Back in the old school days during the 1920-30s, there was this mad genius named Ralph Nelson Elliott.Elliott discovered that stock markets, thought to behave in a somewhat chaotic manner, actually, did not.
They traded in repetitive cycles, which he pointed out were the emotions of investors and traders caused by outside influences (ahem, CNBC) or the predominant psychology of the masses at the time.
Elliott explained that the upward and downward swings of the mass psychology always showed up in the same repetitive patterns, which were then divided into patterns he called "waves". He needed to claim this observation and so he came up with a super original name: The Elliott Wave Theory.
The 5 – 3 Wave Patterns Mr. Elliott showed that a trending market moves in what he calls a 5-3 wave pattern. The first 5-wave pattern is called impulse waves and the last 3-wave pattern is called corrective waves.
Let’s first take a look at the 5-wave impulse pattern. It’s easier if you see it as a picture:
http://www.babypips.com/images/elliott-wave/5%20wave.gif
That still looks kind of confusing. Let’s splash some color on this bad boy.
http://www.babypips.com/images/elliott-wave/5%20wave%20color.gif
Ah magnefico! Me likes colors. It’s so pretty! I’ve color-coded each wave along with its wave count.
Here is a short description of what happens during each wave. I am going to use stocks for my example since stocks is what Mr. Elliott used but it really doesn’t matter what it is. It can easily be currencies, bonds, gold, oil, or Tickle Me Elmo dolls. The important thing is the Elliott Wave Theory can also be applied to the foreign exchange market.
Wave 1
The stock makes its initial move upwards. This is usually caused by a relatively small number of people that all of the sudden (for a variety of reasons real or imagined) feel that the price of the stock is cheap so it’s a perfect time to buy. This causes the price to rise.
Wave 2
At this point enough people who were in the original wave consider the stock overvalued and take profits. This causes the stock to go down. However, the stock will not make it to its previous lows before the stock is considered a bargain again.
Wave 3
This is usually the longest and strongest wave. The stock has caught the attention of the mass public. More people find out about the stock and want to buy it.This causes the stock’s price to go higher and higher. This wave usually exceeds the high created at the end of wave 1.
Wave 4
People take profits because the stock is considered expensive again. This wave tends to be weak because there are usually more people that are still bullish on the stock and are waiting to “buy on the dips”.
Wave 5
This is the point that most people get on the stock, and is most driven by hysteria. You usually start seeing the CEO of the company on the front page of major magazines as the Person of the Year. People start coming up with ridiculous reasons to buy the stock and try to choke you when you disagree with them. This is when the stock becomes the most overpriced. Contrarians start shorting the stock which starts the ABC pattern.
The 5-wave trends are then corrected and reversed by 3-wave countertrends. Letters are used instead of numbers to track the correction. Check out this example of smokin’ hot 3-wave corrective wave pattern!
http://www.babypips.com/images/elliott-wave/5-3%20wave.gif
Just because I’ve been using a bull market as my primary example doesn’t mean the Elliott Wave theory doesn’t work on bear markets. The same 5 – 3 wave pattern can look like this:
http://www.babypips.com/images/elliott-wave/5-3%20wave%20downtrend.gif
Waves within a Wave
The other important thing you have to know about the Elliot Wave Theory is that a wave is made of sub-waves? Huh? Let me show you another picture. Pictures are great aren't they? Yee-haw!
http://www.babypips.com/images/elliott-wave/5-3%20wave%20uptrend.gif
Do you see how Wave 1 is made up of a smaller 5-wave impulse pattern and Wave 2 is made up of smaller 3-wave corrective pattern? Each wave is always comprised of smaller wave patterns.
Okay, let’s look at a real example.
http://www.babypips.com/images/elliott-wave/chart-example-s.gif
As you can see, waves aren’t shaped perfectly in real life. You’ll also learn its sometimes difficult to label waves. But the more you stare at charts the better you’ll get.
Okay, that’s all you need to know about the Elliott Wave Theory. Remember the market moves in waves. Now when you hear somebody say “Wave 2 is complete.” You’ll know what the heck he is talking about.
If you wish to become an Elliott Wave Theory guru, you can learn more about it at www.elliottwave.com.
My ’So Easy It’s Ridiculous’ SystemPrint and run! Prefer to print out these lessons? Buy the PDF. Only $49.Buy a copy of School of Pipsology for $49 in PDF formatBuy and download a printable and easy-to-read PDF document containing the ENTIRE School of Pipsology. The PDF is an exact copy of the School section, over 250 pages (pictures included), minus advertisements and chapter-ending quizzes. Read it on screen or print it so you can take it with you on the road.
When you buy the PDF you'll receive an email within minutes with (1) a DIRECT LINK to download the PDF and (2) a PASSWORD to open the PDF. You MUST have the password to open the PDF.
I agree to be charged $49 for one copy of "School of Pipsology" in PDF format. PAYPAL is the only form of payment accepted. I understand Im purchasing a single copy for myself and I won't make copies of the book or distribute it to anyone else. If someone else wants a copy I'll encourage them to purchase their own. I also understand that I will need a password to open the PDF each time.
or Cancel
As you can see, we have all the components of a good trading system. First, we’ve decided that this is a swing trading system, and that we will trade on a daily chart. Next, we use moving averages to help us identify a new trend as early as possible.
The Stochastics help us determine if it’s still ok for us to enter a trade after a moving average crossover, and it also helps us avoid oversold and overbought areas. The RSI is an extra confirmation tool that helps us determine the strength of our trend.
After figuring out our trade setup, we then determined our risk for each trade. For this system, we are willing to risk 30 pips on each trade. Usually, the higher the timeframe, the more pips you should be willing to risk because your gains will typically be larger than if you were to trade on a smaller timeframe.
Next, we clearly defined our entry and exit rules. At this point, we would begin the testing phase by starting with manual back tests.
Here are a couple of examples:
http://www.babypips.com/images/system/system.gif
If we went back in time and looked at this chart, we would see that according to our system rules, this would be a good time to go long. To backtest, you would write down at what price you would’ve entered, your stop loss, and your exit strategy. Then you would move the chart one candle at a time to see how the trade unfolds.
http://www.babypips.com/images/system/system-2.gif
In this particular case, you would’ve made a massive pip gain.* You could’ve bought yourself something nice after this trade! You can see that when the moving averages cross in the opposite direction, it was a good time for us to exit. Of course, not all your trades will look this sexy. Some will look like ugly heifers, but you should always remember to stay disciplined and stick to your trading system rules.
http://www.babypips.com/images/system/system-3.gif
In this example, we can see that our criteria is met and at this point we would enter short. Now we would record our entry price, our stop loss and exit strategy, and then move the chart forward one candle at a time to see what happens. I’ll bet you a $1000 that I’m right on this trade.
http://www.babypips.com/images/system/system-4.gif
Well, isn’t that amazing?! It just so happens that I’m right again! You can see that we would’ve stayed in this trade until the moving averages crossed again and RSI went back to 50.
We know you’re probably thinking that this system is too simple to be profitable. Well the truth is that it is simple. You shouldn’t be scared of something that’s simple. In fact, there is an acronym that you will often see in the trading world called KISS. It stands for Keep It Simple Stupid!
It basically means that trading systems don’t have to be complicated. You don’t have to have a zillion indicators on your chart. In fact, keeping it simple will give you less of a headache.
The most important thing is discipline. We can’t stress it enough. Well, yes we can.
YOU MUST ALWAYS STICK TO YOUR TRADING SYSTEM RULES! If you have tested your system thoroughly through back testing and by trading it live on a demo for at least 2 months, then you should feel confident enough to know that as long as you follow your rules, you will end up profitable in the long run.
Trust your system and trust yourself!
http://www.youtube.com/watch?v=sqNZ-rwDNcQ
http://www.youtube.com/watch?v=fOx8pQFV3gA
http://i.ytimg.com/vi/fOx8pQFV3gA/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
A Basic Trading System 2
06:53 From: effilang
Views: 1,447
http://i.ytimg.com/vi/HgW_u1ulto8/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Forex 4 Idiots Easy Forex Day Trading System
00:47 From: Forex4Idiots
Views: 402
http://i.ytimg.com/vi/qZtQHKEavMc/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
A REVOLUTIONARY NEW METHOD TO TRADE THE FOREX
01:11 From: roweis
Views: 1,884
http://i.ytimg.com/vi/RYMhFkl6Wmg/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Testing a Forex Trading System Before Risking Money
15:29 From: tradeartist
Views: 2,918
http://i.ytimg.com/vi/LEu0p00f3YI/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Forex Trading System - Candlestick Trading Series 6
05:34 From: VideoForex
Views: 1,014
http://i.ytimg.com/vi/pMhp6sGZ3Fw/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Forex Trading Tips
03:57 From: mymaxmedic
Views: 81
http://i.ytimg.com/vi/wMdTPNXaL_c/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Forex Basic 1
05:01 From: savagepoems
Views: 145
http://i.ytimg.com/vi/2xSbxEabXHQ/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Custom Fib Tool,BoBokusFi bonacci.com
04:10 From: BoBokus
Views: 2,262
http://i.ytimg.com/vi/6mBdA3yGHEQ/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Forex Strategies on Daily Charts - Inside Day setup
05:24 From: OzTrader
Views: 371
http://i.ytimg.com/vi/9_w4_rbRXpQ/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Forex Calculator - System profitability
01:52 From: ForexNewsTrade
Views: 1,328
http://i.ytimg.com/vi/vU45lDaTsWM/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
FOREX TRADING - 26th february setups
09:59 From: Yaguex
Views: 115
http://i.ytimg.com/vi/ohHu7f6SQaI/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Forex trading system - guaranteed fx trading system
00:10 From: tradeasia
Views: 319
http://i.ytimg.com/vi/pkdtwR8B530/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
No STOP Forex Trading: GBPJPY 1000 pips Hedged Grid system
02:17 From: expert4x
Views: 1,009
http://s3.ytimg.com/vi/zLRvXXxsm7Y/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Forex Killer Review
01:31 From: videoreview123
Views: 1,108
http://i.ytimg.com/vi/L_YP3pLUnys/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Forex Strategy Trading System - KissFutures.co m
03:08 From: ForexNewsTrade
Views: 4,831
http://i.ytimg.com/vi/tMoSE5705M0/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Market Trading with a System-Perfect Homebased Business
04:13 From: stmaartendude
Views: 400
http://i.ytimg.com/vi/hSHnzZXocqo/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Intraday Trading CMC Markets
07:00 From: magicbroker
Views: 308
http://i.ytimg.com/vi/wdD7puzmGwU/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
feb 22 trade profit
02:58 From: tadeusiju
Views: 13
http://i.ytimg.com/vi/Qgt2TqaFGDA/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
Intraday Trading the EURUSD
02:33 From: hawkeyetraders
Views: 245
http://i.ytimg.com/vi/bvhpG54mjhY/default.jpg http://s.ytimg.com/yt/img/pixel-vfl73.gif in QuickList
chart setup for Simple Method of Scalping any pair on 5 min
04:14 From: imransait
Views: 15,431
See all 29 videos
[ 本帖最后由 hefeiddd 于 2008-5-24 17:22 编辑 ]
FINDING THE TREND
Let’s begin to gradually move on to understanding how we will be trading.
The first thing that we are going to do is find a correction on the chart. I define a correction here by any price movement which permeates the moving averages. The reason for doing this is to establish the direction of the counter trend movement, thusly defining the opposite direction of the trend, or the larger impulsive movement we are interested in capturing. This is not to conclusively say that, once a correction is located, the trend is necessarily down or up respective to the counter trend direction, but it gives us a much higher probability of being correct in that assumption.
Below is an example of corrections in a downtrend and an uptrend.
Every time we have the price retrace to the immediate proximity of the EMA we have a valid correction.
(Picture 1) (GBP/USD H1)
Locating a correction
http://img108.imageshack.us/img108/372/correctionsnx6.jpg
It is not by accident that we transition from bearish trades to bullish trades. Every correction pointed out is a potential trading signal, apart from one which I have not drawn between the last short and the first long. I will explain its significance shortly; let’s take things step by step.
If you review picture 1, after you’ve covered this tutorial you will notice that all 9 out of 9 available trades were successful
FINDING THE TRADE
In this section, we are going to dissect picture 1 and look at each of the signals and introduce the criteria for entry, exits and profit taking. Before we go over them accordingly, I will show you an independent example so you can understand how to set up for a trade.
(Picture 2) (GBP/USD H4)
Finding the Setup Bar, Analyzing your Trade and Executing
http://img441.imageshack.us/img441/5946/setupfd4.jpg
This is what you are going to do:
1.Find a valid correction (Wait for the candle to close)
2.Calculate your Risk in Pips by determining the difference from the low to the high (1:1)
3.Project your profit taking level 1:1, 1:2, 1:3 etc.
4.Set a Sell STOP order 1 Pip under the low of the Setup Candle
5.Place your Stop Loss at the high or 5 pips above the high of the Setup Candle
6.Use lot multiples of 2 or 3 e.g.: 10K, 20K, 30K / 40K, 80K, 240K
Elaboration of the above:
-Unless we have a correction we do not have a valid entry signal. Rules are Rules.
-You want to make at least as much as you’re risking. Since you’re riding impulsive movements, chances of greater returns are common.
-Your entry point. What you see on the chart may in fact just be a once single candle, but do not neglect the dimensional depth of the market and the intricacy of its sophisticated functions. From the 1 minute chart to the monthly or the yearly chart, independent trends coexist on all levels. You may be a scalper trading an uptrend on the minute chart, while another trader is waiting for what seems to him to be a mild bearish correction on the 5 minute chart. There is a trend on every time frame and no one trend, which is why I disagree with constantly switching between time frames to determine trend as an efficient practice in trading. Having said this, the psychology behind trading of a violation of the lows of our Setup Candle is because we are in fact catching the consolidative breakout on a lower scale. We want to abstract ourselves from the irritation of the indecisive market on the lower time frames, but still take advantage.
-When I create trading systems I place a lot of emphasis on my SL, not just as a protective measure, but as an integral information feedback system. Getting stopped out, to us is part of this system and we need that information, if you alter the precision and swiftness at which we can receive the information provided by the SL, we delay our reaction time and decision making process, flawing the efficiency of our adaptivity to the chaos of the market. 5 Pips is the Maximum you should place your SL above the high/low of your Setup bar.
-Profit taking with this system is based on your pre-calculated risk. If your 1:1 is 50 Pips, then you will look for at least 50 Pips or 50 less your brokers spread, on a pair like GBP/USD that would be 45, on GBP/JPY in most cases 41 Pips. Once you reach your target, you want 50% of your lots to cash out. At this point your SL should A: either be moved to breakeven or B: be minimized by half; you just have to move your SL lower in a short and higher in a long to accommodate this. The remainder of your position is left to trail until you have a Change in Polarity.
Change in Polarity:
It is common knowledge that R once violated, turns to S and S once broken should turn to R respectively.
With this system we will apply a similar strategy, thusly:
-If trading long and your SL is violated, start trading short
-If trading short and your SL is violated, start trading long
This rule defines the direction in which you are going to look for signals. Although exceptions occur in the market place on which we can also equally rely to define a predicted change in polarity, like technical patterns etc, this will be our base for determining directional bias.
The most common exception that overrides this rule is a divergence in the market.
Below is an example of a short bias overridden by a bullish divergence.
(Picture 3) (GBP/USD H4)
Divergence Override
http://img441.imageshack.us/img441/5175/divergesf7.jpg
In this instance as you can see. We were taking short trades. Our bias was down. In all cases it should remain such until you are stopped out and your polarity changes. However, in the presence of a divergence in the market we have an override and negate all prior rules. If we were short and have a bullish divergence we automatically start looking for long signals. You should start looking for new signals the moment a divergence is identified.
For those of you who are not familiar with divergences. The straightforward definition is; an occurrence during which the direction of the price differs from that of a technical indicator. Since direction is defined by LL, LH and HH, HL, we use them to gauge the difference between the two factors.
As you will note in the chart above Stochastic was quicker to accent the divergence in the price while the MACD tool a little while longer. My advice is that you wait for the MACD to have at least one or two bars in the direction of the divergence to start setting up for a signal. The more odds you have in your favor, the better.
The most common problem with this strategy is the existence of divergences during which a continuous display of differential is evident for a prolonged period of time, thusly making it harder to pinpoint the exact point of reversal in the market; the absolute pivot. There are several approaches to tackling this.
Some traders find this method so accurate that they are willing to add to their loosing positions on every occurrence of a diversion, because they strongly believe the price will eventually adjust, and so it does almost all of the time. Adding to your losses doesn’t sound too attractive to everyone of course.
Other traders will wait for confirmation of divergence from a confluence of indicators to strengthen the signal and some use trend lines to define the actual reversal in price.
In the presence of serial divergence I recommend that you continue taking signals in the direction of the trend by FINDING THE TREND. Eventually when the divergence starts taking place, you will get stopped out at the top of the trend. A price that is worth paying in order to filter out the premature divergences.
(Picture 4) (GBP/USD H1)
Trade Examples
http://img169.imageshack.us/img169/1572/trades1bj1.jpg
The first candle in each box is our setup candle. Once the low is violated we enter a signal. From 1 to 4 everything was fine and dandy, but we get stopped out at 5. The moment we get stopped out we start looking for long signals, if you’re there when you get stopped out I recommend going short on the SL violation, but only if you see a retracement candle in the new direction (long) , prior to getting stopped out. E.g: If the candle that stops you out retraced, you can long it and vice versa.
FINDING YOUR SELF
Perhaps the most difficult task any trader will undertake through his triumphant or failed career.
It’s hard…. Oh yes. It’s very hard, but you can do it if you want it bad enough.
When I started trading, I understood there were risks. Financial risks. Nobody said anything about going crazy though, I wish they did : ), but I wonder would it have made any difference? I can’t be more thankful for finding this hobby, this discipline, this art form, this way of life. It has changed me in many ways and made me grow in others I never knew I could. Finding yourself is a difficult battle and you will have to face many of your demons and voluntarily move out of your comfort zone, breaking your limits to push further. We are very lonely people traders, because nobody but us really knows or understands our battle, it’s not just success anymore, or money, it becomes a path to self betterment and enlightenment. I’ve gone through very many systems since I started trading. The good ones, the bad ones, the utterly crappy ones. I hear people say, use some indicators, others; use none. I use to walk the fence for a while, but at the end I realized as everything else, it’s a battle of survival and you should do whatever is necessary to guarantee success. If your chart needs to look like a bowl of spaghetti bolognaise to justify that, then so be it, hell add some cheese and extra chilly sauce. If it works, there is no shame in that. Do not care about the opinion of those who do not care about you, do not let it hinder your intuition.
I squeezed a thousand oranges, to get the perfect juice and at the end all I had was a barrel of unwanted seeds. So… I got tired, of the failure and the disappointment and I went to the market and bought a carton of the most perfect orange juice ever, for 3.99 can u believe that ?… so tasty, so yummy, so smooth, not a seed in sight or taste. That box-carton of juice, was not labeled juice. It was labeled CONSISTENCY, and it was all I had been looking for and it tasted so much better than the combination of anything before. I no longer bought oranges from different market places in order to discover the holy grail, because I realized there is far too much to sift through, so much, that landing the holy grail would have to rely on chance; now what sort of a trader would i be relying on chance hmm ?? So I stopped and with the same will I used to create the mindset towards perfection, I satisfied myself with that which was simple, that which was clear, which was always there.
You can have the mindset to know all, to conquer all and to be the best and you can push on forever, but, we tend to best perform when we concentrate on a singular task. Not to say we have the inability to do more, yes we can, but, one by one. One little perfect brick of success at a time and we can build a fortes of personal perfect. Personal, yes. Because, we need to set our limits, if we don’t, we will never succeed. The path to success here, is almost never the same with anyone. There is no unified Forex school where everyone goes and graduates, it’s a perfect reflection of the chaos of the market itself. It’s all on you, nobody else.
Take your time and ask yourself what you really want. Ask yourself how you would be happy and then prepare to work your ass off day in and day out, and you WILL succeed. It is impossible that you don’t, because it is that one factor which is the main reason why so few actually make it. Because like with everything else in our world, all forms of success and achievement, it is only those who outstayed and outperformed others through repetition and strenuous practice that succeed. Quitters… NEVER win and Winners NEVER QUIT! – This is a lonely battle and if you quit, there is none else to back you up.
Good luck.
E. Lang
Nicely laid out. In your example above, you have four short set-ups. If a correction is a penetration of the MA, aren't the arrows I've drawn in also set up bars? If so, why did you pick the particular ones you did? Thanks.
Attached Thumbnailshttp://www.forexfactory.com/attachment.php?attachmentid=89112&stc=1&thumb=1&d=1203685260
Here are some recent trades with EUR/USD on D1 that could have been executed taking into account price movement, resistance, support and changes in polarity through breaks.
http://img528.imageshack.us/img528/7397/euck5.jpg
GBP/USD
http://img301.imageshack.us/img301/9215/gbxd0.jpg
And of course the GBP/JPY
http://img120.imageshack.us/img120/9233/gygu9.jpg
GBP/USD Today's Trade
GBP/USD Live Trade
SL = 30 PIPS, TP1 = 30 PIPS, TP2 = 60 PIPS
http://img337.imageshack.us/img337/1347/gbtqq8.jpg
Potential GBP/JPY Short On this chart we can see a potential trade.
We have a change of polarity based on the bearish divergence, so we are looking for short signals only now.
http://img211.imageshack.us/img211/7459/gyttv7.jpg
AUD/JPY Short, divergence visible (Short Bias)
http://img231.imageshack.us/img231/8909/ajmj2.jpg
GBP/USD Bearish Divergence http://img337.imageshack.us/img337/3615/dgusp8.jpg
Hi Guys,
In wake of the new week note the hidden bearish divergence on GBP/USD.
This rally was initiated with a bullish divergence 20.02.2008, and now seems to be halting with a transition to a bearish divergence.
As far as we are concerned and based on the rules of this system, we are no longer taking long GBP/USD trades (our last trade was long). Now that we have a change of polarity we will only be seeking to take retracement trades off the Red EMA (short).
Let's make that official shall we.
http://img530.imageshack.us/img530/8032/dg1mw5.jpg
Trade Examples http://img442.imageshack.us/img442/6012/gb2wy6.jpg
GBP/USD Short (Trade #4) It's official. Let's hope for the best http://www.forexfactory.com/images/smilies/yim/happy.gif
Our risk is about 35 Pips on this trade. We stand to win much more.
http://img514.imageshack.us/img514/6460/29204115ha7.jpg
Effi, I'm sorry, I don't get why you went short on that trade. Please see my attached chart.
You entered on the the break down of the candle in the red box. This candle was the first to have it's low broken since the up leg, it thus appears to me that you would have taken a trade on any of the candles in the blue box if they were broken...is this correct?
When I was looking for opportunity earlier today I thought that looking for a long trade would be what we are looking for atm on a possible retrace, since there has not been one yet on this leg? I was actually waiting for the close of the current 4HR candle (green box) to make my decision, preferably long...LOL.
Anyway your comments will be appreciated.
Attached Thumbnailshttp://www.forexfactory.com/attachment.php?attachmentid=89581&stc=1&thumb=1&d=1203921784
Hello Oromis,
No probs at all, more are to come.
You're right in saying that you would have taken a short on a break of any of those candles, in most situations, yes. However this one is a little tricky, we didn't have a change of polarity from Long to Short until a divergence was evident, so either we continue taking Longs till we are stopped out or if we manage to spot the Divergence in time we start taking shorts immediately. This answers your question, because if you note on the candles in the blue box, Stochastics had an under-developed peak to use in guaging the divergence.
I can understand why you would have been waiting for a long position considering we really haven't had a retracement on this upmove yet, but it is not always necessary. More so in this scenario because the underlying price psychology has now changed and we are trading between a defined downwards channel, most of the moves will be with few corrections if none.
The reason for this is because the price targets are now very clear; top of the channel and bottom of the channel. Thusly the lack of the commonly appearing profit taking corrections can be attributed directly to the fact that more traders in the movement will be taking profit at the same target.
I've posted a chart below here to define the channel. Talk about getting in at the top eh?
Regards,
E. Lang
http://img401.imageshack.us/img401/6454/gbpusdconsolidationvo8.jpg
Profit Taking http://img178.imageshack.us/img178/5272/slks0.jpg
A lot of trades will fail because the price will retrace after the entry has been executed. This is due to the fact that like yourself other traders are taking partial profits at 1:1.
Moving your SL to b/e prematurely, can cost you the remainder of the trade.
I normally wait for a retracement to complete first, before moving to b/e.
B/E does not necessarily have to be right at the correction, it could be above, but the limitation provided by the corrections peak will ensure that the price will have a hard time moving back in that direction to stop you out of the trade on your remaining lot.
None the less, if you should get stopped out at B/E with your second lot, then it's also ok, because you have a new setup at the retracement.
Regards,
E. Lang
PS: Both trades today have been great.
We've had 5 successful trades based on the system rules so far.
GBP/USD:
50%: +2.5%, +1.0%
50%: +0.0%, +0.0%
GBP/JPY:
50%: +2.5%, +1.0%
50%: +0.0%, +0.0%
AUD/JPY:
50%: +2.5%, +1.0%
50%: +0.0%, +0.0%
GBP/USD:
50%: +2.5%, +1.0%
50%: +0.0%, +0.0%
USD/CHF:
50%: +2.5%, +1.0%
50%: +0.0%, +0.0%
Overall secured net gain: +12.5% based on a 5% per trade risk.
Overall secured net gain: +5.00% based on a 2% per trade risk.
__________________
GBP/JPY Long (Trade #6) Another long trade on the Daily Chart
http://img180.imageshack.us/img180/8470/gyhj3.jpg
Take Profit in depth. http://img442.imageshack.us/img442/1156/tpbw3.jpg
Here is a real world example of what i am talking about.
As you can see here, if you were quick to move your SL to B/E after taking out half your lots at 1:1, you would have missed out on the whole trade.
Note how, traders commonly take profit at 1:1. This is no coincidence and is something i emphasize on a lot. We are all people trading here. Every time a professional trader enters a position, they have their SL and TP set. Everyone wants minimum 1:1.
If you have a good system (This is a good system) - your determined entry points, should be able to align with that of the market, allowing you to pinpoint your exits or profit taking levels with almost surgical precision.
Once people take out partial profits and the top of the correction starts forming and a ceiling is created, new sellers who missed the initial short will enter because they now have a stable resistance to place their SL above. The pressure from these new sellers and the new positions being added by the initial short traders (who've taken partial profits) on the peaks and dips creates the new impulsive movement.
Regards,
E. Lang
USD/CHF Short (Trade #7) The new highs were rejected with a bearish divergence on H1.
We will be shorting on H4.
The long summary is:
USD/CHF:
50%: +2.5%, +1.0%
50%: +0.0%, +0.0% ( I actually closed with +10, but just to keep it tidy)
http://img238.imageshack.us/img238/9774/usdchfshorthe3.jpg
Emotional Fluctuation This is what i mean in detail.
We want the price to consolidate over the channel in order to relieve the overbought pressure so we can get in with the new buyers and have a smaller chance of getting stopped out.
Near the point where the indicators are refreshed we should have a BTS setup candle around the vicinity of the over channel range, should it occur of course.
http://img153.imageshack.us/img153/5238/efsr2.jpg
EUR/USD Short (Trade #8) I've been looking at this for a while now.
http://img156.imageshack.us/img156/5576/eurai3.jpg
USD/CHF Long (Trade #9) http://img222.imageshack.us/img222/6850/chfus0.jpg
http://img340.imageshack.us/img340/9202/euuw6.jpg
GBP/USD Short (Trade #10)
http://img178.imageshack.us/img178/6936/gbdg0.jpg
http://www.forexfactory.com/images/attach/zip.gifTechnical Analysis for Short-Term Traders.zip (1.82 MB, 688 views)
GBP/USD Long (Trade #11)
OK It is official.
Now you just sit back and watch the new buyers and the added positions carry us up to 1:1.
AS you can see the system is set up in a way to provide minimal risk by getting you in at the end of profit taking and allowing you to leverage your gain probability by letting you take advantage of new positions being added.
TECHNICAL TARGET: 2.0500
http://img145.imageshack.us/img145/8564/t11gi7.jpg
I was hoping this news release would give the dollar enough of a push to create a larger correction on H1 for GBP/USD so we could enter on at least H1, but no luck.
I don't wanna wait any longer so i'm gonna catch a trade on the lower time frame where there is a defined up trend.
I'm risking only 1% on this trade and i won't be adding it to the tally here.
GBP/USD M15
http://img152.imageshack.us/img152/4480/gbct2.jpg
GBP/USD Profit Taking Projection Here is a real time example of Projecting the difference to see where yourself and other traders may be taking profit.
These profit taking pullbacks will not always appear as full blown corrections. Sometimes they are just small counters on the current candle, although, they would certainly look like a profit taking correction on a lower time frame such as M5.
Anyways, I won't be posting any more trades today, i'm a little tired.
If anyone has questions on the scenarios gone over today, please post your questions. If they are utterly Sith-Noobius, i may ignore them i.e; How many pairs do you trade? How do you enter a position? Where do you place your SL? etc. - It's already been covered.
Thanx.
http://img209.imageshack.us/img209/5297/oktw6.jpg
Now that i am in the trade. I start considering other profit taking levels other than 1:1.
Firstly i ask myself. Where did people start buying ?? - The answer to this is easy; approximately where trade #11 was triggered.
How do we determine this ? - The answer is visual, if you can see where the price explodes, then you can determine where most of the buyers come in, this gives you a rough establishment of the preferred area of entry for that single trade.
Why is this important ? - Because it is like a bad math problem. If you manage to find one variable you're either a lot closer to, or able to find the other.
So what variable are we looking for ? - The Stop Loss.
Where is it ? - Find the area of most recent lows on the chart prior to the price explosion on trade #11. - WHY ?
Because now you can accurately measure where traders entered, and where they placed their stop loss - What does this help you with ?
By determining this value, you can project the difference from the approximated entry point to visualize 1:1, 1:2, 1:3 areas on the chart where traders who entered will be taking profit. - DO WE Always take profit based on the difference between the two values (SL and ENTRY) ?
No, we do not, which is why we are going to look for other places on the chart. - HOW ??
By asking a fundamental question; What area on the chart nearest to my entry has the price had a collective problem at previously ?
The answer is 1.9839 (Alternate Take Profit Level) - And if we break through that ?? - then the next up 1.9938
Is it for sure that people will take profit there ? - No, nothing is for sure, but it's the only thing we have next to managing our risk.
It doesn't have to be difficult, just ask yourself this everytime "Where did the price have problems before?"
Regards,
E. Lang
http://img508.imageshack.us/img508/3306/profittakinglc4.jpg