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and risk warnings, and advice toavoid 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.
P2
Buy
Stop
Stop
Sell
P2
P1
P2
Buy
Stop
Stop
Sell
P1
P2
P1
Buy
Stop
Stop
Sell
Average daily range P2
P1
Stop
Sell
Average daily range P2
Average daily range P2
Buy
Stop
Average daily range P2
Buy
Stop
Stop
Sell
daily P1 range
P2
Stop
Sell
P1
Average daily P2 range
range P2
P1
Buy
Stop
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 markets 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
Amplitude of day range, profit taking based on, 128129 Ascending channel, 8486 Ascending trendline, 7783 Asian trading session, opening position during, 122 Attitude toward market, philosophical conception of, 3031 Automatic order execution, 120 Automatic position entry, 120 Average daily trading range templates, 148157 Averaging trading techniques, 99101
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, 7980 Bridge/CRB, 4 Broker company vs. Bucket shop, 21 Bucket shops, 2022 Buy ahead of a support and Sell ahead of a resistance, 118 Buy low, sell high formula, 6264
Capital: reserve, 99 trading, 811 Central Bank (CB): trading strategy and intervention of, 141144 undervalued currency and intervention of, 204205 Channel: ascending, 8486 descending, 8486 horizontal, 87, 164169 inclined, 170175 Chart: bearish divergence of, 6061 Japanese candlesticks, 4849 point and figure, 4849 Client abuse, 20 Closing price, 6466 Comb formation, 160163, 191, 194195 on daily chart, 192193 on USD/DEM daily chart, 7374 Commissions for transaction, 1819 Common sense trading technique, 51, Contract size, 910, 16, 130131 Currency: choosing a pair to trade, 9596 daily trading range and, 5667 oscillation of, 8 undervalued, 204205 Current intermediate-term trend, 68 Current longer-term trends, 67 Cycles, in market activity, 135140
Daily chart: analysis of, 72 comb formation on, 192193 flat surface formation on, 196197 gaps on, 7273 USD/DEM, comb formation on, 7374 Daily trading range, 5658 average, templates for, 148157 Data feed, 4 Dealer-customer relationships, 20
Dealers choice: bucket shops and, 2022 commission payment in, 1819 contract size in, 16 margin value and leverage in, 1516 on-line trading opportunity in, 18 operation account size in, 1617 recent industry developments and, 2223 spread size in, 17 stop and limit orders terms in, 17 Decisions, impulsive, traders and, 29 Descending channel, 8486 Descending trendline, 7783 Diamond formation, 180181 potential, 182183 Discrete-systematic trading, 31 Discretionary methods vs. mechanical trading systems, 3336 Double bottom formation, 42 Double top (bottom) formation, 89 Double top formation, 42 Double (triple) top (bottom) formation, 188189 Dow retracement theory, 47 Dummy trading, 45, 62
Elliott Wave Theory, 4647 End-of-the day analysis, 6674 End-of-the-week analysis, 6674 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, 8083 of triangle formation, 9192 Fibonacci lines, drawing, 69, 71 Flag formation, 93 Flat surface formation, 196, 198199 FOREX market. See also FOREX trading dealer-customer relationships, 20 formations in, 72 specifications of, 7 trends of, 6364 volatility of, 6263 FOREX trading: recent industry developments of, 2223 speculative trade on, 54 Formations. See Technical formation(s) Fundamental analysis, advantages and disadvantages of, 3840
Gaps on daily charts, 7273 Getting started: dummy trading, 45 information, data feed, and technical support, 4 overview of, 34 Good move after trendline break, 90 Gunn analytical method, 46
Head and shoulders (H&S) formation, 42, 8789 inverted, 69, 88, 186 potential, 184185 Hit-and-run technique, 117, 126 Horizontal channel, 87, 164169 Horizontal supports and resistances, 68 H&S. See Head and shoulders (H&S) formation
Igrok method: basic trading strategies and techniques, 7793 choosing currency pair to trade, 9596 entering the market, 117123 evaluating probabilities using technical analysis, 5975 exiting the market, 125131 importance of timing, 133140 intraday trading plan principles, 113115 market behavior and trader discipline, 103109 money management rules and techniques, 97102 philosophy of, 5358 trading strategy during Central Bank intervention, 141144 Impulsive decisions, traders and, 29 Inclined channel, 170175 Indicators, 4346, 69 Informative services, 4 Intermediate-to-long-term trend, 6769 Internet trading, 18
Intraday chart, 73, 87 comb formation on, 194195 flat surface formation on, 198199 Intraday trade/trading: advantages of, 112 money management and, 98 planning for, 113114 rules and techniques of stops placing, 114115 template, 145146 timing and, 135 trading activity of, 117 Inverted head and shoulders formation, 69, 8889, 186187
Japanese candlesticks charts, 4849
Legal issues, 20 LIBOR rates, 18 Limit orders, terms of, 17 Line-on-close chart (line chart), 69 Liquidation: position, 125, 129132 of profitable position, 122 of unprofitable position, 98 Longer-term market analysis, 67 Long position, 5556, 84, 118 Long-term analysis, 4 Long Term Capital Management, 101 Loss: averaging and, 99101 in broken trendline, 8081 central bank intervention and, 141 correcting, 98 in false break trendline, 8182 in no break trendline, 79 potential, calculating, 120 recovery from, 30 in triangle and triangle like formations, 9192
MACD, 69 Margin, 13, 1516 Market. See also Market behavior; Market movement approaching major trendline, 200201 breaking trendline, 202, 204 characteristics of, 133135 choosing entry point to, 117118 constant motion of, 5556 cycles, 135140 drifting in one direction only, 150153 drifting up and down on both sides, 148149 emergence of, 78 entry timing rules, 118123 in false break trendline, 78, 8083 forming daily trading range, 5658 forming 80100 pips day range, 154155 forming specific formation on daily chart, 192193 making intraday high or low, 156157 paradoxes of predicting, 3840 profit-taking and speeding of, 126127 trader unprofitable position and, 9899 Market behavior: discipline of trading and, 109 model of the market, 104105 predictability of the market, 105106 recommendation to beginning trader, speculative trader and, 104 traders attitude and, 107109 Market movement: directions of, 5354 new open position and, 119120 opening position against, 115, 121, 122 placing stop-loss order, 142 traders and, 30 Mechanical trading systems, discretionary methods vs., 3336 Methods of definition, false breaks and, Model of the market, 104105 Money management: averaging and, 99101 capital reserve and, 99 in false breaks, 82 overview of, 9798 restricting loss and, 9899 risk/reward ratio and, 101102 tactics and strategy in, 98 Money market, 53, 54 Murphy, John, 40
Neckline, 42 New York trading session, opening position after, 122123 No break of trendline, 7980
OHLC chart. See Open-high-low-close bar (OHLC) chart Omega SuperCharts (end-of-day) software, 6769 Online trading, 5, 18 Open-high-low-close bar (OHLC) chart, Opening price: market drifting in one direction only and, 150153 market drifting up and down from, 148149 Open position: during Asian trading session, 122 at the break of neckline, 97 choosing an entry point and, 117118 against current market movement, 115, 121 against major market move, 122123 in market movement direction, 120 position liquidation and, 129132 profit-taking and, 125126 risk/reward ratio and, 101102 rules for, 117 Orders, stop and limit, 17 Overtrade risk, 11
Patterns, 4243 Point and figure chart, 4849 Postponed stops, 115 Potential diamond formation, 182183 Potential head and shoulders formation, 184185 Potential triangle formation, 178179 Precise borders formations, 93 Price: closing, 6466 opening, 6466 Price level, opening positions and, Probability evaluation technique, 5961 Profit, 55 in broken trendline, 8081 central bank intervention and fixing of, 144 exiting the market and, 125132 in no break trendline, 79 recommendation concerning, 109 in triangle and triangle like formations, 9192 Profit/loss ratio, 101102 Protective stop, placing, 120 Psychological challenges of speculative trading, 2732
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, 129132 Risk/reward ratio (RRR), 84, 101102 Risks: determining limits, 1113 overtrade, 11 undercapitalization, 811 Rounded top (bottom) formation, RRR. See Risk/reward ratio (RRR) RSI, 69
Safe short trade, 122 Sell on weakness, buy on strength formula, 6264 Sell position, 78 Short position, 5556, 84, 118 Short-term trading, 111 template, 145146 Shoulders formation. See Head and Shoulder (H&S) formation Side trend market movement, 5354 Software, 6769 Speculative trade/trader: choice of currency for, 9596 on FOREX, 54 market and, 104106 money management and, 97 psychological challenges of, 2732 strategy and tactics of, 57 Spread size, in dealer selection, 17 Statistical analysis, 6264 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, 114115 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, 141144 Stress factor, traders and, 2728, 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, 4042 evaluating probabilities using, 5975 philosophy of, 53 theories of, 4647 Technical formation(s), 68. See also Channel diamond formation, 180181 potential, 182183 double bottom formation, 42 double top (bottom) formation, 89 double top formation, 42 double (triple) top (bottom) formation, 188189 flag formation, 93 head and shoulders formation, 42, 8789, 186 inverted, 69, 8889, 186 potential, 184185 potential diamond formation, 182183 potential triangle formation, 178179 rectangles formation, 93 rounded top (bottom) and V-formation, 93 templates, 159189 triangles and triangle-like formation, 4142, 8993, 176177 potential, 178179 Technical support, 4 Templates, 145146 average daily trading range, 148157 sample trade, 146 short-term trading, 145146 technical formation, 159189 trendlines, support, and resistance, 191205 Tiger Fund, 101 Timing: importance of, 133135 market cycles and, 135140 profit-taking and, 128 rules for market entry, 118123 Trader(s). See also Speculative trader; Trading beginning, recommendation to, broken trendline and, 8081 choosing right dealer, 1323 discretionary vs. mechanical trading systems, 3336 establishing an account, 713 false break trendline and, 8083 getting started, 35 groups of, 37 impulsive decisions of, 29 intraday trading plan, 113115 market recommendations for, 108 market relationship and, 29 mistakes of, 106 money management and, 98102 in no break of trendline position, profit recommendations for, psychological challenges of speculative trading, 2732 reaction of, 54 recovery from losses, 30 Trade sample, 207209 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, 99101 based on ascending and descending trendlines, 7783 based on channels, 84, 87 based on other technical formations, 8791, 93 capital, insufficient, 811 cycle, 84 discipline of, 109 discrete-systematic, 31 dummy, 45, 62 importance of timing in, 133140 Internet, 18 strategy of, 31, 141144 Trading account: about, 78 determining risk limit, 1113 overtrade risk, 11 size of, 1617 terms of opening, 22 undercapitalization risk, 811 Trading method, developing. See also Fundamental analysis; Technical analysis discretionary vs. mechanical trading systems, 3336 psychological challenges of speculative trading, 2732 Trading range, daily, 5658 Transaction execution, opening new position and, 118119 Trendline. See also Break of trendline ascending, 7783 descending, 7783 drawing, 6869 major, market approaches, 200201 market breaking, 200, 202 no break, 7981 support, and resistance templates, 191205 Triangles and triangle-like formations, 4142, 8993, 176177 potential, 178179
Uncertainty, traders and, 29 Undercapitalization risk, in trading, 811 Undervalued currency, 204205 Uptrend sample, 65 USD/CHF daily chart, 60 USD/DEM chart: daily, comb formation on, 7374 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, 6772 cable on, 43 Wishful thinking: avoiding, 107 traders and, 2829 Date: 2015-12-17; view: 1207
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