BRV S+R Trading 210808
BRV S+R Trading 210808
Index:
3-7 - Making Money and the most basic of all strategies (Strategy overview) 7 - Things To Avoid 8-9 - Trade Planning and mental maintenance 9 Basic S+R Checklist (Gregus83) 10 - Whats the best time of day to trade? (Ironman) 10 Why do these levels work? (Ironman) 10-11 - Indicators are the devil. (Ironman) 11 - More on why indicators are not needed to trade this technique. (Ironman) 12 - Strong Vs Weak Levels 13-14 - Knowing if the Level Will Hold: When to Fade, When Not to Fade 14 - Why look for price ranges and not a specific price? 14-15 Combining S+R with Fibonacci Levels 16 Combining S+R with Diagonal Trendlines 17 - 19 - HOW LONG WILL THE MOVE LAST...... 19 - Trade Continuation (Ironman) 19-20 Stop Losses 20 - Using Limit Orders 21 - Live Trade Example 22- 23 - Taking Profits (Ironman) 24-26 - Ironman's 5 minute chart Exit strategy 27 - Intraday Scalping 28 - The Importance of Hourly Closes 29 - More On Intraday Trading 30 Intraday Scalping Example 31 The Bottom of the Bucket 1
32 - It's all about Risk Vs Reward (Ironman) 32 Should I trade the news with S+R? 32 Trading in August the killer month (Ironman) 33 Trending Markets Vs Ranging Markets 34-35 Bank Flows 'What to expect from each crucial area.' 35 - Is the market too hot to fade 35 - Paralysed Trading 36 - THE MOST PROFITABLE TRADERS 37-40 Reality Realisation and Trader Reactions in Regards to Market Forces 41 - Always just keep your eyes on where the money is flowing.... 42-43 Trading the Hype 44 - Happy Maths 'why we're doing what we're doing'..... ADDITIONAL INSIGHTS: 45 - Interest Rate Comments (23rd July 2008) 46-47 - Options 47 - S&P Index Correlation 48-49 Ironman's take on 'The Most Profitable Traders' 50 Useful Links
I make about 5 to 10 trades per session, each one fitting into the framework of a high probability. Ive used this technique over the past 3 years now because it has proven to me to be the most reliable and simple to trade. Others will argue, but while they argue and are looking to short GBP, Im already closing my trade with 20 pips of profit. They go short, and price bounces back up, and I hope to explain why here. Areas of support and resistance hold because unlike other methods, anyone trading in any timeframe can look at a chart and see where price has reacted many times in the past, or what will be a no brainer in the immediate future. Any level is subject to a breakout on a reaction of news, or other various influences. It is important at all times to gauge the current market conditions and in good judgment decide whether or not the level should hold or bust. For example, on days of hysteria where the dollar is getting smashed, youre a lot less likely to make a ton of pips on these levels if they are countertrend. The same can be true for Fridays (stop hunting day), in times of option expiration or at the very end of the month. Regardless, even on these days, it is possible to use this technique to enter trades in the direction of the trend on a retracement to the exact pip, allowing you to take advantage of the madness of the volatility. The Trading Itself There are 2 different types of support and resistance which generally hold: long-term and near-term. Long-term support and resistance levels can be distinguished on a 1-hour or greater timeframe. I typically start with a 4-hour chart and scroll down or up depending on the situation. Long term support and resistance levels, under laxed market conditions, can be good for 100+ pips at a time, unless under the conditions previously described. Here is an example of a current USD/JPY trade that bounced right off of predetermined levels. As I write it is currently +40 pips in profit, and the original posting before the trade can be found here: http://www.forexfactory.com/showpost.php?p=2011414&postcount=238 As you can see from the chart below, this entire area has been used as both support and resistance many times in the past. Due to the heavy influence it has had in the market during previous times, a very high probability exists that price will bounce right off of it. The range of the level might be difficult to discern, as it can be rather wide. Looking at the most recent reactionary levels, one can determine that the most relevant range of price action is 102.74 to 102.60. Within this 15 pip range price was expected to bounce, as it did, right off of 102.73.
Another example on AUD/USD you can find below. You can see that, on several occasions in the past, price used the .9290 level as support. This time was no different. Price hit it right on the nose and started its long journey into new highs. The original posting for this trade can be found here: http://www.forexfactory.com/showpost...63&postcount=3
This AUD trade is a good example of ranges, and how to tell which level price will bounce off of if multiple areas of support/resistance can be found in the same area. You can see here that in addition to .9290 support, there is also relevant support lower at 0.9273. One strategy is to scale into the position, putting on a portion of it at .9290 and, if price dropped any lower, put the rest on at 0.9273. Your stop loss should be placed directly under these levels, as if price continued to move any lower, it would signify a follow through, and clean break of this level.
Near-term support and resistance occurs when a previous level is breached, and that support (or resistance) level acts as a resistance (or support) level. The best timeframe to view these on is 1-hour or less. Starting with a 1-hour chart, work your way down to smaller timeframes, paying close attention to the points of support and resistance on the last wave moving countertrend to the current one. 1-hour charts sometimes cover up these areas, requiring a 30-min or 15-min chart to view them properly. 5
An example of this can be found with a trade I took today on USD/CAD. On news, price spiked down through the former 0.9872 level of support, all the way down to 0.9817. Two hours later, price lurked its way back up to 0.9872, and began to sell off for approximately +35 pips of profit. These happen over and over again on a daily basis, and can be very easy to spot.
Another example below on AUD. Again on news, price made new highs, busting through 0.9558 resistance. Several hours later, price moved back down to this level, tapped it, and was good for approximately +92 pips profit at maximum. You can also see that several opportunities were present to short AUD/USD previous to the news spike, as well.
Taking Profits Profit should be taken in relation to the setup and current market conditions. No two trades are exactly alike; market conditions change all the time. Typically speaking, near-term support and resistance provides for smaller moves. For some, they can lead to trend continuation; for others, they can lead to consolidation. With the exclusion of market conditions, here are the rules I generally follow: For long-term support and resistance: I will typically take partial profits at around +40 pips or so, and leave the rest on and see if I get a runner. I will look for opposing areas of support and resistance and use them to scale out of a position. For near-term support and resistance: I will typically take partial profits at around +20 pips or so, and leave the rest on for continuation. Again, I will look for opposing areas of support and resistance to scale out. Understanding current market conditions is crucial to taking profits. Whether it be a long-term or near-term support or resistance trade, current market conditions could leave you empty handed for the day if you are not working with them properly. In a wild market, it is best to secure some profit as early as possible (20 pips or so). Once any trade is +20 pips in the money, I will usually set my stop loss to breakeven. If the market turns on you, it is probably doing it for a good reason. If the trade is a continuation of a current trend, you might have a better shot at more pips, though it is not always necessarily the case. Long-term support and resistance can commonly act as major barriers, priming the market for a trend reversal.
Things to avoid:
1. Putting on a counter-trend trade during a news spike 2. Not setting a stop loss to breakeven when profit is +20 pips in the money 3. Holding too much conviction on a long-term move 4. Generalizing beliefs on where price will head 5. Not waiting for the setup 6. Chasing a trade late after a setup has already occurred 7. Sloppy trading (sure, its going up) 8.Letting a profitable trade turn red
potential trades or work on some side projects. If I have a session where I dont make any trades, I walk away, and brush myself off, because I realize one important thing: its better to take a trade and make money than risk losing thousands because you were looking for something to do. Anxiety Anxiety is bad for a number of different scenarios: -failing to -closing a -closing a ....among take a profitable trade trade too early instead of letting profits run trade too early because you are experiencing some drawdown others
Anxiety gets smoothed with experience and mostly nothing else. If you are inexperienced and have no anxiety I would be worried as well. It is natural to be a little fearful in the beginning but overall time heals the psychological aspects that prevent you from becoming more profitable. But even for experienced traders, anxiety can kick in hard if he or she posts a big loss or some other dramatic event takes place. Picking yourself up and moving onto the next set of trades is the only thing that will keep you moving forward. Reality versus Desired Outcome Its a rather over exhausted subject but nonetheless worth stressing day in and day out. Making the most of your rational thinking is perhaps one of the greatest necessities to making the most of your trading account. There is a fine line between realizing when you are wrong and when you are right while keeping the book open in terms of what could happen next. You need to be more than objective in your approach, while trading defensively in order to maintain profits. Using a fixed risk/reward ratio and proven trading system eliminates most of this, as long as it is followed and rules are obeyed 100%.
(Gregus83)
Identify previous tried and tested, obvious support/resistance points and mark what your ideal entry range would be while noting those areas of s/r that may prove to be showstoppers for the proposed trade(s). Identify any confluence of targeted entry point with other factors: fibs, trendlines etc that may be add further evidence to the validity of the trade. Confirm the sentiment currently being experienced in the chosen market - alter targets/ stops accordingly to reduce risk, or be that bit more ambitious. Does the market sentiment further validate the trade? Check the imminent news releases that may affect the chosen market - what potential effect can they have, thinking more about the negative side of things. Once satisfied, place order. Be patient. Once the trade is live, be alert and manage the trade effectively. Don't hesitate, you just have to go for it if you know that all the stars are aligned, but more of a generalism, not something to look out for. (BRV)
(Ironman)
I hear this question asked alot in the thread. Since I live in the US I wish the answer was different but here it is. There are three time frames I have found good to trade and they are London, London and London. London (along with the Eurozone) handles the bulk of the worlds volume. The US session is second. 2-3 hours into the London session things tend to settle down for an hour or two and picks up again in the hour before the US session. By trading the London session start to finish you will get the greatest portion of trading volume.
(Ironman)
If you went to the movies and spent $18.94 would you later say, "I spent $18.94 at the movies or would you say, "I spent 20 bucks at the movies" If you went to a new car dealer and picked out the perfect car for your needs and they told you it cost $30,000.00 dollars would you immediately recall what you paid for your last car or depending on your age maybe your first car? These are two examples of our human psychology at work. It is the way society has hardwired us. So if price bounced there before it will probably do it again because those candles and price bars are people with real emotions,fear, greed, goals and memories. Now as sure as we live and breathe, there are times it will fail. These reasons are not written in stone. There is no substitute for experience. So be sure to get in as much "screen time" as you can.
10
Trust me, you really can trade off horizontal support and resistance, you really can be consistent with it and you really can trade for a living and you don't have to watch 20 pairs of currencies to do it. Ask me how I know?
(Ironman)
My phillosophy in trading matches my phillosophy in life. I have two plans available to me at all times. One plan for when things go right and one plan for when things go wrong. No system is perfect, including S/R trading but the guidlines are simple and easy to follow and with patience yield a pretty good equity curve. There are two markets out there we must contend with, the ranging market and the trending market. Now this is why I say you don't need indicators. If we say I am trading a range bound market then we can get out the stochastics and the MACD and buy and sell the oversold and over bought conditions. The result will be many small winners and when price breaks out you will get a big loser that (more times than not) wipes out your previous 10-20 winners. Not to mention what the whole ordeal does to you psychologically in terms of future trading. If we trade the trend then we get out the moving averages, maybe throw in some Bollinger Bands and we wait for price to tag the opposite band and then go with the MA's as long as price is above them or below them depending on trend direction. The result will be a lot of small annoying losses and eventually a big pay off if you stay with it. But waiting for confirmation on indicators is like waiting for a connecting flight at O'Hare Airport. Maybe it's on time and maybe it's not. (maybe it's cancelled) I like how Billy Ray puts it. "WHile other people are deciding if the trade is a good one, I'm already up 20 pips." A quick look at a 4 hr chart will tell you what kind of market you are in and thus the two plan philosophy. If it is ranging then I can play a few bounces with tight stops. If it is trending then I look at where price is and look for a good level for price to pull back to and get with the trend. We tend to address larger trades here but if you have read BRV's post on scalping it is very good for intraday trading. I have used just about every indicator out there (and here's a dirty little secret from the vaults of trading history that the Guru's won't tell you) Everything works in a trend. Bull and bear markets are very forgiving. What's drawdown really mean if you are with the trend? Assuming you didn't over leverage youself. But C-note, I'm not here to convert anyone. I assume that is done when people choose to stay with the thread. I am here because I agree with the philosophy of the thread, and because helping people appeals to my humanitarian nature. I hate to see anyone lead astray by these self-appointed guru's that would relieve innocent people of their hard earned money (money that they could buy food with or even trade with) in return for some supposed turn-key-indicator-ladden-get-rich-quick system. So if it seems I have overstated my response to your staement, I apologize. My feeling is that one indicator leads to another and to another. It's like offering someone a plate of cookies where only a small amount of dog poop fell in the mix before baking. It probaly cooked out and I doubt you would taste it at all. So who want's a cookie?
11
12
Knowing if the Level Will Hold: When to Fade, When Not to Fade
Confidence in any endeavor is usually just a function of experience. Trading is no different, and successful traders are rarely born overnight. From our own experience, we have developed a basic checklist in regards to when a safe trade setup stares us down. For newer traders, confidence in these levels will grow over time as you will probably see levels you have clearly identified act as a major market turning point. We encourage taking only the safest trades in the beginning, and later becoming more flexible on an intraday basis as your experience grows and you know what to look for. Once we define a support or resistance level, we look at the following when deciding if we want to trade off of it or not: Its historical significance. Has the price level proved to be strong over time? There must be at least two or three clear instances in which the level has acted as strong support/resistance. If the level has acted as both support AND resistance. Levels that have historically held significance as both support and resistance tend to hold much better than those that have only acted as only as one or the other. The time between now and the last time it was hit. If a level was just used, and then price makes a run right back to it, be hesitant about putting on a new trade. When a significant support/resistance level sits for a longer period of time, it has a much better likelihood of holding than those hit more recently. Look for major corrections/time passing between levels to enhance probability. This is one of the biggest things we look at. If the level has not been "used and abused". Levels that have seen such a significant amount of price action will eventually bust. Breakouts are inevitable on any chart. Be sure that the level has not been used too many times to the point where it becomes insignificant and/or unnoticeable by the majority. If price has already undergone a significant retracement not too far away (20 or less pips appx.) from the level we want to trade. For instance, EUR/USD is in an uptrend. You mark a level at 1.5715. It hits 1.5700 and then retraces down to 1.5670, and then starts coming up again, taking out 1.5700. Your chances of price then making another retracement from 1.5715 have now declined. Look for good spacing between pullbacks, usually anywhere from 40-60 pips on majors. If there is a significant Fibonacci extension coinciding with the level. The top three Fibonacci levels, .50, .618, and .764 hold a lot of weight. Pay attention to them, especially if they coincide with significant support/resistance level. Commonly, price will either barely hit or surpass these Fibonacci extensions before retracing. This is usually because market movers are looking for the support/resistance level in the area. Plan to take the trade at the support/resistance level, and not the exact Fibonacci extension. If there is a clear and unmistakable diagonal trendline coinciding with the level. Less important, but we still look at it. Diagonal trendlines that have been used and abused, just like horizontal support/resistance will eventually break. Be aware of this. Be aware that neither a Fibonacci extension or diagonal trendline have to be in place in conjunction with horizontal support/resistance in order for us to take a trade. They are used only as guides, with Fibonacci levels holding much more significant weight. With all of these factors taken into account, trade setups offer a very high probability. In 13
conjunction with our rules on when not to trade, your account should be growing in no time. Again, experience pays off; the more you begin to take notice of price reacting off of these levels, the more you begin to realize their potential.
drawn from larger waves hold much greater significance than those drawn from smaller waves. To draw a Fibonacci extension in uptrend turned downtrend, connect the highest high of the wave with the lowest low. To draw a Fibonacci extension in a downtrend turned uptrend, connect the lowest low of the wave with the highest high. You can also calculate these levels manually, in order to more precisely define the level by doing the following: (highest high - lowest lowest low)*.50 If we take a look at the chart of USD/CAD below, we can clearly see that the price range around 0.9718had been used as both support and resistance on the first wave down and the first wave up. When this wave completed its cycle and began to correct, this level also came in line with a .50 Fibonacci extension. When price finally hit it, it served as a very significant market turning point, good for several hundred pips on its move back up. This is the true definition of a No Brainer Trade. Under normal market conditions, our confidence level would be way above average on this one. Again we do not enter trades based solely on Fibonacci retracements. Historical support and resistance must be present in order for us to enter a trade. Fibonacci retracements can also be used as a guide in areas where support and resistance levels might be difficult to identify, as their significance does not go unnoticed. Commonly, in areas of price consolidation, we will use them in order to identify the most significant market turning points. Ultimately, they reinforce these levels and greatly increase your trade's chances of success.
15
16
17
I keep on talking in general terms sometimes saying things like "it depends", or "you have to look at current market conditions", etc. etc. The reason I say this is because it does and you have to. There is no black and white answer. We're not cooking a rotisserie chicken here; there's no such thing as "set and forget" in the fx market. In fact, last time I cooked a rotisserie chicken I remember having to check it a lot in order to make sure it was just right. The trades posted here are intended to mark major market turning points (100 plus pips) because they are major areas of support and resistance. Some of the reasons they may only last for 20 pips include: 1. The market just underwent a major correction of 80 or more pips (just an approximation) at a support/resistance level no more than 30 or 40 or 50 or so pips away from the current one. In other words, if the market already underwent a major correction at a level just slightly futher away from where price is now, you've got a much slighter chance of hitting a home run on it. 2. Low liquidity. Market makers are paying off the mortgage and buying the wife a new Range Rover on your money because nobody is there to stop them. Includes holidays, the very beginning and end of weeks, etc. 3. Market moving on hysteria, rumors, news, etc. Dollar getting eaten for dessert? Why try to serve it? If the dollar is getting smashed on any particular day, and you're in a fastmoving market, your chances of a trend reversal get pretty slim. 4. More significant target further away. Option expiration and everyone wants to knock out the knock out options. Put a frame around those double zeros 100 pips away, wrap it up and put it under the Christmas tree because over someone's dead body will they be allowed to make money at expiration. This also applies to other levels of support and resistance and changing market patterns. Sometimes diagonal trendlines do hold, and in order to complete the sequence and get everyone else on board, price will creep to where it needs to to make it look like the perfect situation. 5. Impatience and weariness. Support and resistence gets used and abused over and over again, until enough is enough, and a breakout is due. And on and on we go. My typical day starts by looking through my charts and looking for reversal points up, down and all around. Based on where price is currently, I say to myself: - What are the long and short term trends? - If price moves up, where is it going to reverse? - If price moves down, where is it going to reverse? - Will I be looking for a trend continuation or a trend reversal? - If a level gets broken, where could it go next? - What other trendline scenarios (diagonal) could come into play? How do these coincide with my horizonal s/r? - News coming out? If I take the trade, what's its expected life before a threat of any counter spikes? - Taking profit: Once I'm in the trade, what opposing levels of s/r are likely to reverse price again and go against me (when should I close out based on these factors)
18
etc. etc....... I mark up my charts until they look nearly illegible, marking crucial areas with dark colors making them hard for me to miss. And then I wait until the trades come, I take them, and manage them. With 1 through 5 on the above there are plenty of ways to hop on in and take part in the onslaught, which I encourage.....entries are a little more ambiguous, but patience and hardlook analytics pay off. Taking a look at some other stuff right now, but thanks Ironman again for the reply. Much to be learned from you. And I'll take the Ginsu knives. How else am I going to cut this stupid chicken?
Trade Continuation
(Ironman)
You may look at some of these trades and say, "Well how is it that some of these trades are good for 20,30 or 40 pips or so and then they turn back and others run 150+." Here again, the answer is not too complicated. Bearing in mind there is an exception to every rule. Bounces off S&R in favor of the previous trend tend to give up more pips. (Not that 20-40 pips is a bad trade) Otherwise the trade is a counter trend trade and the only time they payoff big is when you catch a top or a bottom. And btw, should you be fortunate enough to do that on a trade just be thankful and move on. Accept it as the luck it was. Here's why I say that. If you pick your favorite currency and zoom back through the data some Friday or Saturday afternoon, the moves that jump off the screen are the big ones. What NEVER jumps off the screen are the false breakouts. So what happens is we analyze that breakout or big reversal and (God Forbid) we add indicators until we have the perfect predictor for that particular move. So the next time we think we see that set up through our rose-colored-indicatorWarren-Buffet-eat-my-shorts-time-to-order-the-Mercedes-whirly bird machine, we go all in and lose big. Ask me how I know. So when the bounce is against the trend I take my 20-40 pips and wait for the next set up (which sometimes is the exact same trade again) and if it's with the trend.... well I might still take my 20-40 pips (no one ever went broke taking a profit) but I am willing to accept more risk, such as, taking half off and moving my stop to break even, or maybe building a bigger position. Stuff like that.
Stop Losses
My default stop loss for all trades is 40 pips, but that can change. If I'm overall expecting some decent-sized retracement, I'll stick with the 40 pip stop loss. As long as the stop is above my expected reversal range I'm fine. So for instance, if I expect price to reverse from 1.6000-1.6030 on EUR, I want to be sure my stop is above 1.6030, so 1.6040, or 40 pips, would work fine. Using stop losses in general with this technique is going to require some flexibility, as you're basically looking to not get stopped out if there is another significant level nearby. Thats why if you have any doubts regarding a level it never hurts to go in at a smaller position size and scale your way in if it goes to the next level. For intraday trading I've done stuff like this before. Today as an example, I wanted to play a
19
bounce off of a support level on CHF, didnt like price action, so I closed some exposure, and the rest went against me. When it did, I was able to get out at about breakeven on the trade (partial profits + partial loss). If there are multiple possible reversal areas in a particular region, say on EUR I have 1.5800 1.5805 and 1.5840 - 1.5845, as an example, I might look to put on only a portion of the position at 1.5800 with a s/l above 1.5845, adding the rest of the position on at 1.5840, with a 40 pip stop loss. That way my risk % stays the same as with any other trade and I'm protected in terms of anything snapping against me. I hate to say but I usually go into every trade with low expectations. I always nab some partial as soon as I can at a reasonable amount in relation to the trade expectations (trend, countertrend or trend reversal), and if I have enough room, set the stop loss to breakeven asap. It prevents me from not making money and maintaining consistency in terms of profits. My paycheck is about as reliable as anyone working for a salary basically doing it this way. If the market just completely blasts away a level, and you were completely wrong, dont waste time, close at least half of it and maintain your composure to think clearly about what could happen next.
20
E: Next major area of support/resistance. Target if C and D get met on an hourly basis.
21
Taking Profits
'Creating rules to exit trades' by Ironman When do I get out of a trade? Now theres a question that haunts us all. It is a situation further exasperated by the appearance of the dynamic duo of trading. Its those mild mannered emotions, Fear and Greed. Fear gets us out too early and Greed keeps up in too long. There is that gripping, icy fear that this trade is just another wrong call in a list of losers. Let me take my 4 pips and run and then I swear my broker must have a web cam somewhere in my home office because the second I close the trade it goes on a 100 pip tear that would have been my trade of the week. Conversely, there is Greed, that dashing swordsman of the FX battlefield that will never back down from the likes of any cowardly retracement. (That is until your +40 becomes -30) Perhaps the answer is in an FX bootcamp. What if for 30 days every new trader had to do the exact same thing. OK for 30 days this is what we are going to do. We are going to sell the EURUSD at the beginning of the last 30 minutes of the European session and we are going to square that position at the European close 30 minutes later. OK done. What did we just do. We created parameters for our trading. Rules. We dont need indicators because we know exactly when we are going to enter our trade. We dont need to worry about Stop loss or Limits because we have defined that as well. Now 30 days later, what happened? Without the benefit of a crystal ball I would say that some of those trades won and some of them lost. Some of them that were winners would have become losers if you had not had a predetermined time to get out and perhaps some of your losers may have become winners if you could have just been allowed to bend the rules a bit and held them just a little longer. Also, you will have noticed certain characteristics about price behavior surrounding this time. Now I dont advocate the aforementioned example as a valid trading style. Nor do I suggest that we add a dozen indicators to filter out the false signals until we have a chart so confusing that we would end up in therapy if we tried to explain to anyone how it worked. But lets examine some fundamental truths shall we. We have various S&R levels to enter on and perhaps rather than wonder will it bounce we should take the trade (just like a set time) And just like in our bootcamp some will be winners and some will be losers but as we continually experience the market we develop a feel for where price is going. One of the things I have learned about this trading style is that many times you are afforded the opportunity to exit losers at or near breakeven. Just like trading the same time everyday would reveal price action to you trading the same style does that as well. OK what have we learned so far? I get into the habit of drawing S&R lines. I enter when price nears one and I watch to see what happens. Price doesnt really go anywhere and it pivots around and finds support where I was hoping for a bounce off resistance. So I do what? Anyone? Anyone? I exit. Thats right. No fear, no greed. Just rules. So I take another one and this time Im up +30 in no time. So when do I exit? We are back to where we started and at the risk of sounding like circle talk (you must master fear or fear will become your master) the answer to when do we exit lies in the reason why we took the trade in the first place. 22
Well why did we? I just wanted to see how high my blood pressure could get without passing out before I closed the trade. What a rush! My friends said I wouldnt last 30 days trading forex and today is day 31. If I didnt take this trade I would have to do yardwork and I hate that! Or maybe, just maybe you took that trade to make some money so you could pay your bills like any other person out there working for a living. Now any other job out there will not do the one thing that forex can do to you. If you have a bad day at work anywhere else you maybe dont make as much money or as in commissioned sales maybe you dont make any but no person will take money from you, forex will (Fear) Conversely, no other job out there will do the one thing that forex can do to you. If you have a good day at work, you get a little overtime, you make an extra sale, you do well within the boundaries that someone else set for you. You cannot exceed those limits. Forex can. (Greed) Boris Schlossberg is a professional trader (though aspiring FX guru might be more appropriate) once said something I do agree with. Never let a winner turn into a loser!
Whats that you say? Never let a winner turn into a loser!!!!!!!!!!!!!!!!! So we have rules to trade by, not the plan of the dynamic duo, but real-time tested rules. I will enter when price touches a S/R level. If price does not quickly move in my favor (5 minutes or so) then I will watch for an opportunity to close out as close to breakeven as possible. If price moves in my favor I will a) always take profit at +30 or + 20 or +10. Make it a level that works on the pair you trade that will give you consistent profits. What that does is allow you to make some money while you refine your skills to be more consistent. Just remember pips are money! Real honest to GOD money! Money that you can spend, money that you can save, money that you can retire on. If you can net 10 or 20 or 30+ pips consistently everyday trading that is way more exciting than that-I-got-lucky-trade and made 3K in a day! Because the problem with that one trade is you will give EVERY penny of that money back trying to duplicate that success. Why? Because it wasnt based on rules. As far as refining exit points we have already talked about trailing your trade on a 5M chart. We have talked about targeting the next S/R level. But do so with the underlying philosophy that you WILL NOT let a winner turn into a loser. Its fine to target the next level but when price stalls 20 pips away for crying out loud, take the money. Dont watch your +40 turn into -20. If you do that the next thing you need to do is take a walk down the street and stop the first person you meet and say, Please, slap me real hard! Usually by the 3rd person, you will find somebody willing to accommodate you. At least that has been my experience.
23
really do last forever? But I digress. The technique I use is (drum roll) support and resistance! Dont look at me like that! First I go to a 5M (not 2, not 10, not 15, not 28 but 5 minute) chart once I enter the trade. If its a buy I mark the last swing high price made and look for price to find support on the previous high. If price breaks below then an aggressive exit would be there. If it breaks below and comes back and finds resistance then it is definitely time to get out. If its a sell I mark the last swing low price made and look for price to find resistance on the previous low. If price breaks above then an aggressive exit would be there. If it breaks above and comes back and finds support then it is definitely time to get out. In other words, Check, please! I will attempt to illustrate in 7 charts or less. (Seven charts is the limit you can upload per message.)
25
26
Intraday Scalping
This is how I scalp intraday. These little "stabby" bars that poke out from a downtrend are good reactionary levels in an uptrend, and are good for anywhere from usually +15 to + hundreds if they mean the continuation of a bigger trend. Always watch out for these, especially if they coincide with more historical significance. This is a 1 hr chart. This is the JPY trade long. At this point price has the potential to go either way, because the bigger trend is down. My intraday target was hit for about +71 pips on the long side. I took most of it off and in my other account have a short which is good for about +23 pips so far, trying to get the most out of the downside on bigger size. This is how I trade typically in a case like this. So that's about +90 pips on one pair in a couple hours. Just to give you an idea of what is possible. On both of these I got in with a total of 1 pip drawdown + 1.6 spread on each. Dont feel like you need a lot of guts to pull the trigger on a short like this. Take a look at any chart and you'll see it happen almost every time. The more you see it the more you'll get comfortable with it. Between these and bigger moves you'll find yourself very busy. No indicators required. Just your eyes.
27
28
In regards to intraday trading, using this technique and using these levels will provide high probability setups over and over again on heavily trending days. When an area finally becomes broken, it is typically a sign that the uptrend is over and either reversal or consolidation is on the way. Additionally, you will notice from the chart that the diagonal trendline was forfeited for the horizontal support and resistance. Playing a bounce off of a diagonal trendline would not have given you nearly as good of an entry as the horizontal lines, or you would have missed entry altogether, depending on how you were to draw the line. It is why we always require horizontal support and resistance be present before entering any trades.
29
30
31
its risky business if you really dont know what you're doing, so I wouldnt recommend much here.
In terms of levels holding after or during the release sometimes they do, but again based on the severity of the actual number versus the forecasted number, determines the strength of the move and how likely these levels are to be wiped out.
Trading in August the killer month....(Ironman) The month of August.........this could be the single most dangerous month in the whole year for currency trading. Thin markets = violent swings across the board. Doubt what I say? By all means look at the past history yourself. It will thrill the amateur trader as they count all the retrospective pips they might have made and it will chill the professional trader to the bone as they picture their account going down in flames like a Japenese Zero in a WW II movie. Make no mistake, there is opportunity and there is peril. No, August is not for the faint of heart.
32
33
than life, they turn the market; plain and simple. Again the basics in terms of watching indices, economic indicators and following market sentiment still hold the best, but knowledge of the above definitely helps.
I got a question while I was away: I was looking at EUR declining, with oil doing the same thing, and same with gold. I said "I'm going long at x price". First thing that was said to me was "but oil is declining, and so is gold; dont you think its a little too hot to get in right now?" My answer was pretty simple: everything has to reverse at some point. Oil doesnt lead EUR, nor Gold, nor does EUR lead either commodity - again, we're here to forecast, and a reversal has to happen at one point or another; our job is to find it. Here's whats been happening in this entire downtrend: The second a new low is made, a rush of sellers come in and start jacking the price down another 20-50 pips to the next support and resistance level where it becomes time to take a BREAK. I've been playing breakouts on these lows up and down throughout this turmoil with some pretty good success; in fact, many of these breakout methods overall have been paying extremely well in this environment, when bounces from highs are difficult to identify. Here's where we're at now: In terms of USD upwards pressure, the possibility is still on the radar. So much money has been pumped into it in the past few weeks, reversing it all is going to be slow and arduous. JPY is going to be the slower mover, so we've got a lot of good opportunities to play yen crosses in the meantime. If anything, JPY is going to move down a lot faster than it moves up, with exporter interests selling USD easily. Look for option protection of 111.00, 111.50 and 112.00. The only thing that could push up the pair pretty quickly are new carry trade buyers, which have been reported to be dipping in pretty fast in the past few days; so we could move either way. EJ is floating above 161.50......a breakout of this downside clears the road for 159.00....just a heads up. Best time to trade the yen crosses is in Asia, in my opinion, as the interest in buying and selling is at the top of the radar during this time.
Paralysed Trading
In regards to your comment: Seems every trade I don't take wins and every trade I take loses This is a big problem with a lot of traders. My only advice for this is too keep on going and forget about the losers FAST and worry about whats coming next. We had one trader where we had to move a losing position into another account for him because it was messing with his head so much he was starting to fault on newer trades. Thats why I like to stress closing losers promptly and moving onto the next trade in order to minimize any blows from bad positions. Losses happen; how quickly you pick up from them and get back in the drivers seat is another story. Patience, patice patience and keep the ball rolling. Have a plan and keep it in place.
35
36
were taken out, one at a time, by arms of influence looking for a major selloff. What we did know was that much of the information was triggered by news surrounding interest rates. There are few catalysts stronger than this one in terms of currency market movement. Intraday fundamental data releases can be easy money, as we know from the wide range of news traders out there take advantage of this situation. But again they are doing nothing more than being on the same page as everyone else, as the numbers are obvious and hardly lie. The levels we look to play bounces off of are usually very heavily-concentrated upon areas for market movers and they command a lot of attention. When people see that these levels have been hit, they seek to continue the price reaction in the form of a reversal, which could last for several hundred pips if overall market conditions are in alignment. We turn to chart below. Here we have the last few days of activity for USD/JPY. On this chart alone, we have several different scenarios which are presented to us, almost all of which we have the ability to make money from. Lets walk through these motions step-by-step. Point A: We have a new level that gets formed. Were looking for a price reaction the next time it gets seen. Point B: Price exceeds the level by more than a comfortable amount (were looking for it to hit it exactly and reverse). Additionally, we have an up close on the 1hr bar that is almost right on top of the level. We close our new short position with only a couple pips of profit. Price exceeds the level, and then uses it as support. We open a long right on the level when we see this. Point C: Price reaches major resistance, so we go short, expecting a sizable move Point D: Price uses the high of point B as support and retraces about 25 pips, where we could have made some profits on a long; we know that major resistance is just above us, so our expectations are low for continuation. Point E: Price uses the previous support level at point D now as resistance. We go short. Point F: We attempt to go long at the support level created at point B. The level is taken out, and we get an hourly close below it. Price retraces back up to the level, and uses it as resistance. We go short. Point G: We go long when price hits a previous support level on the last wave up, which ends up coming off of it hard Point H: Our support level created at point B is hit yet again, but because it failed the last time, it is now weaker. Additionally, the hourly close is very strong, and in the upper portion of the bar. We take partial profits on our trade and hold off on any new action. Point I: News comes out, and other levels are taken out. Before the news was released, we closed the rest of our long.
38
In this example alone, there were many opportunities to make money in both directions. But you need to be on your toes, and most importantly execute or get out of these trades when you see these events occurring. By dicing up the chart in this way you are able to see what the majority of traders are looking at and where each money making opportunity arises. Now lets discuss where most traders go wrong. Its very easy to look at the chart below, make an analysis of it after all of the trades have happened and say what it is we should have done. This is how most of us learn, and were used to being conditioned. We post trades before they occur on this thread because I find little value in stating something that has already happened. That premise alone completely ignores the biggest component of our jobs as traders: to forecast. All over this forum, the greatest majority of threads started and posts concern means of entering trades only. Very few of these, or books written on FX trading in general, concern themselves about how to manage a trade once they are in it or when to take profits. This is where traders begin to fail, and fail miserably, as their emotions kick in and blind clues staring them right in the face get replaced by our overwhelming desire not to ever fail. Call it anxiety, call it fear, but in the way we are conditioned in society in regards to all other facets of life we bring to the trading platform and causes us to do damage to our accounts. Going back to the examples above, how do you think you would have reacted to putting on a short position at point B, or putting on a long position at point F? Would you have reversed the position as the market was telling you to do? Or would you have stayed in it and waited for the trades to turn green again so that you didnt take a loss? Minor damage leads to greater damage, and your emotions will go nuts if you dont listen to the market, and cause you to take greater losses. For example, at point F, clearly the level was broken. Price is not going up, but you stay in the long position in hopes of it turning green again. Price then dropped about
39
50 pips, at which point your small intraday trade (which you could have and should have reversed for some very good profit) begins to turn into a major loss. Seeing that things are getting out of control, you might have closed the trade deep in the red, suffering an unnecessary loss for the day. In his book, The Alchemy of Finance, one of the first things discussed by George Soros is a concept which he refers to as reflexivity. Simply stated, this is a concept which refers to the reality of a situation versus a desired outcome. This concept, among others, stands true across a wide range of markets and is in great contrast to hypothesis of market efficiency and other very widely known or accepted economic theories. He explains that many of the bubbles caused in the markets are driven by human action replacing fundamental theorem, as they are not explained in any other way. Without reverberating the concepts of Soros in great detail, we can understand it on a personal level (in our own trading) as well as on a macro scale (the entire market). Seeing the reality of the situation (price moving in a certain direction, and for a certain cause) contrasts against our innate desire to achieve a certain outcome. We need to realize what is happening, and most importantly, react to it, in order to achieve this desire. But we say the path to the ultimate goal is not the same in trading as it is everywhere else, but is this really the case? Setbacks and roadblocks are found in every single business and in every single aspect of life. But when we look at a setback in trading (taking a minor loss), we see concrete dollars and cents going down the drain, which many of us refuse to let go of. This is a natural function of life, and we have to realize this in order to succeed. Ultimately, the same clues we use in loss prevention are the same ones that bring us profits, and our reaction to these clues absolutely need to get executed in order for us to profit. As day traders, we need to react in the form of buying and selling, sometimes with little warning, quickly and without haste to make the most out of what we do. Realize the obvious, react quickly, use your edge, and the rest will follow.
40
41
First, a bit about trading the hype: 1. European and UK stock indices spent most of the day in the red before making a tiny recovery at the end of the day. Merrill news seemed to get then there as they were the first to react for it....overall situation bad, bad sentiment, etc. 2. EUR took out 1.5718 early in the session, with little retrace. There's your short signal. 3. Oil got clobbered for most of the day. Everytime I saw a deep spike in oil, I noticed EUR generally following suit. This is helping SPX futures at the same time. Oil commanding a ton of attention and any drops in oil helps out the US. 4. Consumer confidence survey a whopping 1 point greater than expected (being sarchastic this is nothing to go "wow" over, but take it very seriously because it drove much of the action in the market today). In bad times, little glimmers of hope cause the market to go wild. 5. SPX rallied like crazy on this news and lower oil while EUR and GBP equities were generally flat for the day. Treasuries obviously did the opposite. So you have a mediocre equity market in europe, strong market in the US, lower oil, and technical levels broken and bang, the market sank about 200 pips. Finding the reversal on a day like today: As I explained in a previous post, on days like today, start watching price action when you are nearing the 200 pip mark for the daily range on the pair.....this will normally be the cutoff area. EUR and CHF are very correlated, so a high range on one that hasnt gone as far can easily affect the other. 250 pips is the most youre going to see in a day, and that is extremely rare. 200-225 is normal before everybody starts to reposition. When EUR neared the 200 pip mark, it hit a 618 retracement almost right on the head, but CHF had another 20 pips to go before it hit a .782 retracement, where there is going to be some selling interest (big resistance in general). CHF got the push it needed, but it also dragged down EUR a little bit. At this point EUR was over 200 pips, and both had hit very significant levels for the day, so at this point you are pretty safe to reverse on both. The most either could have gone would have been perhaps another 20 pips, though very unlikely based on where they were. 2 days now: Today marks the second day in 2 weeks where the market is running very violently on nothing but fluff. This is why I, along with others, argue about market efficiency, etc....it's entirely based upon speculative action and traders making the most out of what they have on hand. Human interaction outpacing any form of scientific analysis. So what do we do? How do we take part in this nuttiness and make money off of it? A. Recognize it when you see it. World economy is bad right now. Any country that stands up on its feet and says "we're ok" gets a lot of attention. Put all the factors above together and you get a move like today. The second that consumer confidence number came out I pretty much knew that was it......here we go again. Be there or be square. 42
So what do we do? Play the hype. It makes you rich. Here's what to look for: 1. 2. 3. 4. 5. 6. Interest rate announcements/talk or rumors Anything related to consumer spending Employment data Oil prices World equity indices Other commodities
But you say: "But BillyRay, I'm no economist I came here because it says "No Brainer" right on the thread name!" Ok, fair enough, so let's make it easy. 1. We're day traders, so we take all the news one day at a time. 2. We play into market hype, and what people are looking at here and now, not in 6 months from now. 3. We are playing one curreny versus another at all times, so we need to look at how each country is doing in relation to the big picture. 4. Look at the equity markets. Go to marketwatch.com and there's a little box in the upper right hand corner that tracks the markets. Bad markets usually equate to bad news for the currency, unless there's some interest rate agenda on the platter or comments made by Fed members or other government officials hinting at a better longer term output. 5. Look at the news, and what's driving any hysteria in the equity markets; stupid little things have a big impact on prices, as we have seen. 6. Look at commodities that have a strong impact on the currencies you are trading, and track them. Today oil tanking, good for US economy. They follow support and resistance rules as well, so keep this in mind. 7. Contrast the daily action of one market versus another. If its before the US open, track SPX futures. Today, EUR economy bad, SPX futures doing well. Good for shorts. Northfinance demos have all the information you need for the above, and the rest you get between here (FF news), marketwatch.com (or any other) and bloomberg.com. That's all you need. When markets are thin, watch out for the runs.
43
44
Additional Insight
Interest Rate Comments
I looked into some of the statements posted in that article earlier, as I couldnt really come up with too much color on the subject at the time, but here's the bottom line, as it was stated in the article: Plosser (speaking today) has a notoriously hawkish outlook as he sees that fending off inflation as the number one priority of a strong and stable economy - he has the reputation of being the biggest advocate of raising rates of all the members of the Fed ...but on the other hand, Bernanke made it pretty clear in his testimony last week that until the stock market stabilizes, we are unlikely to see any rate hikes in the very immediate future. Plosser essentially nullified these comments today by saying that hikes are going to need to occur before the market takes a positive course. What will actually happen is another story, but in the meantime we find ourselves caught up in a "buy the rumor sell the fact" market today, where the rumor was bought heavily, but should stabilize throughout the end of the week. The stock market, commodities, etc. should be back on the radar by tomorrow pending any other news regard this. The reason I'm posting this is because nothing runs the market harder and faster than comments like this taken very seriously, especially when it comes to interest rates. Interest rate talk is the quickest way to get 200 pips out of the daily range and run the market faster than you can blink - I'll admit that I underestimated the news today as I didnt see his comments holding all that much weight in comparison to Bernanke's last week. But here we go and I'm actually happy that eur got a push down today because new highs make it harder to trade. And the bottom line (if you read anything here read this): Someone asked me a while back about taking these trades in regards to longer-term fundamental outlooks, and I responded by saying that I don't really care. And today you have a perfect example: yesterday, all across the news and from every possible angle all I heard was dollar short posted everywhere, and today it gained about 200 pips on some basic comments made during a conference that usually goes unnoticed. And in the background you usually have economists fighting over who was right and who was wrong like hungry dogs playing tug of war with a piece of meat. The fact is we're only going for 20 to a couple hundred pips here, and market conditions can change on the dime each and every day. Its good to stay on top of recent events, but you need to block out the noise sometimes to make the most out of what you do. Taking news articles and other comments too seriously can paralyze you from taking profitable trades. The levels we use here clearly work, and its good to keep a systematic pattern in the way you trade if you're in and out every day. For longer term investors this is obviously not the case, but for us, it suits us very well. I see a lot of people coming into this thread saying "how did they do that??" and the answer is pretty simple: no noise, no bull, just basic technical levels that everyone else uses traded systematically and consistently. Just watch out for those interest rate comments and ride that train until its over, you'll be glad you did.
45
Options
Just a reminder that tomorrow is option expiration on many cash settled ccy options. Last month on this day we saw AUD break into new highs, EUR popping out of a local high, JPY flooring it to below 103.50, and CHF breaking below 1.0450. This is one day of the month I use a lot of caution, as many of the rules dictated with support and resistance levels tend to be broken. In keeping with the trend, a day like option ex day is a good day for buying or selling pullbacks and trading with the trend, especially during the London/US crossover. I would also only use this strategy if price is falling in between major support and resistance to begin with. It can be a very lucrative or destructive day depending on how you play your cards. I took a look at some data for ccy options today, and scrutinizing some possiblilities for tomorrow the overall bias seems bearish-dollar. This isnt to say I have unseen barrier option data I'm missing out on, which is what I would really need to make a reliable forecast. But just looking across american, euro style options and relating open interest I'm seeing JPY having downside pressure to 106.30 all the way down to 103.10, less pressure upside; the critical level upside being from 108.70 all the way up to 111.11. In regards to barrier/binary options, just looking at a probable zone for price movement (based soley on my own judgement and chart analysis), I would speculate up to 110.50 upside (the most significant being appx. 108.70) and 105.50 downside (with 106.30 holding some significance). For other pairs, I dont have too much info on right now but hopefully you can take a look at the JPY chart and see what I'm doing here and use your own judgement to follow along. Again, major players are going to be looking at standard option data/critical levels as usual. Options are not a widely discussed issue on this or many other forums, but they should be becuase they unquestionably move the market in some big ways. Just look for key levels to get broken on these days. Its the same thing as what we do on a day in and day out basis except in reverse. Volatility is the key word for this day. The simple fact of the matter is that you do NOT know exactly what is going to happen. Support and resistance levels DO hold for pips on these days, but are less predictable. Pip ranges can be generally a little larger than usual, anywhere from 150 to 200+ on majors. Other times the day is less of an event; like anything else in nature it all varies. Binary and barrier options are OTC products and you wont have exact data, but you can oftentimes guess what level price is headed for looking at american and euro style options as well as major support and resistance ranges once the daily trend is defined. 7am to 12pm EST I have found to be the most fluid times where price makes a run for it. I haven't posted much info on the topic in the past, but I encourge you to Google the topic and read up on it as much as you can. Here is just a little info to get you started, but there is a ton more available out there. http://www.google.co.uk/search?hl=en&q=binary+option&meta= http://www.google.co.uk/search?hl=en&q=barrier+option&btnG=Search&meta= 46
http://www.google.co.uk/search?hl=en&q=fx+option&meta= Some basic on the Phil exchange http://www.phlx.com/market/WorldCurrencyOptions.asp? Futures http://www.cmegroup.com/trading/fx/index.html More about barrier options and stop hunting The way it usually works is once the level gets hit there's a reversal in price, provided there aren't even more orders higher on the playing field. The strongest move is always the one going up to take out the levels; the reversal is usually weaker and sluggish. Be there or be square.
47
48
They only access the best information The best information is your neighbor. When he complains about the price of gas, buy oil. Broker filtered news feeds? Turn them off. Bloomberg is good. I know traders who subscribe to Reuters products. The best thing is to find others like yourself and trade in a group. Iron sharpens iron! And when one guy in the group wants $100 a month to mentor you, find another group, because you will never learn to fish in that environment. The franchise model has never produced a great thinker though it has made a select few very wealthy. (Maybe that's what the Yale study meant) They think about the trade, not the money behind it If I have said it once, well you know. It is the pips. I know several brokers who have platforms that default to the dollar amount and not the pips in the P&L when you trade. This is a psychological attack to make you close trades early. 10 pips I can hold out, $100 bucks? Maybe not. If you can make 10 pips consistently on a 1K account, you can do it on a 100K account, as long as you get your emotions in check. Pips is a good way of doing that. One of the things I did when I started trading was I sat down and did my monthly budget in pips. At X $ per pip I need X pips per month. So now 10 pips pays my power bill. They are constantly learning Yep, show me a profession where continued education is not to your benefit. Swapping ideas with other traders and studying charts will pay huge dividends. They are active Note that no where in here did I say, find a successful trader swimming up stream and jump on his back until you both drown. There is no free lunch and no matter how many accounts you margined out to date, it is not someone elses responsibility to make you solvent. What I like is you teach someone a strategy and then they come back and say something like, SO what do you see for the Euro tonight? My response? Based on what I taught you, what do you see for the Euro tonight? They have patience Go ahead and try to be successful without it. Remember, exorbitant fees. I will tell you this. I havent found a better way to lose money in FX than the buy and sell stop orders. (A buy above the market and a sell below the market) You will be at the mercy of every spike of the market. A great cure for the lack of patience is the beloved limit order. A sell above the market and a buy below the market.) 100% spike resistant. So there you have it. All you will ever need to know to be a successful trader.
49
Useful Links
Options data: http://www.phlx.com/market/WorldCurrencyOptions.asp? Futures: http://www.cmegroup.com/trading/fx/index.html News: http://www.marketwatch.com/ http://www.bloomberg.com/index.html?Intro=intro3 http://www.forexfactory.com/ http://www.whcmarket.com/trade/whctrader UBS Investment Research: http://fxtrade.oanda.com/resources/ubsnews/Fundamental_Strategy.shtml
50