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50PipsADayForexStrategy
HowToBuildASolidTradingSystem
ByLaurentiuDamir
Copyright©2012byLaurentiuDamir
Allrightsreserved.Nopartofthisbookmaybereproducedortransmittedinanyformorbyanymeans,electronicormechanical,includingphotocopying,recording,oranyinformationstorageandretrievalsystem,withoutpriorwrittenpermissionoftheAuthor.Yoursupportofauthor’srightsisappreciated.
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TradethePriceActionFollowPriceActionTrends
DayTradingForexwithPricePatternsForexRangeTradingwithPriceAction
TradetheMomentumDayTradingForexwithS&RZones
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TableofContents
IntroductionComponentsPriceTrendsSupportandResistanceFibonacciRetracementsPatternsNotechnicalindicators200EMAThe4hoursanddailytrendSolidmoneymanagementPositionsizingRisk-RewardratioStoplossplacementPatience,noemotions,nooutsideinfluenceDon’tdothisPricepatternbreaksCandlestickconfirmationFibonacciretracementlevelsSupportandresistanceCuttingprofitsshortLettinglossesrunRevengetrading50PipsADayForexStrategyComponentsStoplossmanagementandtakeprofitlevels
IntroductionBeforeyoustarttoconstructyourtradingsystem,youmustfirstthinkaboutwhatisthetradingstylethatsuitsyoubetter.Doyouwanttositinfrontofthecomputerthewholedayenteringandclosingtradesonthe5minutestimeframeordoyouthinkthattradingonahighertimeframewillsuityoubetter?Myadvicetoyouisverysimpleandclear:alwaysseektotradeonthehighertimeframes.Itiseasiertotradethiswayanditwillmakeyoumuchmoremoneyinthelongterm.Ifyouareabeginnerintrading,itisbestforyounottodaytradeuntilyougainexperience.Tradingonsmalltimeframescarrieshighriskduetoshort-termrandommovesthatarealmostimpossibletopredict.Nottomentionthattradingthiswaymakesyouvulnerableagainsteconomicnewseventsthatcomeoutmultipletimesperdayandusuallyhaveabigimpactonthesmalltimeframes.Evenafteryougetmoreexperiencedbytradingsuccessfullyonthehighertimeframesandyouthinkyouarereadytodaytrade,myadviceisdonottradeonanyintervalsmallerthanthe30minutes.Moreover,whenyoudodecidetodaytrade,consideritasabackuptradingstyle,daytradeonlywhentherearenotradesetupsaccordingtoyoursystemonthehighertimeframes.Alwaysseektotradeonthehighertimeframe.Nevertheless,asIsaidbefore,ifyouareabeginnertrader,andyouprobablyare,Istronglyrecommendthatyoudevelopyourtradingsystemaroundahighertimeframelikethe4hoursorthedaily.Forgetaboutdaytradingforawhile.Buildyourtradingsystemandtradeonthe4h/dailychartsuntilyoustarttoaddtoyouraccountconsistently.
ComponentsWiththeaboveinmind,thenextthingyoushoulddecideiswhatyouwillincludeinyourtradingsystemfromthetechnicalpointofviewtohelpyouwinasmanytradesaspossible.Decidewhatwillbethecoretechnicalpartsofyourtradingsystem.Frommyexperience,Icantellyouwhicharethetoolsthatworkbestinforextrading,thathaveagreatrateofsuccessandtheyrepeatoverandoveragainwithexcellentresults.Thesearepricetrends,supportandresistancelevels,Fibonacciratios,pricepatternsandbarpatterns/candlestickpatterns.Thesearethethingsyoushouldconsiderincludinginyoursystem.Theyarethemostpopularthingsintheforexmarketthus,theyhavethehighestrateofsuccess.
PriceTrendsYousurelyknowwhatatrendisandyouknowthatyouseethemonyourchartsoverandoveragain.Thetrendisacoreprincipleoftheforexmarketoranymarketforthatmatterandshouldalwaysbetakenintoaccountwhenconstructingyourtradingsystem.Itisalwayseasiertotradewiththetrendthanagainstit.Atrendsignifiesthatthemajorityoftradersdecidedtopushthepriceinonedirection.Youmustalwaysknowwhatthatdirectionisandtradeinlinewithit.Ifyouwanttoknoweverythingthereistoknowaboutforextrends,howtospotthembyreadingthepriceaction,howtorecognizewhenthetrendischangingwithoutthehelpofanytechnicalindicators,youcancheckoutthebookFollowPriceActionTrendsthatexplainsthisingreatdetail,withmanychartillustrations,andputsittogetherintoacompleteforexpriceactiontradingsystemthatcanyieldthousandsofpipsbytradingthesechangesintrend.
SupportandResistanceSupportandresistancelevelsarealsoakeycomponentoftheforexmarket;alargenumberoftradersoutthereemphasizesthemontheirchartsandbasetheirtradingdecisionsonthem.Therefore,itisadvisablewhenyoudecidehowtoconstructyourtradingsystemthatyoutakethemintoaccount.
FibonacciRetracementsFibonacciratiosareanotherforextoolthatworksextremelywellintheforexmarket.JustpullupanychartanddrawyourFibonaccilevelsfromthestarttotheendofanybigmoveinonedirectionoranother.Youwillseehowmanytimestheselevelsactasstrongsupportandresistancezoneswherepricebouncesbacktoresumetheprevioustrend.
PatternsPricepatternsandcandlestickpatternsarealsoverypopularwiththevastmajorityoftraderstherefore,theytoohaveagreatrateofsuccess.Pricepatternsareusedassignalsthatpriceispreparingforamoveinadirectionandcandlestickpatternsareusedmainlyasaconfirmationwhenenteringatrade.Ifyouwanttolearningreatdetailaboutalloftheseabovepowerfultradingtoolsandmasterthem,youcantakealookattheTradethePriceActionbookthatexplainsthemverywellwithmanychartillustrationsandputsthemtogetherintheformofanextremelypowerfulpriceactiontradingsystem.Inconclusion,thesearethethingsthatyoushouldincludeinyourtradingsystembecausetherearebyfarthemostsuccessfultoolstotradetheforexmarket.Itiscompletelyuptoyoutodecideifyoucombinethemallinyoursystemorjustusesomeofthem.Therewillbemoreaboutthesepowerfultoolsinalatersectionwhereyouwilllearnhowtoavoidmakingtradingmistakeswhenworkingwiththem.
NotechnicalindicatorsNowthatyouhaveanideaofwhatwouldbebesttoincludeinyourtradingsystemyoualsomustknowwhatnottoincludeinit.Donotuseanytechnicalindicatorsinyourtradingbecausetheyareabsolutelyworthless,andtheywillloseyoumoneyinthelongrun.Youmightwinatradetodayusingthembutyouwillsurelyloseallthatmoneybackandmorebytheendoftheweek.Youshouldconsideryourselfveryluckyifinthecourseofamonthyoumanagetobreakevenbytradingwithindicators.Allindicatorsarebasedonpastpriceaction,themacd,rsi,orstochasticarenotleadingindicators.Theyareonlyleadingyoutolosses.Beingconstructedofpastpriceactiontheyarealllaggingbehindtheprice.Bydesigntheyfollowthepastpriceactiontherefore,evenifthesignalstheygivewouldbeaccuratetheyareuselessbecausetheycometoolateforyoutocapitalizeonthem.Alwaysrememberonething:priceleadstheindicator,nottheotherwayaround.Donotbefooledwhenyoudoabacktestonyourchartsandyouseethatusinganindicatororatradingsystemwithindicatorswouldhavemadeyouthousandsofpips.Thatisjustatrick.Realtimetradinghasnothingtodowithbacktesting.Whenyouputthatindicatortoworkinrealtime,youwillsoonseethatyouarewastingyourtimeandmoney.Alwaysrememberthatpricetellstheindicatorwhattodonotviceversa.Theultimateindicatorisandalwayswillbethepriceactionitself.Youshouldfocusonlyonreadingandinterpretingthepriceactionmovementsandnotovercomplicateyourtradingsystemwithuselessindicators.
200EMAFrommyexperience,thismovingaverageistheonlyindicatorthatisworthincorporatinginyourtradingsystem.Itisthemostimportantmovingaverageofthemall,allretailandprofessionaltraderskeepaneyeonitthereforepricetendstobouncewhenittouchesit.However,itisbesttouseitinyourtradingsystemasguidance,asaconfirmationofwhatpriceactiontellsyouandnotasatooltobasetradingdecisionson.Forexample,ifyoursystemisdesignedforthe4hchart,youwillwanttoreadthepriceactiononthatcharttoknowwhatthetrendis.Afteryoudothatandseethatthecurrenttrendisupordown,youcanthenlookatthe200EMAonthesamecharttoconfirmandenforceyourpriceactionreading.Letussaythepriceactiontrendonthatchartisup.Ifthatspecificforexpairtradesabovethe200EMAatthattimeonthesamechartthenyouhaveaconfirmationofyourpriceactionreading.YoucancheckouttheTradetheMomentumbookforacompletetradingsystemthatusesthismovingaveragealongwithsomeotherpowerfulconceptsoftradingtomake200pipsperweekormore.Letusseeachartwiththismovingaveragesoyoucanbetterunderstandhowpricereactstoit.
The4hoursanddailytrendAgoodtradingsystemistheonethatalwaystakesintoaccountthebiggerpicture.Thebiggerpictureinforexisrepresentedbythetrendsonthehighertimeframes.Thesetrendscontrolthepricemovementonthelowertimeframes.Ifyoudesignforyourselfasystemthattradesonthe4hcharts,youmustalwaystakeintoaccountthetrendonthedailychart.Ifyoutradeonthe1hor30minutescharts,youmustalwaystakeintoaccountthetrendonthe4hchart.Forthetrendonthedailychartyoucanusethe200EMAdiscussedearlier.Ifthepairistradingabovethe200EMAonthedailychart,itmeansthatthetrendisuponthedailychart.Ifthepairtradesbelowthe200EMAonthedailychart,itmeansthatthetrendisdownonthedailychart.Therefore,anytradesenteredonthe4hchartaccordingtoyourtradingsystemshouldonlybeenteredinlinewiththedailytrend.Thisisthewaybywhichyoucanavoidseverelossesandachievelong-termsuccess.Letmeshowyouatradesetuponthe4hchartgeneratedbymyFollowPriceActionTrendstradingsystem:
Inthe4hchartabove,atradesetuptookplaceaccordingtomytradingsystematthatlevelwherethetrendchangedfromdowntrendtouptrendonthe4hchart.Ishouldhaveboughtthispairatthatcircleinthechart.Well,youcanclearlyseethatpricewouldhavegoneforawhileinmyfavoronlytoretracebackdownlatereatingallmygainsandhittingmystoplosslevel.Isthetradingsystemnotgood?Thetradingsystemisverygoodbecauseitkeepsmeoutoflosingtradeslikethisone.Italwaystakesintoaccountthedailytrend.Andthedailytrendforthatpairatthatmomentwas:
Well,thedailytrendwasclearlydownatthemomentwhenIwassupposedtoenterthebuyorder.Thepriceactionforthatpairatthatmomentwaswaybelowthe200EMAonthedaily.Youcanseehowpricejusttouchedthe200EMAonthedailychartandbouncedbackdownlikecrazytoresumethedowntrend.Accordingtomytradingsystem,Iwouldhavetakenthistradeonlyifthepairhadbeentradingabovethe200EMAonthedailychart.Mytradingsystemkeptmeoutofthislosingtradebecauseitalwayslooksatthebiggerpicture,yoursshoulddothesame.Whenyougetmore
experiencedandyouwanttostarttradingonalowertimeframelikethe1-hourorthe30minutesthebiggerpictureinthiscasewillalwaysbethe4htrend.However,Idonotrecommendyoutograspthe4htimeframetrendjustbylookingatthe200EMA.Themovingaverageworksbesttofindthetrendonthedailychart,forthetrendonthe4hchartyouwillhavetoreadthepriceactioninordertogetthebestresultpossibleoutofyourtrading.Youmustdeterminethetrendonthe4hchartbyreadingthepriceaction,themovingaverageisnotthatcorrectonthistimeframeanditcanleadyoutolosses.Thesmallerthetimeframe,thelessaccuratethe200EMAbecomes.TheFollowPriceActionTrendstradingsystemteachesyouwithgreatdetailhowtospotpriceactiontrendsonthe4hcharts.Inaddition,theDayTradingForexwithPricePatternstradingsystemdoesagreatjobteachinghowtocorrectlyestablishthepriceactiontrendonthe4hchartsbutwithadifferentapproach.
SolidmoneymanagementThetechnicalpartofyoursystemdiscussedearlieronlysolveshalfoftheproblem.Theotherhalfandequallyimportantisrepresentedbythemoneymanagementcomponent.Averygoodmoneymanagementtechniquegivesyoutheopportunitytobeextremelyprofitablewithyoursystemevenifletussay,outoftentrades,fivearelosers.Ofcourse,ifyoubuildyoursystemrespectingalltherulesaboveandtherulesthatwillfollowyouwon’tbeinthissituation,butifforanyreasonyoushouldfindyourselfinit,correctandstrictmoneymanagementruleswillmakeyouprofitableeveninsituationslikethismentioned.
PositionsizingThisisthefirstruleofmoneymanagement.Foryoursystemtobeagoodone,itmusttellyouhowmuchmoneyyouaregoingtoloseonatradebeforeyouenterthetradeinthemarket.Toachievethisyoumustfirsthaveachatwithyourselfandthinkaboutwhatpercentageofyourequityyouarewillingtoriskonatrade.Myadviceisdonotriskmorethan2-3%pertrade.Next,yourtradingsystemshouldgiveyoutheexactlevelswhereyouwillenterthetradeandwhereyouwillplacethestoplosslevelbeforeyouenterthetrade.Letusdothefollowingexercise:Youhave1000$inyourtradingaccountandyoudecidedthatyouwillonlyrisk2%ofyourmoneyperonetrade.Thismeansthatforthenexttradeyouwillhavetorisklosingonly20$.Now,whenatradesetupbeginstotakeshape,youdecidewhereyouwillenterthetradeandwhereyouwillsetthestoplossaccordingtoyourtradingsystem.Letussaythatyoufindoutyouwillhaveastoplossof50pipsforthistrade.Thismeansthatifthetradegoeswrongandyourstoplossishityoushouldloseonly20$.Youthendivide20$/50pipstoseethevalueindollarsforeverypipthatyoulose.Andthatvalueis0.4$.Thismeansthatforeverypipthatgoesagainstyoutowardsyourstoplossyoushouldloseonly0.4$.Onlyafteryouhavethisvalueyoudetermineyourordersize,whichisasimplethingtodosincenowyouknowthepipvalue.Thismeansyouwillhavetotradewithanordersizeof0.04lots(4000$).Ifyoulosethetrade:50pipstoplossmultipliedby0.4$perpipequals20$.Youhavetodothiseverytimewhenpreparingtoenteratrade,alwaysdetermineyourordersizethisway,manageyourrisk,alwaysputthebadscenarioinfrontnomatterhowpromisingandrewardingthepotentialtradelooks.Don’tyoueverthinkabouthowmuchmoneyyoucouldwinonthatonetrade.Thiswillmakeyouemotional,itwillcloudyourjudgment,andyouwillbetemptedtoenterwithabigordersizetowinmoremoneyoutofthetrade.Instead,alwaysthinkofhowmuchmoneyyoucouldloseanddothemathexplainedearliertodeterminethesizeofyourorder.
Risk-RewardratioYoursystemshouldspottradesetupswheretherewardisatleast2timesbiggerthantheriskforeverytrade.Thismeansthatapartfromtheentryandstoplosslevels,yourtradingsystemshouldtellyouthetakeprofitlevelalso.Youshouldknowbeforeenteringthetradewhatistheriskandwhatisthereward.Ifyoursystemgivesyoutradeswheretherewardisnot2timesgreaterthantheriskorworse,therewardissmallerthantheriskforeverytradethenitisnotagoodtradingsystem.Youwillloseyourmoneyinthelongterm.Wheneveryoursystempresentsyouatradelikethis,donottakeit,nomatterhowpromisingitlooks.Letusdoanotherexercisetoseehoweasyitistobeprofitableifyouhaveagoodsystemwithsolidmoneymanagementrules:youhaveasystemthatgivesyoutradeswith1:3risk-rewardratioormore.Thismeansthatforeverypipyourisklosing,therewardis3timesgreater.Ifyouenteratradewith50pipsstoplossthismeansthatyourprofittargetis150pips.Letussaythatonagivenmonthyoumade15tradesaccordingtoyoursystem,eachofthemwitha50pipsstoplossand150pipsprofittarget.But,themarketwentcrazythatmonthandoutofthose15tradesonly5ofthemwerewinners.10werelosers.Therefore,youhaveonlymanageda33%successrateswithyourtradingsystem,whichisverylow.Hereiswheremoneymanagementshowsitsvalue.Letusdothemath.Youlost10tradeswith50pipsstoplossoneachofthem.Thismeansyoulostatotalof500pipsthatmonth.Youonlywonfivetrades.Withtheprofittargetbeing3timesgreaterthantherisk,thatis150pipswonpereverytrade,thismeansyouhavewonatotalof750pipsonthatmonth.Therefore,youhavelost10tradesoutof15whichisdreadfulbutyou’vestillmadeaprofitof250pipsonthatmonththankstomoneymanagementrules.
StoplossplacementYourstoplossshouldexistforeverytrade,butthestoplossmustalwaysbesetatlogicalplacesinthemarket,notrandomly.Myadvicetoyouistoalwaysputyourstoplossatthelevelwherethepricehasverylittlechancetoreachgiventheconditionsofthemarketatthatmoment.Letusseeanexample:
Asyoucansee,whenyousell,youputyourstoplossjustabovetheswinghighsthatpricemakes.Whenyoubuy,youputyourstoplossjustbelowtheswinglowsthatpricemakesonitswayup.Ifatthetimeyourtradingsystemgivesyouapotentialtradeyoudonotseealogicalpointinthemarketliketheseinthechartabove,youdonotenterthetradenomatterhowlucrativeitmightappear.
Patience,noemotions,nooutsideinfluenceThisdoesnothavemuchtodowithmoneymanagementbutitisveryimportantandithastobeoutlined.Withoutpatiencewhentradingintheforexmarket,youhaveonlysmallchancesofsuccess.Ifyouconstructyourselfatradingsystemand2or3daysgobywithoutatradesetupyouhavetobepatient,thesetupwillcome,don’tstarttobendtherulesandchasetrades,thereisnorulethatsaysyouhavetotradeeverysingledayinordertomakemoney.Forexisaboutpatientlywaitingforthemarkettopresenttoyoutheperfectconditionsforawinnertrade.Respectyourtradingsystemandtradeonlybyitsrules,thetradeswillcome.Donotbeemotionalwhentrading,leaveyouremotionsatthedoor,anddoexactlyasthesystemtellsyoutodo.Ifyoursystemtellsyouthatyouhavetotrailmanuallythestoplossaboveeveryswinghighbutthetradehasalreadygone100pipsinyourfavoranddidnotmakeanyswinghighyet,wait.Leaveyourstoplossatitsoriginalplace;donotthinkemotionally,thatyouhavetosecurethose100pipssoyoudonotlosethem.Thismakesyoulosemoney.Completelydisregardanycommentsfromindividualsonforexforumsthattellyoutobuyorsellbecausetheyhavetheholygrailandtheyknowbetterthanyouwhatisabouttohappen.Onlytradewhatyoursystemtellsyoutotrade,donotletyourselfbeinfluencedbyanyone,nomatterhowconvincingtheysound.Ifyoupayattentiontosomefellowthattellsyoutobuyaspecificpairyouwillloseyourclearandunbiasedjudgmentandwithoutevenknowingyouwillstarttobrowsethroughthechartslookingfortradesetupsthatsustainthatguy’stheoryandthathavenothingtodowithyourtradingsystem.Itisyourmoney;wouldn’tyoufeelstupidifyouwouldlosethembytradingwhatsomeoneelsesuggestsyouto?
Don’tdothisNow,afteryoufinallyconstructyourtradingsystemaccordingtoalltherulesaboveyoumustlearnhowtoavoidmakingmistakeswhenputtingyoursystemtowork.
PricepatternbreaksIfyoursystemincludestradingpricepatterns,youmustknowthatforapatterntobeconsideredbrokenpricemustcloseoutsideofit.Ifyouhaveatradingsystemusingpricepatternbreakstosignalyourentrythenyoumustwaitforacandleorbartocloseoutsidethepatternonthesametimeframewhereyouspottedthepattern.Donotmakethemistaketospotapatternonthe4hchartandthengothe15minuteschartandwaitfora15minutescandletocloseoutsideandcallthisabreakofthepattern.Ifthepatternresidesonthe4hchart,youmustalwayswaitfora4hcandletocloseoutsidewithmomentum,meaningthatthecandleshouldhaveatleasthalfofitsbodyoutsidethepatterntoconsideritabreak.Letusseeanexample:
Inthechartabove,youhaveadescendingtrianglepattern.Youcanseethatthereisacandlethatclosesbelowthepatternbutonlywithsmallpartofitsentiresize.Onthenextcandle,pricequicklyretracesbackintothepattern.Thisisnotapatternbreak.Thenextcandlethatclosesoutsidethepattern,youcanseethatitdoessostrongly,withmomentum;
3quartersofitslengthareoutsidethepattern.Thisisapricepatternbreak.Ifyouarelookingforapowerfultradingsystemwithpricepatternsandpriceactiontrendsthatcandelivermorethan1000pipspermonthyoucancheckoutmybookDayTradingForexwithPricePatterns
CandlestickconfirmationIfyournewlydevelopedsystemusescandlestickpatternstoconfirmthetradeentryyoumustalwayswaitforthatcandlestickpatterntocomplete.Waitforthelastcandleofthepatterntoclosebeforeyouenterthetrade.Ifrightatthecloseofthepatternthereissomeimportanteconomicnewscomingouttheycouldinvalidateyourpatternandwithityourentrysignal.Rememberthatcandlestickpatternsworkwellbecausealotoftraderswatchthemandactonthem.Ifyouenterbeforethepatterncompletesandwhenthelastcandlefinallyclosesyouseethatthepatternisnotvalidanymorethenalotoftraderswillnottradeatthatlevelbecausethereisnovalidpatternsoyouwillbeintheminority.Theminorityalwayslosesinforex.Inaddition,youhavetoknowthatcandlestickpatternshavetheirgreatestsuccessratewhenfoundatpriceextremes.LetmeshowyouwhatImean:
Allthepatternsinthechartabovearesituatedatextremesofprice.Thereisnorecentpriceactionatthatlevelprecedingthem.Thesekindsofcandlestickpatternshaveaveryhighrateofsuccess.Ifyourconfirmationpatterntakesplaceatalevelwherepriceactionistrading
sidewaysitmightnotbeaverygoodconfirmationsignal.
FibonacciretracementlevelsIfyouuseFibonaccilevelsinyourtradingsystemthenalwayswaitforthepricetotouchthelevelyouarewatchingbeforeyouconsiderenteringatrade.DonottradeifthepricecomesclosetoyourFibonacciretracementlevelbutdoesnottouchit.LetmeshowyouwhatImean:
InthefirstattemptpricecomesclosetotheFibonaccilevelbutdoesnottouchit.Itevenmakesareversalcandlestickpatterntheresuggestingthatpricewillresumethetrenddownbutsoonafterpriceclimbsbacktothelevelthistimetouchingandpiercingit.Thisisthetimetotrade.Ifyouhadsoldonthefirstattempt,youwouldhavehadyourstoplosshit.
SupportandresistanceWhentradingwithsupportandresistancelevelsmakesurethatyoudrawthemostimportantones,thepivotaloneswherepricebouncesofthemfromeitherside.Thesepivotalsupportandresistancezonesarebyfarthemostimportantonestheyattractthemostattentionfromthetradersoutthere.Donotbeatyourselfupwithsmall,meaninglesssupportandresistancezones.Theyareallovertheplaceandtheywillclutteryourchartsfornothing.Letmeshowyouwhatapivotalsupportorresistancezonelookslike:
Youcanseeherethatpricecomingfromtheupsidebounces3timesofthesupportshowbytheredline,finallygoesbelowit,andthenstartstobounceoffofitcomingfrombelow4times.Itisnowresistance.Itfinallybreakstotheupsideandatthetimeofthiswriting,thatzonehasturnedintosupportagainbecausepriceiscomingagainfromtheupsideandbouncesoffthatlevel.Theseareverystrongsupportandresistancezonesthatyoualways
havetotakeintoaccount.
CuttingprofitsshortThisisaverycommonmistakemadebynovicetraders.Whenatradegoesinyourwayfor100pipsdonotcloseitinfearthatpricewillcomebacktotheentrylevelandeatallyourprofits.Respectthetradingsystem’srulesandletthetraderununtilithitsyourprofittargetoruntilithitsyoustoplosslevelthatyoumanuallytrailedaboveorbelowswingsinthemarket.Youwillnevermakemoneyifyoukeepcuttingyourprofitsshortbecauseyoufearoflosingthem.Howwouldyoufeelifafteryouclosethetradewith100pipsinprofit,pricegoesonfurtherandhitsyourtargetlevelat200pipsinprofit?
LettinglossesrunThisisalsoaverycommonmistakemadebynovicetraders.Whenyouseethatpriceisgoingtowardsyourstoplossdon’tevermoveitfurtherawaythinkingthatitisjustaspikeinpriceandthetradewillgoyourwayeventually.Thesecondyouremovethatstoplossfromitsinitialplacedecidedbythesystemyouconstructedyouputyourselfundergreatrisk.Acceptthesmalllossandwaitpatientlyforthenexttradesetup.Therewillbesomeoccasionalloses;nosystemisperfect,justbecauseyouhadalossdoesnotmeanthatyouhavetochangethesystembecausethereissomethingwrongwithit.Acceptthesmalldrawdownandleavethestoplosslevelinitsplaceotherwise,insteadofa20pipsloss,youwillquicklyfindyourselfinapositionwhereyouhavenochoicebuttoacceptamuchbiggerloss.Itdoesnotmatterifyouloseonetrade,asyouhaveseenearlier,youcanbeprofitableevenifyouonlywin33%ofyourtradeswithsolidmanagementrules.
RevengetradingIfyouloseonetrade,keepcalm,donotthinktoyourselfthatyouhavetorecuperatethelossrightaway.Thisistheworstthingyoucoulddo,toenterthemarketrandomlyandwithabiggerordersize,notobeyingyourtradingsystem,thinkingthatyoumustgetbackthemoneyyoulostotherwiseyouwon’tsleepwellthroughthenight.Thisiscalledrevengetrading,anditcloudsyourjudgmentsohardthatyoucouldloseallyourhard-earnedmoneyinasingleday.Closethecomputerandgoaboutyourbusiness.Tomorrowisanotherdayandyouwillgetthemoneybacksurelyifyoutradeaccordingtoyourtradingsystem.
50PipsADayForexStrategy
Components200periodsExponentialMovingAverageSupportandResistancelevelsCandlesticksThisisaclean,easytofollow,andextremelyprofitabletradingstrategytogetyoustartedintradingandtoputyouonthepathofconsistentprofitability.Itisbettertotradewiththisstrategyonthe4hchartbutyoucantradeitonthedailyaswell.Thebiggerthetimeframe,themoreimportantitisfortheoverallmarketmovements,therefore,themoreprofitableyourtradingwillbe.Itisveryeasytounderstandandtoputinpracticeimmediately,anyonecandoitiftheyknowthebasicsofhowtheforexmarketworks,whataforexpairis,andhowtoopenandcloseanorder.Iwillnowexplainhoweachofthethreecomponentshelpsustowintradeswiththisstrategy.Themovingaveragetellsuswhatthemaintrendisonthe4hchart.Thisisverysimpletodo,justplotthe200EMAonyour4hchartandobservewherethecurrentpriceissituatedinrespecttothemovingaverage.Ifthepairatthecurrenttimetradesabovethemovingaveragethentheoveralltrendisup,ifittradesbelowthemovingaveragethenthetrendisdown.Themovingaverageitselfmusthaveaclearslopeinonedirection.Thismeansthatforyoutoconsiderthatthetrendonthe4hchartisupthemovingaveragemustbeslopingupwardsandthepairhastobetradingaboveitatthattime.Foradowntrend,themovingaveragemusthaveaclearslopedownandthepairhastotradebelowit.
Thisdiagramshowsexactlyhowtospotanuptrend.Afterweestablishthatthereisacleartrendwethenmoveontothenextlevelandwewilltrytofindasupportorresistancelevel.Ihavetoldyouthatthemovingaveragehelpsustogaugethetrendonapair.Ifwefindatrend,wegoonfurtheranalyzingthatpairtofindasupportoraresistancelevel,whereitismostlikelythatwhoeverisinchargeofthatpair(thebuyersorthesellers),willpickupthepace,andresumethetrend.Thesupport/resistancelevelhastobeadiagonaloneandthetrendlinedrawnonthecharttoconstructithastobeslopingagainstthetrend.Youdrawthistrendlineonyourchartbyconnectingatleasttwodistinctpointsinthemarketalthoughthreepointswillbebetter.HereiswhatImean:
Inthisdiagram,youcanseethatafterrecognizingacleardowntrendwemoveforwardtodiscoverthreeresistancelevelsoneafteranother.Onthefirstonewedrawatrendlinetoconnectthethreedistinctswinglowsfoundthere,onthesecondone,wehaveonlytwodistinctpoints,andonthethirdone,wehavefourpointstoconnectwithatrendline.Themorepointstherearetoconnectthebetter,themoreimportantthesupport/resistanceis.Youcanalsoseethatallofthesethreelevelsarepointingupagainstthemaintrend,whichisarequirementforthistradingstrategy.Thesethreelevelsatfirstservedassupportforpriceactionbutoncetheywerebrokentothedownside,theyturnedintoresistancelevels.Now,aboutthethirdcomponentofthisstrategy.Thisstrategyusescandlestickstoentertrades.Afterfindingacleartrendandasupportorresistancezone,youhavetowaitforpricetogobacktothatsupport/resistancelevelandretestit.Thisiswherethecandlestickscomeintoplay.Beforeyouenteratradeinthedirectionofthemaintrend,therehastobeacandlestickconfirmationthatthetrendisindeedresuming.Youwillbelookingforbigbodycandlesticksthatcloseatornearthehighorlow,whichshowsthatthereismomentuminthemarketandthedominantside(buyersorsellers)havedecidedtostepinandcontinuethetrend.LetmeshowyouthesamechartaboveagaintoseewhatImeanbyretestoftheresistancelevel:
Youcanseethateachtimethesupportwasbrokentothedownside,itturnedintoresistanceaspricegetsbackuptoretest/touchthetrendlinepreviouslydrawn.Itwillnotalwaystouchthetrendlinelikeintheexamplesabove;sometimesitwillgetnearitandthenresumethetrendwithoutatouch.Thisisalsoaretest.Inthediagramabovewherewehaveacleardowntrendandresistancelevelsinplace,wealsohavenowretestmovements.Afterthispointwewillbelookingforbigbearishcandlestickswithbigbodiesandwithnoorsmallwickattheclosetosignifythatthesellershaveenteredintothemarketagaintopushthepricefurtherdownandextendthetrend.Letuslookatthesamechartagainbutthistimefocusingonwhathappensaftertheretest.
Thisisthefirstresistanceleveloutofthosethree.Thereisatouchoftheresistancetrendlinemadebythatbigbullishgreencandle.Afterthispricemakesthreeverysmallcandlesthattellusthislevelofpriceisakeylevelwherebuyershaveaveryhardtimetryingtopushthepricefurtherup.Thistypeofcandlesrepresentsindecisioninthemarket,representsequilibrium.Fromthebeginningoftheretest,buyershadnoproblempushingthepriceupwhichyoucanclearlyseebythosebigconsecutivebullishgreencandles.Whenpricegottheresistancelevel,thesituationchanged.Asthemaintrendwasdown,sellerswereincontrolofthispairandtheywerejustwaitingforamoreadvantageousleveltosellagainthispairandresumethedowntrend.Theseadvantageouslevelsarealwayssituatedatasupportorresistancelevel.Itcanbehorizontalsupport/resistance,itcanbediagonalliketheoneswearediscussing,itcanbeaFibonacciretracementlevel,whichalsoactsassupportandresistance,itcanbethe200periodmovingaverageonthedailychartoritcanbeacombinationofsomeoralloftheabove.Theimportantthingtorememberisthatthesearelogicalpointsinthemarketwherebuyersorsellersaremostlikelytostepinandresumethemaintrend.Okay,afterthosethreesmallcandlesthattellusthebuyersarelosingtheirpower,comesabigredbearishcandle,muchbiggerthanthe
precedingthree.Thiscandlehasabigbodycomparedtotheprecedingcandlesandalsoclosesnearitslow.Thiscandleisthefootprintofthesellerscomingintothemarkettopushthepricebackdownandresumethetrend.Thecloseofthiscandleisthelevelwhereyouwouldhavetosellthispair.Whenlookingafterbigcandlestoenterthemarketafteraretestofsupport/resistanceitisimportanttoalwayscomparethatcandlewiththepreceding2-3-4candles.Theentrycandlealwayshastobebiggerthantheprecedingones,hastohaveabigbodyandcloseatornearthelowifitisbearishoratornearitshighifitisabullishbigcandlethatsignifiestheuptrendwillresume.YoumightthinkthatIamexaggeratingtheimportanceofthisentrycandle.Well,tohelpyourealizewhatitreallymeansandwhyIsayitisthefootprintofthesellerscomingintothemarket(inthisdowntrendexample)youmustthinkofthese4hcandlesfromatimeperspective.Beforethisbigredcandleintheexampleabovetherewerethreeverysmall4hcandlesthatdidnotpushthepriceupordown,itjusttradedthereinaverysmallrange.Whenthebigcandleemerges,weseethatthepricepusheddownandawayfromthatsmallrange.Thissignalcandleisbiggerthanalloftheprecedingthreecombinedanditwasformedin4hours.Thelastthreetook12hourstoform.Thisiswhatshowsusthesellershaveenteredthemarket.Inonly4hours,theymanagedtomovethepricedownmorethantheydidinthelast12hours.Letusseethesecondexample:
Inthissecondexample,youcanseethataftertheretestoftheresistancetrendlinetherearethreebearishcandleswithdecentbodysize,whichwouldimplythatsellershavesteppedintothemarketagain.However,thefirstcandleofthesethreeisprecededbyahugebullishgreencandle.Thisisnotoursignaltosell.Thesecondoneisbiggerthanthefirstandalsohasnobigcandlesprecedingit.However,youcanseethatitdoesnotcloseatornearitslow,ithasabigwickthere,pricehasretracedfromthelowofthiscandleandclosedalmostatitsmiddle.Thisdoesnotgiveusthemomentumwewantwhenenteringatrade.Finally,thethirdcandlemeetsourrequirements;therefore,weentertheshorttradeatthecloseofthiscandle.
Thisthirdexampleisaveryinterestingonebecauseitbringsupanimportantpointaboutretestmovementsofsupportandresistancelevels.Youseeherethatafterpricebreaksthetrendlinetothedownside,itcomesbackupveryquicklytoretestit,atrendlinethathasnowturnedintoresistance,andthenitmakesabearishredcandlethatcouldmeansellershaveenteredthemarket.However,thisisthe4hchart,thisresistancelineholdsgreatsignificance,ittookquitesometimetodevelop,andalotof4hcandles,theretestabsolutelyhastobebiggerthantwo4hcandles.Thisiswhyyouwouldhavetodisregardthatfirstredcandleasasignaltosellcandle.Itcomeswaytooearly,theretesthastobebiggertwocandles.Ifthiswouldhavebeenthe5minutesorthe15minuteschart,andtheresistanceleveldevelopedin3hoursorsothenyes,theretestcouldhavebeencomposedofjusttwocandles.Still,thisisaveryimportantresistanceonthe4hchartthattookdaystodevelop;theretestwillmorethanlikelybebiggerthantwocandles.Afterthisredcandle,weseethatthereareadditionalcandlesthatjuststagnatearoundthatareacompletingtheretestoftheresistancelevel.Finally,wehaveavalidsignalcandlethatindeedpushesthepricewaydown.
StoplossmanagementandtakeprofitlevelsNowthatyouknowhowandwhentoenteratradeletusdiscussaboutwheretosetyourstoplosslevels,howtotrailthemmanually,andhowtodetermineyouridealtakeprofitlevels.Theinitialstoplosslevelthatyousetwhenenteringthetradehastoalwaysbesetataboveorbelowthelevelwheretheretestofthesupport/resistanceends.Afterthis,whenpricegoesinyourfavoryoutrailmanuallyyourstoplossaboveorbeloweveryswing/turningpoint/minorsupportorresistancepricemakes.Inadditiontothis,youwillalsobedeterminingyourtakeprofitlevelbeforeyouactuallyenterthetrade.Thisisveryimportantfromthemoneymanagementperspectivebecausetherewillbesomerareoccasionswhenaftercalculatingyourtakeprofitandstoplosslevelbeforeenteringthetradeyouwillfindthattheriskyouwillbetakingwiththattradeisgreaterthanthepotentialreward.Otherwisesaid,youwouldhavetorisklosingmorepipsthanyoucouldpotentiallywinwiththatparticulartrade.Therisk-rewardratiointhiscaseisnotasatisfactoryone.Whenyoufindtradeslikethis…DONOTTRADE.Waitforthenextopportunity.Moneymanagementmakesyouprofitableinthelongrun;alwayskeepthisinmind.Beverydisciplinedwhenanalyzingchartsandenteringtrades.Alwaystreattradingasabusinessandnotasagame.Letusseeanexampleofhowtomanagethestoplossandtakeprofitlevels.
Thisisthatfirstresistancelevelwetalkedabout.Beforeenteringthetradeatthecloseofthesignalredcandle,youpredetermineyourtakeprofitlevelinthefollowingway:joinwiththetrendlinetwopoints,thefirstswingoftheresistancetrendlineandthepointwheretheretestmovementstarted.Thefirstswingoftheresistanceistheupperblackcircleinthischartandthestartoftheretestisthesecondblackcircle.Afterthis,extendthistrendlinedown,andwherethefuturepriceactionwilltouchit,thatisyourtakeprofitandthelevelwhereyouexitthetrade.Thestoplosswillbesetinitiallywheretheretestfinishedlikeshowinthischartandafterthis,aspriceprogressesdownitgivesyoulogicalturningpointsinthemarketwhereyoucantrailthestoplosslikeinthischart.Alsointhisexample,youcanseebeforeenteringthetradethattheriskisfarlessthanthereward.Thiswasa420pipswinningtrade.
Inthissecondexample,thetrendlineforthetakeprofitlevelextendsfaroutofreachforthepriceaction,butaslongastherewardisgreaterthantheriskanditis,youwillhavenoprobleminenteringthetradeandtrailingyourstoplossaboveeveryturningpointuntilitfinallygetshit.Thistradeactuallywentmoreinfavorthanthischartshowsandgave550pipsofprofit.
Thisistheexamplewiththatsmallretest.Beforeenteringthetrade,youdrawthetrendlinetofindoutwhereyourpotentialtakeprofitwillbeandyouseethatyouwouldhavetoexitthetradebeforeyouevenenteritwhichisofcoursenonsense.Inaddition,ifthattrendlinewouldhavebeen10pipslowerandyouwouldhavethechancetoenterthetrade,thiswasstillnotagoodtradebecausetheriskwouldhavebeengreaterthanthe10pipsreward.Stayoutoftradeslikethisone.Therewillbeplentyofopportunities,thesekindsoftradeshappenfrequently.Analternativewaytopredetermineyourtakeprofitlevelwhenthefirstmethodrendersthetradeunsatisfactorybecauseofthehighriskandlowrewardisthefollowing:
Connectwithatrendlinethelastminorswingthepairmadebeforethetrendlinewasbrokentothedownside(inthecaseofadowntrend)andthesamestartoftheretestmove.Usewhichevermethodgivesyouabettertakeprofitlevelaslongasitisnotexaggeratedandyouthinkthereareextremelylowchancesthatthemarketwillactuallygotothatlevel.Ifthismethodalsodoesnothelpyouachieveagoodrisk-rewardratiothenignorethetradecompletely.Asecondmethodthatyoucanusetotakeadvantageofthefactthateverysupportbecomesaresistanceandeveryresistancebecomesasupportlevelaftertheyhavebeenbrokenittousethesamerulesaswiththemethodabove,butapplyingthemtohorizontalsupportandresistancezonesthistime.However,withthediagonalsupportandresistancezonesyouhaveseenthattheyareformedbyconnectingtwoormoredistinctswingsinthemarket.Withthehorizontallevels,oftentimes,youwillnothaveaseconddistinctswingthatyoucanusetodrawahorizontalline.Knowingthis,youmustleavethecandlestickchartandgotothesame4-hourschart,butabarchartthistime,andzoomedoutcompletely.Letmeshowyouanexampleofthis.
Pleasenotethatthesehorizontallevelscomeintoexistencejustbydrawinganextendedhorizontallineatthelevelwheretheimportantswingsinthemarketare.Ifyouwanttotradetheretestoftheselevelssuccessfully,youhavetomakesureinitiallythattheyholdgreatimportancetotheoverallmovementsofyourparticularforexpair.Awaytomakesureofthisisbyzoomingoutcompletelythechartlikeintheexampleabovetoseethebigpictureofthepriceactionmovements.Thisway,youcanputyoursupportorresistancelevelintocontext,youcanjudgebylookingatthesurroundingpriceactionifaswingisindeedimportantornot.Forexample,inthechartabove,afterthefirsthorizontallevel,thereisaminorswingthatpricehasmadethere.YoucanseethatIhavenotconsidereditasIthinkthatthisswingissmallerthantheprecedingonesonthispairanditdoesnotholdgreatsignificancetotheoverallcontextofthispair.Inadditiontothis,afterthelasthorizontallevelthatI’vemarkedontheabovechartthereatthetop,youcanseethatpricegoesdownforawhile,onlytocomebackupagainandresumetheuptrend.Atthispointintime,ifIwaslookingatthezoomedincandlestickchartinsteadofthischart,Icouldhavemadethemistaketothinkthatthoseswingsthepricemakesonitswayup,aresignificantforthebigpictureonthispairwheninfact,theyholdnosignificanceastheyarecontainedwithintheswinghighthatmakesuptheforthhorizontal
resistancelevelonthischart.However,thisisonlyvisiblewhenlookingatthezoomedoutchart.Letusseethischartagaintoexplainthis.
Afteryouidentifythesemeaningfulhorizontallevels,youwillhavenoproblemtradingaretestofthem,exactlylikeinthemethodabovewiththediagonalsupportandresistanceareas.Letusseeanexample:
Asyoucansee,thingsareclearinthistradeexample.Themovingaverageisslopingupandthepairistradingaboveit.Thereisaclearuptrend.Youzoomoutthechartandyoufindthatthisswingisactuallyquitesignificantbylookingatthebigpicture.Youdrawtheextendedhorizontallineandyougobacktothecandlestickzoomedincharttowaitfortheretesttotakeplace.Theretestdoesindeedhappenrightatthehorizontalsupportlevelandsoonenough,youhaveaconfirmationthatthebuyershaveenteredintothemarketagainatthislevelandtheyaremostlikelytopushthepriceupwardsandextendtheuptrend.Theconfirmationisrepresentedbythatbig,green,bullishcandlethatisalsoyoursignalcandletoenterabuyorder.Thebuyorderisopenedatthecloseofthesignalcandleofcourse.Trademanagement(stoplossandtakeprofit)ismadeexactlylikewiththediagonallevelsmethod.Thisisaboutit.IhopethishelpsyouinyourtradingIntheendIwouldliketoapologizeifIsoundalittletorigidinmyexplanationsandifthereareanymisspellings.Englishisnotmyfirstlanguage.IamdoingthebestIcan.
IfyoufindthatthisaddsvaluetoyourtradingpleaseconsiderwritingareviewofthebookonAmazon.Itdoesnothavetobelong,justafewwordstostateyouropinionaboutthetradingsystempresentedinordertohelpotherpeoplemakemoreinformeddecisions.Pleaseemailmeafterwardsatdamirlaurentiu@yahoo.comandyouwillreceivethePDFversionofthise-booksothatyoucanreaditmoreeasilyandprintthecontentsonpaperifyouwant.
50PipsADayForexStrategy
Thankyouverymuchandhappyforextrading.
Also,ifyouareinterestedincompleteforextradingpriceactionsystemsthatrespecttothelettereverysinglepieceofinformationfoundinthisbook,thereforemakingthemverysolidtradingsystemsthathavethepotentialtomakethousandsofpipspermonth,youcanhavealookatthembyfollowingthelinksbelow:
TradethePriceActionTradetheMomentum
FollowPriceActionTrendsDayTradingForexwithPricePatternsDayTradingForexwithS&RZones
ForexRangeTradingWithPriceAction
ThesetradingsystemsarealsoavailableinPDFformatifyouwanttobeabletoprintthemandreadthemmoreeasily.Herearethelinks:
TradethePriceActionTradetheMomentum
FollowPriceActionTrendsDayTradingForexwithPricePatternsDayTradingForexwithS&RZones
ForexRangeTradingwithPriceAction50PipsaDayForexStrategy
Inaddition,Ihavecombinedalloftheabovetradingsystemsintoone
