The Dance

It's getting late and I'm tired so this is probably the last set of examples from this week's trading. These two trades were on Wednesday. You can look at the rest of the week for yourself. THere are tons of examples in the manual, the other attachments on post one, and up to this point in the thread.

Hope this all helps.

Hi Clay,

I have attached the 15m GU with the same date sequence you just went through. I would like to get a better understanding of the touch trades, I have numbered what I consider all of the touch trades in the sequence and I will give my interpretation. I would appreciate any feedback.

1. Strong 2 bar pullback to the 35 SMA. Enter long on touch of 35 SMA with 12-15 pip SL.

2. 4 bar pullback to 35 SMA no entry.

3. Too many bars in pullback, no entry.

4. Strong 2 bar pullback to 50 EMA. Enter long on touch of 50 EMA with a 20 pip SL. I more than likely would have put my SL right under the #1 low. THis one could have gone either way depending on SL placement.

5. This one is a bit tricky. There is a 2 bar pullback to the 35 SMA. If you enter long here and you put your SL just below the 50 EMA you would be ok. My question here is would you have entered at the 35 SMA and where would you have placed the SL???

6. This one also is tricky. If you enter on the touch of the 35 SMA you nore than likely would have a loss on this one. If you wait until the pullback to the 50 then you have too many bars in pullback which is a no entry. How would you handle this one?

7. Strong pullback to 35 SMA. Enter short at touch of 35 SMA with 15 pip SL.

8. Here is another one that is unclear. You have a 2 bar pullback to the 35 SMA. If you short on the touch of the 35 SMA this will more than likely be a loss. If you wait until the touch of the 50 EMA to get in, with a 15 pip SL you would do very well on this entry.

I'm still trying to figure out how if I should get in on the touch of the 35 or wait until the candle closes after the touch before I make the entry decision. On several occasions it appears that waiting for the close to see if the 50 EMA gets tested would be a better option.

Hi Dave. Not sure why, but your charts still look different than mine do. Perhaps it's because of the difference in broker data feeds, but it shouldn't make much difference.

It seems to me you are working too hard to find these trades... not every bar that touches the 35 is a trade. Remember the "Touch" trade is a "counter trend two bar move" that terminates in a "touch" of either the 35 or the 50, the area you have chosen to look for trades in is a "sideways" area of price action and while you CAN find touch trades in these areas, the would be the exception not the rule.

I made more comments on the chart below. I just took your chart and added comments and lines for clarification.

Hope it helps.

Hi Clay,

Thanks for the feedback. My charts may look a little different due to brokers feed and the fact that I changed the foreground color to white so I could see the numbers a bit better. I actually used the same area of the GU chart that you had shown a few pulback trades so I was thinking why didn't Clay comment on some of the other pullbacks. So that's when I went ahead and numbered all of the pullbacks I could find and posted it on the forum. I was interested in your comments. I realize these pullbacks happen all over the place and I am trying to figure out how to filter them a bit better so I'm not caught in one bad trade after the other.

Ok Clay,

I agree the price action on the GU 15M chart is starting to flatten out but in real time you may not notice that until price peaks and fails to go higher.

I also agree with your comments on 1, 2, 3 and 7. On number 4 I am not sure how this violate the 2 bar rule. It looks like a 2 bar pullback to me. Also, in real time if your trading the touch and not waiting for the candle to close you might not realize that price is going to blow through the 50 EMA level so many traders looking for a touch trade would have entered at the 50 EMA. I think the way you handled it is great but not every one would do what you did.

Now on to number 5. Again if you're looking for a touch trade in real time you would have seen a 2 bar pullback at 5A and you would enter. Some trades would get scared when price continues down and would bail on this trade. Now if you didn't get in on 5A and waited, I would agree it violates the 2 bar pullback rule and no entry would be made.

The same would go for 6A. In real time this would be a touch entry. Number 6 candle violates the 2 bar rule and no entry. But again, you have to look at this in real time or you need to put in place some other rules to keep you out of some of the touch trades I'm pointing out.

Candle 8 looks like a 2 bar pullback to me. I also thought you wanted to take these touches when the MAs where narrowing and close together? I think 8 is a real time touch trade and 8A violates the 2 bar pullback rule.


Sorry for so many questions but I think they need to be asked. I'm not a newbie trader but I am sure that many newbie traders read your manual, which is very good, and go off and trade every touch because they may not know any better. What I am trying to point out here is even an experienced trader can have difficulty identifying these touch trades in real time and that you can't take every one of them.

With all of that said, if you entered all 8 of these trades there are only 2 trades I would consider losers as long as you're careful with your SL.

Again, sorry for such a long winded post.

Hi Clay,

I took a look at the touch trades to the 35 and 50 MAs in a trend and it appears there are many chances to get in once the trend gets established. For example on the GU 15M chart I have placed numbers and arrows at all the touch trades to the 35/50 MAs that I could identify. If you didn't get in at number 1 which is the start of the tend there were a few chances to re-enter. You might take a punt at number 2 but that really isn't a true touch trade. The other pullbacks at 3-5 violate the 2 bar pullback rule. So it seems to me that touch trades are going to occur more so when price consolidates and changes direction rather than when it trends.

I know there are some other entries on the chart using other tools but I was strictly looking at touch trades using the 35/50MA.

Clay, can you share your thoughts and experience with us on this subject.

Dave, you're getting it really well with the "trend" entries. That happens pretty often. This strategy is pretty good for both trend and ranging areas, as long as the range is at least 50 pips. Your chart immediately above is dead on.

Trade #2 may not have "touched" but if you look left at it's close, there is an area of prior P/A S/R that could have been used as a pretty strong S/R level and being that close to the 35 in a strong down trend like that, I would have taken it with a 7 pip SL.

Also,,, there are three areas of 10 EMA constrainment where one could have entered the trend late and been just fine. The 10 is at a "very steep angle" as talked about in the manual. If you used the box tool, you would see that the angle of the 10 EMA is almost 45 degrees down.

Good analysis of that area.

On the chart prior in post #65 (http://www.forexfactory.com/showpost.php?p=3548092&postcount=65), some of this comes down to experience with the strategy. That is part of why I included the Simulator in the Tools Zip file. No one should ever trade any strategy, not even this one without first getting some experience with it.

NOW,,, I apologize, you're right, trade #4 is not a violation of the Two Bar rule, but in real time the trade did "blow through" which is something I talk about in the manual. "Blow through" is when price is near the 35 or the 50, then in one move is "past" it by a few pips. When that happens, you have to wait and see what happens. It may still qualify as a strong S/R trade, but would no longer be a "touch" trade. Touch trades do exactly that, they "touch" and back off almost immediately several pips. If you miss the "touch" it will give you a second chance most of the time. This is also the reason for moving the SL IMMEDIATELY to NO MORE than 7 to 9 pips MAXIMUM.

Not all "touch" trades work out and that is part of trading risk. The strategy is very solid as far as those entries are concernec and the RR is normally at least 1:4 or better. Risking 7 pips for at least 28 is extremely common and very, very often they go 50 or more.

NOW,,, as or trade number 6A, in the manual I talk about a S/R level being "washed out" and NOT VALID at the moment. On trade 5, the 35 may not be considered "washed out" but by trade 6A is definitely is, but the 50 is not yet as it has only been passed once recently where the 35 has been slammed several times and breached. That, and the fact that it also "blew through" a couple pips is warning that it will probably keep going.

Now for 8 and 8A. When the 35/50 lines are separated by a fairly large number of pips, you need to start exercising a LOT more discretion in your trades. Once they start to turn, you really should be looking for a constrainment trade not a touch trade.

Touch trades are amazingly accurate the closer together tehe 35/50 lines are and the wider they spread, the more warning it is that price may be reversing, but not normally an area to look for "touch" trades. In fact, I haven't said much about this, because I don't want anyone trading it yet, but if the 35/50 lines are more than 25 to 30 pips apart, and starting to go sideways, you can often play "Ping Pong" between them. DO NOT start trading this way until you have LOTS of experience. I have attached a chart showing that, BUT DON'T DO IT until you have been trading this strategy for SEVERAL months at least so you can get used to "seeing" it happen.

Hope this helped clarify a bit, and don't worry about being lond winded,, I am.

Clay

By the way, this was a live series of trades I documented for a friend I am teaching this to and I made pretty good pips. I think the entire series of PingPong gave me around 40 pips overall profit on Gbp/Usd. The long wick on Gbp/Usd took me out and I just got right back in, got back my pips + about 12 more.

In the "Live Examples" document, there is a section titled "Reading The Lines" that has this chart in it. There is also an explanation of how we arrive at the S/R levels in a VERY CLEAR and SIMPLE way. Endroute actually taught this part to me, but man does it work well with "The Dance."

The Circles indicate potential S/R entries. The second one is the SAME CHART with the normal Dance entries. This should be enough entries for any trade junkie.

Ummm,,, by the way,,, look at H1,,, it's a "PingPong" area,,, isn't that neat!?

God bless,

Hey, just read through the manual and looking things over. So much great info, I am a total noob to this strategy.

I was wondering what platform might have a free demo that I can run the tools in. I tried the interbank demo mt4 but didn't see how to open the tools and scripts.

What one do others use?

Hi Cod, you didn't read far enough in post

#1. "With that said, let's get down to business. There are several files posted below. Then everything is posted in one of the Zip file below so the PDF documents would “fit” by attachment sizing rules. If you need a good program to unzip them, there are also several of those around if you search (http://www.google.com/search?q=free+zip+utility&rls=com.microsoft:en-us&ie=UTF-8&oe=UTF-8&startIndex=&startPage=1) for them. AlZip (http://download.cnet.com/ALZip/3000-2250_4-10326198.html?tag=mncol) is a good free one and the tool I use."

download an "unzip" program, unzip the Tools zip file. THEN follow the instructions in the manual or in one of the links in post one to install the tools.

Trust me, they all work in EVERY Metatrater based platform.

Hi Clay,

Thanks for the detail explanation. I've used MAs in my trading for a long time but I must say this methodology uses them much more effectively than I ever did.

Glad it's helping you Dave. You really ought to drop Endroute a "thank you" as he is the one who taught me all of this. I just made the mod to use only these lines and then document all the nuances he taught me.

NOW,,,, here is the trade you outperformed me on last week with a step by step analysis.

There are six images, one more than the number of allowed attachments, to this will be two posts not one.

God bless,
Clay

trade continuation post

This strategy is amazingly solid as far back as I could find data to test it. This image is the balance of last week's trades. If you throw up your charts and look, you will see that the rest of the really good trades were all H1 "touches" off the 50 EMA.

Here's the thing about this strategy. It simply works. No fancy indicators, no oscillators ever needed, not a lot of subjectivity required and you can learn it really fast.

The lines are really only "eye candy" to help you "see" what's going on with Price Action and with S/R levels of the RECENT past few days to a week at the absolute most.

NOW,,, look at the chart, get out your Simulator for the weekend and go play and have some fun with this. The more FUN you make it, the easier it will be for you to master.

Why do you think that kids today can master video games to quickly. SAME PRINCIPLES apply. ALL markets and movements in them are made up of the SAME human nature making the same decisions over, and over, and over again. To quote Ecclesiastes in the Old Testament, "there is NOTHING NEW under the sun..."

Remember, it's a DANCE and the market is ALWAYS the leader,,, you only need to learn to follow it's lead and HAVE FUN doing it.

God bless and good trading to you all.

Here's the chart.

Sorry about that, I realized that about 5 minutes after I posted. I am going to keep reading and stay silent but I am enjoying the info greatly!

- Here a first version of MTF moving averages. (Try also as upper TF the H4 period and other colours...)
.

Good input Swingman, and appreciated. The only problems I have with using MTF or "equivalent" Higher Time frame moving averages is three fold.

First, MTF lines always are a bit "choppy" looking to me. They do a decent job of indicating on one chart where price is in relation to the higher time frames but having that "choppy" look did things to me that made me hesitate wondering if it was going to reach to that line when price was getting close. Mentally it wasn't good for me.

Second, having lots of lines on the chart complicates the simplicity of the strategy from a "look and feel" standpoint. It may not seem like much, but take a look at the two images below and you will see what I mean. More complexity is not a good thing. BUT, there is value to knowing where price is in relation to the higher time frame lines and sometimes we do tend to get "stuck" in our focus on the main chart.

Third, and this is probably the most important part for me. Price Action on the Higher Time frames is just as important as on the lower one. For example, the "Two Bar" rule holds true on all time frames, so if you have a Touch Trade forming on H1, it might be three or four bars on M15 and only 1 bar on D1. All of that plays a role in making the decision to taking the trade.

For example, H1 "Touch" trades tend to be much stronger than M15 "Touch" trades and D1 "Touch" trades tend to be stronger still. Being able to "see" the P/A on an actual chart can help a lot in the decision making process.

Feel free to use these types of indicators to play around with in your own personal trading guys, but try to keep the thread "clean" as to the original setup so people don't get confused. If later in the thread it starts to become something everyone is using, then that would be the time to start talking about this sort of thing in earnest. But for now, I would ask that you wait to start that conversation. There is still a lot to be learned from the basic setup and strategy before getting really fancy.

I have found in life, and in trading simpler is almost always better, stronger and easier.

Though, I would love to be able to have just one single simple chart that made sense every time.

With that, here are two images of charts. One has Swingman's MTF indicator on it so you can see what I am talking about. The other has "equivalent" moving averages on it. That's a fancy of saying that the 105 SMA on M15 is the same as the 35 SMA on H1, the 420 SMA on M15 is the same as the H4 35 SMA and the 1640 SMA on M15 is the same as the D1 35 SMA. Same for the EMA's. The correlations (and Swingman's other indicator would be good for this, but you have to gray out the 10 for the higher time frames) M15 150 EMA = H1 50 EMA, M15 600 EMA = H4 50 EMA and M15 2400 EMA = D1 50 EMA.

You will see the exact same sort of interplay between them on the charts, but it starts to get "messy" on the M15 to have all these lines on it. It also starts to be more like the "guppy" system also here on FF. Good system, just a bit "messy" for me personally.

Personally if I was going to have more lines on the chart, I would use Swingman's regular indicator that puts the normal lines on a chart and adjust it to use "equivalent" lines. The only issue there is that the 10 EMA in "equivalent" form (30 EMA is redundant to 35 SMA, 120 EMA and so is 480 EMA).

Here are the images, the a couple of templates using normal MT4 indicators. The one with the "dotted" lines is an attempt to keep a more "simple" look and feel to the charts.

Remember, simpler is always better.

Hi Clay,

Just a suggestion. When you review charts with trades on them could you place an arrow or indicate where the entry candle is. I just think it would make it easier for those viewing the thread to follow along with your excellent commentary.

Hi Clay,

Wouldn't the 1hr 35 EMA be equal to the 15M 140 EMA and the 1hr 50 SMA be equal to the 15M 200 SMA. The 15M chart is 4 times smaller than the 1 hr chart. Just don't want to confuse the newbies too much.

Yep,,, you're right about the "equivalents." For some reason I had a multiple of three stuck in my mind.