How to correctly identify the trend

There's an article on Trading Markets written by Dave Floyd titled, "How to Correctly Identify the Trend."

The article shows 3 examples where by just looking at the chart without any indicators, one can mistakenly identify the wrong trend direction.  Add a moving average and identify the slope to determine whether to buy or sell on pullbacks or buy or sell on rallies.

This article is recommended and is short and simple.

How to correctly identify the trend

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FP-1 Trading System

I’ve started trading my new trading system which I’ve simply named FP-1.   I’ve been spending a lot of time tweaking it over the last couple of days.  I’ve made it quite simple to indicate a buy and a sell opportunity.  The red circle indicates a sell and the green circle a buy.  If you see a blue circle, this is a losing exit.  If you see a yellow circle, this is a winning exit.

 

 

 

 

 

 I just went went short on the EUR/USD where the last red circle is.

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Developing a systematic approach to trading

After days and days of backtesting, I think I have found a simple system that works for me.  I backtested it over the last 5-6 months on the EUR/USD 60-minute charts.  Of course I understand that there are no guarantees that this system will work well in the future too.  But it does feel really good to have designed a system that I can use going forward.  My goal over the next month or so is to trade religiously using this system and being the gambler I am do so using my live trading account.  It actually feels really great to have a system that is going to generate long, short, cover, and sell signals right on my charts.  Here are my backtested results:

 

 

 

 

 

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A Rob Booker Exclusive Treat

EUR/USD     March 10, 2006

Here is a great Head and Shoulders pattern.  They are super reliable, and fairly easy to trade.  Here is the chart.  We want to sell below the neckline, and go long above the trendline connecting the head to the right shoulder.

 

 

 

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12 Weeks Trading Forex

With 12 weeks of trading forex in the books, I currently have a balance of $17,346.74.  I started with exactly $10,000 12 weeks ago with the goal of quitting my job to trade full-time by October 1st of this year.  That would leave me with 218 days left.  After about 3 months of trading, I cannot make a determination if this is a realistic date or just plain crazy.  As I’ve stated before, I live in the New York city area where the cost of living is higher than most cities in the United States.  I realistically need to make at least $100,000 a year to support my lifestyle.  This includes food, a roof over my head, transportation, and a retirement plan not to mention student loans.  In 12 weeks, I’ve profited $7,346.74 which averages to $31835.87 for a year.  That is not going to cut it nor is it guaranteed that I will consistently make money each month.  If I look at my performance in 4 week increments, things tend to look a bit better.

Weeks 1-4   +1101
Weeks 5-8   +1779
Weeks 9-12  +4467 

This week I started out down similar to last week.  I rallyed back to end the week down only $300. This is the second straight week where I had to bite and scratch to get closer to the black.  I made some stupid impulsive trades but generally had a decent week sticking to my plan. 

I’ve come to the conclusion that I’m a lot more effective when I place an order that doesn’t fill at the current market price.  Instead of going to the price, I let the price come to me.  Last night, I placed an order to sell the USD/JPY at 117.05 when the price was trading at 116.70.  Eventually my order was filled and I ended the week making about $800 on this trade.  When you let price come to you, trading becomes a lot less impulsive.  There is no question that I’ve made a lot more money in my sleep than when I’m awake.  You can’t overtrade, change your strategy, or act impulsively when your fast asleep in the middle of the night. 

I haven’t had time to put all of my Trade Analysis down on "paper" yet but I will get to it this weekend.  Don’t forget that there are 2 Raghee Horner webinars this weekend.  They are free and I’m sure space is still available.  I went to her last 2 webinars and found them motivational and beneficial.  I hope to hear some of you there tomorrow.

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Weekend Reading – Keeping an eye on Momentum

Keep An Eye On Momentum

http://www.investopedia.com/articles/forex/05/MomentumMACD.asp

This article states the obvious yet brings up a simple setup that I never thought about.  The basic premise is that momentum precedes price.  Any momentum indicator can be used but this article uses MACD as an example.

1.    Define a MACD segment.  Segment #1 below.

 

 

 

 

2.    Measure the highest bar of segment #1.  In the above case, the highest bar was .004.

3.    Wait until the next segment forms; segment #2 above.  If a bar from segment #2 falls below -.004, downward momentum has exceeded previous upward momentum.
Segment #2 consists of 10 bars.  The values are in order from left to right (-.001, -.004, -.006, -.007, -.008, -.008, -.008, -.006, -.002, -.0008)

The third bar from the left is -.006, showing greater momentum than during anytime in segment #1. Sell at the close of this bar (price=1.7579.)  Exit the position at your discretion but a good time to do so might be when momentum slows.  Momentum stalls 2 consecutive bars at bar #7.  MACD value is -.008.  Exit at the close of this bar (price=1.7381)

The profit is close to 200 pips.  Like every other setup, this will not always be successful and should be used in conjunction with other confirmation tools. 

What I like most about this setup is its simplicity.

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