TRADING STRATEGy
evening hours. Another nice trade of about 900 pips.
3. An aggressive trader could have shorted off the primary SRV at 107.736 on Tuesday , Wednesday and Thursday with acceptable risk to reward.
HOW WE USE THE SRVs
A few words about how we use the SRVs are in order here. First, we use a proprietary method of calculating SRVs – it is unique and we find it accurate. Traditional methods
of
SRV calculation may or may not yield the same results. SRVs near the upper or lower Bollinger Bands are considered more powerful than those in the middle. Primary SRVs are considered more powerful than secondary SRVs. Multiple SRVs close together are considered more powerful than a single SRV.
It should also be noted that we try to always enter and exit our trades during the day in our time zone. Because Forex trades virtually 24 hours a day, other good trades can be found using the same methodology at hours we choose not work.
We construct a trade off the SRVs in two ways. One method is much more aggressive than the other.
First, the conservative way is to wait for an SRV to actually act upon the price move, as in the
above trades. We use this most often when trading Forex.
Secondly, a more aggressive approach, which we have often used in trading futures contracts, is to place an entry order to buy or sell “if touched” - with the “if touched” price being the same as the SRV on which we are basing our trade. This method is only for the experienced, confident and aggressive trader that has great confidence in their SRVs.
The SRVs are an essential part of our seeing the music of the market and they provide specific values on the chart from which we can visually see a potential trade. Being able to see the trade before it happens also means that we can see a trade that does not go our way quickly, enabling us to exit the market with a small loss.
Not all trades will be profitable – so it is important to set up your trades to accept no more than 50% risk – preferably much less (we try to only make trades with a risk of only 20 to 30%). That way a trader can remain profitable with a winning average of only 50%. And the higher your winning percentage the more money you can make. When we are doing our best work we achieve a winning percentage much higher than 50%.
Along with our other indicators, some of which are also proprietary,
FX
we trade with a confidence that only a small percentage of traders enjoy.
We have never seen a market that does not exhibit a rhythm, tempo and intensity – just like music. Learn to “see the music” and be a better trader.
One final note: our trading methodology is based on technical trading alone. However, we encourage each trader to learn the basic fundamentals that affect their market. Fundamental data can be intimidating by virtue of the sheer volume available, but the basics are essential because they can have a profound effect on the market – such as the EUR/JPY in our chart above. We knew that the BOJ was going to intervene in the market to attempt to stop the fall of the yen – they had actually told the world they were going to do so – we just did not know when. But knowing that it would come sooner or later we used our technical system to establish a long position in the USD/JPY – and just waited for the intervention to come. Needless to say the wait was worthwhile!
Phil Elrod
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FX TRADER MAGAZINE January - March 2012 69
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