Circular Trendlines

Looking at the diagram here, we can note that an attempt was made to pass the center of the red circle after the pole bounce on May 30 2010.

This attempt failed misereably by much agitation in the summer of 2011, starting from end of May.

If the center of the red circle can be by passed, this pair will go to 6500, but that is very unlikely given the severity of the pole break of the blue circle downwards at the end of August of 2011.

This pole break has introduced the EUR into a new territory of price action. For the EUR to get back to the inside of the blue circle to continue its journey towards 6500 is virtually impossible before it touches the inside perimeter of the red circle, or come within 300-400 pip distance of that circle at around 2200 zone.

Now we have a pole bounce off the solid black circle at 3150 which is giving the impression of a change of angle of attack if one observes the manner in which the solid black circle is shifting upwards relative to the green circle.

This shift is a fake shift, and its giving the false impression of a new angle of attack of the upward motion that started from June of 2010 at 1870. The reason that is a fake shift is because the strength of previous support is diminishing:

T1 is not really a strong support, because there isnt much points bouncing off it.

S1 is not really a strong support either, because not many points have shown strong bounces off S1, many points have crossed it, but not solid bounces.

T2 is the only strong support, but if you note that any bounce that initiated from T2 had lower highs. P2 is lower than P1, and P3 lower than P2, so chances of another hypothetical point (P4) becoming a new high is very very slim.

Now why has the bounce off 3150 occured?

It occured to pay respect to T2 trendline

BUT...

If you note it is bound by the ceiling that the T4 line has presented. This resistance is also at the outer edge of the blue circle.

This resistance is VERY STRONG, which means that we will start to see the low of 3150 being broken, maybe we are going to slide down T4 to eventually do a pole break of the black solid circle, but the bottom line is that we have reached the limits of a bounce from 3150, and we are missing a touch point for the EUR at the lower part of the red circle.

I was drawing more circles, and came up with this new design, which still points to a big drop in the process of happening...

Very impressive, I really appreciate that you add higher timeframes like weekly to your analysis.

I did notice on Friday that price was hovering just above 1.3800 and all I thought was :

a) might be too late in the day ( Friday ) to attempt a run on 1.4000, which would mean a reverse move on Monday to stop out the buyers and get a cheaper price for the final attempt to go to 1.4000.

b) maybe proof that this rally was never a true buyer`s market, only a stop run on big sellers, who sold based on news.

I will read your thread more often - also try to apply your netdania instructions.

Much appreciated.



___________
Michael

Thanks, Just trying to present an alternate view on the market.
This is a interesting post by Infinitus, that caught my eyes few days ago, about EUR coming down:

http://www.forexfactory.com/showthre...17#post5041317

The thrust downwards to the 3450 region is beginning to start and take shape.

There could be the probability of a head and shoulder formation taking place. The diagram below shows 2 possible cases:

Bearish and going down to 5500 zone...

i have short from 3903. 4 hour chart show me 3630 first target. good job Mr.s Bubble

Upward movement to 3860-3880 region before a attempt to penetrate the 3700 region is commencing at the moment

Head and shoulder formation forming, and finishing up around 3770-3800 zone.

Your question required more details than what I could put in a few sentences and a example, but I will post the example later, since that too needs a lot of details, but I will describe the overall concept of the way I approach my trades and few rules.

All the following points are important if you need to make a profit on a bad order or come at break even.

Concept #1 : Timing
A trader using any trading system requires to adjust its trading system to 2 different market conditions, and trade differently in these 2 markets

Firstly is how to adjust your system to trade a impulsive market
Secondly is how to adjust your system to trade in a corrective market.

Most often than not the chances that a market will experience more impulsive action is more in the following months:

September to End of November
AND
Mid January to End of April

Most often than not the chances that the a market will experience more corrective action is more in the following months:

December to Mid January
May till August, with August being the most corrective month
Most money is made in the impulsive months and more money is lost in the corrective months

How does Concept#1 help you get out of bad trades:
You dont have a chance to get out of a bad trade if the direction that you are trading is counter the daily/H4 in the impulsive months
You do have a chance to get ouf of a bad trade in the corrective months if you allow lots of stoploss and wait 2-5 business days.

Concept #2: Stoploss
You need smaller stoploss in a impulsive market and more stoploss in a corrective market. Reason is that chances of large retracements are greater in a corrective market than a impulsive market

If a stoploss gets hit in such situations, then thats a good signals that we are entering the corrective phase of the market. Impulsive markets retrace mostly to 23.6 or 38.2 fib levels in their initial stages of development and more to 50 or 61.8 fib levels in their later stages of development.

How does Concept#2 help you get out of bad trades:
The number of pips of stoploss that you allocate is directly proportional to the time that it takes to hit your stoploss. The more time that you have on your hand, the more you can think to device strategies to make a bad trade into a good one.

Concept#3: Target
All market is like a circle, where price starts from one point and travels through time to eventually reach the same place that it started. The chances of an order to reach the optimal price potential depends where on the circle you get in. Because the nature of price action is so unpredictable, then you cant depend solely on a forecast or a indicator to device a strategy to get out.

To get out you have to look at the probability of making "X" amount of pips in a overall sense on the currency pair you are trading, not on the probability that the market will reach the forecasted target. "X" will differ in Impulsive vs Corrective market.

taking the example of the EUR/USD,then

85% - 99% of the time you can make 10-25 pips
70% - 84% of the time you can make 26-40 pips
35% - 69% of the time you can make 41-70 pips
and the percentage becomes lower where you can make 71 + pips

My own personal choice is to get out at around 25 pips or if by chance we have hit the first support or resistance, then get out. Its always the first support or resistance that has the highest probability of price action getting there, the other ones are good but risk of getting there decreases. I dont care how much of the price action I will miss in the future, or if I got out too early, as long as I am positive I get out.

How does Concept#3 help you get out of bad trades:
if you get out of your trades more quickly with a small profit, then your chances of a position run into a bad trade is less.

Concept #4: Direction
Trade only in the direction of the higher time frames such as H1, H4, and Daily

Direction is decided as follows:

1. Look for zones on a chart where a lot of trendlines intersect and create zones of resistance or support. This can only be found by drawing lots of lines and curves on a chart and visually looking at a chart from different time frames (H1, H4, Daily) for zones of congestion of trendlines.
The more congestion, the stronger and more important those zone will become. You cant find zones for buy and sell by looking at indicators all the time, you tend to do more mistakes that way, and need an array of indicators, which makes mastering a simple technique more difficult. You need to train your eyes to see very fine details on a chart and draw lines. These zones are points in space where price will go to and reverse after that. Unless price action has not yet hit these zones, direction is still the same.

2. Then look for tendency of price action to stick or get away from these zones. If it sticks to those zones, it means that it wants to penetrate through them. Let it penetrate and then decide what to do. If PA moves away from those zones then its heading to the next important zone on your chart. For example if you find rebound from a resistance zone on a daily chart, and a 1000 pips lower you see a strong support area, then thats the direction that price action will move, no matter what your indicator tells you.

That is crucial to understand. Higher time frames have the power to help you come at break even and not make you scared of setting big stop losses if and only if at all times their power is respected.

If you go against them on the smaller time frames, then you will be lucky some of the time, but eventually they will win.

3. Once you find these zones, or suspect that you have found one, then look for a channel where price might use it to get to it or move away from it. Pay attention to the touchpoints on the channel and see whether PA is respecting them. If its not, then look for other points where you can form a channel. Maybe the original channel was not the proper one. Have 2 suspected channels in mind, so that when one breaks you dont think the trend is over, but you merely know that its heading to the other channel and it will switch from there.

4. Once you find the channel then trade that channel, and only go for trades that hit the channel and are in the direction of the higher time frames (Daily and H4). Dont counter trend, because it would be very hard to make it at break even if you have a bad order.

If you have doubt, then count the number of times price action has gone in the direction of the daily/H4 time frames and how smooth it was and then count the times it has gone otherwise and see how jagged and frustraiting it was. Which one is better? Is it worth it to wait a bit longer?

At this stage you can use indicators. I only use indicators about 5% of the time, because of the fact that if I missed something I dont want to look at my indicator and see why I missed, I want to look at the price action and see what was the smallest detail that I missed, so that in due time I can add more sub rules to my rules to not make a mistake. But you might want to use indicators and here are settings that I have had success with. I put all of these together on one chart, but not the chart that I draw my circles and trendlines

4 Bands:
Exponential Average Of the Highs >> Set to 89
Exponential Average Of the Lows >> Set to 89
Exponential Average Of the Highs >> Set to 144
Exponential Average Of the Lows >> Set to 144
Note: 89 and 144 are fibonacci numbers

Bolligner set at 20,2 (Default)

RSI set at 13 (another fib number)

MACD set at default 12,26,9

Parabolic SAR set at 0.02,0.2

The way I use them, is look for overbought/oversold in RSI, touch or break of the Bands, touch to the SAR, Break of Bollinger. I dont have a set rule for any of them, just check to see whether they are at their extremes at the point where PA touches the trendline or curve. I dont check smaller time frames, just daily and H4 since it causes less confusion.

I still disagree with the view to counter trend the Daily and H4 time frames on the smaller time frames because of the fact that the hourly is opposite the H4/Daily.

If you want to eventually come at break even on a bad trade, then counter trading will be based on luck and the season that you choose. It will become a habit that its hard to get out, and easy to loose a lot of money. If you train the mind to form good trading habits then you wont loose money. I know its difficult when you see you could have made a 100 pips or so on a order that you missed but in the long run this habit will decrease your losses tremendously.

5. look for 5 distinct waves on the last wave of price action before it hits the point on the channel. These 5 distinct waves should be a no brainer and be visible with the naked eye. If you have to spend ample time to find 5 waves, then what you think is 5 waves, is not 5 waves, and price action is in the process of completing 5 waves. So direction is still the same, no matter what your indicator tells you.

Concept #5: Lot Management
You should create a excel spread sheet where it would tell you, depending on your account balance, how many lots you are allowed to go in.

You then take that lot size and divide it in such a small units that if that unit by itself is put in the market, and the market goes 200 pips against you, then you would only loose around 0.7% to 1.5% of your account size. Now you can adjust this to 2.5%-4% but more than that would be risky. What I am trying to do is to spread the 10/20/30/etc lots within a range of prices, and

NOT put them all in one place, give myself 200 pips of stoploss and at the end loose 10-15% of my account.

I want to spread these lots and on each individual lot collect the profit limit that I put. Then that way if price moves a big chunk against me, I still have 60/70/80/etc "percent" of my lots that are not committed in the market, and I put them in a different position in the market.
When the market turns around to go in the direction of my "Bad Orders" then like popcorn all those bad orders turn into good ones, and by that time I have figured out what I did wrong so my next few orders would stand more chance of being profitable. Eventually in due time, everything would turn out to be good orders.


Concept#6: Being Relaxed
It doesnt matter how much money you have or how good your forecasts are or how good the trading system that you have devised is, if you are not in a relaxed state of mind, you will loose, no ifs or buts about it. The speed at which you will loose is the only difference in how you fall.

Your personal life and whatever goes on with it, need to be logiced through in tough times and you need to find a way to calm your emotions, and train your mind to only look at what is possible.

You also need to make yourself feel good when you do good trades. So if you go for what is available and what the market gives you, then you will be happy and that feeling will help you grow.


Summary
It is a bit difficult to imagine that small orders and spreading your lots with lots of stoploss will create any type of money.

But I figured this out after loosing a lot of money and seeing that the only option that there is, was to satisfy myself that I make some profit, and dont care about how much it is.

Also one other thing that helped my account size to grow was that when I opened my trading station and looked at my orders, I trained myself to only look at the pips and not the balance in my account.

If I was positive 10,15,20,30, etc pips then I would immediately close my orders.

I am not a advocate of letting your profits run for 100-200+ pips. That in my opinion worked in the 70's and 80's, not in 2010 and 2011+. You need to get in, collect your cash and get out and satisfy your mind with small profits.

Good Luck and Best Wishes.

Pending order for buy and sell are the best way to trade the current situation with the EUR/USD

Here is a different view from the M5 chart...

This is a very volatile pair to trade for today. Its at a pole break situation where anything could happen. Above 5850 will go as far as 6050 and below 5790 will go first to 5600 and then to 5400. Its best too to trade this pair using a breakout method and put pending orders for sell/buy at either ranges of 5790 and 5850

Large drop awaiting this pair at any time...

Good day to you

possible diamond formation

Keep up the good work

yes, I agree with your view. Nice way to put it. Never thought of diamond formations. Thanks anyways

Another view of the same situation...

Smaller time frames showing signs of a cap forming at 3800-3815. Ceiling starting to develop there, which means more down action

3650 looking to be the rest spot, with 3700 increasing in chance of getting broken