FX TECHNICAL ANALYSIS
popular indicators are called self- fulfilling indicators for that reason. The lower time frame should have a quick reacting indicator, such as the Stochastic. The Stochastic reacts in real time to current price action and its algorithm uses historical data to predict levels of overbought and oversold movement. We will place the stochastic on both the 4H chart and the Daily chart. The MACD histogram will go on the Weekly chart.
Trading with the
Triple
Screen Method
So back to the trade you were eyeballing, which is a short entry into the USDCHF. You’ve got all three of your charts set up as described above and you’re chomping at the bit to enter the trade and seize those pips! First, you must check the trade management chart, which is the Daily timeframe with the Stochastic displayed at the bottom. Te stochastic is showing a slight pullback from an overbought position of 94 a few days prior and the lines have crossed and are now retreating south. Now we check the higher timeframe. In this case, you will look to the Daily chart that displays your MACD histogram to see what it’s signaling.
54 FX TRADER MAGAZINE January - March 2017
the appropriate time frames, you just need to find an entry on the lower time frame using the stochastic we’ve placed there. Tis stochastic, much unlike the Daily stochastic which has been residing in the upper half of it’s possible range for quite some time now, has seen both oversold and overbought positions within recent history and is currently topping out at around 80 and looks prime for a short entry.
Since you have confirmed on all three charts that this currency pair is signaling sell, then you may enter short. Tere’s no exact method for calculating a stop loss or target with
Te MACD has previously gone through periodic showings of bullish strength, but the quick acting line has crossed south and both are inching ever closer to the neutral point of “0”. So far so good on your short position, now that you’ve confirmed sell signals using the appropriate indicators on
this strategy, but that’s where your risk management and price action analysis comes into play. What I like to do is find the nearest support and resistance levels. In this case, I find the next nearest support and place my target just before it so that price doesn’t have to break through the support
in order
for me to realize profit. I do the same
with my
stop loss and find the nearest resistance, in this case, and place my stop just above it so that price does have to break the resistance in order to trigger my stop. Tis gets me out of a bad trade
before it runs even further
against me to the next resistance. Tere are a number of ways to manage trades taken in this strategy. You can also use Dr. Elder’s rule of 5 here by watching the trade and if it hasn’t run profitable within 5 candles on the Daily chart, then you close the position. Dr. Elder has a theory that if your trade doesn’t run profitable within that amount of time (5 times the current time frame) then it was a bad entry or a bad trade.
Happy trading. Andrew Marshall Chief Compliance Officer Fx Investment Management LLC
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