A not for the faint-hearted FX set-up.

From our ‘live’ skype trade room chats. A couple of 70 per cent add-on tactics that are not for the faint-hearted. And a useful quote from the ‘Dealer’ book.

(Buzz) With a build-up below or above a round number set limit entries at zero, five pips and ten pips. Stop 20 pips. Exit 5 pips below (or above if long). 70% probability he (the author) says.

(Buzz) The author keeps 1/3 of the trade to take further as required.
That is Cable but applies to all.
The ‘dealers’ are going after the stops of those that entered short early with tight stops above.
It’s not our broker – not big enough. It’s the big banks.

Further on the above. It’s not real money that’s doing this. Imagine if you usually traded at the 100 million or higher level. And if you don’t do it too often, say you put a limit order in the system (one that you have no intention of activating) the computers would pick this up and make immediate alterations to the currency effected in anticipation. Once the order is removed as a non-event the market re-corrects.

According to Al Brooks, (since the publication of the ‘Dealer’ book), the market has moved on in size. It now apparently takes more than one bank to move the EUR/USD during London/NY open times. But the principle stays the same despite that.

Another comment from the ‘Dealers’ book)……In order to reach this pot of gold, you have to be able to find an approach that accurately trades market corrections rather than predicts them, since technical and fundamental analysis are simply not enough to beat the crowd. The secret to success is actually not such a big secret. Everyone knows that with proper money management and a half-decent strategy you can make money. Yet most still find themselves failing. To become truly successful, if you are a beginning trader you should immerse yourself completely (and I mean completely) in the subject in order to find your edge. If you are already a winning trader, then you had better make sure that you understand exactly what your edge is. What is it that sets you apart from the other 90 % of traders? Is it sheer luck or something different? Knowing what keeps you in the game is the only way to find your way back during tough times. In the end, no one can ever hope to master the FX market; but for those that manage to set the dollar signs apart and focus on the intellectual enjoyment trading provides them, a fortune usually lies along the way!

Silvani, Agustin. Beat the Forex Dealer (Wiley Trading) (pp. 146-148). Wiley. Kindle Edition.

(Nick) A lot to take in there, going to have to read all this a few times, but some fantastic ideas on first read through. (Referring to the above and several items not included).

The round number strategy again. This time Cable. Only works if the build-up is an extension. I’d be aware of a build-up any closer to the round number.

Exciting add on strategy for backtesting. It’s from the ‘Dealer’ book in this instance short at a test of the ten ema. Price action up to that point is critical. In this instance three engulfed bars. Also, as now with all my trades, the trend must be affirmed — exit on the first close above the ten ema. 50 pips.

The importance of the spread.

The following is from our Skype ‘live’ trading room chats. Includes: know when to trade and when not; sometimes a trade is too close to call; being stopped out is part of trading, accept it; and two book recommendations.

(Buzz) A case of not only knowing when to trade but knowing when NOT to.
The following trade looked okay. But the context was poor (double bottom 6-hours prior not shown) and again news about to be released. I also didn’t like the seven pip distance to a first stop option.

Know when not to trade.

(Buzz) It’s interesting how if I take a higher entry I’m reluctant to accept as easily a worse price even though it’s a better entry?

(James) I agree. The money isn’t yours until it’s cashed out of the trade. But it doesn’t seem that way when you’ve been 10 pips in profit.

(Buzz) If I hadn’t have taken the failed higher entry, I’d not have thought twice about the short at 7:45.
I’d probably have been entered at the 7:35 bar.
However, the 7:40 bar gave a hint of a reversal. If the 7:40 had closed as a stronger bull, it would have produced a trend break buy.
All in all, some just get missed or are best left.

Sometimes it’s too close to call, best left.

(James) It quite often puts it on a knife edge before it takes off. That was another example.

(Buzz) Took what I thought was a pbc (Pattern break combi). I was way too early. Got to work on the harmony of my takes—a 90-minute hold. Aimed for ten pips but took it off at nine pips profit. Three down and tailless bear close. At that time of night, I couldn’t face another pullback — still, nine pips to balance up some earlier losses.

The upper ellipse marks a high that came within a pip or so of the stop.

(James) Well done holding for that long! Especially at that time of night.

(Buzz) Started reading this, (below) good info so far.

Published 2008, but good insight into dealers.

(Buzz) An interesting point from the book I mentioned earlier, Take each 4-hour session and calculate the pivot point. It’s a guide. Above the pivot point for the follow-on session is only longs and below the pivot point just short. Here’s an example.

Example of how to calculate ‘pivot points’.

(James) Good point, these pivot points are critical.

(Buzz) A good price action trader can look at the chart and know where the pivot point is. The calculation, however, provides some confirmation.

Took the 11 pips profit at the close of the extension bar. But a continuation is on the cards.
Known as a ‘wedge’ which is often followed by a reversal.

(Buzz) In answer to a question. Reference Alan’s question about MT4. Designed specifically for FX. He needs to watch for the spread offered on MT4 as sometimes higher than a broker’s charts. I prefer MT4 to anything else I’ve tried except ProRealtime.

Another book recommendation.

(James) Haha nice hair doo! Good opening para.

(Buzz) Yes, ignore the 1980’s style; a classic and still very much relevant.

(Buzz) About MT4 and the spread that we talked about yesterday and Alan’s question; this is a footnote from the ‘dealers’ book. Spreads were much higher back in 2008. But the principle remains.

The importance of the spread.