and risk warnings, and advice to

avoid them:

The market has formed on daily charts a specific formation, which I call a comb. (This is a sort of short-term trend seen on frame charts any time including intraday, daily, and weekly.)

USD/CHF, USD/JPY, EUR/USD, EUR/JPY and other Euro crosses.

Basic (conservative).

Take a position in the direction of the move on the break of the trendline limiting a comb from one side:

A. Buyon the break of the descending line, OR B. Sellon the break of the ascending line.

Any time.

Entry-stop order.

On the opposite side of the current day range. (Above the previous day high or below the previous day low.)

Recommended. (Automatic and simultaneous with stops.)

Average daily range (P1)End of the day (P2)Other

N/A

Average to High

Average to Low

Positive

The position was open in the The position was open in the direction direction of the medium-term of the main move of the previous day. trend.

RW#1:The position was open A#1:Move your stops closer and against the direction of the place them above (below) the previous medium-term trend. local extreme formed the same day. RW#2:The position was open A#2:Same as above.

against the main move of the previous day.

P1

P2

Buy

Stop

FIGURE 20.1a

Stop

Sell

P2

P1

FIGURE 20.1b

P2

P1

Buy

Stop

FIGURE 20.2a

Stop

Sell

P1

P2

FIGURE 20.2b

Average daily range

P2

P1

Buy

Stop

FIGURE 20.3a

Stop

Sell

Average daily

range P2

P1

FIGURE 20.3b

Stop

Sell

Average daily

range P2

P1

FIGURE 20.4a

P1

Average daily

range P2

Buy

Stop

FIGURE 20.4b

Average daily range

P2

P1

Buy

Stop

FIGURE 20.5a

Stop

Sell

Average

daily P1 range

P2

FIGURE 20.5b

Stop

Sell

P1

Average

daily P2

range

FIGURE 20.6a

Average daily

range P2

P1

Buy

Stop

FIGURE 20.6b

P3 (100–300 pips)

Resistance

P2

Open

Entry P1 stop

Buy

Stop

FIGURE 20.7a

CHAPTER 21

A Sample Trade

trading profile and preferences.

On the chart, the market has formed a narrow horizontal channel at the beginning of a trading day and during the Asian session. Then, it broke the upper border of the channel, creating the opportunity to use Box 19.2 and to enter the market in the direction of the break for a quick and rela- tively moderate profit. For a more conservative trader who did not want the risk of entering the market with the position where the profit should be taken fast, there was another opportunity to enter the market. In accor- dance with another trading scheme (see Box 18.3), you can enter the mar- ket because it was moving in just one direction from the open price. If this trading opportunity was also considered an inappropriate one at the mo- ment, another trading opportunity would arise soon. Entering the market on the break of the low of the previous range was recommended in accor- dance with four (!) other different templates, Box 19.1, Box 18.2, Box 20.4, and even Box 18.1.

FIGURE 21.1

Then, the journey began, confirming several other thoughts and ideas described in the book.

First of all, on the way down, the market has formed at least three flat bottoms, and each of them was a clue for a trader that the move in this di- rection most likely would continue.

Second, as you can see, the idea of never opening a position against the main move of the day has also been confirmed, because the bottom pickers most likely were wiped out from the market by its powerful move. Because no major support or trendline was on the market’s way during this day, a trade against the main move of the day would never pay off. It is important to remember that under similar circumstances it is usually very difficult (even close to impossible) to choose the right moment when the market may turn to the opposite direction. If you missed all the previous trading signals and opportunities, it would be better to stay away from the market, waiting for another trading day, than to take chances on picking a bottom without having a trading signal in favor of such an attempt.

Third, it is not really important where a position was entered and profit was actually taken. In any case, if during that day the trading strat- egy has been chosen in accordance with one or another template, the profit was unavoidable and would have ranged from 70 to 80 pips and up

A Sample Trade 209

to a couple of hundred pips. However, the real importance of the example is the fact that this particular trading day can be considered as typical for the market. Its behavioral pattern was a common one and seen frequently (with some unimportant variations, of course). Using the templates pro- vides a perfect opportunity to trade with no stress, and without the neces- sity of predicting the future or making forecasts in advance. A simple reaction in accordance with trading signals and basic techniques de- scribed in trading templates would do the job perfectly and would give a trader a great advantage against any other way of trading.

Index

Account size, requirements for, 16–17

Amplitude of day range, profit taking based on, 128–129

Ascending channel, 84–86

Ascending trendline, 77–83

Asian trading session, opening position during, 122

Attitude toward market, philosophical conception of, 30–31

Automatic order execution, 120

Automatic position entry, 120

Average daily trading range templates,

148–157

Averaging trading techniques, 99–101

Bank of Japan (BoJ), 141

Barings Bank, 101

Behavior of the market. See Market behavior

Black and gray boxes, 40

Break of trendline, 79. See also False break

good move after, 80 no, 79–80

Bridge/CRB, 4

Broker company vs. Bucket shop, 21

Bucket shops, 20–22

Buy ahead of a support and Sell ahead of a resistance, 118

“Buy low, sell high” formula, 62–64

Capital: reserve, 99 trading, 8–11

Central Bank (CB):

trading strategy and intervention of,

141–144

undervalued currency and intervention of, 204–205

Channel:

ascending, 84–86 descending, 84–86 horizontal, 87, 164–169 inclined, 170–175

Chart:

bearish divergence of, 60–61

Japanese candlesticks, 48–49 point and figure, 48–49

Client abuse, 20

Closing price, 64–66

Comb formation, 160–163, 191,

194–195

on daily chart, 192–193

on USD/DEM daily chart, 73–74

Commissions for transaction, 18–19

Common sense trading technique, 51,

Contract size, 9–10, 16, 130–131

Currency:

choosing a pair to trade, 95–96 daily trading range and, 56–67 oscillation of, 8

undervalued, 204–205

Current intermediate-term trend, 68

Current longer-term trends, 67

Cycles, in market activity, 135–140

Daily chart:

analysis of, 72

comb formation on, 192–193

flat surface formation on, 196–197 gaps on, 72–73

USD/DEM, comb formation on,

73–74

Daily trading range, 56–58 average, templates for, 148–157

Data feed, 4

Dealer-customer relationships, 20

Dealers choice:

bucket shops and, 20–22 commission payment in, 18–19 contract size in, 16

margin value and leverage in,

15–16

on-line trading opportunity in, 18 operation account size in, 16–17 recent industry developments and,

22–23

spread size in, 17

stop and limit orders terms in, 17

Decisions, impulsive, traders and, 29

Descending channel, 84–86

Descending trendline, 77–83

Diamond formation, 180–181 potential, 182–183

Discrete-systematic trading, 31

Discretionary methods vs. mechanical trading systems, 33–36

Double bottom formation, 42

Double top (bottom) formation, 89

Double top formation, 42

Double (triple) top (bottom) formation,

188–189

Dow retracement theory, 47

Dummy trading, 4–5, 62

Elliott Wave Theory, 46–47

End-of-the day analysis, 66–74

End-of-the-week analysis, 66–74

Entry stop order, 78, 120, 134

European trading session, opening position during, 122

EUR/USD chart:

downtrend on, 65

70-pip ranges on, 56

False break:

of trendline, 78, 80–83

of triangle formation, 91–92

Fibonacci lines, drawing, 69, 71

Flag formation, 93

Flat surface formation, 196, 198–199

FOREX market. See also FOREX

trading

dealer-customer relationships, 20 formations in, 72

specifications of, 7 trends of, 63–64 volatility of, 62–63

FOREX trading:

recent industry developments of,

22–23

speculative trade on, 54

Formations. See Technical formation(s) Fundamental analysis, advantages and

disadvantages of, 38–40

Gaps on daily charts, 72–73

Getting started:

dummy trading, 4–5

information, data feed, and technical support, 4

overview of, 3–4

Good move after trendline break, 90

Gunn analytical method, 46

Head and shoulders (H&S) formation,

42, 87–89 inverted, 69, 88, 186 potential, 184–185

Hit-and-run technique, 117, 126

Horizontal channel, 87, 164–169

Horizontal supports and resistances, 68

H&S. See Head and shoulders (H&S)

formation

Igrok method:

basic trading strategies and techniques, 77–93

choosing currency pair to trade, 95–96 entering the market, 117–123 evaluating probabilities using

technical analysis, 59–75 exiting the market, 125–131 importance of timing, 133–140 intraday trading plan principles,

113–115

market behavior and trader discipline,

103–109

money management rules and techniques, 97–102

philosophy of, 53–58

trading strategy during Central Bank intervention, 141–144

Impulsive decisions, traders and, 29

Inclined channel, 170–175

Indicators, 43–46, 69

Informative services, 4

Intermediate-to-long-term trend, 67–69

Internet trading, 18

Intraday chart, 73, 87

comb formation on, 194–195

flat surface formation on, 198–199

Intraday trade/trading:

advantages of, 112

money management and, 98 planning for, 113–114

rules and techniques of stops placing,

114–115 template, 145–146 timing and, 135

trading activity of, 117

Inverted head and shoulders formation,

69, 88–89, 186–187

Japanese candlesticks charts, 48–49

Legal issues, 20

LIBOR rates, 18

Limit orders, terms of, 17

Line-on-close chart (line chart), 69

Liquidation:

position, 125, 129–132

of profitable position, 122 of unprofitable position, 98

Longer-term market analysis, 67

Long position, 55–56, 84, 118

Long-term analysis, 4

Long Term Capital Management, 101

Loss:

averaging and, 99–101

in broken trendline, 80–81

central bank intervention and, 141 correcting, 98

in false break trendline, 81–82 in no break trendline, 79 potential, calculating, 120 recovery from, 30

in triangle and triangle like formations, 91–92

MACD, 69

Margin, 13, 15–16

Market. See also Market behavior; Market movement

approaching major trendline, 200–201 breaking trendline, 202, 204 characteristics of, 133–135

choosing entry point to, 117–118 constant motion of, 55–56

cycles, 135–140

drifting in one direction only, 150–153 drifting up and down on both sides,

148–149 emergence of, 78

entry timing rules, 118–123

in false break trendline, 78, 80–83 forming daily trading range, 56–58 forming 80–100 pips day range,

154–155

forming specific formation on daily chart, 192–193

making intraday high or low, 156–157 paradoxes of predicting, 38–40

profit-taking and speeding of, 126–127 trader unprofitable position and,

98–99

Market behavior:

discipline of trading and, 109 model of the market, 104–105 predictability of the market, 105–106 recommendation to beginning trader,

speculative trader and, 104 traders attitude and, 107–109

Market movement:

directions of, 53–54

new open position and, 119–120 opening position against, 115, 121, 122 placing stop-loss order, 142

traders and, 30

Mechanical trading systems, discretionary methods vs.,

33–36

Methods of definition, false breaks and,

Model of the market, 104–105

Money management: averaging and, 99–101 capital reserve and, 99 in false breaks, 82 overview of, 97–98

restricting loss and, 98–99 risk/reward ratio and, 101–102 tactics and strategy in, 98

Money market, 53, 54

Murphy, John, 40

Neckline, 42

New York trading session, opening position after, 122–123

No break of trendline, 79–80

OHLC chart. See Open-high-low-close bar (OHLC) chart

Omega SuperCharts (end-of-day)

software, 67–69

Online trading, 5, 18

Open-high-low-close bar (OHLC) chart,

Opening price:

market drifting in one direction only and, 150–153

market drifting up and down from,

148–149

Open position:

during Asian trading session, 122 at the break of neckline, 97

choosing an entry point and, 117–118 against current market movement,

115, 121

against major market move, 122–123 in market movement direction, 120 position liquidation and, 129–132 profit-taking and, 125–126 risk/reward ratio and, 101–102

rules for, 117

Orders, stop and limit, 17

Overtrade risk, 11

Patterns, 42–43

Point and figure chart, 48–49 “Postponed stops,” 115

Potential diamond formation, 182–183

Potential head and shoulders formation,

184–185

Potential triangle formation, 178–179

Precise borders formations, 93

Price:

closing, 64–66 opening, 64–66

Price level, opening positions and,

Probability evaluation technique,

59–61

Profit, 55

in broken trendline, 80–81

central bank intervention and fixing of, 144

exiting the market and, 125–132 in no break trendline, 79 recommendation concerning, 109 in triangle and triangle like

formations, 91–92

Profit/loss ratio, 101–102

Protective stop, placing, 120

Psychological challenges of speculative trading, 27–32

Quantum Fund, 101

Random position, 55

Recovery from losses, traders and,

Rectangle formation, 93

Reserve, capital, 99

Resistance, 118 horizontal, 68

Retractment Theories, 3

Reverse position, 129–132

Risk/reward ratio (RRR), 84, 101–102

Risks:

determining limits, 11–13 overtrade, 11 undercapitalization, 8–11

Rounded top (bottom) formation,

RRR. See Risk/reward ratio (RRR) RSI, 69

Safe short trade, 122

“Sell on weakness, buy on strength”

formula, 62–64

Sell position, 78

Short position, 55–56, 84, 118

Short-term trading, 111 template, 145–146

Shoulders formation. See Head and

Shoulder (H&S) formation

Side trend market movement, 53–54

Software, 67–69

Speculative trade/trader:

choice of currency for, 95–96 on FOREX, 54

market and, 104–106

money management and, 97 psychological challenges of, 27–32 strategy and tactics of, 57

Spread size, in dealer selection, 17

Statistical analysis, 62–64

Statistics, trading systems and, 36

Stochastics, 69

Stop and reverse position, 84

Stop-loss order, 143

Stop order, terms of, 17

Stops:

broken trendline and, 80, 81 channels and, 84

entry, 78

in inverted head and shoulders, 89 market technical levels and, 99 placing, rules and techniques of,

114–115 postponed, 115

Storage fees, 18

Strategy and tactics:

of money management, 98 of speculative trade, 57 trading, 31, 51, 121

of trading in intervention of central bank, 141–144

Stress factor, traders and, 27–28, 31,

Substitution, 96

SuperCharts (Omega Research), 4

Support, 118 horizontal, 68

Support and resistance templates.

See Trendline

Support and Resistance Theory, 3,

Technical analysis, 3

advantages and disadvantages of,

40–42

evaluating probabilities using,

59–75 philosophy of, 53 theories of, 46–47

Technical formation(s), 68. See also

Channel

diamond formation, 180–181 potential, 182–183

double bottom formation, 42 double top (bottom) formation, 89 double top formation, 42

double (triple) top (bottom)

formation, 188–189 flag formation, 93

head and shoulders formation, 42,

87–89, 186

inverted, 69, 88–89, 186 potential, 184–185

potential diamond formation, 182–183 potential triangle formation,

178–179

rectangles formation, 93 rounded top (bottom) and

V-formation, 93 templates, 159–189

triangles and triangle-like formation,

41–42, 89–93, 176–177 potential, 178–179

Technical support, 4

Templates, 145–146

average daily trading range,

148–157 sample trade, 146

short-term trading, 145–146 technical formation, 159–189 trendlines, support, and resistance,

191–205

Tiger Fund, 101

Timing:

importance of, 133–135 market cycles and, 135–140 profit-taking and, 128

rules for market entry, 118–123

Trader(s). See also Speculative trader; Trading

beginning, recommendation to,

broken trendline and, 80–81 choosing right dealer, 13–23 discretionary vs. mechanical trading

systems, 33–36 establishing an account, 7–13 false break trendline and, 80–83 getting started, 3–5

groups of, 37

impulsive decisions of, 29 intraday trading plan, 113–115 market recommendations for, 108 market relationship and, 29 mistakes of, 106

money management and, 98–102 in no break of trendline position,

profit recommendations for,

psychological challenges of speculative trading, 27–32

reaction of, 54

recovery from losses, 30

Trade sample, 207–209

Trade templates, guide to, 146

Trade theory, preparation on, 3

Trading. See also Intraday trading; Online trading; Short-term trading; Trading account; Trading method, developing

averaging trading techniques in,

99–101

based on ascending and descending trendlines, 77–83

based on channels, 84, 87

based on other technical formations,

87–91, 93

capital, insufficient, 8–11 cycle, 84

discipline of, 109 discrete-systematic, 31 dummy, 4–5, 62

importance of timing in, 133–140

Internet, 18

strategy of, 31, 141–144

Trading account:

about, 7–8

determining risk limit, 11–13 overtrade risk, 11

size of, 16–17

terms of opening, 22 undercapitalization risk, 8–11

Trading method, developing. See also Fundamental analysis; Technical analysis

discretionary vs. mechanical trading systems, 33–36

psychological challenges of speculative trading, 27–32

Trading range, daily, 56–58

Transaction execution, opening new position and, 118–119

Trendline. See also Break of trendline ascending, 77–83

descending, 77–83 drawing, 68–69

major, market approaches, 200–201 market breaking, 200, 202

no break, 79–81

support, and resistance templates,

191–205

Triangles and triangle-like formations,

41–42, 89–93, 176–177 potential, 178–179

Uncertainty, traders and, 29

Undercapitalization risk, in trading, 8–11

Undervalued currency, 204–205

Uptrend sample, 65

USD/CHF daily chart, 60

USD/DEM chart:

daily, comb formation on, 73–74 medium-term local trends on, 74 monthly, bullish triple divergence,

USD/JPY daily chart, double bottom formation on, 42

USDX, unfilled gap on daily chart, 72

V-formation, 93, 126

Virtual dummy trading, 5

Weekly chart: analysis, 67–72 cable on, 43

Wishful thinking: avoiding, 107 traders and, 28–29

Date: 2015-12-17; view: 1105