Sunday, December 16, 2007

Trading the Forex Market

The World Wide Web is an amazing source of free information for just about anything anyone would like to know. As a full time trader, Forex mentor and fund manager I have used the web over the years to hone my skills as a forex trader.

When I started trading, the training cost an arm and a leg, was very basic and simply inadequate to empower individuals to trade with any degree of confidence or competency. Some platforms even charged extra for the use of simple trading indicators like Fibonacci.

Over the years I have purchased my share of trading systems. Some were good and others, well! they only cost me 10 times what I paid for them. Some offered to sell trading secrets that were banned" because they were so powerful, trading methods that guaranteed huge profits and never lost. Much of the marketing attempted to shroud trading systems in a veil of secrecy, each claiming that unless you subscribed to their methods you would never become a successful trader.

To be fair there are some brilliant courses available. Some did little to empower me as a trader. Not that the methods did not always work. They simply did not suit me. This Blog is not about bashing the "experts," there are many very competent successful "experts" out there with decades of trading achievements willing to pass their knowledge on to other traders. Even if it is for a fee they are entitled to be rewarded for that knowledge.

The truth is there are just as many successful, knowledgeable experienced traders out there who are willing to share their knowledge and experience with new and experienced traders alike. Thanks to the Internet there are not many trading secret left that are not available to all and sundry via the Internet.

With literally thousands of trading systems available, some radical, others logical each of us has to find a system that we are comfortable trading. So this blog is simply about sharing some of the trading knowledge found on the net with anyone who feels they can benefit from it. Also to interact with other traders who share my passion for trading.

All the trading indicators used are freely available on the web.

See Risk Disclosure

Laguerre RSI and Fibonacci Retracements

Laguerre RSI and Fibonacci Retracements:

Indicators Used

  • Charts 4hr EURUSD chart
  • 15min EURUSD chart
  • Fibonacci retracements & extensions
  • Daily Pivot Points
  • Laguerre Filter Line Setting Gamma 0.55
  • Laguerre RSI Fast and slow in the same window (Fast gamma 0.55) (Slow gamma 0.85)
  • Stochastic Histogram setting 14,3,3
  • Colour MACD standard as down loaded.

I know it seems like enough indicators to make the chart look as confusing as a chameleon sitting on a rainbow. Personally I do not like messy charts with too many indicators giving conflicting trade signals.

Many of the above indicators were introduced to me by the traders at forex factory used for their 5 min GBPJPY scalping trade.(originally a 1 min trade) I do not have the temperament for 5 min time frames and the spread on that particular currency pair is too big on my brokers platform.

My grateful thanks to them for the great indicators. Most of the above indicators can be downloaded on my other website. click here I do not have a clue how to add them to this blog but I will get my webmaster to add the rest to the website.

For many years I have used Finonacci retracements for my daily trading and find it just about the ultimate trading tool. Having said that I still find it to very difficult to get the exact entries using fibs (Fibonacci). More often than not price stalls at all the different fib retracement levels making it difficult choose the exact turning point. This necessitated using other indicators to find decent entries on fib's.

For this trade I will use Fibonacci for target purposes and the laguerre RSI and filter line to enter trade. I will be using the Laguerre Filter line as the trigger to enter the trade on a smaller time frame as it has already crossed short on the 4 hr time frame and the current trend is short. I will post charts at regular intervals to see how the trade progresses.

On the above 4 hr chart price previously stalled at the fib .382 retracement and dropped below the fib 23.6 and 100 % area. The day started long with the euro going back to test the pivot point at the London opening.
The fast lag (Laguerre red line) indicator suggested stay short and the fast(blue line) indicator was neutral. My feeling was that the slow lag indicator should still go below the 0.15 line to complete the down move. Both the Stochastic and MACD were firmly below the zero line indicating a further decline.
The 4 hr fib 1.618 target was down at 1.4405. The choice therefore was to look for an entry short below the daily Pivot point which would be in line with the current down trend on the Euro. To find a suitable entry I scaled down to a 15 min chart.
The next chart is GMT 8.00 am (London opening) and price is just starting to break short through the laguerre filter line having failed to confirm above the daily pivot point. Neither the fast nor slow lag had confirmed the move at this stage. The 15 min stochastic and MACD have not yet confirmed the short.

GMT 8.45 finally everything has confirmed the short trade. Price has opened below the lag filter line. Both fast and slow lag have crossed through the 0.85 line short. The MACD and Stochastic have also crossed short below zero. The shooting star doji candle was also a reversal candle further confirming the decision to go short.
I entered short at 1.4630 with my stop above the 15 min high at 1.4660. The ultimate target is the 4 hr 1.618 fib target at 1.4405. There are a number of support hurdles along the way, namely the Pivot S1, S2, S3 as well as the fib 1.27 and 1.382.

GMT 12:00 Price blew through the S1 support and stalled at S2 awaiting Euro news. Worse than expected Euro inflation figures then started push price lower again.

GMT 14:30 Once again price stalled after cruising through the fib 1.27 and stopped at the convergence of the S3 and fib 1.382 support area awaiting the US CPI news. Higher than expected figures sent price up initially only to meet resistance back at the 1.27 fib area. US Industrial production figures bounced back for November bringing price back to the S3 support. If price breaks through the S3 support then I am reasonably sure the 1.618 target will be met.

GMT 22:45 Even though fast lag crossed long through the 0.15 line, slow lag was flat line at the bottom indicating the down trend was still in tact. I decided to hang on for the 1.618 profit target on the trade. Eventually I closed out the position at 1.4420 not wanting to stay in the market over the weekend.

210 pips on the trade with a 30 pip stop loss and closed out only 10 pips from my target. Though I have mentioned fundamental results here I must state I am not a fundamental trader. Some of my worst trading experiences have been trading fundamentals. These announcements are getting harder and harder to interpret. I do however take note of them and try to regulate my trading accordingly.

First establish the trend on the 1hr and 4 hr charts and then enter the trade on a shorter time frame unless the signals are all in place on the bigger time frame. Then enter the trade in the direction of the longer trend.

These indicators work on most currency pairs and on smaller time frames on the more volatile currency pairs. You can adapt them to suit your own trading style and temprament.

Download Indicators

Tuesday, November 20, 2007

Laguerre RSI Ma-Rsi Setup

Setup for Laguerre RSI Trade

Indicator settings for Trade
Laguerre Inputs
Common: Fixed minimum: -0.05 Fixed Maximum: 1.05
Gamma 0.85Count bars 9500Levels 0, 0.85,0.45,0.15

The Gamma setting on the Laguerre indicator will determine whether you get an aggressive entry or a more conservative entry. For this trade I am using a conservative setting of 0.85 to hopefully eliminate any whiplash.

MaRsi levels
Again the Rsi cross on the ma-rsi is set to 34 for a conservative entry.
For the MA-RSI moving average periods I have used 8, 13, 21, 34, 55. All the RSI periods are set to 34 for a conservative entry.

The ma-rsi is a combination of moving averages and RSI.
All the indicators used for this strategy are attached as downloads. I am not certain if this indicator is available on trading platforms other than Meta Trader. They are free downloads as additional indicators for the Meta Trader charting.

If you cannot find it for your particular charting package and want to test it out on the meta trader charts then click here to download your free demo.”

The Rsi period of 34 is set to trigger at a cross of the 50% line on long or short. The lines will change colour from red to blue or blue to red when all the MA’s have crossed the 50 RSI on a 34 period setting.

The above settings allow for short medium and long term crosses and help to remove many fake outs and whipsaw in the market.

We enter the market long when the Laguerre line crosses the 0.15 line from the bottom up and short when the Laguerre line crosses the 0.85 line from the top down. When the market is trending strong in a direction the Laguerre line will flatten into a straight line above 0.85 (when long) or below 0.15 (when short) indicating that we stay with the trend until it starts to move up or down between the 0.15 and 0.85 range

To enter a long trade (buy) we wait until the Laguerre indicator crosses above the 0.15% mark and the ma-rsi changes from red to blue signaling that 34 period rsi on all the ma’s have crossed the rsi 50 % line to go Stop loss Our stop loss is placed below the last low in the market.

Risk management:
Calculate the difference between the stop loss and the entry level to determine the size of the stop loss. Ensure that this is not more than 1 to 2% of your capital. If the risk is larger than the 2% then rather give the trade a miss there will be other opportunities for less riskier trades.

Exit strategy
There are a number of strategies we can use to exit the market. For this trade I have used the previous support levels as profit targets. Then later added the fibonacci expansion levels once I had a low and high to work from.
If the Laguerre indicator crosses below the 0.85% line and the ma-rsi changes colour then it is an indication that the trend is about to reverse. Close the trade regardless of how much profit has been made. The reason for going long now no longer exists so rather get out with some money in the bank.

Alternately you can use pivot points for targeting your profits.

For short trades (sell) we wait until the Laguerre indicator crosses below the 0.85 line and the ma-rsi changes from blue to red across all the settings to enter the market. See blue highlightrd areas on chart. The stop loss is placed above the last high in the market.

I have found the method works equally well on most time frames from 5 min to 1 hr. see the following diagrams from actual charts.

Gbp/usd 1hr chart
As we can see on the above GBP/USD 1hr chart the blue Highlighted areas show the MA-RSI change from blue to red and the cross of the Laguerre line below 0.85 to go short. We enter short at about 2.0380. Our stop loss is placed above the previous high at 2.0427 and target our 1st support line at 2.0300.

Our risk is 47 pips for a reward of 80 pips on the trade. We targeted our first support at 2.0300 to close half our position if in the market with more than 1 lot. The second target is our second support price of 2.0276, 96 pips from entry.

The flat line at the bottom of the Laguerre indicator shows the market is in a strong down trend and we can stay with the trade till we hit our target. After the 1st low had been made and we had a pull back I added a fibonacci expansion for targeting. As we can see the blue highlighted area price dropped all the way down to our fib 1.618 target ensuring we made more than double our risk on the trade.
Download Indicators

See risk disclosure at the bottom of the page

Friday, November 9, 2007

Trading with Laguerre RSI and QQE


For this trade I have used the Laguerre RSI indicator with a filter line on the screen as well as an arrow indicating that the price has crossed below the filter line. I have also used the qqe indicator to confirm the short trade. There is also a stochastic histogram and colour MACD to confirm the direction. The daily pivots are also used to confirm the entry and to provide targets to exit the trade.

The vertical red line on the left is the entry point for the trade. Price dropped below the Laguerre filter line and the red arrow confirmed the market was about to go short. The fast laguerre line crossed short below the 0.85 line. The qqe line also crossed short and so did the stochastic and MACD. Price also crossed below the up trend line. With all the indicators in sync we entered short at 165.69 The fast laguerre also crossed below the 0.85 line and qqe crossed through the 50% line further confirming the strong down trend.

15 Min EUR/JPY Meta Trader chart.
Price continued to fall throughout the day and eventually we exited the trade at 163.63 for 300 pips just before price crossed back above the Laguerre filter line.
None of the above indicators are standard with the Meta Trader charting but all are freely available as downloads

The Laguerre RSI was introduced by John Ehlers in his book “Cybernetic Analysis for stocks and futures” It uses a Laguerre filter to provide a “time warp” so that the low frequency components are delayed more than the high frequency components, enabling much smoother filters to be created using less data.

See Risk Disclosure at bottom of Page