Medici trades the London open

Thanks. Wasn't thinking so much of the pivot as the 30 Dec morning session high.

I don't know if I would use the word nice to describe it, and I don't like scalping. There has to be method to the madness. Success is built on what we repeatedly do.

When will I learn...the trend is your friend.

Edit...thanks for chart.

thanks for all the analysis everyone, I missed the buy, (scaredy cat) but it was classic as per your original chart examples of typical pre London trading Medici. In general, I got the bias/targets right, tho didn't sit in trades long enough to profit greatly, but still better than I have done for a while.

Price respected the pivots levels to the tee, and eventually I noticed a descending channel on min 5 cable, which lent more confidence to sell.

So thank you so much again, off to attempt strategy tester shortly!

Good luck everyone, hope you get your targets.

Well done! We'll be at it tomorrow again...

I hope that Medici doesnt mind if I also sometimes post around the NY Opens - for me, the first is 8am est when the Bond Traders start and the second at 9:30 est when the NYSE opens......both times bring activity to forex.....

We've just had four tests of the 5993 area in cable - I took longs off the last two - and € has tested its 4300 level - and also bounced.

The short term trends - aka 5 min 30 ema - are still down in both and weakening, but cable's is closer to reversing......

Both cable and € had nice 50 pip rallies off the lows that mentioned in my last post.

In both cases there were Higher Lows around pivot levels - MS2 in cable, ian earlier support area too - and the S1 in €. These were easier, less risky entries.

Now both are in pull backs off their respective 50 sweet spots.....I'll be watching the 5m 30ema area for another possible buy......TWT

Retrace was actually to the MS2 level so I bought again....

Don't mind at all. It's still short-term focus.

So did I. Remains to be seen if there will be the same fix demand today as yesterday. If we're lucky...

Closed for a few more pips as price stalled at yesterdays low - I'm not happy holding out for more as I'm getting mixed signals and I'm now well above my daily quota http://cdn.forexfactory.com/images/icons/icon7.gif

I'm out and in again. A good bunch of sell orders taken out at 5950 which might prove helpful. Note that the 5927 level is the 76.4% retracement of the end of Dec up move.

OK thanks - I dont often put that one on my fib tool. I do have a note that the 920 / 930 area was support for two days before Xmas, but I've not noticed any specific action there today....

Islander and myself have decided to combine forces in this thread. The thread will be renamed and an updated initial post describes our intentions with the thread.

See you all tomorrow!

Background on the fx market

The foreign exchange markets as we know them appeared after the breakdown of the Bretton-Woods agreement in the early 1970s when exchange rates started to float freely. Initially it was a market where the largest banks executed orders on behalf of clients and also themselves. Today it's still a market very much controlled by a small number of dealing banks even though that is less apparent than it used to be. In fact, even though you and I view and participate in the market through charts, the majority of transactions are still made over the phone rather than electronically (but the execution platforms are of course electronic).

There have been some major changes in the fx markets since the early days, such as the appearance of ever larger amounts of speculative capital with hegde funds now being responsible for about half of the daily turnover. Another major change is in valuation models and price changes to a much larger extent being tied to equity markets, something which older traders have had to learn to adapt to.

These changes have among other things meant that technical trading profits have diminished over the years. However, there's still a few hours every day when the market works more like in the good old days, and that is the basis for our strategy.

How the market works

The modus operandi of dealers at the major dealing banks is that they have an order book with client orders to execute. Their way of making money is through commission earned on those transaction, and through ways of turning their control of the market into profits through practices such as front-running, stop hunting etc.

The time period we are looking at is the early London morning from about 6am to about 9.30am. This is a time period during the majority of which no major cash equity markets are open, and it is the period of the day when the larger dealing banks in London and mainland Europe go about their business of clearing order books of orders close to the market. And this is the time of the day when markets are most predictable if we can somehow anticipate dealer operations and order flows.

The patterns that develop

The way the morning develops is that dealers push the price to levels where limit orders are placed, and the patterns that develop are that the buying/selling start at some level and keeps on going to higher/lower and higher/lower levels until either a consolidation or a reversal happens. These patterns typically start developing around 6am or 7am, and occur most days, but of course there are ranging or consolidating days every once in a while.

The evidence

Using 3 years of data the strategy of entering cable at 6am and exiting at 7am was tested, assuming that you got the direction right. 90% of the mornings the drawdown was less than 15 pips and the average pip gain at the close of the hour was 17.4 pips.

For a 7am entry and an 8am close, the drawdown was less than 20 pips 90% of the mornings and the average pip gain those mornings was 27.4 pips.

50% of the time, the 7am entry was a continuation trade, i.e. 6am entry was the better trade.

Clearly this is an extremely simple-minded strategy, but to be able to enter a trade a day with a 15/20 pip stop and have a hit rate of more than 90% and a risk-reward ratio of more than 1:1 is one of the most profitable trading opportunities there is. But it hinges on the assumption that we get the direction/trend of the following hour right. This is what we turn to next.

The strategy

The approach for taking advantage of these opportunities is based on four elements:

1. Trend and chart patterns on a longer-term basis, from 1h up to daily charts.

An example of H&S patterns: http://www.forexfactory.com/showpost...&postcount=243

An example of trend continuation trades: http://www.forexfactory.com/showpost...&postcount=244

2. Intra day chart patterns that repeat themselves in the morning.

"The line in the sand" - a frequent pattern: http://www.forexfactory.com/showpost...&postcount=245

Breakout during the Asian session, and then retracement for the European open: http://www.forexfactory.com/showpost...05&postcount=7

3. Identification of support and resistance, Fibonacci and pivot levels for entries and exits.

An example of a continuation trade from a 38.2% Fibonacci level: http://www.forexfactory.com/showpost...&postcount=242

Pivots and Fibonacci levels in conjunction: http://www.forexfactory.com/showpost...&postcount=246

4. Price action at the identified levels.

Typically the analysis follows those four steps, and the final trading decisions are made in the crucial fourth step, answering questions such as, for example: Will the buying begin at the current support level, or will the rate drop 30 pips to the next level before the buying begins? Will there be a breakout or a reversal at the current level? And so on.

So there is a significant discretionary element to the method, even though it is based on objective principles. And the intention is that those principles be further clarified through the development of this thread. It is my experience that it is possible to do better than outlined in the evidence section, and to have 9 out of 10 profitable days with risk-reward ratio significantly better than 1:1. And I'd like to be constantly improving those results.

Renaming the thread didn't work. Instead we have started a new thread that replaces this one. You can find it here:

http://www.forexfactory.com/showthread.php?t=214628

See you there tomorrow!