Forex help

[bunyip]

Most Forex traders are intraday traders working from live charts. My opinion is that end of day charts are far easier and more profitable.

* It takes no more than 15 minutes a day to analyse ten or so currency pairs from daily charts.

* Daily charts give you the opportunity of cutting your losses short but letting your winners run to figures that are many times your initial risk. You might use an initial stop of 100 pips from entry, and get a profit of 300 to 1200 pips or more.......many times your initial risk. It's very hard to do this with intraday trading.

* Trading from daily charts allows you to utilise one of the most profit-enhancing of all trading strategies - pyramiding. You can add to your position as the trend runs in your favour. Or once your trade has run far enough to allow you to move your stop to break even, you can enter trades in other pairs as the opportunity arises.
Intraday trading is much less conductive to pyramiding.

* Trading from daily charts eliminates the need to sit in front of your computer at night, watching the screen. Our night is the European and American business day when most of the currency trading action takes place. Even if you can't look at your daily charts until you come home from work, that's usually OK.....there's usually not much movement during our day anyway.

*Trading from daily charts allows you to easily monitor 10 or so currency pairs. More pairs means more trading opportunities. Intraday, you just don't have the time to monitor that many pairs.

Australian traders are naturally drawn to AUDUSD and AUDJPY. These are OK, but there are other pairs with smoother trends and bigger runs.
The ones I follow are...
AUDUSD
USDCAD
USDJPY
USDCHF
EURUSD
GBPUSD
EURJPY
AUDJPY
AUDEUR
NZDUSD (only recently added this one after noticing that it's put in some good trends and it has a reasonably tight spread, haven't actually traded it yet)

When choosing which pairs to trade, take into account firstly, their 'trendiness' (how well they trend), and secondly, their spread. I won't trade anything with greater than a 5 pip spread between bid and ask. Remember that spread is commission in disguise. The higher the commission, the more it chews into your trading profits.

If you're going to trade from daily charts, I'd suggest that 10 grand is a comfortable amount to have in your trading account. Using a stop of around 100 pips from entry, and trading one mini contract, your potential $100 loss represents just 1% of your trading account, which is ideal. You could get away with a $5000 account, in which case you'd be risking 2% of your account. This is still acceptable, but on some trades you might want to use more than 100 pip stops, which means you'd be violating the 2% rule.

If you trade from end of day charts, look also at 2 day charts and 3 day charts.
Sometimes a valid trade setup will show up on one time frame but not on the others.
Following three different time frames gives you more trade setups to choose from.

Put a longer term moving average on your daily charts, such as 50 EMA, and only trade in the same direction as the slope of that moving average. This is in line with Elder's Triple Screen system that says look at a 13 week Exponential Moving Average (EMA) on the weekly chart to identify the longer term trend direction, then go to the daily chats and find trade setups that signal entries in the direction of the weekly trend. 13 week EMA converts to 65 day EMA (13 weeks multiplied by 5 trading day per week).
I've found that the 65 day EMA is slightly too long for daily Forex charts....50 EMA is better.

As for the news - I completely ignore it when trading from daily charts. I'm a technical analyst working from the premise that the charts give me the information I need to trade profitably. Seems to be working well enough so far.

 

[CanOz]

Great post Bunyip!

I like that your system uses basically no leverage. I could easily cope with the losses and 100 pips would miss most moves from news.

Thanks for sharing that, have you got any trade stats or is this something that you have just recently started to trade?

Cheers,


CanOz

 

[bunyip]

Great post Bunyip!

I like that your system uses basically no leverage. I could easily cope with the losses and 100 pips would miss most moves from news.

Thanks for sharing that, have you got any trade stats or is this something that you have just recently started to trade?

Cheers,


CanOz

I had my first Forex trade in 2004, from memory. AUDUSD it was, and I was delighted to nail a 600 pip profit. And at about the same time I had another nice trade of 600 pips or so in USDCAD. I was starting to think I had the game sewn up until I hit a bit of a rough patch with a run of losing trades caused mainly by inexperience.
Took a while to sort things out and learn what to do and what not to do. Matter of fact I'm still learning, still making a few mistakes here and there, still increasing my knowledge and honing my technique.

As for stats, I have my trading results on record, but I also have a policy of never ever ever divulging my trading results. When I started trading about 12 years ago an experienced trader told me 'win, lose or draw, you never talk about your trading results. Not even if you're making massive returns.'
I took his lesson to heart, and I've never discussed my trading results with anyone except a couple of close trader friends with whom I swap notes.
Suffice to say that trading FX from end of day charts can be very profitable if you stick to the basics such as trade with the trend, cut losses fast and let profits run, use stringent money management rules, etc etc.

 

[peter2]

Bunyip: I totally agree with you on trading the daily charts. There have been some really large moves in many of the currency pairs recently. Most of the daily scalpers will have missed these opportunities to earn many hundreds of pips. It pays to keep your eyes on the larger timeframes.

AUDUSD (-1000 pips), EURUSD (-1100 pips), GBPUSD (- 800 pips), USDCHF (+700 pips), USDCAD (+500 pips)

GBPJPY (-800 pips), EURJPY (-500 pips), AUDJPY (- 600 pips)

GBPAUD (+1000 pips, the spread sucks, but the move was big.)

Your money management is sound. While trading the daily charts, it is possible to start many trades that are highly correlated to the one currency, the USD. The recent USD strength created large moves in at least 5 major currency pairs, AUD, EUR, GBP, CHF and CAD. A trader needs to be mindful of portfolio heat in these circumstances, 5 x 2% is risking 10% of the account on the USD strength (long USD).

The recent strength in the JPY (or weakness in the others) created moves in the GBPJPY, EURJPY and AUDJPY pairs, 3 x 2% = another 6% at risk.

Each trader needs to determine their own maximum portfolio heat.

 

[bunyip]

Bunyip: I totally agree with you on trading the daily charts. There have been some really large moves in many of the currency pairs recently. Most of the daily scalpers will have missed these opportunities to earn many hundreds of pips. It pays to keep your eyes on the larger timeframes.

AUDUSD (-1000 pips), EURUSD (-1100 pips), GBPUSD (- 800 pips), USDCHF (+700 pips), USDCAD (+500 pips)

GBPJPY (-800 pips), EURJPY (-500 pips), AUDJPY (- 600 pips)

GBPAUD (+1000 pips, the spread sucks, but the move was big.)

Your money management is sound. While trading the daily charts, it is possible to start many trades that are highly correlated to the one currency, the USD. The recent USD strength created large moves in at least 5 major currency pairs, AUD, EUR, GBP, CHF and CAD. A trader needs to be mindful of portfolio heat in these circumstances, 5 x 2% is risking 10% of the account on the USD strength (long USD).

The recent strength in the JPY (or weakness in the others) created moves in the GBPJPY, EURJPY and AUDJPY pairs, 3 x 2% = another 6% at risk.

Each trader needs to determine their own maximum portfolio heat.

There's been some big movers alright Peter, a real smorgasbord of trading opportunities.
Point taken that 5 trades with a 2% risk on each trade equates to 10% of your capital at risk, which is far too much in my view. I should have clarified that I won't risk more than 2% of my account at any time. If I get into a trade, I won't take on a second trade until my stop loss on my first trade has been moved to break even.
And I won't take on a third trade until the stop loss on my second trade has also been moved to break even.
Under favourable market conditions, this strategy allows you to have multiple trades open together, but without risking more than 2% of your trading capital at any given time.

How long have you been trading Forex?

 

[andrew100]

Bunyip, thanks for the great post.

I'm just a bit confuse about the different charts you are talking about.

1. end of day charts; are charts that you have put together with end of day data of the particular currency and so you will trade on their trends the next day.

2. live charts; live data that you continuosly receive.

3. daily charts ??? is this the same as end of day charts?

Apologise for the basic question.

Andrew

 

[CanOz]

As for stats, I have my trading results on record, but I also have a policy of never ever ever divulging my trading results. When I started trading about 12 years ago an experienced trader told me 'win, lose or draw, you never talk about your trading results. Not even if you're making massive returns.'
I took his lesson to heart, and I've never discussed my trading results with anyone except a couple of close trader friends .

Hey, thats fine i understand. I was really interested in a W/L rate, trade frequency, and maybe a max DD that you might have had. I'm more just curious whether or not it is something i could trade or not, knowing what i'm comfortable with.

One thing i noticed or didn't notice much of when i was trading FX were obvious patterns on the EOD charts. The charts seem to be really "thick" with allot of overlapping bars/candles...they just look different. Is it more S&R that you use?

Looking at the charts again, significant low and highs seem like potential trade points.

I'll try and post a chart....on the other hand i guess the entry is not that important, theres plenty of congestion patterns, its just a matter of hanging onto to those winners and....well you know the rest.

Cheers,


CanOz

 

[bunyip]

Bunyip, thanks for the great post.

I'm just a bit confuse about the different charts you are talking about.

1. end of day charts; are charts that you have put together with end of day data of the particular currency and so you will trade on their trends the next day.

2. live charts; live data that you continuosly receive.

3. daily charts ??? is this the same as end of day charts?

Apologise for the basic question.

Andrew

No problem with basic questions, Andrew....no question is too basic when you're learning.

Live charts......the data is unfolding on your screen. The price bars are forming and changing right in front of your eyes. You might have your timeframe set at 30 minute bars, meaning that each bar or candle on your chart represents half an hour of price action. Each bar will form and change over a period of half an hour, then a new bar will start to form.

Daily charts and end of day charts are interchangeable terms....each bar on your chart represents 24 hours of price action.

Each day I download the daily Forex data into my charting software. It's usually available about mid morning Australian time. Or if you use the free charts supplied by a Forex broker, they're updated automatically each day.
I look for clearly defined upward or downward trends on daily charts, then focus on identifying temporary retracements against the trend. Temporary retracements soon end, and the main trend resumes. This is simply supply and demand at work.
If you become skilled at identifying these points where the main trend resumes after a brief retracement during an established trend, you have an ideal entry point. If you add the essential ingredients of cutting your losers quickly but sticking with your winners for the duration of their trends, you have yourself a simple, effective and profitable trading system that will harvest many nice profits from the Forex market year after year.

 

[CanOz]

No problem with basic questions, Andrew....no question is too basic when you're learning.

Live charts......the data is unfolding on your screen. The price bars are forming and changing right in front of your eyes. You might have your timeframe set at 30 minute bars, meaning that each bar or candle on your chart represents half an hour of price action. Each bar will form and change over a period of half an hour, then a new bar will start to form.

Daily charts and end of day charts are interchangeable terms....each bar on your chart represents 24 hours of price action.

Each day I download the daily Forex data into my charting software. It's usually available about mid morning Australian time. Or if you use the free charts supplied by a Forex broker, they're updated automatically each day.
I look for clearly defined upward or downward trends on daily charts, then focus on identifying temporary retracements against the trend. Temporary retracements soon end, and the main trend resumes. This is simply supply and demand at work.
If you become skilled at identifying these points where the main trend resumes after a brief retracement during an established trend, you have an ideal entry point. If you add the essential ingredients of cutting your losers quickly but sticking with your winners for the duration of their trends, you have yourself a simple, effective and profitable trading system that will harvest many nice profits from the Forex market year after year.

Bunyip, may i ask who your broker is? And the minimum lot size etc.

Also, you don't need to be too fussy about the spread with EOD correct?

Cheers,


CanOz

 

[bunyip]

Hey, thats fine i understand. I was really interested in a W/L rate, trade frequency, and maybe a max DD that you might have had. I'm more just curious whether or not it is something i could trade or not, knowing what i'm comfortable with.

One thing i noticed or didn't notice much of when i was trading FX were obvious patterns on the EOD charts. The charts seem to be really "thick" with allot of overlapping bars/candles...they just look different. Is it more S&R that you use?

Looking at the charts again, significant low and highs seem like potential trade points.

I'll try and post a chart....on the other hand i guess the entry is not that important, theres plenty of congestion patterns, its just a matter of hanging onto to those winners and....well you know the rest.

Cheers,


CanOz

Maximum drawdown.....that's something I've never taken any notice of - I just get in and trade and as long as my account is going steadily upward, I'm happy.

Winning percentage....roughly 50%, but that doesn't mean I lose 50% of my trades as well. Some of the non-winners are break even results due to moving my stop to break even, then getting stopped out.
Percentage of winning trades is not near as important as ensuring that your average winner is substantially larger than your average loser.

Not sure what you mean about the lack of obvious patterns on EOD charts...I see them all over the place. They're not there every single day like they are on intraday charts, but over the course of a year I'd suggest that EOD charts will offer you more trade setups that you can utilise.

I don't take much notice of support/resistance. I just like to see the emergence of a new trend. When that happens, it won't be long before you're presented with a suitable entry setup to put you into that trend.
Here are some recent examples from daily charts......

EURUSD 31/7/08 was a Shooting Star after a brief rally. At this stage the downtrend was new but nevertheless clearly established, so the Shooting Star was a legitimate signal to go short. The trade then proceeded to run more than 900 points in the next couple of weeks, and the downtrend is still intact, meaning that it has the potential to run further. (the word 'pips' always sounds silly to me...I prefer to use 'points' or 'ticks')

The mirror image of this pattern can be seen in USDJPY when it formed a Hammer on 1/8/08 after a brief pullback during an established uptrend. This was of course a legitimate long entry signal.

NZDUSD.....During an established downtrend, two consecutive small range Inside Days formed on July 25 & 28. All markets alternate from high volatility to low volatility and back to high volatility just like night follows day. The strong downtrend (high volatility) of this pair was followed by the pausing pattern (low volatility) of the dual Inside Days. This pattern, when formed during a strong trend, frequently precedes a return to high volatility, i.e. a strong resumption of the trend. This is exactly what happened in this case.
'High volatility' simply means strong price movement. It can be wildly choppy price action, or it can be consistently strong price action in one direction, such as during strong trends.
Trading this dual inside day pattern is pretty simple.....put your entry order just below the first of the two Inside Days, set your 'if done' stop loss order on the opposite side of the pattern, or a set number of points from entry if you prefer. If the trend resumes as you expect it to, you're in the trade and your stop loss is automatically placed, no matter if you're asleep in bed at the time, or on the golf course or out in your boat fishing or whatever.

USDCAD This strongly uptrending pair came to a temporary halt when price went sideways on July 29, 30, & 31. A few days of sideways action during a strong trend is usually followed by a strong resumption of the trend, which is exactly what happened in this case. By placing a buy stop order above the sideways pattern, and an 'if done' stop loss order 100 points or so from entry, you position yourself to catch the trend resumption if it occurs.

I've only mentioned two candle reversal patterns, Hammers and Shooting Stars. Note that I'm using them as trend continuation patterns, not trend reversal patterns. There are of course other candle reversal patterns such as Haramis and Engulfing patterns. They can be used in exactly the same way as the Hammer and Shooting Star examples I've given.

I'd disagree that the entry is not that important. In my view your entry is extemely important, as that's the starting point of your trade. A timely entry just as the trend is resuming strongly can make all the difference between a great trade and a mediocre result.

All the standard chart patterns also lend themselves well to Forex trading from daily charts......triangles, rectangles etc. They can give good entry signals when they occur during strong trends.
You'll note my continued reference to strong trends. In my view, you greatly improve your odds if you insist that a decent trend is established before you act on an entry signal.

There's nothing complex or fancy about the trade setups I've mentioned.They're nice and simple.....just like a good trading system should be.

 

[bunyip]

Bunyip, may i ask who your broker is? And the minimum lot size etc.

Also, you don't need to be too fussy about the spread with EOD correct?

Cheers,


CanOz

My broker is IG Markets.
As far as I know, their minimum lot size is one mini contract. I'm sure you know what a mini is, but for those who don't, a mini Forex contract is 10 grand and a standard contract is 100 grand. This means you're trading 10 grand or 100 grands worth of the currency, as the case may be.

Spread size is not near as critical with end of day trading as it is with intraday trading.
For an intraday trader aiming to capture 20 point moves, a 5 point spread is a significant bite out of his profit.
For an end of day trader who might reasonably expect to snare moves of several hundred points, a 5 point spread is insignificant.

 

[lesm]

My broker is IG Markets.
Spread size is not near as critical with end of day trading as it is with intraday trading.
For an intraday trader aiming to capture 20 point moves, a 5 point spread is a significant bite out of his profit.
For an end of day trader who might reasonably expect to snare moves of several hundred points, a 5 point spread is insignificant.

Bunyip,

You have made a good point above with respect to spread. For the longer term fx trader an extra pip here or there, or the width of the spread, lessens in significance in the bigger scheme of events.

One aspect you didn't mention previously with longer term fx trades is with respect to the interest received when you are interest +ve in terms of the interest rate differential between the currency pairs traded. The converse is also true where interest is paid when you are interest -ve.

This adds up through time and hence why some longer term traders try to be interest +ve whenever they can and receive the extra amount based on the swap rate.

Mongoose has made reference to the above points over on reef a few times.

Can,

Long time no see. Think I read somewhere that you had been making more headway on the trading front. Keep up the positive work.

Cheers.

 

[bunyip]

My first attempt at posting a chart here....let's see how it works out!

 

[bunyip]

Here's an example of how candle reversal patterns can be used as trend continuation patterns.

 

[bunyip]

Pausing patterns during strong trends are often followed by explosive moves in the direction of the trend.
By placing an entry order just outside the pausing pattern, you give yourself the opportunity of getting a timely entry if the trend resumes.
The breakouts from these patterns will sometimes put your trade hundreds of points in profit in just the first day or two.

After breaking out above this three day pausing pattern, the USDCAD ran up more than 450 points in the next eight trading days.

 

[CanOz]

Great posts Bunyip...and if you can get away with a stop of 100 pips then you R/R is well worth while and should lead to a postive expectancy no worries.

I love those little consolidation pattens.

I think i'll try and demo account after harvest is over.

Lesm, how are you anyway. Yes, we're doing ok now thanks. Its bit a bit choppy trading the US but i think we may have ourselves a trend there again.

I have also got myself a fully portable version of Firefox complete with its own proxy!!!! ha ha ha ha ha! I may be back for good now

Cheers,


CanOz

 

[tayser]

an even easier thing to do: get a metatrader demo, look at your pairs at about 7:05am AEST (when New York closes and a new daily candle starts) and apply something like Guppy's Trend Trading system executing on which ever broker you wish. MBT is a true blue ECN which has extremely elaborate order types and only costs you $400USD to open an account. 1:100 leverage (cant change the leverage and all the buying power readouts reflect that so if you want to place a trade with effectively no leverage (miniumum is 1000 lots ($0.10USD a pip)) you need to calculate it yourself).

 

[CanOz]

an even easier thing to do: get a metatrader demo, look at your pairs at about 7:05am AEST (when New York closes and a new daily candle starts) and apply something like Guppy's Trend Trading system executing on which ever broker you wish. MBT is a true blue ECN which has extremely elaborate order types and only costs you $400USD to open an account. 1:100 leverage (cant change the leverage and all the buying power readouts reflect that so if you want to place a trade with effectively no leverage (miniumum is 1000 lots ($0.10USD a pip)) you need to calculate it yourself).

Thanks Tayser, appreciate the advice. Will look into this for sure. I guess i need to try the pattern system in demo and see how i feel about it. I think if i'm patient and let trades come to me i could manage something like this, or my GF could...i think having a few systems is the way i will go and FX has a place for sure.

You only scalp correct?



Cheers,


CanOz

 

[tayser]

yep. I prefer to be in and out of the market in seconds and just take 10 or so a day - it's pretty simple, take $500 multiply by 2% per day and let it compound.

As a starting reference, 2% of $500AUD is $10AUD, which is 8-9 pips on EUR/USD - using 10,000 lot ($1USD pips) or roughly 30-35% of the available buying power using 1:100 - i.e not leveraging yourself to the t1ts.

(pip value is USD and as AUD/USD is currently 0.8690 meaning every $1USD is worth $1.15AUD - you're getting a nicer payout or you just require less 'work' to get your 2% a day)

doesn't mean I won't look at longer term trades in future however.

 

[bunyip]

In addition to daily charts, follow 2 day and 3 day charts if you want more trade setups.