CHART TIME, SETUP & EXECUTE
Now you have the basic understanding of trading I'm going to let you in on part of my personal strategy to high probability trading: from how to set up your chart, to what we’re on the look-out for.
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This strategy is built from years of studying, seminars, coaching, back testing, researching and reading a ton of books. So I always encourage students to read as much as they can because knowledge is power.
Step 1: Fundamentals
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Before we even think about getting into the market we research the Fundamentals
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It’s important that we find out what the market sentiment is and what the overall fundamental analysis is saying. You need to be in tune with the central banks and what they are focusing on when looking at any particular currency. Once you clearly understand what is currently moving the markets and what the credible analyst think we then position ourselves accordingly.
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Don’t forget to check the economic calendar before you trade
The monthly range can be no more than 1000 pips in total, this gives us an idea of where the pair is going and what levels it’s been rejected from.
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Accurate key monthly levels are so important when it comes to trading and will make your life as a trader a lot easier when placed properly.
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So we move to the monthly timeframe to do this and use the arrow tool to measure the range, we place a horizontal line for each key level and duplicate either side to add further monthly ranges to the upside and downside.
Step 2: Find the weekly range
(still on the monthly timeframe)
Now place a small band across your monthly key levels to make it clear that these are the monthly key levels using the rectangle tool.
Once you have done this we are going to find the weekly range, which is directly in the middle of the monthly range.
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The easiest way to do this is to drop down to the Weekly timeframe and use the fib tool and drag from one key level to another and the 0.5 fib is your weekly key level.
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Repeat to get the other weekly key levels.
Keep your charts looking smart, it makes it really easy to read price action this way. So make sure you label up all your key levels. To do this click onto the horizontal line you have for your levels and add text and label accordingly. Now don’t put a rectangle bar across your weekly key levels because you want them to be different from your monthly key levels.
Here is what your chart should look like at this stage. Notice how price reacted to our monthly and weekly key levels. This is why they are so important…. Because they are accurate!
Step 3: Find any additional Support and Resistance
Simply mark on with a rectangle any significant levels of support and resistance.
Now you have your chart all labeled up you step down to the daily and the 4h timeframes and look for key areas of support and resistance. So your looking for places that price has repeatedly reacted to. Don’t force this if there’s nothing significant it doesn't matter but you can see why I highlighted these areas ready to trade off them when the opportunity arrives.
Step 4: Apply Trendlines
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Mark trendlines on to your chart with a thin black line.
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Start from the highest timeframe and look for potential trendlines. Remember when placing trendlines they can go from candle close to candle close, or candle wick to candle wick or even candle wick to candle close it really doesn't matter. Work your way down to 4h and even 1h trendlines and make sure your chart is still looking smart and organised.
We need 3 points to the trendline for it to be seen as significant. This is just an example of how we would place trendlines on the same chart which we have been breaking down together.
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The trendlines which run to from candle close to candle close or in this case candle wick to candle close provide us with a more aggressive entry when trading. This can sometimes raise the risk of getting caught out by false breakouts so always build a number of other confluences before you trade.
The general rule for trendlines is the more it’s respected, the stronger it will be as a confluence. We aim to trade the breakouts. If the breakout isn’t there, be patient and look at another pair.
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This is the time to apply counter trendlines, make sure you refer back to the trendlines lesson to make sure your applying them correctly.
We have dropped down to a lower timeframe with the chart above.
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We are in an overall bull trend and the counter trendline drawn on provides us with a great entry to get into the trade (blue circle).
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Remember if you can’t see a clear trendline, don't try and force.
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We know this one is significant because it was respected at least 3 times (the blue arrows show where price has respected the counter trendline).
Step 5: Apply Fibonacci
Apply Fibonacci to your charts where applicable
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Start off with the weekly and daily timeframe, try and find the most recent A to B wave like our rules tell us and this will give us a great idea of trend and key levels to be wary of.
In our experience Fibonacci works best on higher timeframes, so 1h and above
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Once you have applied your A to B wave you are focusing on those key retracement levels.
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If we see the right candlestick rejection around these levels then we look to enter the trade for high probability trades.
Step 6: Moving Averages
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Work out the situation of all main moving averages.
To keep this really simple, we look at the state of the Moving Averages.
Have they crossed to the upside (8EMA and 21MA)? Have they crossed to the downside or if we are just using the 50 EMA has priced broken through the moving average.
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The 50 EMA particularly works great for entries when trading so do some back testing and find out for yourself. The 20, 50 and 200 moving averages act as moving levels of support and resistance and should be used alongside a number of other confluences.
Step 7: Price Action
Read price action correctly to try and anticipate the next move.
We are constantly looking to read the candlesticks at these key areas of support and resistance, shooting stars, evening stars, morning starts, engulfing’s, head and shoulders patterns, triangles, fib levels, candle strength and trendlines. We are looking for rejections of key levels, and breaks in structure. Its as simple as that. What you might also do is look for inside bar setups, which are most reliable on the daily and 4h timeframes, adding to your build up of confluences to a trade.
Step 8: Entry
Follow the rules and enter the market.
Plan your trade, apply risk management, figure out your risk reward ratio to make sure its worth it, write down all confluences, set a target, place your stop loss, wait for confirmation of candle closes on higher timeframes and then drop to a lower timeframe to find the best possible entry and enter the market.