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WaveRider - Back to Basics - S/R, Price Action, MM, Smart Exits, One Indicator, and patience...

Discussion in 'Personal Trade Journals' started by WaveRider, Jan 1, 2012.

  1. WaveRider

    WaveRider Sergeant

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    I got stopped out last week on this up. I had a pending short order sitting for a few weeks that didn't stand a chance against the price action.
     
  2. WaveRider

    WaveRider Sergeant

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    EURUSD has a 4h pin bar after a really great thrust. I'm selling to the 382/weekly PP at 2325. Tp a litle before SL above high at 2455. Currently 2394. Live account.
     
  3. WaveRider

    WaveRider Sergeant

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    BTW The above got me 31 pips. It missed my target by 5 pips and pulled back. I TP when I woke up and saw it.
     
  4. WaveRider

    WaveRider Sergeant

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    Brian Craig Scalping method and a lot of conversation notes...long post

    As promised here are some notes on trading with Brian Craig. I said I’d post some points I’ve learned from him and he said that was fine. If he’d said not to, I wouldn’t. 70% below is from our conversations and the other 30% is just my observations. I’m not always right but this is how I see it.
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    Some introductory remarks:
    His system works. If you want other systems that work, google Nanning Bob, James 16, 3 Ducks Trading System, Claudia123's GBP/USD Breakout thread on Trade2Win.com, study Sive Morten’s videos/read Trading with Dinapoli Levels or find any thread with 50,000 veiws or more on the other trading sites like Trade2Win, forex-tsd or babypips.com. For derivatives (such as the futures markets like the CME) and securities (stocks), read about Sam Seiden and watch his videos, though his system doesn’t seem to work as well for Forex because Forex is pretty noisy. Not everyone is cut out for every system so you’d need to find what works for you. Some have no desire to learn and are happy to throw away money on EA’s. That’s fine because that’s how the rest of us make money. EA’s that work tend to work only in certain conditions and the designer needs to turn it on an off, as in Nanning Bob’s method. I dare anyone to prove me wrong. There are a lot of free systems out there, so no need to pay for one. What you would pay for is to have a successful pro trader sit with you and show you what you are doing wrong. That’s worth any price the pro wants to name. No need to pay for info, though, like CD's or DVD's. If you want a very cool EA that will manage your open trades intelligently and safely, look up Multi Purpose Trade Manager. Once attached, it wll automatically set trailing stops, jump to break even, take partial profits, hides stop loss orders from criminal brokers and lots of other stuff. It's cool and I use it because it allows me to open trades with no SL, and it will automaticlly set a SL for me, allowing for faster trading but still safe trading. Perfect for scalpers.
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    Brian Craig will say his system is easy because anyone who is good at something thinks it’s easy. Eric Clapton thinks blues guitar is easy but not everyone feels that way. I think it’s sufficiently complicated to be a real system (not just a “buy when this indicator makes this squiggle” system, or “buy my ea for $100 and let it make you millions”) but pretty straight forward and uncomplicated. It is a framework that requires you to use good judgment and discipline. It is a bit of an art but with pretty clear boundaries. Like any art, there is only so much an instructor can teach. The student must him or herself become an artist. This involves lots of chart time. Personally, I still don't understand how to use the MA's to predict a pull back since the MA's seem to be crossing or about to cross on pretty well anytime frame you pick. Still, it works well for him and I think this may the beginning of a long process for me to untangle these MA's. Or I may just stick with what has been working for me. What I have learned from him is how to use smaller TF's to predict what is about to happen on larger TF's and I should post about this later more in depth.
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    Craig’s system may not be for you because scalping isn’t for everyone. Brian Craig is a latent math genius, codes his own indicators and EA’s, doesn’t get bored in a 12h session in front of a screen, has super fast reflexes even after a couple of hours of market lull, doesn’t feel the need to trade out of boredom, doesn’t need to sleep much, seems to be pretty immune to fear and greed (just trades intellectually as he sees what is on the screen without self doubt and anxiety), is a student of the markets themselves, and seems to be a naturally self confident, decisive person. My experience in getting to know good traders is that they are curious people which makes them good at a lot of things besides trading. He’s the perfect storm for a good day trader. Not everyone is like that. That being said, a lot people graduated with doctorates in math and physics from Cambridge University besides Stephen Hawking and though they didn’t all have to be Stephen Hawking to graduate, they certainly had to work a lot harder than he did to get their degrees. You don’t have to be Craig to be a scalper but you will have to work a lot harder than he does. He has a lot of natural gifts. He became a profitable scalper in 3 weeks and never looked back. Not demo, just live. Probably about 50 traders in all of history can say that. Triantus Shango described him as a scalp god. I’m okay with that description. If you can’t get scalping, there’s nothing wrong with you. There are other methods of trading that work great for different personalities. Remember to trade demo first. Any system will fail without proper money management.
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    I would like to thank him for the time he has spent, free of charge, to show his system and share his knowledge of his system and of the markets in general. A real gentleman. Exactly why I like FPA over many of the other forums I’ve spent time in. It seems for now he is interested in keeping his screen sharing open for his family only and not strangers. It seems all the strangers in his "living room" tracked mud onto his carpet too many times. Never would I have expected to be able to look over the should of a pro trader while he is trading and pick his brain so I'm glad for the short time I had in his chat room.
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    Time will allow you confidence. No confidence in your system + big positions = fear = poverty. Even if you’re right, fear will make you close a position that has moved against you, only to go your way after you’ve taken your loss.
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    His system uses these elements in order of importance: 3 moving averages that are the heart of the trading system + reading candles (such as how long the wicks are and long candles indicate market sentiment) + his own indicator + knowledge of market mechanics (like when markets are opening and closing) + don’t be a knuckle head and sell into a huge support level.

    Open charts: 1m,5m,10m15m,30m,60m,2h. All setup with only three MA’s and his proprietary indicator (very helpful but not necessary to trade this method). You NEED all these TF’s up simultaneously so get a screen with the proper resolution or multiple screens. If you cannot see all these TF’s simultaneously you will have a very tough time trading this way. (Pro traders have 3-6 screens commonly for a reason. It is must for their business. Brian Craig has six 27” high resolution monitors.) He trades EUR/USD, AUS/USD,GBP/AUD, EUR/GBP. Typically only EUR/USD unless it is really sleepy, then he moves on to the others. He set’s daily targets, that is, a target as to where, if the market moves, about where it will move to. This is important because all pro traders know when the market has given all it will give for a day, and when it’s time to take your winnings or take your losses and go do something else. Or they have a personal target and quit while they are ahead.
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    The moving averages are 20, 50, 100, sma, median, no shift. MA’s “influence” the market in two ways:
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    1. When moving averages are heading toward each other, price surges in the direction that will make the MA’s cross. Just before the MA’s kiss, the price will pull back, the cross occurs, then the market continues on in the same direction that caused the MA’s to cross.
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    2. Price respects the MA’s themselves. It generally doesn’t shoot through MA’s but grinds through in a choppy fashion or reverses completely way from the MA. The lower TF’s will clue you into whether the price will reverse at a MA on a higher -TF as will the wicks. Long wicks means the price doesn’t want to go that way. Short wicks means there is more continuation in that direction.
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    As with any system, higher TF’s win.
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    The pullback that occurs just before the cross of MA’s is different with each MA. The 20x50 cross = Level one (the smallest pullback). 20x100 = level 2. 50x100 = level 3. Every TF has its own pull back amount before the MA’s cross and you could and should sit at charts of different TF’s and calculate this pull back number. So thrust first, when MA’s nearly cross there’s a pull back, then MA’s cross and price continues. (screen shot) The thrust, pullback, thrust in pips is different per time frame but is not too hard to calculate.
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    On a higher TF, this pull back is tradable. It may be worth 30-80 pips. The pull back may not reverse again to continue in the direction of the original thrust. This pull back may continue to become the new market direction. How will you know? The MA’s won’t tell you this. The candles will. They will tell you if the market is decisive in a new direction of if the pullback is just the bankers taking profits only to continue with the trend. As the market thrusts with long bars on a higher TF, the smaller TF’s will show you that there is some taking profits in the overall thrust and gain, if the market is losing steam. You’ll see it in the lower TF’s first.
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    So wait for a MA to cross on the higher TF’s. This is early warning, but not a signal to enter. Look for flagging price action on the lower TF that will signal the pullback is about to happen, then decisive 5min thrusts showing the pullback is starting. You get in now. Then take the little trend for all it gives you. The smaller TF’s will tell you when the move is done with the same long wick candles on the 5min and 10m charts.
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    You will take trades on the 30 min chart and up. If you take trades off the 5 min chart, you are being a knuckle head. In my opinion, the 5min and 1min charts don’t seem to be very interested in MA’s, especially when the market is really moving. He says the lower TF’s are indicators for market sentiment that will show on the higher TF. They tell you when a move is about to happen on a higher TF and when the move is losing steam. This is meaningful because price very rarely hits a target and races away from it. People who can move markets may have several million dollars tied up and they cannot fill all their orders in an instant. One pro traders said an order of less than 1000 lots cannot move the EUR/USD one pip, though I don't know if that is true, it sounds plausible. Big players that make the market jump 3-5 pips in a second or so are really well funded and have lots of positions to unwind when it is time to take profits. They cannot put 25,000 lots into the market and expect it to be absorbed instantly. It takes a little time to scale in and out. If the market wants to bounce off a pivot point, on the 1h TF it will look like a strong retrace but on the 5min, it will look like a big choppy mess and on a 10m TF there will be long wicks to the bottom. These lower TF's are "indicators" showing the big boys are unwinding their positions.
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    The choppiness is the big market movers unwinding big positions, while you and I think the market will continue its downward (or upward) direction forever so we are the other side of their trade. If you look at a market turn on the 2h or 4h, then zoom in to the 5m, you'll see the long 5m candles pushing away from the turning point and the long 5min candles indicating where this big players are placing trades. This is classic price action trading and there are many “naked scalpers” who are only using this candles method to get in and out and do very well. This long 5 min candle you and I cannot make. We don’t have the funds for this, only the market movers do. So if the market movers made this candle, which way is the market headed? In the case of the WPP being tested, this indicated the WPP will probably hold since the market movers are piling up long orders away from it. Even if the WPP is broken and the price moves down a few pips, the market makers have already decided which way the market is headed. All this will show in the MA’s. This strategy doesn’t require any other indicators. Personally, I like to watch Sive Morten’s analysis and do some of my own analysis to set likely turning points, but this is not necessary for scalping. You will not get in for 3 pips with this strategy but for 30-80 pip moves. A good thrusting day will look like this: forward 40 pips, back 15 pips, forward 50 pips, back 20pips, and finally forward for 40 pips. The MA’s should indicate those little retracements are about to happen and if you are skilled you can get both the 40 pips forward and the 15-20 pip retracements. So if the market overall moves 115 pips, you may get 150pips. (Or you could lose everything so don’t be a knucklehead.) I think Craig is taking profit every 10-15 pips are reopening positions but I’m not sure how he is managing risk. I tend to have wide stops as a fail safe but remember, your broker can see your stops.
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    When a higher TF allows for movement (no MA cross is near on the higher TF’s) the lower TF’s will indicate retracements are about to happen because they begin to show the big move is losing steam. Markets don’t generally come to a screeching halt. They are choppy as traders are taking profits, then reverse. On a higher TF, this looks like a pin bar, or railroad tracks. On a lower TF, this looks like wandering indecisive price action.
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    Don’t think the markets are obeying MA’s. MA’s are reading the charts just like people are. All indicators are reading the candles. Candles and price don’t care about MACD or Fib’s or MA’s. A long up bar on the 30 min, is a strong indication the market knows it wants to go up. Don’t think Fib’s and MA will tell the market to change direction. For some reason I don’t understand, these MA’s capture the convergence math of the emotions of the market. Also, 100sma on the 4h can exactly match the 20sma on the 24h offering double support. This happens often on different TF’s. It’s pretty cool to see.
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    Price hitting the MA indicates some hesitation will occur. Rarely does price disrespect the MA completely, esp. on the higher TF’s. If the retracement bar off the MA is weak and indecisive, the MA will probably not stop price action and the price will grind its way through the MA. If the retracement is a strong, long bar, in relation to the other bars, this is likely a place the market will turn. When it turns it will continue until MA’s cross in a lower TF or price hits another MA. Then there will be some profit taking, but the direction of the thrust will likely continue.
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    He has coded a custom indicator which helps with entries. It is based off moving averages and he says incorporates Elliot Wave theory and some other math stuff. His indicator fires an arrow on a TF and that means the price will pull back into the arrow, then go the direction of the arrow. The amount of pullback is different per TF. Obviously smaller TF’s will have small pull backs and it is dumb to open positions that are counter trend that might get you 2 pips profit but may take 10 pips from you before you close. His indicator is very reliable but is not required for his trading.
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    Market mechanics:
    Larry Pesavento wrote, “It is the responsibility of the market to fool as many people as possible”. There has to be more losers than winners in the market. Sorry, but that is the reality of it. Get to know who is taking your money and trade like them, not against them.
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    Stay out during news. Let the market decide where it wants to go after the news before you get in. New will destroy you, if you aren’t ready. Just hitting buy or sell when news comes out doesn’t seem to work well for anyone but your broker. The market tends to settle out about 15 minutes after the news enough that you can see where the sharks are taking the market.
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    Sydney opens first, then Japan 1 hour later. There is an opening bid in Japan on Sunday night that will move the market at about Japan’s opening and this is tradable using this system. Worth 10-30 pips often. Then sleepiness for a bit until London open. During the asian session, the AUD/USD, which is very closely correlated to the EUR/USD, is the lead pair. After London opens, EUR/USD leads. This means a move on one often “indicates” a move on the other is about to happen. Decisive PA on one but indecisive on the other can be an indicator that the indecisive one will get decisive pretty quick..
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    London is the 800 pound gorilla that tells the market for the day to do whatever it wants. NY often continues what London started. Asia often retraces on the EUR/USD. Many scalpers trade the NY-London overlap only. Many NY scalpers wake up early to catch some of London’s action and the NY overlap. Staring at a screen for the next 6 hours during the Asian session for a 20 pip move can be pretty frustrating and encourage boredom trades.
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    Remember the market is going to be pretty sleepy during NY lunch time after London closes. Good idea when scalping to wait to see what the NY firms want to do when lunch is over or just quit for the day. Or go get lunch.
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    The biggest players in the markets are the central banks like the BOJ, ECB and the Fed. Basically the central banks of the G8 and maybe Switzerland. They literally print money. Or more likely, they click a few keys on the keyboard and now there are $600 billion more in circulation than before, like in “quantitative easing”. Their power and funds are not limitless, and they cannot control a currency for long, but they are the biggest fish in the pond. They trade off weekly charts. Countries tend to like to keep their currencies low because this helps them pay off their debts cheaper, and makes exports cheaper. It helps the economies of countries to do this so they are not as concerned with taking a loss in the market on given day. Again, they have an interest in the currency market, but daily profit isn’t always in their best interest. They are not very likely to take over the market on any given day because they tend to not day trade. Because they have so much money, there aren’t enough people to take the opposite side of their trade to fill their orders and would simply run every day around if they wanted to. They tend to start and stop big trends on the weekly. But on big news releases they have their own stats ahead of time and of course sometimes they want to make profit too. This is why NFP and other big news releases can seem to defy logic. Why does GOOD news sink a currency 200 pips? Because central banks have more money than everyone else and need you to fill their orders for them. Good news is a perfect time to have you and me fill their sell orders while they take the currency down. The market really isn’t fair and free when one player runs the table so it only seems irrational. It is actually very rational if you understand who is trying to take your money. Not the herd mentality we are used to. And there are enough little to moderate sized players in on these days for them to get their orders filled. So good news comes out and you buy. They know the news is good because they have the reports ahead of time. They want to make some money but the amount of money they have is so great there is no way to fill all their orders at once. They need you and me to buy their orders. So they let the market move in the “logical direction” enough to get us greedy, so we jump in. They get their orders filled, then move the market against us. Then they need you and me to pick the bottom of this “irrational move” to fill more of their orders, so they let the market retrace enough to lure us in. Then they need the market to move against us to hit our protective stops to keep the momentum up. Then we need to become fearful that we missed the move so we take a loss and open a position at the end of the 200 pip run thinking it will go another 200 pips. This is how they unwind their positions and we are stuck with a position that will now retrace against us. How can you know which way the market is heading? Nothing can hide behind a chart. Get your indicators off that screen so you can see clearly. Since a central bank has more money than everyone else, the bars will be long in their direction with small wicks. Small wicks indicate there isn’t much back and forth with the bears and bulls. Small wicks means one side or the other is winning pretty decisively. When a central bank is trading, they will own the market, the bars will be long and the wicks will be small. When you and I are fighting over ups and downs, the wicks will be long because we are about evenly matched.
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    The Fed likes 200 pips. Check out Friday August 3rd 2012 NFP release. 200 pips is the NFP target. What to hear something that will blow your mind? The news was "good" but the currency sank because the FED has the numbers in advance and made the NFP numbers better than reality. The expected number was 100k, the "actual" was 163k. But the revision posted later was 64k. Perfect cover to get everyone who thought the EUR/USD should go up to fill their positions so they could take the market for a VERY big 200 pips. The pot is so big on NFP day, watch out for the sharks, er, the shark.
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    By the way, the pre-news ramp up is often these folks with info ahead of time getting positioned. If you only traded the premarket direction, with no stops for the first 2-5 mins of market commotion, you’d often be on the right side of the market when the little guys get done fighting. That is a Sam Seiden trick I read out of Raghee Horner’s book, Trade Forex in 5 Hours Per Week. That book was otherwise pretty useless. This works in equities and derivatives markets too. Don't do this on NFP day but on smaller releases, if at all.
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    Central banks on most days have reasons for trading other than immediate profits. But investment banks like JPM and Saxo have no other motive but profit. You and I are their bread basket. They always win. If you and I are good enough, we would go work for them. If we stop being good, we get fired and the next good trader gets hired. So they are always winning. They run the markets during the day. They do what they can to fool us and take our money. Investment banks like 100 pips on the EUR/USD. At the bottom or top of the move, the long wicks at the end on the lower TF tells what is happening. This is the banks unwinding their positions. You and I thought this downward move would last forever and so we sold at this point and allowed the investment banks to close their positions. Then the market retraced and we lost money.
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    The daily target is different per pair but you could look at history of each pair as see what the general target is of the bigger player on whatever pair. Banker traders have a target and then they go home and watch TV like everybody else.
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    This does not seem to be a programmable strategy since it relies on watching price action for entries and exits. The market will change a little because that’s what the market does. The length of a “long wick” to make it “long enough” is up to the artist trader. The MA’s now behave as described but the MA’s may need to be augmented or price may retrace after the cross, not before, after a few months or a few years. So use good judgment and don’t get greedy or arrogant.
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    Don’t be naïve. Your broker trades against you. They make money if you lose. They do not want you to blow the account but the best case scenario for them is that you earn then lose forever and not make profits so they can keep your commissions and spread. If you win big, they lose big. If you blow your account, they lose a customer. They can manipulate prices a little, hunt stops and crash your screen when you are far behind to stop you out. Then they deny it happened and say it must be your fault. If this were not true, there would be no need for FPA. Even ECN’s, who don’t make money when you lose, have liquidity providers that aren’t interested in having relationships with ECN brokers whose traders are really profitable. The best way around this is to not have all your eggs in one basket. Grow your account to 10k or 20k and divide it. Open another account with another broker. You can link or bridge MT4, NinjaTrader and many other platforms so that you are placing orders on one screen and it is simultaneously opening orders on another platform and account. This is a big hassle but this is exactly how the big investor’s trade. Diversified accounts so no one account can go bankrupt (PFGBest) or lose servers, or hunt stops. This is a gnarly business and all players have the obligation to do whatever it takes to take your money and keep you from taking theirs.
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    I read in one of the many books I’ve read that people like you and me average a loss of $14,000 US in Forex before we quit. Most people see a chart and say, “This is too complicated, can I just have someone trade for me, like an EA?” You will not be able to be lazy and sit on your couch watching the TV and expect dollar bills to fall into your hand.
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    In full disclosure, I’m not good at this strategy. My trading is much closer to Sive Morten’s and the James16 guys, and while I’m overall positive in the live account, it is a very little live account still. I don’t feel qualified in teaching this strategy yet, other than what is above. If I get time to post more screen shots, I will.
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    Thanks again, Craig.
     
    #54 WaveRider, Aug 20, 2012
    Last edited: Aug 20, 2012
  5. D.R.&Quinch

    D.R.&Quinch Sergeant

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    Brian Craig is a latent math genius

    Have u been reading Julian May perchance?
     
  6. WaveRider

    WaveRider Sergeant

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    No actually I heard Stanely Kubrick described that way by Arthur C. Clarke, who worked with him on 2001: A Space Odyssey. When the first up close pictures of Jupiter were taken, Clark said it was exactly what Kubrick had depicted so he sent a card to Kubrick that said "Thinking of you." Seemed a fitting description for Craig. He seemed to unravel the forex mystery in record time. Probably solves a Rubik's Cube in less than a minute too. You seem like a well read dude. I haven't read sci-fi in a couple years. The last sci book I read was Brian Greene's Elegant Universe about string theory. Delicious. Been reading forex and school stuff for the last couple years. Maybe Clarke stole the phrase from Julian May...
    I've been scalping some and it has been mostly losing but I know what I'm doing wrong and today and Friday I did pretty well. Fear is a real problem. Today was a weird choppy day and I still came out ahead so I'm happy about that. This EUR/USD tight price action should really let loose soon. Looking for a pretty big jump tomorrow or Wed. It's amazing what the 5min can show you abot where the 30 min is going. I'm remembering my roots but am excited about venturing into the scalping world. Craig says he tries for about 200 pips per day on 2 pairs. I'd be very happy with about 30-40.
     
  7. WaveRider

    WaveRider Sergeant

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    the 5 min and 1 min indicator

    Been using this the last few days to make some money and so far I'm up since Friday even on the choppy days. Since it takes a lot of money to move the market very quickly and the people with money tend to get more money, not less, I want to position myself with them every day. This is actually like one of my trading methods I've been using and describe in the first post of this thread but I've been able to hone the entry better and the targets better.
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    In the pic on the right side of the screen there are two very long one min candles (both worth about 6 pips) and one long 5min candle (13 pips). Very typically, the market jumps, then stops and retraces some, then jumps again. Most of the movement is finished in three or four 10 minute candles with a lot of back and forth in between. I'm waiting to see where the big money thinks the market is going using these smaller TF. Then on the higher 30 min chart, I snapped a fib. Sive says this big up swing will probably retrace to the 38.2% or 50%. So I'm short on the live account and waiting. Have set a 30pip trailing SL and 30 pip TP on this one since I have to leave the charts in a few minutes and can't watch price action.
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    If you can hang emotionally on for all the chop, this little trick usually tells you where the market intends to go for the day and the trader has to try to not get fearful that the move is over every time the market chops around. This tells you to get in and which direction but doesn't set a target. Bankers like about 100-115 pips so I'd set the target less than that. Should get 70-80+ pips on a moving day. Today, I'm hoping for 30 since this is probably a retracement on a larger upswing, therefore a counter trend trade. Up 7 pips already. If the market offers 80 or 90 and I only take 30, I'm still very happy to be winning. Will come back this afternoon to see what happened.

    8-22-12.
     
  8. WaveRider

    WaveRider Sergeant

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  9. WaveRider

    WaveRider Sergeant

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    The last trade posted went my way for 20 pips and reversed for a 10 pip loss because of the 30 pip trailing stop. It was counter trend and Sive warned the 1.2550 was the target so I don't feeel too bad. 10 pips is affordable. Looking forward to the big drop in the next few days.
     
  10. WaveRider

    WaveRider Sergeant

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    Well I got stopped out on my scalping day today because of some odd spike for no reason other than to stop me out. I set a 30 trailing stop as a safety and let the pips come to me. But i got nailed. I am thinking Forex will probably become a lot like the US stock market in that a few well funded players can manipulate the whole thing intraday and so will be more choppy, less trendy and more dangerous. Was short today and the market went my way by about 50 pips. Still got nailed. So lets move on.
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    I've been working on using multiple positions, along with price action and classical horizontal S/R lines. I'll add to that already working strategy some trend following. Trading with a trend while reading price action allows you to stay in a trade for several days. Stops are wide enough to accomodate the intraday noise. It requires stops of 100-250 pips. It is boring but is a really smart way to trade. My biggest motiveation is that I'm entering a new school semester and won't have time to sit behind charts all day. I've made it a goal to spend no more than 30 mins/day doing analysis. I want to set trades, forget about them. When I have time I'll do some intraday trading since it is fun and can make good money.
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    I've lost all previous gains attempting to scalp but haven't busted the account. So it was a cheap education. Pretty frustrating. I'll be trading really small again for the scalping until I think I can get better at it. Note to self: Tight stops are a broker's best friend.
     

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