Strategy Recap...
Since my trading strategy has morphed somewhat over the last few weeks, I thought now might be a good time to post a recap for further explanation. At this time, I'm only monitoring two pairs: GBPUSD and GBPJPY. GBPUSD has been moving briskly over the last couple of weeks, providing plenty of opportunity to bring home the pips. GBPJPY, normally a volatile pair, has been giving off fewer clear signals and has a reduced range over the last couple of weeks. I would describe my strategy as a discretionary bag of tools of which there are three or four that get used over and over depending on the situation.
The strategy I employ consists of a top down approach. This means I start by analyzing the higher time frame charts, then drill down to lower time frame charts. I use candlestick patterns on the lower time frames to pinpoint entries using inside bars, outside bars, spinning tops, hammers, inverted hammers, etc.
I start my analysis with the weekly chart, marking the previous weeks hi/lo with a horizontal trend line. Next is the daily chart where I'll note overall direction, pullbacks, breakouts and candlestick or OHLC bar patterns. I'll also mark the previous day's hi/lo with horizontal trend lines different than those of the weekly chart.
The 4h-hr(240-min) chart is where a lot of information is parsed. I use this chart to set horizontal support and resistance levels based on previous price action. By this I mean that I'll mark off double/triple tops/bottoms and other areas of price consolidation. I'll also zoom out to take a birds-eye view of what previous levels price has reacted off. These will normally consist of weekly hi/lows, daily hi/lows and round numbers(00 and 50). I'll also try to place a Fibonacci retracement on this chart to find levels that match up with each other. This is called confluence. The 240-min chart is always changing.
I'll use the hourly(60-min) chart for monitoring how and where price reacts around key levels. I'll also lay a Fibonacci retracement over the previous day's hi/lo range to see if there is any confluence at one of the fib levels. If so, it'll be noted as it could be a reaction area. I'll also apply a Daily Pivots indicator. Price can react strongly off the outer S and R levels after a powerful move.
I now have a plan. I've marked areas of previous support and resistance in a variety of ways noting areas of confluence where price may react. It's now a matter of waiting patiently like a spider in its web. Waiting for price to approach a level of interest and show it's hand with a candle pattern that raises the probabilities of a profitable trade. I like to enter off a signal on the 5-min chart. This gives me an opportunity to maximize my stop loss location(putting it out of reach of stop hunts and re-tests) and maximizing profits as I got in very close to the turn.
Another extremely important point is logging the trade in a journal of some sort either digital or analog(paper). I have trade sheets(as I call them) that I keep in a binder with information like pair, date, time, spread, entry price, stop loss, scale out, exit or remainder exit, trend direction on 60-min and daily charts, pip total(positive or negative), econ data release, monitoring of trade(what am I thinking during the trade, emotions?), and evaluation. Evaluation is critical. When the trade is finished, this needs to be filled out. How did you feel about this trade? Was the entry spot on, early or late? Did you scale too soon out of fear of reversal of position? Did you do almost everything right? I assign a grade of A through F to each trade. It ranges from perfect to broken rules that led to a loss. I don't mind too much when I have a great set up and the market turns inexplicably to force a loss, but I disdain when I break a rule and force a loss on my account. This all needs to be noted and reviewed at the middle and/or the end of the week. Like any professional, you have to review your progress and determine a course of action for further improvement. It's equally important if you're doing well as if you're doing poorly. You should know why you're trading profitably or not. What are you doing? Reinforce the good and note the flaws and/or distractions that made a difference. This is how you become a professional trader. Be brutally honest, but don't put yourself down. Try to reinforce the good and correct the bad. In addition to all of that, I screen capture most trades I enter. Sometimes multiple captures showing the progress. I save them in dated directories and folders. I use the .gif format as it's very compact. If you don't have enough drive space to save the captures, either get a USB external drive specifically for trading images or open an account at a site like Photobucket where you can store and review your trade captures.
One last thing. If you're doing really well, don't get cocky. Stay humble and give back to the trading community. Help other less advanced traders if possible. We've all been there.
The strategy I employ consists of a top down approach. This means I start by analyzing the higher time frame charts, then drill down to lower time frame charts. I use candlestick patterns on the lower time frames to pinpoint entries using inside bars, outside bars, spinning tops, hammers, inverted hammers, etc.
I start my analysis with the weekly chart, marking the previous weeks hi/lo with a horizontal trend line. Next is the daily chart where I'll note overall direction, pullbacks, breakouts and candlestick or OHLC bar patterns. I'll also mark the previous day's hi/lo with horizontal trend lines different than those of the weekly chart.
The 4h-hr(240-min) chart is where a lot of information is parsed. I use this chart to set horizontal support and resistance levels based on previous price action. By this I mean that I'll mark off double/triple tops/bottoms and other areas of price consolidation. I'll also zoom out to take a birds-eye view of what previous levels price has reacted off. These will normally consist of weekly hi/lows, daily hi/lows and round numbers(00 and 50). I'll also try to place a Fibonacci retracement on this chart to find levels that match up with each other. This is called confluence. The 240-min chart is always changing.
I'll use the hourly(60-min) chart for monitoring how and where price reacts around key levels. I'll also lay a Fibonacci retracement over the previous day's hi/lo range to see if there is any confluence at one of the fib levels. If so, it'll be noted as it could be a reaction area. I'll also apply a Daily Pivots indicator. Price can react strongly off the outer S and R levels after a powerful move.
I now have a plan. I've marked areas of previous support and resistance in a variety of ways noting areas of confluence where price may react. It's now a matter of waiting patiently like a spider in its web. Waiting for price to approach a level of interest and show it's hand with a candle pattern that raises the probabilities of a profitable trade. I like to enter off a signal on the 5-min chart. This gives me an opportunity to maximize my stop loss location(putting it out of reach of stop hunts and re-tests) and maximizing profits as I got in very close to the turn.
Another extremely important point is logging the trade in a journal of some sort either digital or analog(paper). I have trade sheets(as I call them) that I keep in a binder with information like pair, date, time, spread, entry price, stop loss, scale out, exit or remainder exit, trend direction on 60-min and daily charts, pip total(positive or negative), econ data release, monitoring of trade(what am I thinking during the trade, emotions?), and evaluation. Evaluation is critical. When the trade is finished, this needs to be filled out. How did you feel about this trade? Was the entry spot on, early or late? Did you scale too soon out of fear of reversal of position? Did you do almost everything right? I assign a grade of A through F to each trade. It ranges from perfect to broken rules that led to a loss. I don't mind too much when I have a great set up and the market turns inexplicably to force a loss, but I disdain when I break a rule and force a loss on my account. This all needs to be noted and reviewed at the middle and/or the end of the week. Like any professional, you have to review your progress and determine a course of action for further improvement. It's equally important if you're doing well as if you're doing poorly. You should know why you're trading profitably or not. What are you doing? Reinforce the good and note the flaws and/or distractions that made a difference. This is how you become a professional trader. Be brutally honest, but don't put yourself down. Try to reinforce the good and correct the bad. In addition to all of that, I screen capture most trades I enter. Sometimes multiple captures showing the progress. I save them in dated directories and folders. I use the .gif format as it's very compact. If you don't have enough drive space to save the captures, either get a USB external drive specifically for trading images or open an account at a site like Photobucket where you can store and review your trade captures.
One last thing. If you're doing really well, don't get cocky. Stay humble and give back to the trading community. Help other less advanced traders if possible. We've all been there.
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