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