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ha-pattern Jan 1, 2010 8:02am | Post# 21

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This thread uses only trendlines. Same for me. TL's are all-purpose as s/r, horizontals, fibs.
Note, though, that traditional patterns cherry-pick / are discontinuous, and oscillating indicators repaint / are inaccurate. I find I'm always studying to make a better approach to decrease this using only TL's.

A centerline (using some midlines to measure the 50%) may help one trade the little stuff on the chart above:
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trade4pip Jan 1, 2010 8:33am | Post# 22

Thanks NyWallSt, I completely agree with you, I think trendline, S&R and fibonacci and maybe pivot points are all a trader needs for technical analysis.

It is also important that you have a fundamental view of market and understand the major trend and possibly sideway market.

But I have a problem, I can't find a good approach for ST & TP. I supposed to use fibonacci extensions but that would mix things complex and sometimes doesn't work.

I appreciate if you can help me to find a deciplined approach for Entry/Exit.

Thanks,
Reza
Please anyone who has used this approach successfully in the market for long term help us to understand Entries/Exits
I understand trendlines, S&R, Fibonacci,... but I want to hear of you and see how you enter and exit market based on these tools and how you set your ST & TP.
Is here anyone who use a small constant TP to avoid complexity and monitoring...

sam69 Jan 1, 2010 11:06am | Post# 23

Please anyone who has used this approach successfully in the market for long term help us to understand Entries/Exits
I understand trendlines, S&R, Fibonacci,... but I want to hear of you and see how you enter and exit market based on these tools and how you set your ST & TP.
Is here anyone who use a small constant TP to avoid complexity and monitoring...
you can look in FEB's "System II" thread,this is basicaly the same but in FEB's thread they dont use trendlines,only breakouts by identifying swings and pullbacks...

cyberfx Jan 1, 2010 3:54pm | Post# 24


If you get bored easily and lack a hunter's patience....the FOREX market will kill you.
Yes, i agree

hanover Jan 1, 2010 4:39pm | Post# 25

Some thoughts on why S/R possibly 'works'
 
My understanding is this: Markets are the result of belief systems that create orderflow. Phenomena like S/R and trendlines are easily and unambiguously visible on several timeframes, and have consequently become so pervasive in their use, that many orders get placed in those areas.

The market operates on willing buyer/willing seller and (as has been pointed out already) supply and demand. Increase in demand results in buying pressure, and vice versa. Pending (limit) orders create liquidity, while market orders consume it. This analogy is an over-simplification, but I think of larger-than-normal candles at the start of a move as adding 'energy' (predominantly market orders) to push price in a certain direction, and strategic levels (where pending orders have been placed) as 'barriers' that absorb this energy. When the energy has been totally dissipated, demand is effectively exhausted and price can move no further. The greatest probability of exhaustion occurring is going to be at levels where the greatest volumes of pending orders have been placed. Given the mentality that currently pervades the market, that is going to be S/R.

Visibility is important when one thinks in terms of these probabilities. The more visible a phenomenon or pattern is, the greater the potential of its contributing to a 'self-fulfilling prophecy'. S/R (local price high/lows) and trendlines (if likewise constructed through the same highs/lows) are going to be unambiguously visible on multiple timeframes, hence they will be seen, and potentially acted upon, by the highest number of traders. Fibos are consistent to whatever extent that traders use the same swing points to construct them; daily pivot levels are similarly dependent upon the cutoff times on which their calculation is based; round numbers are universally consistent, for obvious reasons.

Candle patterns are a little less 'visible' than line studies, due to their arbitrary cutoff points; for example, H4 candles on a chart based around GMT+1 are going to be different to those on a GMT+2 based chart, since different data is being gathered for each candle. Nonetheless, candles are useful in reflecting momentum (the rate at which price moves) and in highlighting rejection of key price levels. Large bodied candles frequently appear both at the start, and at the end, of decent moves.

Indicators are the least consistently visible of all, for two major reasons. Firstly, they are timeframe dependent, e.g. a SMA(10) on a M15 chart will plot a very different curve than a SMA(10) on a H1 chart. Secondly, they tend to be calibrated subjectively. There are folk who use 10 period MAs, 20, 30, 50, 100, 200; there's Bill Williams and the 'fibo-folk' who use 5, 8, 13, 21, 34, etc period MAs; there are James16 and others who use 150 and 365 period MAs; and so on. And of course some recommend SMAs and others EMAs. The same logic applies to Stochastic, RSI, MACD, and so on. Third party developed indicators have even lower probability of signposting areas of high order volume, other than fortuitously.

In terms of how to use this information profitably, I look for areas of S/R and congestion, where price is more likely to be obstructed, and conversely where it's more likely to move freely, which is ideally where I want to be most heavily positioned. That is the whole philosophy behind breakout trading, jumping on the bandwagon immediately the shackles have been broken, and price moves away from congestion into the deep blue yonder. Another key is developing a 'feel' for which S/R levels are more likely to be respected, something that I'm slowly learning. In general, longer timeframe S/R is more reliable (again, probably a visibility issue), although the 'zones' tend to be wider, necessitating a greater margin for error. When price breaks through a key level, and then revisits that level ('flipover' S/R), there is a higher-than-normal probability that the breakout will continue, facilitating an excellent low risk entry. If price revisits an area where there are a number of prior candle highs/lows in the vicinity, then probabilities further increase commensurately; I also like to look selectively for confluences (multiple S/R points, trendlines, round number, pivot levels, etc) in an area, to put as many potential barriers between entry and SL as possible, increasing the probability of a reversal before the SL is hit. The lower the number of pips between entry and SL, the greater the potential for a higher RR trade. Alternatively, we can shift down to a lower timeframe to confirm rejection of a level, before placing our entry. It is a finely judged compromise in 'optimzing' between the confirmation (reliability) of a later entry, and the better RR potential that's delivered by an earlier one; which ultimately expresses itself in terms of win rate versus win size.

Everything else being equal, RR and win rate operate in inverse proportion to each other, but we can use abstracts like trend, S/R and momentum (large candles can give clues as to when a high number of heavyweight buyers or sellers are entering the market) to overcome this inherent equilibrium. If we view exits as the inverse of entries, then the same S/R-like principles can be used to scale out of trades at higher probability areas. The more accurate our entries and exits are, on average, relative to price reversals, the more pips we will bank in the longer term.

Having said all this, I know profitable traders who use indicators. Indicators can be especially useful if they highlight phenomena that's not immediately obvious from price alone. Oscillator-based divergences are a possible case in point. As for me, I like regression channels and Bollinger bands to give me a rough idea of overbought or oversold. If I'm trading pullbacks in a trend, it's handy to know how far price is overbought or oversold, standard deviation-wise, as an adjunct to S/R. I like to aggregate as many independent potential 'edges' as possible. But, at least personally, I don't rely on indicator based signals to time my entries, largely because of (1) their low visibility and subjective calibration, (2) the potential dangers of curve-fitting, and (3) since all indys are ultimately derived from OHLCV, stacking indys (supposedly in the hope of reducing false signals) isn't really adding independent confirmation. Virtually all entries are either breakouts (buying strength or selling weakness) or pullbacks (buying temporary weakness or selling temporary strength), and any indicator can be calibrated to enter earlier or later into the emerging move. As I said a couple of paragraphs back, earlier or later is effectively a tradeoff between win rate and win size. So I would argue that no indicator is significantly better than another, signal-wise. To avoid the possibility of over-optimization, I prefer using 'robust' abstracts like trend, S/R, momentum, OB/OS, and relative currency strength.

On the thread topic of what has helped my trading the most, I would have to say understanding correlation and relative currency strength. Relative strength is no more a leading or lagging indicator than price itself, but there are big advantages to be gained by trading the most negatively correlated currencies against each other, i.e. the strongest against the weakest. The more negatively correlated two currencies are, the further, and (just as importantly) more cleanly their associated pair tends to trend, hence more pips banked on winning trades. Conversely, if you look at charts of highly positively correlated currencies, you'll see a lot of sideways movement, and overlapping candles with long wicks, another symptom of sideways zigzagging. I don't study fundamentals, but obviously if one nation's economy is currently particularly strong or weak for whatever reason, then that will be reflected in the currency strength. Another great aspect to strength is that operates independently of TA-based entries and exits, merely telling us which pair(s) to trade; and unlike simply plying additional indicators onto the same chart, it is bringing data independent of the pair being traded, into the decision-making process.

Positive correlation can potentially add confluence to S/R levels, but we're getting way beyond the KISS principle here. What happens if positively correlated pairs like NZDUSD and AUDUSD both approach key S/R levels simultaneously? The answer has to be higher probability of a bounce, i.e. S/R x 2 plus the means to keep the correlation phenomenon intact.

Sorry, long post, I guess one thing led to another, LOL. Better get back to some real work now.

Sim Jan 1, 2010 4:49pm | Post# 26

Wow lol.. nice work!

swingmonkey Jan 2, 2010 1:51am | Post# 27

Interesting. I accidently stumbled upon your thread while searching for comments on the Goodman Swing Count Sytem after reading about it in Micheal Dwane Archers "Getting Started in Forex Trading Strategies" where he also writes about the dangers of using S/R's. I'm interested in knowing if you've read anything of Michael Dwane Archer and if so what are your thoughts?

hanover Jan 2, 2010 4:11am | Post# 28

Interesting. I accidently stumbled upon your thread while searching for comments on the Goodman Swing Count Sytem after reading about it in Micheal Dwane Archers "Getting Started in Forex Trading Strategies" where he also writes about the dangers of using S/R's. I'm interested in knowing if you've read anything of Michael Dwane Archer and if so what are your thoughts?
Not sure if your question was aimed at the original poster, or me. Anyway, I Googled Goodman and Archer and found this. Some of the ideas seemed similar to those expressed in a book I read a year or so back on wave theory, by James Bickford.

I see technical 'levels' in any market being created for any of the following reasons:

(1) Self-fulfilling prophecy: if enough heavyweight traders believe in a similar concept, they will create the consequent order flow.

(2) Mass psychology: a collective averaging process of crowd fear, greed and other emotions, causing orders to congregate at certain levels. For example, some folk believe that the human brain is somehow wired to (subconsciously) act at or near Fibonacci levels.

(3) Deliberate manipulation: by brokers and heavyweight players, in so far as this is possible, e.g. stop hunting causing apparent fakeouts.

(4) Correlative impact: if price reverses at a certain level in one pair, then it will have a gravitational effect on other pairs that are highly correlated. Also, the inherent correlation between spot forex and currency futures, options, etc.

(5) Apparently random events: exhaustion of buying or selling power just happens to occur in 'no man's land'; or large market order(s) unexpectedly materialize, from participants with either speculative, or non-speculative, goals; and no doubt a variety of other reasons.

Of the above concepts, the only one that meets any kind of wave analysis rationale is (2). Having said that, that's on the basis of a 10 minute read of the internet based material that I was able find on Goodman/Archer, so it's probably very presumptuous of me to assume anything.

NYWallSt Jan 2, 2010 4:29am | Post# 29

Interesting. I accidently stumbled upon your thread while searching for comments on the Goodman Swing Count Sytem after reading about it in Micheal Dwane Archers "Getting Started in Forex Trading Strategies" where he also writes about the dangers of using S/R's. I'm interested in knowing if you've read anything of Michael Dwane Archer and if so what are your thoughts?
Hey Swing, Hanover already made some points regarding your post but no, i have never heard of Goodman Swing Count System, Ill take a look a it. Would like to know the dangers of using Support and Resistance. As for me i just trade what the market is showing in price patterns (Rising/Falling Wedges, Triangles, Head and Shoulders, Break of resistance/Support..etc..) These patterns are always happening and i just keep it simple by using the basics of Support becomes resistance and vice versa.

ph3onix Jan 2, 2010 5:37am | Post# 30

To better identification of theese price patters check out Glenn Neely's book called "Mastering Elliott Wave". There are 4 types of "triangles" with hard rules, which allow you to identify "true triangle price activity". Also if you know triangle type, you can compute the target which must be reached after triangle ends.

localia Jan 2, 2010 6:40am | Post# 31

Candle patterns
 
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Candle patterns are a little less 'visible' than line studies, due to their arbitrary cutoff points; for example, H4 candles on a chart based around GMT+1 are going to be different to those on a GMT+2 based chart, since different data is being gathered for each candle. Nonetheless, candles are useful in reflecting momentum (the rate at which price moves) and in highlighting rejection of key price levels. Large bodied candles frequently appear both at the start, and at the end, of decent moves.
From my point of view candles patterns work quite well in high timeframes.

Is not the holy grail, but in combination with correct support or resistance levels you can develop a profitable trade.
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stock-market Jan 2, 2010 10:05am | Post# 32

hi
 
good post.Stocks that trade within the top performing sectors have tremendous short and long-term opportunities. Perhaps that is why so many successful traders and fund managers are proponents of this strategy.

Haxor Jan 2, 2010 10:29am | Post# 33

Great!
 
My understanding is this: Markets are the result of belief systems that create orderflow. Phenomena like S/R and trendlines are easily and unambiguously visible on several timeframes, and have consequently become so pervasive in their use, that many orders get placed in those areas.

...
Fantastic post my friend. I really enjoyed it!

Regards

Greg

Caesar95 Jan 2, 2010 11:29am | Post# 34

My understanding is this: Markets are the result of belief systems that create orderflow......Sorry, long post, I guess one thing led to another, LOL. Better get back to some real work now.
Great Post! I already saved this in my word document!

hanover Jan 2, 2010 1:54pm | Post# 35

From my point of view candles patterns work quite well in high timeframes.

Is not the holy grail, but in combination with correct support or resistance levels you can develop a profitable trade.
Agree 100%, this was something I learned while studying James16. Hammers (pinbars), railroad tracks, outside bars and engulfing bodies all signpost large/fast shifts in momentum, and will almost always allow an earlier entry into a move than indicators (on the same timeframe). As you say, combine these with S/R and/or OB/OS and you have the makings of a profitable entry method. The longer the timeframe, the greater the reliability, but (for whatever it's worth) the lower the number of trading opportunities.

FXSurfer Jan 2, 2010 5:15pm | Post# 36

Really great thread here!

People can say what they want in defense of indicators but, the lag kills any benefit (objectivity, definiteness, etc.) IMO. Also, they serve to divert your attention from where it needs to be - from the market itself.

steveshelby Jan 2, 2010 5:50pm | Post# 37

yes, I also agree. a great man by the name of Sam Sieden has opened my eyes to the laws of supply and demand. It was like a light bulb came on in my head once I knew what to look for on a price chart. I have been demo trading for about a year and a half now and after coming across this guy, my trading has improved 10 fold. I can't believe how much easier trading has become. Now most off the time, I can just pick my levels and set a limit order and forget about them. Just itching for the day when I can trade a real account.
What is keeping you from trading a real account?

steveshelby Jan 2, 2010 5:50pm | Post# 38

indicators are like golf clubs. They won't make you any better unless you learn how to use them properly.

I actually use a combination of S&R with indicators. Everyone has to find a method that works for them.
I wonder if Tiger Woods would agree?

steveshelby Jan 2, 2010 5:52pm | Post# 39

Yeah, i Wish i had never found indicators but its fine, it was a learning experience. I guess thats why 90% - 95% of traders lose money because when you do a search on google about learning forex or any other market, your going to get hundreds of links to Systems, Indicators, EA's, Robots..etc. Not much on trading a naked chart. The beauty of trading price action is you can see or plan a trade in advance as a price pattern is panning out.
You may want to post that in the appropriate thread.

steveshelby Jan 2, 2010 5:56pm | Post# 40

Yeah, I Understand. I had the same problem a long time ago, In fact i came full circle because when i very first started trading, i was doing manual analysis without indicators and then when doing more research i came across Stochastics, then MACD, Then Moving Average Crossovers, Then RSI... and on and on and on. I felt like i needed these indicators to justify the trade (you know,.. Overbought/Oversold..etc). Whats funny is that while your looking at what your indicators are saying for a "good" entry, the market gives you a bag of price pattern...
Pi - the movie

There was one part that every trader needs to remember:

"...When your mind becomes obsessed with anything, you will filter everything else out and find that thing everywhere..."

Looking for patterns in the market may seem like the smart thing to do but in the end it is really folly.


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