My goal here is to start discussion about trading the forex market. Through the use of both fundamentals and technical analysis. From the fundamental point of view, emphasis is on: risk on/risk off; global currency flows, bond rates and their reaction to various central banks decision(especially, european/usa monetary policies); carry trades equilibrium, commodities appreciation and depreciation(especially gold and oil) with regards to currency correlations(e.g usd/cad, aud/usd); fundamental reports(gdp, inflation numbers, quantitative easing policies, pmi numbers, current account balanceetc) and market reaction as indicators. Of course, observing how various stock market indices, such as the DAX, FTSE, CAC, S&P handles market info. All this to ascertain the major direction of each nations currency with respect to the others. I am sure i am missing a couple of things.
From the technical point of view. My main focus is the use of S/R levels and trendlines. Confluence trading using s/r levels and trendlines intersection to determine trades. With an eye towards the fundamental and technical structure of higher time frames(monthly, weekly, daily) to guide the direction of the trend. Some of the things that i have noticed about trading S/R and TL confluence on larger time frame is that, whenever or where ever they occur, they hardly occur in isolation. They also tends to be part of another pattern, i.e., the TL could be part of a pennant formation or a channel or a head and shoulder or a double top/bottom, ascending/descending triangle, or flag formation, or Gartley formation, etc.
For the S/R Levels or demand and supply zones, it is not uncommon for some of them to concide with flat top/bottom triangles or rectangle formations. All these different formations probably serves to bring in other players looking at different things to put their money at that spot of confluence.
Also, it is not at all unusual to see FIB levels zones of 38 or 50 or 61 in close proximity to the confluence spot. Which probably brings in the fib players.
Since focus is on H4 and above, most likely the confluence spot will fall very close to a round number psychological area, which has its attraction for some people.
Even candlesticks comes into play here, because when you zoom into candlesticks, there are times when a candlestick is just a classic chart pattern when viewed from a lower time frame. Try this, go to monthly time frame and choose any random candlestick. Mark its boundaries. Then go to lower and lower time frame to view those boundaries. I can almost guarantee it, that the weekly candlestick will morph into one of many classic chart patterns within those boundaries when viewed from lower time frames. In essence, the candlestick trader could be trading S/R and TL confluence while trading his candlesticks.
Basically, what i am saying is that the reason why S/R and TL confluence on higher time frames shows such remarkable success rate could be because of the converging different styles of traders focusing on the confluence spot for whatever personal reasons.
Maybe this is why confluence on higher time frames(where it gets more noticed by different traders with different style)works so well. Due to many different style of traders putting their money down around that spot for whatever different reasons.
Bottomline here is this: the way i see it is that i dont even need to see all these other patterns, when all i need is a confluence of S/R and T/L. That is it. That take care of everything. Which goes to a hypothesis: most technical chart patterns and candlesticks are simply S/R and TL, or (S/R or TL) when you really think about it.
HOW DO I MAKE THE MOST OF THIS?
In trading, it is my core belief that we have to balance win ratio with return on risk. The higher the win ratio, the lesser the return on risk; and vice versa.
A trading system that combine win/loss of roughly 60% along with a regular 8R to 20R(r:r of 1:8 or 1:20) are very rare, if they even exist at all. That is my little observation about trading.
AXIOM: Any system with a high R/R ratio must use a higher time frame for setups and lower time frames for entry. The greater the differential, the better.
Now, how does one take care of the poor win:loss ratio that plagues such a system.
There are other solutions, of course. But the one that has worked for me is to combine/hybridized a scalping system on a lower time with a trend trading system of higher time frame. That is, enter at the entry point of the scalp(1mins to 15mins), but use the PT of the trending trading system(H4 to weekly). If the scalping system has a respectable win/loss of say, 60% and above; and the trend trading system has a respectable win/loss of say 60% and above. We are in business. Of course, there is going to be a sizable dose of breakevens, this is the nature of the beast. It is essentially a trading system within a trading system. A hybrid. This is optimal for high risk/reward, of say, 8R or 20R with a win rate of 60%. It is risking around 4pips to 15 pips to make 100pips to 243 pips or higher.
Trend trading breakouts for my higher time frame strategy has this structure: higher highs/lows or lower lows/highs. (i cant really post image links until i have 10 posts - roosh rules)
The higher time frame methodologies are: swinging/wave movements and polygonal breakouts on the daily frame using lower 1/8th or 1/4th b-p-c.(BREAKOUT - PULLBACK - CONTINUATION). I am sure there are others, but these are the ones that i personally know to result in 60% win rate or higher.
For the scalping method: One trading method that i found to have at least 60% success rate at 1min to 15mins time frame are ascending or descending triangle breakout, that ran, pullback, and then continue in the direction of the breakout. With entrance at the reversal candle at the bottom of the pullback.
From my own personal study, i notice this method works in all time frames. Lets called this by acronym: TBPC
(would love to post image links...but...i cant until i have 10 posts -- roosh rules)
As such, the combination of the two:using the higher time frame trend trading to set the PT and the lower time frame TBPC to set the entry yields a high win:loss with a 10 to 20 r:r.
This is the framework. There is nothing groundbreaking here. It is simply a combination of two elegantly simple techniques. I will start posting live setups
IN A NUTSHELL:
All these systems are simply little variations of the same thing.
(1)find a robust, simple system on a higher time frame with a good win/loss of 60% or higher; with a 1:1 to 1:3 r/r
(2) find a simple, robust system on a LOWER TIME FRAME with a good win/loss and a decent r/r of say 1:1 to 1:3.
(3) merge the two together. Use as your entry the lower time frame methodology, while using the TP of the higher time frame for exit. Sometimes, it is the same system from a 4hr or daily time frame that is now replicated on a 5mins or 1mins time frame, inside itself. This is how i know to get a decent win/loss ratio with a respectable R/R of say, 1: 8 to 1:20(especially, if the setup is weekly or monthly, and the entry is 1 or 5mins.). Of course, breakevens increases. and win/loss drops due to the noise of 1mins...that is why i look far away from red-labeled news.
(4)Use purely price action. Trade with the trend. Avoid red-labeled news.
THIS IS THE CORE OF MY FOREX TRADING PRINCIPLES. I will start posting chart setups as soon as possible.
From the technical point of view. My main focus is the use of S/R levels and trendlines. Confluence trading using s/r levels and trendlines intersection to determine trades. With an eye towards the fundamental and technical structure of higher time frames(monthly, weekly, daily) to guide the direction of the trend. Some of the things that i have noticed about trading S/R and TL confluence on larger time frame is that, whenever or where ever they occur, they hardly occur in isolation. They also tends to be part of another pattern, i.e., the TL could be part of a pennant formation or a channel or a head and shoulder or a double top/bottom, ascending/descending triangle, or flag formation, or Gartley formation, etc.
For the S/R Levels or demand and supply zones, it is not uncommon for some of them to concide with flat top/bottom triangles or rectangle formations. All these different formations probably serves to bring in other players looking at different things to put their money at that spot of confluence.
Also, it is not at all unusual to see FIB levels zones of 38 or 50 or 61 in close proximity to the confluence spot. Which probably brings in the fib players.
Since focus is on H4 and above, most likely the confluence spot will fall very close to a round number psychological area, which has its attraction for some people.
Even candlesticks comes into play here, because when you zoom into candlesticks, there are times when a candlestick is just a classic chart pattern when viewed from a lower time frame. Try this, go to monthly time frame and choose any random candlestick. Mark its boundaries. Then go to lower and lower time frame to view those boundaries. I can almost guarantee it, that the weekly candlestick will morph into one of many classic chart patterns within those boundaries when viewed from lower time frames. In essence, the candlestick trader could be trading S/R and TL confluence while trading his candlesticks.
Basically, what i am saying is that the reason why S/R and TL confluence on higher time frames shows such remarkable success rate could be because of the converging different styles of traders focusing on the confluence spot for whatever personal reasons.
Maybe this is why confluence on higher time frames(where it gets more noticed by different traders with different style)works so well. Due to many different style of traders putting their money down around that spot for whatever different reasons.
Bottomline here is this: the way i see it is that i dont even need to see all these other patterns, when all i need is a confluence of S/R and T/L. That is it. That take care of everything. Which goes to a hypothesis: most technical chart patterns and candlesticks are simply S/R and TL, or (S/R or TL) when you really think about it.
HOW DO I MAKE THE MOST OF THIS?
In trading, it is my core belief that we have to balance win ratio with return on risk. The higher the win ratio, the lesser the return on risk; and vice versa.
A trading system that combine win/loss of roughly 60% along with a regular 8R to 20R(r:r of 1:8 or 1:20) are very rare, if they even exist at all. That is my little observation about trading.
AXIOM: Any system with a high R/R ratio must use a higher time frame for setups and lower time frames for entry. The greater the differential, the better.
Now, how does one take care of the poor win:loss ratio that plagues such a system.
There are other solutions, of course. But the one that has worked for me is to combine/hybridized a scalping system on a lower time with a trend trading system of higher time frame. That is, enter at the entry point of the scalp(1mins to 15mins), but use the PT of the trending trading system(H4 to weekly). If the scalping system has a respectable win/loss of say, 60% and above; and the trend trading system has a respectable win/loss of say 60% and above. We are in business. Of course, there is going to be a sizable dose of breakevens, this is the nature of the beast. It is essentially a trading system within a trading system. A hybrid. This is optimal for high risk/reward, of say, 8R or 20R with a win rate of 60%. It is risking around 4pips to 15 pips to make 100pips to 243 pips or higher.
Trend trading breakouts for my higher time frame strategy has this structure: higher highs/lows or lower lows/highs. (i cant really post image links until i have 10 posts - roosh rules)
The higher time frame methodologies are: swinging/wave movements and polygonal breakouts on the daily frame using lower 1/8th or 1/4th b-p-c.(BREAKOUT - PULLBACK - CONTINUATION). I am sure there are others, but these are the ones that i personally know to result in 60% win rate or higher.
For the scalping method: One trading method that i found to have at least 60% success rate at 1min to 15mins time frame are ascending or descending triangle breakout, that ran, pullback, and then continue in the direction of the breakout. With entrance at the reversal candle at the bottom of the pullback.
From my own personal study, i notice this method works in all time frames. Lets called this by acronym: TBPC
(would love to post image links...but...i cant until i have 10 posts -- roosh rules)
As such, the combination of the two:using the higher time frame trend trading to set the PT and the lower time frame TBPC to set the entry yields a high win:loss with a 10 to 20 r:r.
This is the framework. There is nothing groundbreaking here. It is simply a combination of two elegantly simple techniques. I will start posting live setups
IN A NUTSHELL:
All these systems are simply little variations of the same thing.
(1)find a robust, simple system on a higher time frame with a good win/loss of 60% or higher; with a 1:1 to 1:3 r/r
(2) find a simple, robust system on a LOWER TIME FRAME with a good win/loss and a decent r/r of say 1:1 to 1:3.
(3) merge the two together. Use as your entry the lower time frame methodology, while using the TP of the higher time frame for exit. Sometimes, it is the same system from a 4hr or daily time frame that is now replicated on a 5mins or 1mins time frame, inside itself. This is how i know to get a decent win/loss ratio with a respectable R/R of say, 1: 8 to 1:20(especially, if the setup is weekly or monthly, and the entry is 1 or 5mins.). Of course, breakevens increases. and win/loss drops due to the noise of 1mins...that is why i look far away from red-labeled news.
(4)Use purely price action. Trade with the trend. Avoid red-labeled news.
THIS IS THE CORE OF MY FOREX TRADING PRINCIPLES. I will start posting chart setups as soon as possible.