Section Four. The 24/5 Piptastic! Trading System

Transcription

1 Section Four The 24/5 Piptastic! Trading System So we have now looked at the basics of setting up your trading account, how to set up your charts, three separate & proven methods for generating a profit in the market. What we are about to look at is another proven method which actually gels all of the previous methods together for higher potential profits. The reason I often refer to trading methods is because what follows is nothing new or fancy, nor is it some miraculous trading strategy that I dreamed up to make my millions, but what it does do is earn me around pips consistently each & every month. In addition to this, it has helped quite a few people pursue trading as a full time venture rather than watching from the sidelines. What follows is my CORE trading method which I follow each day on a number of markets. By doing this, I m actually piggy backing the market into telling me what is going on & which direction it is likely to take. There are occasional losses; however I cannot recall the last losing day that I had. Let me make one thing absolutely clear at this point. Just because I can generate a return of several hundred pips a month via this method does not automatically gift you the same. Having coached lots of people in trading we all have different approaches to trading & as such our generated pip levels will differ given any number of different factors. For example, I can trade all day & all night should I choose to. Fortunately I don t & tend to keep my trading times to morning & evenings. You as a trader may have different commitments with the obvious ones being; Working during the day Working shift patterns Less confidence More confidence Unsupportive partner Lack of space to trade Family commitments I could go on but I m sure you get the picture. Essentially what I m going to show you here is that aiming for a predetermined amount each session you trade & building from that. My mantra at Piptastic has always been that 10pips a day is all you need to generate a full time income. Please note that whilst I often refer to trading generating a full time income this can also apply to whatever your goals & aims are whether it is to generate a full time income to leave your job, or supplementing a pension to even just saving for a family holiday. Again, we are all different but anytime I refer to achieving a full time income just note it is a generalisation to cover all aims. Now before we head into the world of Piptastic trading I d just like to pause & quickly show you how 10pips a day can generate a healthy income over time. What we use here is the power of compounding & I will go over this in a later section but for now a quick wetting of the appetite. Remember there is no need to be greedy in trading because if you are then you will ultimately end up giving back what you have taken.

2 By using the spreadsheet that you received with this manual you can have a little play to see what is achievable when you compound upwards with your stake sizes. I ll also talk you through this in the video. Hypothetically, this is what generating 10pips a day looks like in real money; Doesn t seem much does it however fast forward to the three month point; Notice how the compounding effect really moves your stake size & profits forward. Now this of course is fantastic on paper but how realistic is it?

3 Well, it can be done & yes the platforms will allow you to stake that much however different pressures kick in at certain points namely psychology. We will deal with this in a future section. Also, the above screenshots assume you are consistently generating 10pips a day, every day. This, again, is achievable however does require a degree of work & effort on your part so please do not think this will come easy. It is easy once you have cracked it but the run up is somewhat different. However, we can make the run up a lot easier or, using the previous analogy, we can switch on the road lights. Cut your losses & let your profits run Possibly the most overused & least understood phrase in trading. Let s pause for a second & establish what is needed for a successful trade setup; A logical entry point (Enter Trade) Watch out for potential reversal areas A logical target (Exit Trade) All sounds simple enough? Ok, take a look at the following chart & looking at the bottom right corner you can clearly see the market heading downwards, almost worthy of a sell trade, right? Market is heading downwards & seems to be an obvious candidate for a quick & easy sell trade. But what if you could do one simple thing in the morning to give you almost predictive insight into where the market is likely to be heading? Let s look at what happened next;

4 The market hits some random line at the bottom & then reverses. Welcome to the world of pivot points. Pivot Points Runtime 18min 8s If you are unfamiliar with pivot points don t worry, they are really simple to calculate & then plot onto your charts. Basically, pivot points are the lines of major support & resistance that the market reacts to 95% of the time. Notice I say reacts to here. This means that pivot areas can be either support or resistance or to put more simply, the price action will either break a pivot or bounce it. The great thing about pivot levels is that they are considered to be predictive indicators & because most traders use them, the market generally conforms, which is great news for us. There are very few predictive indicators available to traders so we tend to make the best use of them.

5 Here s what Investopedia, the online trading dictionary has to say about pivot points; A set of indicators developed by floor traders in the commodities markets to determine potential turning points, also known as "pivots". Forex pivot points are calculated to determine levels in which the sentiment of the market could change from "bullish" to "bearish." Currency traders see pivot points as markers of support and resistance. Because pivot points are thought to work well in very liquid markets, the spot forex market may be the perfect place to use them. Day traders use the calculated pivot points to determine levels of entry, stops and profit taking by trying to determine where the majority of other traders may be doing the same. Calculating Pivot Points What I m going to show you now is how you can calculate pivot points for each market very quickly each morning. There are a number of methods you can use including; Utilising website data (required in all circumstances) Using an online pivot calculator Using the pivot calculator on your disc Most importantly, all of these resources are free & you do not need to pay for a premium service in order to extract the initial data. Before we start there are a couple of things you need to be aware of. Some people may be aware that some platforms have a feature called Advanced Charts. These charts come with pivot levels automatically calculated which may seem to be a blessing however be warned. These pivot levels are calculated from midnight to midnight & are not accurate for the stock indicies. The other reason is that for Forex markets they are also inaccurate on a Monday as they will give data from a Sunday evening. Personally, I prefer to calculate them myself, that way I know they are correct to my calculations not theirs. The other benefit doing this routine every morning is that it prepares you mentally for the markets & gives you that additional time to mentally prepare. Using an online pivot calculator In order to calculate them you will generally need two sources; Yahoo market data (for stock indicies) Your trading charts (for all other markets) So, the first website you need to visit is; This gives you the FTSE100 historical data you require. Ensure you bookmark this site as you will be a frequent visitor.

6 This data is the actual data from the markets using the 8am open to the 16:30 (4.30pm) close. You may notice that your platform continues to show the market moves after this time but this is done via an underlying market which is driving that price. The other pages you may wish to bookmark are; Dax 30 (German Stock Market) S&P500 (US Stock Market) Wall Street Daily If you wish to trade another stock market then please refer to the disc where I can demonstrate how to locate the other markets. Please note there is another method for calculating Forex pairings which cannot be done via the Yahoo site. I will show you this method shortly. By now you should be at the Yahoo website for the FTSE100 data & your page should look similar to this; So now we require the previous days market data. Today is Wednesday 6th January 2010 so therefore we require the data from Tuesday 5th January 2010 as per the following screenshot;

7 Ok, easy stuff, now we need to calculate these levels. So, now we need to locate another website which you can do by either opening up another webpage or by simply using the adjacent tab on your browser. The next website you require is which will then calculate these points for us. Please note that this website has nothing to do with Piptastic nor is linked with it in anyway. I mention this as sometimes the site is loaded with adverts for trading systems. We only want to use the site for our benefit. You should now see something that resembles this;

8 This has all the settings as we need them so please be aware that if you have a play around with them, the site does not automatically reset itself. And yes, I have fallen foul of this myself! Now we need to copy & paste the data from the yahoo site into the Pivot calculator & then you should end up with something like this;

9 You then need to press the Calculate button & this will produce 17 sets of figures for you like this; The next stage is to open your chart via your chosen platform & input these levels. It is worth noting that you will not be able to input all of these figures onto your chart as I will explain & demonstrate in the section video. The good news is that you don t generally have to do the above mentioned method of obtaining & calculating pivots however, it is worth knowing in case any of your next methods stop working thus serving as a useful contingency The second method you have of calculating the pivot levels is simply using an MS Excel spreadsheet like the one enclosed on your disc. Firstly, locate the calculator under the Resources folder & you will see a file aptly named Pivot Point Calculator. Again, I will guide you through using this on the section video. This also allows you to save the file each day plus print it off for easy reference.

10 Then, as before with the pivot calculator, type (not copy & paste) the previous day s data into the relevant fields. The spreadsheet will automatically calculate as you type each set in. Obviously I have only done the FTSE100 above & if you watch the full video you will see each set of figures being inputted. Please see the section video for a walkthrough of all the methods of calculating pivots however please remember that this only applies to stock indicies. Tip! It is always wise to keep either a paper or electronic copy of your pivot calculations for that day. This will help you when back testing & looking at older charts. Obtaining Data for 24 hour Markets Markets that run overnight & are generally considered 24hr pose a bit of a challenge as there is no specific close of market to gauge our prices from. In order to extract the relevant information we must head into the charts to get our data. Also, it is worth bearing in mind that this area is subject to various interpretations if you submit a search across the internet. Some traders will plot pivot levels using 9pm EST as the Close whereas others will use midnight being the actual close of that day. Example of 24 hour markets are; Forex Markets EURUSD, GBPUSD, EURJPY etc Metals Gold, Silver etc Energies Crude Oil, Heating Oil etc

11 You will be pleased to know I like simple & as such use midnight GMT as the close. I have used this successfully for a long time & all my trades/ results are driven by this. So this is how you do it; Open up your trading platform; In this example I have used the EURUSD & after clicking the button as per the illustration above you should see your chosen chart. Don t worry about which setup is on your chart as the following steps are generic.

12 Identifying the top box illustrated just simply click on the Period tab which will reveal a drop down box like this; Then select the Day option Your chart should now be on the daily timeframe like this. As before, if you are experiencing any different results please refer to the section video. What I now do is hover my cursor over the previous day & this will give me all the information I require. Please note, if you are using ETX Capital charts you will need the Options > Data Tips selected.

13 The white pop up box you see on your screen should resemble something like this; In order to calculate our pivots for these markets we require the open, high, low & close prices. This information can then either be inputted into the online Pivot calculator or onto the spreadsheet. Please see the video tutorial for the same procedure conducted for other markets like Gold. Once you have done this a couple of times you should be able to do the whole process in minutes & I find this gives me time to adjust & interpret what the markets have been up to before heading into the trades. Important Notes This procedure of using the charts for the data does not work for the Stock Indices or any other market that has a specific close time. Anything with a specific daily close time can be found via the Yahoo Finance page as shown on the video. I acknowledge that you may find different sources of pivot data for any of these markets however this is the method that I have successfully used for a number of years.

14 Tip! For 24 hour markets please note that on a Monday there is data available from the Sunday evening. Please do not use this data but instead refer back to the previous Friday which was the last full day of trading. The data you see on a Sunday is derived from the Asian session & is only captured between 9pm & midnight. Plotting the Pivot Levels onto the charts Depending on which method you have used you should now have either a web page with the data on or a complete spreadsheet. Now we have the simple task of plotting these onto the relevant markets Now we just need to open up our chosen platform & then plot those levels onto them. Before you start please be aware that you are unlikely to get all 17 levels on the chart. In fact, most days you will be lucky to get around 5 levels to start with but make sure you keep a copy of your levels to hand so that you can add them in as your trading session moves with time. In order to plot my pivots I drop my timeframe to 15min. The reason for this is that if I move down to the 5min timeframe my levels will still be there however using the 15min will allow me to plot more levels on. So again using the Period selection we can select the 15min timeframe; We then need to select a straight line tool from our drawing toolbar as identified in the next screenshot;

15 You will now need to select the straight line tool as indicated. This now gives you the ability to draw straight lines on your chart wherever you want.

16 With this button now selected we can go about placing the lines onto our chart. To do this, simply locate the appropriate level by hovering your cursor along the chart & once at the relevant level just left click to place the level onto the chart. To find the appropriate level just check the right hand side scale. I always start with the Main Pivot level as the first line placed to see where the market has opened in relation to this. You should now have a chart that looks similar to this; Don t forget to return your straight line tool to a cursor otherwise you will start putting in lines everywhere. Now, all that s left is to drop down a timeframe to 5minute chart;

17 The first thing worth mentioning here is that I have just plotted these levels onto a chart where the market has already been in action. There are several good reasons for this namely that I want you to see how to place the levels on plus & possibly more importantly, that you see how the market has reacted at these levels; R1 1 st Midpoint Main Pivot 1 st Midpoint S1 Notice how the market has reacted around these points? In the section video I will show you plotting pivots before the market opens & then at the end of the day to see the reaction once again. Quick Summary So by now we should be able to do the following; Open Charts Save certain parameters within the charts Open pre saved charts Obtain pivot data Calculate pivot data Load pivot data onto charts If you are unsure of any of these points please refer to the video tutorial which demonstrates this in real time. Although the illustrations look lengthy, once you have done this several times the whole process takes around 5 10minutes. So, let s take a look how it is traded.

18 Trading the Piptastic 24/5 Method As it implies, this method can be traded 24 hours a day, 5 days per week however not everyone will want to do that & I do not recommend that you do. This method of trading is split into three core time zones & this is important depending on what time of day or night you are trading or which part of the world you are in. For this manual we are focussing on the daytime markets. In order to establish which markets to focus on, you need to have an understanding of which markets are open & also a consideration for the spread. So, the easy ones are Forex pairs which allow trading 24hours a day however certain times of the day are busier than others. This is due to the financial centres overlapping like this; You need to check with your Spread bet platform on specific times but most will allow trading on the FTSE100 between 8am & 4.30pm. Some platforms will allow you to trade after this until 9pm but please check your platform. The German DAX can be traded from 7am but as before check with you platform when the spreads change for instance, prior to 8am & after 9pm on IG Index the market spread is 6pips as opposed to 2pips during normal hours. All methods use the same trading setup which for confirmation is as follows; 5 Minute Candlestick Chart Pivot Lines plotted onto chart 5 Exponential Moving Average (set to close) 18 Exponential Moving Average (set to close) An important tip to note is if you are a early morning trader i.e before 7am then please don t expect too much market movement & adjust your targets lower or set limit orders for the pivot. In summary the best markets to trade in the morning are; EURUSD FTSE100 Dax30 GBPUSD (not for inexperienced traders) And in the afternoon are; EURUSD Wall St (Dow Jones) FTSE100

19 Remembering back to the previous methods already mentioned, in order to trade pivot to pivot we are looking for any of the following; Pullback to the 18EMA 123 setup In addition to these you can also use your 5EMA to gauge an entry which I will illustrate on the chart. In this first set of examples I am using the pullback to the 18 as my entry. When you are trading to the pivot then you are no longer taking just 5-10pips but targeting the pivot like this; Target here Enter trade here Stop placed here The trade above was a risk of 10pips with a target of 19pips. Almost 1:2 risk reward which is good. However, if you are only comfortable taking 5-10pips from the trade then this is fine. If you are new or an inexperienced trader then I would suggest just trading one market to begin with as this will require a degree of concentration in the early stages as you get used to trading this way. Of course, we don t know which is going to present itself first so we must be ready for either a 123 setup or a pullback to the 18ema setup at any time. In the next screenshot you will see an example of a 123 setup. At this point I could easily carry on showing you screenshot after screenshot of the different setups however instead I would prefer to talk you through the setups so they are much easier to grasp & understand so please ensure you watch the video now.

20 This is the example of a 123 setup; Target here Enter trade here Stop placed here This trade would have netted you 7pips in total with a risk of 8pips so almost 1:1 risk reward, not totally ideal but very realistic in terms of trading. Unless of course you spotted the pullback to the 18ema a few minutes earlier in which case you would have picked up 16pips with a risk of 7. We have now reached the point where I must intervene using video as this is the most important part of your trading development & therefore need to better explain the setups. This is preferable to hitting you with endless screenshots plus I need to show you this kind of trade setup in a live market condition. I also want to guide you through the important point of stops, where to place them & how to move them. This is very important & is better explained in video format. Please switch to the video on your disc titled as follows; 1. Trading Pivot Points Introduction Runtime 20min 20s 2. Trading Pivot Points Pt1 Runtime 18min 28s 3. Trading Pivot Points Pt2 7am to 8am Runtime 33min 09s 4. Trading Pivot Points Pt2 8am to 0930am Runtime 41min 5. Trading Pivot Points Pt2 0930am to lunch Runtime 1hr 27min 26s Please note that these videos contain actual live trades to emphasise your learning points.