Here is my trading system that I have spent over 10 years of my life developing. I am a full time currency trader and US equities trader. It may seem similar to others that you have seen BUT there are small things that make it different and much more profitable. This works best on 5 and 15 minute time frames but can also work on higher time frames. As I set forth the rules below please remember to trade the trend ONLY. There are rare occasions where I do not trade with the trend on the current and higher time frame but those trades should not be taken if you are new or dont have a great understanding of the markets. Please remember what price is doing is really all that I care about. Your indicators are basically worthless and patterns are what Im looking for! I love to help trade so if you have questions about what I am doing or questions about the market in general PLEASE ask. I would love to connect with you and help you in whatever way that I can.
-
First of all what I consider is the time of day. I am willing to trade during the Asian Session IF IT IS ACTIVE (8 pm til midnight EST) or I am willing to trade a portion of the London Session (4 am until 10 am EST). I have found during the latter portion of the London market, which is often referred to as the London close you have v shaped reversals or just reversals period which is where many losers come from because the trend shifts so I avoid those times. Also, trading off market hours I have found to be very slow and very boring with sideways price action so I avoid those times as well.
-
I look for a strong trend on the 5 minute and the 15 minute time frames. This simply means that price should be trading below the 60 period Linear Weighted Moving Average on both time frames for the most successful trading opportunites. If you are looking at a long trade on the 5 minute because the trend is up yet the trend is down on the 15 minute you are really adding risk and trading counter trend which I do not recommend. I do it on rare occassion if the opportunity looks great. I did this on the NZD/USD on friday for about 12 pips with about 12 pips of risk. As often occurs price then shifted back to the 15 minute time frames direction.
-
I am looking for price pattern breakouts and then QUICK retracements back to the breakout area, with the trend. This is probably where most will get this “system” all wrong. I am basically looking for breakdowns or breakouts of say a triple top or triple bottom with the trend on both 5 and 15 minute time frames OR 15 minute and 1 hour time frames. Once price sees a clean break and confirmation candle I will then look to see a price retest of that area which is where I get in. Here is the key: this should happen within a few bars!! I cannot stress this enough. If it takes 10 bars to get back to the retest area it is VERY possible a new trend could be developing and your likelihood of a stop loss is MUCH greater. I have also found that breakdowns are much more consistent winners than break ups. I don’t know why this is, its just how it is. So if you want the very best signals, look for price to break down and take sell trades ONLY. I average 70-80% winners with at least 1 to 1 reward to risk or better using both directions. I will definitely be expounding more on this concept of quick retests. This is where most traders fail at systems like this.
-
I also look at the 6 period LWMA set to high and set to low as seen on my charts when taking a trade. If you see a HUGE crash on your charts (I will show examples), about 90% of the time when price hits the upper band it will sell and drop back down to the lower band, AND often continue to make new lows. With proper money management alone you will be able to make money trading a system like this. This set up occurs ALOT after news trades because of the really quick collapses and retracements. The key here is the move has to be VERY LARGE AND FAST. Also, when taking retest trades, if the retest price of the broken support/resistance area is also at the 60 period LWMA and/or a daily pivot or s1-2/r1-3 this will GREATLY increase your chances of winning. You will often find that trades breakdown areas such as they did friday and never retrace back to that area. While frustrating, I dont mind missing these trades because I want to keep my win to lose ratio high and often times if you get in at a break you will find price will quickly reverse as MM stop out the crowd and reverse price. Hence the need for CONFIRMATION of the breakout and subsequent retest.
-
Do NOT overtrade. When trading REMEMBER you only need 1 or 2 good trades a day to make good money. I actually remind myself of this when I get up in the morning to trade. “All i need is 1 or 2 good set ups today so be very selective.”
-
Keep stops tight, but leave room to move. I normally keep my stop losses just above recent resistance or below recent support or about 2 grid bars works as well (for those who are not as good at figuring out r/s levels or if those levels seem to be pretty distant. I normally take half off when i reach my 1:1 reward to risk and if price stalls I may take off the entire position there. I normally do not let trades run more than 2 to 1. I am somewhat impatient and I dont like to be i trades long so I dont hold them forever. I find most of the time markets are not in a strong trend so its really more profitable to not go for the huge wins and just take your consistent gains.
Now for an example. I will continue to post examples as I trade them in the future so I can give better understanding of what Im seeing and doing here. I had 6 winners, 2 losers and 1 breakeven last week. Thats a pretty standard week; you cant win them all so learn to take losses, thats what the pros do. 1 of my losers was only a partial loss. Remember, IF YOU KNOW PRICE IS HEADED TO YOUR STOP LOSS GET OUT. Save yourself some money instead of wishful thinking! How often do you sit and hope and pray price reverses and you get stopped out. Keep track, I think it will save you a bundle!
Here is the Nzd/Usd trade on the 5 minute chart I took on Friday. Please keep in mind this was a long trade however the 15 minute trend was DOWN and so I do not recommend a new trader to take trades like this. There was ALOT of confluence and hence that is why I took the trade.
-
Please notice the 3 red arrows on this chart. This area was acting as a level of resistance because the first two times price stopped and reversed and the 3rd time price stalled before a POWERFUL move up right through the moving average. For this reason, that price when retested the first time would become a great support area.
-
Notice the green arrow which is your buy signal. I took the entry here at the confluence of the triple top retest, the red moving average, and the lower band AFTER A SIGNIFICANT MOVE UP! Remember, after a strong move like this, the first hit of the white moving averages on the other side will almost always lead to a move to the other side before the trend potentially continues.
-
Stop loss was below the last swing low which happened to be about 2 grid bars and your take profit was the equal on the other side. Please note this was counter trend on the 15 minute so I was NOT looking for more than a 1:1 reward to risk trade!
Here is the chart for that nzdusd trade.
This is a EurCad 5 minute trade. Again, we have a triple top area as shown by the arrows here and support line. Price broke through with force and quickly came back to restest the area which was very close to the lower 6LWMA! Again, remember quick retests are best and thats what makes this trade so great. Had that taken 10 bars or so to retest the likelihood of a bounce would have been MUCH smaller. Your risk on this was about 2 grid bars or 28 pips and reward of potentially making 45 pips. I will usually take my profits off at the green or red levels as those are the daily r/s levels and often cause retracements.
This is a 5 minute trade off the pound-dollar from Friday. This trade is not as common as many but it was in fact a GREAT set up. The 15 minute time frame was very much down as price was trending below the red moving average and so when I saw this head and shoulders top pattern with the 15m trend I said wow this could really be a good one! sure enough price broke and confirmed below the neckline and then QUICKLY retested it. Remember, a quick retest is key!! Usually within 2-5 bars of the breakdown is what you want. If its 10 or 15 bars you missed your move and you should NOT be getting in the trade! So price came back up to retest this broken support level/neckline and at the same time you had the upper band of the 6 period lwma being hit AND the 60 period lwma was sitting there as well. Excellent short opportunity and you can see my stop was 2 grid bars above the entry and therefore the first target was 2 bars below. Though you cannot see it from this chart, price continued some 150 pips straight down on Friday before a minor reversal at the end of the session. Your risk on this was about 16 pips. I will also say that the 1 hour and 4 hour time frames were all down as well so this was REALLY a strong sell trend and continues to be right now.
I fail to see how this is price action trading when it’s heavily depends on lagging indicators.
Your entries are based on quick (and the first) retests of major areas of broken Support and resistance, especially at daily levels. None of these are lagging indicators. The moving averages are merely additional confirmation and helpful to determine the trend.
A few quality set ups today which is great for a Monday, since they tend to be a bit slow so allow me to post some here. This one is the GBPUSD 5M chart which i was stalking for a breakout. I saw a ceiling hit TWICE and then the third time it just sat there and consolidated for an extended period of time. This generally means that price is about to explode through the area which it did. Price did come back and retest the breakout area about 30 minutes later where you see the green arrow and stop was below the last swing low for a risk of about 15 pips and my target was 15-20 pips. You can see price hit the highs before reversing back down. Great trade opportunity; also note on the 15m the trend was clearly up and on that price came just a couple pips shy of the lower 6 LWMA before taking off to retest the highs. :35:
In this trade I was watching for a breakdown of the 1.0370 level which we actually had shortly after the New York Open. Price broke, confirmed and then quickly raced back up to give me an entry. This trade was a bit scary because it came pretty close to my stop loss. Nonetheless no stop was taken and price quickly dropped back down to the lows for a nice 10 pip gain with about a 10 pip stop loss. Again, just getting in on a quick retest after a level of support is broken. There was another EXCELLENT set up on this two hours later which would have been a winner but i did not take it because i do not trade after 10 EST and I do not recommend that you do either. See if you can spot the trade on your charts.
Here is an example of a trade that you should NEVER trade. Notice we had a double top and then nice breakout and we were waiting on a retest but the retest took some 30 bars later which is a NO TRADE. Many times when this happens it will not respect the support area as this is not a legit retest trade. A retest trade is best if it takes 3-7 bars but not more than 10.
Hi Pattern Trader
What is the red and green indicator that you are using?
thanks
I took a few trades today which I would like to post. Did have two winners and one loss today. Here is the first. This is actually a 15 minute trade entry. I saw several bottoming tails on this gbpcad trade and finally a strong sell through it. The entry was a little tricky since we were dealing with a support AREA rather than a precise price. My entry was at the top of the 6 period LWMA which is where the arrow is pointing down. My stop loss was about 2 grid bars up and my target was two grid bars down. As you can see, there was much more potential for profit here and I did leave alot on the table. This trade was a double because the trade prior which i will post soon was a loss. I do take my sizes up a bit after a loss to help compensate for the loss. Do not confuse this with a martingale system, because it is not! The best time to increase lot sizes is after a loss, never after a win!
here is the usdcad trade which came in right after my gbpcad trade on the 15m. This set of trades was actually great due to cad strength that came into the market. I was watching an area which ended up being my entry line because price kept hammering this area. Finally we had a very powerful move through this and a quick retest which took about 5 bars after the breakdown, perfect. The time to get in was when price tested the upper 6 MA and at the same time was testing the breakdown area of about 1.2770; my stop loss was just above the major MA 1.2779 and my targets were 9 pips (since my risk was 9) and 12 pips. As you can see we did drop some 20 pips, well over a 2 to 1. I did have on another CAD trade at that time so this was just a single. Although choppy, it was another great trade as the trend was down on the 15 minute as well. All trades today were with the trend.
Here is the first trade I took this morning. We were in a very strong downtrend on the 5m and 15m and 1h and 4 hr as well. I saw price break below a double bottom area of 178.80 and I was quite eager to get into the trade at a retest of this area. Price quickly bounced to that area and I made my entry. My stop was just above the recent high; I really thought price would not go above that area not only because we made lower lows and that was the last major swing high, but also because the major moving average should have stopped price. Not only that, the upper 6 period MA was below that stop loss area which normally will stop price in its tracks after a hard sell like that. Everything looked perfect on this trade but unfortunately price shot through the stop loss area and came right back down. This does happen and theres nothing you can do about it; just part of the game. While frustrating, I knew it was time to move to the next trade and take my lot size up slightly to help recoup my losses.
