James 16 Decoded
If have ever been on the forex factory forums, there is a very popular and long running
discussion thread devoted to trading a set of trading strategies by James16. The thread has been running since 2005 and has over 2,500 pages on it. Given the insane length of this thread trying to understand this trading method takes a lot, a real lot, of of hard work. You can pay James a subscription of $129 a month to help decode this massive thread, but as many others have noted, most of the content is on the Forex Factory thread, you just need to pull it apart yourself.
I have not coughed up the cash to find out what happens in the paid group, but I am curious about the James16 phenomenon, so I thought I would bravely try and summarize what little I know about the James 16 trading method. If you are interested, then read on.
Who is James16?
I don’t know who James actually is, but if you read the thread he is a full time trader who has been trading for 25 years. James started the thread because of all the pleas for help from many retail newbie traders and he was tired of seeing all the crap written about trading, so he thought he would teach what he knows.
While James developed the system himself, he attributes the key influences on this system by: •Martin Pring (author of several books on technical analysis)
•Todd Mitchell •Austin Passamonte Trading System Trading Platform
James uses Tradestation, but as most of the tools he uses are common trading tools, you can use any charting platform such as Metatrader.
Markets
James’s methods can be used to trade most forex markets. On the forums the examples of trades are diverse and include, but are not limited to, markets such as GBP/USD, USD/CHF, NZD/JPY, EUR/JPY, etc.
Time Frames
James advises that you should trade daily or weekly charts. However, many of the readers on the James16 thread prefer to trade the 4 hour or 1 hour chart as it provides them with more frequent
trading opportunities. James cautions against this as the entry patterns are more reliable on higher time frames.
Entries
James focusses primarily on buying the dip in trends (James does not deliberately trade against the trend as he believes the quality of entry is poorer). James uses price action (PA) around significant prices on the chart to find his entry points. These entry are based on a combination of 3 - 4 bar based reversal patterns clustered near points of confluence.
The bar based patterns used for setups include: •Inside bars
•Pin bars (PB)
•Bullish outside vertical bars (BUOVB) •Bearish outside vertical bars (BEOVB)
•Two bar matching lows with second bar making a higher close (DBHLC) •Two bar matching highs with second bar making a lower close
Of these setups the Pin bar or “Pinocchio Bar” is by far the most commonly employed entry method. The pinbar is effective a swing high or swing low. A good pin bar has a long nose (and a long nose relative to the open/close/low); a nose protruding a long way from the prices around it (it ‘sticks out’) and the open / close both near one end of the bar.
When a trade is on, the James16 traders will open up 3 to 4 small positions and seek to close the first trade out as soon as a small profit is locked in and then scale out of the remainder of the positions as the price moves further in their favor. The ultimate target is usually something like a fibonacci extension or some other feature on a chart. Other traders on the thread will just trail a stop loss behind the entry.
When trading using the James16 method most traders will never risk more the 2 to 3% on any one trade and if they ever loose more than 30 - 35% of their account then they stop trading and go back and demo trade for a while.
Performance
I have never traded this method myself, so I cannot comment on the performance first hand. However, is an equity curve of pure james 16 trades by one ofthe list member over an 8 month period.
How Best to Trade This System
In describing his system James acknowledges that two people can base their trading on the same trading methods and one will lose and the other will win. The variables in trading are endless and therefore the outcomes can be quite different.
James admonishes his reader that to to succeed in this business not only do you need a sound method you also need common sense, discipline and a rock solid understanding that if you do not treat this as a business you have a ZERO CHANCE of long term success.
After 25 years of trading, James has learned that once you have these pieces in place, the difference between success and failure is: YOU SIMPLY MUST LEARN TO BE PICKY ABOUT YOUR ENTRIES. James is picky to the point that he is almost mental about it. The other thing James does is he believes in demo trading as it is an essential tool to proving to yourself you are able to trade his methods. The problem with most demo account traders is they don’t take it seriously. The way he takes this seriously is that he suggests making a demo trading account suitably large so that you can easily see how a major loss would really hurt by how much you earn in your current day job.
Closing Thoughts
You might be wondering why I wrote this article. After going around the traps a bit I
occasionally run into full time traders. In the last 12 months I have met 2 full time traders who have been trading live for a while and survived more than a couple of years and both of them
trade methods based on James 16’s approach. Given this, I would say that James’s methods are worth a deeper look.
I will probably manually back test this approach over the next few weeks and deepen my research. I will let you know the outcome. If you have tried his methods, I would love to hear from you.
