USD/JPY Setup last night using the Wave
December 6, 2005 by Trader Rich
I had 2 profitable trades yesterday using a lot of what I learned this weekend during the webinars. Click the thumbnail below for a larger view of the chart:
; "USD/JPY setup raghee")
Here are the simple questions I asked myself before entering the trade:
1. Why should I enter this trade?
Look at the price above the up arrow on the chart. It breaks through the Upper level of "The Wave" (High 34 EMA) and breaks through the 38.2% fibonacci. Look at the momentum using the MACD. Is it above 0? Yes, go long at 121.02
2. Where should I set my stop?
Set it up right below the Lower level of "The Wave" (Low 34 EMA)
3. Where should I set my limit?
I chose a couple of pips below the 78.6% fibonacci level which isn’t pictured here. Since the 50% level was close to my entry point, I decided to skip over that level and go with the 786 level at 121.23.
I made a 21 pip profit on this trade using the 1 hour charts. It turns out that the most important part of this trade was the setting of the limit. I did not set the limit AT the 78.6% fibonacci level. I set it a couple of pips under. If you see the high for the evening, it was 1 pip above my exit at 121.24. I could have easily missed my limit level, so it was very important that my limit was set where it was or I would have lost my profit and more.
Trades don’t always work out this way and I’m learning more and more to be discipline. Overall, my Profit/Loss is in the red but as I learn, it gets less and less. The important thing is to answer the 3 questions above before entering a trade. I used to blindly enter a trade and set my stops and limits wherever I wanted to. I used to think that the price was just going to come to me. This isn’t going to happen most of the time so you have to be smart and use good judgement.
Good luck!
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Here’s a great way to cut some of those losses down a bit (they will inevidably happen, but the amount of each can be controlled). This comes from Will slatyer’s book, “The Speculative Strategist”.
Set up 2 EMA lines, based on 3 and 13. If you’re looking to buy, calculate these on the hi’s; if looking for a sell then on the lows (not on the close). Most charting platforms easily let you do this - FXCM’s does. When you see the lines cross, you go out - this will often happen well in advance of the price hitting the Dave Wave, and is an early way to predict whether it’ll bounce off Dave or go crashing through to start a new trend. Keep in mind this is an EXIT point, never use this technique (without other indicators) for an entry as it is quite prone to whipsaws.
(You might want to bring up two charts side-by-side… having Davewave + 2 EMA’s on the same screen will make it difficult to see detail.)
I’ve been playing with this a couple weeks, and it is right 9 out of 10 times. The rare times it’s off, the trend that follows is short-lived anyway before another reversal, so you’re not missing anything. If the lines come together and then split apart, you’re ok - likely the price will bounce off the Dave (after making you sweat a bit). But if they cross - go out. Using this I’ve cut my losses down by more than 75% as I no longer wait for the inevitable to play out or for the stop to be hit. I instead go on to finding the next (profitable) trade.
When the EMA 3 line is on top, can safely be in a long and any shorts will likely only lose money. When the EMA 13 line is on top, you’re better off in a short, any longs will start losing money. naturally, whenthey cross, reevaluate your positions. Also try playing around with other (Fib.) numbers for the settings. I’ve had 34, 89, and 233 suggested to me by a trader on MoneyTec.com
Here’s a great way to cut some of those losses down a bit (they will inevidably happen, but the amount of each can be controlled). This comes from Will slatyer’s book, “The Speculative Strategist”.
Set up 2 EMA lines, based on 3 and 13. If you’re looking to buy, calculate these on the hi’s; if looking for a sell then on the lows (not on the close). Most charting platforms easily let you do this - FXCM’s does. When you see the lines cross, you go out - this will often happen well in advance of the price hitting the Dave Wave, and is an early way to predict whether it’ll bounce off Dave or go crashing through to start a new trend. Keep in mind this is an EXIT point, never use this technique (without other indicators) for an entry as it is quite prone to whipsaws.
(You might want to bring up two charts side-by-side… having Davewave + 2 EMA’s on the same screen will make it difficult to see detail.)
I’ve been playing with this a couple weeks, and it is right 9 out of 10 times. The rare times it’s off, the trend that follows is short-lived anyway before another reversal, so you’re not missing anything. If the lines come together and then split apart, you’re ok - likely the price will bounce off the Dave (after making you sweat a bit). But if they cross - go out. Using this I’ve cut my losses down by more than 75% as I no longer wait for the inevitable to play out or for the stop to be hit. I instead go on to finding the next (profitable) trade.
When the EMA 3 line is on top, can safely be in a long and any shorts will likely only lose money. When the EMA 13 line is on top, you’re better off in a short, any longs will start losing money. naturally, whenthey cross, reevaluate your positions. Also try playing around with other (Fib.) numbers for the settings. I’ve had 34, 89, and 233 suggested to me by a trader on MoneyTec.com