Can you control yourself and remain disciplined in your trading? Can you wait for the right setups and skip the questionable ones? Can you close a losing trade for a small loss instead of letting it turn into a big loss? Then this method might be for you.
This is a variation of a 4hr method I use to use a couple years ago...and there are a lot of similarities and some slight changes. Below is the general setup and rules. And I use the word rules loosely because they aren't hard/strict rules to follow...more like guidelines. But in an ever changing market, one has to be flexible. What we are trying to do overall is put the odds of the trade in our favor in the simplest way possible on the 15min chart.
Look for the Obvious trade...DO NOT TAKE the trades you are unsure about and gamble your money away!!!
Chart setup
1) I use the 15min chart, I find it's pretty reliable for day trading and typically gives you one or two good setups a day per pair.
2) Plot a 12, 50, 200, 800 ema in whatever color you want on your charts.
3) Use a stochastics indicator with settings of (K period 5, D period 3, Slowing 3, and MA method of Simple). Put a 20 and 80 level on there...those are your references for oversold/overbought areas.
Looking for Trades is as simple as 1-2-3...
1) PRICE ACTION...basically I look two things: A) Candle sticks patterns: Pinbars/Hammers and Tweezers/RailRoad tracks. These candlestick patterns basically tell me that the market is trying to fake you out by going one way, but then reversing and going the other. B) Price Patterns: Head & Shoulders pattern or the M & W patterns(sometimes called double tops/bottoms). These patterns help me recognize when price might be reversing.
Also, you need to have a general idea of how many pips price normally moves in a day(ADR) so you can have an idea if price will continue moving in the same direction or if it has run it's course for the day and may start consolidating or reverse. And finally, Divergence...that can help you spot a possible reversal coming.
2) MOVING AVERAGES...you want to see how price reacts around the higher MA's like the 800, 200 and 50....these can act as support/resistance areas. And I like to use the 12ema to stay in a winning trade...or if price gets too much seperation form it, it could give you a hint that price is getting ready to reverse.
3) Stochastics...you want stochastics to help give you an idea where price is overbought or oversold. This is just a SUPPORTING indicator to help keep you out of bad trades. Example: If you are looking to go short based on Price Action and the Moving Averages...but stochastics is down around the 20 level, you should probably skip that trade as it most likely doesn't have a high probability of success.
And that's basically it...it's really just 1-2-3...PA, MA, Stochastics. You have to already have an understanding of reading candlestick patterns and chart patterns. Also, you MUST use all three components together. If you don't have confirmation of all three telling you to go short or long, then you are most likely going to have a losing trade. So Stay Disciplined!
Some additional tips: Take a look at the 1hr, 4hr and Daily charts every so often so you can spot some major support/resistance areas(just look left...that should be obvious areas). Also, get a feel for the overall trend of the market...if you see an uptrend/upchannel....then your best trade, for example, would be a long setup near that trendline or the bottom of the upchannel. Just use common sense. If you see a consolidation range on the 4hr chart...don't go long near the top of that range and don't go short near the bottom....the better trades would be long near the bottom of the range and short near the top. You will only be wrong once(when price finally breaks out of that range)...and it will only be one small loss!
Pairs I Use
This method has been tested on GU, EU, EJ, AU, pairs...I have NOT tested it on any others.
Money Management
( word of caution...this is what works for me...please feel free to adjust your Target Prices and Stoplosses for what suits you).
1) I set an initial emergency stop loss of 50pips in case the market does something weird like surprise news, flash crash, or if you lose power for a while...at least you won't blow your account.
2) My Target price is set at 50pips...although most trading profits are taking between 20-50pips.
3) You should exit your trade on the first candle that closes on the opposite side of your entry candle if your Target Price has not been hit within a couple hours. With the proper entry, your losses should be around 30pips or less.
4) Stay away from HUGE candles...typically you want to enter on candles that are 30pips or less...give or take a few pips.
5) Stay away from major news like NFP, interest rates, or anything that could create large swings in price. You're looking for high quality trades...you are NOT suppose to be gambling your money away....again, this takes Discipline!
As you can see, with a proper entry...my risk-reward is roughly 1:1!
Lets get to some examples....
This is a variation of a 4hr method I use to use a couple years ago...and there are a lot of similarities and some slight changes. Below is the general setup and rules. And I use the word rules loosely because they aren't hard/strict rules to follow...more like guidelines. But in an ever changing market, one has to be flexible. What we are trying to do overall is put the odds of the trade in our favor in the simplest way possible on the 15min chart.
Look for the Obvious trade...DO NOT TAKE the trades you are unsure about and gamble your money away!!!
Chart setup
1) I use the 15min chart, I find it's pretty reliable for day trading and typically gives you one or two good setups a day per pair.
2) Plot a 12, 50, 200, 800 ema in whatever color you want on your charts.
3) Use a stochastics indicator with settings of (K period 5, D period 3, Slowing 3, and MA method of Simple). Put a 20 and 80 level on there...those are your references for oversold/overbought areas.
Looking for Trades is as simple as 1-2-3...
1) PRICE ACTION...basically I look two things: A) Candle sticks patterns: Pinbars/Hammers and Tweezers/RailRoad tracks. These candlestick patterns basically tell me that the market is trying to fake you out by going one way, but then reversing and going the other. B) Price Patterns: Head & Shoulders pattern or the M & W patterns(sometimes called double tops/bottoms). These patterns help me recognize when price might be reversing.
Also, you need to have a general idea of how many pips price normally moves in a day(ADR) so you can have an idea if price will continue moving in the same direction or if it has run it's course for the day and may start consolidating or reverse. And finally, Divergence...that can help you spot a possible reversal coming.
2) MOVING AVERAGES...you want to see how price reacts around the higher MA's like the 800, 200 and 50....these can act as support/resistance areas. And I like to use the 12ema to stay in a winning trade...or if price gets too much seperation form it, it could give you a hint that price is getting ready to reverse.
3) Stochastics...you want stochastics to help give you an idea where price is overbought or oversold. This is just a SUPPORTING indicator to help keep you out of bad trades. Example: If you are looking to go short based on Price Action and the Moving Averages...but stochastics is down around the 20 level, you should probably skip that trade as it most likely doesn't have a high probability of success.
And that's basically it...it's really just 1-2-3...PA, MA, Stochastics. You have to already have an understanding of reading candlestick patterns and chart patterns. Also, you MUST use all three components together. If you don't have confirmation of all three telling you to go short or long, then you are most likely going to have a losing trade. So Stay Disciplined!
Some additional tips: Take a look at the 1hr, 4hr and Daily charts every so often so you can spot some major support/resistance areas(just look left...that should be obvious areas). Also, get a feel for the overall trend of the market...if you see an uptrend/upchannel....then your best trade, for example, would be a long setup near that trendline or the bottom of the upchannel. Just use common sense. If you see a consolidation range on the 4hr chart...don't go long near the top of that range and don't go short near the bottom....the better trades would be long near the bottom of the range and short near the top. You will only be wrong once(when price finally breaks out of that range)...and it will only be one small loss!
Pairs I Use
This method has been tested on GU, EU, EJ, AU, pairs...I have NOT tested it on any others.
Money Management
( word of caution...this is what works for me...please feel free to adjust your Target Prices and Stoplosses for what suits you).
1) I set an initial emergency stop loss of 50pips in case the market does something weird like surprise news, flash crash, or if you lose power for a while...at least you won't blow your account.
2) My Target price is set at 50pips...although most trading profits are taking between 20-50pips.
3) You should exit your trade on the first candle that closes on the opposite side of your entry candle if your Target Price has not been hit within a couple hours. With the proper entry, your losses should be around 30pips or less.
4) Stay away from HUGE candles...typically you want to enter on candles that are 30pips or less...give or take a few pips.
5) Stay away from major news like NFP, interest rates, or anything that could create large swings in price. You're looking for high quality trades...you are NOT suppose to be gambling your money away....again, this takes Discipline!
As you can see, with a proper entry...my risk-reward is roughly 1:1!
Lets get to some examples....
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