lesson 1: Moving Averages

Above is a screenshot of three timeframes of the AUDUSD currency pair which are the 4h, 1h and 5m respectively. Naturally enough it could be any pair as this is for illustration purposes only.

So, three timeframes descending from the largest to smallest. Even just a quick glance at these makes it blatantly obvious that the value of the Australian Dollar is for the meantime losing ground against it's U.S. counterpart. Now in this example that maybe the case however it does not always look so evident.

In order for a validation of price action (PA) bias we add a moving average (MA), which in this case is a 100 simple moving average (SMA). Why a 100 SMA? Good question, well basically I find it works well since institutional investors which includes banks tend to make good use of it. Hey but let's not get picky on technicalities shall we.

Anyhow what I wish to do is explain the individual components of the plan then show how it all fits together. Now the lesson that comes out of this exercise is 'what is the PA bias? Well clearly it is to the downside, since price is below the MA in all three timeframes. right? So in this case we maybe looking at going short (sell) on the Aussie Dollar. 

I say maybe because this is only a 1st stage confirmation. There are more lessons to come. One other point to cover here is that this stage can only be ticked off for a green light when price is above or below the 100 SMA on ALL THREE TIMEFRAMES. If they don't match, it's clearly a no go.

Ok I hope the first part is clear enough, if you have any questions please put them in the comments. The second lesson covers an area not much talked about. The currency interest swap rate. Component number 2.

When Not to Trade?

What is the criteria for a no trade? The image above is a screenshot of the EURJPY as is now. As a trade goes it meets all of our requirements as set forth in lessons 1 - 4. Looks like a good trade setup right? Well it does if all you're looking at is our 3 timeframes.  However the D1 tells a different story. As one can see there is a strong support at 136.000 which has resisted 2 attempts to break through so therefore there could be a substantial rebound.

I would not eliminate this trade entirely but rather just wait to see how it all pans out. As of composing this post PA is still around 90 pips away from reach this level of support. This is where patience becomes the virtue. It looks highly likely it could do so and if that being the case a rebound is imminent since it has held back 2 attempts already. They say the 'third time is the charm'. How would one know if the 136.000 will hold a 3rd attempt? We know there is no such thing as an absolute certainty in the forex world.

Using a fibonacci retracement tool would help. If the rebound reaches 50 - 61.8% it would give a good indication of a bullish bias, however if it only reaches a 38.2% it could well indicate just the opposite.
The bottom line is just don't trade because you feel you must because that's just not so. Only trade when you have a clearer picture of what is going on.

Amendments

This evening whilst editing and reshaping the layout on the blog posts, I inadvertently screwed up the timeline in respect to the lessons, which you know doubt would have noticed. I haven't a clue how this happened and as such not sure how to rectify it at present.

However seeing as how they are central to this blog I will be creating labels for them in the right hand column. This will be essential for anyone referencing the site at a later date.

Again my apologies. There is a lesson there that one should not execute intricate tamperings late at night.

The Magic of Compounded Interest

I believe I mentioned in an earlier post that forex was NOT a get rich scheme. However let me ask, all things legal, what financial institution will reward you with a monthly 10% ROI? No bank, no superannuation fund, no property portfolio (unless it's humongous) will give you a return such as this.

The above xl spreadsheet displays a 4 year forex investment starting with an initial 1k outlay. By the end of the 4th year you would be on the brink of breaking into a 6 figure account. This is what is on offer here. Even using only 75% of your monthly return at this point to live off would equate to $6,597.75, and since you would be reinvesting the remaining 25% every month you would be getting a pay rise if you so wished.

Question is, is a consistent 10% a month achievable? I would say, absolutely, in fact it is  down right conservative. Would you do what it takes? Remain patient and consistent in your trading methodology and you could make yourself unemployable? Why so? Because no one could afford to match what you can pay yourself. Think about it?

Looking at the Big Picture

If there is one point (of which they'll be many) is not to get trade myopic. Always keep your eyes on the big picture to see where you are going. There is no such thing as a bullet proof plan which wins 100% of the time, show me a person who says they have and I'll show you a fair dinkum bullshit artist.

I win trades plus I lose trades but if you use a good plan and stick to your code (like me 😀) your monthly results will remain in the 'black'. I hate stressing, that is why I set TP levels, plus I love the idea of low maintenance trading. Set and forget. If the trade wins....good. If the trade loses....good. Either way doesn't matter, when you put the winning odds in your favour the law of averages takes over. Too easy.

So take it easy, work the plan and let the market do it's thing.