Tagged: low risk

You Lose Some, You Win Some

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.

Pound trading
Trading the pound (GBPUSD)

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.

Why Just 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.

Euro day trades

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.

The Week In Review: GBPUSD

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.

GBPUSD hourly trend magic
Catching hourly trades in the GBPUSD

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.

1hr Charts = less trades = less stress

EURJPY swing trade
swing trade startegy EURJPY

I was chatting with a trading buddy on skype the other day and he insisted that I start looking at longer timeframes. His rationale was that at age 57 he needed a timeframe that was less stressful. I obliged him, really just to be polite, but as I watched him go into his explanation I realized that he might have a valid point. So, I started watching the EURJPY on an hourly chart.

The above chart has just three indicators. I have mentioned 2 previously on this blog – market structure and center of gravity. The third I recently picked up from a forex factory thread by Islander and Medeci – it is called trend magic. First – there is no magic. It is simply a combination of a 9 period and 20 period MA that has been coded to show the cross as a single line. It has some adaptive features which can be seen by the flat horizontal lines it produces during periods of consolidation. It is these consolidation periods that alert us to potential breakouts. These consolidation periods can also churn your account if you are not careful. I have gotten in the habit of only trading breakouts of higher/lower highs/lows to avoid some of these congestion periods. On the 1 hr frame this really helps – extremely helpful.

In the image above the consolidation came after a nice downward move to 106.00 (Mongolian must be smiling). Then we get a very bullish bar that takes us from 105.80 up to 106.30 before losing steam. What is interesting is this bar tested, but did not break a lower low and then went to create a lower high (some might argue a higher high). This lower high above our magic trend-line gives a good signal that price might be breaking out of the 24 hour consolidation period. You might also notice that while still flat, the magic trend-line has turned from a bearish red to a bullish green – nice confirmation.

The breakout occurred at 106.30 with the trend-line still flat at 106.15 meaning that an initial stop of 20 would be sufficient.

There was some minor consolidation around 106.60 before she really took off, but notice that at no time did price really threaten our “magic trend-line”.

As for exiting, I got out at the first real test of the trend-line, but if you have more intestinal fortitude, you might hold on a little longer.

Note the 1-2-3 reversal pattern at the end of the chart….

CCI Divergence For The Patient

So it is a trend day and you were not awake when the trend started. Where do you jump in???

CCI to the rescue!

I have developed a simple system that utilizes CCI divergence, TMA bands and 13 pip range bars to trade pullbacks, allowing you to enter trades in the direction of the trend.

On the chart 1) is a bullish CCI divergence.

2) Confirmation of the trend/trade direction

3) Entry signal – piercing of TMA bands.

It is important to wait fot the the TMA bands to be pierced. If they are not pierced, then no trade.

To keep this a low risk trade – use a 6 pip stop and target at least 12 pips.

 

Quarter Levels On Steroids

First, if you don’t know what I’m talking about when I say “Quarter Levels” then you need to go over to my good buddy Mongolians thread on Forex  Factory. The thread is “Make Money Everyday: A Guide To Short Term Trading” – brilliant concept.

I have incorporated the quarter levels into my trading and am amazed at how price respects these psychological support and resistance levels. Mongolian advises in his thread to just use the levels to scalp 12 pips all day long, which I have done and I must report is very doable. However, I never being settled, have been tinkering with a way to stay in trades longer…so I have been toying with a few indicators to the pure price action method Mongolian uses.

I have been playing with a system called “Forex Gold H1″ on a 5 minute chart. I have not tested it out with cold hard cash so I cannot offer you anything other than my observations.

Thus far, it seems pretty promising.

Euro/Pound 30 minute chart

Getting Ready To Trade

As I progress as a trader I have found that (1) you need to have an established routine, and (2) your routine should be as simple as possible. While there is room for improvement, I think I have begun to perfect the ideal trading setup.

First – try to get a good night’s sleep. I tried waking up in the middle of the night to watch the European open, but found that I was to tired to be focused… which results in impulsive actions and sloppy trading. Now I try to sleep until I wake up and that usually is anywhere from 4:30 – 6:30 AM CST. If I do wake up around 4:30, I sometimes can catch a nice move before the US markets come online.

Once fully awake, it’s time to check the news. Mainly to see what market moving releases will come out during my trading times. Make a note of the times. I like to be flat at least 15 minutes before any major announcement.

Next, open up a 30 minute chart of whatever you plan on trading. The chart to the right is the Euro/Pound (EUR/GBP). I think this is one of the best currency pairs to trade as it moves slow, has a small spread and respects support and resistance levels pretty well. A quick glance at a 30 minute chart should tell you what the trend of the moment is. In this case it is pretty clear that the trend is down. I use Sierra Chart because of the visual tools that can be added to the charts. The “mustard” colored cloud is a combination of 13 & 21 EMA’s and visually show the downtrend. Other visual clues include a market structure “lower high” as well as price below the daily pivot point. It is fairly obvious this currency pair is trending down, therefore, I will only be looking for opportunities to get short.

Now it’s time to switch to a lower timeframe chart to pinpoint good entry points.

I for some unknown reason prefer the 3 minute timeframe. On the three minute chart I will start to note any market structure highs/lows as they will serve as short term support and resistance levels.

Since I know from the thirty minute chart that the prevailing trend is down, the ideal set-up wait for a mustard cloud to form on the 3 minute and when price “pulls-back” into the cloud – go short. If after entering short the candle on which I entered paints white, signaling a lower high (sometimes a higher high), then I have confidence that this was a good entry point. Once a white bar paints I will adjust my stop to just a point or two above that market structure high.

The only thing left to do is wait and either book profits or take the loss.

Note: When I say EURGBP moves slow, it really moves slow. This morning I entered a short position at 0.8386 at around 9 am – and 2.5 hours later I have not been stopped out (with a stop-loss of only 5 pips) nor has price moved more than 10 pips in my favor.

EURUSD – Down, down, down

This morning saw the Euro pressured from the NY open. The following 3min chart shows that at 8:45am CST a market structure higher high was put in and price collapsed from that moment forward.

Today’s price action did not provide clear LH’s near the 21 EMA as it has in recent weeks, however, there were several “needles” into the cloud that were very tradable.

Although a lower high printed around 12 noon, I would like to see a higher low print before claiming the short sellers are done for the day.

Don’t Chase A Falling Market!

On Tuesday (11/16) I woke up late. I woke the family up and hurried them off to school. To make matters worse, I stopped for coffee. When I finally fired up my monitor I saw that I missed the start of a massive downswing.

In the past I would have immediately started to panic and would start selling at random points, not wanting to miss the big drop. I knew the drop was coming because price had been congested in a small range for a few hours so once price dropped below 1.3575 – the party would be on.

At the very far left of the 30 minute chart you can see that price made a swing high at around 1.3655 then immediately dropped to about 1.3575 before chopping around for the next 7 hours.

When I did cut on the screen it was a little before 8:30 and I usually don’t like to start trading during the equities opening bell. So I nervously sat and drank my coffee while the market continued to drop.

I wait 15 minutes and then start to look for opportunities to join the party. But with all of this selling, how do you know where to get in? I have all to often been the sucker selling the low of the day and then trying to decide how much pain I could tolerate before dumping my position at the high with a big fat loss! But not anymore! Losing money has a way of getting your attention like nothing else can!

A 3 minute chart with 3 moving averages is all we need to join any trending market – EVEN IF WE MISS THE INITIAL MOVE!

The moving averages are all exponential – one at 8, one at 13 and one at 21. (There is some voodoo or magic with the 21 EMA, I am still trying to figure out what it is…). When a strong trend is underway the 21 EMA seems to hold as support. Price may occasionally pierce the 21, but rarely closes above this magic line until the trend is over. Combining this with a little market structure, we can time our entries by looking for pullbacks towards the 21 EMA during a strong move. I have my charts color candles that make lower highs (LH) and lower lows (LL). I have also programmed my charts to make the space between the 13 and 21 EMA appear as a cloud. Any time price enters the cloud and the slope of my 3 EMA’s are still pointing down, I am looking to sell. Since LH’s are a three candle formation, you will not know that it is a lower high until the next candle closes. But once I see the LH has painted, it gives me the confidence to know that I got in at a good point. From the chart you can see that during this downtrend price entered my “cloud” 4 times (There was actually a 5th and a 6th that can’t be seen on this view). and each gave me my standard profit target of 21 pips, with relatively no drawdown.

If you have bigger balls than I, then each of the entries could have been a point to add on – building a nice sized position to really capitalize on the move. I am working on this, but not quite there yet… so I took the trade successfully 5 times losing on the 6th try as the trend started to reverse.

Now if only I could be this patient every day….