Lever70's Trading Checklist

Hello all. It's been a long time since I've posted to the forums. Though I've become known for Cornflower, I want to share my overall method of trading, which goes beyond CF. Though my entry methods differ depending on the timeframe, my trading philosophy remains constant throughout.

Lever70’s Forex trading checklist

Long-term outlook - weekly and daily charts

1. Identify trendlines, if any.
2. There is usually a dominant trend in the market. Identify that trend with your eyes.
3. If the market is sideways, find whatever trend you can in the intermediate or short term, and trade from that side whenever possible.
4. Pullbacks to previous areas of consolidation and/or longer moving averages make for good entry points.

Intermediate-term outlook – H4 and H1 charts

1. Put a 5-10 EMA combo on the 4H to identify current market direction, and also a 50 EMA. When all 3 are aligned, trade in that direction. When the 5-10 are moving against the 50, don’t trade. The pair is likely setting up for a retrace entry.
2. You should always enter after the market has established a trend. Do not guess. The method:
   1. Wait for trend to establish itself
   2. Wait for pullback
   3. Enter at a place where the trend is likely to resume. The 10 EMA is typically a good spot.
   4. Place a reasonable stop. Use common sense. Below the most recent low or above the most recent high are good places. If > 50 pips, you have an aggressive trend. Unless you are trading the volatile GBPJPY or EURJPY, 50 pips should be enough. The rule of thumb is to make your stop loss as tight as possible while giving your trade enough breathing room to materialize.
   5. Exit at either (a) the top of a channel (see Elder’s Come Into My Trading Room), (b) the completion of the pair’s average daily range (see Igrok’s book), or (c) at resistance.
   6. Don’t be overly concerned about risk-reward ratio (see Igrok’s book). You get what you can reasonably get, and then you get out.

3. Sometimes the intermediate-term trend will be counter to the long-term trend. This doesn’t mean we can’t trade; we just have to be more vigilant about exits.
4. Hourly charts provide a detailed look at the intermediate-term action. My cornflower (CF) system should be used. The principles are the same as those just outlined. I trade CF on the 1H more than anything else. It is a robust system, if applied properly. But you can trade from the 4H alone if you don’t have time to watch the market all day. (I have no experience trading on daily charts alone, though I’m sure it can be done.)

Short-term outlook –M30/M15/M5/M1

1. When trading shorter-term, you have to be quick to enter and quick to exit. Hesitate and you’re dead.
2. We’re primarily looking for gains of 20 pips or less in these timeframes. Stops must be tight and you must follow your system to the letter.
3. Except for the “impulse” CF entry on the M30, I don’t trade the M30 or M15 timeframes. They are not long enough to have predictive value for the intermediate term, and not short enough to properly capitalize on sudden movements. I will sometimes have the H1, M30, M15, and M5 up on the same screen, and trade when the CF moving averages all look the same. Typically, the H1 is all you need, perhaps using the 5M to time your entry with precision.
4. On the M5, place a 5/10 EMA combo. Wait for a move, and then a pullback to the area between the EMAs. You can do one of two things: (a) enter with a 10-pip stop, or (b) wait for the first green candle after the pullback, and then enter, immediately exiting at a loss if price violates the low on the signal candle. Exit when the move appears to be exhausting itself, or if you see a long wick pointing against the current market direction.
5. On the M1, I use the Guppy system. See http://www.forexfactory.com/showpost.php?p=1428434&postcount=3 for my rules. On the M5 and M1, we are essentially scalping. I have received questions about exits in these time frames, but when we are scalping, we are looking for whatever pips we can get. When you have them, you get out. It’s pretty simple, really. Again, looking for classic signs of exhaustion, such as wicks or loss of velocity, is key. Do not be upset if price keeps going. “Oh, I could have made more,” you say. Well, you made something. Shut up. And always keep your stops tight. No more than 10 pips, preferably less if you are trading on the 1M. It is far easier to make back 6 pips than it is to make back 10+.

On indicators
If you’re a noob, try to avoid falling prey to indicatoritis. As derivatives of price, they invariably lag the market. Moreover, they will take your focus away from price, which is the primary indicator of market direction.

In the past I have railed against indicators. I have come to moderate my position. Indicators are not completely without value, but do not rely heavily on them to make trading decisions. I still think that most indicators are a crutch, and I personally don’t use them to make trading decisions. My entries are always based on price and my estimation of a bargain in relation to where the pair has been recently. EMAs are a great tool for making this judgment.

Putting it all together

1. Before trading, study your long term charts. Then take some time to absorb the information from your 4H and 1H.
2. On screen: 4H, 1H. If you’re scalping, M5 and M1.
3. Don’t jump into any trades. Think for a minute. Is this the right trade at this time? Is there even a trade here at all?
4. At the same time, if there is a setup, don’t hesitate. Make the trade. Overanalyzing your decisions can hinder your success and also cause you to make bad decisions.
5. Know when NOT to trade. If nothing is happening and the picture is not clear, walk away. The market will always be there.
6. Stop trading after two consecutive losses. Take a break, then come back and analyze what went wrong. Perhaps you did nothing wrong and the market just went against you, but taking a breather is necessary to avoid compounding your losses. If you don’t take a break, the emotions tend to kick in, which leads to the worst kind revenge trading.

That's it for now. I hope you find this helpful. I'll try to answer questions as they come up.

Very nice, lever70!

Hi

Thanks for such wonderful post, i am a EMA junkie and usually do scalping on 1min/5min , getting used to the longer term trades now, and your ema setup and indications will go a long way for me to stablize in the longer term frame, doing good in the short time frames.

look foward to boucing some ideas

imran

These are great. Especially the last bullet. Psycology is 90% of trading, no matter how much you've lost preserving the mental capital to come back and trade tomorrow is invaluable.

Thanks for the compliments. I want to add that while the M30 and M15 don't have much of a place in my trading, that doesn't mean they are without value in other systems. I just haven't found that my systems are all that compatible with these timeframes.

Excellent check list, thanks for sharing.

Lever70 nicely done... I especially like the look at the chart with your eyes... Many can't see the charts because of all the different indicators that distort the price action...

Lever
Would be good if you could post some trade examples. When scalping, do you pay attention to 1H or 4H?

Great to see you back again.....looking forward to future posts. I like to
trade the 5 minute chart in particular..and sometimes get confused as to what trend direction I should align with on higher timeframes. Your posts will be
helpful.