Against Conventional Wisdom

The title of this thread pretty much says it all. Most of what I know about Forex goes completely Against Conventional Wisdom. Among the many bits of conventional wisdom that I disagree with are PA (price action), FA (fundamental analysis), S/R (support and resistance), how news affects the markets, Fibonacci, and what is the proper cutoff for the Daily bar. This is not an all inclusive list, but it will do for a start.

The system I use is technical and does not use any of the methods mentioned above. When I first started learning this system, the complexity nearly overwhelmed me. But in due time the simplicity of it became fully and clearly apparant.

What you will not get from this thread is instruction on how I trade the system I use. (1) That is why it's not in the Trading Systems Forum. I will not be posting full charts. The reason for this - I've been asked and agreed not to post these charts in full anywhere. When time allows I will post trades live.

Another thing this thread is not and that's a place to debate the myriad methods that permeate Forex trading. That is why this thread is not in the Trading Discussion Forum. If you feel the need to argue against what I post, my suggestion is to start a thread some where else for that purpose. I will arbitrarily and without notice put you on the iggy list if I feel that is your intention. I will also not tolerate abusive or inappropriate language.

The time zone I reference is US eastern (New York). That is because it is the time zone my charts are based on. More on this later.

Now that I have most likely alienated one-third to one-half of everyone here at FF with this brief introduction, I will get started.

I wish you all the best and God Bless.



(1) If after perusing what I have posted here, you think you would like to try and learn this system, feel free to contact me. The only cost is your time.

A little bit about the system. (part 1)

As I mentioned, this is a technical system. Most trades are of the duration of an hour or two (occasionally a bit longer). The reason for this is due to the fact that with proper use of leverage and compounding you only need to make 40 pips a day. Most, if not all, of these pips can be made in one trade. So, based on much of what I've been reading on FF, this is the first ACW (Against Conventional Wisdom). There are many who treat FX trading with a buy or sell and hold mentality. This is completely unnecessary. The days of well defined trends in which you could enter a trade and hold it for any length of time are long gone. The current state of the Forex market is much too volatile for this type of trading. How many of you honestly truly feel you know this market well enough to take that risk?

Here is an example of what proper use of leverage and compounding could do for you over a 12 week period.

Trading Income Calculator ( increments of 40 pips = 1 trade per day)
PIP ValueMax % of capital in market 10%
Leverage 50:1$1.00

# of
TradesAccount lots Profit
Balance
1$500 1 $40 Day 1
2$540 1 $40 Day 2
3$580 1 $40 Day 3
4$620 1 $40 Day 4
5$660 1 $40 Day 5 END WEEK 1
6$700 1 $40 Day 1
7$740 1 $40 Day 2
8$780 1 $40 Day 3
9$820 1 $40 Day 4
10$860 1 $40 Day 5 END WEEK 2
11$900 1 $40 Day 1
12$940 2 $80 Day 2
13$1,020 2 $80 Day 3
14$1,100 2 $80 Day 4
15$1,180 2 $80 Day 5 END WEEK 3
16$1,260 2 $80 Day 1
17$1,340 2 $80 Day 2
18$1,420 3 $120 Day 3
19$1,540 3 $120 Day 4
20$1,660 3 $120 Day 5 END WEEK 4
21$1,780 3 $120 Day 1
22$1,900 4 $160 Day 2
23$2,060 4 $160 Day 3
24$2,220 4 $160 Day 4
25$2,380 5 $200 Day 5 END WEEK 5
26$2,580 5 $200 Day 1
27$2,780 6 $240 Day 2
28$3,020 6 $240 Day 3
29$3,260 7 $280 Day 4
30$3,540 7 $280 Day 5 END WEEK 6
31$3,820 8 $320 Day 1
32$4,140 9 $360 Day 2
33$4,500 9 $360 Day 3
34$4,860 10 $400 Day 4
35$5,260 11 $440 Day 5 END WEEK 7
36$5,700 12 $480 Day 1
37$6,180 13 $520 Day 2
38$6,700 14 $560 Day 3
39$7,260 15 $600 Day 4
40$7,860 17 $680 Day 5 END WEEK 8
41$8,540 18 $720 Day 1
42$9,260 20 $800 Day 2
43$10,060 22 $880 Day 3
44$10,940 24 $960 Day 4
45$11,900 26 $1,040 Day 5 END WEEK 9
46$12,940 28 $1,120 Day 1
47$14,060 30 $1,200 Day 2
48$15,260 33 $1,320 Day 3
49$16,580 36 $1,440 Day 4
50$18,020 39 $1,560 Day 5 END WEEK 10
51$19,580 43 $1,720 Day 1
52$21,300 46 $1,840 Day 2
53$23,140 50 $2,000 Day 3
54$25,140 55 $2,200 Day 4
55$27,340 60 $2,400 Day 5 END WEEK 11
56$29,740 65 $2,600 Day 1
57$32,340 71 $2,840 Day 2
58$35,180 77 $3,080 Day 3
59$38,260 84 $3,360 Day 4
60$41,620 91 $3,640 Day 5 END WEEK 12


Now I know many of you will be saying, "No way can you do that. Your risking too much to start with, ...".

I can assure you that it can and has been done. All one really needs to do is learn to spot good entries and take your 40 pips. One trade a day. OK I agree, there is the occasional day in which the market will not give up 40 pips in one pop. On those days you just look to get two 20 pip trades or four 10 pip trades or whatever combination will give you 40 pips. I believe the numbers speak for themselves and prove why one does not need to hold a trade for any length of time.

The system (part 2)

Being short term this system uses 30 Minute, 1 Hour, and 2 Hour charts for trade entry. It also uses Daily, Weekly, and Monthly charts. You could trade this system without ever referencing the longer TFs, but they do have their use. As you've noticed, I mention a 2 Hour chart. This means you can not trade this system with MT4. And to be realistic your not loosing anything by that. MT4 is really not a very good charting platform. Sure it has numerous indicators and the ability to auto trade. Why someone would risk their money auto trading is beyond me. Take this past Friday. I was lurking in the EURUSD thread and so many had no idea wat was happening. Taking that into consideration, if you can't figure it out trading manually, how will you ever write an EA to auto trade.

About the indicators. Yes they come in almost any flavor you desire, but MT4 really makes them limited. This system has only two indicators that are based on price. Everything else is based on one of those indicators.
Your most likely saying that is a silly, ridiculous thing. Not really. This one indicator is very powerful and performs as the heartbeat of the entire system. And it works like a charm. Sorry, I can't tell you what the indicator is. I will tell you the other indicator based on price though. It is the Bollinger Bands. Yes I know, many of you have used or still use BBs. But have you really learned their full potential. I would say not. The BBs are very powerful when used properly.

I know I haven't said much of anything about this system, but I really can't go into much more than this. When you see the little snippets of charts I post, many of you will probably come to the instant, but incorrect, opinion that this is just another moving average system. Don't let that fool you. Yes, it is a moving average system. But just another one, far from it.

My one trade Friday 21 Sept 2012 (part 1)

I better take a break from my rants and give you a taste of this system. (Don't worry there are many more rants to come)

As I've mentioned, you only need to make 40 pips a day. If you can get more that's a pleasant bonus. I live in the eastern (New York) time zone in the US. Most days I'm up early enough to get on te charts between 0530 and 0630. Today I was on the charts about 0615. The snippets of the M30 chart are what my mentor and friend calls the 30 Simple Trend. I just got the set-up for this chart the other day and I am using it to get a feel for how it works. The H1 and H2 chart snippets are the full blown advance charts that I use. The 30 Simple can be used as a stand alone, but since I'm test driving it I used the other charts for reference.

The first thing I noticed was te move up at 0430. This was a result of te GBP announcemnt. I'm sure there were traders who made money off that, but I'm also sure there were many who took a loss. The next thing was that the 30 Simple Trend chart had flipped from down to up at 0600. This is shown with the 1 on the chart. I then referenced the H1 and saw that it had hit resistance. (2) Looking at the H2 I saw that there was a close-open between the bands. (3) With this information I know that I am looking for a long trade, but I will have to wait for an entry because of what the H1 and H2 are showing, with both of them coming off resistance.

My one trade Friday 21 Sept 2012 (part 2)

The M30 Simple Trend says up. Price is moving down. I want to make my entry on a hit to support if possible. On the H1 I identified the support I would like to see hit and it gave me that hit. (1) If price did not reach that point I was prepared to make an entry as close to the close of te 0700 bar as possible.
The hit on support was 1.2967 and I was filled at 1.2968. I was very pleased with this outcome. If I had been trading the M30 as a stand alone my entry would have been at 1.2975 with a TP of 1.3015. (2) As it is I am now looking for an initial TP of 1.3008. Also, as you can see, price did not make a major move from my entry point. I was not worried tough as I had BE set. (3)
Tis is a very important consideration as capital preservation is of the utmost importance.

My one trade Friday 21 Sept 2012 (part 3)

I'm looking for an initial TP of 40 pips. But I'm not against more if the market wants to give it to me. Not much happened for about an hour. Again, was I worried? No! I ad BE set and if price reversed I was safe. Also, the charts were all saying up so I just stuck with it. About 0840 price started it's move. Had I gone ahead and set my TP I would have had my 40 pips. At this point I set a TP of 30 pips to insure I would get some decent profit. Now here is where fortune smiled at me. I identified an possible new resistance on the H1. (1) Instead of closing the trade when it hit that spot, I set a new TP of 40 pips. I was now going to see if price would retest the resistance of a few hours ago. And that is exactly wat it did. (2) As soon as it hit that resistance I closed the trade at 1.3038 for 70 pips on the day. I had my 40 pips plus a bonus of 30 pips and was finished trading for the day and week. Total time on the charts was about 3 hours. Not too shabby for a days work.

OK. Now that you've seen a few chart snippets your probably saying there is not much here to go by. From the conventional way most traders look at charts I would say you are correct. What you see, though, is basically how I have learned to look at my charts. Trading this system is done with FOCUS to see what the indicators are telling me and in the moment. The moment is here and now. Not what happened 3 bars or 8 bars ago. Does that mean I disregard an important factor that occurred on one of the charts any number of bars ago. No it does not. What I am looking for is the reaction of price to that event right at this moment. So, in essence, my posting of the chart snippets is how I look at things.

Another reason for trading in the moment is - No two trades are ever truly the same. Each trade is a scenario unique unto itself. There may be similarities. Sometimes many. Just remember each trade is it's own entity.

A Small Disclaimer

Before I continue with any of my rants Against Conventional Wisdom, I just want to make a brief statement. If you have found a way to make these methods work - good. I am not saying they don't work for some traders.
What I do know is that they don't work for me. I could also argue, based on anecdotal evidence from reading posts, that for the majority they don't work.
I believe that is why 95% (or whatever the number really is) of traders fail. There are traders who do have success with some of the various methods I will make arguments against. But for every one who makes one these methods work there are many, many more who do not.

Whenever we (my mentor and the few of us who help him) teach anyone this system, this is one of the major reasons for the one's who can not grasp the system. I would also suggest that among the few good trading systems that are taught here on FF that is the reason a lot of people don't do well or eventually try to change a method that works. This is what is known as baggage. Baggage comes in many forms and is not always trade related. You see it all the time in many threads. There was even a thread that made a point of this. The funny thing is, that thread soon followed the way of most of the others and quickly deteriorated into a bickering mess.

Price Action

Price Action is an Illusion. Just because price starts to move to or through a certain area does not in and of itself make that a legitimate move. Included in PA is candlesticks. It seems one of the two current rages is price action. Many go as far as to claim "naked" trading is the only way. I've been there and done that and it doesn't work (a blanket statement I can make for most methods). The movement of price without reference of correct support and resistance is just that - movement. It means nothing. It is truly an Illusion.

You see it all the time. As soon as price gets to this point I'm making an entry. The sad thing is, many times price has already moved 20 or more pips by that time. And all too often that is right in the area where price is going to stop. Without some type of reference price is truly just random.
Perhaps there are some who can look at a naked chart and picture those points of reference in their mind. That could very well be the case as God endows some people with very special talents. Alas, most of us don't have that ability and need to see the reference on our charts.

Candlesticks can be considered price action also. For every one example someone points out where a candlestick pattern proved successful, I can find numerous examples of that same pattern failing. The use of candlesticks developed over time in Japan to trade rice. From my perspective, rice and currencies have no real correlation (although rice was basically used as currency). As you see on the chart snippets I use bar charts. From my perspective, candlesticks are a distraction. I can see the advantage of them for those who use MT4, as they make it easier to read the charts.

The only times I pay attention to price action is when I am looking to make an entry off support or resistance. Or I am looking for a potential end of a move at S/R. I make most of my entries at the open of a bar based on what the indicators are telling me.

The trader that had posted this thread is one of the "Elite" of traders. The provisions that were given to him had made him a conqueror and not a slave to the world of the Forex. He is very successful along with 3 others on the forum he trades in. What he states is true and has no reason to lie.

An Intro to S/R

Before I get into support and resistance, I want to point out something that happened when the Daily came in on Wednesday the 19th. The point marked here as (1) was telling us the Daily chart was going into down consolidation. ALL of the indicators in this system tell you a story if you learn to read them.
The two main concepts of this system are BALANCE and SUPPORT and RESISTANCE.

On this chart I have pointed out 3 areas of resistance and 4 areas of support, disregarding the Bands for now. These areas of S/R are known as Moving Paradoxes.

The concept of support and resistance within this system surpasses way beyond old baggage. And that is because support and resistance has never been taught with balance in a trading area; such as between the Bollinger Bands. And to gain this concept you first must understand how these supports and resistance work together within the trading area. And because of the moving paradox of PA the supports and resistances changes from one to the other with the PA. And what is really amazing is that PA can be some where in the twilight zone and the support/resistance can change from one to the other and PA was no-where to be found near the changes. This is one reason PA is not valid with this system. And the simple reason for this is because PA is caused by man and the changes with support/resistance are brought on within the system.

These S/R areas can contain price without being hit, they can be hit, or they can be penetrated. Most would look at a penetration of S/R as it being broken. That is not necessarily the case. For instance, if the trend is down or in down consolidation, even if a resistance is penetrated, until one of the trend indicators change to up price will more than likely return into that trend. Taking a look at Friday's bar you see te lower resistance contained price. Taking a look at the H1 you see where price hit resistance twice that morning.

One of the beautiful things about this system is that every chart uses the same indicators with the same parameters. Because of this you could theoretically trade any chart. Another thing as you can see here is that indicators will correspond across the charts. Not the same indicator, but indicators which correspond from one chart to another.

Thanks. Always appreciated.

Support and Resistance

Support and resistance can be any of numerous things. From a simple High and Low from yesterday's Daily to Fibo to Supply and Demand (just admit it, S/D is just another way of looking at S/R) to name just a few. There are two main problems with almost all S/R. One is that it is STATIC. The other is the ARBITRARY placement of it. This system, with it's Moving Paradox concept, uses a FLUID S/R for the most part. It would be similar to those who use say a 55 EMA or a 100 Simple.

There are a few static S/Rs used in this system. The High, Low, and Close from the prior day, Daily Pivot Points (which will be covered separately) and one chart that has a Fibo. None of these static S/Rs are used how the vast majority use them. When I discuss the Pivot Points this will become clear.

The arbitrary placement of S/R is a major downfall of many traders. I have seen charts with so many Fibos there was no way to tell them apart. Also, how does one determine which area has more significance than another when placing them. You could take a chart and give it to two different traders who use Fibos and neither one would be identical in their placement.
This same reasoning goes for trend line placement also.

Another problem traders have is determining when S/R is broken. You here all too often, "It was a false breakout". Was it? My first question is, was S/R set at te correct point? The next question is, what was the trend direction? If the trend is down and you have correctly identified Support, once you get a close-open below it price most times will continue down. This leads to the next problem which is the penetration of S/R. If the trend is down and price moves to penetrate Resistance, I'm looking for a short entry.

I would like to learn this system. Can you please send me info? I can not private message anyone as of yet since I just joined. I have been a struggling trader for a few years and want to improve.


Thanks!

I will send you an email from off your profile page. Be patient.

Most of my trading is done on the EUR/USD. My profile says GBP/USD is my favorite. This changes from time to time. The main reason for trading the Euro is because it is really the easiest pair to trade even with all the politics that go on with with it.
This system does work on any pair. I don't bounce around trying to trade multiple pairs as this is nothing but a distraction and takes away from the FOCUS that is needed to make good decisions.
I also will not make predictions of what area price will go to. I really don't care were it goes. I am looking to make my minimum 40 pips a day, whether it be up or down. This way I don't succumb to the trap of being biased.
All my bias comes from what the system tells me and nothing else. This is made evident from a number of posts I read earlier last week stating price was going to 1.3400 or 1.3500 or whatever. I knew from what the system was telling me that the current move up was, at the very least, going to stall out.


(1) Open of the Daily bar on the 18th Sept.

(2) At the time the open was printed the indicators were as they are. What they are showing here is that the current move up which officially started 6 Sept was likely going to at least stall.
And as you can see that is what happened. Is this guaranteed to occur with out a full cross of those indicators? No, but the likelihood of it is greatly increased.

(3) On the 19th Sept was the Daily going into Down Consolidation. Does this mean we are going back into a down move? Again, the answer is NO. There are other factors that need to occur before that happens.
What it does say is that the up move for now is over until the indicators tell us more up or into a new down.

I am looking forward to it!

Fundamental Analysis

How I usually start my week is to quickly peruse the upcoming economic releases. Mostly this is to see if there will be news to give movement in the market. There are very few announcements I pay attention to. One's that I do pay heed to are things like when Bernanke or Draghi giving a speech, ECB rate announcement, and the Fed montly announcements. I see that Draghi is speaking Tuesday at 0900. This could result in some volatile movement. There are a couple others later in the week. For now I'm not concerned with them.

Most of these announcements mean nothing to this system. For many of them the direction is already known. There are some that will cause spikes.
You will find that for almost all announcements, no matter what the data says, price will end up moving wit the trend. This is why Fundamental Analysis (FA) is not essential. Yes the banks trade using FA, but they have the staff to do so. They can gather the data that comprises these announcements and know, for the most part, what the numbers are going to be. One thing almost all traders have wrong is using the forcast in making decisions. This number is nothing but the average of all the guesses of what the actual number will be. If you've ever looked at these guesses you will see that the numbers are all over the place and few come close.
If you continue to need to use FA, use the release numbers vs the prior data. And know the trend.

Unscheduled news and rumors are the dangers in this market. This includes statements made in speeches. These can do more damage than any announcements. Look at how often various people in positions of power in Europe have used this over the last few years. Every time the Euro looks as if it may take it's last breath someone pipes in with some rosy BS in favor of the Euro. And you've seen the results. There is nothing that can be done about these type of things other than to be aware that they do happen and ensure your protected against an unexpected spike.

The Daily is sitting right on the edge of turning down. Price is a bit out of balance with the yellow indicator, but it is close enough that movement down in price will pull that indicator down. This is the only indicator that will "re-paint" and it is meant to.

(1) The Parabolic is on the verge of flipping.

(2) Price is sitting right on top of Support.

I have that support marked on my H2 chart. If I get a close-open below it, I will evaluate to see if there is a trade at that time.

I am looking for a potential move to the next support about 150 pips below us. We shall see, as everyone knows anything can happen in this market.