This is another pair I don't trade regularly. However, I did technical analysis on the pair for a reader on this forum. After the analysis, I decided to prepare a mastercharts for for the benefit of benefit of those who might be interested in this currency pair.
Hello Articulate,
I am following your posts closely and slowly understanding your charts. The important thing here for me is that my trading has improved a lot, thanks to your posts.
I am now looking forward to your posts on how to use these charts for various time frames.
Ignored
Thanks for post Rafiki. The truth is that I do not have the time to set out the steps in a clear manner until now. Over the next few days, I will explain the process.
I will use the GBPUSD to explain the usage of the charts. You will have observed that GBPUSD is my favourable pair followed by GBPJPY. GBPUSD is more rational, predictable and logical while GBPJPY on the hand is perhaps one of the most irrational and volatile currency pair in the world. If you read some of my previous posts you will have a better insight into the character of some of these pairs.
How to use the Mastercharts
Trading requires careful preparation and insightful analysis. This could be overwhelming and confusing to majority of traders. The truth of the matter is that most traders are incapable of undertaking the complex technical analysis required for informed decisions. The fundamental analysis is a different challenge entirely. I read somewhere that you need 100,000 hours of study to fully understand forex trading. Let me tell you the truth, this statement though slightly exaggerated might not be very far from the truth. However, as a result of my researches over the last few years, I have narrowed down this complex endeavour into some simple easy to understand strategy. The secrets of forex price action are in the higher timeframes. The first step in this process is to prepare the chart for any currency pair you wish to trade to be trader-friendly. How do you make your charts trader-friendly?
How to create a user-friendly chart
If you read my post on how trading could be colourful you will have a clear insight on how to achieve this. As a recap, here are the steps to make your charts user-friendly:
a) Open a new chart for the currency you wish to trade (GBPUSD in this example) b) Go to the weekly timeframe and draw horizontal lines at the level indicated in my mastercharts. The major levels for GBPUSD are:
a. 1.73000 b. 1.63000 c. 1.53000 d. 1.43000 e. 1.33000 f. 1.23000
c) Insert Relative Strength index (RSI) for 14 days period. d) Go to the daily timeframe and identify the historical high and low points on the RSI e) Draw horizontal lines on the daily RSI depicting the historical high and low points. f) Go to the weekly time frame and click on insert shapes and draw rectangular shape between the highest horizontal line on the RSI and 70 point level. Do the same thing for the lowest point and the 30 point level. g) Select the rectangular shape above 70 point level and change the colour to yellow. You can select by double clicking on the shape first, then right click and pick rectangular properties and pick the colour from style. h) Select the rectangular shapes below 30 point level and change the colour to red.
If you follow the above steps, your chart will look like the chart for my example. Your chart is now trader-friendly and you are ready to roll.
We shall now discuss how to use the Mastercharts for:
a) Day Trading: Multiple trades targeting less than 10-50 pips at a time. Such trades should not be carried overnight, unless it is at BPE
b) Short term trading: Trades targeting 50-100 pips that could run for more than a day
c) Medium Term Trading: Trades targeting 100-200 pips that could run for 1-2 weeks
d) Long Term trading: Trades that could run upward to four weeks or more (1,500 pips and above)
Day Trading:
For day trading you need to take the following steps:
a) Draw additional horizontal lines every 50 or 25 pips on your chart b) Use the H4 time frames to pick your trading opportunities c) Your buy signal is given when the RSI on H4 timeframe enters the Red box and the sell signal when it enters the Yellow box d) To enter a trade, go to M15 time frame and buy when both RSI on H4 and M15 enter the Red box and the sell signal when H4 and M15 enters the Yellow box e) RSI 50 point level is where to take your profit or lock your trade (10-50 pips) per trade is adequate for this strategy.
See the H4 and M15 charts for daytrading. The sell signal zone on the charts are shown aqua boxes and the buy zones by blue boxes on the M15 chart.
For the short term trading take the following steps:
a) Use the Daily time frame to pick your trading opportunities b) Your buy signal is given when the RSI on Daily timeframe enters the Red box and the sell signal when it enters the Yellow box c) To enter a trade, go to H4 time frame and buy when both RSI on Daily and H4 enter the Red box and the sell signal when Daily and H4 enter the Yellow box d) RSI 50 point level is where to take your profit or lock your trade (100 pips and above per trade is ideal for this strategy.
See the Daily and H4 charts for short-term trading. The sell signal zone on the charts are show aqua boxes and the buy zones by blue boxes on H4 chart.
For the short term trading take the following steps:
a) Use the Daily time frame to pick your trading opportunities b) Your buy signal is given when the RSI on Daily timeframe enters the Red box and the sell signal when it enters the Yellow box c) To enter a trade, go to H4 time frame and buy when both RSI on Daily and H4 enter the Red box and the sell signal when Daily and H4 enter the Yellow box d) RSI 50 point level is where to take your profit or lock your trade (100 pips and above per trade is ideal for this strategy.
See the Daily and H4 charts for short-term trading. The sell signal zone on the charts are shown by the aqua boxes and the buy zones by blue boxes on H4 chart.
Medium term Trading:
For Medium-Term take the following steps:
a) Use the Weekly time frame to pick your trading opportunities b) Your buy signal is given when the RSI on weekly timeframe enters the Red zone and the sell signal when it enters the Yellow zone c) To enter a trade, go daily time frame and buy when both RSI on Weekly and daily timeframe enter the Red box and the sell signal when Daily and weekly enter the Yellow box. d) RSI 50 point level is where to take your profit or lock your trade (500 pips and above per trade (1500 pips most times).
See the Weekly and Daily for medium-term trading. The sell/buy zones on the charts are shown by the red circles on the daily chart
Long term Trading:
For Medium-Term take the following steps:
a) Use the monthly time frame to pick your trading opportunities b) Your buy signal is given when the RSI on monthly timeframe enters the Red box and the sell signal when it enters the Yellow box c) To enter a trade, go to the monthly time frame and buy when both RSI on monthly and weekly timeframe enter the Red box and the sell signal when monthly and weekly RSI enter the Yellow zone. Historical analysis over the years have shown that you can begin to short if there is a reversal candle on the weekly when RSI touches 64-65 on the monthly. You can go down to the daily chart to get the best entry opportunities. d) RSI 50 point level is where to take your profit or lock your trade (1000-3000 pips).
See the Weekly and monthly and weekly charts for long-term trading. The sell/buy zones are shown by the red boxes on the weekly charts. As you can see such opportunities rare. Personally I have not started trading at that level.
See the Weekly and monthly and weekly charts for long-term trading. The sell/buy zones are shown by the red circles on the weekly charts. As you can see such opportunities very rare. Personally I have not started trading at that level.
H4 is the key for day traders. It is easier to pick support temporary support/resistance areas. Furthermore, you have the luxury of adequate notice (atimes up to 16 hours) take a trade. Remember the concrete zone for now 1.60000-164000.
Pick your support/resistance on H4 and go down to the lower time-frames (15M) to pick your trades.
H4 is the key for day traders. It is easier to pick support temporary support/resistance areas. Furthermore, you have the luxury of adequate notice (atimes up to 16 hours) take a trade. Femember the concrete zone for now 1.60000-164000.
Pick your support/resitance on H4 and go down to the lower timeframes (15M) to pick your trades.
Benefiting from the greed of “big boys” - 1000 pips trade set-ups What I will share with you today is how to benefit from the greed of the “big boys” using the 1000 pips trade set-up. As I mentioned in my postings on the Mastercharts that the major resistance/support for GBPUSD and GBPJPY are encountered after every 1000 pips price movement. After every 1000 pips movement for these pairs, expect a pull back. A circle for GBPJPY is divided into two parts of 500 pips each, while that of the GBPUSD varies. In a generous trading environment, the GBPJPY could complete this circle within 2-3 weeks and between 4-8 weeks in most times. GBPUSD takes between 6-12 weeks to complete this circle as a result of its numerous pullbacks.
The “big boys” are greedy and they don’t let go until they get between 900-1000 pips even when there is no justification for such price movements. That is why you see 300 pips wicks on weekly candles. How do you benefit from their greed? This predictable circle of 1000 pips price movement gives a very useful signal that a medium/long term trader could utilise to trade this circle successful over and over again. You cannot predict his circles, but the weekly chart provides very useful and insightful signals. To trade these circles, this is what to do:
a)Wait for a weekly candle to print a new high or low b)Draw a horizontal line or circle at the lowest or highest point i.e. the wick of the candle. c)From the lowest or highest price on the weekly charts calculate 1000 pips and put a draw a box to identify the likely target areas. d)If price has not moved far from these points (less than 100 pips) you can enter the trade if you are ready to wait for some few weeks. e)If the price has moved far (300-400 pip) it is better to place a pending order at the point where the reversal is expected (900-1000). f)Follow the ride and jump off if you make some sizeable pips.
Look at the weekly chart for GBPUSD and the 1000 pips movements indicated by the red and yellow boxes. On the GBPJPY chart the levels are shown by the price movement between two yellow line or two aqua lines. Based on this analysis the expected target for GBPUSD if the bearish run that was reversed at 1.57800 is completed is around 1.67800. The target for the GBPJPY is around 135.00.
I have mentioned it very times, success is only guaranteed only when a trade has “helicopter view” of the market. Remember, the important thing is totake only first class trades because it is your money that is on the line. If the opportunity is not right, forget it and look for better ones. There are always better opportunities in this market. The reason is simple - this market is driven by greed!
50-Pip Price Action Analysis or 50-PAA is something I stumbled into by accident. There was a day I had problem with opening my MetaTrader and I had some trades running. To monitor live price action, I went to bbc.co.uk. There was a live forex chart on the website divided with an horizontals line 50 pips apart. That day price was consolidating within a very tight range. After about 8 hours, price was still within that 50 pips range. When price broke out of the range it moved for about 150 pips. I found the observation interesting and replicated similar lines on my chart for closer analysis. I will now discuss some of the benefits of 50-PAA
Daily Candle
50-PAA easily shows the average price movement in a single day. For example the cable generally moves about 100 pips per day and around 200 pips per day when breaking out of consolidation. The benefit of this is that you can fairly predict the range of a daily candle, identify consolidation, identify a breakout including support/resistance level. For example the daily chart below it is clear that price has been consolidating between the yellow and red points (about 250 pips) for the past 11 days.
H4 Candle
As I mentioned earlier H4 is the key for day traders. It is easier to pick temporary support/resistance areas. Furthermore, you have the luxury of adequate notice (this could be up to 16 hours in some cases) to take a trade. From the H4 chart below, you can see where H4 candle consolidated for between 12-60 hours within a 50 pips range around support/resistance areas before a big move.
The benefit of 50-PAA for day traders is that for a good trade that would yield over 150 pips H4 candle will give you up to 12 hours and more to enter the trade. With this knowledge it will be easier to recognize 1st class trading opportunity and will never be under any pressure to enter into a trade.
H1, M15, M5 Candles
With 50-PAA it easy to see many H1, M15, M5 candles within a 50 pip range and easily recognize a break out or a continuation of a strong move. Using this analysis it becomes easier to understand price movement without any complicated and confusing indicator.
What I will discuss today is understanding trend. I still have one or two things to discuss before finally discussing my current trading style.
Understanding trends
Many traders find it very difficult to understand trend. The simple truth is that you can only understand trend if you follow the weekly time frame. What most traders don't appreciate is that if a trend is up in the higher time frame it can remain up so for a month, 4-5 weeks, 35 days etc. Your chance of success will increase significantly if you trade in the direction of weekly time frame using the lower time frames to enter into trade. Put differently, if the weekly trend is down, your best bet is to sell the pull backs at least until price moves in that direction by about 900-1000 pips. On the other hand, if the weekly trend is up, the most profitable thing to do is to buy on the pull backs at least until price moves in that direction by about 900-1000 pips. Let me illustrate my analysis of the price action from in the last five months;
a) In April price the highest point for the year at 1.67460
b) Between May and July price fell by about 1000 pips to 1.5780 and pulled back to 1.6618 (838 pips) and present fell to a current low of 1.57050 (913 pips so far)
c) The monthly support and resistance are the horizontal red and yellow lines.
The above analysis is simplu a guide and had nothing to do with understanding trend. To have a proper understanding of trend, let us look at price action on the weekly time frame.
a) In terms of weeks, the fall was completed by 10 weekly candles and the rise by about 5 weekly candles
b) In terms of daily time frame about 35 candles
c) in 4 hours time frame perhaps hundreds of candles
I attach the monthly, weekly, daily and H4 charts as usual.
Let me digress a bit and talk about the 2nd leg of the monthly GBPJPY. If you have been following this thread since the beginning, read the above post and see where price is at the moment. The second leg of the monthly chart is here and it took over two years to get here. This is a confirmation that price is a series of repetitive patterns. If you trade the longer time frame, you cannot get lost. If you are position trader, get prepared for another bull run. My pending buy order since 2010 is still waiting. I was actually expecting a dash to level and quick retrace. Welcome to my truly long term trading (1500-2000 pips).
If you trade GBPJPY and GBPUSD regularly and you are really desirous of removing stress from you trading, trade every 1000 pips for these pairs. For example GBPUSD will complete a 1000-pips movement at 1.56170. 1.56000-1.56500 is the area to beggin to look for long.
What my research has shown is that after 1000 pips movement, a retrace of at least 500 pips is a natural follow-up. You can read the above post for proper understanding of this trading strategy.
It is always helpful to have the bigger picture in mind
