FX Trading Recommendations

#1
FX Trading Live Demo

I would like to start a new thread concerning trading of FX markets. The thread will suggest some trade recommendations in different currencies. These recommendations will apply to spot and forward FX markets but will also be equally valid for futures. The price levels will only be given for spot FX market.

The thread will be updated as and when an opportunity arises. It will be based on my understanding and experience of FX markets and my interpretation, understanding and knowledge of technical analysis.

The thread will not attempt to give any fundamental analysis or comment on the activity of the Fed or any other Central Banks.

The recommendation will consist of: Entry orders (limit or market), stop-loss orders, risk/reward analysis, Exit orders with expected minimum target profit levels.

Please remember all the prices quoted are spot prices

Here is my first recommendation: (Eur/Usd closed at 1.2540-43 on Saturday)

Trade: Sell: limit order: Eur/Usd (selling Euro vs US Dollar) @ 1.2520 - (we want to sell it at a level lower than the closing of the market on Saturday (1.2540 - 1.2543)

Stop-loss order: Buy stop @ 1.2580

Potential target: Exit order: Buy limit order @ 1.2250

Risk reward analysis:

Potential loss = (1.2580 - 1.2520) = 0.0060 basis points
Potential reward = (1.2520 - 1.2250) = 0.0270 basis points

Risk reward ratio = 1/4.5

Regards

Nautilus
 
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#2
Re: FX Trading Live Demo

Hi All:

As of this writing the above order has not been executed it is still floating in the market on a GTC basis. Will await the out come.

Please note that since these orders have been placed in the market on the basis that if the entry order is triggered then the stop-loss order would become active.

Regards

Nautilus
 
#3
Re: FX Trading Live Demo

As of this writing 8.50pm The above order has been executed and now we are in the market.

We have sold 100,000 Eur/Usd @ 1.2520 our GTC (good till cancelled) Stop-loss is at 1.2580.

We will either get stopped-out or the market will proceed to 1.2250 where we will exit the trade.

Regards

Nautilus
 
#4
Re: FX Trading Live Demo

nautilus said:
As of this writing 8.50pm The above order has been executed and now we are in the market.

We have sold 100,000 Eur/Usd @ 1.2520 our GTC (good till cancelled) Stop-loss is at 1.2580.

We will either get stopped-out or the market will proceed to 1.2250 where we will exit the trade.

Regards

Nautilus
Hi Nautilus

What evolves in your TA. Very big move expected but the market is almost flat and has not jumped a big move either side.

BTW How did you calculated the Entry, Stop & Exit numbers.

Lets share something, if you are willing to.

Which broker are you using currently and the chart service.

Regards
James Alex
Trend is your FRIENd, FOLLOW it
 
#5
Re: FX Trading Live Demo

jamesalex_us said:
Hi Nautilus

What evolves in your TA. Very big move expected but the market is almost flat and has not jumped a big move either side.

BTW How did you calculated the Entry, Stop & Exit numbers.

Lets share something, if you are willing to.

Which broker are you using currently and the chart service.

Regards
James Alex
Trend is your FRIENd, FOLLOW it
Hi James:

I am a medium term position trader.

My TA involves the following:

Only Primary Price Analysis (ie. market prices and highs and lows and swing break outs). I use bar charts and candle stick charts. Sometimes I make use of Bollinger Bands and 65 day EMA for confirmation of "reversion to mean" or the end of "anti-trend-swings" (see below).

1)Determination of Trend: This involves analysis of the major trend for which I use the following:

a) monthly (20 day swing charts) - which gives me higher highs and higher lows - classic definition of a trend (for an uptrend etc.........)

b) Analysis of "anti-trend swings" (which involves 5 day swings against the main trend) - these are the corrective moves lasting anywhere from 7 days to more than a couple of months. When the major trend resumes - meaning that when the monthly "trend swings" take control over from the "anti-trend swing" then the original trend will resume (as in the case of EUR/USD). If it does not then the smaller "anti-trend swings" will develop into larger swings (20days) which will then lead to a trend change and a new trend.

c) I only trade in the direction of the major trend (here selling EUR/USD) The current major trend in USD is up - the USD bottomed on 30.12/04, and then the new Up trend in USD was confirmed on 12/05/05.

d) I make considerable use of "anti-trend swings" and look for signs of these "anti-trend swing" failures and a logical entry point (there are five such anti-trend formations that I have managed to identify and learn from over the years ) - having done some statistical analysis these tend to give me a win:loss ratio of around 65:35. These failures of "anti-trend swings" are my favourites and I would wait for them till I can get into one. They also allow me to get into a trend after the trend has begun (if I had missed an original entry into a trend).

2) Risk Analysis: I choose a logical stop-loss based on Hourly charts. This involves studying 1 and 2 hourly charts and looking for "inside and narrow" (I&N) bar patterns. If I see a compression of bars which are also I&N then I look for the high of the largest bar and determine my "Risk" ie. stop-loss. In the case of Eur/Usd I had determined a risk of 0.0060 basis points based on above analysis so the stop-loss was placed at 1.2580 and my entry point was determined as 1.2520.

3) Reward Analysis: I look for the most recent swing's "highest high" in the EUR/USD case it occured on 2/9/05 at 1.2589 and I look for that swing's "lowest low" again in case of EUR/USD it occured on 19/8/05 at 1.2126.

Calculation of reward: (1.2589-1.2126)x 0.75 = 0.0347
Reward objective = (1.2589 - 0.0347) = 1.2242 ( I have rounded it off to 1.2250 on the higher side) this is also my objective.

Reward = 1.2520 - 1.2250 = 0.0270 basis points.

When you go long you perform the reverse calculation and add the 75% of the (high-low) to the low.

4) Calculation of risk (0.0060) reward (0.0270) ratio = 0.0270/0.0060 = 4.5

5) Risk Free Trade: I also use a technique called "risk free trade" - what I do here is that when my given objective arrives I liquidate 50% of my trade and then tighten my stop on the remainder to the highest high of the past 5 days plus 5 pips. This then becomes my trailing stop.

6) Secondary Objective: I have a secondary rewards objective on this particular trade (Eur/Usd) of 1.2060 - this is based on larger recent swing points starting at the highest high of 2/9/05 (1.2589) and the lowest larger swing point of 5/7/05 (1.1867). The calculations are exactly the same as above.

7) Types of "anti-trend swings":

a) a five day swing reversal
b) a five day reversal swing pattern giving you swings a,b & c (3 swings)
c) a five day reversal swing pattern giving you swings a,b,c,d,e &f (5 swings)
d) a 20 day anti-trend swing goes against the main trend for not less than 20 days.
e) a congestion pattern involving 5 day anti-trend-swing.

I hope this has helped!

I use RefcoFX as brokers as well as EDF Mann (www.manngroup.com).

For FX prices and analysis I use www.netdania.com - excellent real time spot fx site which contains all the info I require and is free as well.

Regards

Nautilus
 
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#6
Hi Nautilus,
Wao!!!For ur great explanations---U do really deserved a compliment ---MAN---So many ways of trading----Along with the Delta Neutral strategy by WasteJ---I will be following this thread too---though I know---not even ABC--of FOREX trading---
Hope u will always go in these great details---for we--learner's sake---
Regards,
joy_mitali
 
#8
Nautilus....Very interesting, and thanks for the detailed writeup on factors influencing forex markets. I will be following this thread henceforth.
 
#10
Re: FX Trading Live Demo

Hello Everyone:

As of this writing (10.25pm) the Eur/Usd is trading around 1.2445 in NY.

Trade Management: Once a trade is in the market I spend time managing the trade. This is a very important function for the trader. What this involves is tracking the market and adjusting the stop-loss levels if warranted by the market. It does not matter whether the trade results in a loss or a profit but the trade must be managed through to its conclusion. I have found that if my entry is wrong then my stop-loss is triggered within 72 hours of placing the trade in the market (almost 90% of the time) After 3 days in the market without the stop-loss being triggered the probability of the trade resulting in a loss drops to about 30 to 35% ie. the winning probability rises to 65% or above. It is important to bear in mind that we must not choose arbitrary stop-loss levels. These levels must be logical and must have some significance. A larger stop-loss level does not mean it will get triggered if it is placed logically but an arbitrary stop-loss level will get triggered more often.

An important rule of the market is that - The market always demands a price for the information it gives out. Let me give you an example of this rule. Assume that the market is rising and is about to start an up trend and I am interested in going long. But I am looking for additional information or confirmation to participate in this new rising trend - this additional information comes in the form of rising prices. So the more information I seek from the market (confirming the rise) the higher the price I will have to pay to enter the market.

Risk Free Trade: This type of trading gives me a great psychological edge in the market which makes my trading stress free. Once you have taken 50% of your winnings from the table and the knowledge that the market will not do great damage to your capital is an edge in these markets. Plus the fact that if the trend continues as per your analysis you still have 50% of your riding the trend.

After taking 50% of profits I am not fully invested in the markets although the markets are going in my favour. This may lead you to question do I get fully invested again or remain half invested for the remainder of the trend.

I would like to expand on the interpretations of the anti-trend-swings mentioned in my previous post as these are reliable price patterns. These are also the types of structures and formations that allow me to get back fully invested in the markets. These structures also allow me to jump into a running trend if I have missed the begining of a trend (which happens on a few occassions). We will assume that the main trend is up so all the anti-trend formations will be in the opposite direction.

a) Five day anti-trend-swing: These normally occur in fast trending markets, these happen very quickly and terminate very quickly. These normally last for five days or more but less than 20 days. These offer very good r/r trades and the p/l probability is very good. We must watch for signs of reversal of this type of anti-trend swing to be able to participate in the main trend. This allows me to become 100% invested in the market again.

b) Five day anti-trend-swing resulting in swings a,b & c (3 swings): IF the major trend is up then these mini swings show lower highs and lower lows a,b,c formation. Here again we watch for a termination pattern or a reversal pattern. These pattern can last for 15 days upto over a month or more. This will allow us to get back into the major trend and become fully invested. These again offer very good r/r potential and profit probability of over 65%. This is another technique for becoming fully invested after making a trade risk free.

c)Five day anti-trend-swing resulting in a,b,c,d,e &f (5 swings making lower highs and lower lows): This pattern is similar in structure to the above but has further two extensions and can last for two months or more. We again look for termination of this anti-trend move (see my previous post - momentum indicators help here - like deviation of price vs the momentum indicators etc). These are again very reliable and have good r/r as well as p/l probability. This allows me to get back fully invested. The current Eur/Usd trade is based on this particular structure.

d) Twenty day anti-trend swing goes against the main trend for not less than 20 days: This must be of twenty or more and must not have any five day swing structures within it. These last for 20 days or more. Again very reliable and with good r/r and p/l probability. This is another way of re-entry into the market.

e) A congestion pattern involving 5 day anti-trend-swings. As the name implies this is a five day or more structure with a a,b,c,d,e,f structure or longer. Since it is a congestion it does not make lower highs and lower lows but forms a congestion and thus we get resistance points at a and c and support points at b and d.

As there is a congestion we know that the market is in equilibrium. There are sellers at a, c and e who have placed buy stops above a, c & e levels. There are buyers at b and d who place their sell stops below b & d.

Now assume that we have just completed point e and the market is headed down to make a low at f. We know that the congestion has been resolved the day the supports at b and d are broken and the market makes a new low - this is our opportunity to look for an entry point to go long. Most text TA technical books will disagree with me on this point but let me explain the price dynamics at point f when the market has broken the previous supports of b&d.

There is an un-written law that states the markets can be incredibly cruel and when it is about to make a major move it will foil the participation of the majority of the traders and it will eliminate the weak hands before the actual move commences.

Lets see how a new low at f helps us understand the cruelty of the market. Until the new low was made at f the price was in equilibrium and there were sellers at resistance a,c and f with their buy stops just above those levels. There were also buyers at supports b and d with their sell stops below b and d. What the market did by making a new low at f was that it basically triggered all the sell stops and cleared out the weak hands and then it heads higher quickly and clears out the buy stops which causes short covering and taking out the shorts. These types of moves tend to be aggressive and fast and major. All technical analysis books state that when a market breaks out of a congestion the moves are normally quite large but they do not state why it happens.

This is also a reliable pattern with excellent r/r and p/l probabilities. Again this type of formation allows me to get back fully invested in the market.

Regards

Nautilus
 
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