First of all, this is not a mechanical system. You are going to have to do some of your own analysis but it is not time consuming. We are only interested in looking the Daily and 4hr timeframes. All trades will be with the current trend only, if that does not exist, then you switch to another pair.
I am only looking at the following pairs:
EURUSD, EURJPY, GBPUSD, AUDUSD, USDJPY, USDCHF, USDCAD, GOLD, OIL.
You can add an index and bonds if you wish like the EuroBund and the DAX/SNP500.
How to setup your charts:
- Load a Daily and a 4hr chart next to each other.
- On the daily chart, add the following indicators:
Exponential moving averages: 10, 20, 50, 100
Simple moving average: 200 - simply because it is an important market indicator. - On the 4hr chart, add the following indicators:
Exponential moving averages: 60, 120.
The 60 is approximately the same as the 10 moving average on the Daily chart.
The 120 is approximately the same as the 20 moving average on the Daily chart.
You should then end up with a chart layout similar to this:
10 Green, 20 Red, 50 Blue, 100 Orange, 200 Black
The idea is to look for entries on the 4hr charts that are in the same direction as the daily trend.
If the Daily trend is down, all EMAs pointing downwards and price staying strongly below the 10 and 20 EMA, then we look for any sort of signal on the 4hr charts. Preferably, this can be a topping candle signal but you can also look for breakout consolidation patterns, and support/resistance.
If the trend is down on the Daily chart, but price is not below the 10 and 20EMAs then we need to wait for a Daily signal and/or confirm our trades/hypothesis with fundamental analysis. For example, on the EURUSD chart above, we are in a strong bullish retrace at the moment so I am NOT looking for any entries short on the 4hr. I am waiting for a Daily signal to get short again OR I am waiting to see how the fundamental analysis turns out in the next few days/weeks (Jan 2012, we have FOMC and Greece talks to think about).
As an example, of trade setups we are looking for, I have attached 3.
The first is a breakout of the AUDUSD, the second is GOLD, and the third is the textbook trend definition of the EURUSD (note the dates).
I will put up some more examples as we go along.
Set up an alarm on your computer to go off every 4hrs, do not bother trading the overnight action, there are plenty of FX pairs to choose from in the list above. Just await an entry and be patient.
In summary,
STRONG DOWNTREND ON DAILY:
…identified by the EMAs and other technical/fundamental analysis, you will look to short the instrument on the 4hr charts. You are looking to short when:
- you get a candle signal
- you get a candle signal at resistance (better)
- you get a bearish consolidation at support and can trade the breakout (you need more experience to identify these).
STRONG UPTREND ON DAILY:
…identified by the EMAs and other technical/fundamental analysis, you will look to buy the instrument on the 4hr charts. You are looking to buy when:
- you get a candle signal
- you get a candle signal at support (better)
- you get a bullish consolidation at resistance and can trade the breakout (you need more experience to identify these).
Any questions, let me know.
