Trading the Cable swings via averages

Your first chart looks good, I have added a couple of bits in red. Also you are not putting the horizontal lines on at the swings, you need these to find the fail points.

The second chart is lacking the EMA altogether so how do you know if the price has crossed from being in divergence or whether it has just bounced off it.

What we have is a lousy week for trading but a good week for learning instead. On the RSI we see the strengths are being exhausted long before the bigger moves can take place so it is choppy to say the least, obviously then a scalping period.

So let's crack on and get to money management.

You have probably read as much as I how we should not risk more than 1 or 2% on a trade and that we should let our profitable trades run. Well I take an entirely different approach to this. I look at the profit I wish to make daily and place the appropriate lot sizes to achieve this.

So I am going to use a $1000 daily profit as an example here.

The problems begins straight away because we are all different in various aspects. We may have different leverages, mine is 400:1. We may have different base currencies, mine is AUD. So the only way I can do this is to explain my own and then you can adapt yours according using a similar method.

Now I said previously 50 pips is a very common move for this pair. It can be a heck of a lot more or sometimes a tad less but 50 is the number I work with.

So if 50 is the target and in money terms 1000 is the objective then we just look at the relationship of these two figures.

First off I am going to try to get my trades on within the first 10 pips (Can't always do this but that's trading for you). This leaves me with 40 pips to make my objective. So 1000 divided by 40 = $25 per pip.

Now I am not going to risk $25 for an entry (well not yet anyway) what I want to do is make entries in progressive stages each time adjusting the stop to limit the damage when things go wrong. This can happen and we should never be complacent about this occurrence.

I keep saving the work because we are having power cuts here with wild weather.

Ok $25 for me I need to divide by about 1.46 because I want the 25 in Aussie dollars not US.

This results in 17.12 and I am going to further divide this into 6 six segments = O.29 lots

Now the trades are entered

1st 0.29
2nd 0.58
3rd 0.87
Total = 1.74 lots.

Checking backwards.

1.74 x 40 x 1.46 = AUD$1016

For me 1.74 lots cost me about 800 bucks so I can easily afford this with a 1000 account.

My risk on a trade is usually somewhere around 50 bucks so my risk reward is 50:1000+

Darn it just lost power again

This may sound simple but it is not so.

Often I can only scalp by getting just stage 1 lots on.

So when you here me say I have stage 1, 2 or 3 on you know what I mean.

Also there is hedging to consider which is simply a trade of equal value in the opposite direction. This is a great device when a pull back is expected allowing us to profit from the hedge for no risk. (Illegal in the USA)

To get the stage 3 lots on I need a specific set of conditions and these I will talk about tomorrow.

I will try to answer questions power cuts permitting.

The so called divergence we read in text books only accounts for a small portion of what I am referring to.

Look at this 4 hour chart spanning many days, only number 5 was a regular text book one but there were plenty of others.

These give us a very good insight for direction.

Thanks a lot for all of this.

I don't get why, on your H4 chart, divergence 5 is a textbook example. Can you pls explain? I don't see RSI making a Higher Low.
Second question, on my picture at 'A' would that be an exit in case you were short? Cannot ignore the divergence?

Well I would consider A to be a place for a hedge because I am still trading below the average. If the action did change direction I would still be OK and back in the right direction.

I'm sorry I drew the line on the bottom on the price chart it should have been on the top for number 5, what some refer to as a hidden divergence or a continuation in that it doesn't get back across the EMA but pulls further away from it.

Also while on this subject when you see a divergence that does not get back across the EMA it is a good sign the move will continue in the original direction.

Alan your fast RSI on divergence 2 is also not a divergence according to the rules as price on the second high/spike did not go higher than the first spike /high.

Can you please explain why you see it as a divergence.

Well that one was just about a double top clearly still unlike the fast one so I still look to it being a divergence and test for the short, looking at the RSI divergence there not the price. Divergences on the RSI give you far more signals than comparing the RSI to price.

Damn!!!! Missed that one while busy doing manual back test and not much movement!! Maybe its worth it to set alarm for 09h45 to watch this 10h00 (GMT) move!! The past week it has moved 20-120 pips half an hour everyday! Have no clue what causes it, because i see no news announcements, but i am definitely going to watch it!! On a closer look and if i had more knowledge, there was bullish div and hidden bullish div since trading open, but too late now!! Have to study more!! Wish all a good day!!

My take on divergence is that the plotted RSI is calculated from bar close price.
Meaning, to correctly spot divergence one has to watch the close price and not the high or low.
That's why I like the white MA(1)close on the Night template.

how to read divergence, on bar close or on price extreme can give different results as shown here
Can you pls shine your light on this?

Must say I'm getting a bit thrown by divergence, as used here. I'm certain that your methods are sound, it's just that chart in #108 has me befuddled.

Below is a simple chart of regular and hidden divergence. Identifying the difference used to be confusing until I noticed lines drawn on the tops of price and oscillator forebode of a price fall. Whereas price drawn on bottoms indicate chances improved for a move up. Or, simply put, "Top Down, Bottoms Up". No need to name the beast.

Took a trade with divergence between fast and slow RSI. Is it ok as per the system?

correct

another divergence. good point to exit is when slow touches the 80 line

Just to make a pedantic point.
You can only point to a point High or point Low AFTER the NEXT bar has closed.
Therefore, you are going to be 1 bar behind when you're drawing your divergence lines.

Using a previous chart as an example, I have drawn green horizontal lines, to show the bar has to fully close before you know the previous point is a true High or Low.
Probably doesn't matter in the grand scheme of things, but you could be several pips away by the time the divergence is apparent.

Looking forward to making $1000 from 50 pips, though.