forex trading

Why the “Holy Grail” of Forex Trading Doesn’t Exist, and What to Do About It…

Posted by Nick 5 Comments

Guest blog post by Kris Matthews (http://tradeforexfundamentally.com)

Something that really humors me is the human tendency to search for the “holy grail,” the “magic bullet,” the “surefire strategy” that will bring them profits no matter what, and not require them to even think. However, when asked whether certain traders believe it exists, they say “No” on a conscious level but subconsciously are looking for that invincible, plug-and-play strategy. I don’t want to sound like I’m better than those people because I went through that too, and to this day, occasionally I still can’t resist reading about some latest hot-shot forex trading strategy some guru came out with that pulls in 1,000 pips per week—we’re all just wired to want to believe these things.

Why if there is a holy grail strategy, it’s only a temporary “drug”

Nick mentions something in his ebook, “The NickB Method: Discover Advanced Price Action Analysis” that completely resonates with me:

“…systems are limited to the market conditions that spawned them. Systems do not adapt to changing market conditions.”

When you see the outrageous claims of making $50,000 in one month, the guru selling the course may not be lying to you—it may be true that the system performed so well—in that market period. Markets change and what may have worked very well in one environment may become obsolete in another very quickly. This still doesn’t stop certain price patterns from appearing, and may lead to addictions of putting on trades to get quick profits, just like drugs. As you can see, the market is ever changing and no “quick-fix” is going to work. The only way to win is to adapt to its changes.

The only way to win consistently

After realizing that markets change and no static “holy grail” strategy will do, the next logical question is, “if I can’t win every single time how do I come close?” Let’s expand on the principle of adapting to the market in a more practical manner.

To adapt means that you recognize when the market is changing its behavior and when a given system or strategy is no longer likely to work, and replacing or adding to your system something that functions well in the new environment. Here are some clues that you can observe on a price chart for when this is happening:

The average daily range (ADR) is changing dramatically. One of the biggest causes of losing trades is a trader’s misjudgment of volatility. If a trader is trying to capture a large move but price has been confined in a range for the last few weeks with an ADR of 60 pips compared to its usual 160, then most trades are not going to be profitable. If the ADR changes dramatically from its normal value at which your forex trading strategy is profitable, it’s a good sign that the market has changed.

Price strongly breaks out from a range formed over a long time period. When price is confined to a sideways range for a while, the market participants are basically either unsure of the future or are content with the current price range and are not comfortable putting on new positions until some big stimulus acts on the market such as surprising fundamental news. When a stimulus finally does occur and you see a strongly bullish or bearish set of candles indicating that either the bulls or bears are in control then perhaps the market environment is changing from one of ranging to trending. In that case a trend-trading system is more likely to be profitable.

Price faces indecision or retraces after a very strong directional move. Markets move in cycles from ranging to trending to ranging to trending. After price has made its upward run, for example, to a level where the bulls are either satisfied with the current level or are not convinced that price is likely to go up to higher levels, or the bears begin to think that price is oversold, the market may sell off or engage in ranging price action. Either of these is not good for an upward trend trading strategy because the market environment has changed.

This Weeks Trades For Noobs

Posted by Nick 16 Comments

Hope you caught the 155.70 scalp line trade on GBP/JPY that I blogged about at the start of the week. However, there were two more trades this week that together made a minimum of 100 pips.

Reversal Trade

If you have read the free e-Book then you should know how to trade reversals. I traded this one live, in the chat room. It was a great little trade and it made me 50 pips. Let’s dissect it for all you newbies who haven’t done much NickB reversal trading. I won’t explain the basics as you can find them in the free eBook:

gbprev1

As you can see, we had a very strong bullish move that broke our scalp line and made us 50 pips. As soon as the rallying bullish candle closed, we had a reversal candle close and bounce off the high of a previous candle. The next candle was a reversal candle too. This looked like a very strong possible reversal for a few reasons:

1. The reversal candle did not make a new high past the previous candle. It is always good when the reversal candles does not move higher than the previous candle (or lower if it’s a bullish reversal).

2. The second reversal candle closed with a bearish body and again did not move higher than the previous candle.

The lower highs suggested to me that the bulls were losing power. The bearish body of the second reversal candle came close to confirming that loss of power.

The next step was to pick a line to trigger the trade. This was easy as I picked the low of the first reversal candle. I always look for a minor (sometimes a very minor) S+R line as a trigger. This just confirms in my mind that it is a real reversal. The fact that the bears manage to break this minor lines tells me that they really have taken control. This trade was quite easy and it was over in 20 min.

Entry was 158.25 and, because it was triggered in the slow moving Asian session, I made my target 50 pips. I always lower my targets in the Asian session. Reversal trades taken in the London session I target up to 100 pips.

Yearly High + Scalp Line

This one was really easy and, even though I did not blog, it you should have got this one. The 159.20 line was a yearly, high scalp line just like the 155.70 line we had earlier in the week. The 159.20 line was stronger though, as it had two bounces. Check it out:

gbp2

The break of this line created a very nice bullish rally. I missed this trade since I was asleep, but I would have targeted 50 pips on this one. Just a simple line break. I have shown how to trade these in the free eBook a dozen times.

You may have noticed this was also a master candle break on the 1hr and 4hr charts. If you don’t know about master candles read about them in my free Master Candle eBook.

This was a very easy trade, yearly high + scalp line + master candle. If you didn’t see this line YOU NEED PRACTICE!

If you caught this trade leave a comment on the blog!

155.70 Successful Break

Posted by Nick 37 Comments

Hey Guys,

Did you get in on the 155.70 break? It was a great trade and it hit profit really fast. Unfortunately I missed the trade.

Leave a comment and let me know how you went.

Discuss the latest GBP/JPY movements in this forum thread

GBP/JPY Weekly Analysis (Wk Strt May/31/09)

Posted by Nick 15 Comments

Hey Guys,

I won’t bother with the video analysis as we only have one new line and honestly it’s Sunday….. I want to relax.

:ebook:

These are all scalp lines therefore the target and stop for all of them is 50 pips.

1. Long @ 155.70 – average line

This line formed last week. Rather, this line sort of formed. It is not a proper scalp as it has no retrace. However, it is a yearly high so I will be trading.

I will trade this one with caution though as it has no retrace, therefore if the scalp line had not formed as a yearly high, I would not have intended to trade it.

2. Short @ 142.95 – strong line

This line formed the week before last, on the failed line break of the 143.30 and it is a pretty good line.

The price has moved quite a decent distance away from it so it has gained quite a bit of strength, in my eyes. Watch out though this area has proven to be very tough to break through. I will exercise extreme caution with this trade.

3. Short @ 139.00 – strong line

This is a very good line that formed a few weeks ago.

4. Other lines

Last week’s shorts are all still active but they are so far away, I will not include them in the analysis this week. If the price heads back down to that area please refer to last weeks analysis for those lines.

As usual, other lines are likely to form during the week, so keep an eye out. I will update the analysis if any new lines form.

GFT Has a Cool New iPhone App

Posted by Nick 14 Comments

Hey guys,

As most of you probably know, GFT is my favorite broker and I do most of my trading with them. GFT has just released this cool iPhone application.

The application has real time quotes for all the major pairs. It also has:

- Oil and gold quotes (cool because I am now starting to trade oil) and also U.S, Euro, Asian equity and bond markets.
- Great Charts
- An Economic Calendar that is updated very fast when figures are released.

I just grabbed this application on Thursday and I am loving it. If you have an iPhone get this application. In my opinion, it is essential for any trader.

Visit GFT by clicking here

151.55 Successful Break

Posted by Nick 46 Comments

Hey Guys,

Did you get in on the 151.55 break? It was a great little trade hitting profit in under 20 min. I grabbed 64 pips on this one as it was moving fast so I stayed in to grab more pips.

Leave a comment and let me know how you went.

Discuss the latest GBP/JPY movements in this forum thread

GBP/JPY Weekly Analysis (Wk Strt May/24/09)

Posted by Nick 17 Comments

Discuss the latest GBP/JPY movements in this forum thread

Hey Guys,

Last week was not bad but not great either. We had a win and a loss. The last line break happened so close to end of the week that it was not a trade. I never take trades a few candles before market close.

As for the loss it was not as bad as a normal loss. Since it happened so close to the start of the week I was being very cautious and closed it out with -30 pips. The win was worth +63 pips. So all in all I came out on top.

Sorry I did no update the blog I was way too busy with the blitz and on top of that I am running Forex4Noobs from a USB dongle modem which is unbelievably slow. Again I am doing written analysis as this connection cannot handle uploading a video. I get my broadband on Thursday though!

MONDAY IS A BANK HOLIDAY FOR BOTH THE U.S. and the U.K. SO I WONT BE TRADING UNTIL TUESDAY

:ebook:

These are all scalp lines therefore the target and stop for all of them is 50 pips.

1. Long @ 151.55 – strong line
This is an awesome line. We can see a strong move up from the 135.60 area followed by a strong reversal at our line. This formed a great little scalp line. I will be targeting 50 pips on a break of this line with a 50 pip stop loss. This line has been around for weeks though so be on the lookout for fake breaks. I will be watching this one like a hawk.

2. Short @ 142.95 – strong line

This line formed last week on the failed line break of the 143.30 and it is a pretty good line. The price has moved quite a decent distance away from it so it has gained quite a bit of strength in my eyes. Watch out though this area has proven to be very tough to break through. I will exercise extreme caution with this trade.

3. Short @ 139.00 – strong line

This is a very good line that formed a few weeks ago.

4. Short @ 135.60 – average line
This is a pretty good line but it is over 1000 pips away so I wouldn’t look for it to be broken this week. However, if it is I will be targeting 50 pips on a break of this line with a 50 pip stop loss.

5. Short @ 131.40 – average line
Again this is a pretty good line but it is far away so I wouldn’t look for it to be broken this week. However, if it is I will be targeting 50 pips on a break of this line with a 50 pip stop loss.

6. Other lines
As usual other lines are likely to form during the week so keep an eye out. I will update the analysis if any new lines form.

Some good news: The price has been down in this area for a while and as far as I can see some decent support and resistance lines are beginning to form. I will be reintroducing S+R lines into my trading next weeks.

Core Forex Skills – Candlestick Analysis, Part 2

Posted by Nick 28 Comments

Please note that there is more to trading reversals than what is shown in this article. This article is about spotting potential reversals. Taking the trades will be discussed in the next article in this series.

Candle Patterns Part 2 of 3

The last article, in this series, explained what candle patterns are and how to use them. In this article, I am going to explain the importance of viewing candle patterns as a whole and not just as a single pattern. I will also explain a few simple concepts on using candle patterns together.

Forget Perfect Reversals

When you start trading reversals you’re going to notice that very few reversals are actually perfect. Looking for a perfect trend followed by a perfect candle and a perfect reversal can work but do you really want to take a trade only once a month?

Reversal trades can be taken even when the formations are not perfect.
If you remember, in the last article in this series, I talked about understanding that candles represent the struggle between the bulls and the bears. If you look at these imperfect reversals in this way you can clearly see why it’s a reversal and why you should enter. Just because it does not look like a text book reversal doesn’t mean it won’t work.

I took one of these imperfect looking reversals today and I walked away with 93 pips.

Let’s take a look at some of these reversal patterns.

Good But Ugly Reversals

When reading about taking reversals you’re probably used to seeing patterns like this one:

This reversal pattern is quite sexy. It’s nice, clean, simple and obvious. However, what about when you see something like this:

This one is a little harder to see, however, the chance of a good reversal here is just as strong if not stronger. The trick is to stop looking at these as patterns but instead read the actual candles. So in the last example what are the candles telling us?

This is just the preceding trend nothing special here.

This is where it gets interesting. This is far from your normal clean reversal pattern. You’ve got four indecision candles and the last one actually makes a new low. A lot of newbie traders would look at this and not be sure what to do.

However, it is quite simple. Despite the messiness of these candles all we are seeing here is a period of indecision. The bulls and the bears are fighting it out, sometimes the bulls win sometimes the bears, but all their victories are short lived.

What we do know, for certain, is up until five candles ago the bears were in complete control of the market. However, for the past four candles, the bulls have been fighting back. It makes sense that we would see a reversal here.

Read Candles

The main idea of trading candles is to read what they tell us. Too many traders look for generic patterns such as Doji’s and hammers. However, the truth is you won’t always get a perfect reversal patterns. Sometimes you will get a bunch of candles at the end of a trend. A true candle trader can step back, look at the candles, and decide if a reversal is likely.

This is why it is essential to always think of candles as a struggle between the bulls and the bears. When you look at your chart you should ask yourself three simple questions:

Who was in power recently?
Has the balance of power changed?
What is likely to happen from here?

If you ask yourself these questions at a time the charts are showing you something similar to the picture below:

Your answers would be something like this:

1) The bulls were in power.
2) Yet the bears are fighting back.
3) It is possible we will see a reversal from this point.

So try to stop thinking of candles simply as patterns. You have to realize that you cannot concentrate on a single candle. It is so much easier when you look at them and you read them like you would a story.

GBP/JPY Weekly Analysis (Wk Strt May/17/09)

Posted by Nick 16 Comments

Hey Guys,

I know video analysis is better but I’m really busy preparing for the 5 Day Blitz so I can only do written analysis again this week. So here goes….

:ebook:

These are all scalp lines therefore the target and stop for all of them is 50 pips.

2. Long @ 150.90 – weak line
This is a weak line, last week we had a weak move to the line and a weak reversal. We also has what looks like a second attempt but it did not get close enough to convince me this is a good line. An alternative would be to enter at the 151.00 as that would double as a psych level. I will trade this one but cautiously.

3. Long @ 146.45 – average line
Last week we had a decent move to the line and a decent reversal. This is an average line, I will trade it with caution.

4. Short @ 143.30 – strong line (I will not take this if the market opens below this level. If it breaks in the first few hours of open I will trade it very carefully. Moves can be erratic in the first few hours of the week so exercise caution!)

This is a good line that formed at the end of last week. It has had one bounce but a second candle came close enough to it for me to consider it two bounces. This is a good line so be ready for it.

5. Short @ 139.00 – strong line
This is a very good line that formed a few weeks ago.

6. Short @ 135.60 – average line
This is a pretty good line but it is over 1000 pips away so I wouldn’t look for it to be broken this week. However, if it is I will be targeting 50 pips on a break of this line with a 50 pip stop loss.

7. Short @ 131.40 – average line
Again this is a pretty good line but it is far away so I wouldn’t look for it to be broken this week. However, if it is I will be targeting 50 pips on a break of this line with a 50 pip stop loss.

8. Other lines
As usual other lines are likely to form during the week so keep an eye out. I will update the analysis if any new lines form.

Still in the 148.00 (UPDATE: Trade closed)

Posted by Nick 40 Comments

Hey Guys,

This trade was auto-triggered for me while I slept. I blogged about this trade yesterday and finally today it broke. I am still in this one targetting about 100 pips. I see a lot of potential in this trade.

Who else is in?
Have you closed?
If not how many pips are you up?

————————————————– Update

Instead of posting a new post and having another email go out notifying of the new post I will just edit this one.

This trade was closed roughly 100 pips from target I made 93 pips on this one.

Did you take this trade?
How many pips did you make?

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Why if there is a holy grail strategy, it’s only a temporary “drug”

The only way to win consistently

Reversal Trade

Yearly High + Scalp Line

Other Posts in This Series

Candle Patterns Part 2 of 3

Forget Perfect Reversals

Good But Ugly Reversals

Read Candles