Happy New Year, hope you had a great break. It’s time to get back to trading. The markets will likely be quiet until next week but I will be watching closely.

Here is the weekly analysis for this week.

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I have decided to start shooting live trade videos again. This is my first one, it was a GBP/JPY short scalp trade on the break of the 133.28 scalp line on the 19th of December.

You may notice I took the break of 133.28 and not 133.60 even though 133.60 was the actual scalp. The 133.28 showed heavy support on the 5th of December. For this reason I thought it would be a better idea to wait for that support area to be broken to enter the trade.

I think you will enjoy this one guys:

I am not really doing my normal analysis until the New Year. For now I will just post a few chart pics.

As I have said I wont be using normal S+R lines until GBP/JPY moves back into more familiar territory. At the moment I am only using scalp lines, candle patterns, price action and as you can see in the pic below some trend lines.

So the first scalp line we have is the 132.25 and it doubles as the lowest point since 1995. It seems like a very strong line as it has had two bounces. The most recent one is just two candles ago. If the 132.25 scalp line break I will go short with a stop of 50 and an initial target of 50. I might raise my target depending on momentum.

On the long side the first scalp line I see is the 139.22 (yeh I know its far away). It had a few bounces starting on the 15th of this month. Same deal with this one. If it breaks I will go long with a stop of 50 and an initial target of 50. I might raise my target depending on momentum.

I wont discuss the trendlines because I have not talked about trendlines yet in relation to my trading method. I do not want to give trade calls unless I have thoroughly explained how I would handle the trade myself. I will explain trendlines in the new free NickB method e-Book coming soon.

REMEMBER Even those the line set-ups are not great since there are few of them and they are far apart that does not mean I wont be trading. I am still trading candle patterns such as LWP’s and MC’s.

Also I will be writing a new FREE e-Book this week on my long term trading method. These are daily and weekly chart trades. I usually hold these positions for 2-12 weeks.

To get the free e-Book simply click the link below:

http://www.forex4noobs.com/forums/talking-forex/2328-nickb-method-master-candles-special-advanced-edition-e-book.html

It seems like there is a lot of confusion over master candles. People seem to be using them as some sort of standalone method and jumping in blindly on line breaks. Like i said master candles are just an addition to the NickB method and they should be used together with scalp lines, candle patterns and price action otherwise they will not work effectively.

Anyway to clarify I have written a free 15 page e-Book that explains in detail the role of master candles in my trading. It is being edited and should be out sometime in the next 1-3 days.

Check out this master candle on GBP/JPY

Now check out the same master candle on GBP/USD and GBP/CHF:

GBP/USD

GBP/CHF

Now take a look at the same master candle already broken on the long side on EUR/USD and EUR/JPY:

EUR/USD

EUR/JPY

All these master candles are the same and two have broken to the long side. This is an indication that the GBP/JPY might break long and if it does it might make for a good trade. If you look back to yesterdays article about breakout correlations (click here to see it) this is what we are seeing right now. The same master candle is spanning across several pairs and some of them have broken. If the others break in the same direction GBP/JPY should make for a good trade.

I am still cautious with these kinds of trades so I wont enter a real postion. I thought I would give you guys a heads up on it though.

The master candle formed 135.90 and 137.36, it took a whole 8 candles before it broke. It broke the support at 135.90 and moved around 66 pips before it reversed. Realistically with spread this trade was worth 50-60 pips. The target was 60 pips from the line and the target was met.

Who made pips on this one?

Also because we have not seen these price levels for many years it’s hard to place good support and resistance lines. So for these reasons I started looking at ways to adapt my method to try and reduce the risk of bad trades or unsuccessful line breaks. Therefore, I started to look at ways to try and decide what would make a line break more successful and try to target more pips, as the moves across the pairs have been larger than normal.

You know that I only trade 1 pair, GBP/JPY but after talking with another trader from the site, Laurynite, she showed me how she has adapted my method. She looks at a number of pairs, mainly GBP/USD, EUR/USD, USD/JPY, EUR/JPY as well as GBP/JPY on the 1hr time frame. She uses support and resistance lines along with scalp lines. She also adds trend lines and looks at how pairs move in relation to each other: the correlations between the different currency pairs.

Currently, these currency pairs seem to be moving in the same direction more than they were before the financial crisis. Using the correlations between these currency pairs is a way to increase the chances of successful trades, using my method.

I have included a few examples to show that looking at similarities between the currency moves can reduce your risk and add to your pip total. I am not suggesting you start trading multiple currencies!! I am simply showing a way to increase the likelihood of a successful trade and grab more pips than in a normal move. I still trade the 4hr timeframe I’m just experimenting with this just now.

Example 1: GBP/JPY December 1st 2008

As you can see from these charts, a wedge developed across the pairs mentioned. There was a scalp line above and below the wedge formation. As I do not normally trade trend lines I was waiting for a break of either scalp line. As you know, I do not try and anticipate what will happen, I trade what actually happens. First, the wedge broke on EUR/JPY and EUR/USD to the downside. This was an indication that it was highly likely that GBP/JPY would also break to the downside. However, I waited until the break of the scalp at 145.54, in-keeping with my method, for a confirmation of a trade entry. When price broke this scalp line it fell to 141.00 before the first signs of a potential reversal. That’s over 450 pips!!!

Click to enlarge

EUR/USD
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EUR/JPY
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GBP/USD
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USD/JPY
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GBP/JPY
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Example 2: GBP/JPY December 8th 2008

As you can see from the charts below, a master candle developed over the same pairs. Furious Angel showed me master candles a while ago and also talks about them on the site. For those that have not heard of master candles please read the previous article.

These master candles developed on a Friday in the last few candles of the week. They then broke across the board either Sunday night or early Monday morning. Again, I would only have traded the GBP/JPY break of the master candle but looking across the pairs gave me a good indication of what was going to happen.

GBP/JPY broke the high of the master candle at 137.50 and moved to a high of 140.73 before reversing. This was a move worth over 300 pips with only a stop loss of less than 40 pips required.

Click to enlarge

EUR/USD
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EUR/JPY
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GBP/USD
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USD/JPY
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GBP/JPY
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Summary

I want to make clear that I have not changed my method I have simply adapted it to deal with the current mess of the credit crisis. Once it has passed I anticipate the markets will return to normal, as will the way I trade.

Enjoy this post? Then leave a comment and say thanks!

I am still trading the NickB method, as it is detailed in the video course and free e-Book. I have just retired a part of the method for a little while. Now I want to add something new to the NickB method. It is a little something I picked up from a fellow trader……. master candles!

What Is A Master Candle?

Master candles were first introduced to me by a fellow trader from my site. They’re very simple and fit in well with my trading method. Master candles are basically two scalp lines that form a recent high and low on a 1hr candle. You can use master candles on higher timeframes but I use them only on the 1hr.

Spotting a master candle is very easy and trading them is even easier.

A master candle forms when a large candle engulfs the following four or more candles. Take a look at the example below;

The minimum number of candles the master candle needs to engulf is four, but the more the better. When a master candle forms it is an area of support and resistance being set. If you’re familiar with my method, you could think of master candles as mini scalp lines. Just because they’re mini it doesn’t mean they do not work though. These lines work very well.

Spotting a Master Candle

Can you see the master candle in the 1hr GBP/JPY chart below?

Well here’s a little help. There are three master candles on this chart. The first is marked by the blue lines and it engulfs four candles. The second is marked by the orange line and it engulfs 12 candles. The third is marked by green lines and engulfs 16 candles. Unfortunately the green one did not work out but nothing works 100% of the time!

Trading a Master Candle?

Trading master candles is even easier than spotting them. All you need to do is trade breaks of the support and resistance lines created by the master candle. It is pretty much exactly like trading scalp lines with my method.

Targets

Targets are up to you. After taking one of these trades I usually move up to the 4hr chart and look for any nearby danger areas. Areas such as scalp lines or S+R lines can be significant obstacles. Personally, I try to keep the target the same as I would on a normal scalp line break. So I will usually aim for around 50 pips.

The more candles that are engulfed by the master candle the more confident I am that a break of the support or resistance will make me pips. So usually if there are 7+ candles engulfed I will raise my target to 60 pips. If there are 10 or more candles engulfed I might raise my target to 100 pips.

As always, targets are dependant on market conditions and are assessed based on what I see on my chart, at the time of the trade. There is no one size fits all in terms of targets. For example, there could be 15 candles engulfed by the master candle but we could be in a low volatility market so I will only target 30 pips.

Summary

This is not a whole new trading method. This is just a new addition to the NickB Method. I use it in conjunction with my analysis. In the next article, I will show you how to use master candles to make big pips!

I will be adding videos about master candles to the video course and I will discuss master candles in the next free e-Book update.

It’s been a while since I last posted. Sorry I haven’t been around much but I have been busy with a family emergency. It’s also Christmas time so I have been running around like crazy, organizing Christmas and buying presents.

I am back to trading now so let’s take a look at the current market conditions and how to trade them. The key in a market like this is how well you can adapt to the current situation. With the market moving so erratically I have had to adapt my trading method, in order to keep making pips. This does not mean I have completely changed my method. Actually I have further simplified my method to work better in this kind of market. So what have I done?

For now, I have stopped trading support + resistance lines. However, I have found that scalp lines and reversal patterns are working even better than normal, in these conditions. The problem with support + resistance lines on GBP/JPY at the moment is that GBP/JPY is in an area we have not seen since 1995. This makes it very hard to pick S+R lines. That’s why scalp lines are so effective at the moment because they are based off current price action. SO what do we do?

WE ADAPT!

We do not use S+R lines until the market reverses and moves towards more familiar prices, where there is more history to base S+R lines accurately.

You can’t try to place S+R lines when you have no historical data to place them. If there are no lines to place DO NOT PLACE THEM. You do not try to fit lines in when they shouldn’t be there.

So right now all I am using is scalp lines and candle patterns and there are still a number of trades to be taken.

I will release an article in which I will discuss this issue in more detail tomorrow.