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Trade Anatomy - ramblings of an old-timer 147 replies

Need forex writers to write UNIQUE Daily forex technical analysis and forex news 2 replies

Ramblings of a Forex Junkie

I want to say at this point that there is one indicator that I live by. It is the ATR. You cannot set a stop without it in my opinion. If the trader set stops based on some round number that sounds good they risk too many stops or stops that are too wide and cause losses to be too large. Imho ATR based stops as a percentage of daily moves are the only correct way.

I was reading a thread this morning where the trader had ten pip targets with one hundred pip stops. This guy was trading OPM. A simple ATR study would probably show that once the market moved some percentage of ATR against his position (perhaps 30-40%) he should close. With a hundred pip ATR this trader might save himself some serious losses. Personally I would never trade a method with a R/R lower than 2-1 but some people are winners with R/R <1. This trader however has to win over 90% just to beat the spread.
One more thing I would like to cover today before I take my twins for a walk.

I post MT4 charts. MT4 is a wonderful charting platform. It sucks for trading though. I am lucky that my broker has MT4 as an option. I am able to trade on the in house platform which has excellent instantaneous fills while using MT4 for charting and posting. Every time I try to trade form their MT4 the fills take nearly a second, terrible. With my broker I can simply trade on the in house platform from my MT4 enabled account and all the positions show on MT4 so I can print out the trades for my journal.

My recommendation, don't trade from MT4.
A truth for today.

Normal market movement (big fundamental news events excluded) is simply to facilitate orders. The market moves up purely to find sellers. The market moves down purely to find buyers. Put up a chart, locate the likely areas where there will be buyers and sellers and you will see reactions at these places. The market won't move for your or my five lot trade, but it will shoot up at blinding speed to fill a sell order for billions. Large orders need lots of liquidity. This is why you will often see price rocketing up or down only to bang against a level and then reverse hard. The simple way to find the needed liquidity is to get the price moving hard. A big buyer or seller can count on bad retail traders to buy what they are selling because the novice trader loves to buy big green bars and sell big red ones.

To get a true understanding of these concepts the trader should study market structure. There are lots of free pdfs. and other imformation on market structure on the web, and best of all its free.

The simplified description goes like this.

Big seller at 1.25375
Market at 1.25225
Banker wants to fill big order so he first puts his sells at 1.25374
Then banker puts market order large enough to cause a minor breakout (takes less money than you think).
Breakout players jump in pushing price higher.
Momentum players jump on board (scalpers, indicator junkies, etc)
Price races up into the really big order at 375
Price reverses.
Price action players jump on the pin bar.
Momentum players reverse their positions.
indicator junkies get stopped.
Breakout players are short now.
Price races down to find the next big buy order.

Cycles over and over.

A chart to illustrate, The levels don't mean anything just picked a day at random.
Attached Image (click to enlarge)
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I seem to be talking to myself. If you guys think I am full of it let me know. If you think this stuff is BS let me know. If you aren't interested let me know. If any if this is helping, let me know. I won't continue if no one is interested.
Quoting Seneca pilot
I began with forex about three years ago and have never looked back. I didn't make a profit for the first four years.
Top-Forex-Systems. com
Quoting 2+2=4ex
First four years of trading. Poorly worded.
Been profitable in forex after about six months in. Took a while to learn which prices and what times mattered.
Seneca Pilot,

You have made very good points so far. It is very helpful and interesting to hear from a more experienced trader, so please continue your thread.
"The wisest men follow their own direction" Euripides
Quoting Seneca pilot
I am done for the day. London close soon and all the volume goes away.

Truth three: Time actually does matter.

There are very important times during the day. The prices at these times are crucial.

It is important to understand I am saying time frames are not important, but prices combined with time are crucial. You can trade on any timeframe as long as you are trading the right levels.
Would you mind expanding on the sentence in bold? I understand that the highest volume of trades occurs during the London and London/US open sessions, but what do you mean by "the prices at these times are crucial"
"The wisest men follow their own direction" Euripides
Quoting Seneca pilot
First four years of trading. Poorly worded.
Been profitable in forex after about six months in. Took a while to learn which prices and what times mattered.
At least now your are earning pips. Keep continue this thread.
Quoting PiptheRipper
Would you mind expanding on the sentence in bold? I understand that the highest volume of trades occurs during the London and London/US open sessions, but what do you mean by "the prices at these times are crucial"
I will give you an example then you can do some investigation and find more yourself.

Put up a cable chart. GBP/USD fifteen or thirty minute.

I don't know your time zone but just put a line on the chart reflecting the price at London close. (noon US eastern time zone)

Now look at how price reacts to that line later in the day. Many times, not always, price will bounce off that line during asia and during Frankfurt and London.

That is price at an important time.

A chart might help illustrate.

Wish it was this easy every day. :-)
Attached Image (click to enlarge)
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There was a fourth trade, can you spot it?
I want to make three points that chart illustrates very well.

1)All three of the trades illustrated are counter trend and noone was sliced by a falling knife.

2)You don't have to make fifty trades a day to have good success.

3)You will know you are really trading with a good method when most of your trades have their entries fall within the wicks of the candles. The best methods have small draw downs and spend very little time around the entry price.
Quoting Seneca pilot
when most of your trades have their entries fall within the wicks of the candles.

What does this mean? I can't visualize what you are describing here. Which candles wicks, relative to the entry?

Enjoy the thread -- keep it up. Thanks.
"A is A"
Quoting catiron
What does this mean? I can't visualize what you are describing here. Which candles wicks, relative to the entry?

Enjoy the thread -- keep it up. Thanks.
This
Attached Image (click to enlarge)
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On Monday morning at 8:30 I posted a chart with two lines. I said I could use that to trade successfully. Here is the same chart today. Same two lines.

I changed it to thirty minute so I could show the whole week.

I said those two lines were the decision points for the week.

Believe me now?
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I want to celebrate my 100th post.

With a truth.

Trading is simple... It is definately not easy, but it is simple. :-)

If it isn't simple: If nine things have to line up before you can make a trading decision: You are not doing it right.

Also I am taking tomorrow off from trading. I got flat on the huge spike and feel like taking it easy.

I may drop in to chat a little but not during London, I'll be asleep.

Good luck and lots of pips everyone.
  • Aich
    Joined Jan 2008
Quoting Seneca pilot
I will give you an example then you can do some investigation and find more yourself.

Put up a cable chart. GBP/USD fifteen or thirty minute.

I don't know your time zone but just put a line on the chart reflecting the price at London close. (noon US eastern time zone)

Now look at how price reacts to that line later in the day. Many times, not always, price will bounce off that line during asia and during Frankfurt and London.

That is price at an important time.

A chart might help illustrate.

Wish it was this easy every day. :-)

If you are drawing lines off the London Close each day, how long would you expect them to stay active.
ie., how long do you leave them on the chart? Is it just for the next days trades or much longer?
Cheers, Harry
You've got the knowledge, now use it!!
  • Aich
    Joined Jan 2008
Quoting catiron
What does this mean? I can't visualize what you are describing here. Which candles wicks, relative to the entry?

Enjoy the thread -- keep it up. Thanks.
He is talking about the entry candle. This indicates that you have got into the first movement as the price bounces off your S/R line.
Check the posted chart and you will see this.
You've got the knowledge, now use it!!
Quoting Harry Johnso
If you are drawing lines off the London Close each day, how long would you expect them to stay active.
ie., how long do you leave them on the chart? Is it just for the next days trades or much longer?
Cheers, Harry
I only use until the next London close. Update each day.

These prices are great for scalping if you are into that sort of thing. Price usually reacts off these prices at least a few pips and often a lot.
London close is one of several valid price levels I trade each day. I don't intend to go into trading too deeply in the thread but if you spend some time with charts for each pair, you will begin to see patterns that center around certain price levels throughout the day.
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