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04/05/2010 - MULTIPLE MARKETS
In the previous three Blogs I have basically explained Correlations and timing. The currency market is very similar to a watch with lots of gears; everything must be aligned to get the best results. I am not saying you need to wait for the once a month perfect setup, these setups appear over and over again on a daily basis. Before I explain market correlation, I just want to do a quick review based on the previous Blogs. Overlap various areas of Support/Resistance by aligning MACD with Stochastics, or timing a Fib Retracement with a Moving Average and/or a Pivot Point or a previous days high or low, do this on multiple timeframes, time it with other currency pairs. If you see a reason to take a long on EUR/USD support then check and see if the USD/CHF is at an area of resistance since both pairs are nearly exact reciprocals of each other then maybe see if the EUR/GBP is at an area of support as well since a bounce upwards on EUR/GBP will add a bit of relative strength to the Euro, hence, helping your EUR/USD Long.
OK, now other markets. I am not going to get in too deep on this, just keep in mind that generally if the DOW and S&P are rising, this also includes other markets such as the DAX, FTSE and even the CAC then most likely the EUR/USD is rising and the USD/CHF is falling. This is not due to EURO or CHF strength but to USD weakness because if the stock markets are rising then there is less demand for US Bonds, primarily the 10 Year T-Notes therefore foreign investors have no reason to buy dollars since dollars are required to purchase US Bonds. Remember, in most cases all the Indices are moving in the same direction. Likewise, if the Indices are falling, foreign investors are taking their money out of the markets and need to put it somewhere safe, and the safest place is the US Bond market, primarily the 10 Year T-Note and since you can only buy T-Notes with USD then they must buy USD to buy the 10 Year T-Note. Also, keep an eye on Oil & Gold. Gold is the Anti-Dollar and is usually correlated with the Indices.
OK, so now you got it. Align it all together. Make everything agree with one another as much as you possible can. Just like all the gears in a watch or motor. Time it all together. Do this and you will most assuredly get the bounce reaction you are looking for.
03/01/2010 - MULTIPLE CURRENCY PAIRS
In the previous two Blogs I covered overlaps of Support & Resistance by utilizing a few indicators and a few timeframes. The reason is that there are different traders looking at different things at the same time. Some Traders are trading Fibonacci Retracements, others trade strictly off of Pivot Points, some trade using Moving Averages and Oscillators. Some traders are trading on just a 15 Minute Chart, others are trading off a 1 Hour Chart, some may be trading off a Daily or 4 Hour Chart, well, by now you get the idea I hope. You see, trading currency is all about the battle between Bulls & Bears. There will always be both Buyers and Sellers at nearly every price level. At one price level I may see a reason to buy and at that very same price level another trader may just see a reason to sell. By using multiple indicators as well as multiple timeframes, it enables the trader to determine the sentiment of the majority of the traders. I will be a Bear or a Bull as long as I am on the winning team so I want to be on the team with the majority of the players. If you were to play a game of tug o war and had to choose which team to join, and all the players on both teams were of comparable strength, but one of the teams had 2 additional players than the other then it goes without saying that the team with the most players will most likely win the game, so, I want to be on the team that wins. So in this Blog I want to throw another tidbit your way that goes hand in hand with the previous Blogs and this Blog will cover the correlations the various currency pairs have with one another.
I can probably give you countless examples across the board but I will save that for class time. I will however cover my favorite pair, the EUR/USD. This pair is my favorite for all the obvious reasons, it is the most traded, the most volatile and the dollar is the worlds reserve currency. Incidentally the USD/CHF is the exact opposite of the EUR/USD. In other words, if EUR/USD is down against Support, most likely the USD/CHF is up against Resistance. If the EUR/USD is going to bounce up, then USD/CHF will bounce down. This is very important information since it adds further validation to the price action. So if you were planning a EUR/USD Long off of a 50% Fibonacci Retracement on a 15 Minute chart overlapped with a 21 Moving Average and possible a 55 Moving Average on an hourly Chart then before you pull the trigger on that trade whip out the USD/CHF Chart and make sure the opposite conditions exist as well. If the USD/CHF is poised to fall, then most likely your EUR/USD long will succeed. Now I want to take this a step further. Get out a EUR/GBP Chart as well as a USD/JPY Chart. The EUR/GBP Chart will give you a hint of what we refer to as Relative Strength between the EUR/GBP and the USD/JPY will tell you the Relative Strength between the USD/JPY. Remember, we are not trying to over trade, we just want to get into the highest probability move we can get into. So, if the EUR/GBP is also hitting support, then there is a good chance there will be a bounce, therefore providing the EUR with some extra strength, an additional boost. At that very same time we need to check the USD/JPY Charts since maybe the USD/JPY could be up against resistance, therefore a bounce downward forcing the USD down could cause brief dollar weakness. So, for a EUR/USD long to carry lots of energy, it is best to time it with the EUR at its strongest point therefore utilizing the EUR/GBP to align EUR strength and get the USD at its weakest moment utilizing the USD/JPY to align the USD with its weakest moment, then take a look at the USD/CHF to make sure the conditions are a perfect opposite of the EUR/USD. If you have done all this properly, and yes, it was a lot of hard work and chart flipping to do it and it also took a long time and a lot of patience, most likely you will have gotten yourself into a very powerful move. Maybe even an 80 Pipper. One thing is for sure, you will get at least a 15 - 20 Pip bounce, more than enough to move your Stop Loss to Break Even, then, its just a stress free, worry free trade. You will either make money or waste time. Hero or Zero. That's what a Trade Plan is all about and that is how we trade. Remember, a profitable trader is not paid to trade, they are paid to wait. A trader makes a Trade Plan and he waits for the move to come together, once the final confirmation is in, the trader then pulls the trigger. If you trade like this most of the time you will come up ahead. Hard work and careful planning like I just described is generally highly rewarded and hardly punished. Being so picky may only get you into one or two moves a day, but these types of moves are the most powerful moves and reaps the highest quantity of Pips. One move a day like this is all you need. I will get deeper into this in class training.
02/26/10 - MULTIPLE TIMEFRAMES
In the previous Blog below I discussed the importance of overlapping multiple indicators to further validate and confirm a price bounce. In this Blog I take it a step further to overlapping multiple timeframes. Moving Averages as well as all the indicators work on all Timeframes. The only difference is if you are looking at a 200 Moving Average on a Hourly Chart the 200 Moving Average represents the Moving Average of the last 200 Hourly Periods and on a Daily Chart the 200 MA represents the last 200 Days. Bankers, Hedge Funds and Longer Term Traders tend to look at the longer term charts like Weekly, Daily, and 4 Hour Charts. Some may even look at Monthly. But your typical shorter term retail trader is usually watching the 4 Hour, 1 Hour, 15 Minute and 1 Minute Charts. Usually the big money is behind the longer term charts since these traders don't have time to enter trades on 15 Minute Charts. So, I advise you to do what I said in the previous Blog but expand this practice to Multiple Timeframes. Start out with a Weekly and take note of the significant Moving Averages such as the 200, 55, 21 MA's then drop down to a Daily then a 4 Hour Chart. Continue down to the 1 Hour and 15 Minute. Try to line up as many as you possibly can. If price is sitting on a Bollinger Band on a Weekly Chart see if price is against support on a Daily Chart. Zoom into a 1 Hour and 15 Minute Chart and see or wait to see price fall against an area of support. Now you have price sitting on support on four Timeframes, two longer term and the other two shorter term. If you also lined up the indicators the way I explained in the previous Blog you are in for one big bounce. Could even be a 60 Pip move or better. Could be a high energy 100 Pip move. When you overlap multiple indicators to multiple timeframes you are setting up for a very powerful bounce. A bounce like this will surely exceed 20 Pips, more than enough to set your Stop Loss to Breakeven and relax and enjoy your stress free trade. Trades like this can easily exceed 30 - 40 Pips profit within just a few minutes and you can quickly move your Stop Loss upward to protect at least 20 Pips of Profit. Trades like this do not come too often since your are overlapping so many things but when they do develop the moves are so energetic, intense and robust. Check out Example1 and Example 2. The little red arrows each correspond with the same moment the move took place. In Example 1 you will notice that the Daily Candle is up against the mighty 21 EMA which is a very powerful Moving Average. On the 4 Hour Chart price has just touched a Bollinger Band (very strong resistance) and also touches a Trend line. In Example 2 the Hourly Candle and the 15 Minute Candle also touch the Upper Bollinger Band and just above the arrow on the 1 Hour chart you will notice a Blue Line which represents a Weekly Pivot Point. As you can see these chain of events led to a very big, powerful and abrupt downtrend. This type of setup requires a lot of patience, however, this single move may gleam more Pips than most skilled scalpers can gleam in an entire week. So, always remember, line up multiple indicators to multiple timeframes to position yourself into huge moves.
02/22/10 - MULTIPLE REASONS TO GET YOU IN, ONE REASON TO GET YOU OUT
Support and resistance is very subjective as it is also dynamic. Some areas of support and resistance are stationary and dynamic S & R changes. Moving Averages are dynamic since they change as price changes. If price is moving upward it drags the Moving Averages upward as well and when price is falling it drags the Moving Averages down with it. Moving Averages are considered as dynamic since they change, they are not static and stay in the same spot. Daily Pivot Points are also dynamic in that they change from one day to the next, however, for that given day they will remain static but will most likely change the next day. Weekly Pivot Points will remain the same for the entire week. Fibonacci Retracements and Extensions are also dynamic. The reason I am making a big deal about this is that I have noticed that newbie trades all seem to think that Support & Resistance are simply just a visual line that price bounces from. This is referred to as Visual Support or Resistance. We need to take notice to that as well. The point of this Blog is to emphasize the power that overlapping areas of Support and Resistance has on price. A good example would be something like a Daily Pivot Point and a Weekly Pivot Point within the same price area, adding to that a 50% Fib Retracement lands you on that Pivot Point and maybe you have a 5,21,55 or 200 Moving Average at that same price level. Maybe that same area was previous support the day before or maybe even resistance. In a situation like that you may have at least 4 areas of support over lapping each other. That may be on just one timeframe alone, maybe on other timeframes you will find other areas of Support and Resistance since the Moving Averages vary from timeframe to timeframe. Your oscillating indicators such as Stochastics and MACD may also be giving you a trade signal at that very moment as well. An area such as this will surely have a price bounce to some degree and I will even bet you the bounce will be wide enough for you to shove a Stop at Break Even, hence, giving you a stress free trade. Either you will make money or you break even and just lose time. In this Example the 4 hour chart on the left is up against both a 61.8 Fib Retracement and a 55 Moving Average (in Blue) and the Upper Bollinger Band is pointing down. The hourly chart to the right shows the 61.8 Fib but is also against the mighty 200 Moving Average. Also take note that the MACD was beginning to cross down and thee Stochastics clearly crossed down. so there you got six or seven reasons to take that short. To take you out would simply be a 200 Moving Average on a 15 minute chart or a Moving Average Crossover against the direction of the trade (not illustrated). Identifying such levels of Support and Resistance take lots of practice. I cover these techniques over and over again during my private group lessons as well as my one on one classes.
02/21/10 - TRADING IS COMPARABLE TO SURFING
I have been asked in the past what I would compare Forex Trading to. Would I compare it to Las Vegas? The best comparison that I can come up with is surfing. I am not a surfer, however, I have known a few surfers and I have watched surfers on TV and have seen a few movies on surfing. Surfing is practically identical to Forex Trading. A surfer studies the Weather and Climatic conditions prior to hitting the waves. If all the conditions are optimal for substantial waves the Surfer heads out to the beach. A Forex Trader studies the current economic announcements and studies the charts for price action. This is referred to as Fundamental and Technical Analysis. Fundamental Analysis enables the trader to form a market bias and Technical Analysis enables the trader to design a Trade Plan. As for the surfer, his analysis of the weather has informed him that the conditions are just right for the big waves so he hits the water with his board, paddles his way out and simply waits patiently for the waves to develop. The trader based on the Analysis has formed a Trade Plan and patiently waits for his trade set-up to fall into place. This can take as much as a few hours to develop. Surfers have been known to patiently wait in the water for hours until their wave finally evolves. Finally the wave comes in and the surfer takes action and rides it to the end. The same goes for the trader, price falls into his trap and he rides it to the end. In Forex Trading the wave is in the form of a Moving Average. In order for a trader to find a decent insertion point to hop on the wave the trader uses a Fibonacci Retracement. Below you will find two examples on what it looks like to ride the wave by using a Fibonacci Retracement. The tiny red Arrows mark the insertion point.
In Example #1 the Hourly EUR/USD Chart clearly displays price riding my Red 21 EMA. The 38.2 Fib Retracement put you in and if you would have rode the wave until the end you would have gleamed in around 250 pips.
In Example #2 the 15 Minute EUR/USD Chart displays price riding my Green 5 EMA. Once again the 38.2 Fib Retracement put you in and if you rode the wave until the end you would have gleamed in around 100 pips.
Moves such as this are referred to as Swings. Have you ever heard the term Swing Trader? That is the ultimate goal of the Forex Trader, to ride the swing or ride the wave. These types of setups are really the best, stress free setups you can ever get yourself into since all you do after you insert yourself is just sit back and watch the pips accumulate. The most awesome part of Swing Trading is that these setups present themselves over and over and over again on all currency pairs on all time frames. After you get in some experience, these types of setups literally screams out at you. Don't feel bad if you miss a wave, there is always yet another Wave shortly on the way. So the way to get in on a swing is to catch a fib retracement that overlaps with a Moving Average which is precisely what the above examples have conveyed. So your patience paid off, you waited and waited until all the optimal conditions came together and you caught your wave just as the patient surfer caught his. A Forex Trader doesn't get paid to trade, a Forex Trader gets paid to wait. In Forex Trading the old adage, 'Patience is a Virtue' certainly does hold true. Of course, safely positioning yourself into such trades with precision and accuracy with confirmation requires the usage of certain indicators as well as utilizing a shorter time frame to pull the trigger, all of which I cover in my Group Sessions and Private Classes.