The TAW system

Before we get going into the system itself let me start with a little introduction. (and let me say that at the bottom I have 3 videos that describe the system if you don't want to read through everything)

I made my living as a professional gambler for about 20 years and I was quite successful with it. I am absolutely convinced that a large reason for my success was being nearly fanatical with money management. More than 7 years ago now I started looking at trading various markets and I quickly discovered that money management was equally important and some of the same approaches that made me a successful gambler also worked in the world of trading.

Just a touch over six years ago now I stopped gambling all together and I've been making my full time living as a trader. I'm saying this for a very important reason.

If your money management isn't up to par there isn't a single system on the planet that has any hope of being profitable.

In my opinion if you're going to trade micro-lots then you need an account size of at least 1k. That's the minimum. 5k is better. At mini-lot size trading you'd need 10k at least and really you should have 50k (which means if you have 10k you should probably still be trading micro-lots). You don't need to be a math whiz to see where this is going.

You never want any one trade to represent more than a very small percentage of your total trading bankroll. That will let you trade more rationally and with less emotion.

SECONDLY, I am a firm believer in the stock market phrase of "cut your losers and let your winners ride." By that I mean it is often better to close a trade that is negative and take the hit on the loss than it is to keep it open and "hope" the market changes and moves back in your favor. I am VERY quick to close a trade that is negative and very slow to close a trade that is profitable.

There is a reason for this. ALL TRADES OPEN IN THE NEGATIVE. Every trade represents a losing position when you open it because of the bid/ask spread. Every new trade represents a risk.

However, there is no real risk to letting a profitable trade stay open especially if you're smart and you add in trailing stops so that you know your profitable trade MUST close profitably. You can leave it open and let it run.

With the preliminaries out of the way, the system itself begins with the T which stands for "trend." Below is an EURUSD monthly chart.


The system starts by looking at a pair on the monthly chart and identifying the trend that it is currently in. You can see from the chart that EURUSD has been in a down trend since 2008.

So, for starters, until the trend changes we will only trade this pair short. In my system I only trade with the trend, never against it.

However I believe that knowing WHY they trend is going that direction is important. So the "A" in the system is for analysis. Now I'm not talking about technical analysis here. I'm talking about fundamental and sentiment analysis. This is important because this type of analysis can help you determine when/if the trend might be changing. Sentiment analysis can also help to give you an understanding of when to close out a profitable trade.

As an example the eurozone is still a total mess. The sovereign debt problem is becoming worse, not better. However, trader sentiment is still somewhat positive that the eurozone will fix its issues and so over the last few months the pair pushed upward and is now sitting against long term resistance.

Once you have looked at the long term trend and performed your analysis, it's time to look at the "W" ... the "waves". Now I'm not talking about elliot waves here or something like that. I'm talking about the way the market pushes and pulls even within the trend.

Below is the EURUSD daily chart.



You can see that the pair is back to moving downward with the trend.

Now, lets talk about rules for entry/exit

If you notice, EURUSD is in a down trend but over the last few months has moved back up until it basically touched resistance. From here we look at the daily time frame. The entry at this point is AT LEAST THREE candles (basically three consecutive days) of the pair bouncing off resistance and moving back in the direction of the trend.

This is why you can see on my daily chart so many other lines.

I stick to the long term view until the first setup happens. (pair against resistance)

Then I change to the daily and start looking for the bounce off resistance which you can see did happen.

Now, and this is important. Simply getting 3 days of bounce off resistance IS NOT ENOUGH. I want my fundamental analysis to tell me that there's a reason the pair is back to moving with the trend.

Otherwise current sentiment can overwhelm the short term bounce and you end up opening a losing trade.

Not only that, but when you look at the EURUSD on the daily chart there still hasn't been 3 consecutive days of the pair moving with the trend.

However there ARE fundamental reasons why EURUSD is back to moving down and we have the "rumor" of the FOMC announcing some tightening on Wednesday as I type this. So while the "rule" is 3 consecutive ... we perform the analysis to give us a more complete look at the pair.

Not only that, but when you very first open the trade, knowing your S/R lines means that you have a better understanding of where to place your stop loss.

So, to exit a pair, I will exit on a loss if the pair moves more 12 pips past my S/R line.

Once a pair is 50 pips in profit I'll set an initial profit stop at 10 pips in profit.

Once it is 80 pips in profit I'll set a 50 pip trailing stop.

The idea here is that I don't want to have to babysit a trade.

I go to bed and end a trading session all the time with trades open knowing that no trade can lose more than a certain amount or those trades that are profitable must close in profit.

Now, this is the high level basics of the system. I am well aware that there's a lot of detail still left out. I'm going to be going into more detail in subsequent posts.

I want to say one more thing. This is my system and it works well with how I think and do things. It is not BY ANY MEANS some kind of holy grail or the only right way to trade.

In fact let me go one step further. You should use what you learn from my system as a way of creating a system OF YOUR OWN that works with how you think and view the markets.

I trade over long time frames and leave trades open because I'm a fairly risk averse trader. I'm also somewhat lazy and I just don't want to have to put in the REALLY hard work of trading constantly and babysitting every trade and all of that (which also seems far too stressful to me).

I'm not suggesting that you shouldn't trade that way if it works better for you. I'm simply letting you know what works for me and hopefully you can use it to improve your own trading.

Lastly, I will be doing some fairly extensive analysis of various markets beyond forex at my YouTube channel that can be found here: https://www.youtube.com/channel/UCLOHtOu2AIhXsOGirneFoEQ (just scroll to the "uploads" section below the "about me" to see the analysis videos)

Okay, now here are the videos I have about the system up to this point (and the thread itself has more information as well).. Some of them might have some "dead air" in the beginning, if you let them play the audio will start.

This video is the intro
https://www.youtube.com/watch?v=4V2ZEAf6BdM&t=21s

In this video I take a bit of a tangent and talk about Arbitrage, what it is and how to do it (arbitrage isn't a part of the system but there's so many misconceptions about what it is that I wanted to give some information on it).
https://www.youtube.com/watch?v=-gs3uFmOMSM

In one of the next two videos there might be a little bit of dead air in the middle when I had to hit pause because of noise going on around me.
https://www.youtube.com/watch?v=TH-XsgtO3iY&t=119s

https://www.youtube.com/watch?v=Xc3m57NQjFo

One more thing.

I want you to notice the color choice on my charts. Notice I don't use green for up and red for down.

There is a very important psychological reason for this.

I'm not going to bore you with the intricate details but the upshot is that you are going to view green as good and red as at least "less good" and that's going to affect how you view markets moving up or down.

By deliberately picking more neutral colors it reinforces the concept that I DO NOT CARE which direction the trend is moving, only that there is an identifiable direction.

It makes it easier to be looking objectively at EURUSD moving downward and not have some sort of bias toward it moving up simply because green is a more positive color psychologically than red.

Hope that makes sense.

Now, a word about analysis.

I firmly believe that the majority of retail traders are losing traders. DailyFX, for a handful of pairs, has something called the IG Client Sentiment that makes a good first stop for seeing what retail traders are doing.

Now, sometimes their thing is nonsense. As I type this retail sentiment is not much off from a 50/50 split yet it is saying the 53/47 split is a bullish indicator. Hogwash.

That said you can look for extremes. Times when more than about 70% of retail traders are on one side or the other. THAT is a good indicator that the pair is going to be shifting direction.

You can get a much more complete picture by looking at the "Commitment of Traders" report. Now this report is dealing with the commodities market and option traders and NOT the actual forex market. However it is easy to find online and provides VALUABLE information about various types of traders and what they are doing with the markets (long or short).

Then there's the FXCM Speculative Sentiment Index. FXCM is the largest forex broker and it's sentiment index is forex specific. That said, even though it's the largest broker it is still only one broker of many and therefore its data shouldn't be considered complete exactly.

ALL THREE TOGETHER can give you a much clearer picture of what traders are doing. Watching this over time can help you to spot times when trading contrary to sentiment is wise (when sentiment is weighed too heavily to one side and change in direction is quite often coming quickly).

Great start Woohiye...! Looking forward to great insights from an experienced trader... especially on the fundamental side of the trading.

A really great starr for a thread I hope to hear more from you!

Do you only trade forex? Or Stocks aswell? On mothly there shouldnt be that much trades I guess

The daily chart is the lowest chart you check or do you watch lower timeframes?

Do you enter exactly at the news or is it only important that there are news which are in your direction?

Please continue Woohiye (https://www.forexfactory.com/woohiye)

All great questions.

I trade forex, commodities, and the stock market. In fact even when I'm "trading forex" probably 80% of the time it's really currency options that I'm trading on a commodity exchange. I do it that way because when you're using MT4 or whatever you get to apply one of two strategies. You can trade long, or you can trade short and that's it. When you trade with options you get TWELVE strategies that you can apply. This allows for a much more sophisticated method of trading that allows you to trade a larger variety of market conditions.

As to your next question, I use the Monthly TF only as a method of trend identification. I don't really "trade" on it though I do look for it to give me the initial setup. For me my trading is on the daily TF and I only VERY rarely look less than that. I'm not saying that you can't look lower or even that you shouldn't. I'm only telling you what I do. Personally I don't like having to babysit the markets and my trades. By looking at the daily as my lowest TF it means I look at the markets at most once a day for a few minutes and really less often than that as often it takes a few days for things to get where i want for an order to be viable.

Now, I trade a fair number of different objects because I do trade across forex, commodities, and stocks. So that does mean that most days I do have at least look at something or I'm opening or closing a trade somewhere.

That said, fundamental analysis is important to my system and proper fundamental analysis does take time. So while I may not be actively looking at MT4 I am more than a little bit of an economic news hound.

Which brings me to your last question. I only use the news to give me an understanding of the underlying fundamentals. I will place option straddles before major news events but the vast majority of my trading is done after news has come out and I can see how the market has decided to digest it.

Which actually let me clarify something about TFs real quick. I will use the 1H TF after major market moving news to let me see how the markets are digesting something both "in the short term" (1H isn't really short term but ...) but also what it's really going to do 4 to 6 hours after the news and look at what traders are really doing with it.

I think I covered your questions, let me know if I glossed too quickly over something and you'd like more clarification.

Next on the analysis list of things that I look at is a technical indicator, the RSI. Below is a screenshot of EURUSD on the 1D TF.


If you look at the chart, you can see that EURUSD is moving back up toward the short term resistance line (and for that matter even back toward the long term resistance).

This is causing RSI to move back upward into the upper half of the range. This means that the pair is neither looking overbought or over sold.

On the fundamental analysis front we have a much more dovish than expected Fed decision which is causing dollar weakness at least in the short term.

What I'm going to be looking for here is the sharper downward facing resistance to hold. If it doesn't and it pokes through that then for the longer term resistance to hold (you can see that line on the daily chart but it's more clear on the monthly I posted above).

Now, lets say hypothetically that EURUSD goes past BOTH resistance points.

The overall trend is still downward at the moment and the FOMC wasn't, in my opinion, so dovish that given the situation in europe that we're looking at a break in the long term down trend.

That means even if neither resistance holds that I'm looking for simply a "poke through" the resistance but a return to the trend. Maybe not a return to the short term channel, but definitely a return to the down trend.

So I'll still be watching the news and the daily chart for a resumption of that down trend and I'm still only looking for entries in EURUSD (for now) that are short.

On that note, a word about previous entries.

I had an open position short at 1.2435. HOwever that position closed in profit from this last sharp upward push thanks to my trailing stop. I didn't have to babysit the thing, my trailing stop did it's job and I have a successfully closed position.

At this point what I'm going to be doing is watching for another place I can place a short and the current upward push means that the pair has lots of room to the downside to move making for a potentially more profitable trade.

Thank you vor your long answer. I think I have a good picture now.

Your approach is really a professional way to trade.
I will follow and hope to learn how you do trading.

Nice introduction..

Good luck with your thread.

Subscribed

For a first scan i found GBPUSD looks like a good setup is forming.

GBP USD is in a Downtrend

The market has hit a Monthly Resistance. The Sentiment is quite Bearish.

What do you think?


I trade with oanda currently and they dont have that much history to see most Trends on the Monthly so I have to find a Source with more data than I will watch more charts

Okay, GBPUSD is in a downtrend, you're correct. However how you draw you trend lines is important. I have trendlines from three different start points in the chart below and in none of them is the pair up against the trend.

Now that's not to say that GBPUSD shouldn't be on your watch list for a short. When the fundamentals are there I'm looking for a short myself. It's just a matter of finding the right time to do it.

But remember the Fed was unexpectedly dovish so the fundamentals are negative for USD at the moment. Below is the chart.

On my charts I couldnt look far enough back. I should really read the news to get a better idea.

For me the resistance looked so nice I coundt ignore it
Do you use support and resistance or more trendlines?
Do you look for chart patterns?

Alot to learn.

Tommorrow I will scan all pairs I want to trade. A great evening for you!

I use trendlines to give me the S/R areas that I'm looking for. Yes you can hear about other areas of support and resistance but it's the S/R based on the trendlines that I have found to be the most valuable.

Well thats fair enough.

I havent used trendlines that much in the past. But we have to learn everyday.

Wow,this is amazing a fulltime gambler trading poker for forex (some sort of joke).Your multifaceted analysis (trend,fundamentals,indicators) is so original it is bound to make us all millionaires.When are you going commercial?

Edge, There isn't a single system that looked at on a high level is unique. Every system posted here is performing analysis of some type. Congratulations for stating the obvious. I wasn't a poker player, I'm actually pretty bad at poker, and which game I played is irrelevant anyway (which is why I never said).

As I go forward I'll be explaining the detail of the analysis I perform that makes my system different from others.

Secondly, it's easy to sling arrows. Where's your system? Where are you actively helping people to trade better.

A look at your post history shows nothing but one negative post after another without a single scrap of anything constructive. You're here doing nothing but bashing people and trying to tear others down without saying what you would do different or how you do things. Provide something constructive or go away. If participating in this forum causes you this much negativity it's going to make you sick sooner or later. You'd be better off going to the beach or taking a hike in the mountains or something.

edit: typo

EURUSD and GBPUSD (and most other USD crosses for that matter) are showing why the markets can be deceptive about what it's going to do immediately following an important news release.

USD weakened broadly immediately following the FOMC statement and press conference. Basically what we got was the Fed did exactly as expected in raising rates but then spoke a little more dovishly than expected about future hikes. This caused the market to initially weaken USD but is now pushing it back into previous channels.

First, for about the last two weeks USD had been gaining some strength on the "rumor" that the hike was coming. When it actually happened it was already priced in and therefore the upward push happened on people selling. (ages old, buy the rumor and sell the fact coming into play)

But now that this has happened we are still in a situation of an actual rate hike (read: monetary tightening) having taken place and lets face it, neither the EU nor the UK is likely to raise rates anytime soon.

So once the initial reaction of, "they spoke more dovishly than we we expected" was over and rationality returned that leaves the market swinging back to dollar strength.

So we saw the trend line on EURUSD daily only have a pin stuck through it and it's now pulled back into the channel and the RSI now has plenty of room for the pair to run downward.

With GBPUSD there was a horizontal support point that turned into a resistance and it too stuck a pin through it and is returning back to a downward push. I have opened new shorts in both. In EURUSD when it moved back into the channel (entry 1.2345) and GBPUSD only just opened at 1.41

VERY IMPORTANT:

If you look at EURUSD on the daily timeframe it is basically running sideways and GBPUSD on the daily TF has been on an upward push.

These are not pairs really moving in our favor on the timeframe that I'm actually trading on, I am simply trading in the direction of the long term trend.

That means we need to be VERY quick to exit a trade if the market moves against the position. My stoploss on this is a mere 20 pips off my entries.

My stops are typically much wider than that however I'm also taking entries will little confirmation (other than the hourly TF) that the downward push is going to stick.

What I'm saying here is that this is a time to be careful because the daily charts on these aren't in our favor however the fundamentals give a good reason for making the entry now.

A very informative post. Its a new way for me to think with all the fundamentals please keep to post such market analysis it is very helpfull!

I got a few questions.
What Rsi periodisch do you use?
Do you trade cross pairs and watch for correlation?

What do you mean with little confirmation?


P.s. edge and people like him are only Trolls. It doesnt bring anything to discuss with them.