New York Traders Expo 2012

Transcription

2 Today s Topic: High Probability Strategies for Trading Forex content

3 RISK DISCLAIMER HIGH RISK WARNING: All news, opinions, research, data, or other information contained within this presentation are provided as general market commentary and do not constitute investment advice. FXDD expressly disclaims any liability for any lost principal or profits without limitation which may arise directly or indirectly from the use of or reliance on such information. Foreign exchange trading carries a high level of risk that may not be suitable for all investors. Leverage creates additional risk and loss exposure. Before you decide to trade foreign exchange, carefully consider your investment objectives, experience level, and risk tolerance. You could lose some or all of your initial investment; do not invest money that you cannot afford to lose. Educate yourself on the risks associated with foreign exchange trading, and seek advice from an independent financial or tax advisor if you have any questions. ADVISORY WARNING: FXDD provides sources of economic and market information during this presentation as an educational service to its clients and prospects. The opinions or recommendations expressed during the broadcast are not intended as investment advice and are based on data reasonably believed to be accurate at the time of publication. Clients and prospects are advised to carefully consider the opinions and analysis offered in the context of your individual analysis and decision making. None of the statements of opinions or recommendations are to be considered as constituting a track record. Past performance is no guarantee of futures results and FXDD specifically advises clients and prospects to carefully review all claims and representations made during the broadcast in light of your particular analysis, trading style and objectives. All news, opinions, research, data, or other information contained within this website is provided as general market commentary and does not constitute investment or trading advice. FXDD expressly disclaims any liability for any lost principal or profits without limitation which may arise directly or indirectly from the use of or reliance on such information. As with all such advisory services, past results are never a guarantee of future results. content

4 About James Chen, CTA, CMT Director, Technical Research and Education at FXDD, a global forex broker Active forex trader/analyst since inception of retail forex,, using primarily technical analysis. Traded equities and futures. Chartered Market Technician (CMT) Registered Commodity Trading Advisor (CTA) Publish daily and intraday currency analysis at FXDD.com Authored numerous articles in Forbes.com,, Futures Magazine, Technical Analysis of Stocks & Commodities Magazine, SFO Magazine, etc. Quoted by Reuters News, Dow Jones, Bloomberg, Associated Press (AP),( International Herald Tribune, etc. Author of Essentials of Foreign Exchange Trading (John Wiley & Sons, 2009), Essentials of Technical Analysis for Financial Markets (John Wiley & Sons, 2010), and High Probability Trend Following in the Forex Market (FX Street, 2010) DVD set All rights reserved, FXDD Inc. 2010

5 Principles of High Probability Trading STAY IN THE GAME TARGET LONGEVITY PRACTICE PRUDENT RISK AND MONEY MANAGEMENT BE REALISTIC ESTABLISH EXPECTANCY, EXPECT SMALL DEFINED LOSSES ESTABLISH A DETAILED TRADING PLAN (avoid ambiguity) TEST, TEST, AND TEST SOME MORE (back, forward) RECORD ALL TRADES AND REASONS ON A JOURNAL YOU HAVE THE LUXURY NOT TO TRADE, REASONS NOT TO TRADE BASE SLs AND TARGETS ON PRICE, NOT TIME OR RANDOMNESS CONTROL NEGATIVE EMOTIONS GREED, FEAR (rules help) HOPING AND WISHING ARE POINTLESS SEEK CONFLUENCE IDENTIFY WHERE PULLBACKS POTENTIALLY END DON T ACT REACT

6 Establishing Expectancy E= [1+ (W/L)] x P 1 W = Average Winning Trade L = Average Losing Trade P = Percentage Win Ratio Example: 10 trades: 6 winning trades and 4 losing trades. Percentage win ratio (P): 6/10 or 60%. 6 winning trades: $2,400 total profit. Average winning trade (W): $2,400/6 = $ losing trades: $1,200 total loss. Average losing trade (L): $1,200/4 = $300. Expectancy Formula: E= [1+ (400/300)] x = 0.40 or 40%. Positive 40% expectancy: strategy returns 40 cents per dollar over time. Always strive for positive expectancy. Use trading journal to establish expectancy.

7 Key Principle: Trade T.P.B. Identify the TREND. Watch for PULLBACK. Trade the BREAKOUT. 2) Pullback Reward Risk 3) Breakout 1) Trend Underlying Principle: RISK CONTROL through stop loss

8 Key Principle: Trade T.P.B. Identify the TREND. Watch for PULLBACK. Trade the BREAKOUT. 1) Trend 3) Breakout 2) Pullback Gold Hourly Chart Underlying Principle: RISK CONTROL through stop loss

9 Forex Technical Analysis Tools Forex is a highly trending and technical financial market. Technical analysis is a primary and effective method for trading financial markets using price charts. Technical analysis interprets potential future price events based upon past price action patterns and mathematical indicators. Key tools include: Trend, Support/Resistance, Chart Patterns, Moving Averages, Indicators/Oscillators, Fibonacci, and many others.

10 Trend Currencies tend to trend often and for prolonged periods. Take the path of least resistance. Ride market momentum. Wherever possible, trade with a strong trend. Avoid trading against a strong trend. Trade consolidation breakouts or retracement/correction breakouts in the direction of the trend. Target substantial profits during prolonged trends to more than make up for smaller, controlled losses.

11 Support/Resistance Support is a price floor. Resistance is a price ceiling. Significant price events tend to occur around established support/resistance levels. Support and resistance exist because of market memory. Market participants remember price levels/regions. Use support and resistance as potential entry zones. Support/resistance bounces or breakouts can be used in this capacity.

12 Chart Patterns Triangles, rectangles, wedges, flags, pennants, double/triple tops and bottoms, head andshoulders, and many others. Most patterns represent consolidation, waiting for a breakout.

13 Moving Averages Can be used as a trend slope indicator; as support during uptrends and resistance during downtrends; as a crossover signal (price with MA or two MAs); or a combination of the above. Be cautious of lag and whipsaw. The main types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). Common periods include 50, 100, and 200.

14 TREND Strategy: Deep Pullback

15 3 MA Pullback Trade Three moving averages (simple: 200, 100, 50) Only trade with the trend when three are in correct order Enter only when Stoch pullback coincides with price pulling back to 100 MA or more. Stop loss at last swing. Target times SL or better. (Optional) Trail SL to lock in breakeven and further profits.

16 Position Sizing and Taking Profit Stop loss is right above/below the last swing high/low. Measure the number of pips from entry to the stop loss. Call that 1T. Size trading position so that the dollar amount of 1T does not exceed 2% of your overall trading equity. Set your overall profit target at 2T 3T. At 1T profit, bring stop loss to breakeven. (Optional) At 2T profit, bring stop loss to 1T profit. (Optional) At 2½T 2 T profit, bring stop loss to 2T profit. (Alternatively) Enter trade with 3 positions and stagger exits. {CHARTS}

17 RANGE Strategy: Backdrop, Warning, Trigger

18 Horizontal (rangebound) or angled (trending) channel. In horizontal channel, look for turns to downside near top of channel or turns to upside near bottom of channel. For uptrend channel, look for turns to upside near bottom of channel. For downtrend channel, look for turns to downside near top of channel. The Backdrop

19 Look for one of three potential turn warnings: reversal candle pattern, price oscillator divergence, and/or oscillator cross of overbought/oversold. Three Warnings

20 Trade entry triggered on a simple breakout play. Typically, the breakout would violate an intrachannel trendline. The Trigger {CHARTS}

21 Confluence Where possible, look for areas where more than one technical factor provide rationale for a trade entry. The more support there is for a trade, the higher probability that trade will tend to be. Confluence is NOT about paralysis by analysis. Confluence factors can be simultaneous (preferred) or consecutive (acceptable). Confluence works because of the self fulfilling prophecy, i.e., when multiple technical factors are present, there is a good chance that traders are acting upon one or more of those factors. Key tools: S/R levels, trendlines, Fibonacci, pivot points, bar/candle patterns, chart patterns, moving averages, oscillators, volatility indicators, etc.

22 Examples of Confluence A horizontal support level coinciding with an uptrend support line. A 38.2% Fibonacci level coinciding with a daily S1 pivot point as well as a horizontal S/R level. A major 61.8% Fibonacci level coinciding with a minor 38.2% Fib level. Moving average support coinciding with an uptrend support line. A breakout of a pennant coinciding with a breakout of a major resistance level. A hammer candle after a downtrend coinciding with major previous support. Bollinger Bands coinciding with strong support and resistance within a sideways trading range.