Forex Strategy - D

Point : 43
May 23 was supposed to be an M2/M4 day, given the up-close for the last session. But, the actual range came in at Pivot Point/R2. Trading is "shades of gray" ladies and gentleman. Pivot points are not cast in stone. But, they are usually pretty close.

That day, the combination of Pivot Point and R2 achieved better than the average daily range for the Euro, well within the confines of logic behind my pivot point definitions. The central Pivot Point becomes a buy point (read, support), when it is breached to the upside convincingly, and so it became a reasonable starting point for price to commence its "range-finding mission" for the session. Likewise, R2 is a sell point (read, resistance), and so it was a viable target for selling pressure, as the Euro exhausted its "search" for the end of its range for the session.

The main point in all of this is that the full range for the Euro was achieved within the parameters of the pivot point logic and rules, which is the most important point to get out of all of this. By that I mean that the four pivot points below the middle pivot point are all "buy" candidates, and the four pivot points above the middle pivot point (including R2) are all "sell" possibilities. Achieving the full range, or more than that as was the case May 23, is what it's all about, more so than strictly adhering to the M1/M3 or M2/M4 windows of "buying" and "selling" opportunity.

I hope you are beginning to see the power of pivot points in action. You only buy and sell in and around them – not in between, which is what we call "NO MAN'S LAND." Not the place to enter trades. The only caveat here is where price forms patterns like we saw that day above R2 with the double-top/railway tracks combination. Such a reversal phenomenon, especially with two distinct formations occurring at the same time, cannot be ignored.

But, what is significant here is the fact that this "double whammy" took place after price had penetrated R2 to the upside, which to me looked like an exhaustion area – considering the fact that the last point of resistance had been broken. Then, you look for convincing evidence that price is going to continue its trek north, or do a u-e, as it did in this case, and head south.

There are important lessons to be learned in all of the charts I post at this site. So, please study them carefully. There are parallels, as I am sure you can see, between one session’s price action and that of the previous one. In fact, given the nature of currencies trending well, every day pretty much looks the same, except for different actual ranges and different low and high points (read, iterations of the nine possible pivot point lows and highs).

Price will always determine which set of pivot points it is going to work with, and that is why you always follow price's lead. That's also why I call price the "fifth indicator," and perhaps the most important one of the five I work with. By now, you will have learned more about the other four indicators, as you studied the previous currency trading strategy tips.

Please study the charts I post at this site on a daily basis, as they offer important clues that occur each and every day! If you understand what you see in those charts, you can't help but prosper with your trading on a consistent basis.

Point : 44
Don’t be greedy. I heard it said recently by one of my clients that he walked away from a session with only 150 pips in his pocket, and left a lot on the table. Boy, for somebody coming from the stock world, as he did, he should been thankful for his catch of the day. The point is, if you start out as a newbie looking to carve out only 20 pips per session, then anything beyond that is gravy, and it will surely come over time.

But, don’t forget the old adage, “Nobody can argue over profits in the bank.” If you see a profit, and want to take it, then do so, and be happy. You’ll live to see another day, and take some more profits. Just don’t always grab for the brass ring. This isn't about always hitting home runs. This is about having staying power, and taking one base at a time. When you have good reason to exit a trade, make your move, and be done with it.

Point : 45:
Former Cleveland Brown's coach, the legendary Paul Brown, taught his football players a systematical/methodical procedure of understanding tasks to attain successful results in face of unforeseen, variable difficulties.

So too with foreign exchange trading. Forex trading requires adherence to a set of currency trading strategy rules, which I have set out at this site.

A wide body of research in behavioral finance shows that traders consider the loss of $1 twice as painful as the pleasure received from a gain of $1. That's why they take more risks to avoid losses than to realize gains. They end up buying high and selling low, contrary to conventional wisdom. Follow my currency trading strategy rules, and you'll avoid getting a closely cropped haircut when the forex tanks on you, as it did May 28.

Point : 46
I had somebody ask me why I waited until 03:00:00am New York time to make my move, in the mean time missing potential in advance of that timeframe. The answer is quite simple. That is when London trading kicks in, and that is generally the busiest session on the forex. You will notice that is when the Euro usually starts its major trend to find its average daily range of 76 pips. Those pips are usually put in within the first 12 hours of trading. Check it out for yourself. It happens each and every day, over and over again.

Point : 47
"Ascending Triangle": Price forms higher lows, and looks like somewhat of a horizontal line on top and a rising lower trend line. This formation is normally bullish. You take its height at its highest point, and measure that distance from the upper line to obtain the upside target.

Point : 48
By combining "pivot point readings" with other signals – like divergence, multi-tops, trendline breakouts, triangular patterns, etc. – you can pretty much tell where price is going next. Normally, I would say that you should only enter trades in and around pivot points. But, given the large distances that can sometimes happen between pivot point areas, you then have to be on the lookout for other evidence of future price direction.

Like I keep saying, trading is "shades of gray." Nothing is always black and white in this business. Trading is as much an art as it is a science. That all said and done, when price does encounter a pivot point, you can see that that point has a powerful influence over price. So, always be on the alert for that next point of interaction with the next pivot point, as it will have a distinct bearing on what happens next.

Point : 49
If you are trying to catch the major trend that unfolds during the London hours, but are afraid of getting your entry point figured out correctly, wait to catch the next entry point, as the Euro "reaches" for its average daily range of 76 pips. The next entry point will occur in and around the next pivot point that price passes through. Or, you may catch price as it tries to retest the pivot point it just went through. That way, you won't run the risk of getting in too early, when the trend tries to unfold in early trading. Sometimes, price fakes you out, and goes in one direction for a while, and then reverses course, before finally picking its direction. My favorite saying is, "He/she who procrastinates wins." What you are giving up, of course, are those initial pips of the trend, which may amount to, say 30 give or take, but you are more sure of capturing the remaining 46, as the major trend of the session matures.

Point : 50
I would like to remind you that the pivot points above the central "Pivot Point" have a "sell" bias, and the pivot points below the central "Pivot Point" have a buy bias. These biases hold true unless price action turns a pivot point's bias from sell to buy or buy to sell – i.e., from resistance to support or support to resistance.

On June 6, 2003, you would have observed from price action that M3 held its bias, but the pivot points below the central pivot points were turned from buy, or support, points into sell, or resistance, points. Of course, price action determined this.

The other important point to make is that when the major trend reveals itself, as it did on that day (and does every day, within 12 hours of the start of trading for the session), you should think along the lines of the bias. That day's bias in early trading was "short." Meaning, you should have forgotten how to spell the word "long." Scalpers want it both ways, but that doesn't work in the forex – unless, of course, you want a short haircut. I say this because currencies trend well. Don't second-guess the trend until it reverses itself with bona fide signals. In other words, don't sell to soon, and don't buy too soon.

Point : 51
Keep those trading journals going! If you always trade the way you always traded, you'll always get what you always got.

Point : 52
There is nothing that says you have to trade often, or even every day. In other markets, most professional traders catch only three to four really great trades a week, if that! Not so with the Forex. Here, the timeframe is more like a day. However, if you don't see any "ironclad" trades, then don't trade. Turn if off and go golfing.

Slow down, and drive the speed limit. This isn't a race. After all, you are in control of the market, not the other way around. Don't feel pressured into doing something you feel uncomfortable about. Wait for those "perfect set-ups" to make your move. Same goes for those "bad-hair days." If you are feeling out of it, sit on your hands, or go do something else. Take charge of your trading life, before it takes charge of you, and your money.

Point : 53
I often get asked what parameters I use for MACD. I use the standard default settings. They work just fine. After all, all you should be using MACD for is divergence.

Point : 54
I have said it before that you should only trade in and around pivot points. The only exception to that rule is if you see a trendline breakout or a bar pattern, like price rejection, that gives a clear signal that price is about to reverse course. If price is in between pivot points, and you are not sure what to do, don't do anything! If there's nothing to do, don't do it. Patience is the hardest thing to master in the forex, or any market for that matter.

Point : 55
The major trend for the Euro usually starts revealing itself as the London hours kick in. Up to that point, price may "bait and switch" you into thinking it is going one way, when in fact it is setting up to go the other way. It can easily fake you out, before the London hours start to unfold. So, be patient and wait. Look for clues coming out of the previous session as to where price might be going ultimately. Did you see a "head and shoulders" pattern?

Did you see a triangle pattern? Do you see price trending in any one direction over a period of time. Do you see any divergence in MACD (on the 1 hr and 15 min charts)? Do you see any channels, where price is looking to break either way? Play Sherlock Holmes. A little bit of detective work will go along way before you dive into the new session. Like the Boy Scouts say, "Be prepared!"

Be in charge of your trading. Put your emotions in your hip pocket, and save them for later. Run your trading as if you were running a "bricks and mortar" business. Same principles and rules apply. No different. This is not about betting and gambling. This is serious business. After all, your hard-earned money is at stake. Protect it at all costs.