Swing Trading Spread Betting

Swing trading is one of the best trading strategies that you can ever master.

Learning to swing trade can give a trader the upper hand in the markets and the edge that you need to tip the balance in your favour… literally.

In fact, I could honestly say that it is one of my favourite trading strategies overall.

It is also some of the most successful of traders’ favourite choice of trading arsenal.

So what is swing trading? How do you do it? And what can you swing trade?

 

What is Swing Trading?

Swing trading is the process of trading the price movement of any given security that is repeated in a given price range.

Look at the chart beneath…

You can see that I have drawn support and resistance lines where the price has reached high and low points over the space of the given time that you can see at the bottom of the chart.

swing trading

Drawing these lines creates a channel where the price moves back and forth [swings].

It is this price movement back and forth, that creates opportunity for us to trade by giving us an indication of where the price is likely to go next over a space of time.

Once we have drawn in support and resistance levels, we can speculate that the price is likely to ping around within these zones.

Obviously the price can also break out from these levels, but these breakouts can also present trading opportunities… although we will not be covering that here today.

 

How do You Swing Trade?

Quite simply, you create a price zone and look to open positions when the price reaches the support or resistance levels and looks like it [the price] is about to retract.

Although that may sound incredibly simple [and it is once you know how] it is not so simple that everyone uses the strategy to regular effect.

The difficulty lies in the fact the ‘you’ the trader has to decide if and when to hit the button and open the trade.

Unlike relying on one of the myriad of indicators that you can add to a chart that supposedly tell you when to buy and sell [yeah right] You actually have to decide yourself.

It is this decision making that puts many traders off from swing trading.

However, as said, if you take the time to learn swing trading you can and will have a reliable trading strategy for life.

How do you know if the price is going to retract from a support or resistance line?

Well, you don’t!  But there is a way to put the odds of successfully speculating a winning trade.

This is done by looking for candle patterns to form at these support and resistance levels or looking for moving average crossover signals. I actually cover this in depth in my spread betting course.

There are many candle patterns that you can look for but some do perform better than others and also occur more frequently.

If you decide to use moving averages to identify the swing trade then keep them short.

You will want to use a fast moving average that is less than 10 and something medium term that is less than 50. Anything longer will likely get you into the trade way to late.

 

What can You Swing Trade?

Swing trading is not limited to any particular security type. It does however lend itself to currency trading very well indeed.

Currencies often trade in ranges for periods of time.

They then strengthen or weaken out of these ranges [breakouts]. Unlike stocks that tend to move in one direction or the other up or down [although some stocks do obviously trade in range at times too]

The good thing about swing trading currencies is that you can rinse and repeat.

According to statistics, currencies only return on average 7% a year.

But if you are swing trading then you can actually increase those percentages on occasions if you choose the right pairs. This percentage can be increased further by using 4 hour charts.

So for example, lets say that USD/CAD moves 7% higher over a year; it is all the swing trading back and forth within the year that can increase profits instead of just holding the one long position over a year.

There is clearly going to be more work in swing trading, but the rewards and profitability can be increased.

If currency trading isn’t your thing, then there is no reason why you can’t start to look for shares that are trading in a range. You could even try commodities.

If you open a demo account at one of the financial bookmakers like IG or CMC markets, you can test the strategy out in real time and not even risk a penny.

Chart Times

I have found that the best charts to use with this strategy are the daily candle charts. These are the most accurate and stress free charts to trade.

You can also use the 4 hour charts very effectively although you will find them slightly more volatile.

In Summary.

In summary… swing trading is well worth taking the time to learn. Learning how to do it may not all fall into place overnight and doesn’t rely on mechanical trading indicators.

Overtime though, it can give you a reliable trading strategy that helps maximise returns in what are considered slower moving markets like currencies.

Swing Trading Video

Here is a video my partner has done for you that outlines swing trading using the daily chart of the USD/CAD.

 

Bitcoin trading Strategy

Here is a Bitcoin trading strategy that I have been running since November 2017.

In fact, it was after Vince Stanzione’s crypto seminar that I started looking at ways to trade Bitcoin.

Vince Stanzione uses one day charts to trade Bitcoin. And combined with his trading strategies it works fantastically.

But for some, using the daily charts means that your stop losses may be too big to stomach.

Bitcoin Trading on IG 

You also need to consider the spread that IG charges you to trade Bitcoin [or any other spread betting company]

This will in most instances put your position into negative as soon as you open it, unless there was some sort of mad price swing just as you opened the trade.

As well as the spread that you get charged, the margin that IG request you to use to trade Bitcoin can be huge. For example, a 0.30p a point trade on Bitcoin with IG will require a margin of just over £900.

This is partly fuelled and due to the fact that the stop loss distance required is a whopping 860 points minimum.

So if you can get over the initial hurdles to place a spread bet and start Bitcoin trading then the road may well be paved with Bitcoin gold…

But hold on… there’s more to it than that.

Bitcoin Trading Strategy

You can’t just jump head first in to the fray and follow the crowd when it comes to Bitcoin trading.

Doing so will probably mean you lose money. Even if you manage to call the right direction, you’ll find that you are left licking your wounds after your stop loss gets triggered because of some wild swing that occurred for no apparent reason.

This is where a simple Bitcoin trading strategy comes in and is basically essential for success.

The Bitcoin trading strategy that I have been testing since November as performed brilliantly over that time.

In fact the results you could have achieved or at least somewhere near are very encouraging.

Considering that we are only using one simple indicator with this trading strategy makes this all the more impressive.

Also, you won’t need any fancy charting packages or need to subscribe to any of the like.

The free IG charts are all you need to trade Bitcoin successfully.

Price Data

However, because of Bitcoin not being traded for any serious length of time, [as it happens only since December 2017 when the CBOE added it to their exchange] Has the option [no pun intended] to trade Bitcoin been brought to the masses.

This means there is obviously a lack of historical price data [compared to other established currency pairs] to use in analysis.

But this lack of data offers us the opportunity to keep Bitcoin trading as simple as possible…

All we are using to create a winning strategy that has netted over 7000 points profit this year [2018] already, are 2 exponential moving averages.

 

Lack of Bitcoin Data continued…

As said, the first issue that I had when developing a new strategy was that there was very limited historical data to go by.

This meant that it was going to be practically impossible to draw any accurate support and resistance levels.

This was then combined with the fact that there had only been one trend… and that was up.

Now though, almost 5 months later, there has been and is enough price data and price swings to claim that this strategy works.

Beneath is the 4 hour chart of BTC/USD from November 2017

We can see that there has been a big range of movement up to almost 20000 any right back down to 6000.

 

Bitcoin trading strategy

 

But using some simple trading skills and adding a moving average to the chart, we can see how easy Bitcoin has actually been to trade.

Let’s zoom in and take a closer look.

You can see clearly that I have added an exponential moving average with the periods 6/18 to the chart.

Bitcoin Trading Strategy Results

Now from the start of 2018 if we had traded every crossover signal on the chart that our EMA [exponential moving average] gave us, our results will have looked something like this.

Bitcoin trading

You can see I have added the trades and approximate points won or lost at each crossover. I have rounded the results off to the nearest 50 points in most cases. As always though, I have tried to be as accurate as possible.

I have calculated the results from logical entry points at the crossovers.

The trades have then been left to run until either stopped out or until the next crossover signalled to close the trade and change direction.

Stop losses were put strategically at points of recent highs before the crossovers, just above the crossovers or at the high of the previous candle next to the entry candle.

Remember I am using the 4 hour IG charts here from the start of 2018

Wins 9 = 10750 points

Losses 7 = 3470 points

Total points profit  = 7280

 

Bitcoin Trading Moving Average System Rules

  • Set the chart to the 4 Hour candles
  • Enter long, BUY, when the 6 moving average crosses up over the 18 moving average.
  • Go Short, SELL, when the 6 moving average crosses beneath the 18 moving average.

 

Exponential Moving Average

The reason that I used a moving average with this strategy is that again there is a lack of data to successfully use support and resistance lines or any other indicator that I consider useful.

This lack of data makes it harder to get the bigger price picture. Using the moving averages are helping us take the guesswork out of our trading. That obviously helps a lot when trading Bitcoin at the moment.

Moving Average Settings

You can play about with the settings of the moving averages and you may find that a different combination of settings or values works better for you. This 6/18 is what I found works best for this particular 4 hour Bitcoin chart.

I say that as these 6/18 settings will not necessarily work as well on another currency pair.

This is what you need to remember about technical indicators and trading. There is not one set of rules that works across the board for everything.

Don’t be afraid to test things out using different timeframes [candles] and different periods of moving averages. Even though this system is probably one of the best that you will see at the moment to trade Bitcoin, something else might suit you better personally for whatever reason.

As time goes on and more price data becomes available, we will be able to use support and resistance lines, candle patterns along with moving averages.

This can help give us an even clearer idea of price direction and therefore may help in making more informed decisions.

However, and certainly at the moment, using 4 hour candles and exponential moving averages has created a valuable strategy for trading Bitcoin.

Trading Banks and Stop losses

Unsurprisingly, due to the volatility you will need quite a big point’s balance in your trading bank to trade Bitcoin.

Bitcoin can still be very unpredictable and because of this combined with how much Bitcoin can move in 4 hours, stop losses tend to be quite large.

Although as you can see from the above diagrams and crossover signals, stop losses are really hit and the rewards are mainly larger than our initial risk.

Stop Loss Levels

There is no set stop loss figure that I have found that works regularly when trading Bitcoin.

Each trade is individual and finding strategic points to place a stop loss will vary from trade to trade.

One of the best places to put a stop loss is just above the moving average crossover, but this still [and obviously] doesn’t guarantee that you will be safe.

Sometimes it’s better to put a stop loss at the most recent high or low and sometimes it is preferable to put the stop loss at the high of the last candle.

 

Taking Bitcoin Profits

The best idea when it comes to taking profits from your Bitcoin trading is to close the trade at the crossover signals and open a trade in the opposite direction.

This eliminates the need to stress about profits and takes out the decision making out of the whole trading scenario.

The other alternative is to set a risk reward ratio and set a profit target.

So if your stop loss is 800 points then you can automatically set a take profit target at 1600 points.

This can work well for some people. The theory being that you will create a positive outcome over time as the win odds are stacked in your favour.

The downside to this take profits strategy is that you can miss out on some of the bigger wins. Sometimes you can also miss the smaller wins too. As said though, each to their own, and it is whatever suits you best.

 

Profitability and Other Trading Options

Without a doubt, over the coming year there will be many opportunities to trade Bitcoin and many chances to profit from other crypto currency’s.

Also it is important not to forget that there are still many other opportunities trading other currencies indices and individual stocks that can make great profits from.

Don’t get too caught up in the big hype! Yes Bitcoin has a lot to offer, but it should only be one part of your portfolio or trading activities…

For example, you may be trading with the DAX, USD/EUR for a regular source of profits and income, so adding a small position of crypto currency is into that portfolio could be deemed as sensible.

Just don’t put all your eggs in one market so to speak… unless of course you are a specialist in that one market… some traders only ever trade the DAX, USD/GBP or the S&P for example and make amazing profits.

RECAP Bitcoin Trading Strategy Rules

Set the chart to the 4 Hour candles

Enter long, BUY, when the 6 moving average crosses up over the 18 moving average.

Go Short, SELL, when the 6 moving average crosses beneath the 18 moving average.

Bitcoin Trading

Simple Trading Rules

The above rules may seem too simple to ever be profitable but I can assure you that moving average crossovers have accounted for some of the biggest wins and profits I have ever seen from trading the financial markets.

Don’t believe me? Just ask Vince Stanzione if moving averages can really help you make money trading!

Paper Trade Bitcoin

If you are new to trading then you really need to test the Bitcoin trading strategy out first by paper trading it, preferably using a good demo account with one of the reputable spread betting firms.

You see, it’s all very easy for you to see the wins and losses like I have shown above.

However, it is far harder than you may think to accurately place a stop loss so that you are kept in the trade, but are safely out the market if there is a crazy price move.

Plus you want to avoid your stop losses getting hit and concentrate on closing a trade manually when you are Bitcoin trading. Especially if you can see that the price has gone against you. There is no point in waiting to get stopped out when the stop losses requested to trade Bitcoin are so huge.

Add into that the fact that your own personally psyche will determine if you are able to let your profits run or take pre-determined profit targets as I have already explained.

If you have already had some experience with spread betting and trading, it is still advisable to tread cautiously when you first start to trade Bitcoin.

It’s better to learn well and earn smaller than it is to charge head first into the trades and lose big.

As with all trading, it is patience and discipline that also play key factors in how profitable you will be overall… that and a sound banking strategy too.

Bitcoin trading is no exception to the rule.

Demo Account

Most spread betting companies offer a demo account. IG offers a good one and you can use their charts and learn the trading ropes directly on their platform.

Using a demo account is a good way to become accustomed to spread betting and trading. But don’t get to cocky when you start to win… new traders often find it a different game all together when they start to trade with real funds.

Of course you can always just watch the price and monitor your results. But by paper trading like this you are not getting the real vibe of trading.

If you are not using a proper trading platform like the spread betting companies can offer, you’ll then have to learn how to do that once you do decide to spread bet with real funds. You may as well start out with clear intentions and get things right from the start. Plus, all the demo accounts are free to use and open.

So there you have a good strategy for cashing in on the Bitcoin trading rush.

You won’t win every trade you make… that is just fairy tales. But you will win more points than you lose over time by following the simple crossover rules and using the 4 hour charts.

4 Hour Trading System

 

4 Hour Trading System – 74 bets, 54 winners, 20 losses 73% Strike rate

 

Here is the 4 hour trading system that I promised you in my last post.

 

This system is so simple to use you might not believe that it could even be so profitable. But the results that I’m about to share with you will clearly prove otherwise.

 

I had noticed that there may have been an opportunity to develop some kind off trading system using 4 hour candles way back at the beginning of the year, although I just didn’t have the time to follow up.

 

However, due to the house move stalling I have actually had a chance to finish of the test and give you some results.

 

What is the 4 Hour Trading System?

 

The 4 hour trading system is a binary trading system that relies on following the trends that the 4 hour candle charts make.

 

The reason it works so well and is so simple is that it is actually trend trading in nature and the trade entry couldn’t be easier to identify.

 

Before I go into detail, let me share last months results with you.

 

4 Hour Trading System Results October 2017

 

Now these results are only using the 6 major currency pairs. I had tested the system on some of the lesser traded pairs with similar results. However, to keep things as clear as possible we will only use the AUD/USD, EUR/USD, GBP/USD USD/CHF USD/CAD and the USD/JPY

So, out of the 6 major currency pairs, there was a total of 74 trades. Of these, 54 were winners with 20 losing trades.

This equates to, 74 bets total, 54 winners, 20 losses = 73% Strike rate, well just a smidgen under.

To work out your strike rate, you divide your total number of winners by the total amount of trades/bets and the x by 100

As you can see, the system generates quite a few trades. So out of the 22 trading days in October 2017 that gives us an average of just over 3 trades a day.

So, if you are looking for a reliable system that gives you a good few trades a day, with an awesome strike rate, that you can start trading with minimal investment, then my 4 hour trading system might be just right for you.

 

Why am I Giving You this for Free?

Well, I wanted to give this to you at Christmas as a thank you for reading my blog. Then it occurred to me that if I gave it to you at Christmas you’d probably not start using it until well into February once you had giving it a good test.

So to give you the heads up and the best chance of starting 2018 with a winning formula, I thought I’d give it to you now.

And as you hopefully already realise, I want to over deliver and give you the absolutely best chance of making money from trading. I genuinely mean that.

This system is also so easy to use that it won’t take up too much [if any] of my time giving support.

Other trading systems that I may offer you, like my binary trading package, are more technical in nature and offering support is to be expected, however time consuming it may be.

Also, products like my trading system enable you to set your own hours to trade and also set alerts as and when to trade. So the whole thing is more complex.

So enough talk… here are the 4 hour trading system rules. I do not know of this strategy being published online anywhere. However I must state that I do not stake any claim that it is solely my creation… although it probably is.

 

4 Hour Trading System Rules

You are looking for 2 four hour candles that are of at least the same size or ideally increasing in size.

The candles need to be trending… Do not try to trade sideways markets.

Good times to enter are therefore obviously in clear trends, after a correction or at reversal points.

Also make sure the candles that have formed are of reasonable size in points. Some currency pairs differ in they way that their points are calculated, but as a basic guideline, you want your first 2candles to be at least 8-10 points in size.

 

4 Hour trading strategy

 

Once you have identified the candles, you then open a trade for 4 hours on binary.com at the very start of the opening 3rd candle.

That is the system in a nut shell. The reason that it works so well is that you are just jumping on to the trend after it has been confirmed by the 2 previous 4 hour candles.

If you didn’t want to do any other analysis then the above rules will serve you well enough.

However, if you want to spend a little bit of time trying to increase strike rates by finding better entry points then here are the price action rules that I have been using.

Price action trading.

As you can see from the following chart images, I have not used any technical indicators at all. The charts are completely clear, they are naked.

This means that you are only using the price to identify the market direction.

What we can use to give some extra conviction to our trades though are candle formations that signal a change in direction or even a continuation after some consolidation or correction. Using support and resistance lines are also super effective.

rachels 4 hour trading system

 

Looking at this zoomed in section of the USD/JPY the results and trades of the 4 hour trading system can be interpreted like this.

Please note…. These are my own personal views on what I see happening. I am not stating these candle entry’s as fact. The best, clearest most perfect trading setup in the world can still go belly up.

 

The First Trade

The first blue arrow you can see on the chart signifies a winning trade on the 6/10/2017 [it looks like it is above the 4th candle in the sequence].

The previous candles in the sequence and their price movement I have evaluated as this…

The very first black candle in the sequence seems to have been formed at a resistance level, thus the price has started to move back down.

The second black candle has had a lot of pressure from the bulls driving the price up during the formation of the candle. This is clear from the long wick. However, the bears have won the battle and pushed the price right back down to form another downward bear candle. This suggest to me that there is plenty of selling pressure and that there is a good chance of the next 4 hours seeing the price move down further. This is a good place to open a trade ‘lower in 4 hours time on binary’. The price moved down for the next 8 hours.

The Second Trade

Our next trade occurs on the 10/10/2017

 

The candle before the first black candle is what is considered a spinning top. These spinning tops can often mean indecision in the market, a continuation of trend after a price correction or even a change in direction depending on where they form.

The following 2 black candles are clearly quite bearish and we can assume that the price will continue moving down.

We enter a trade at the very start of the candle that is after the close of the second long bear candle.

This trade finishes in a another winner.

 

The Third trade.

12/10/2017

 

I didn’t have any reason to doubt that this setup qualified as a trade.

The first black candle engulfs the preceding white candle and also seems to have come up against and met a resistance level as did the previous white candle.

The second candle continues in the main down trend direction. The candle has just about a longer top wick than a bottom wick and this means to me that price is likely to continue down. We will open our trade at the start of the next candle.

The third candle actually doesn’t behave like we think it should and we lose the trade.

The Fourth Trade

18/11/2017

This trade is very clear to me. There has been a strong support level around the 12.1 / 12.2  area. This coincides with the formation of a doji candle and then a spinning top which is the start of our sequence.

The next candle after the spinning top is a huge bull candle that clearly outsizes the spinning top.

I trade at the start of the next 4 hour candle. The result is another big bull candle and another winning trade.

Basic price Action Trading

As you can see, I have only used some basic price action analysis to confirm to me that I should place a trade.

If you can’t fathom price action [although you really need to do so to become a successful trader] you can always just place the trade on the start of the third 4 hour candle if the previous 2 candles are increasing in size.

Doing so will give you more trades, but will also increase both the amount of winners and losers. Although overall results will not be to far from the results using some basic price action analysis the strike rate does dip.

 

Why is this system so effective?

Simplicity… that is one of the key components of this system. In fact, it is so easy to use that a few minutes evaluation of a chart is all that you will need to do once you get the hang of things.

It’s important to understand that you do not need to try and make this system more technical in nature to make it work. You are simply jumping on the trend that is already in place.

The size of the 4 hour candles is [in their most basic form] all that you need to identify a trend and potential trade.

Setting Reminders

Realistically,  you can trade in just the most liquid trading hours by setting alarms on your phone every 4 hours.

As an example, if the chart package you use coincides with candles forming at 8 am, 12 noon, 4 pm and 8 pm…. Just set an alarm on your phone that goes of every 4 hours at a quarter to the start of the candle.

So 7.45 am, 11.45 am, 3.45 pm and 7.45 pm.

This then gives you enough time to get to your PC or get on your mobile and take a look at what is happening with the charts.

Using Alerts on IG

You can set trading alerts on the IG platform that can notify you of certain movements and indicator signals. I cover this in detail in my binary trading course.

Basically though, you can set up an alarm that will notify you of any continuous 4 hour candles.

For example, if you are trading the USD/JPY you set an alarm on the platform by clicking alerts in the top right hand corner.

Click add alert and then set up the continuous candle alert.

The Alerts will then be emailed to you or pushed on your Iphone.

This image beneath is taken from IG Charts. Adding an alert is very easy to do.

4 hour trading system

 

More Charts and Results

Have a look at these other 4 hour charts, these are all of the major pairs charts that I analysed last month and all the wins and losses that I encountered.

If you take time to really study them you will probably, criticize me on some of my entry points and price action analysis.

That however is actually a good sign… it means you are truly considering the movement of the prices. We are not all going to agree on where we think the price is going to go. That is what makes the market in the first place… the bulls and the bears.

 

Four hour trading system trading 4 hour charts trading four hour charts four hour charts for trading 4 hour chart trading

To recap

  • Use 4 hour charts
  • Trade the 3rd candle if the previous 2 candles are at least the same size or ideally increasing in size.
  • Use simple price action, including support and resistance levels and candle formation to fine tune entry points.
  • Don’t underestimate how simple and effective this system is.
  • Don’t overcomplicate things

 

Paper Trade Until the New Year

So from here until the New Year I suggest that you paper trade the system so that you can get to grips with the selection process.

You can open an account at IG or anywhere that you can use some good reliable charts if you haven’t already.

Don’t break the rules and just do what I have outlined in the 4 hour trading system rules.

Keep a spread sheet to record your results and you can get a clear idea of what is going on in the blink of an eye.

Remember that some of the currency pairs will perform better than others. What counts are the result overall on average each month.

To my knowledge this system has not been created or published anywhere else. Please feel free to share and give me a mention if you can. #Rachelthetrader

Fibonacci Retracement Trading

I have [as always] been looking at different trading ideas… and one that can be used with other indicators to create good short term trades is using the Fibonacci retracement tool on your charts.

Using Fibonacci retracement trading to predict price movement can be very effective as a standalone system.

However… if you add a MACD into the equation and use some simple reversal candle set-ups you have a complete system.

For best results you will want to use at least the 4 hour candles or the daily candles.

Fibonacci Retracement Trading

 

To draw the Fibonacci grid, you will need to go to your chart and go to drawings. You then just select the draw Fibonacci Retreatment.

 

fibonacci Retracement trading

 

Then just drag the grid from the most recent low to the most recent high or vice versa.

 

You can see from the next diagram of the AUD/USD that the most recent trend has seen the price move up. This means that we draw our Fibonacci retracement from 100% at the low of the trend to the 0% at the high of the trend.

 

If the trend was down, we’d be drawing the grid from the high 100% to the low 0%

 

Now once the Fibonacci retracement grid is in place we are looking for a reversal candlestick pattern forming at the 50% level or the 61.8 level.

 

You can use the 38.2 level but you will get more false signals.

 

The 50% level has an amazingly uncanny knack of rebounding from this level, so it tends to be the level used by most traders.

 

If the retracement goes past the 50% level and does not present a reversal candle set-up you will then wait to see if there is a reversal pattern formed at the next level.

 

As you can see I have drawn the grid to illustrate how this strategy works.

 

trading fibonacci

 

So I have drawn in the Fibonacci grid from the recent low to the recent high.

 

I now wait to see if a reversal pattern forms at the 50% level, if not I will wait until a reversal pattern forms at the next level.

 

Now if we scroll forward we can see what happens.

 

Reading The Chart

 

We can see that there was no reversal pattern at the 50% retracement level. So we wait and see what happens at the next level.

 

Here at the 61.8 level you can see that the price action stops and there is very little movement. This is combined with a congregation of small doji, hammers and pinbar candles [highlighted and in line with MACD crossover].

This is notifying us that a trade may be about to present itself. You can also read more about candle set-ups here.

 

Also you can see that the MACD has given a crossover signal to further verify a change in market direction.

 

Just after the MACD crossover we get a huge bull candle that signifies that the price is reversing and is going to resume the upward trend.

We then enter our trade. A spread bet that nets us a nice stress free 150 points + profit or you could have made a binary bet.

fibonacci retacement

 

So to recap.

 

  • Draw your Fibonacci grid from the recent high to low or low to high.

 

  • Wait for the retracement to reach at least the 50% level and  confirm the reversal with a reversal candlestick pattern. If no pattern forms, then wait the retracement to reach the next level and again confirm reversal with candle patterns.

 

  • Finally, the last confirmation to enter a trade is that the MACD has made a crossover.

 

Trading price action

 

Once you get the hang of things you’ll be able to use just what you see on the charts to predict price movements.

You will be able to remove the MACD and if you get really good then you will be able to gauge the Fibonacci retracements without the grid.

 

Doing so is trading pure price action. A trait that is well worth acquiring.

 

This [trading price action] is especially useful when trading currencies.

 

Currencies tend to move in very noticeable patterns over time.

 

Here are some more charts that are approaching Fibonacci retracement levels.

 

See if you can predict the next price movements? All the charts are from this September 2017.

Fibonacci strategy

FX-EURNZD

FX-NZDJPY

It’s not so important that you get the results right at this stage. It is more important that you see how the method works and get use to identifying the set ups.

You can see the results beneath. I have removed the Fibonacci grid so that you don’t get confused.

Trading FX-EURJPY

FX-EURNZD

 

FX-NZDJPY

It’s not Complicated

How did you get on? There is nothing complicated to this type of trading, most of it is mechanical so guesswork is eliminated.

The good thing about learning to trade like this is that as I have already mentioned, eventually you will be able to eliminate all indicators if you learn well and wish to do so.

The key benefit from having a naked chart is that you are then reading the price action… the price does not lie.

All chart indicators are lagging. So even though the information an indicator may give you can be useful, it is always dated. And it is not always as clear as the charts above.

Look at this chart of the USD/MXN. Using price action and candle patterns we can see that after a down trend we then meet the same resistance again and a clear engulfing pattern is formed.

By reading this, we then enter on the opening of the next candle. By doing so we get into the trade far earlier than the indicators suggest we should.

If we had waited for verification from both the Moving Average and the MACD then we’d be getting on to the trade the following day or at least 20 ticks later.

FX-USDMXN

In Conclusion

There are many benefits from learning Fibonacci retracement trading, and the reversal signals can be very accurate when combined with candle patterns. It is also a good way to start learning to read the price action rather than to keep relying on lagging indicators.

How to Trade – A Beginners guide to Spread Betting

How to Trade.

Learning to trade from September to April is one of the best times of the year to start your trading journey.

The markets tend to spring to life and start trending one way or another come September.

And if you’re new to trading, then learning when the markets are at their most liquid can make the whole process far more enjoyable.

Where to Begin

The biggest challenge to face new traders is just where to start.

Getting duped into the wrong trading style for your own strengths can result in many traders that may have had promising trading careers cut short.

It makes little difference how much you paid for a course at the outset. In the thousands or under a hundred quid… if the style of trading isn’t going to suit you personally then you’re creating more hurdles before you have even started paper trading.

 

How to Trade 

It took me a long time to find and decide on the course that was ultimately going to start my trading career.

And even after that, there were many mental obstacles to overcome.

To save you a lot of time and trouble here’s a quick heads up on some of the best reads, quizzes and videos on how to start trading… and what’s more, they won’t cost you a penny.

The Best Starts for New Traders

Want to know if trading is for you? Take the trading psych test first

Or this one if you fancy changing things up a bit

One of The best videos on Trading Phycology

If you have never heard of Mark Douglas then here’s a real treat for you…Mark is the undisputed king of trading phycology and his book trading in the zone is a must read for all serious traders.

Here is one of the best videos on trading phycology you’ll ever see…

Strategy Testing

Try testing your strategies out first on one of the trading simulators and from there you can open one of the good demo accounts with a spread betting firm.

Stock Market Game

If gaming is your thing then why not learn to trade with one of the best stock market trading games around? I haven’t ever played this but have heard of it regularly over the years.

You can have a look at Wall Street Survivor or one of the best forex trading apps for Iphone here

The Best Free Trading Resourses

It is difficult to say what are the best free guides available when I have already written so many awesome tutorials for you J

However, if you have got your phycology game plan down then here are some good places to start learning to trade.

A Complete Beginners Guide

The basics of how to start trading and spread betting made as simple as possible.

Here are all the basics of placing your first spread bet on the IG platform.

How to Trade – A Beginners guide to Spread Betting

Candlestick charting

This website has everything you’ll ever need to know about chart patterns. If you’re trading intraday then this site is invaluable.

Trading Support and Resistance Levels

A simple way to trade using support and resistance lines

How to trade the DAX German 30

The German 30 DAX is one of the most heavily traded markets… this easy to use system is a great place to start trading

How to trade using Moving Averages

A beginner’s guide to moving averages 

And how to trade using a triple moving average

 

Free Books on How to Trade the Markets

Some of the best books on trading that I have read

How I made £2,000,000 on the Stock Market: here 

Reminiscence of a Stock Operator HERE 

Extraordinary Popular Delusions and The Madness Of Crowds HERE 

Trading Parables HERE 

 

Demo accounts

IG offer the best demo account and their charts are some of the best free ones

If you’re looking to trade binary options then the only place to go is binary.com

 

Whilst these links I have given maybe familiar for the some of you, Most of you won’t go far wrong with laying great trading foundations from reading and learning from the sites I have listed.

 

Decide on a Trading Style

As already mentioned, decide on the trading style that is going to suit you personally. Are you a slow steady trader that is happy with longer term trading and funds that can be tied up for years at a time? Or are daily or weekly profits what you are looking for?

This area needs honest and careful consideration if you are going to give yourself the very best chance of trading success.

Use the coming months to get a trading plan together to learn the ropes and you could well be on time to trade the Santa Rally should father Christmas arrive…

 

Triple moving average system

Triple Moving Average System

Using a triple moving average system to determine price direction is a great way to choose entry points into a market. Not only that, you can also use the moving averages as a trigger to exit the market too.

I’ll show you how later on.

The triple moving average can be used to trade longer term trends as well as short term day trading.

Triple moving average system

So let’s look at what a triple moving average system can do for us over the short to medium term first. Then we can look at using triple moving averages to day trade.

The triple moving average can offer the trader a good indication as to what direction a market is likely to go in. As always this is never going to be 100% accurate… but it is pretty dam accurate… and certainly enough so to help you profit from the markets.

This type of trading is also what can be classed as mechanical, meaning that the entry and exit points are clear and that no guess work is involved.

Don’t get Confused

A Triple Moving Average System is not the same as the triple moving average indicator or TEMA.

I am adding 3 separate EMA’s to my chart to create a crossover signal that I can enter the market on but also exit the market when other criteria are met using the same three EMA’s.

The TEMA is a single line standalone indicator that is configured by smoothing the price of a single equity [stock, ETF, indices] value 3 times using an EMA [exponential moving average] which is then used to calculate the result in the combined EMA’s from the previous results [prices]

What? Well that is the technical explanation of a TEMA.

Basically, all you need to know is the TEMA is something completely different to what we are using here.

If you want to read more about the TEMA indicator you can do here.

We are NOT using the TEMA indicator or system.

 

Triple Moving Average System Settings

First off, we are going to set our moving averages. We are going to use 10-20-50 exponential moving average [EMA]

These settings are going to be added to a 4hour chart and will enable us to look at trading from days-weeks at a time.

Whatever charts you use, this setting is one of the most common and easiest to add to any chart.

 [This triple moving average crossover system can be used for trading binary options or spread betting and is compatible with most chart durations up to a day.]

 

In our first example we are using the EUR/USD 4 hour charts.

 

triple moving average crossover

You can see that we have added our moving averages to our chart. You can also see that there is a clear Triple Moving average [TMA] crossover on the 15th May.

Our TMA has formed a crossover, the price [candles] are moving above the moving averages. This is indicating a buy signal. We are expecting the price to move up from here.

If we now look and compare the first signals that we can see on the chart, we can see what not to do when trading using this strategy.

If we go back another week we can see that the price has started to move down from around the 8th May. There was a crossover of the 10/20 EMA.

This was not a triple moving average sell signal to enter the market, as the 10 and 20 day EMA are both above the 50 EMA.

A valid entry signal can only be considered such if the price [candles] are above or below all 3 moving averages 10,20,50.

There is however a time and place to use this particular signal [10,20 crossovers above and below the 50 EMA] within our TMA system, but just not for entry. I’ll explain in a moment.

Explaining the Triple Moving Average System and Signals

EMA crossover

If we follow our trend up until around the 26th May, you will see that the price continues to climb until we get another crossover.

This is our exit signal. You can clearly see that the purple 10 EMA crosses the Yellow 20 EMA on the 26th. And that the candles move below this crossover.

You can also see that the 50 EMA is still beneath the crossovers and price.

The reason that we trade out when we get a crossover signal of the 10/20 EMA is that we obviously want to take a greater share of profits when ever possible. If we wait for another triple moving average to signal our exit position, then we eat into our gains far to much.

So, if we open our position after a triple moving average crossover signal, then we are buying on a stronger signal than just using a double moving average. We are waiting for 3 crossovers with the longest period being 50. This means we are looking for further clarification to enter our trade instead of using just the double [2 moving averages] crossover signal.

However, on exiting a trade, we are looking for a weaker signal to get us out of the position and take our profits… hence using the 10/20 EMA. We then wait for the next TMA signal to enter the action again.

So in short, we are entering the market on strength [the triple moving average signal] and exiting on weakness [the double moving average signal] .

All markets can be Traded

The great thing about using a triple moving average system is that it can be applied to practically all other markets and all other candle time frames.

Shares, Indices, FX, ETF’s can all be traded using a triple moving average system.

Look at this chart of the German 30 DAX from the 26th June using 1 hour candles.

You can see in this period that we have had (3) clear TMA triple moving average system crossovers… there are another 2 crossovers that were not so clear [1 and 3] that resulted in break evens or very small losses.

So in all, this chart shows over 400 points profit in just over a couple of weeks trading.

German 30 Trading System

In Depth Details and Avoiding Pitfalls

It’s a bit hard to see[I’ll zoom in a moment], but if you look very closely at our DAX chart you will see that there have been occasions when the price has spiked in one direction or another.

It is these spikes that can cause the biggest challenge to traders… especially newbies.

If you were watching your position during these periods it is then that the panic button normally gets activated or if you are using stop that they will get triggered.

But in hindsight, looking at the chart, it seems obvious that there was actually no point in being alarmed.

In each of the cases where we have had a big spike in price, the price has come back to a level where it has then stabilised and continued on its trend.

The reasons that these spikes occur is this… WE ARE TRADING.

I couldn’t tell you why these sharp price swings happen… reaction to news, a terrible drought in some part of the world, unemployment figures, better than expected harvest… the lists of reasons go on and on.

All I know is that it is rare that you will get caught out in a storm in your bikini if you are trend trading and using moving average crossovers.

Because a candle moves 50 points in the wrong direction when you are in a trade, it doesn’t signal the next stock market crash.

Understand that this is not science… mistakes, losses and corrections happen when you are trading.

A major stock market crash or capitulation has not occurred in any 1-hour candle to my knowledge. These events take weeks and months to materialise. Try and take a back seat and chill out when you are trading… whatever you are thinking is probably not going to happen.

The 50 Period EMA… Your Emergency Stop Loss

Keeping your emotions in check when trading is as big [if not bigger] than any component of trading. Fortunately, this is where the triple moving average system can really help you out.

Golden Rule: You do need need to close your trade unless the price [candle] closes above or beneath the 50 EMA… even if the price goes shooting of in one direction or another during the formation of a candle… hold tight and see it out. If you’re not watching your screen then you’ll be none the wiser anyway.

As explained previously, instead of using stop losses on your account and seeing them being constantly hit and then seeing the price coming back to happily move on in the right direction [as if it has done it on purpose to tease you and only you personally]… just use the 50 EMA as your emergency stop loss guide if need be. Use the 10/20 EMA crossovers to close out and take profits on a winning trade.

A Quick Example of Trading Psychology

beginner trading system

The money is in the waiting… I’ve told you that many times before.

Opening your trade and then walking away is a great strategy to increase profits in most cases.

It’s far easier said than done for most though. But once you do manage to do it, and you are confident enough to leave your PC or device, you really can be cooking with gas.

What’s in Your Head?

Let’s zoom right in and have a look at what goes on during trading one of our triple moving average system crossovers. We are going to analyse what a new trader might think if they were looking at the chart as the price unfolds. We can then compare it to how a more seasoned trader enters and then trades the market.

 

Dax Triple Moving Average

  • After entering our trade at some stage after the crossovers the price moves steadily up.
  • All of a sudden at around 9am the price starts moving down for no apparent reason when the trend is clearly up. OMG.
  • At 2pm it is clear that this is a crash, the trader takes a loss, closes out their position and is left shaking with relief. The price then moves back up and the trend continues.
  • The trader is then left scratching their… um, head or probably something else in wonder and enters the market again. At 4pm, the price falls back slightly again but the trader has already just seen this. They stay in the market overnight… although they don’t sleep well.
  • At 8am the following morning the price shoots out and up into the stratosphere… I knew I was right! But in the blink of an eye the prices crashes back down along with the traders’ confidence.
  • The next hour the price moves down even more… there’s going to be a crossover… I’m out of this… relief sets in again and the feeling of loss that the trader should have taken profits at the peak of the 8am candle… what’s more, in shock, the trader watches the price climb up again.
  • The trader enters the market again. The market goes sideways.

Sound familiar to any of you?

The Experienced Trader

Now let’s see what a more experienced trader does.

They enter the market knowingly at a convenient time after the triple moving averages system gives the signal.

They set an alert that is emailed to them and also arrives on their mobile if the price closes beneath the 50 EMA if they are long or above the 50 EMA if they are short.

They then walk away in confidence.

If there is no alert, then all is good. They go to the gym, have coffee and walk their dog… all whilst as calm as a Hindu cow. Life’s good.

You Don’t Need to Watch the Screen all Day

Can you see how trading can be as easy or as hard as you make it?

You don’t need to be watching your positions all day. Doing so is just stressful and pointless. It also makes you do unnecessary things that are not part of your strategy.

Even if you’re not using stops like I explained earlier, you can still leave your trades to do their thing. In fact, Vince Stanzione believes that spread betting companies offer stops to their customers to maximize losing trades. He’s got a really good point if you think about it.

Trading stocks with the Triple Moving Average System

Here are some more examples of the system trading individual stocks.

Triple moving average TMA

In the above Mastercard chart you can see that there were a couple of false signals 1 and 2 and then a better move on the third 3. Another breakeven or small loss on the 4th 4 and then a good move on the 5th 5 signal.

trading starbucks

The chart above is from Starbucks. This 30 minute charts TMA gave us a stress free 350+ points profit in around 10 days. You will be hard pushed to find an easier trading strategy than the triple moving average system.

Triple EMA

In the above Microsoft 1-hour chart you can see that there was a couple of false signals from the 15th May. After this we get a nice signal on the 22nd that takes us right up to the 11th June. The result… over 250 points profit.

 

Using Daily Charts

You can also trade the daily charts using the triple moving average system.

Depending on your bank size of course and the actual stock in question.

The 50 period EMA is about the shortest of periods you can use when you get onto the daily charts though.

 

TMA trading system

Day Trading Using a Triple Moving Average System

You can easily convert a triple moving average to a day trading system by simply reducing the time frame of the candles [price]

If you look at this chart of the German 30 DAX you can see that I have set the candles to 5 minutes. I am still using the same triple moving average values though.

Day trading triple moving average

As with any form of day trading, you are going to get far more signals and false signals at that, each day when using 5 minute charts. However, you can use some of the other indictors that are available on the chart to clarify taking a position.

Here you can see that I have added what is called an awesome oscillator. You could use this to validate your triple moving average crossovers. Although it isn’t going to keep you out of a sideways moving market it can be useful.

 

The TMA Crossover Setup Visually Explained

The actual crossover setup of the triple moving average system can sometimes cause a little confusion. Although it needn’t do.

The first TMA on the chart beneath is what you can consider a perfectly formed triple moving average crossover.

Different triple moving average crossovers

And yes, you most certainly could have made profits trading that signal.

But the following triple moving average also made profits, even though the moving averages haven’t crossed over in such unison.

They [the moving averages] do not need to look like they have been drawn on by an artist and fan out like a peacocks’ tail. They just need to cross in and around the same time.

The important point to remember is that as long as the smallest moving average has crossed both the other moving averages and that the longest moving average [in our case 50] is clearly above or beneath the both the other 2 moving averages [ours being 10/20] then you are good to go.

Trading needn’t be more complicated than it has to be.

Many systems will have you believe that you need to be doing this that and the other so that you gain some sort of edge. This is rarely the correct approach.

Get use to riding the ups and downs of your triple moving average system or strategy and eventually the penny will drop.

By that I mean that you will gain faith in what you are doing and from there you can develop your skills as a trader.

More importantly you will start to develop a sound mental game too.

Also think carefully about the use of stops. 9 out of 10 times you will be better of just trading to the moving average crossovers signals.

In conclusion

  • Set a triple EMA using the periods 10,20,50
  • Open the trade when all moving averages cross and make sure that the longest moving average is clearly above or below the 10 and 20 EMA.
  • Close trade and take profits if the 10,20 crossover again or if the candle/price closes above the 50 EMA.
  • Trade to the crossover signals rather than using stops if possible.
  • Accept that you can’t and won’t ever win them all.
  • Don’t panic. The price may move like what seems drastically at times… this isn’t a stock market crash. Keep calm, it’s unlikely you’ll lose more than 50 points or so as long as you are trading within your means.
  • Remember that your winners will more than cover losses over time.

DAX Trading System

trade the dax 30

The German 30 or DAX if you prefer, is one of the most heavily traded markets. This is certainly true for day traders as it can be one of the easiest markets to predict spread betting price movement on from a day to day basis.

 

It also moves more than most currency markets from a daily point perspective. This adds to it as ideal market to spread bet.

 

There are many strategies and systems floating around online that can show you various ways on how you can make money from trading the German 30 DAX… I hope though, that none are going to be as simple and quick as this one.

 

Although this strategy is for financial spread betting [so you will need an account with one of the financial spread betting firms]. You could easily convert it to a binary trading system… I’ll show you how later.

 

Ok, with that said, lets get down to business and look at how we can trade the DAX.

 

DAX Trading System

 

I’m currently working on a day trading system for the DAX. It is looking very promising and I am now testing with real funds.

 

However, it has been whilst testing this new system that I spotted this little niche and I thought that I must share it with you now.

 

There are no technical indicators other than support and resistance lines to use.

 

All you need are some live charts.

 

NOTE: If it [this strategy] or something similar has already been published somewhere, then hey ho… I’m not claiming any rights to it.

 

The Rules of the DAX Trading System

 

Firstly, you need to open up your charting package and select the German 30 index.

 

Once selected you need to set the candles on the chart to 10 minutes.

 

I’m using the IG charts in these examples. They are good charts and are free even if you’re not trading on IG platform.

 

Now that I have selected the correct candles, I now need to look at the range of price movement from 7am – 9am

 

It is the price breakout from this range that we are going to be trading.

 

Whilst developing my new DAX trading strategy, I noticed that the first 2 hours of the DAX from 7.00am gave some major swings back and forth. Although you could try and trade this volatility alone, I thought it safer to trade the price breakouts from this range.

 

What is important to remember here is that we are not trying to get in on the start of any major movement and get out just as it finishes. Although a nice ideal it’s unlikely to happen with any regular occurrence.

 

Look at this chart image of the DAX German 30

 

DAX trading System

 

Dax Trading Zones

This image is of the first 2 hours of price movement. You can see that from 7 am until 9 am that the price has consistently swung back and forth from 12418 to 12382. I have highlighted this with the blue support and resistance lines.

 

This price zone gives us a 36-point range. That is actually quite a small range for the DAX and we can realistically expect a price breakout at some stage over the course of the day.

 

NOTE: Sometimes when trading this system, you can easily [and regularly do] get a price range of 100 + points. When the range is this large it’s better to leave this strategy and trade moving average crossovers.

 

So, from here we are looking for the price [our 10 minute candles] to close over or under one of our blue support or resistance lines. To simplify this we can set a price notification.

 

So the next thing you need to do is set the price alerts. Doing this saves having to be at your pc all day or checking your phone every 10 minutes.

 

Here’s how you create the alerts.

 

  • On the right hand side of the ig screen you’ll see the alert tab. Click that and then click the price level tab.

 

  • Enter the price levels of where you have drawn your support and resistance lines.

 

  • Click the set alert button.

 

German 30 trading system

 

Now when the price reaches one of these levels you can check to see if the candle will then close over or below the level, and if so we can then consider opening a trade on the following candle.

 

Opening a trade

 

To open a trade, we need to be clear and sure that the price has truly broken out of its trading range. It is important the price hasn’t just tested the levels and is going to reverse.

 

To do this and be confident that the price is breaking out from range, we are looking for a big bull or bear candle to break the S&R lines.

 

As you can see from our chart… the price continues to move sideways until we get a good bull candle that clearly breaks the resistance line.

 

Once you are ready to enter the trade, you just hit the buy or sell buttons in the top right hand corner of the IG screen.

 

Trade the DAX

 

With our breakout candle you can see that there is a small wick that formed at the top of the candle. Ideally you should enter the trade once the next candle has broken this level.

 

This can help ensure that the price will continue to move in our direction with minimal drawdown.

dax trading

 

Using Binary.com to Trade

 

If you don’t fancy trading on IG by spread betting this DAX trading system, then you can still trade it on binary.com

 

To do so just trade the German 30 will be higher or lower in 2 hours’ time.

This 2 hour time frame seems to suit this strategy really well.

You can’t start the trade now on binary.com so you will need to set the time of the trade to start a minimum of 5 minutes into the future.

 

Using Resistance Levels Versus Moving Averages

 

Resistance levels are one of the key indicators for day traders, but as you know, moving averages are probably the most used indicator in any form of financial trading.

 

Moving averages are awesome… but if you look at our chart with one of the most popular short term moving averages set ups added, you can see the issues with this type of indicator in sideways markets.

 

Using moving averages that are this small has cut us to smithereens. In and out of the markets all day and paying the spread each time as well as having our banks battered.

 

As you can see we have had a 7 crossover signals [blue dotted vertical lines] in the morning session alone. Most of which didn’t materialise into anything noticeable.

DAX System

 

 

A better moving average for the DAX Trading System.

 

However, if you use a longer moving average you can manage to stay out of most the noise and still get a clear entry point that can help clarify a breakout.

 

I have been looking at how effective the 10/50 EMA is on the DAX and currencies for a few months now and I can say that I have been impressed with the results.

 

The combination keeps you out of much of the sideways movement and noise but give a good buy or sell signal to boot.

 

DAX day trading system

 

Only 1 false signal out of 2 using the 10/50 EMA crossover and the 2nd signal [crossover] signified the start of the breakout.

 

Using a good reliable moving average can help anticipate the price movement as well as keeping you out of choppy unpredictable movements.

 

So the 10/50 EMA can be very useful, but you really do not need it for signalling an entry point when trading this strategy.

You can use it however [or another moving average] to exit the trade as I’ll explain shortly.

 

Closing the position.

 

How long will the trend last? I have absolutely no idea… but I do know that once you are in on it then long may it continue. But that doesn’t help you get out of the trade.

 

The best way to exit a trade using this strategy is following the moving average crossovers. So basically you are in the trade until the moving averages crossover. This is the easiest solution.

 

You can easily use a 10/50 Exponential moving average as an exit signal. This will keep you in the trend longer but can cost you more as the trend finishes.

 

If you want to keep your profits a little tighter then a 5/10 Exponential Moving average may work better for you.

 

You can also close the trade if the price moves back under/over S&R levels or if you are using trailing stops [I don’t use them very often] when and if your stop is hit.

 

You can also just manually close your trade when the market closes at 16.30pm.

 

Using stop losses

Stop losses can be great… but also a great pain in the rear.

 

I occasionally use them and have done when testing day trading strategies.

 

The question always is and always has been, where do you put a stop loss? Stating how much you want to risk on any trade is not a great idea even though popular. If you say you are happy to risk 2% of your bank on any 1 trade then why let the stop get hit in the first place? If the price seems to be bolting in the opposite direction, why let the stop get triggered?

 

In my opinion every trade is different… even if you are trading the same market. So therefore stop losses and where you are placing them are too.

 

This means that they need to be adapted as such. Plus, if you’re day trading, you need to be around to trade anyway. So you can hit the stop [close position] button as and when.

Longer term Trading

Long term trend trading is a far slower moving game. Price rarely go boom or bust in a day. So stop losses are not needed as much.

 

Long term trading is easier if your stop loss is whatever you are risking on that trade. Let me explain briefly.

 

So [an example of this] I may buy SOSO stock at £2 a point but I may be willing to risk £500 on that trade… however, instead of using a stop that keeps getting triggered every minor retracement and costing me £100 each time it does, I have a set risk in my mind. And I use moving averages to exit positions so I rarely if ever lose my amount risked.

 

The times I have seen my trade get stopped out, only to then see the price continue in the right direction was so irritating. And maybe even more annoying is paying extra spread for the privilege to see it happen.

 

Personally, with this strategy I’d be using moving averages to signal my moves, all I need to do is admit I’m wrong if need be and go the other way if I choose.

 

Anyway I digress, if you want to use a stop with this strategy then you are probably best putting it just beneath or above the breakout S&R lines… since you are expecting the price to move from there anyhow it is obviously far better to cut your losses sooner rather than later.

 

How Profitable Can Trading the DAX Breakouts be?

 

These breakouts on this DAX trading system can be very profitable. In fact, I’d say that even if this was your only trading system that you ever used then you’d be realistically able to grab 300 + points each month as a complete beginner.

 

Let’s look at what happened to our trade.

 

Dax strategy

 

Our breakout resulted in just over 50 points profit if we closed our trade as the market closes at 16.30.

 

Considering that this trade never had any losing periods or drawdown since opening the trade, it is a nice stress free result.

 

The awesome thing with this type of trading is that your downside is limited but the upside is unrestricted.

 

Another Example

german 30 day trading system

If you look at this next example of a breakout you can see that many more points can be made.

 

This trade resulted in 75 points profit if we had traded out when the 5/10 moving averages crossed over just before market close.

 

Often the breakouts can last a day and longer, and if the breakouts occur earlier in the day the you can ride the trend for longer if it is profitable.

 

In this next example you can see that the entry crossover candle was quite small but not once did the price move back over the morning support level.

 

This trade gave a very generous and easy 106 points profit if you had closed out at 16.30 or just over 110 points profit if you had waited and traded out at at the crossover.

 

how to trade the dax

 

Leaving Trades Overnight

 

If you are thinking about leaving a trade over night because you have been in a good winning move and you think that it is likely to continue, this is a one of the times it can actually be a good idea to add a stop loss.

 

You could add a 20 point trailing stop so that you can stay in the move should it continue over night, but you also get the safety and peace of mind that if it goes against you that you can lock in most of your profits from earlier in the day.

 

In conclusion

 

  • Open 10 Minute chart of the German 30
  • Draw support and resistance lines of highs and lows from 7am – 9am
  • Wait for a strong 10-minute bull or bear candle to close past the S&R levels.
  • Open trade on the start of the next candle if price movement continues.
  • Exit trade when moving averages have crossed over or at close of day.
  • Let profits run.
  • If using a stop, place it just beneath or above the S&R levels.

 

This really is a great stand alone DAX trading system that can be used on a regular daily basis if the morning support and resistance levels are broken.

 

You might not get to trade every day, but when you do, the minor risk compared to the rewards will easily see you in profit over the months.

 

Price Action Trading Strategy

One of the simplest ways that you can trade the markets is by using a strategy known as trading the price action.

 

This basically means that you are deciding on what direction you anticipate the price of the market moving without using any technical indicators at all.

 

My version of this trading strategy uses a single moving average and the price. That’s it.

 

You can remove the use of the moving average if you have set profit target levels.

 

Price Action Trading Strategy

 

Lets take a look at this Mastercard chart.

 

You can see that on here we have a multitude of indicators and drawings that are serving the same purpose… that is to help give us an idea of where the price might be heading.

Trading Price Action Strategy

 

The chart above may seem complicated to many of us… but some traders will genuinely use a set up similar to this.

 

If I were to use a chart with that many indicators on I don’t think I’d be any closer to an accurate decision after analysis.

 

So let’s have another look at the chart with all the indicators removed.

Price action system

 

That’s better… a nice calm chart.

 

Now we have to decide on where we think the price will go next?

 

From my perception, I think that the price will continue to rise, although I also think that there may be some price correction soon, before the upward trend continues.

 

So that being said, where do I enter the trade? I don’t want to just enter the trade with a random guess. So I need to analyse the entry point visually.

 

I can do this by reading and analysing the candle patterns, waiting for a price correction to finish and by drawing imaginary trend, support and resistance lines.

 

A Closer Look at Trading Price Action

 

So let’s take a closer look at my mental price action trading strategy.

 

You can see from this chart that I can mentally draw a picture of what is happening. Obviously I’m drawing on the chart to highlight my thinking.

Price action

 

 

This is a nice steady and well behaved chart. You can clearly see that support and resistance levels have formed and prices have broken out. It is at these price breakouts that I can enter the trades.

 

So as you see, we can make profitable trades using a simple price action trading strategy without the need for using any on screen indicators. You can do this quite easily with a bit of practice.

 

Now if we take an even closer look, we can use candle formations to give us even better entry points and conformation of where the price may be heading.

 

Price Action Trading Strategy Using Candle Formation

 

There are many candle formations that can signify a change in direction of the price on a chart.

 

I have actually read a lot about Japanese candle stick patterns.

 

Initially and with what I learnt from reading online, I could see the logic, but there was no real deep information that I could use to gain a better understanding.

 

I deciding on buying a book, or shall I say tome from Amazon… at £60 I did find it a little overrated after I had read the reviews, but maybe I missed something???  Anyhow, it is still a good book and I gained much useful and fascinating information about candle patterns, even if not trading strategies.

 

The Best Candle Stick Patterns

 

What I did take from the book was the reasoning behind the formation of certain patterns and why some formations are considered more accurate than others.

 

One can then use this information to gain better entry and exit points.

 

My 3 Favourite Candle Patterns for price action trading.

 

So when using a price action trading strategy here are the 3 most effective patterns [in my opinion] that can accommodate the theory.

 

The Hammer and Hanging Man

 

Looking at our chart of Mastercard we can see that we have had a price correction from the 16th May until the 18th May using our 4-hour chart. At 16.00 on 18th a hammer candle forms and from there the price continues its upward trend.

 

The reason that the hammer has formed at this level is because the bears have managed to push the price down further but then the bulls have resisted and fought back pushing the price back up.

 

This is why hammers often signal support levels and reversals. In saying that, the bears are still around… and further price action needs to be confirmed before entering the market.

 

NOTE: The longer the time frame of your candles on your chart the more accurate you can consider these candle pattern signals.

 

After the hammer has formed, a small doji candle forms and then we have a big gap and a nice bull candle that can confirm the upward price may continue. You can then enter on the next candle.

Price action candles

 

Engulfing Pattern

 

The engulfing pattern signifies that the bears have lost momentum and that the bulls have taken control. It also signifies downward price movement capitulation and that the price is likely to retreat.

 

A bullish engulfing pattern should be formed with a small down bear candle and a large up bull candle that has very little shadow.

Engulfing pattern

 

This is one of the most commonly used candle stick patterns to identify price reversal. It is also one of the easiest to identify and understand.

 

The best place to see a bullish engulfing pattern is at the bottom of a sustained downward trend with a minimum of four consecutive down bear candles that are not increasing in size.

 

Price Action Bullish engulfing

 

A Bearish engulfing pattern is the opposite of a bullish engulfing pattern.

 

A bearish engulfing pattern signifies that a sustained bull period may be about to reverse.

 

The engulfing bear candle must completely consume the previous bull candle.

Bearish engulfing

The Morning Star Pattern

The final pattern that I commonly use or shall I say look for, is the morning star pattern.

 

This is another reversal pattern that consists of a 3 candle set up.

 

The morning star was called such as Japanese rice traders call Mercury [the planet] the morning star and this good omen was considered a sign of brighter things to come. Hence why this pattern is named and formed after a bear market. The down trend has finished and better times are ahead.

 

The 3 candles that form the pattern are one bear candle, one doji [the star] and one bull candle.

 

Morning star pattern

 

Reading the formation is as easy as spotting it. The longer the bear and bull candles the more thrust behind the reversal.

 

The bigger the gap from the candles either side of the star, the greater the chance of reversal as this indicates market indecision.

 

The higher up the close of the 3rd candle is [the bull candle] the greater significance this has to the price reversal.

 

The morning star formation is the least common of the candles I mention but many will argue that it is the most accurate in terms of signalling a valid reversal in price.

 

Other Candle Formations

 

You can read more about candle formations and patterns here. You may find other formations more suited to your style of trading.

 

The book I bought that I mentioned earlier, explains the history of these candles and formations and explains in detail how they were developed when the Japanese initially used them when trading rice hundreds of years ago.

 

I found all of this fascinating and what’s even more bizarre is that traders in the western world didn’t even know about them [candles] until the 80’s.

 

Price action Trading Strategy and moving averages.

 

When using a price action trading strategy, adding a single moving average to your chart can really add some weight to making more of an informed decision as to where the price may move to.

 

If you look at our Mastercard chart again you see that I have added a single EMA, Exponential Moving Average.

Price action EMA

You can conform your earlier findings with the EMA and then enter the market confidently. Before I show you how, let’s take stock quickly…. no pun intended.

 

So to recap… Identify trend, determine support and resistance levels, look for candle formations that may signal a change in market sentiment and then add a 6 period EMA to verify your findings.

 

Bare Bones Price Action Trading Strategy

 

If all the above sounds like too much effort, then the easiest way possible to trade price action is just by trading above or below your EMA.

 

So in our Mastercard example, we can go long as the candles cross up and over the EMA and go short when they cross over and under.

You will get more false signals trading like this, but your win gains will out number your losses.

Price action trading strategy

 

 

In Conclusion

 

A simple trade the price action strategy can give great returns, without the headache of 20 different indicators on a single chart all opposing each other. It’s a simple as you want to make it in all honesty.

Beginner traders can practice this easy enough without spending any money on charting packages or systems.

You can use the free charts on google or yahoo finance