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Attachments: Powerful Fib Based System - by DAZfx
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Powerful Fib Based System - by DAZfx

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  • Post #1
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  • First Post: Edited Mar 27, 2008 1:20pm Mar 17, 2008 12:32pm | Edited Mar 27, 2008 1:20pm
  •  Dazfx
  • Joined Mar 2008 | Status: Intraday Trader | 114 Posts
Hi,

First off, I am a full-time trader and I have been trading in the currency market for more than four years now. As a long time lurker of this forum, I finally feel the need to participate in forums, as day-trading has gotten pretty boring. I have three very powerful strategies in my trading arsenal, and what better way to start than to share one of the strategies here. I wouldn’t call this an entirely mechanical system, as you need to use some discretion. I will be outlining some of the important factors that may need consideration before entering a trade based on this system, later in this post.


I call this system: A.M.G Waves

Timeframe: Any. But, I use 1Hr or higher to avoid whipsaws.
Pair: Any Currency Pair.
Indicator(s):
Stochastic Oscillator (8,3,3)
5 SMA

Before I give out the entry requirements, please take a look at the following picture. A setup only exists where the fib retracement of an impulse wave is 61.8 or 78.6. The idea behind this method is that provided AB wave retraces by 61.8% or 78.6%, it should equal the CD wave. Only look for setups that are in the direction of the bigger trend (ie: If you are looking at setups on the hourly, then only look for signals that are with the daily trend).

Attached Image (click to enlarge)
Click to Enlarge

Name: abcdexample.gif
Size: 20 KB

{chart 1}

Long
Generally, you are buying in an uptrend, when the AB impulse wave retraces to the 61.8 or 78.6 level. Before pinpointing a precise entry, you wait for the next candle (confirmation candle) to form. This must not exceed the low made by the retracement and has to be a bullish reversal candle (ie, Harami, Doji, Bullish Maribozu, Bullish Belt hold, etc).

At the precise entry point:

1) The new candle following the Confirmation Candle is on or near the 5 SMA.
2) On the Stochastic Oscillator window, the fast stoch (blue line) has already crossed or is crossing the slow stoch (red dotted line) and hooking up. This cross should not happen in the overbought region (80 or above).

Short
Generally, you are selling in a downtrend, when the AB impulse wave retraces to the 61.8 or 78.6 level. Before pinpointing a precise entry, you wait for the next candle (confirmation candle) to form. This must not exceed the high made by the retracement and has to be a bearish reversal candle (ie, Harami, Doji, Bearish Maribozu, Bearish Belt hold, etc).

At the precise entry point:

1) The new candle following the Confirmation Candle is on or near the 5 SMA.
2) On the Stochastic Oscillator window, the fast stoch (blue line) has already crossed or is crossing the slow stoch (red dotted line) and hooking down. This cross should not happen in the oversold region (20 or below).


INVALID SETUPS

A setup is considered invalid:

1) If there is a news release within 15-30mins.
2) If the confirmation candle moves so much that the stop loss is widened to a point where the Risk/Reward ratio is no longer 1:1.5.
3) If there is a major psychological support/resistance (ie, 2.0000 for Cable, 1.5000 for EURUSD, etc) before the first profit level (Target 1).
4) If the setup is against the major trend (atleast two TFs up from the one you are trading with).


STOP LOSS

Stop Loss should be placed where the first impulse wave starts (Point C on the charts). Only take a trade if the stop loss is smaller than your
projected Target 2.


ENTRY STRATEGY

Here is an example, using a $10,000 account at 1:100 leverage.
I am only willing to risk 1% of my account and assume the stop loss has already been establish (start of the first impulse wave) and is 30pips + 3pips spread.

(10,000*0.01) / 33 = 3

So, I can trade at $3/pip, meaning I can go into the trade with 3 mini lots. There are three profit taking levels, so I should divide the lots into three equal lots and enter all of them at the same price (entry point). In this case, I have 3 x 1mini lots to enter at the same price and I will exit each mini lot at the different target levels, if they are not stopped out first.


EXIT STRATEGY

Carrying on from the previous example, I would exit my first lot at Target 1. If price does reach Target 2, I will take out the second lot, and move my stop loss to Break Even (Entry point). I will then take out my last lot when Target 3 is reached.

If you look at the charts provided, you can see that the targets can be calculated using the Fibonacci Expansion tool.

-When the confirmation candle is a Harami (Inside bar), use FE 50.0 as Target 1, FE 61.8 as Target 2 and FE 78.6 as Target 3.

-When the 'AB' wave consists of more than 10 candles, use FE 50.0 as Target 1, FE 61.8 as Target 2 and FE 78.6 as Target 3.

-When the confirmation candle is quite large, use FE 61.8 as Target 1, FE 78.6 as Target 2 and FE 100.0 as Target 3.


Illustration

Please take a look at the following charts for examples of Short and Long trades that I took recently. I will add more upon request.

Attached Image (click to enlarge)
Click to Enlarge

Name: abcd1.gif
Size: 21 KB


Attached Image (click to enlarge)
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Name: abcd2.gif
Size: 25 KB


Attached Image (click to enlarge)
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Name: abcd3.gif
Size: 23 KB


Attached Image (click to enlarge)
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Name: abcd4.gif
Size: 22 KB


I hope I haven’t bored you with this lengthy post, if I have, then do apologise. I am looking forward to your feedbacks; let that be positive or negative.

Thanks.
  • Post #2
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  • Mar 17, 2008 12:39pm Mar 17, 2008 12:39pm
  •  Dazfx
  • Joined Mar 2008 | Status: Intraday Trader | 114 Posts
I am in a GBPJPY short trade based on this technique.
 
 
  • Post #3
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  • Mar 17, 2008 1:11pm Mar 17, 2008 1:11pm
  •  zpiders
  • | Joined Jan 2008 | Status: Member | 82 Posts
I have been using a method like this for a long time now and it works really well. I am curious as to how effective your 5SMA filter is, I will try this out on my Demo.
 
 
  • Post #4
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  • Mar 17, 2008 1:47pm Mar 17, 2008 1:47pm
  •  billbss
  • Joined Apr 2006 | Status: Member | 4,301 Posts
Quoting Dazfx
Disliked
I am in a GBPJPY short trade based on this technique.
Ignored
Question- The biggest problem I've had with fibs is choosing the swing points to anchor them to. How do you choose your swing highs and lows? You can almost always find one that will give you whatever retrace you're looking for. Also, how close does price have to come to one of your retrace points before you consider it a hit?
 
 
  • Post #5
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  • Mar 17, 2008 2:08pm Mar 17, 2008 2:08pm
  •  Dazfx
  • Joined Mar 2008 | Status: Intraday Trader | 114 Posts
Quoting billbss
Disliked
Question- The biggest problem I've had with fibs is choosing the swing points to anchor them to. How do you choose your swing highs and lows? You can almost always find one that will give you whatever retrace you're looking for. Also, how close does price have to come to one of your retrace points before you consider it a hit?
Ignored
Well you are right in that people can interpret fibs in different ways (intraday swings, session swings, wave swings). But I always look at wave swings as I have found them to be the most effective. Please take a look at the charts I posted to see how I draw fibs. And as for price, it depends on how big the wave is. If its 4-10 candles long, then you want price to test and close below/above the fib level. However, if its a larger wave, then as long is it is about 7pips near the fib level, it can be considered a valid retrace.

Hope this helps.
 
 
  • Post #6
  • Quote
  • Mar 17, 2008 2:52pm Mar 17, 2008 2:52pm
  •  howard
  • | Joined Sep 2006 | Status: howard | 1,678 Posts
Hi

You mention to place the stops at point A but in your charts you have placed them at point C, which one is your normal practice?
Regards
 
 
  • Post #7
  • Quote
  • Mar 17, 2008 2:55pm Mar 17, 2008 2:55pm
  •  herty
  • | Joined Feb 2006 | Status: Member | 73 Posts
Hi Daz,

What is the rate of occurrence of such well behaved retraces? In other words how many such trades can you make per week? Another question, what are the other MAs on the charts for?

Thanks,

Herty
 
 
  • Post #8
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  • Mar 17, 2008 3:03pm Mar 17, 2008 3:03pm
  •  Dazfx
  • Joined Mar 2008 | Status: Intraday Trader | 114 Posts
Quoting howard
Disliked
Hi

You mention to place the stops at point A but in your charts you have placed them at point C, which one is your normal practice?
Ignored
Yes, that is a mistake from my end. I will rectify it. It is Point C.

Thanks for pointing it out for me.
 
 
  • Post #9
  • Quote
  • Mar 17, 2008 3:10pm Mar 17, 2008 3:10pm
  •  Dazfx
  • Joined Mar 2008 | Status: Intraday Trader | 114 Posts
Quoting herty
Disliked
Hi Daz,

What is the rate of occurrence of such well behaved retraces? In other words how many such trades can you make per week? Another question, what are the other MAs on the charts for?

Thanks,

Herty
Ignored
Well, if you look on the hourly chart, you will typically get atleast one setup from each currency on an intraday basis. If you go onto a smaller timeframe, you will be surprised at how many setups you will find. But I restrict myself to trading 6 currency pairs, so I get about 10-15 trades per week.

I only use 5MA for this system. The others are there for another system I use.

Thanks
 
 
  • Post #10
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  • Mar 17, 2008 3:53pm Mar 17, 2008 3:53pm
  •  gagiul
  • | Joined Mar 2007 | Status: Jacko Trooper | 771 Posts
the system looks great and using the basic tools of trading. My only question is why only 61 and why not 50 and 38 ? many strong trends retrace to 38 before taking off.
We leave no soldier behind.
 
 
  • Post #11
  • Quote
  • Mar 17, 2008 5:17pm Mar 17, 2008 5:17pm
  •  Dazfx
  • Joined Mar 2008 | Status: Intraday Trader | 114 Posts
Quoting gagiul
Disliked
the system looks great and using the basic tools of trading. My only question is why only 61 and why not 50 and 38 ? many strong trends retrace to 38 before taking off.
Ignored
Its not only 61.8, but also 78.6 fib retracement level. From my testing during the development stages of this system (7 months ago), I found out that the strong trend continuations do retrace 38% and 50%, but that is when you take the swing points of the entire trend and for my method to work, you take the swing points of the last impulsive wave. Please refer to the charts I have posted. I would gladly post more, if you need clarification.

Thanks
 
 
  • Post #12
  • Quote
  • Mar 18, 2008 1:35pm Mar 18, 2008 1:35pm
  •  Fxtree
  • | Joined Feb 2008 | Status: I DEMOED WITH REAL CASH | 56 Posts
lovely system why ,not post the template.
 
 
  • Post #13
  • Quote
  • Mar 18, 2008 4:32pm Mar 18, 2008 4:32pm
  •  herty
  • | Joined Feb 2006 | Status: Member | 73 Posts
Hi DAZ,

I think it would help if you showed some more trades, as you suggested. I have some more questions about nuances, which I don't know if they are relevant or not. If possible also some recent trades so I can see them on my screen and zoom out; eg in what context did you chose the AB line (any AB whose BC equals 61.8/76.8?) and so on.

Thanks again

Herty

p.s. since you let the cat out of the bag, could we have another of your systems? I like the definiteness of this one. I have a full course on the Wolfe system but dropped it because the setups were so infrequent.
 
 
  • Post #14
  • Quote
  • Mar 18, 2008 10:16pm Mar 18, 2008 10:16pm
  •  gagiul
  • | Joined Mar 2007 | Status: Jacko Trooper | 771 Posts
hey daz, i also think that it would be nice to see some live examples with your fib strategy. thanx
We leave no soldier behind.
 
 
  • Post #15
  • Quote
  • Mar 19, 2008 12:39am Mar 19, 2008 12:39am
  •  Dazfx
  • Joined Mar 2008 | Status: Intraday Trader | 114 Posts
Okay, here are some recent trades. AB is an impulse wave with recognisable swing points. Please refer to {chart 1} on my first post where you can see how a wave is always followed by a retracement. So your Point A in a downtrend would be the first Swing High after a retrace. Point B would be the immediate Swing Low (as intraday traders you should look for waves consisting of 4-10 1Hr candles).

GBPJPY on the 1hr
http://b.imagehost.org/t/0284/abcd5.jpg

GBPJPY on the 1hr
http://b.imagehost.org/t/0284/abcd6.jpg

EURCHF on the 4hr.
http://b.imagehost.org/t/0284/abcd7.jpg

EURUSD on the 4hr. I did not take this trade as it was against the trend setup, but it did work out very well. You could have taken this as the Stop Loss is very tight giving an excellent Risk/Reward setup.
http://b.imagehost.org/t/0284/abcd8.jpg


By the way, I hope you have noticed how the time it takes to form 'AB' wave is roughly how long it takes for 'CD' wave to form. Using this, you can predict your exit point.

I hope this helps.

Thanks
 
 
  • Post #16
  • Quote
  • Mar 19, 2008 1:09am Mar 19, 2008 1:09am
  •  Dunkan
  • | Joined Feb 2007 | Status: Member | 114 Posts
Looks prettty good daz. It's good to see different ways to use fibs as they are very powerful tools in these markets. Will continue to watch and learn.
Has what you wanted to see made you blind?
 
 
  • Post #17
  • Quote
  • Mar 19, 2008 12:33pm Mar 19, 2008 12:33pm
  •  Dazfx
  • Joined Mar 2008 | Status: Intraday Trader | 114 Posts
Here is a trade that was taken today on EURUSD 1Hr. Just scaled out my last lot now (Target 3).

http://b.imagehost.org/t/0288/abcd9.jpg
 
 
  • Post #18
  • Quote
  • Mar 19, 2008 1:11pm Mar 19, 2008 1:11pm
  •  Dazfx
  • Joined Mar 2008 | Status: Intraday Trader | 114 Posts
GBPUSD 4Hr
I didn't take this trade because I was already in the EURUSD trade. But look how price touched the FE 100 (AB=CD).

http://b.imagehost.org/t/0288/abcd10.jpg
 
 
  • Post #19
  • Quote
  • Mar 19, 2008 1:31pm Mar 19, 2008 1:31pm
  •  NowAndLater
  • | Joined Sep 2007 | Status: Breakout Baby | 692 Posts
very nice use of the 1-2-3 setup including fibs
 
 
  • Post #20
  • Quote
  • Mar 19, 2008 1:39pm Mar 19, 2008 1:39pm
  •  ChowClown
  • | Joined Sep 2006 | Status: Member | 944 Posts
Quoting Dazfx
Disliked
Here is a trade that was taken today on EURUSD 1Hr. Just scaled out my last lot now (Target 3).

http://b.imagehost.org/t/0288/abcd9.jpg
Ignored
Thanks Dazfx, could you clarify the criteria you used to determine the daily trend on EURUSD was short, prior to taking this trade?

"Bonza" strat btw
 
 
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