Author: FX-Kris from fx-forum.pl In Price Action everything seems to be very easy and understandable – but then comes the point where everything begins to mix together, especially when Time Frame changes. In that situation, positions in every possible direction seem like a good ideas, but they are not! I experienced it by myself. We often lack some of the basic information that could help us to make a decision in which way we should play. For example: “play only long term to certain level”. The most important information you should collect, include: • What is the trend and at what TF do I play? • What course to take: long or short? • Has the trend ended or is it just an adjustment? • Is this the consolidation? • Which S / R is strong, and which is weak? • Where should I search for entry orders? What is more, there are some of indirect problems: • Hot to filter false entry signals? • Which TF is better for taking positions and which for leading it? • Where to put SL and TP? • When go to BE? • What MM should be used? • What high should be R:R level at certain TF? • What’s the matter with momentum? • News from the world – Forex – Data We can find many threads and topics on Price Action in which the basics and principles are exactly described. There are plenty of good knowledge sources, based on charts and experience. From the other hand, you will also find lot of threads where people do not have a clue about the PA. It is really hard to filter out the bad examples when we have so much information given at the same time and do not know how to put them in one piece. Too many of these bad news may cause strong confusion, which is bad for people who have just started they adventure with PA in a such dynamic market like Forex. A few words of advice: Give it a rest with the various wonderful indicators and super systems, especially when you have to pay for them. This will only frustrate and annoy you in the future, because most of the works only at certain times and with really long delay. Do not waste your time on testing those systems and indicators – I would like to recommend you focusing on pure PA and success will come itself! When the market hits the upward or downward trend, everyone can invest, because it is done in the same direction as the trend goes. As all you know, every trend comes to an end and loses its momentum – then the consolidation takes place. The market is on hold, the majority of traders lose everything which they earned in the trend and often gives away the whole deposit. Indicators, wonderful systems and robots go crazy, losing their super-abilities. A few words about myself: Now it is the 9th year, that I am connected with stock market. It is also more than three years when I first heard about the Forex. My first experience with FX – as yours probably – was really painful. I thought that I have the knowledge and skills to start playing on real money. Unfortunately, the reality was brutal and it ended badly. I sucked out all money from not one but two fairly large bank accounts. It taught me a lot about humility and respect to the market, giving a lot of thought. I upgraded my rules from the stock market where I earn a lot of experience and I brought them to the Forex market also with my investing psychology. I decided to choose the right foundation with the result that made my own set of investment principles, which suits me personally. One of the most important things is to choose the Time Frame that suits us, depends on how much time we have to play and when we are going to do it. The market is open 24 hours per day, but most movements take place during the London and New York sessions. As for the liquidity of the market, the largest volume sticks to three players: 30% are in London, 20% in New York and 12% in Tokyo. Check the working hours of those markets and everything will be clear. Traders can be divided into three types: A. Longterm – MN, W1, D1 (people who can spend about 30 minutes per day) B. Intraday – H4, H1, M15 M5 times (from 1 hour to several hours per day) C. Scalp – M5 and M1 (full time if we can stand it, but mostly when Frankfurt and London starts, till the closure of NY, because during the Asian session almost nothing happens) I recommend to delete the point C and do not care about it. Believe me, my experience shows that it is not worth it. You can of course try demo to convince yourself that it does not make sense. I personally chose the A + B Intraday + Long term Strategy description: Before taking any action, you need to count some values that will be responsible for your success. Otherwise, you will be doomed to a quick failure. Success formula: MM + R: R + Efficiency + iron rule: PATIENCE MM – Money Management R: R – Risk to the expected profitability Effectiveness – depends on the ability to perceive the PA – the higher the better. In briefly explanation, because it’s quite a huge topic: MM – with conservative inputs – 3% of deposit. Aggressive 1.5% of deposit R: R must be greater than 1:2, preferably when it is 1:3 or above Effectiveness – it depends only on you, the bigger the better. But not less than 50% with the R:R 1:3 I will not write down any patterns, but I want to describe it with simple example: in Long term and Intraday we assume that each traders has the same efficiency – at 50% level, so half of the positions are profitable. Please keep in mind that 50% efficiency does not have to mean, that we lost one position and win another won. Statistic unfortunately works against us here, e.g. 10 positions can go in every possible scheme – first you will get 5 losses and then 5 profitable trades – you are still 50% effective. Imagine what happens at 20 or 30 positions. Therefore, improving efficiency and increasing the R:R is so important, of course with proper MM. Here are some basic assumptions: • Account with 10000zł deposit • To simplify the calculation – 1 pip on 1 lot = 30zł • In line with our MM, in conservative entrances we can risk 300zł • Financial leverage 1:100 Long term: • SL, depending on the currency pair is between 60 – 120, sometimes even 150 pips • R:R – 1:3 • MM – 3% conservative input Position size at SL = 100 pips is 0.1 lot Final score: 300zł ventured gives us about 900zł profit, provided that we deliver it to the end. Exiting from the position partially is here often practiced. Then, unfortunately R:R decreases. Intraday: • SL at a maximum 15-20 pips. • R:R – 1:3 (sometimes 1:2) • MM – 3% conservative input Position size at SL = 15 Pips is approximately 0.66 lot Final score: 300zł ventured gives us about 900zł profit when we bring the whole thing to the end. In this technique, we close some position before the end, but we also bring to the BE. For Long term it is not so simple, because the positions held in a few days, and the daily range of ADR is sometimes as high as 100 – 150 pips and move to BE can bring the realization of SL To sum up: we play long term from higher TF and we have to wait for a setup for a long time, sometimes a few days or a week or even two. You can find around 4-6 nice setups per month. Intraday gives a few setups a day. The positions are opened and closed on the same day. The combination of these two techniques gives very interesting results. Intraday + Long term: We close 75% of the position on the intraday. The remaining 25% should go long term with SL and BE without risking. For example, 25% form the 0.66 lot is approximately 0.16 lot, which is more than we can afford during the long term play, and then we have a completely free ride. Of course not every setup is suitable for such play, and must be carefully selected. I will mark these setups here as Intraday + Long term. There will also be some setups for Intraday play only. The next phase after getting along with PA is reducing SL to extremely low levels such as 3-8 pips. That it is a little more difficult matter, because the play have to be more aggressive and without huge experience entering in bad moment is really common and causes quick SL grab. R:R in such playing strategy increases drastically: SL 5 Pips, TP 45 pips = R:R 1:9, an when our efficiency is really low (e.g. 30%) we will still earn. So what if the percentage is around 70-80%? In this topic we will focus on conservative strokes, which setups will be presented here. During my practice in the market I encountered many examples of analysis charts. Ex post analysis is not a problem, but for us the most important thing is the future. In the past, everyone can find a nice setups – the problem arises when you do not see the right side of the chart. Setups places: Only the pullback + strong confluence: • S/R • LT • Level 50 and 00 • Fibo Rules to enter: • We look forward to setup on H11, enter the M15 on the first correct reflection, when the candlestick will be reversed. Entering few pips above/under candlestick and SL few pips under/above candlestick – it changes when we play long/short. • Candlestick or formation must by formed, we do not take position before the end of the candlestick – high risk of false reflections! • Please consider the correlation of currency pairs and the high spreads • Heaving a plan of action is the most essential thing. Then the market will not surprise us so easily Important! This is not a place nor time where I will share with you the exact input and output signals. I will present only the area in which you should look for reflections. Those are going to be mostly setups with big chance of positive implementation. I am writing this only of educational purpose, to help you understand PA and FX, to share my experience and to learn something new from you. Example Setup
If we are not sure of something, we just do not submit orders, because the efficiency drops dramatically and then we can end with really popular overtrading – setting the position after position, up and down. Patience on Forex market really pays off. You just better sit on your own hands, to not place orders to quick. Just observe and when the right opportunity comes, occupy the position following the trend according to the principle: • We sell at resistance • We buy on support Then, the chances of success in such a play are the biggest. The space which is between S/R is a place to grab first pips. Further success usually depends on the penetration of last peak or hole. It is all about the market reaction and understanding why the price is moving in that direction, rather than the another one. How big influence has got the panic, closing orders and human psyche on the price? Where it takes place? We will try to find the answer on these questions. The most important thing is to choose one correct way, consistent with the trend. Then the price movements are definitely the strongest and longest and everything what goes trend-opposite is risky. The baseline here is appointing the trend line and monitoring that it has not been punctured. It all depends on Time Frame at which we find ourselves. For example, when we are on H1, we will not be waiting for the blow in LT from W1 or MN – they are distances of hundred of pips and you have to wait weeks or even months. That is why we set lead TF and act in accordance with the trend in the Time Frame. Of course we have to take in account strong LT and S/R of higher TF. For intraday, leading TF would be H4. We use important points as D1 and W1, sometimes MN, and we search for setups on H1. TF in which we hold the position is M15. Very important thing: If you do not see the setup you want to play, that mean you are on the wrong TF. About as much as you cannot see the forest through the tress when you went too deep. Therefore, 85% of the time is spent on TF setup and 15% on TF trigger. You should not go lower than trigger, because there more aggressive play begins. Down below you will find a table with TF Setup and Trigger for different players: Setup Trigger MN — W1 W1 — D1 D1 — H4 H4 — H1 H1 — M15 M30 — M5 M15 — M5 M5 — M1 When we go to the Trigger M15: It is necessary, when the base is approaching the spot where it can be reflected. Zones which I mark, are only examples, where to look for reflections and in what direction. It is the safest, when the prices touches the S/R or LT. As you probably know, the market is not perfect. Sometimes the price is reflected by several pips before S/R and sometimes beats and returns fast. In setups, which I will present, I am going to wait for S/R or LT reset – the price needs to come back to the same place (sometimes it come bas to pip). Those are safe and conservative inputs. There are different schools of drawing S/R. Some draw a few lines, others rectangles and some (just like me) one line. Sometimes, when the level is quite broad I draw two line – especially in long term. When the price touches a level and is reflected from it, we have a great chance of success and playing in right direction. When such reflection occurs before the S/R, the there is a greater risk of taking positions. Surely, many of you have experienced such bounce in the air, then the price accumulate very often a little more strength to hit the S/R, closing our order at SL and is reflected in the right direction to S?R. After what I wrote, the question is whether you might want to set orders on S/R line level? In fact, it often happens, that the prices goes to S/R with ideal amount of pips, but also often raises the level and comes back or not. This is where your head is needed, to filter these situations. Reflection must go in the right direction! I would recommend to set the alarm near the places, that I will be presenting. Observe them closely, get used to it and you will see with how strong tool you start to operate. To locate a proper place of reflection we need two things: Robust breakout from a given S/R level and the price return in the very same spot (pullback) Pullback and breakout is indispensable part of the swinging prices movement. There are two types of pullbacks: one candlestick pullback and swing pullback. I will try to explain this on the basis of examples:
To define the pullback we must know, that there was a breakout places where breakouts occur:
Please remember, that we play the breakouts in unison to trend. Then it is a conservative play. Otherwise, it will be an aggressive approach with much greater risk, where we are also at higher risk for a false breakout. We know now how to evaluate pullback and breakout. To enter the position we need to have clean and strong reflections signal in the right place (reversal form). Personally, I am focused only on the two strongest.
An example of a correct reflection:
As we already have a breakout and pullback and correct reflection signal located in the correct place, we need to verify the viability of trade. If the signal is too high, then our SL is going up and RR decreases – that play should be considered and then you have to decide if it is profitable for you. Examples of how we choose play strategy compliant with our RR:
For safe deposit management we will need appropriate MM and good efficiency. Trading can be profitable when it is understandable. Otherwise, there is a high risk that we will say goodbye to our capital.
Summary The trading principles and proper approach I have my own, strict rules since I have lost a lot of money on the Stock Exchange. Then I started on Forex and I thought that moving old rules for Stock Exchange will be ok. Unfortunately, the harsh reality quickly showed where is my place and I got kick in the butt. I had to upgrade my rules and adapt them to the Forex market. I can assure you that it took a very short period of time when my accounts were empty. On Stock Exchange I do not hold the positions which lost more than 10% – that is my point, where I start to cut the losses. Currently, over the few years of trading in currencies, I submit the positions on the Warsaw Stock Exchange more rarely. Everything there happens very slowly and takes weeks. On the other hand, on FX I have another input principles, which I showed you here in this topic. I try to describe it as easy as possible. When talking about outputs and moving to BE I am not too hotheaded. I close the session usually at TP1 few or teen pips before the peak or hole (it depends on the length of the motion) or in a place that is suspicious for me. What is more, I calculate bounce ranges and wavelengths from corrections – but most of all I am looking for strong confluence. I go BE usually after the TP1 implementation, unless there are signs that trouble me. Then I switch to BE or close the position as fast as possible. I prefer to earn 10-20 pips than nothing. In worse cases – hit BE and not lose the capital. If you used BE wisely and you know when to switch SL to 0, it really gives a huge kick to our deposit, as the dissipative positions occur really rarely. I will cite one problem familiar to all of you – loss and unrealized gain. Unfortunately, it hurts us more, when we close position at +10 pips and we see that the price is going to additional 100, than lost position at 10 pips. Therefore, before taking a position you need to write everything down and make a plan: • When I go to BE • When I close part of my positions and what size of them • When I close rest of the items I do not submit lot of orders, I try to choose only the best setups. I play 1 or max 2 trades daily, usually three days a week. Sometimes, when I have got occasion I go for 1 long term per week. I try to get better with my inputs and I search the best places. Stop hitting the wall with your head – you are not able to get all of the pips – act calmly, gain slowly and maximize your deposit. However, sometimes I am trading in a different way. As I mentioned at the very beginning, the next step is to reduce SL and increase efficiency. In this case, my SL and BE are correct more often – usually about 50/50. But then I assume the positions with R:R=1:10 sometimes event 1:15 with SL and few pips. Unfortunately, not every setup is suitable for such play. My weekly plan is X pips – if there are more I am happy, if there are less I am trying not to get mad. Then i hope that the combination of two or four weeks will give me at least the average result not smaller than X. However, there are such a periods, that are really hard to earn some money and then you need to be very careful and better off the market than in position. Generally speaking, small number of my positions close on SL, because it is the last resort. Of course, sometimes I get some spears and then I cannot do anything – but this is Forex. Therefore, the most important thing is your capital which you have to protect! All of my rules were made individually for my style of play and my psyche. Each of you have to fit together own rules, which correspond to your own style of play and level of risk. One of the main dilemmas: where take the positions and in which direction is discussed here on the forum. The rest lays in your own hands. Author: FX-Kris from fx-forum.pl group
