Bread and Butter Setups

I enjoyed this quote by Teresa Lo so I thought you might too:

{xtypo_quote}"I think most people simply don't realize that the market only has 2 modes:
trend (directional or grinding) and chop (trading range or consolidation pattern).
The most profitable is the directional trend mode, and there are only two setups:
retracements and tests.

New traders should attempt to trade the bread and butter setups, i.e. only the retracements and tests in the directional trend.

That's
why the oldest piece of advice is: "The trend is your friend (trade
retracements) until the end (test), when it bends…"

That's
all there ever was, no matter what anyone says, and the key it to KISS.
So many traders and educators make it seem like they have an "arsenal
of weapons" for trading, but in the end, it's all moot, if they cannot
identify, which of these few conditions they are attempting to exploit,
and I am sure that we can do this without even going into multiple time
frame analysis by slapping on a few moving averages…"{/xtypo_quote}

Popularity: 3%

The Four Guiding Principles of Market Behavior

I enjoyed reading this blog post that talks about the four guiding principles of market behavior which have their roots in the early pioneers of technical analysis.  

Principle 1 : A trend is more likely to continue its direction than reverse.  Everyone by now has heard the phrase, "the trend is your friend."  Fading a trend may also  be a losing proposition.

Principle 2 : Trends end in climax.  When they do end, the trend rarely changes overnight but consolidates instead.

Principle 3 : Momentum precedes price.   Look for divergences in indicators.  Expect a new price high following a new momentum high.

Principle 4 : Price alternates between range expansion and range contraction.   Price consolidates or contracts much more than it expands.

The goal is to determine which principle your current trade is based on.  If it isn't part of any of these principles, it may be time to rethink it.

The post is definitely worth the read at http://blog.afraidtotrade.com/?p=27

Popularity: 1%

4 Tips To Increase Profitability

I was reading an FXstreet session transcript and wanted to post the information contained about determining trends mainly because it is similar to how I gauge what the trend is.   This method applies to trading shorter time frames since it only takes into account the previous two days.  What data do you need to determine the current trend?

1. Pivot Point
2. LOPS1 or the low of the previous session
3. HOPS1 or the high of the previous session
4. LOPS2 or the low of the session before the previous session
5. HOPS2 or the high of the session before the previous session

I define a session as one day.  Here are the trend criteria:

Possible Uptrend with range-bound bias

• Price above pivot point
• Price below HOPS1 and HOPS2

Possible Downtrend with range-bound bias

• Price below pivot point
• Price above LOPS1 and LOPS2 

Strong Uptrend

• Price above pivot point
• Price above HOPS1 but below HOPS2

Strong Downtrend

• Price below pivot point
• Price below LOPS1 but above LOPS2

Very Strong Uptrend

• Price above pivot point
• Price above both HOPS1 and HOPS2

Very Strong Downtrend

• Price below pivot point
• Price below both LOPS1 and LOPS2

The 4 Tips To Increase Profitability are:

1. Effectively Determine the Trend
2. Use Indicator Signals
3. Use Price Behavior
4. Consistency is the Key

http://transcripts.fxstreet.com/2007/01/4_tips_to_incre.html

Popularity: 1%

Free Trading Books

I was reading about a little known trendline trick at swing-trade-stocks.com which states, "in an uptrend, if a higher high is made but fails to carry through,
and then prices drop below the previous high, then the trend is apt to
reverse."  Though this information may seem obvious, I still find it valuable.  I looked back at the 240 minute EUR/USD chart and noticed that more often than not, this is the case.  Why? 

"…the locals as well as the brokers who trade on their own account
have a vested interest in driving prices slightly above or below these
"resistance" or "support" points to force execution of the stop loss
orders. This is called "taking out the stops." After the stops are
executed, the market will readjust."

This information was provided by a trader (Trader Vic) who was featured in the popular "Market Wizards" books.  This leads me to how you can get free trading book content.  The above "trendline trick" is just one of three of Trader Vic's criteria for a trend change.  I wanted to find out the other two criteria.  I easily found it by searching for the book "Trader Vic" at Google's Book Search.  The entire book isn't provided but a lot of content from the book is.  This is the case for many more trading books.  I've said it before but sometimes a tidbit of information can go a long way and there is a lot more than a tidbit of information at http://books.google.com.   Search for Forex and you'll find a lot of books on the subject, just be sure to skip over the "Forex Made Easy" book by James Dicks.

What are the 3 criteria for trend change? (Provided by the book, "Trader Vic–Methods of a Wall Street Master")

1. break in the trend line
2. test of preceding high or low
3. breaking of a preceding minor rally high or minor sell-off low

Rule 2b is actually the trendline trick mentioned above.

Here is a graphic corresponding to the 3 criteria for trend change:

 

 

 

 

 

 

Popularity: 6%

Trend Trading Tricks

Rob Booker is having a live question and answer session tomorrow at 15:00 GMT titled, "Top Five Tricks of Trend Trading" on FXStreet.  You can sign up at the following link:

http://www.fxstreet.com/live/showroom/session.aspx?id=edba3d90-cafa-4dec-9d38-81c7a46d1a18  

Popularity: 5%

Different Kind of Game

It's just unbelievable how the tidbits of information out there on the internet can sometimes be so useful.  I was reading Lloyd's blog and his short post today really was insightful.  He stated that this is a "fundamental" week due to the plethora of economic releases.  Because of this, he believes that the trading environment created is beneficial to both position traders and scalpers.  He is not good at following trends or scalping and is mainly a momentum trader who likes to trade the short-term breakout.  

Maybe I find this so insightful because this is exactly the type of trader I am.   I think reading this just threw this fact into my face.  I feel pretty lost when the markets are in a trending environment.  I have no idea when to get on and when I do get on, I usually get caught in the minor retrace and stopped out.  This happened to me this morning.  

http://tradingforaliving-assess.blogspot.com 

Popularity: 2%

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

Popularity: 2%

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: 3%

How to Stay In a Trend for as long as you can

Hubert's Video Link:

How to stay in the trend as long as you can.
http://clicks.aweber.com/z/ct/?ADmsKuTM9I2jDxVOy_O1Qg

John's Video Link:
http://clicks.aweber.com/z/ct/?rMdlxunAprtspUN7VOfutQ

Popularity: 1%

Eliminating Five Basic Mistakes

There was a webinar titled, "Eliminating Five Basic Mistakes from your Analysis" this week presented by Ian Copsey.  I found this webinar and the corresponding Powerpoint presentation very useful because I have been guilty of these mistakes.  Before I summarize and attach the powerpoint presentation (I also converted it to PDF), who is Ian Copsey??

According to the moderator, Ian Copsey is one of the foremost FX technical analysts in the world,
with over 20 years experience in financial markets. He began his career
in Barclays Bank’s FX trading room in 1982 then moved to head their FX
sales desk in Hong Kong in 1988 where he spent almost 5 years.

Either way the guy has got experience and that's what counts.  

So what are the 5 basic mistakes and also the verdict of whether I'm guilty or not of making such a mistake? 

1. Trend Line Drawing Mistakes  Verdict: GUILTY
• Use 3 touch guideline.  By waiting for 3 touches, the trendline becomes stronger and more reliable 
2. Double Tops and Double Bottoms  Verdict: GUILTY
• WAIT FOR CONFIRMATION which comes on break of peak or trough
3. Head and Shoulders  Verdict: GUILTY
• Wait for Completion of pattern
4. Momentum Indicators  Verdict: mistrial
   
• Momentum studies are not meant to be used in trending markets
• Use ADX/DMI to determine trend then use 2 other methods to determine better trading opportunities
1. More sensitive version of RSI
2. Breaks of momentum trend lines
• After a trend, when should momentum indicators be used?
• When there is a divergence
• a divergence is not a reversal signal and trades should not be based on the fact the divergence has occurred.  Look for other signals such as:
1. A break of trend line
2. break of a pattern
3. break of sequence of high and lows
5. Confirm your analysis  Verdict: GUILTY
• What kind of complementary techniques are available?
1. momentum - used in consolidation and divergence after trends
2. trend line breaks
3. fibonacci projections from elliott wave
4. pattern breaks
5. time cycles

The PDF or powerpoint presentation is really worth the quick 15 minute read.

 eliminating 5 common trading mistakes 08/04/2006,11:23 952.99 Kb

 Eliminating Five Basic Mistakes 08/04/2006,11:31 1.17 Mb

Popularity: 3%

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