How do I Catch Big Trends? My Method of Objective Trading

The contest article by  Preeti Hegde

Background: In the beginning of my trading career, I experimented a lot with the market and finally came to a conclusion that there is nothing “absolute” in the market and the market is always “subjective”.  It is up to each trader to decide how to perceive and interpret the information in order to take effective trading decisions. This made me come up with something which is simple yet effective to trade the market profitably.  In this method I have blended all conventional factors used by successful traders for a long time i.e., price action, indicators and technical analysis to gather enough hints or clues to project/analyse the future direction of the market. This helps in catching substantial price movements to make enough gains out of the market.

In this article, I am going to explain my way of trading, my trading decisions and their effectiveness.  Within this article, I will try to cover as much subject-related information as possible.

THE ANATOMY OF THE METHOD

I use price action for trading and I am an objective trader meaning I decide what I want beforehand and take the trading decisions accordingly. While trading price action, I make use of following “price tools” to aid my trading decisions.

  • Breakout and breakout failures
  • Trend line
  • Fib retracements
  • Round numbers and Big round numbers
  • Monthly and weekly floor pivot points
  • Multi timeframes
  • Retest of a breakout level
  • Divergences

My process of making a trading decision includes the following aspects:

  • Mark a key area of support/resistance using multi timeframe analysis
  • Wait for the price to touch the specified area of key support/resistance
  • Look for the price action on the specified timeframes  ( usually 1 hour and 4 hour )
  • Make an entry based on the price action

The price patterns that I mostly rely on are:

  • Pin bars
  • Engulfing bars ( bullish/bearish)
  • DBLHC
  • DBHLC
  • Trend gap

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Coming to the practical part, I will explain the same with screenshots of live charts which I took while the trade was running. I have developed a habit of taking screenshots of live trades for the sake of post trade analysis. We know  one picture is worth 1000 words! Some of the readers of this article may be familiar with these charts as I do often post charts on few other forums as well.

Though I catch many big trades using this method, in this article, I am going to elaborate on 3 recent live trades. Please note that wherever available, I have used live charts, otherwise I have used the current charts.

1st TRADE – EUR/JPY

Method used:Retest, round number, high momentum and multiple timeframes

CHART 1: – E/J daily

To start with, we can see the price formed a big daily bearish engulf bar on 20-11-2013 at a key resistance area.  As we know the top of a bearish engulf bar is a point of the key resistance zone which I have marked as “Area A” in this case. The very next daily bar breaks through and closes well above the area A. As a thumb rule, once broken a resistance becomes a support. Hence Area A now becomes the key support area.

CHART 2: – E/J daily

Again a daily chart. On 22-11-2013, the price starts to come back to area A for the retest.

CHART 3: – E/J 4 hour

Same chart, same day but on 4 hour TF. Here we have 2 possibilities. Price reacting to Area A or Area B respectively. We wait for the price action.

CHART 4: – E/J 1 hour

Now to make a low risk entry, I scale down to 1 hour TF though majority of my entries are based on 4 hour TF. Here there is an hourly pin bar from the area A indicating the support. The previous up move of high momentum, the round number 136 and also the risk of just 25 pips, support my decision.

CHART 5: – E/J 1 hour

My entry is at 136.20 i.e., breaking an hourly pin bar upside and making a stop at 135.95 which means a risk of just 25 pips. There is absolutely nothing to lose if my stop is taken out.

CHART 6: – E/J 4 hour

This 4 hour chart shows the incredible risk reward this trade has produced.  A reward worth 500 pips for a risk of just 25 pips. Adding to the positions, partial profit taking and trailing the stop behind a key area of support are the other aspects which can magnify the gains to a large extent which I will not discuss in this article.

2ND TRADE – GBP/JPY

Method used:Trend gap

Chart 1: Understanding the trend gap

CHART 2: -GE/J 4 hour

This chart shows the gap from 159.90 levels to 160.50 levels.  The 160 level is a BRN and the price denies retesting that level indicating that buyers have made a strong resolve to take the price substantially upwards. From 21st Nov to 25th Nov the price makes a strong up move. I have missed the initial entry as I did not find any low risk entry opportunities. Hence I needed to wait for the entry at an appropriate level with a low risk.

CHART 3: -G/J 1 hour

 Patience is always rewarded in the market and on 26th Nov an hourly pin bar in midst of a strong consolidation gives me an entry with a risk of just 57 pips.

CHART 4: -G/J 4 hour

Later my entry is comprehensively justified by one more trend gap (A huge one with the 180 pips’ range).  As soon as the position moves in to 100 pips profit, I take half out of the table.

CHART 5: -G/J 4 hour

Price moves another 200 pips. Round number 170 is the ideal target.

CHART 6: -G/J 4 hour

In this attempt, the price fails to reach 170 and comes back for a retest at 165 sub levels. However the price fails to comeback to this area and takes a U-turn well before the retest area leaving a gap of 50 pips resulting in a 3rd consecutive trend gap. As soon as this gap is formed, I move my stop just below the bottom of this 3rd trend gap. I.e.: 165.75.

Unfortunately, I do not have any further live charts. Ultimately the price did reach the major level of 175. I trailed my stops with discretion and 168, 169 and 174 are the areas where my partial positions were taken out.

CHART 7: -G/J 4 hour

Here is the bird eye view of the trend gaps and the movement of the price till 175 levels.

3RD TRADE – USD/CAD (STILL RUNNING)

Method used:Confluence, price action on multi timeframes

CHART 1: – U/C Monthly

 Long back, we get a clue of accumulation for the substantial up move in the long term. Higher timeframes always show the direction and they always dictate the terms!  Drawing the hints from long term charts is an essential component of successful long term trading.

CHART 2: – U/C Weekly

We get further hints on weekly charts to make ourselves ready for the moves in the coming days. They are a pin bar and then few weeks later a bullish engulf bar. They further strengthen the bias for the up move.

CHART 3: – U/C Weekly

However there will always be strong test of major levels. No exceptions. Here weekly 365 EMA remains a strong area of resistance. Hence at this area on weekly, sellers challenge the buyers throughout the month of Dec 13. However the pin bar, bullish engulfs in the past and the rising bottom at present – all reveal that soon the buyers are going to outsmart the sellers.

CHART 4: – U/C Daily

Price action remains the same across the timeframes with different versions. When we move down to daily, 3 times in a row, the price makes higher bottoms after coming back from weekly 365 EMA.

CHART 5: – U/C 4 hour

When we zoom out on 4 hour TF, the phenomenon becomes much clearer.  1.0550 to 1.6000 was a huge confluence area with monthly and weekly floor pivot points combined with a retest level. When we combine the price action with this confluence factor, we get great trading opportunities.

CHART 6: – U/C 4 hour

The same chart but zoomed in – price takes the support multiple times and then start consolidating which indicates a strong pending breakout upside. Then once the price breaks out of this range, there is no looking back.

CHART 7: – U/C 4 hour

This trade is currently running and my stops are trailed just below a key area of support. I would expect the price touching 1.1300 levels very soon.

The article is written by Preeti Hegde and is participating in the Forex Article Contest. Good luck!

 

 

 

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