Diablo, great analysis once again! I want to add in that this is a triple support setup. You also have 50% Fib retracement coming off of the last swing high/low. The sell off was quite powerful, so you want to look for double or triple overlapping S/R levels as that helps mitigate the risk of buying into such as a large bullish move. Any time you buy into such powerful sell offs you won’t know if the next market move is a continuation of the daily trend, or if it is a corrective move before price moves lower once again. Because we don’t know we have to trust in our analysis to give us a statistical edge on the trade. In the daily we can also a nice bullish hammer that has formed on high volume.
I wanted to also make mention that retracements are not the only way to achieve a high RR. You can enter on the break of the price action for a safer entry, but instead of putting your SL at the other end of the candle, put it a few pips below/above major S/R levels. In this case we have 3 support levels that all converge at 1.3470, you could set your entry 10 pips above the PA candle, your SL 10 pips below the overlapping S/R at 1.3460 and have a SL distance of around 45 pips. If you shot for the next major resistance level of 1.3700, that would give you 1:4 or better.
Welcome to the community Greg! I am always glad to see people come in with some prior Forex experience as they can pick up on the concepts fairly quickly. Plus I always like seeing people opinions about the way I trade compared to other methods they have tried out along the way. I believe you will benefit from the information here and also the great members that contribute here. Superb job in your analysis, and as was already mentioned very close to Diablo’s analysis. The only thing I would ask is that you hide or crop out the SSD indicator. I understand there are traders here who use various conformation indicators which is fine, but for the sake of uniformity, we only allow the core S/R tools and volume mentioned on post #2 of this thread.
I think if price can stay afloat above these key support levels we could very well see a price reversal early this week.
Here is an update on the EURCHF that I carried over the weekend. My SL was 10 pips, so I am up a little over 1:6RR right now and am still shooting for the 1:15 unless I get some major warning signals. I risked 1.25% of my account on the trade so I would be looking at walking away with about 19% increase from this one. I will wait and see how it plays out but I may do a full analysis on it once it’s done.
You want to look at the volume of the PA candle itself and the volume leading up to the price action candle. As price is swinging up/down to the S/R level you want to see volume decreasing. This tells us that price is moving on smaller supply/demand. Once price reaches the key level and your pin bar starts to form you want to see volume spike up higher than preceding volume. This tells us that the major market movers jumped in to pull price back beneath the key S/R.
If price moves into the S/R area on high volume, and the false break bar comes in at equal or smaller volume, it may mean their was some profit taking occurring, or that the market is taking a breather before breaking through the level.
It’s the only confirmation tool I use. The reason why most indicators suck as confirmation tools is because they are derived from price. So you are essentially using price to confirm price. If I am going to confirm my price movements I want to use something independent of price, that still correlates to my price action candles. We can see volume behaves in patterns the same way price does when these signals form, which tells us that volume correlates well to these price action candles, and once we see price behaving the way we expect(pin bars, EBs, 2BRs forming), we can see if volume is also acting in a way that we would expect.
Thx Aaron. Yes, stock trdg provided some necessary grounding for forex. It was a tortuous journey, filled with successes & failures. For now stock markets I trade in are: SGX, HKEX, AMEX, NYSE & NASDAQ.
Probably like most people, I started off in fx with indicators, then EAs, then various methods / strategies… only to be disillusioned. The fx landscape is littered with mostly ill-intentioned predators waiting to prey on novices & the uninitiated. Samaritans are hard to come by & even harder to identify, esp to beginners, when mired among the carnivores. Nevertheless, in the course I gradually found the light.
All indicators are [B]derivatives [/B]of price. Why deal with the front-line soldiers when we have access to the chief commander?
This doesn’t have much to do with price action here but it is cool so I wanted to throw it in here. On Saturday I had this epiphany about what would make the perfect mid-long term trading EA. So I spent about 2-3 hours on Sunday hammering out some code and I was able to create an ea that in back test made 500% profit in 4 years (2009-2013 on EURUSD). The funny part is that it currently only can go long and it trades a set lot amount. I am going to let it trade a % of account so the profits can compound, and also get it shorting so it can take more trades. Right now it does about 3.25 trades per month, has a win rate of 50%, and walks away from every trade with a 1:2 RR.
Thank you Aaron for taking your time looking at my analysis and the input. I understand your thought process regarding the modified stop loss but how would you enter this trade if not on the break of the PA candle? When do you know for sure that price has broken through the weekly support? Or would you wait for price to break the weekly support and wait for a PA at a retest of the level before going short?
Really good looking equity curve without any major draw downs. Looks pretty much the same like the equity curve of my EA (711% in 56 months). Curious what you EA’s signals are based on. Shoot me a message in case you want to discuss EA’s sometime.
I will be shooting you a message! I think with finishing up some of the things from my to-do list for the program I could get it up to 1000-2000% in the 4 year back test. I would like it running on a demo by December 1st, so that gives me the next month to get it polished. I’ve never ran an EA in MT4 before and never used myfxbook, so if you have experience with those things that will be hugely beneficial!
While going thru backlog of posts, am picking up gems along the way. Allow me to put forth a point for comment.
The post below was Aaron’s reply to Post #366 by Yves in which he asked, “Is it correct to say that price tends to stick around support or resistance area but quite often moves rather fast when “traveling” from one area to the next one ?”
If I remember correctly Sam Seiden’s (of tradingacademy.com) view was that a really strong s/r level is an area where price last moved away very rapidly. When price revisits this level in a swift fashion it is likely to be rejected very swiftly as well. Price wld spend very little time there. An s/r level where price sticks around is not a strong s/r.
Thanks again Aaron for your great input. You’re totally correct about the 0.500 fib level. I have not yet started to implement fib levels into PA trading. I used them heavily when trading harmonics and really like them so i may sneak them into this kind of trading as well in the future.
I like your idea about the smaller stop loss. But I’ve many times seen price come back to retest the S/R level one or many times before finally taking off into the right direction. The question one would need to ask himself is: “Is the smaller risk worth of missing out on a potential big move?”
Of course, lower risk is always better but you may end up getting stopped out on 2 out of 3 really good setups.
I’ve always had problems with getting stopped out because my stops have been too tight. I’m reading the book “Market Wizards” right now where many successful traders share their success story in various markets. Great book by the way, i can really recommend it. One thing that really stood out to me is that many of these traders say that they put their stop losses at levels that when hit, it indicates that they really have been completely wrong with their analysis.
Last month for instance i got stopped out and missed two really big moves because of the SL beeing to tight (even though it was sitting right below/behind the PA candles [10 pips]). My analysis was correct and price did what i anticipated but i was not on the train.
So where exactly to put the SL is a tough question and one of my biggest struggles right now to be honest.
I added some code to make my money management more intelligent. I have a 20% draw down as my max allowed. Using certain money management settings I can achieve a 1500% increase in 48 months without going over 20% draw down.
I created a new thread for this indicator in the “Holy Grail” forum for those who want to keep up to speed on its development.
Sounds great. But it’s also very important to really optimize an EA and not to be curve-fitting it. Many of the biggest EA sellers out there have curve-fitted their EA’s to produce thousands % of return over a short period but they do not work at all when trading live.
I am actually using NinjaTrader on a VPS server to run my EA. NinjaTrader is superior when it comes to building strategies and backtesting. You should give it a try.
I do not have a lot of experience regarding strategies in MT4 but i am a seasoned user of myfxbook so i will gladly provide you with feedback there.
Prices are retesting a strong support zone on the EUR/USD 4H charts again. A nice bullish pin bar has formed rejecting the support zone. This also formed a double bottom and looks like a good place to get into a long trade.
