Good explanation. I wanted to put a screenshot in here but my brokers software acting strange right now. But if you are watching the 21day EMA, you can see that the last bullish pin bar formed perfecting off of that dynamic S/R area. That is why methods that ignore that other S/R tools will miss out of potential profit opportunities. I actually didn’t catch it soon enough or else I would have already gotten in on the retrace, I plan on setting up an entry in case there is a second retracement come Monday.
Guys,
I thought I would share what I did today. This is the plan. I just have to turn it into a strong habit.
I decided to do this while reading Trading in the zone, no wonder.
Any feedback welcome !
Forex Trading Business Plan
Pairs traded (Subject to change):
USD: EURUSD-USDCHF-GBPUSD-USDCAD-USDJPY-AUDUSD-NZDUSD-USDSGD
EUR: EURCHF-EURCAD-EURAUD-EURNZD-EURGBP-EURJPY
CHF: AUDCHF-CADCHF-GBPCHF-CHFJPY
GBP: GBPCAD-GBPAUD-GBPNZD-GBPJPY
JPY: NZDJPY-CADJPY-AUDJPY
AUD: AUDNZD-AUDCAD
Timeframe traded:
1Hr-4Hr-Daily-Weekly
Tools used:
SR Line-Fibbo level-EMA21-EMA100-EMA200
Signals traded:
Pinbar-Bearish Engulfing Bar-Bullish Engulfing Bar
Patterns traded:
Ranging market: Swing Highs-Swing Lows
Trending market: Retracements
Signal rules:
Pinbars: wick >= 3x body size - within previous candle - must protrude
⦁ weekly TF : normal size
⦁ daily TF : bigger than all previous candles
⦁ 4hr TF: much bigger than all previous candles
⦁ 1hr TF: extremely bigger than all previous candles
Engulfing bars: must engulf previous candle completely, the more candles engulfed, the better
⦁ weekly TF : normal size
⦁ daily TF : bigger than all previous candles
⦁ 4hr TF: much bigger than all previous candles
⦁ 1hr TF: extremely bigger than all previous candles
Order placement rules:
Price has reached a SR Line or a Fibo 50% or 61.5% retracement in strong trend, PA Signal occured, Size in line with TF, no EMA lines ahead.
buy order: Place 2 same lot size order @10 pips above PA Signal
SL 10 pips below PA Signal
1st TP 10 pips below next Resistance Line 2nd TP 10 pips below 2nd next Resistance line
When first TP hit, move second order SL to BE
Sell order: Place 2 same lot size order @10 pips below PA Signal
SL 10 pips above PA Signal
1st TP 10 pips above next Support Line 2nd TP 10 pips above 2nd next Support line
When first TP hit, move second order SL to BE
Order size rules:
Each order = 2% of total account size with no exception
Yves
Edit: As I get comfortable with new tools used here and if I think they are worse using, I will add them to the plan making sure that it is only small changes at a time. I added the trading time rules which didn’t figure in it but were already applied. I added volumes as another thing to watch before placing an order on top of all other requirements already stated. Finally, I added trade closure rules based on what I was already doing and last week’s experience.
forex trading business plan.pdf (80 KB)
1 Like
Wow Yves this is really impressive. So much so that I would like to make it an example for other members to follow. I am going to like this post to the quick navigation area in both threads. If you get a chance, could you edit that post and add pictures of the candlestick or patterns in your trading plan. It would be nice having it as complete as possible as people will be looking at it for months and years to come.
Hi Aaron,
I am really glad you like it. It means a lot to me. Feel free to use it, it’s an honor and also a joy to contribute to other people’s growth. I will add the pictures right now !
Yves
Yves that’s simply great
I have shared my trading plan in page 3 of this thread but I guess it was lost in the flow of the thread. Now I can use yours to update mine
If you are interested hwre it is 301 Moved Permanently
Hi Eternal, Thanks, I really didn’t expect to get such a good feedback from everyone.
Yeh, I had seen it. It’s a bit different as it is more a flow chart (not sure that is how it’s called). It is similar in the fact that it contains all the golden rules. I thought I would also do one if I happen to break the rules of my plan. I would then force myself to go through it every time I feel like placing an order. You know, Trading in the zone really made me realise that this is the only bit of order you can have in a chaotic environment so it is absolutely necessary.
Yves
Thank you Richard and Aaron
Does that mean that I placed my S/R lines wrong ? I do have an S/R at 0.9430
Hi piping,
That’s really great work , very impressive. your plans are like spoon feeding to the newbies.
yes thanks to Piping Hot ,really nice work ,thanks for that.
Well Yves you inspired me to rework my trading plan,
Yes it was a flowchart but I have changed it to something I can simply copy paste and fill before each trade
Here it is I would appreciate if anyone would go over it and help me fix it / build on it
It is a work in progress basically only the first part is relevant till now
https://dl.dropboxusercontent.com/u/10302917/Forums/Trading%20Plan%20v1.1.docx
Hi Eternal,
This is great, I would rather call it a Business Agreement as definitely nothing is left to chance ! My version is simplier because a lot is implied like the not trading against the trend point. I won’t trade Counter Trend if I only trade the patterns I have described and pictured.
It’s great if we have several approaches as we all think differently but aim for the same goal.
Glad to be your inspiration, I also see a lot coming from Trading in the zone in there ! 
Yves
Piping Hot : Great impressive trade plan, i use similar trade plane like you , but i don`t trad 1 h chart,
i always looks for high probability price action signals prefer daily chart, i have strict MM plan
always risk 2% of my total amount, i never ever think about 3 or 4 % Risk on any trade.
Hi Muhammad,
Thanks very much for the nice words. I think most of us have similar plans as basically, it all comes from Johnathon’s method or at least what he agreed to share with us. The rest comes from Aaron as it makes full sense to consider all factors. I will probably change it slightly as I get to learn more from Aaron but it will be small changes at a time, I don’t want to get confused and it is highly recommended to do so. Otherwise, you are still at the stage where you look for a plan and can’t truly work on the discipline side which is so much more important than the rest.
I accept to risk more than 2% for 2 reasons, my plan is very conservative as I don’t trade counter trend or signals or patterns that I am not yet comfortable with. Secondly, I strongly believe in the high win rate of this method and the % is only a way to make sure you don’t end up with nothing left. I am sure, it is statistically impossible to face 25 losing trades in a row if the rules are strictly followed. I would even risk as much as 10% but the only reason I don’t is because it makes it then almost impossible to follow the plan without being teared off by emotions. I believe the only reason for the % when using this kind of high probability method is because there is a limit to how much a human being’s mind can bear. I suppose this limit can grow with practice and I will make sure if it happens, I will take advantage of it.
Yves
I don’t agree at all with fixed percentage no matter what the percentage is simply because it doesn’t make sense to me.
I see no reason to put 10.000 usd in my trading account if all I want to put in one trade is 200, if I know I am only comfortable to risk 200 usd at anyone time than this will be the amount I will risk no matter my account size.
I can have only 300 or 400 usd in my account and still risk 200 usd / trade and if I lose them I will only have to refund my account.
Of course I am not assuming that 300 or 400 usd is all the money I have in the world. If all my money was in my trading account then risking 2% of it on any trade would be a huge risk for me.
What I am saying is that I do NOT need to have all the money I owe in my trading account all I need is 2 or 3 times the maximum amount I am willing to risk on any trade just to avoid having to refund my account too frequently, it could easily even be just the amount I am willing to risk on any trade.
So, for me, it would be totally OK to put 100% of my trading account in theory on one trade if that’s the amount I can lose without any emotional effect.
Looking at it from another perspective you you stick to the 2% rule then when can you really withdraw money from your account to enjoy it ? you will need to keep money in the account so that the value of the 2% increases and the “compounding” theory works for you. However if you use a fixed dollar value per trade this amount can vary as you feel more comfortable risking more money without the need of your trading account to grow, you can simply withdraw the extra amount and use it
Just my point of view
Hi Yves,
Thank you for your plan trading file .
I have just two notes if i not wrong:
1-Signals Traded : You missed 2Bar Reversal
2-The pictures for PB :not valid afraid
attached some pictures for candle patterns
Agree with Piping Hot and EternalNewB. The standard “rule” that you shouldn’t risk more than 2-3% of your balance seems a bit I would say weird… I can’t even find a logical explanation why should I stick to 2-3% apart from that if you are trading a method where you might end up having 30+ losing trades in a row, but seriously, is that even possible using price action and having a trading plan and the experience spotting those A++ setups? Even if you risked 10% of your balance or a fixed amount of money that’s equal to that, you had to have 10 losing trades in a row. I’m using price action only and I haven’t even had 2 losing trades in a row…
I would like to read Krugman’s opinion about this topic.
Richard
Hi Fahedska,
Thanks for your input. I was sure someone would notice the pinbar thing. I took it from the school of pipsology but it is clear in my mind that it is not within previous candle. I didn’t forget 2 Bar Reversal, I just decided not to use them as an entry signal for now.
Cheers,
Yves
[QUOTE=“krugman25;549449”]Article
Step 2:Finding Key S/R Areas
Three steps to finding price action setups
[li]Identifying a Trend[/li][li]Finding Key S/R Areas[/li][li]Watching for Price Action at these Key Levels.[/li]
What is S/R
Support and resistance are areas where the market is likely to react to a certain price level. This reaction is created by a shift in supply/demand. While we as traders never know with 100% precision where price will react to in the future, there are tools that we can use to help us pinpoint those areas in the market and look to these for high quality price action setups. The principles behind S/R are easy to understand but using S/R tools correctly can take a while to learn and master. The reason looking for S/R is second on my list 3 step list, is because some of these tools only apply to certain market conditions. If you are in a range or a trend, that will determine if you will use EMAs or the Fibonacci retracement tool. Once you know your market structure you can begin looking at these various tools to find key S/R.
Why do S/R tools work?
Before getting into discussing about the various tools at our disposal, I want to quickly discuss why S/R tools work and what is happening at a market level to cause price action to form. First I want to start off with the most obvious fact and that is every trader is there to make money. This desire to buy low and sell high is what makes S/R key areas so powerful. Traders often look to certain tools to tell them that a stock has bottomed out or reached a top, and when enough traders look at the same tools and come to the same conclusion there is often a predicable reaction at these key S/R areas. For example if the 3 year high of the Dollar Yen is 110.00, and price is approaching this level, many traders will begin looking at this area for a potential short. This is traders are always looking for price to get too high, or too low and capitalize on it. Often these high/low price levels that have formed in the past continue to have powerful effects far into the future. This goes back to the name of my thread “Price Action That Matters”. It’s the “That Matters” part that I am talking about here. As long as these levels matter to the majority of traders, they need to matter to us. The only reason EMAs, Fibo retracements, trendlines and other S/R tools work is because they matter to the market. I want to really hit home that these tools on their own have no power, they only become powerful as the market uses them “en masse”.
What is really happening in these key S/R areas?
Price action forms at these key levels because of one simple principle, and that is the principle of supply and demand. These key S/R areas are where the shift in supply and demand happen, causing price action to form and often price reversals. Let’s go back to the Dollar Yen example. As price is accelerating to the 110.00 area, traders will notice that this is a 3 year high, and could be a good area to sell once price reaches it. Since traders want to sell when an asset is overpriced, the Dollar Yens 3 year high could represent an overpriced state. The more traders that sell into that area on that belief, the stronger the reaction will be against further bullish price movement will be. This is also why tools that have overlapping S/R can be so powerful. This assures you that even more of the market will be trading watching those key areas.
How Price Action plays into this
Price action helps us see the market reacting to a given S/R area. Have you ever noticed how sometimes the market strongly rejects a key price level and then just a few months later that same price level gets blown through without the slights reaction from the market? This all goes back to traders making decisions on whether that a certain price represents an extreme or not. Sometimes as price approaches a key S/R area, the market decides that this is a fair price, and will break through the level with little effort. Price often times will keep running until it hits another important S/R area and the market re-evaluates if it is overpriced or fair value. Because we never know what the rest of the market is thinking we have to wait for confirmation. That confirmation comes in the form of price action candlestick and patterns. pin bars, engulfing bars, flags, double tops/bottoms and many other PA signals tell us how the market is reacting to a certain level. There are two types of signals, reversals and continuation. In both cases, price action will tell us what direction the market believes price should be going next. This is also why I am a proponent of candlestick retracement entries. The initial candle has already given us the signal that the market is rejecting a key price level. Often times retail traders make one final attempt to push through the S/R areas. These attempts present themselves as price retracing 50-70% back up a candlestick before exploding in the opposite direction. While this can add extra risk to a trade, if done in the right way can provide tremendously larger RR scenarios, which will more than make up for the small increase in extra losses you might incur from the extra risk.
All S/R tools are the same
Knowing everything we know now, we can see that all S/R tools are essentially the same. While they all identify S/R differently, but the principle behind them is the same. The list of tools I use to find S/R are ones that I believe are most widely used in the market, and because of that are highly accurate in finding key S/R areas. Some of these are easier to learn than others, and easier to trade than others.
Note: All of the various methods I list below to find S/R, I describe as S/R tools.
Specific tools
Horizontal
Pros and Cons: This is the most simple to trade from and one of the most widely used methods to find areas of support and resistance. Trading from horizontal S/R is the easiest because it is very clear to identify when price action forms from these levels. Often price will move up to one of these areas and form PA candles before back in the other direction. In the case of horizontal S/R, we look for our price action candlestick to protrude out past the previous candles and break through the S/R area. While horizontal S/R areas are easy to trade from, they can be one of the most difficult to use effectively. One could find literally hundreds of minor S/R areas on any timeframe chart. As a trade you have to learn how to find those few, very key horizontal areas on your chart.
How to trade: Essentially and candle high or low could for a horizontal S/R, but the market will not react to most of these levels. This is why we choose levels that historically have had either the strongest price rejections or where many candle highs and lows formed. Obvious and large swing points are good candidates for horizontal S/R, also areas where candles seem to “run into a wall” and form many highs or lows can also be good candidates. The more price has previously reacted to these levels, the more engraved the S/R area becomes on the chart.
<img src=“301 Moved Permanently”/>
Diagonal (Trend Line)
Pros and Cons: Trend lines are much like horizontal S/R lines except can be harder to trade from and even more subjective in nature. They are traded from just like horizontal S/R, except good pullbacks may be harder to identify. Since trends move at a consistent up or down angle, you sometimes won’t get as large pullbacks as you would when price pulls all the way back to a horizontal area. With enough practice you can learn to find good quality pullbacks into a trend line.
How to trade: Using trend lines as a tool can also be difficult. In much the same way that someone can go overboard with horizontal lines, the same can be done with trend lines. I treat these the same way as the horizontal S/R tool, which is I look for the most obvious areas where price has made major swing points, and see if they all fall accurately on a trend line. A big rule of drawing trend lines is never draw lines through price. None of your trend lines should show that price has breached or broken through before. When looking for price to reverse in a key S/R area you want price to originally be moving away from the area and then pullback. It’s when price pulls back to these areas that we look for PA to enter the trade.
EMA
Pros and Cons: EMAs can be one of the hardest tools to find trades from but one of the easiest to set up and use. The reason EMAs are difficult to trade from is that the level you are looking to for S/R is dynamic and always moving with the price. Since the price pullbacks are not nearly as deep (EMA is always moving with price), it can be harder to find the right amount of pullback to look for price action. Also these tools are only used in the case of trends or strong price momentum; in any other market structure they provide little or no benefit. Since everyone using the same chart and same EMA settings will see the exact same lines, it makes them much less subjective. The only downside is that people use different settings for their EMAs, so it’s best to pick settings that are most common in the market seems.
How to trade: In a trending or strong momentum market, you can look at pullbacks into EMAs for price action to form, signaling the market is rejecting those price levels. As a trader you can use the 8EMA as your short term S/R and 21EMA as your medium term S/R. There will be a gap between the 8 and 21 day EMAs. This gap represents any EMA setting between 8 and 21, and helps you capture a majority of traders who use numbers between 8 and 21 as common S/R tools. You can watch for price to pull back and pierce the area between your 8 and 21 EMA lines and form price action signals.
<img src=“301 Moved Permanently”/>
Fibonacci
Pros and Cons: The Fibonacci tool is truly a measuring device. It is essential used to measure the retracement between the current and last swing points. These are only used in markets where there is a textbook trend occurring. There are a couple retracement values the market looks to, to try and find those overprice/underprice extremes. Those levels are 50%, 61% and 100%. There are other levels on the Fibo tool, but they are generally are reacted to the less by the market. The Fibo tool is easy to trade from as the levels it creates are horizontal areas. The tool itself is not very subjective and other traders that use them are looking at the same levels.
How to trade: To use the tool, find the last swing high/low in your trend and draw your Fibo from the very top and bottom of those swings. The tool will show you each retracement level. Watch and wait for price to reach one of these key levels and form price action signals. The advantage of using the Fibonacci tool is that you will be trading with the trend.
<img src=“301 Moved Permanently”/>[/QUOTE]
Great article!! I will have to copy this and review it letter on
Wanted to share this with you guys. Just finished back-testing, usually I don’t do back-tests, but I was just very curious if there is any need to use lower time frames than the Daily. I scrolled chart by 1 candle (took me some time) imitating real scenarios. So the parameters were:
EUR/USD pair;
daily chart;
trading EB, PB, 2BR, Pingulfing Bar;
trading from swing highs, swing lows and obvious breakout setups;
starting from 01.01.2008 until now (~5 years);
using only S/R levels and price action.
The outcome was:
Win - 14
Loss - 0 (there was one trade that almost touched S/L, but missed by ~5 pips)
14 successful trades in 5 years is not bad, I would say it’s just great and that is only 1 pair from 30 or more (depends what broker trader uses). This once more proves that there is no need to go lower than Daily chart, the lower you go the bigger the risk is.
Richard
Hi Richard,
Nice work ! That tells us a lot in terms of expectation. 14 trades in 5 years for one pair makes it 7 trades per month on 30 pairs. I never really realised that 7 trades per month on 30 pairs only meant around 3 trades a year for each pair. That should make the long wait a bit more acceptable now. However, my calculation is a bit too simple as EURUSD isn’t the most volatile pair at all and you can’t consider 30 pairs as being really different as so many are correlated. But still, now I know that you definitely can’t count on 1 setup per months on a single pair.
Yves