Tagged: low risk

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….

Market Structure

The following is a 1 minute chart showing the concept of market structure.

I have become fond of 1 minute trends as I am very risk averse and with the short timeframe can enter trades with very low risk.

The white candles indicate a market structure high (MSH) and the blue candles indicate the opposite – market structure low (MSL).

A MSH is a three candle formation that starts with a new high, followed by a higher high and finishes with a third candles high being lower than the first candle. These formations almost always indicate a change in the trend.

Once a MSH or MSL has been identified you simply fade the prevailing trend placing your stop 1 pip above the MSH/L. Very low risk. I usually shoot for a minimum of 21 to 34 pips, however you could just ride the trade out until the opposite market structure formation.

For a more detailed explanation of market structure check out this link.

Time To Add On

Still in a downtrend...Ok, I went back to my beloved pivot points to find a good place to add onto my swing trade. In previous posts I have talked about how I like to use pivots as guides. In a downtrend, I like to short near R1. Well today R1 is approximately 1.5892. Even though it is after my normal trading hours, I am going to take a low risk entry short. I got in at 1.5887 with a 10 pip stop.

Lets see where this takes us!

Good trading to all!

Tweezers

My absolute favorite candle formations are tweezers! When I see tweezers I get excited! As long as I am patient and wait for the second candle to close, I am almost always guaranteed to get a minimum of 21 pips and usually 50+.

I dont know how other people define a tweezer, but I define it as two adjacent candles with matching wicks that sorta resemble “tweezers”.

GBPUSD 30 min
tweezers on the 30 min chart

On the example to the right I was actually watching the pair utilizing TEB’s MA system. I was only supposed to be looking for long entries, however, I saw the tweezers forming and decided to be a contrarian. The pound has been in a steady up-trend for the better part of a month so going with the theme “the trend is your friend” one should have been looking for pullbacks to get long. But, again tweezers make me change my mind about everything. So I went short (a little early to lower the risk) at 1.6007. I took half off around 1.5967 and moved my stop to break even + spread for a free trade on the second half. I am going to let the second half ride for a while….

Now if we take a look at the daily chart you will see why I am willing to hold this trade for a few days. At the beginning of August the pound hit some stiff resistance at 1.6000 and sold off for the next month until finding support around 1.5400.

Daily picture of the pound
the pound is going down!

It’s a trading range! Being lucky enough to get into the range at the top, I am going to hold on and see if I can ride her down to the bottom. So, setting take profit at 1.5407 – lets see what happens.

I’ll do a better job of keeping you up to date on this trade. If the trend does indeed turn down, I will be looking for places to add to my short position.

EURUSD – CONFLUENCE!!!

Merriam-Webster defines confluence as: a coming or flowing together, meeting, or gathering at one point <a happy confluence of weather and scenery>. Well, well, well… we have a confluence of resistance around the 1.2900 level. In my last post (just a few hours ago) I talked about naked resistance between 1.2900 – 1.2920. After calculating tomorrow’s pivot points guess where R1 is?

Okay, I can’t contain myself! Its 1.2901!

It is right at the same level that has served as strong resistance for at least 30 days. This is what I consider an area of confluence, and thus a place where I am more willing to load up.

So the plan for tomorrow is to short, short, short any failure between 1.2900 – 1.2920.

If price gets above 1.2930 I’ll accept defeat and live to trade another day.