Swing Trades using Price Action

I began learning trading about 1999... By telephone and 56K dial-up modem.
I started live trading 3 weeks after beginning to learn to trade... that was a big mistake in a way, but good in other ways. That account lasted about 4 months before I closed it... I'd lost over ½ of the funds by the time I closed it.

I was a "momentum" trader, trading off 1 & 5 min charts just using support/resistance and a 6 & 12 ema. Nothing else. I traded eur/usd in the Asian session when Price was seldom trending.

In the 23 years since then I've run the gamut of time frames, indicators, signal services, EA's and systems. I've been a fulltime trader on and off over the years. I've made a lot and I've lost a lot... up to 6 figures profit in one account which I lost back in Nov '07/08.

I was NOT trading this system back then, and this is not my main system today... but I present it for your learning and study.

This is one of the most simple entries you could imagine... and it is a VERY profitable system of picking entries.

It returns 35-50% winning trades at 1:3 RR.

At 1:2 RR it is over 65% on some pairs.

Trading 1:1 RR you can expect 70-80% winning trades... on some pairs
Extensive backtesting is necessary to find those pairs.
It is your job to backtest... If I list the best pairs, you learn nothing.

So what is the problem, why doesn't everyone use this?
... because it is Swing Trading... VERY little action.
BUT... price is fractal, so these setups appear on lower timeframes too, it is up to you to test it on lower charts.

****** You have been trained to EXPECT action.

****** The Algorithim knows how to take your money


My rules are very simple...

1. Daily Charts with 8 & 16 EMA's (it works fine on lower time frames, just more volatile)
2. ONLY trade with the Trend... no trend, no trade!
3. Wait for a Hammer, Shooting Star, Hanging Man, long wick Doji... (any candle with a long wick... the long wick must be at least ⅔ of total candle length). Wait for this candle to close.
4. The long wick must at least touch or pierce the 8 EMA... this is the "qualifying candle".
5. Enter at the Open of the following daily candle.
6. Place a Stop at the top (or bottom) of the qualifying candle.
7. Take Profit point is up to you, but start with 1:1 of the number of pips of the Stop... if the stop is 150 pips from the entry, then you place a Take Profit of at least 150 pips.

That's the basic rules. You'll get a trade about every 4 to 8 weeks on most pairs on Daily, and about a trade a day on hourly charts.

Backtest, Backtest, Backtest on your favorite pairs, stocks, indices etc before committing live funds.
There are more trades available by learning to recognize more setups... I have based this example on only one candle type... a specific "Pinbar". As you get more experienced at recognizing specific candles or patterns you can find many more trades.

The EURJPY is a very good example


There is a lot more profit in this method by taking partial profits and letting the rest run based on trend strength etc.

Money Management and profits can be improved using alternate exit criteria like pivots, Fibonacci, Parabolic SAR etc. Another exit strategy could be to TakeProfit if Price breaks back through the 16 EMA, or closes back inside the 8 EMA.

I suggest risking no more than 2% per trade with a personal account.
On Prop Firm accounts I suggest a max trade risk of 1% because you can get 5 or 6 losers in a row.

This is a very simple method using price action, an 8 period EMA and common sense.

Please let me know your thoughts...
Below are a few trade examples.

For UpToDate back testing on several pairs go to Page 10 in this thread.

For my trades in a $100k Challenge go to Page 18, post #342

Trade #5 was a loser, but entry was not until a few days after the setup due to the market gapping down over 100 pips the day after the trade set up.
Nonetheless... a loser it is.

I like your system. I like simplicity in trading. I also like it combined with trend trading, a good risk/reward (better than 1:1), better than 60% win loss ratio (i assume you have about 75%) and your candle formations. All in all i believe you have a solid method that should perform well.
I used to trade similarly on shorter time frame and to be honest the only thing really to change would be the MA's. I made them 20 and 30.
Not enough action for me personally but i do like it.

Juicyt

Looks good, pt.

Looking at your chart, my only question are the candles that look like they should be trades, that you didn't take.

There must be some other qualifiers that you didn't mention.

Why not Nov. 19?
Why not May 6?
These are only a couple of examples.

Thanks for posting your method.

Do you mind sharing the EA you are using ?

So you're saying that if I were not in a trade right now, wait until the market closes tonight, (dailly close) to do what you say (rules) and if it doesn't do that just sit out another day and another day until it follows the rules. Just trying to get a system because I'm blowing the account

I have always believed after 2 years of live trading that the way to go is the higher time frame charts. I am in.

Price action usually means Chart Patterns.
Though trading with moving averages and taking aggressive trades can also be profitable.

billbss:
... the Nov 19th candle does not qualify... the wick is too short. We are looking for candles that are strong rejection candles... wick twice as long (or more) as the body.
... the May 6th candle I missed. It does qualify and was a losing trade.

In my example chart in the 1st post there were probably other trades I missed adding. One other point is that I didn't have the 16ema drawn on the chart. A candle piecing the 16ema is also a strong qualifier for a swing trade... some examples being Feb 12th, Mar 12th, Mar 30th, Apr 27th & 28th however they often occur when the trend is flattening or reversing.

currencyexch:
... use daily charts and wait for the daily candle to close. The time locally (for you) will depend on the feed your broker uses. Most platforms will use the New York close, but some use London or GMT. I prefer to use New York.

For me in Eastern Australia that is at 7:00am my time. So after 7:00am I look at my charts for a possible setup. Last week we had trades on the gbp/jpy on 8th & 9th jun, aud/jpy & eur/jpy on 9th jun.

This is a simple system, that takes no more than 15 minutes a day to check 12 to 15 currency pairs for possible setups.

Hi pt49, greetings from West Australia !

Re: ONLY trade with the Trend... no trend, no trade! How exactly do you define your trend?

Also the suggested trade 'qualified' on Dec 18th seems to me to be a "stopped out" trade and therefore a loss?? The pullback started above the TP at about 129.85 and then hit the stoploss?? Perhaps an extra stoploss of Close above the EMA would work? I haven't checked that in history yet !

Finally, I think this is a very good system, something I have been looking for, for some time. Thanks for sharing it here at FF.

If the 8 ema is trending up guess what? Trend is up... keep it simple!

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Disliked

Also the suggested trade 'qualified' on Dec 18th seems to me to be a "stopped out" trade and therefore a loss??

You are correct, that trade would have stopped out after the retrace. I should have looked closer before posting.

Identifying qualifying candles.

Shooting Star... small real body at or near the bottom of the candle. The upper wick is at least twice the range of the real body.

Hammer/Hanging Man... opposite of the Shooting Star. Small real body at or near to top of the candle. The lower wick is at least twice the range of the real body.

The "guru's" of candle stick trading will tell you that Shooting Stars, Evening Stars and Hammers and Hanging Man are indicative of reversals in the market, which is often true, but by using these candles "upside down" and "with the trend" we are confirming the trend and finding high probability profitable trades.

Here are the eur/gbp swing trades for 08/09... 5 trades for 4 wins and +714 pips.

You probably want to enhance these definitions.

Using the definitions given, a 3 pip Doji will qualify. You'd need to zoom all the way in to see it.

Here are the eur/jpy Daily trades the last 12 months...

9 trades for 7 winners with 1 loss and 1 open trade and cummulative profit of +3,506 pips in profit the last 12 months.

Billbss... I would not use a small Doji (as in a spinner) as a qualifyer here. However a Doji that has a very long piecing tail is one I would take.

I took the eur/jpy Doji from Friday as a qualifying candle, however it is borderline as the tail/wick is not really long enough, still, I did take the trade today (BUY @ 137.70).

So are these real trades?

If you mean are these trades on a live trading account, no they are not, but I have started demo trading the method.

very nice method and results

keep going!