High-Probability Techniques for Trading Forex

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PART III

After acknowledging the power of fundamentals and noting that event risks can quickly overturn a trader's positions, Prescott ends his book with a section that lists and describes the five most important pieces of economic data (in addition to central bank monetary policy meetings) for the U.S. dollar, the euro, the Japanese yen and the British pound respectively, pointing out that "we never rely on charts exclusively."

 

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I forgot to mention that Prescott includes a number of charts illustrating each type of trade, both the times when it succeeded and the times when it failed. Also, a couple of the strategies have a variation which he also explained and illustrated.

 

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7. SEVEN-DAY EXTENSION FADE

This trade is based on the contention that after seven days of consecutive strength, prices need a pause. Prescott states that "we have tried this strategy on hourly charts, but since sentiment tends to be much more intractable in the market throughout the day, the setup is not nearly as reliable." So obviously, it is recommended that the strategy be used exclusively on daily charts. Anyone wishing to know the details on how it is carried out can navigate to this URL:

http://investpost.org/cash/extension-fade-of-seven-days-forex-strategy/

The author includes the seven-day extension fade in this publication, even though he himself concedes that "trying to pick tops or bottoms with no indicator support is probably one of the least constructive ways of trading," which is exactly what this approach attempts to do. He also notes that "the setup is rare," but that when it does occur, it is significant.

Nonetheless, given the infrequency of its occurrence, and seeing as how there is no reason for me NOT to continue employing the statistical models I have for calculating where the market is likely to produce tops and bottoms, whether the previous seven candles were all the same color or not, and to do so on a consistent basis, I'm not inclined to give this trade any more consideration, nor to look for opportunities when live (or even demo) trading to test it out.

The last ten days of EURJPY price action...