A Forex Plan

[nine]

This thread is going to track an experiment in forex trading. In the thread I intend to develop my trading plan, although I probably won't post all the specifics, just show the development process, paper trade for a while to prove the theory is likely to work in practice posting the trade entries more or less when I do them, and finally run live for a while again posting entries as I take them.

I make my living as a short term futures trader (I trade for 2.5 hours a day catching the opening of two AsiaPac markets). In the past I traded eurofx futures using a 5 minute and a 1 minute chart - and no matter what anyone tells you, it's not just noise at that level. However I was catching the european market's opening trends and that's my evening so I stopped trading forex futures.

Now I'm interested in developing a longer term forex strategy. These trades will be minimum effort so no 5 minute charts let alone 1 minute charts. Instead I will develop a strategy around trading 4 hour and daily charts.

I wake up for the asian markets and go to sleep as the US is opening. I also have NO interest in trading all evening - why waste my family and friends time - but I might be willing to take one look at the charts at that time and place 4 hr entries if relevant. With dst, the Globex market closes at 7am my time so I'm making that midnight on my charts and the day will run from globex close to globex close which is just as well because that's what IB put on their daily forex charts.

So that's look at the charts a bit after 7 and place any daily trades or limit into 4 hour setups that might have hatched while I slept. Look again at 11 just after STW opens to see if the 4 hour bars give me anything. Check again around 3pm before europe opens (around 4-5pm here) and again at 7pm to see if the morning european trend has set something up. I will use limit entries and place stops and targets using IB's ability to bracket around the entry price for attentionless trading. At least that's the theory.


Next post: the markets I will trade and the charts I'll use then a bit on my market beliefs and how that will play on the type of strategies I'll select.


If you follow this thread you will end up with either a valid trading methodology or knowledge of one that I couldn't make work. I expect the first. Somewhere to start would be this compilation of stuff I and other people have found in the past that's worth thinking about.
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[nine]

Thoughts on the journal format. Because its a journal I get a bit of control of contributions - it is meant to be a discussion but I thought I'd use the journal because it will be a longish sequence and because it lets me decide what is allowed. I invite comments and suggestions from experience forex traders and questions from the experienced or new.

I don't want any arguments on the thread so if it gets too much or too off topic I'll ask the mods to remove it to a parallel thread.

Only I get to use colour and bold or shouting on this thread - sorry MP but if you have your loud bold blue signature then I'll ask the mods to remove the post. So please, any contributions should be one font, without bold or colour to keep it quiet and serene.

 

[nine]

Blank Post: Held for future use.

 

[nine]

The pairs I will look at are:

EUR.USD GBP.USD AUD.USD USD.CHF
USD.JPY EUR.JPY GBP.JPY USD.CAD

which I shall shorten to EU GU AU UC UJ EJ GJ UC (is that right forex guys ... correct me please).

The daily charts will have a 21 and 8 ema on them. Basically the trades will be with the daily trend, at support & resistance (swings or mas), and with a few patterns to support them. Basically I will be looking for price to reject the s&r either in one shot (pin bars I think) or with a test and retest style (double and triples into resistance).

I use trend lines (fan breaks) and parallel channels in my normal trading but I'm not sure how important these will be in this plan. I will probably try to avoid them but may change my mind in time.

I have been looking at some stuff on an Australian site run by a guy called Nial Fuller and that inspired me to take this step to the evaluate this type of trading. He uses the mas (although he discusses the crossover and I don't care about it), pin bars, inside bars and failures and appears to be very successful with it. I believe he's in the mentoring business. What I do shouldn't be taken as an endorsement of Nial's approach, nor should my failures in the thread be taken as an indication that he would have had the same problem. If you get what I mean.

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[wasp]

Looking forward to seeing how it progresses Nine... FWIW, I use the EJ, EU abbreviations etc. Not sure its the 'correct' way but we all know what it means!

Good trading

 

[nine]

Ok. Here are some examples of trade entries I would plan to take.

All trades will be with the daily trend. Daily and intraday trade setups can be taken independently of each other. I won't take a trade if I can't find a logical target at least 2.5 times the risk. In each case I will target future support or resistance.

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[jasont]

I look forward to reading your progress with this Nine as Forex is something I have never traded before but had an interest in. Do you find a big difference in trading a daily time frame as opposed to the much shorter time frame you traded the eurofx futures?

 

[rags2riches]

Hey Nine what happened to this journal? I was looking forward to seeing how it progressed.

 

[Dow Predator]

Hey Nine, what happened to this journal?

 

[nine]

One of my girls passed an exam that gives her a high chance of getting into medical school and the younger one realized that she would too so started to wonder if she should do that instead of vet. The only problem is that shes in another country and wasn't due back until 5 months after the exam. So sorting out training, travel, etc etc, took precedence over an experimental forex journal.

Hopefully with no further interruptions I will start next week.

 

[westernforce]

Hey Nine, you need to get your priorities right mate.
What's more important, your family or a bunch of cyber code? :cheesy:

 

[nine]

OK. Things are all stable again. One girl starts Med school next year. The other starts Vet. I will be well cared for in old age but poor for the next 5 or 6 years.

I'm going to start the system Monday (US Sunday) and will just trade 4 hour charts. My day is set to start with Globex Open which corresponds with the end of IB's 15 m downtime as well so I'm not sure if my pin bars will correspond with others or not.

I'm just going to look at EUR.USD, USD.JPY, GBP.JPY and GBP.USD initially. I'll take "2" positions on each trade and take one off fairly quickly and one slowly. I intend to post an entry, stop, and target for the first half each time and keep a spreadsheet of the outcomes.

My world view is shown below but the entry comes from the 4 hour chart. The mas are 8 emas at each timescale because price seems to respect them fairly well. The extra ma on the daily chart is a 200 sma just to remind me of the long term trend.

 

[nine]

OK. Life is never easy. Or at least not when it comes to this project.

I was going to trade Pin Bars, Inside Bars and Fakeys at Support and Resistance Zones or into the 8emas. But then I started thinking (big mistake).

Patterns (price action) work for three main reasons: because you only use them at support and resistance when their chance is best, because they are great patterns, and very importantly because other traders see the same patterns and jump on board.

But I'm in Australia at GMT+10. And the big boys are in London at GMT+0 or NY at GMT-5 or Chicago at GMT-6. And everyone's midnights are at different times. So does everyone's pin bar or inside bar look the same (so we all see the same good signals?)

Well here is the answer:

They don't. See how my great pinbar (gmt+2) doesnt show up as a great pin bar for London (+0) or New York(-1). And look how the inside bars (blue) move around.

 

[brutusdog]

why not use the 1 hour chart nine, its the most widely used day trading time frame for fx as its fixed in all places. and start your day from the equivalent of 6am gmt , the London open?

just an idea as i ran into the same problem and this was the best solution i could find!

 

[nine]

So, which time zone to use? Damn I don't know.

OK. So, more thinking. What is a pin bar, an inside bar, a fakey. Because they represent something in price action ... they don't just work because they have to sexy name (a fakey is an inside bar that breaks towards resistance (fakeout) and then breaks back to resume the trend.

Well, a pin bar, plain and simple is price rejection ... price moves up to an extreme, value is not perceived, and it breaks back. What market profile folk are looking for with a 1 tpo wide excursion out of value to an unsustainable point. So maybe I don't have to worry about which 4 hour period. Perhaps I drop down to hourly and look for any 4 hourly excursion from value and back ... hmmm.

What about an inside bar. Well its 4 hours of congestion. Inside the 4 hour bar it might be a triangle. Or it might be a test and retest and retest again ... or whatever. But basically its any time price goes sideways for 4 hours and then breaks out.

What about a fakey. Similar to the IB pattern but one that all good short term traders know is better. Its a failure pattern. The congestion sets up. Price breaks out. But doesn't make it. So it falls back into the zone ... and breaks out the other side. So the people waiting on that side go with it. And all the people who got in on the first breakout are squeezed, die, and give up their position giving it more strength.

So, what am I going to do. I'm giving up on the third advantage (everyone else can see it). Instead I will look to benefit from these patterns in all 4 time zones by dropping back to hourly and looking for groups of 12 or more bars that make up the 3 patterns. I'm not sure if this is a good idea but I'll give it a go and see what happens.

As Brutus suggests I'm going to use a 1 hour chart ... but I'll look for patterns that would look good on a 4 hour chart.

 

[nine]

I've developed an indicator to show me 24hr, 8hr and 4hr pinbars when they occur. My criteria are poke 50% out of last 3 days range, open and close within the eye (3 day range), open and close in the bottom third of the bar. The picture shows how 4hr and 8hr candidates show on the chart.

Feel free to advise if I've got the pin bar criteria wrong.

The chart shows nicely how important it is to get the context (trend, support and resistance) right when interpreting lower timeframe price action.

 

[nine]

Monday: One switch, GBPUSD replaced by AUDUSD. Why? Because I've already got one GBP pair so I'll take another major instead. So its EU AU UJ and GY.

No trade at this point because I am confused about trend direction. Its my practice to start with trend then seek entries to take advantage of the trend. I'm looking at daily charts for an idea of trend (or particularly good channel breaks on the hourly). Its also my belief that the patient cheetah catches the wildebeest - so patient I shall be.

At the moment all the dailies look to be changing to an up trend but there is enough ambiguity for me to sit.

 

[nine]

So, I wake to find that all the markets, which had been heading up yesterday (making me question my reluctance to enter without a clear signal) headed down again while I slept. So today I shall wait again I suspect.

The channels reflect the direction I would have traded should I have taken trades yesterday.

 

[cu2]

Using US close charts

So, which time zone to use? Damn I don't know.

Fakey is that a common signal language? Nial Fuller uses it, I though he made this word up.
But that is not important.

Just wanted to say, use the US close charts. That means stop looking at anything else. Nial Fullers course members all use the FXlite demo software for charts and place there trades according to the US close signal charts only.

Hope that helps.

 

[c_c405]

None - so far

None of those lines corresponds to the trend I see on a wider view of the charts. when you know price is low take a trade and use an adequately sized stop based on previous lows and your targets for loss instead of targets for profits. Coping with loss is the best education for ANY trader Since WE ALL TAKE LOSSES -

Step back from the charts and look at price action instead

Fakey is that a common signal language? Nial Fuller uses it, I though he made this word up.
But that is not important.

Just wanted to say, use the US close charts. That means stop looking at anything else. Nial Fullers course members all use the FXlite demo software for charts and place there trades according to the US close signal charts only.

Hope that helps.