Tagged: low risk

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.

Trading Naked: Just Support & Resistance

The following is a chart of the past months price action on the Euro.

A casual glance will show that over the past 30 days or so price has been trading in a 300+ pip range with strong resistance around 1.2900 and pretty firm support between 1.2620 – 50.

While I prefer to day trade, this looks like a perfect set-up for a low risk swing trade. Just look at the chart!

I’ll be looking to short any failure at 1.2920 (Euro likes 20 & 80), risking no more than 21 pips and looking to book 300 pips.

Stay tuned! :-)

EURUSD Missed Opportunity

EURUSD has been in a down trend for a few weeks. In a down trend I like to look for short opportunities when price has mini-corrections up to R1. Looking at the chart it looks like I missed the trade while dropping my kids off at school.

Price is more than 21 pips away from R1 so there is no way I am entering this trade as in order to keep my risk:reward ratio favorable, all of my trades must be low risk. However, if price does go back to test R1 I will consider a short, but at this point I will not chase.

Missed opportunities always bring up the question of resting orders. If you have an edge and want to enter the trade when price hits your levels, why not just put a limit order in and let the chips fall where they may?

I don’t really have a good answer for that. I just prefer to watch the price action, switch to a lower time frame and get a feel for what might happen. Trading is not an exact science, but more of a grey area art. Maybe over time I’ll get more comfortable automating my trading, but for now I have to sitting in front of the screen for it to happen.

Trading With The Trend: USDCHF

Yesterday I discussed trading with the trend. Today I will show you an example trade. All of the currency pairs I watch are in an overall down trend. I chose to trade USDCHF because it was the pair closest to R1.

The chart shows a down trend line that has been in play for a few days. Price briefly pierced the trend line, but could not close above it on any significant timeframe (5mins or higher). You might also note that the red dotted line is R1. Ideally I would have liked for the price to reach R1, but if you wait for perfect setups you won’t be very successful. You must learn to trade in the grey areas. In this situation the trend line with R1 in close proximity was enough to know that a low-risk short was in play.

Switching over to a lower timeframe allowed me to pinpoint an entry.

The small diamond on the chart shows an entry at 1.0133 just under the tred line of 1.0136. R1 is just 10 pips away at 1.0143, so placing my SL 3 pips above that means I am risking 13 pips on this trade. My first target is the yellow line which is the daily pivot point. I took half off at the pivot of 1.0112 and am looking to take the rest off just above the green dotted line which is S1 (1.0081).

The white line is a 21 period moving average. There is really no need for it and I probably should have taken it off of the charts before taking the screenshots. No need to complicate things. Just remain patient and trade with the trend.

EURUSD Trade Idea

The Pivot Points have been treating us right recently, so lets see if the trend continues.

Looking at the following chart we see that there is nice resistance at 1.2738.

EURUSD 9/1/2010

After calculating the daily pivot points I immediately notice that R1 is 1.2740. Hmmmm…. Digging a little deeper I see that yesterdays high was 1.2744. An area of confluence (1.2738 – 1.2744).

The overall trend is down and we have confluence at resistance. This very sophisticated analysis (hint of sarcasm) tells me I want to get short somewhere between 1.2738 and 1.2740.

The game plan is to patiently wait for price action to reach 1.2740 and SHORT with a 21 pip stop. First target is the pivot 1.2683 and the second target is Tuesdays low of 1.2663 (Break-even Stop). If everything goes according to plan this trade will give a minimum of 1:4 R:R.

Warning: Simple Trading Idea Using Pivot Points

Everybody has heard of pivot points (if you don’t know what pivot points are get in touch!) and there are a million different ways to use them. A lot of traders use pivot points in conjunction with indicators. But I have found a simple technique for exploiting the magnetic effect of pivot points.

Are you ready? This strategy is so simple it might scare off some people. Here goes…

  1. First determine the overall trend using a 240 minute chart.
  2. Switch to a lower timeframe of choice – for me 13 minute or 5 minute
  3. Plot daily Pivot Points
  4. In a down trend, enter short when price reaches R1 and expect price to drop to at least S1 and most likely S2
  5. In an up trend, enter long when price hits S1 and expect price to reach R1 and probably R2

That’s it! Simple as pie and when combined with your money management it should equal a low risk yet profitable trading strategy.

Below I’ve include a chart of NZDUSD from this morning to demonstrate. I know from looking at a 240 minute chart that the trend is down. All I have to do is patiently wait for the price action to drive the price up to R1.

NZDUSD August 26, 2010

For this particular trade I entered at .7083 with a 10 pip stop (.7093)