Trading on the Right Side of the Market (Hopefully)

This thread is a personal log, intended for recording and improving my own trading. It is a place for me to upload charts and analyse what I am doing well and also what I need to improve on or change in order to succeed. I also intend to record the little golden nuggets that I have learned during my, so far limited trading experience - the little pieces of information or strategy that I felt so glad to have stumbled accross at the time when I did.

I will be doing both demo and live trading. If the trade is on a demo account then I will say so. If I don't say anything then it's live. The reason for this is that I don't like to over expose my account but at the same time I want to take the setups that interest me; after all this is very much a learning process.

I am not trying to teach anyone anything here - I don't even know if anyone will be curious enough to pop in, but with that said all traders are welcome and I would encourage positive feedback / critisism and ideas. If anyone does show an interest and needs any further explanation on anything that I have said then I would be more than happy to help.

Where as ideas are welcome I would ask that any one who wants to post here doesn't stray too far from my methodology - remember this is a thread intended for personal development and I would like to find my own way (mostly). Please respect that :-).


A little about me - I began trading around March 2015 when I paid a discounted price of 20 for an online Foundation Trading Course. Since then my hunger to learn has only increased. I have tried different types of charts, probably thousands of indicators, the odd EA and many different strategies with varying degrees of success. I now think I know how I want to trade and I will post charts and explanations in my next posts; basically i want to day trade by jumping in with the trend. Now there is nothing new or exciting there but for some reason I have not always found it easy to do. The template I have set up should help me stay on the right side of the market flow.

My Current Template

My template is what I would consider to be quite basic, although far from naked. It is mainly based on candlesticks and Moving Averages and I will explain my reasons for each and how I intend to use them below.

55 EMA Ribbon - The River
The prominent blue ribbon on my charts is made up of a series of 55 EMAs. The 1st one is a standard 55 EMA. The next one is a 55 EMA shift 1. The next is 55 EMA shift 2 and so on up until the last one which is 55 EMA shift 15.

I know there are indicators out there that produce a similar effect with a lot less hassle but I haven't found one that works exactly as I want it so until I do I will create my own ribbon this way. And I like the way it looks on my charts!

Why have I chosen the 55 EMA? Because i like to use it together with the 34 EMA to show the trend direction.

Why not just use a single 55 EMA instead of a ribbon of them? I just prefer it that way and it works for me.

I will refer to the 55 EMA Ribbon as "The River".

Generally when price is below the river (the river is flowing down), I want to be short. When price is above the river (the river is flowing up) I want to be long. (Yes I know water doesn't flow up hill! :-))

Current Template Continued

34 EMA - The Path

OK so as I mentioned above I like to use the 34 EMA with the 55 EMA as a guage to the current trend direction so here I have added it to my chart.

Price + 34 EMA above 55 EMA Ribbon = trade Long. Price + 34 EMA below 55 EMA Ribbon = trade short.

I will refer to the 34 EMA as The Path.

Sometimes price will be on one side of The River and the path will be on the other. When this happens I will observe price action and the angle of the MAs to try to predict which way it is going to go. Until price proves otherwise my bias will probably be to go with what the 34 EMA is telling me. If it is below The River then my bias is short. STAY ON THE PATH. (see yellow circle for an example).

The general idea / theme is that price doesn't like to get wet in The River. So trade away from The River. Stay on The Path.

Current Template Final

Below is a chart with the full template, although I may remove the arrows or the oscillators if the mood takes me.

The pink line is the 200 EMA. I have included this as it is an important MA which is watched and used by a lot of traders. Ideally it shgould be on the opposite side of The River when I am trading in a certain direction.

The oscillators are a variation of Traders Dynamic Index and Stochastic Oscillator. I apply these oscillators a bit differently using MAs in a way that I get a smoother indicator. I am trialling these variations but willjust be using them to add confluence for trade decisions.

The arrows are plotted by a Moving Average cross over indicator. Currently I have it set using the 8 EMA and the 21 EMA. I find they work well with The River and give timely signals toenter with the trend.

Trade Entries

Trades will not be taken based purely on any of the indicators. I will base all of my trades on price action such as breakouts from consolidation, continuation patterns and trend line breaks where price re-joins the current flow of the market on which ever TF I am trading.

Here is H1 chart of USDJPY with red vertical lines showing possible short opportunities. The trades would be entered on the break of the pink TLs. I did take the trade in the yellow circle and then went to bed and up with some nice profit. My stop loss was placed just above The River.

EURGBP H1 Long Trade Opportunities

Similar to the previous chart, here is an example of how this system could have provided chances to get in Long with the current flow of the market. Trades could hhave been entered on the break of the pink TLs. In all instances the SL could have been placed on the opposite side of The River. All trade examples are STICKING TO THE PATH.

USDJPY Weekly Chart

This chart is just an example of higher TF trade opportunities.

Dax H1 Chart

In a similar way to how price reacts the the Kumo when using Ichimoku Kinko Hyo, you can see that when a trend changes direction, 1st price has to cross The River. Then quite often it will retrace back to The River before bouncing off in it's new direction. You can also notice that similar to the Chikou Span breaking through the Kumo the 34 EMA (The Path) also makes an appearance accross The River. Potentially this is the best time to enter the market using this method as it gets you in at the beginning of the new trend. In all instances SL would be safe on the opposite side of The River.

GBPUSD H1

This chart is an example of how to use horizontal support and resistance to add confluence to trade decisions.

Notes:
1. The Trend is down - Price is above The River but The Path is below it, there for the bias is still short.
2. The 200 EMA is above price and is downward sloping.
3. Price stalls and forms a mini double top at an area of previous support turned resistance (pink line).
4. Bearish engulfing candle takes price back below The River, to the same side as The Path.
5. Sell signal arrow prints.
6. An aggresive entry could be taken at the resistance line. A more conservative entry would wait until price closed back below The River.

Same chart as above. This time showing an example of a trend line adding confluence to a short trade decision.

Notes are as per the above post.

Live trade opportunity - Dax H1.

Looking to go short on a break of the pink TL.

Note that the 200 EMA is below The River and Below price so it is not ideal.

Note that with my broker I can trade Dax almost 24H so there are very few gaps (albeit with a wider spread)

Lets see....

As I suspected, the 200 EMA acted as support here. For me the bias is still short on this TF but I will wait to see if price can break below the 200EMA before I think of entering.

Counter Trend Trades - Trading Against the Flow of The River

Trading in the direction of the trend offers the lowest risk trades, but sometimes trading against it offers the best entry price and the best risk reward ratio.

I have been burned many times in the past by trying to pick tops and bottoms but inevitably I will still try to do it from time to time -it's human nature after all to try to get in rightat the beginning of the new trend.

When trading counter trend it is important to look for as much confluence as possible, such as;
Previous area of S/R
Divergence between price and oscillator
Overbought or Oversold oscillator
Candlestick formation / signal
Other indicator signal


When trading towards The River there should be enough space between the current price and The River to allow for at least 1:2 risk reward on the trade.
Be prepared to take profit at or near to The River if price shows weakness.

Below is an example of a counter trend trade opportunity. It is AUDUSD H4
Divergence appeared with both oscillators.
Nice little pin bar candle -I would probably enter after the pin bar printed with my SL just below it.
A few candles later there is also a TL break followed by a re-test which would add to my confidence in the trade.
Price showed weakness and I think I would have taken profit here or moved my SL and been stopped out at break even -however if the trade was left alone to run it's course it would have been a good and profitable trade as it formed a double bottom and then crossed The River and bounced up.

It total I csan see 5 opportunities to enter a long trade here (indicated by the yellow rings) -although the last 2 were very close to The River, due to all of the factors already mentioned I think I would have felt comfortable to enter at those points.

(It's always easy in hindsight)

Golden Nugget #1 - How to do a proper HH/HL/LL/LH count

I learned how to do this here - http://www.forexfactory.com/showthread.php?t=464228 (The whole thread is well worth a read)

Now every trader knows that a trend is defined by price either making Higher Highs and Higher Lows in an uptrend or Lower Lows and Lower Highs in a downtrend. Some of the time it is easy to pick these specific swing points out but at other times it can be a bit more confusing. By learning to count these points correctly I learned to keep an eye on the critical pivot area (the last HL or LH), that when broken, signals that the trend direction is turning.

Each TF has it's own count. By drilling down to lower TF, you can get an early warning of a change in trend (but be careful, Higher TF are more reliable).

Below is a chart example of how I understand these counts. The overall trend is down but I have shown the smaller trend changes within the downtrend.

USDJPY H1

Watching for a TL break to go short

Is it ready to go?

[quote=wizlon32;9090246]Golden Nugget #1 - How to do a proper HH/HL/LL/LH count

When a HL or a LH gets broken,that is not necessarily the best time to enter the market because there will more than likely be a good sized retrace before a continuation in the new direction. I prefer to look for a reaction at the 50%, 61.8% or 78.6% Fibonacci level.

When a trend is changing from down to up, the fib is taken from the last LL to the new HH. When the trend ischanging from upto down the fib is taken from the last HH to the new LL.

The chart below is AudJpy Weekly. There is 3 examples of this working perfectly and you can find examples like this on any chart and on any TF.

Well there was a decent break below the TL with a nice bearish candle. I was waiting for the a re-test and rejection to enter but it doesn't seem like it's ready after all. Lets see how it reacts now to the upper TL.

Took an entry on this one a bit higher than I initially intended as it moved up on US news. It has now broken and closed below the TL and my SL is at break even + a couple of pips.

EURGBP H1

Keeping an eye on this for a short entry if price breaks below the pink TL. The blue TLs and the 50% Fib add confluence in the area that I would like to short from.

I will adjust the pink TL as it develops. I will also consider shorting before a TL break if we get a nice rejection pin bar.