Some of my thoughts + Trading System

Good day everyone,

Quick recap.

GBP/USD:

The rise from 1.8833 (start) to 1.9846 (termination) spawned consolidative price action in the range of 1.9433 (low of consolidation range) to 1.9749/6 (high of consolidation range)

On the UPSIDE our initial aim was to break over the consolidation channels’ high of 1.9749/6 in order to resume the rally from 1.8833

On the DOWNSIDE our aim was to break below the consolidation channels’low of 1.7433… and that we did, which developed a decline taking us all the way down to 1.9260

On the downside there were two major levels of S that should have been watched, those were 38.2% and 50.0% retracement of 1833 to 9846.

The initial prediction and history says that most rallies and declines with intentions of resuming their direction will normally only retrace to levels of 38.2, 50% and in some cases with weak retracements only to 23%

You should feel comfortable with price retracements to the 38.2 level, it is normal.

Retracements to 50% should raise the question as to whether this rally will come back, your bias however should still be in the initial direction of the trend, if you are a mid-term trend trader.

Retracements moving from 50% to 61.2% are in the danger zone, around here you should have pretty much lost all hope and terminated most of your positions, waiting for more signals to confirm a new trend direction with a break of 61.2%

As we know it, the fall from .9750 treminated around the 50% Fibonnacci zone as the mass expected. The oppinion in such a case was that the rally would naturally begin to resume for a break of consolidation channel low now S (9450-ish) and eventually the consonlidation channels high now R (9450)

The bounce of 9260 moved upwards supported by an ascending trend line and round the 9320 price on monday the 8th of January (yesterday to the alcoholics) the price broke out of that trend line downwards after which i sold expecting it to fall back down to test 9260 once more.

It was the most logical scenario at this point, however the logic of a good TA (Technical Analysts) is sometimes no match for the global emotional jungle that is the forex world, so what happened ?

Perfect break, followed by a +40 pips decline and then all of a sudden we have a massive bullish engulfing candle which takes us right back above the trend lines… well, obviously some big players ain’t likin the poundin on the pound if you know what i mean, so they slip they fall and they accidentally hit the GBP/USD buy button for 100,000,000,000 lots and weee we’re back up 40 pips and over the trend line.

We don’t care why it happend, my broker says some soviet name bought in on it and that was the reason, i say i don’t care because i had my stop set at .9344 so i was only out about 25 pips.

It is EXTREMELY reliable to place stops above trend lines when you are trading a trend line breakout. You almost always know that if the price pops back above the trendline decicively, that things aren’t going your way. (BEARISH Scenario)

It is more likely for the price to break and pop back up to test the trend line before heading down (BEARISH Scenario).

Before we delve into the present now, please note several things.

ONE: The price is currently located around 32.8% Fib. Retracement of 9750 (High) to 9260 (Low)
TWO: This also happens to be around the 9450 area which is a major R/S
THREE: RSI on H4 is nearing 70

Around this level there are (now were, because things progressed as i was typing this) …so there were a few possible scenarios.

  1. The price broke over 9450 DECISIVELY… did it ? No… check M15, it broke and closed the candle in a perfect shooting star, followed by a bearish engulfing… which equals what ?.. thats correct a perfect Evening Star pattern.

Once the evening star was formed it moved down with a break attempt of the trend line, but didn’t succeed to well, obviously there is still a lot buying pressure.

It just so happens that these are very reliable reversal signals, we’ve got the one, two, three factors up there, plus these candle stick signals too.

I can’t shake the notion that we have a top here and we might see a mass retest of 9260.

The thing about evening star patterns is that they sometimes take a while to actualy form a good top, but there are in most cases extreeeemely reliable.

My bias for now is on the downside and i am thinking a break of the up trend line from 9260 with a retest of 9260.

Now… because we are smart people we know the market moves both up and down and sideways, so… we need to prepare ourselves for a possible bullish scenario too.

In this case its pretty obvious: we need to break 9450 decisively then 9474 > 9530 > 9750 (i’ve bolded them because they are majour R/Ss)

Thats all dudes and dudettes, good luck!!

Regards,
E. Lang

PS: CHECK THE CHAARTSSS, they are in order of development!





Hey guys,

Just updating the situation on GBP USD

As you guys can see we broke the ascending trendline, but boy there is a lot of buying pressure still holding the price down.

It is now hovering above BLUE 50 EMA.

It managed to get as far as 9408 after bouncing of 9454 (todays high)… but it is really struggling to get below that 50 EMA, everyone knows if it does it will drop.

Its a tough situation, and you may go crazy if you’re in a position right now, so just set your stop above the last high and wait.

A little patience can go a looong pippage :slight_smile:

Regards,
E. Lang



Wow guys,

Today was a terrible trading day.

Before things developed i was certain in a few possible scenarios, but a lot of contradictions came up and i got confused.

Confused = You don’t know what is going on, hence it’s not possible to have any sort of bias and it is not acceptable to trade.

I closed my position with loss for today, i still believe the GBP/USD may fall and if it does i think it will reach the 9350 level after which it will bounce back up.

If this comes true we will have a bullish Head and Shoulder trend reversal pattern with a neckline around the 9455/60 area with a probable profit projection of 150+ pips - a good place to set buy orders would be around/above this area.

On the downside. The possibilities are a break of the 9350 are and a test of 9260

Thats pretty much it.

I will look forward to tommorrow to recover my loss and make some profit.

Regards,
E. Lang

Good morning guys,

For those of you who had the chance to hold on longer to the trend break short play we made, you could have profited at least 70 pips.

I had a loosing day and too many contradictory signals so i decided not to trade for the remainder of the day.

As i predicted the price break-out (bearish) from the ascending trend line started at 9260 went as far as the 9360/50/40 area after which it reversed.

This was also 50%.

On the upside for now our next targets are: 9454 > 9564 > 9570

On the downside possibilities are that the price bounces of 9545 and declines to retest 50% or the 9340 area and then 9260

As the facts have made it clear we have a right shoulder at 9340 a left shoulder at 9348 and a neckline around the 9454 area.

Head and shoulder reversal patterns are extremely reliable signals, just like the evening star on yesterdays short trade.

In theory probable profits on a neckline break from a head and shoulder pattern should be projected by calculating the distance in pips from the HEAD of the pattern to the neckline > in other words from 9260 to 9454 are about 200 pips > that projected of 9454 is about 9650 as a projection after the break of the neck line (IF it happens)

We only use IFs in TA, there are no certainties.

Thats pretty much it for now.


Good morning everyone,

" Cable’s fall from 1.9454 extends further to 1.9316 and is now pressing trend line support (now at 1.9318) again.

Intraday bias is still on the downside and further decline towards 1.9261 low is in favor as long as cable stays below 1.9423 resistance. On the downside, break of 1.9261 low will indicate decline from 1.9750 has resumed for 1.9177 cluster support.

Meanwhile, on the upside, above 1.9454 will suggest that rebound from 1.9261 has resumed for 1.9564 cluster resistance. "

So basically, either the price bounces of the trendline now, or it breaks through and tests 9260 with a possibility of a break lower or a bounce back up.

Indicators on H4 and D1 all show oversold conditions and i feel its time for a big turn around.

On the upside levels ot watch are: 9421 > 9454 > 9564 > 9750

TODAYS NEWS: Easy-Forex: The Financial Calendar

Regards,
E. Lang


POTENTIAL GBP/JPY TRADE

Entry Criteria:

  1. 5/10 EMA cross
  2. RSI < 50
  3. Stochastics are trending down
  4. MACD is negative

Targets:

  1. Last R turned S at 231.91
  2. Cluster support at 230.97
  3. 228.16

Stop Loss:

  • 234.82

Regards,
E. Lang


POTENTIAL GBP/USD TRADE

Entry Criteria:

  1. 5/10 EMA cross
  2. RSI < 50
  3. Stochastics are trending down
  4. MACD is negative

Targets:

  1. 9315

Stop Loss:

  • 9484

Regards,
E. Lang


Dear Effi,

thanks for posting your potential trades. this way, we can all see for ourselves what to look for according to your system. keep on posting this way! :wink:
however if you mention which timeframe should be reliable enough for us to short on, it would be great. (is M30 enough? 1H? 4H?)
thanks!

Hey Parsush,

The market is really choppy, so I’d wait for good signals on H1 for now.

Neither the GBP/JPY nor GBP/USD trade worked out.

The same trades could have been played on in reverse eg:

GBP/USD: Instead of a break of the trend line, you could have bought at the trend line bounce and set your stop at the last low: ~.9424 with a target of .9531 > [B].9564 [/B]> .9750

GBP/JPY: Instead of a break of the trendline, you could have bought at the trend line bounce and set your stop at the last low: ~233.87 with a target of [B]235.06 [/B]>[B] 240.98[/B]

Regards,
E. Lang

Hey Elang, just wanted to say thanks for what is probably the best thread on babypips - I posted this link in the online trading room I’m in and people were impressed!! Your system is a permanant fixture on my platform now and provides great confirmation to the another system I use as well as standing up on it’s own. Your daily thoughts are invaluable - keep up the good work!!

Good morning Shandy!

Thank you for the kind words, they are much appreciated.

Stick around i hope you will be able to learn more :slight_smile:


Before i continue for those of you using my system. I have made a few updates to it, so if you use MetaTrader please feel free to download the attached .zip file.

It is virus free and it contains 3 files:

  1. Lang.tpl (this is a template file)
  2. ZigZag.ex4 (put this in Experts/Indicators)
  3. ZigZag4 (put this in Experts/Indicators)

What you will notice on the chart is:

5 EMA - White
10 EMA - Red

25 EMA - Green
50 EMA - Blue

The 5 and 10 we use for the crossover.
25 and 50 will indicate possible changes in the direction of the price and S and R zones.

With the template loaded you should have the Zig Zag indicator on your chart.

We will be trading only on H1 and H4 from now on, because as much as i love it i’ve decided that i earn money to live and not live to earn money.

Hence i will be trading about an average of 10-15 trades per month, leaving me more time to do stuff :slight_smile:

Now my system pretty much remains the same as you will notice, but i’ve added a very interesting indicator that has been helping me out a lot recently - The ZigZag.

Everyone knows what a zig zag is, it moves up then down and up then down again… what we want to do is…

LONG - when the zig zag moves up and closes with a few candles, to solidify the rise

SHORT - when the zig zag moves down with and closes with a few candles, to solidify the decline

Meanwhile what you can do, is keep an eye on your RSI and your 5/10 crosses.

I have been using RSI a lot in the past 7 months and i have understood that its not as simple of an indicator as it looks. With time you will realize too how powerfull RSI is in predicting price movement and hinting as to what is a major move and what is fluctuation of a major move… it’s a wonderful indicator … embrase it.

GBP/USD

Price action from the low of 9260 has taken us as far back up as 9661 (current)…we have broken through all major resistances and for now the horizon is clear with a head on collision imminent with 9750.

As long as the price remains above 9531 our bias remains bullish.

A break below 9531 will turn things consolidative first, which means we may enter a funky channel with hopes for a break out of it to resume the rally towards 9750 or it may break to the downside to decline to 9452, which needs to be broken for the bears to take power and attempt a retest of the lows respectfully 9315 > 9260

A decisive break above 9750 will put us in the clear for 9850.

For now on H4 i am holding my long position untill i see a bearish Zag with a few candles closed to confirm a turn around

I will call the Bullish zigzag line breaks Zigs and the Bearish ones Zags.

At the point we are at… a lot of people can get confused…

A lot of traders know that if you sell when RSI is around 70 and Stochastics are in the overbought… that you would most likely profit hansomely… and even if you didn’t look at the charts and just sold and bought on RSI on H4… you would make money…

BUT what if… like on GBP/USD H4 right now… RSI is over 70 and Stochastics is overbought… do you sell just because it is over 70 ?..

You could… but what you should do to confirm a good exit point is logical R and S on the chart… it is obvious that untill at least 9750… RSI will stay over 70 and so will stochastics… and there is more of a chance that RSI and Stochastics will start declining at a logical R than at any other point…

My point is… no matter what indicator you use… nothing can beat logical Ressitance and Support levels based on previous highs and lows of the market… These are the bigg mommas, these are where people sell, people buy… people place stop losses… If anything trend effective is going to happen its around these areas, so keep your heads up for them.

I have also added a chart for you to see how the zig zag indicator can help you with entry points.

The reason i have Entry and Exit Blue and Red circles overlapping each other is that you can short when you closed your long to get in on the reverse and vice versa.

Regards,
E. Lang

Desktop.zip (5.74 KB)


Hi Elang:

Great info. GPB/USD as been doing a fine job for me the over the last few trading days. I believe it’ll at least hit or surpass the 1.9700+ mark as you suggested. I’m trying to set my chart up as you recommended. What are your setting for the ZigZag? My default is; Ext Depth = 12; Ext Deviation = 5; Ext Backstep = 3.

Thanks in advance!

Dear [B]llh,[/B]

The Zig-Zag settings are 1,1,10

Currently on the H4 chart we can see a little Zag (Bearish) forming and i would like to take the opportunity to stress that you can become weary but not troubled.

Untill a few candles close to solidify the Zag (Bearish) we will hold our position long.

EMAs are still looking very fresh.

RSI and Stochastics are in the overbought zones. I “think” …

/A: they will hold there untill we test 9750

OR

/B: they will take a breather now and correct slightly before running for 9750

If RSI and Stochastics start coming down and we have at least 1 or 2 H4 candle closes on a Zag (Bearish) then we could consider terminating our longs as a correction may be starting.

Either way i’m more biased towards an all out test of 9750 before any significant corrections take place from rise of 9315

Regards,
E. Lang

hey guys…

do u think cable will touch 2.0000 area ??

many thks

If we break 750 then 850, it is the next logical target.

We can only wait.

Regards,
E. Lang

Elang,

For those of us that don’t use MetaTrader, can you suggest how to simulate the zigzag indicator?

Thanks

If it helps out in any way i’ve private messages you the script.

Regards,
E. Lang

Elang

Our using Rsi 10 and Macd 10,26,9 for sittings with the zig zag.

Thanks for all your great information.

ZAG (Short): 9641

SL: 15 pips above last high: 9667+ 15 = 9682

Exit: at next confirmed ZIg (Long)

Closed: -25 (sniff)

Regards,
E. Lang


I did some studying and it seems the Zig Zag Indi. isn’t as reliable for price predictions as i was hoping.

I guess the results i had with it before were based merely on the fact that i was using my regular techniques aswell during decision making.

Either way i don’t want to be dissapointing so i’ve given you 3 goodies today to make up for my sillyness.

  1. GBP/USD Trade Report

Daily Pivots: (S1) 1.9587; § 1.9627; (R1) 1.9685;
Cable turned sideway after reaching 1.9667 but still, as long as cable stays above 1.9588 minor support, intraday bias remains on the upside and further rally is expected to follow towards 1.9750 resistance. Below 1.9588 will turn intraday outlook consolidative. But pullback should be contained above 1.9452 resistance turned support and bring rally resumption.

In the bigger picture, break of 1.9564 cluster resistance (61.8% retracement of 1.9750 to 1.9261 at 1.9563) suggest correction from 1.9846 has completed after three waves down to 1.9261. Break of 1.9750 will encourage further rise towards 1.9846 high and then next upside target of 138.2% projection of 1.8090 to 1.9142 from 1.8517 at 1.9917.

On the downside, it will take a break below 1.9452 support will argue that the whole rise from 1.9261 has completed but a break below 1.9315 is needed to confirm. Below 1.9315 support will bring a retest of 1.9261 low and then 1.9177 cluster support 50% retracement of 1.8517 to 1.9846 at 1.9182, 23.6% retracement of 1.7047 to 1.9846 at 1.9185). We’ll still hold on to the preferred case that price actions from 1.9846 is merely correction to rise from 1.8834 only as long as 1.9177 remains intact. But sustained break of 1.9177 cluster support will turn medium term outlook neutral and argue that the whole rise from 1.7047 has possibly completed.

2: Some Signals (Entry > SL > Target)

eurusd buy 1.2948 1.2915 1.2998
gbpusd buy 1.9663 1.9627 1.9710
usdchf sell 1.2465 1.2505 1.2417
usdjpy sell 120.32 120.65 119.80

And

3: A modified version of the Zig Zag indicator which automatically draws trend lines to give you the optimal breakout entry points for daily trading.

Regardless of the fact that the Zig Zag isn’t too good at predicting future price movements, i still accept it to be the best way to filter our price noise and provide the most accurate R and S levels, for those of you who don’t have automated Pivot Points.

Thats all for now.

Regards,
E. Lang

Zig_Zag_Trend_Break.zip (1.54 KB)