Methods to Trade Forex Successfully for Quick Profits

Transcription

1 Methods to Trade Forex Successfully for Quick Profits This article is devoted to the techniques that are used to trade Forex on an intraday basis for quick profits. The aim is to make the trading a successful sideline business. To achieve this trading is confined to a few hours with the taking of quick profits in that time. This is what the Cycle Trends FX program can achieve for part time or full time traders. Part time traders who work during the day can trade early morning or in the evening after work. Using the cycle indicators in three different time periods, to make a trading decision, is an important part of the method. Here is a summary of the Cycle Trends Techniques and how we use the different time periods. Also discussed are the Conditions for setting up a trade that must be established before a trade is undertaken. 1. Which pair are you going to trade? The Steps to Trade Forex Successfully Questions to ask: Trade a pair that you are familiar with. Confine yourself to one or two pairs and get to know the supports, resistances and their response to the cycle indicators. 2. Which direction are you going to trade? Knowing the direction is the key to trading successfully. Once you have decided on this you are ready to use the Cycle indicators provided by the program to find the entry point for the trade and enter it on the trading platform. 3. So how do we decide on the direction of the trade? Forex markets trade in one of two ways: Either in an established trend 50 % of the time, or ranging in a sideways movement the other 5O %.We call this Range Trading 4. How do we establish the direction of the trend? The surest way of deciding on the trend is to watch the pattern of highs and lows that the currency is tracing as it trades. Higher highs and higher lows indicate an uptrend. Lower highs and lower lows point to a down trend. It is important to know the long term trend and direction of the currency but within the long term trend corrections can take place giving trading opportunities.

2 We use the 60 minute period for the long term and the 15 minute period for corrections. The same principle of evaluating the highs and lows applies to the correction in the 15 minute period as in the 60 minute period. The graph below of the Euro Dollar taken on January 3, 2012 illustrates the principle of using the pattern of highs and lows for trend direction in both the long term and in the correction Analysis The 60 minute graph shows the swift decline of the Euro Dollar at the end of 2011.Note the lower highs and lower lows signaling the fall. Going short in this period delivered good profits. The 15 minute graph shows the correction that took place after the Euro s fall. Higher highs and lows pointed to an uptrend enabling traders to capitalize on the uptrend by going long. Traders must not be fooled by the corrections that take place after a currency s rise or fall. Care must be taken not take this as a complete reversal in trend. The correction can take the form of a flag or pennant or just be a horizontal consolidation. After this correction the currency is likely to follow the direction of the prevailing trend.

3 Trading in a Trending Market Trading Rules: In trading Forex the greatest percentage of success will be achieved when the trader adheres to a strict set of rules when setting up the trade. It is important to know the Conditions that the cycle indicators must be showing to justify the opening of a trade on the trading platform. If you adhere 100 per cent to these conditions you should have at least a 70% success result in your trading. There are some disadvantages to this method in that some trades can still deliver profits when these conditions are not 100%. The Conditions to open a trade: This is based on the indicator signals in 3 periods namely the 60, 15 and 10 minute periods. The 3 cycle indicators that we observe are the Trendics, Cycle Array All and TrueOBOS. Below is an excel recording of these conditions. First and foremost the direction of the 3 Trendics 55, 36 and 21 must fulfill these conditions. In going long: All 3 Trendics in the 15 and 10 minute and 1 in the 60 minute period must be in the positive zone pointing in the direction of the trade. In addition the direction of at least one of the Array cycles in the 15 and 10 minute periods must be pointing upwards in the future zone. The direction of the cycle in the 60 minute period is irreverent here. The TrueOBOS indicator in the 15 and 10 minute periods must be above the zero line but not near the overbought red line. In Going Short: All 3 Trendics in the 15 and 10 minutes and 1 in the 60 minute period must be in the negative zone pointing in the direction of the trade.

4 In addition the direction of at least one of the Array cycles in the 15 and 10 minute periods must be pointing downwards in the future zone. The direction of the cycle in the 60 minute period is irreverent here. The TrueOBOS indicator in the 15 and 10 minute periods must be below the zero line but not near the oversold thick green lines. Joz Britz, has developed these Conditions, and has an incredible record of success. He has drawn up these Conditions to open a trade. Conditions for me to Open a Trade 10 Min Period 15 Min Period 60 Min Period Trendic 55 Positive Trendic 55 Positive Trendic 55 1 or 2 Trendic 36 Positive Trendic 36 Positive Trendic 36 Must be Trendic 21 Positive Trendic 21 Positive Trendic 21 Positive True OBOS Above "0" True OBOS Above "0" Long This is the position of the RESISTANCE Line Open Trade Line - 5 pips Above the Resistance Line If True OBOS is already at the Thin or Thick Red Lines in the 10 and 15 min Periods - NO Trade Open Trade Line MUST be penetrated TWICE within 10 minutes or NO Trade Close the Trade - If the Thin Red Lines in the 10 and 15min periods are penetrated 10 Min Period 15 Min Period 60 Min Period Trendic 55 Negative Trendic 55 Negative Trendic 55 1 or 2 Trendic 36 Negative Trendic 36 Negative Trendic 36 Must be Trendic 21 Negative Trendic 21 Negative Trendic 21 Negative True OBOS Below "0" True OBOS Below "0" Short This is the position of the SUPPORT Line Open Trade Line - 5 pips Below the Support Line If True OBOS is already at the Thin or Thick Green Lines in the 10 and 15 min Periods - NO Trade Open Trade Line MUST be penetrated TWICE within 10 minutes or NO Trade Close the Trade - If the Thin Green Lines in the 10 and 15min periods are penetrated

5 Example This graph of the Pound Dollar illustrates the strict Conditions that are satisfied in its set up leading to the decision to enter a trade on the trading platform. The three periods 60, 15 and 10 minutes are shown from left to right. The three Trendics - 55, 36 and 21 are all in the positive zone in each period. Only one need be in the 60 minute period. The fact that all three are in the positive zone re-enforces the positive trend of the pound dollar. The direction of the smooth line of the Array Cycle in the future zone of the 10 and 15 minute is positive (point F) The direction of the cycle in the 60 minute period is sideways and as explained this is ignored. TrueOBOS in the 15 and 10 minute periods are above the zero level. All Conditions for setting up a trade have been satisfied. The next step is to draw a resistance Trend line connecting the tops of the candles. A further open order line would be placed 5 pips above the resistance line. An order would be created on the trading platform to be executed when the open order line is penetrated. This is at just above point A on the graph. Note a double penetration of the open order line was not required here as the indicators were overwhelmingly positive. A double penetration is required if the cycle direction is only pointing in the direction of the trade in one of the periods.

6 Result The previous graph was taken at 9pm on April 27.The price of the pound dollar was On April 28 at 2 am the pound dollar had risen to A decision was taken to take the profit fulfilling the conditions needed to close a winning trade. Note only the 10 and 15 minute graphs are shown here. Reasons for closing the trade: At the TrueOBOS indicator had reached the thick overbought red line in both the ten and 15 minute periods. TrueOBOS lines act as a prime target to close trades. The cycles in both periods were peaking and turning negative. - Question: Can you set up a trade if all the Conditions mentioned are not met? Answer: By waiting for all the conditions to be met, there are trades that the trader may miss and will still deliver profits. So the number of potential winning trades is reduced by waiting for the perfect set of conditions. It s a matter of risk reward. By trading with the perfect set of conditions a trader will realize a bigger percentage of successful trades. By reducing the set of Conditions the chances of losses are increased. But on the other hand this can be protected with the stop loss method. But the one absolute rule for trading is: You never trade against the direction of the Trendics.

7 One of the cycles in the ten and 15 minute periods must be pointing in the direction of the proposed trade and TrueOBOS must be above the zero level. Taking Profit The first aim of the trader is to take a quick profit in as short as time as is possible. The graph below shows how this is achieved and the indicators that give the signals: Analysis ( Only 10 minute graph is shown) Again the EURUSD chart has 5 Boxes. The time is 12:10 PM on the same day The Breakout through the support line is shown with the entry level for the short trade at The EURUSD has fallen to What are the indications to take a quick profit? 1. The cycle in Box 2 is nearing a cycle low. 2. TrueOBOS has reached the light green oversold line at 0.461

8 The TrueOBOS lines can be used as target land marks to exit from a trade. Remember that in Forex trading we do not wait for sell signals but rather exit from a trade at targets. TrueOBOS and support and resistance lines act as prime targets. Thus note that the 2 Trendics in Box 4 and 5, though they are still in a negative mode, are ignored. Conclusion The method of using the Trendic indicators together with the Breakout technique gave the trader a 22 pip profit in less than 2 hours. The amount of profit would be dependent on the number of contracts that the trader took out. The more contracts the more profit. The same principles used here in shorting the EURUSD would be used when going long. The difference would be then that the Trendics would be pointing upwards and the breakout penetration would be through a resistance line. Range Trading If the pattern of highs and lows do not fit the required higher highs and higher lows for an uptrend or lower highs and lows for a downtrend and instead have a mixture e.g the highs are lower and the lows are higher the chances are that the currency is now range trading. This means that the currency is not going to break out of its sideways pattern for a time and the conventional technique of using breakout trading to get the entry point for the trade will not work till it achieves the breakout. - So until a breakout does occur how does one trade when the price movements are ranging in a channel or triangular pattern? The first thing you have to know is the overall trend of the market. So if the overall trend is downward you would want to go short at the top of a range and if the trend is upward you would go long at the bottom of a range. The difficulty is to know when the currency has reached the top or the bottom of a range. I deal with this further on.

9 Here is an example of the Euro dollar Range trading after it had a precipitous fall from the to the level: As you can see the Euro dollar then consolidated by range trading in a pattern of lower highs and higher lows to form a triangular pattern. The trader had two alternatives: He or she could go short at one of the Hi s if there was indicator evidence that a high point had been reached,, or as the overall trend was down the trader could wait patiently till the range trading ended and there was a penetration of the support. The trader would then use the breakout technique to establish an entry level for the trade. This would be the better option as when trading in a ranging market the number of pips between the high and the low of the range could be limited. Trading ranges can be really messy and unpredictable, which is why unless you are experienced you should always be trading in the prevailing trend. It s a good idea to stay out all together during a range, and get back in only when the markets start to trend again. As a general strategy, it is best to trade with the trend rather than against it, meaning that if the general trend of the market is headed up, you should be very cautious about trading in the opposite direction.

10 Special Situations The basic Cycle Trends technique for successful trading is based on first getting the right set up for the trade and then using the breakout technique of penetrating a support or resistance Trend line to establish the entry point for the trade. The other method of trading is what I call the Breaking method. This means that when a currency reaches a line of resistance or support instead of penetrating these lines it will bounce down from a resistance line or bounce up from a support line giving the trader the opportunity to go short or long. The reversal need not take place from a Trend line but could be from a sharp point that the currency has reached. The method below is very useful when the currency is moving in a channel in range trading or when the currency is shooting up or down in a very volatile market. The graph below of the Euro Dollar moving sharply upwards on January 18 demonstrates the top that was reached and the method of deciding that it was indeed a top and that the Euro Dollar should be shorted. Here we use the Stochastics Indicator:

11 Analysis On the left side of the chart is the Euro Dollar in a 60 minute period time frame taken at 9 am with the price at The 15 minute period graph on the right side shows its drop to The two indicators that are used to signal the end of a strong move are TrueOBOS and Stochastics in the 60 minute time frame. The currency reaching a line of resistance or support will confirm the end of the move. This is demonstrated in the graph above as follows: In the 60 minute graph TrueObos in Box 3 is at the thick red overbought line. Stochastic 11 signals a potential top when it is above the 80 level and a bottom when it is below 20. In Box 4 it is above 80 synchronizing with TrueOBOS being overbought. The cycle in box 2 was also pointing downwards. The Euro Dollar reaching a line of resistance at made the diagnosis that the Euro dollar was at a top conclusive. Going short at was entered on the trading platform. The result is seen in the 15 minute period on the right. By am the EURUSD had dropped to TrueOBOS was now at the oversold green line. Stochastic was at 20 and the cycle in Box 2 had turned positive. The short sale was covered and a 47 pip profit was pocketed in one and a half hours. Range Trading: The above method is also used when the markets are Range trading or trading in a channel. The indicators used are Cycle Array, TrueOBOS and Stochastic in a 60 or 30 minute period chart. If the Overall trend is down but the currency is in an upward move in the range, wait for TrueOBOS to get to the red overbought line or to the same level of a previous high. At the same time the Stochastic 11 indicator should be above 80. With this setup and if the general trend is downward a reversal in trend can be expected at the top of the range.