Trading Price Action

I got hooked on the Forex Factory forums over the weekend specifically reading the price action posts by James16.  I received the following snippet of a comment a couple of days ago that turned me on to the forums:

Mate, you need to learn how to trade price action. Come over to Forex Factory and join the paid forum. I promise you will never see the
market the same way again….  Once you learn how to successfully trade price action off 4 hour, daily
or weekly timeframes, you never go back to trading systems again.

A lot of James16 posts are charts with some minor commentary.  Some of the patterns he mentions are:

1. DHLHC – a double bar low with a higher close on the second bar
2. DBHLC – a double bar high with a lower close on the second bar
3. Two or more matching highs or lows which if broken usually mean a resumption of current trend
4. BEOVD – bearish outside vertical bar in which the second bar totally encompasses the prior bar with a lower close on the second bar.
5. BUOVD – bullish outside vertical bar; same as #4 but reversed
6. Bullish and bearish outside vertical bars

Some of these may not mean anything to you until you actually view his corresponding charts.  I found the posts pretty compelling but I'm hesitant to trust anything I read at this point.  You can view this particular post at:

http://www.forexfactory.com/showthread.php?t=2331 

Does anyone have any experience with the James16 Group?

Popularity: 7% [?]

The Only Seven Indicators You Will Ever Need

I was reading an article today that talks about the top 7 indicators that can be incorporated into your trading style.  I tend to agree with most of them.  I have gone through that stage of jumping from indicator to indicator with the illusion that the previous indicator I was using was broke.  There is no perfect indicator but I feel that if you stick to those that lag least, you will be getting out of positions when lagging indicator followers are just getting in.  And now for the list….

The Top 7 Indicators

1. Candlesticks - I use these the least, probably because the can vary so much depending on your broker or charting provider.  As you increase your time frame though, the variations are less of a factor and I believe the candlesticks can be more valuable. (Daily charts)
2. Trendlines - I use these often as do a lot of you, I'm sure.  Need I say more.
3. MACD – This is on every one of my charts.  I use it to spot divergences in price.  I'm constantly referencing http://www.forexproject.com/technical_analysis/divergence.html to do so.
4. 200 EMA – I have been through so many moving averages.  I always seem to have at least 3 on my chart though.  If anything, I glance at them to spot the trend.  The article states that this is an all time favorite for traders across the board.  Take note whether price is above or below to give you a sense of price direction.
5. Pivot Points – I use these often but mainly for exiting positions.  I'm still doing a lot of experimentation with data to understand them better.  All of this experimentation will be posted on the http://www.allpivotpoints.com site.
6. Fibonacci - I've used these many times in the past but currently I don't use them at all.  They are very subjective but can be quite powerful especially at the 62% retracement level.
7. PRICE - Probably the most important of indicators but the hardest to master.  It takes lots of experience to do so.  The articles makes a good point by stating that "let price prove to you where it wants to go by setting entry order rather than market orders when entering a trade."

Top 7 Indicators For Developing Your Own Trading Style

Popularity: 5% [?]

Lessons Learned From Making a Little Profit Today

I have 2 totally different subjects I want to talk about today.  The first relates to the question, "When are the best times to trade forex?"  Now I can tell you that I used to trade whenever I felt like it.  "I'm bored, let me trade during the Asian session.  I'm bored, I want to trade in the afternoon, 3 pm EST."  As an absolute beginner, you're told that Forex is a 24 hour market.  YES, that may be true but a lot of you that have been doing this for a while know that just because it's a 24 hour market doesn't mean you actually should place a trade at any time around the clock.  A lot of what I'm talking about relates to the shorter time frames and also if you want the best entry on longer term charts.  Most of the time, if you trade outside of the European and US sessions (2 a.m. EST – 11 p.m. EST) your chances of getting stopped out definately increase from my experience.   Of course you have a great chance of getting stopped out during the 2-11 time frame but you also have a greater chance of hitting your target.  I've found the Asian session almost untradeable.  There is absolutely no volatility or direction and the time it takes to watch the market isn't worth what you may get out of it.  CORRECT ME if I'm wrong but if any of you have found a successful way of trading the Asian session, let me know.  You could stick to higher volatility pairs like the GBP/JPY but with a 9-11 point spread, your already in the hole if you place smaller stop losses.  After 11:30 a.m., there are times when you can catch some volatility but I generally exit my positions around lunchtime because a lot of the time you just get consolidation.  

The second thing I want to talk about are my entry mistakes. 

I think it is important to mention the numerous times that I have been burned when I've entered a position a bit too early.  Generally I have 2 rules when channel trading during higher volatility sessions especially when I'm trading the 15 minute charts:

1. Entering before the candle closes is a big NO-NO unless #2
2. Allow the price to push at least 10 pips past your channel line

Today wasn't a bad trading day, I made $320 but should have made twice that amount.  I entered long on the GBP/USD when it closed above the upper channel by 1 pip.  The problem with this is that I'm putting too much faith in my charting software and not taking into consideration that momentum may have waned and this is just the tailend of the upward move.  For example, forex quotes are not the same amongst brokers and software providers.  An upper channel line drawn on Esignal chart may be different from an upper channel line drawn on a Tradestation chart.  So just because the GBP broke the upper channel line on my Esignal chart today doesn't mean that it broke the upper channel line elsewhere!  So I could have increased my chances of profiting if I would have given the price a little more breathing room.  I'm learning from experience that not giving the price a little breathing room or not waiting for the candle to close can cost me money.

Popularity: 5% [?]

Should have traded when it fell back in channel.

Journal Entry from European Session Monday Morning

{mosimage}

I'm just now entering a journal entry for a trade I made this morning at 4:30 am.   We had a breakout of the upper channel GBP/USD at 4:30 am this morning and I thought we may see a little volatility so I went long at the close of the candle.  As you can see, it was quickly stopped out as the price entered back in the channel.

According to Rob Booker's rules, if the price falls back into and closes back into the channel, you can reverse your trade or place a new trade if you were stopped out.

I was stopped out and should have went short on the GBP/USD once this happened.  I would have had a stop at the bottom of the channel which would have been good for 50 pips or so.  

There's always next time. 

Popularity: 4% [?]

Median Line Probabilities

Check out the site, "I found my Holy Grail" for Median Line Probability Charts.  It looks like the Median Line is quite the price magnet…

I Found My Holy Grail

Popularity: 2% [?]

It’s My Fault

A transcript between a couple of us today:

Wim Says:

Hi Rick,

Minus 180 pips on 3 days of trading seems not that
great. Wow, I would be pissed of, part of learning.. Are mentors really
that great..
Why would you coach someone if you make a ton of money?
I would not spend my time trying to learn somebody for $1000 if I can
make 50K/month with my personal trading.

Some time ago, I
took the FXCM euroshop ($169), well in my eyes, it is worth nothing. it
looks really nice on their website until you pay for it.
3 methods but none of them actually work in my eyes. Everybody can make a course or call himself a mentor.
Personally,
I won't spend a dime to education or learning anymore. Being in this
business for 3 years, I make money now but not the first 2 years.

I
think a combination of knowledge and market understanding is a lot more
worth then pulling up some indicators and following them blindly.

---

Magdalena Says:

Wim,
A couple of questions for you:
1) Are you saying you didnt make money in the first 2 years and are you trading full time?
2) What in your opinion is the best way to learn how to trade and gain the knowledge of the market, how did you do it?

Rich,

What
is the "touch of emotion" and how big of an impact it had on your
trading recently? Are you saying that Rob's methods work and you simply
didn't have enough discipline to stick to them, cuz that's exactly what
happened to me recently when using Raghee's setups.

---

Craig Says:

Hi Rich,

Bummer, I have been making a bunch of losing trades as
well. I was looking though your trade history and trying to figure out
why you made all those AUD/USD trades on the 25th, the pair was going
sideways. Is it possible to elaborate on your current stratergy?

P.S.
Have to say Wim's comment is pretty on the mark.

---

I Said: 

I'm getting my spreadsheet together to analyze these trades but before
I jump over Rob, I have made some mistakes with execution and did so
specifically with my lost GBP trade this morning. I entered incorrectly
and got stopped out by 5 pips before the 100 pip move up. This cost me
huge. Some of the other trades were also executing issues. I can
honestly say that without even analyzing and from the top of my head,
if I was more experienced with this system, I would probably be up. A
lot of his strategy utilized multiple lots so that you can let some
more profit run. I'll post more when I know more.

---

I Said again: 

Magdalena, I think Rob's strategies can work. I think they give you the
best shot at making money doing this. The touch of emotion happened 2
times to me:

The first was with my Aussie trade where I entered
before the candle closed. Rob says you can enter before the candle
closes but he waits and recommends you wait. After this trade, I would
definately wait also.

The second time was with my trade today. I
entered 2 candles late on the GBP/USD trade and set my stop without
reflecting the price 2 candles ago. If I would have set a stop based on
the price if I had entered 2 candles ago (when I should have) I would
have made MANY MANY pips today. Like I said before, I think I would be
in positive territory if I didn't make these mistakes.

Popularity: 8% [?]

Trading Full-Time continued

Thanks to Forex2stay for the following comments.  Visit his blog at http://forex2stay.blogspot.com/

I do think it's possible, but I believe money mangement is the key.
This needs to be a marathon not a sprint. One thing I've realized is
that you can't use the same lot sizes for all of your trades. For
example on one trade you might be risking 30 pips and another 20 pips.
So if you trade 4 lots on both of them (standard account) you'd be
risking $1,200 on one trade and $800 on the other. That's not good
money management and it can get you a person in trouble.Here's what I do…..

When
I position trade (4hr and daily charts), I won't trade unless I have a
2:1 risk reward ratio. I figure out the proper stop loss for my trade,
based on TA. So for this example say that's 40 pips. I then make sure
based on TA that I'm comfortable getting at least 80 – 120 pips profit.
Once i'm comfortable I put my information into the following formula.

S=(E*R) / (P-X)

S = Size of Trade
E = Account size (Cash)
R = Maximum Risk percentage per trade
P = entry price on the trade
X = pre-determined stop loss or exit price

So let's put in some numbers…..

My account size $10, 000
Entry price on EUR/USD 1.2600
Currently I'll risk 3% of my account on a trade
My pre-determined SL is 1.2560

So how many shares of EUR can we buy with our money management rules??

S=($10,000 * 3%) / (1.2600 – 1.2560)
S = $300 / .40
S= 75,000

Anyway this is the way I do it. I hope it helps…

Forex2stay

Popularity: 6% [?]

Momentum Divergence in the EUR/JPY

An observation from Learn::Forex that may pique your interest.

Euro/JPY has our attention…

Why? 

Notice
on a Daily chart we are attempting to push up into the zone of 145.00
although the momentum is clearly beginning to fall off. This is again
confirmed with the 120 minute chart as well. This combine with the
resistance area we are looking for a short opportunity anywhere from
current price up to a retest of the 144.80/145.00 zone. Targets on the
short side are 143.00 and if we get a clear break of 143.00 we could
have a second target of 142.00. We would look to place a stop up above
the 145.00 level.

  

 

 

 

 

 

 

 

Popularity: 4% [?]

Learn:Forex Exclusive Analysis

Learn::Forex provides exclusive content for members of FXCM.  I find that out of all Guest Trading Ideas they have "keeping it simple" analysis that you have to respect.  Others have analysis that from day to day is not consistent and analysis that also can be contrued as more of an art.  (easily interpreted differently from 1 person to another)

Here is Learn::Forex's Analysis today.  See for yourself.

AUD/JPY April 12th, 2006

The pairing that has caught our attention this week is the AUD/JPY.

First lets take a look at the Daily. Two things that stand out.First, notice that we have TWO different fib pulls that are coming together and have for resistance. And second, look at the momentum.it is appearing to weaken.

Then on the 240 minute chart we find confirmation of the price action losing momentum and we also get a nice trend line to use. In SHORT there seems to be an opportunity here.anywhere from current market price all the way back to re-test the trend line and resistance zone of 87.00

We have some support at the 85.50 area with more major support coming in at 85.00 which also happens to line up with a .382 retracement fib. 

 

 

 

 

 

 

 

 

Popularity: 4% [?]

Gartley and Wolfe Waves

Brent brought up Gartley and Wolfe Waves a couple of days ago as a way of predicting where price is heading and when it will get there.  I started to read the sparse amount of information out there but from what I have read, it’s pretty interesting stuff.  For a quick overview, visit http://www.investopedia.com/articles/trading/05/040405.asp

Here’s a comment and recommended links from Brent:

According to my research the gartley and butterly patterns have an 80% success rate.

http://www.moneytec.com/forums/showthread.php?t=17228

http://www.forex-tsd.com/suggestions-trading-systems/1093-harmonic-trading-12.html

http://www.harmonictrader.com/

Gartley, Butterfly Patterns

http://www.forex-tsd.com/metatrader-4/885-price-patterns-gartley-butterfly-bat-2.html

Popularity: 6% [?]

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