Ex Professional Traders Guide To Swing/Day Trading

Interesting opener, Andrew, I’ll certainly be a follower.

I would not assume that we have all read your previous introduction, however: as I mentioned in your previous thread, the decision to delete all the posts in the first thread means that anyone who was a little late to the last thread missed the content of your posts. What you have posted here is all I know of your background. Which is obviously absolutely fine, just don’t feel that you are repeating yourself here! Hopefully this thread will be a standalone rather than a Pt 2.

Thanks for starting a new thread. Everything seems crystal clear and I’m looking forward to following your musings.

Even with a “model account” you can have a good MM… why don’t you divide your position size by three? that way is easier so see if your strat is good…

Noted.

I haven’t set up the account yet, but I’m willing to listen to ideas from members.

Silly me, I forgot to mention the markets that I will be covering,

[B]EUR USD
GBP USD
EUR GBP
USD JPY
EUR JPY
USD CAD
AUD USD
USD CHF
FTSE 100
Gold
Brent Crude
Dow Jones[/B]

i just hope you are not charging a fee or asking the members to sign up for same day trading signals.

Okay to get things off the ground here I’m going to share some basic technical analysis concepts that are widely used by institutional traders when charting. But before I do, I want everyone to understand that when it comes to institutional trading, there are many factors that lead to a position being taken, its not always based on ‘technical factors’. Market profiling , fundamentals, clearing, reserves, interest and bond rates and order books are all factors that can lead to positions within the market. But those are beyond the scope of this thread which is dedicated to technical analysis.

The time frames that I’m going to use for the swing/day trading analysis are the Weekly - Daily - 4Hr - 1Hr.

The technical tools that will be used are 200SMA - 100SMA - 60EMA - RSI(5)

Other technical tools used, Support/Resistance - Fibs - Trend Lines - Occasional Candles Patterns(I don’t use candle patterns much as they are mostly manipulated by market makers).

What we are not going to use is custom indicators, cheesy looking charts with lots of squiggles and lines plastered all over it and saturated with multiple indicators.

All we need is simple tools to do a simple job in order to earn a simple crust, leave everything else at the door.

There are some simple guides I want to outline when using these free available tools to analyze the market.

First of all, if you are going to counter trend trade a particular market, then have a solid technical reason at the absolute minimum, don’t base counter trend trading positions on fundamentals as this leads to many false and short lived moves that are rejected and reversed sooner rather than later for preparation for the technical timing set-ups - fundamental moves are mostly knee-jerk reactions in response to breaking news, scheduled news or meetings from central banks ect. There is nothing wrong with counter trend trading and many good trading opportunities will be presented that produce the goods, but do have a solid technical reason for doing so.

Around 50% of the analysis will lead to trend trading, while 25% will lead to counter trend trading, the other 25% will leave you out of the market flat or range trading.

So I don’t want you thinking that the only way to trade profitably is via trend trading as that is far from the truth, profitable trading comes from the ability one has to analyze markets and and produce compatible analysis that has a solid foundation behind it. Do you think Citi only trade the trend? don’t kid yourself!
The markets will produce profitable moves time and time again, may that be with the trend, against the trend, or ranging. All 3 scenarios should be viewed as potential trading opportunities and not feared because you have read many times that the trend is your friend.

As things progress on this thread some of the methods and analysis will get a little more advanced, but lets start things of slowly and build on it.

Clarifying A Trend & It’s Strength - When you are looking to clarify a trend in the purpose of a technical viewpoint for swing/day trading, we should prefer to see price trading above or below the 200SMA on 2 high time frames - but overall the daily chart is our trend identification chart. I’m going to make it as simple as possible here, the more time frames that are in agreement the stronger the trend, the less that are in agreement, the weaker the trend. Now thats not to say that when we are in a good strong trend that you can’t take short term counter trend trade moves, but its better to counter trend trade when its a weaker trend.

For example I would classify a strong bearish trend if the weekly and daily charts had price trading below the 200SMA, I would be very less likely to counter trend trade in this situation. But if the weekly chart is showing price above the 200SMA and the daily chart is showing price below the 200SMA, then this would still be a trend, but a little weaker and may be prone to tasty counter trend moves.

Another example would be the daily chart trading below the 200SMA while the 4Hr chart trades above its 200SMA, the overall trend is down (daily chart) but the 4Hr is currently counter.

Counter Trend Trading - So the basic concepts to start with are when counter trend trading, make sure price is attacking a strong support/resistance zone and has diverged/pushed away from the 200SMA by a good margin, we should also like to see some divergence on the RSI - relative to the price action, counter trend trading should require tight stops as most of the moves will be on the back of market tops and bottoms or off strong support/resistance points.

The 3 counter trend trading technical rules

[B]1: Price has diverged/pushed away from the 200SMA by a good distance

2: Price should be attacking a strong support/resistance zone

3: We prefer to see RSI divergence[/B]
[B]

Example Chart - Counter Trend Trading[/B]


On the chart above I have marked points where price has pushed away from the 200SMA by a good amount in a short space of time on a trend extension. Price is above the 200SMA, but as the trend progresses, price pushes away from the 200SMA creating gaps, these can offer possible counter trend opportunities once full analysis is done from top-down.

Trading With The Trend & Market Timing

Trading with the trend or at least trying to trade with the trend is actually where most retail traders lose their money, did you know that?

The reason being is that they clarify or analyze trend identification wrongly or to late. Most traders tend to use moving average crossovers as trend identification, or price action such as higher highs higher lows, lower highs and lower lows. Most of the time when one of these situations arise, price has already moved and the trend is finished or at least close to finishing, this leads most traders to BUY or SELL into trends late as they are about maximized.

The simple process of trend clarifying as I described early on is a simple one. We use the daily charts 200SMA, price above it is positive, price below it is negative, we can however trade trends on intraday time frames as long as we remember that the overall trend is the daily and should over rule the longer term.

Also keeping an eye out for new trends developing is a profitable situation. This occurs when we see price cross over the 200SMA, at this point market timing is required and can be done using the RSI.

For example, if we see price cross over the 200SMA to the upside, then we would wait for the RSI to hit the over bought readings and monitor the price, 3 things can happen,

1: After the RSI reads over bought, price can pull back to or near to the recently crossed 200SMA allowing us a possible entry long in the new trend.

2: After the RSI reads over bought, price can consolidate, allowing us to BUY the breakout in the direction of the new trend.

3: After the RSI reads over bought, price can pullback below the 200SMA, in this case we would stand aside and wait to see what happens next in order to make a decision.

Example - Trend Changing


On the chart above we can see price first of all crossing below the 200SMA, the RSI dips into the oversold levels early in the move and price pulls-back the the 200SMA and rejects. The next 2 moves we see are when price pulls-back to the 200SMA and holds as resistance, we can see RSI divergence in both occasions. The 4th move is a breakout of the triangle and above the 200SMA, we can see the RSI over bought and price pulls-back to the 200SMA and holds as support just above it. The 5th and last move which happened a few days ago recently, is when price pulled-back to the 200SMA and holds as support, during this time we see RSI in the oversold zone.

More to follow soon.

Everyone understand the principles and concepts I have posted above?

it’s clear so far. thank you!

Yip, good stuff

Great so far!. Looking forward to more :slight_smile:

Good good!

Trading doesn’t have to be made complicated to earn a crust. The people with custom indicators or multiple indicators and squiggles all over their charts are trying to out smart the market and simply don’t understand what they are doing… period!

Simple concepts are what work, now as I said before, when it comes to proper institutional trading, then yes, that is a little more complex as advanced market profiling is involved as well as order book matching and fundamental driven theory’s. But from a pure technical perspective, you can get a strong indication for the vibe and underlying movement/momentum of the directional bias. These simple guides are what will help you keep your cool and understanding of what you need to do… BUY-SELL or stay FLAT. If you over complicate things, then your going to be left second guessing your decisions and trades.

There is an old saying in the market when traders are asked what they think of a potential trade…[B]‘Wait And See’[/B] thats what you will hear time and time again. And it is proven to be not only an old saying, but also a profitable one.

When asked what I think price will do when it reaches the 200SMA on the daily chart, my response is always…“Wait And See”, why try to guess what it will do when we can ‘wait and see’ what it does and then act accordingly… BUY-SELL-Stay FLAT. Now if your lead to believe that the area price is heading to is actually a technically sound and heavy area, then setting stop or limit entry orders is perfectly fine. But if you believe that there could be a little wading on the particular area of interest, then just wait and see! Its perfectly fine to give up some pips with a slightly later entry in order to clarify the position.

For example, lets assume that I believe the 1.6000 G/U support area is actually very technically sound as it is a high volume previous support level as well as the daily 200SMA and maybe a trend line. Price is currently trending up on the daily and the 1 hour, but the 1 hour is currently undergoing a correction, I would therefore be happy to set a limit to buy the market at this level.

However, lets assume that there is only weak evidence of this level as previous support, and the daily 200SMA is maybe flatting out while price is under the 1 hour 200SMA, this would be a “wait and see” set-up. I would prefer to view price as it attacks the 200SMA and my any decisions from that point on.

[B]So two rules to remember:[/B]

[B]1:[/B] If confidant that the level or zone is technical sound and heavy, then go for it with a stop or limit order.

[B]2[/B]: If the level or zone does look attractive for a possible trading opportunities, but is not completely technically sound or heavy, then “Wait And See” and don’t try to be a hero.

When using the MA combination and multiple time frames I have outlined on this thread, always and I mean always combine it with support/resistance and/or trend lines. Don’t just trade the MA’s as a sole indication, it can be done, but preferably to maximize your potential gains, use s&r.

I’m a little short for time just now, so will post more A.S.A.P

Hi Andrew,

That’s some really interesting stuff so far, thank you for posting it. It is very similar to how I trade, although my settings are a little different - I use RSI (6) on my higher TF charts, rather than your (5), and I tend to use EMAs rather than SMAs - 21, 50, 100 and 200 (the latter two on the higher TFs only), plus I have a 500SMA on my Daily and up. But I sense that we’re looking for similar things, I just use that, S&R and a little Fib for confluence. Anyway, I’m rambling, but my question if you don’t mind: have you looked at using EMAs, at all, rather than SMAs? I have wondered, on occasion, whether I should explore SMAs in more details. I use EMAs simply because I always have and they have worked for me, but I wondered whether you have a view on the relative merits of EMA vs SMA as applied to your approach to trading?

Entirely understand if time constraints put my question to the bottom of the pile/off the pile altogether, but I guess if I don’t ask then I won’t get!

Regardless of my question, this is a fascinating start to a thread, and it does dovetail very closely with my own style of trading, so I will be following with interest.

Many thanks!

ST

Afternoon,

The people who taught me to trade from a technical perspective used the SMA over the EMA as its less sensitive to the current market noise. Also most traders I have worked with as well as analysts I know use the SMA over the EMA.

As I said on my post above, I like to keep it simple so no thrills for me, so I guess its fitting to my structure thats its the Simple MA I use.

Thank you for the response.

Away from the currency market for the moment, I thought some of you maybe interested in APPLE daily chart, really its a “Wait And See” as the trend has been a very powerful one past 4 years, but recently we broke the 200SMA on the daily for the first time in those 4 years, and well it could look to hold as resistance, the $600-$603 zone is of interest. Twitter / RealDealForex: #APPLE looks to test the 200DMA …

Bit pushed for time, but keep your eye on the AUD/USD as its currently testing the 200 Hour SMA. It’s make a break time for the Aussie.
AUD/USD - Chart

Interesting. What’s also interesting is that if you really worked for “CityGroup”, you would know it is spelt CITIGROUP … I’ll give you the benefit of doubt here though but have to be honest and say your previous post and this one are both very close to hitting my scam radar… Hopefully you’ll prove me wrong here Andrew.

Question - your charts are showing Sunday candles, so all your moving averages are skewed because for example a 200 SMA includes Sundays so it’s technically not an average of the last 200 trading days … its approx 170 trading days and 30 sundays.
A few years ago I ignored this and got stung and confused. If you compare SMAs and EMAs with Sunday candles and without, on the daily TF, you’ll be getting an inaccurate view. How do you cater for this?

To be straightforward with you mrchilled, your rudeness and your attitude is not welcome, personally I think you only have one intention and that is to plague this educational thread with nasty and rude remarks, I’m pretty sure you did it on the day trading thread as well, and taking a look at your recent posts on other threads it seems to be a daily occurrence from you, so I will use the tools I have ay my disposal to place you on the ignore register.

One other thing, I don’t want nor need your approval.

If you wish to clean up your act and attitude, then you can PM me and I will think about lifting the ban. But until then its a rude free zone. Try being a bit polite in future towards people.