with Comdolls

  29. Pingback: Comdoll Trading Kit (April 7-11, 2014): Market Preview | Forex Blog: Playing with Comdolls

  30. Pingback: Comdoll Trading Kit (April 14-18, 2014): Market Preview | Forex Blog: Playing with Comdolls

  31. Pingback: Comdoll Trading Kit (April 21-25, 2014): Market Preview | Forex Blog: Playing with Comdolls

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>