It appears many professional traders have come to a conclusion I arrived at about a year ago – that the market is stuck in a range with no long term trends. Sounds to me like they better start trading ranges! LOL!
Read the whole article at WSJ Market Beat
I have not had many trades in the past week so I leaned on my scientific background and started some experiments. Using my most favorite tool, higher highs and lower lows, I added an Adaptive Moving Average (AMA) to a 5 pip range bar chart. If you want to know the technical theory behind the AMA, google Perry Kaufman AMA.
The quick synopsis is that the AMA goes flat during periods of consolidation or congestion. The modified AMA that I have on the chart below also prints speed bumps to show momentum in either direction. If the AMA is flat and no speed bumps are printing then we have a ranging or chopping market. If you play HH/LL breakouts a ranging market will kill you with a thousand cuts. However, the flat AMA actually indicates that you can fade the HH/LL’s for nice scalp trades during a ranging market.
The first flat AMA occurred with price testing yesterdays lows, the daily pivot as well as a lower low. Fading the 50 level was good for 50+ pips, far from a scalp, but I would have probably been happy with 10-12 pips.
The second flat AMA fade occurred around 90 and was only good for 18 pips, so again a 10 -12 pip scalp would have been good.
I will be watching this over the next few days and reporting my findings here (counter trend forum).
The more I trade, the more I realize that when it comes time to make a decision things must be as simple as possible. The more indicators you have on your chart, the more information you have to process before deciding weather or not to enter the fray.
So simply.
The chart has 2 indicators. Steve Kaufman’s AMA (adaptive moving average) and a Higher HighLowerLow indicator. The chart also shows 6 breaks of high/lows – only 1 of which should not have been traded. The reason the trade marked “pass” should not have been taken is because the speed bubbles on the AMA did not confirm that momentum was adequate to support the breakout. In hindsight, it looks like the indicator was lagging as indicators sometimes do. No biggie, just patiently wait for the next break with confirmation.
NOTE: If you are interested in learning more about this style of trading, please see this thread: EURO TRADING ROOM
Today was good Friday, typically not a good day to trade. Actually, you absolutely SHOULD NOT trade on holidays.
However, there were some textbook setups using market structure.
First you see a breakout to the long side that is just my bread and butter HH (higher high) breakout trade. Nothing special about it – maximum drawdown of 5/6 pips and good for at least 20 pips.
The thing I wanted to point out was a perfect 1-2-3 reversal. A HH followed by a HL – just wait for the HH to hold signified by a LH and your in! This pattern usually means a significant drop, but given the holiday not much happened. Still a good chart to learn from.
The London session..
The object of the game (or any game for that matter) is to win more than you lose.
Here are two trades in the pound (GBPUSD) this morning.
The first trade was a losing trade…no problem as I followed my rules and it was a good setup. I was a little hesitant because price was right a weekly pivot level, but I took it anyway. Support held and I was stopped out for a small loss.
Price immediately went and challenged the previous higher high – so I jumped right back in and was quickly awarded 10 pips.
I have been told by many that I need to set bigger targets. I have learned, by churning my account, that I do not have the mental make-up or patience to allow for the bigger targets to develop.
So, I shoot for 10 pips per trade.
If I am trading for the entire London Session, there are generally about 5 – 6 opportunities per day. If I trade just the NY/London overlap then I get 2-3 good opportunities. (This is with just one pair – EURUSD)
The following chart are the three trades I took this morning. All breakouts of lower lows (LL). All three trades were very low risk and gave 10 pips.
Now looking at this chart you might wonder why I didn’t just short once at 3340 and hold for 50 pips? To which I would answer, first – hindsight is for demo traders, there was no way to know that price was going to run; and secondly, read the first paragraph of this post – that’s just not my style.
I just ran across this post while browsing forex factory and thought it was worth posting here:
Think of Michael Jordan. He was one of the greatest basketball players ever. Regardless of his athletic ability, when he went into baseball, he struggled immensely and that was after having playing experience all through high school. Today he golfs and is considered to be just below the level of a pro player. He has amazing talent at almost any athletic endeavor he sets out to do, but regardless of all this, he was only able to master basketball. He practiced the game so intensely everyone around him had to work harder just to keep up with him. He would come early and stay after practice. Why? Because he knew to be a true master at the game of basketball, he had to dig one hole 50ft deep and not 50 holes 1ft deep.
If you are not digging your 50ft hole, but relying upon several methods, systems and tactics which are likely disconnected, you will never master trading. Do you really think institutional traders are trading 5-10 systems all at once? Do you really think a sniper becomes an expert marksman by learning how to use 50 weapons or a few? All experts in any field subconsciously know to be a master at anything, you have to dig your 50ft hole.
source: http://www.forexfactory.com/showthread.php?t=298277
If you have read any of my past posts, you will know that I change filters and time frames but I always use market structure highs and lows to enter trades.
Here is an example using ichimoku clouds as the filter on a 5 pip constant range chart.
Looking over an hourly chart of the pound-dollar I have noticed several easy trades that all produced a minimum of 50 pips with minimal drawdown.
Notice that the only filter is the t3 trend magic line. If we get a lower low break and price is below the line and RED – take the short. If you are extra cautious wait for a candle close before entering.