FX TRADING METHOD
like in our old time “Tug of War” – price moved downward below the SRV at 1.51437 only to quickly reverse and move upward – breaking back above the SRV at 1.51437 and the SRV at 1.51491 as well. I would enter this market immediately aſter price breaks above the SRV at 1.51491.
Tis is one of those “fake and reversal” moves I remember from our “Tug of War” days as a youth. And such moves happen frequently in Forex trading. A trader must be ready to react quickly to enter this market as the move aſter the fake is usually very swiſt – as was the case here.
To make the most of this trade you would have to have had your plan in place to react immediately at a specific price - or lose a substantial portion of the move. Tat is why a system that provides the trader with a specific entry point is so important to short term trading. Our specific value of 1.51491 gives us such an entry point and our soſt stop loss would be a reversal of price that broke below that SRV.
I tend to think that the “fake and reversal” moves I see in Forex, such as the one just described, are a result of so many computer trading programs that are trend following. When a move suddenly
reverses sufficiently
the trend following traders must adjust their positions quickly – and that can cause a significant reversal
move to accelerate in the opposite direction. Tat was the case in this GBPUSD pair move – more than 700 pips in little more than a minute – and it took only about 50 trades to do it!
Although this trade happened very fast, you must remember that I took a considerable time in constructing this trade. Also, I waited patiently – even overnight - for the specific conditions required for entry to occur.
Tis “fake and reversal” is easier to see on the fastest chart, shown in
trader elects to take a side in the tug of war. But, the real difference in the two entries is aggressiveness of the trader – and I prefer the conservative trading mode. Without a very large trailing stop – or no trailing stop at all – a long trade would have gotten stopped out overnight.
A system that provides the trader with a specific entry point is so important to short term trading
Figure 6. However, it is very difficult to configure a trade on this fast chart – it is best to configure your trades on the primary, or secondary, intra-day charts. Te fast chart is used primarily to fine tune entries and exits – and occasionally for scalping a market.
I am always quite happy to take a 700 pip trade with relative low risk - and let the aggressive traders take the greater risk - and possibly a greater reward.
Te aggressive trader could have gotten into this trade at a much lower price than our entry - and could have ridden the move to a much higher price than that of our exit. Tis is the difference it can make in the “when” a
76 FX TRADER MAGAZINE October - December 2013
Te conservative strategy we employed netted less than half as much profit. However, the risk was far less as well - and there was no overnight exposure. Te conservative strategy resulted in the same decision as the aggressive trader as to “which side” to join – it just made a different decision on “when” to join.
Watch for the ‘fake and reversal” any time
price is near a potential trend reversal and starts moving sideways in a tight trading range. Remember such “Tug of Wars” conditions oſten result in a “fake and reversal” – and that reversal can be quite large.
Forex trading is a Tug of War; “which side will you choose” – and more importantly, “when” will you make your
move? Understanding the
psychology of the “fake and reversal” move may occasionally decide.
help you
I wish you great success in your trading.
Phil Elrod
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92