TRIAL RULE #2:
If executing a trade that goes against the slope of the hourly-candlestick price-range envelope, either monitor the position continuously, without interruption, or set the take-profit target for only two to three pips maximum.
Mis-colored Daily Candlesticks
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If executing a trade that goes against the slope of the hourly-candlestick price-range envelope, either monitor the position continuously, without interruption, or set the take-profit target for only two to three pips maximum.
CATEGORY #1: One-Hour Candlestick Maximum Length Pullback
CATEGORY #2: One-Hour Baseline Price-Range Pullback
CATEGORY #3: Four-Hour Baseline Pullback
CATEGORY #4: Four-Hour Baseline Price-Range Pullback
The five circles in the image below identify examples of pullback Category#3. It occurs when candlesticks form below a clearly ascending (yellow) four-hour baseline, or above a clearly descending four-hour baseline.
Note that just before the upward pointing arrow, candlesticks began forming below an upward sloping four-hour baseline, but continued to fall until finally pulling the baseline downward. So then, to avoid being stopped out in such situations, trades should not be executed until reversals are confirmed on lower time-frame charts.
The two arrows in the image identify examples of pullback Category#4. It occurs when candlestick form at the upper or lower band of the four-hour price range. Note that after forming at the upper band beneath the arrow that is pointing downward, candlesticks continued to paint above the upper band!
So then, to avoid being stopped out in such situations, once again, trades should not be executed until after reversals are confirmed on lower time-frame charts.
CATEGORY #5: Pushing the Day Range
Technically, none of the previously mentioned price-range pullbacks is an actual pullback if it occurs on the side of the envelope that is aligned with the direction of the trend. In such cases, it's more like the rate is "pushing the price range." This is especially important to keep in mind when it comes to the day range.
I think of the upper and lower limits of the typical day range as reversal zones. But note how in the this situation, the exchange rate continued to climb above the upper limit for three days! Rather than look to short the pair, it would have made more sense to enter long positions during instances of four-hour baseline pullbacks and four-hour baseline price-range pullbacks. The fact that the price-range envelope is sloping upward so strongly is ample reason for coming to this conclusion.
Note however that what looked to be a potential four-hour baseline price-range pullback (where the arrow is pointing to the right) did not unfold as such. So again, to avoid being stopped out, trades should not be executed until reversals are confirmed on lower time-frame charts.
This looks like it is developing into a "mis-colored daily candlestick" situation where the day-to-day trend is still bullish, but the current daily candlestick is going to be red. In this case, the asset looks like it is about to test the lower limit of the typical day range, thus "Pushing the Day Range." I will therefore be switching to a lower time-frame chart on Monday and looking for confirmation to buy this currency pair.
REVIEW:
CATEGORY #1: One-Hour Candlestick Pullback
CATEGORY #2: One-Hour Price-Range Pullback
CATEGORY #3: Four-Hour Baseline Pullback
CATEGORY #4: Four-Hour Price-Range Pullback
CATEGORY #5: Pushing the Day Range (Pullback)
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Category #6: Lower-Timeframe Binary-Option Tunnel Pullback
This tactic is great for reaping profits via trading shorter-term (5- and/or 15-minute) binary option contracts. The most prudent thing to do is to only trade in the direction of the overall trend. Then, when the system registers a mis-colored candlestick, the next candlestick is almost guaranteed to paint the opposite color.
But what if it doesn't?
Then the statistical probability of the following candlestick doing so increases that much more. So, you execute the same trade putting twice as much at risk so as to recoup your loss and earn a bit of profit on top.
But wait! You're simply describing a Martindale trading strategy. This is nothing more than a negative progression system where you double up your position size when you lose. To be successful, you would need an infinite bankroll and infinite attempts to make a profit in the long run.
Kind of, but not exactly. First of all, this is not a game of roulette—it is trading foreign currency pairs. The longer an exchange rate moves in the opposite direction of the dominant trend, the higher the odds that it will reverse course to realign itself with the instrument’s overall trajectory.
Second of all, the idea is not to automatically reenter the position, but rather, a trader should monitor the asset on a one-minute chart and wait until price action evidences signs of having reached exhaustion AND initiated the anticipated reversal. Only then should the follow-up trade be executed.
And finally, this is not repeated endlessly. If the second contract is not in-the-money at expiry, it is an indication that there are likely some rather unusual influences impacting price behavior (or that the asset might be initiating a full-fledged reversal), so the trade is completely abandoned and the trader goes looking for promising setups elsewhere.
(I think this list is now complete in terms of all the trade setups I look for.)
This tactic is great for reaping profits via trading shorter-term (5- and/or 15-minute) binary option contracts. The most prudent thing to do is to only trade in the direction of the overall trend. Then, when the system registers a mis-colored candlestick, the next candlestick is almost guaranteed to paint the opposite color.
But what if it doesn't?
Then the statistical probability of the following candlestick doing so increases that much more. So, you execute the same trade putting twice as much at risk so as to recoup your loss and earn a bit of profit on top.
But wait! You're simply describing a Martindale trading strategy. This is nothing more than a negative progression system where you double up your position size when you lose. To be successful, you would need an infinite bankroll and infinite attempts to make a profit in the long run.
Kind of, but not exactly. First of all, this is not a game of roulette—it is trading foreign currency pairs. The longer an exchange rate moves in the opposite direction of the dominant trend, the higher the odds that it will reverse course to realign itself with the instrument’s overall trajectory.
Second of all, the idea is not to automatically reenter the position, but rather, a trader should monitor the asset on a one-minute chart and wait until price action evidences signs of having reached exhaustion AND initiated the anticipated reversal. Only then should the follow-up trade be executed.
And finally, this is not repeated endlessly. If the second contract is not in-the-money at expiry, it is an indication that there are likely some rather unusual influences impacting price behavior (or that the asset might be initiating a full-fledged reversal), so the trade is completely abandoned and the trader goes looking for promising setups elsewhere.
(I think this list is now complete in terms of all the trade setups I look for.)
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Thanks! I hope your ideas pan out. I’m happy you were able to glean something positive from my ruminations.
I’m finished theorizing about the system I’m using, and at this point, I also have total faith in the measurements I’m taking. Yet I continue to experiment out of a need to solve the practical problem of selecting trades that will pay out a lot more, relatively speaking, than my winning trades currently return.
For example, I lost on GBPJPY on Friday and wondered what could have possibly gone wrong. I shorted the pair at 18:58 when it appeared to be initiating another leg to the south, but I was stopped out of the position.
In reviewing the charts, I concluded there was no real problem. The pair simply reversed direction shortly after I made the trade, which my indicators immediately picked up on. No big deal, except that I need to increase the size of my wins (which far outnumber my losses) to optimize gains when things do go right, so trades like GBPJPY don’t matter. This is the only thing I have left to work on, which is why I continue to journal.
Becoming acutely aware of all the different types of trades I make, followed by an in-depth analysis of how much profit each of the various categories is likely to return, I trust will help me solve this problem, after which I can hopefully begin increasing exponentially the income generated from this endeavor.
But in the meantime, I’m continuing to document my activity in this area as part of the process. If anyone else can benefit from it as well, so much the better.
Saturday / August 8, 2020
When AUDJPY reached 0.7147, it made contact with the top of the lower "reversal zone." Since the day-to-day bias turned bullish on Thursday, this suggests the pair ought to offer a return if and when it crosses above the four-hour baseline. Again, watch to see whether it does or not, and if so, by how much. (This would be a Category 5 trade.)
GBPUSD and NZDUSD are similarly structured.
USDCAD is in the exact opposite situation.
At 124.83, EURJPY is above a down-sloping four-hour baseline, which is a Category 3 setup. An ambitious take-profit target (should the rate turn south) is calculated at 124.45. Watch to see if the pair makes its way in this direction, and if so, whether it ultimately reaches the designated target.
GBPJPY is also above a down-sloping four-hour baseline. An ambitious take-profit target is calculated at 137.82, which is just eight pips above the top of the lower day range reversal zone at 137.74.
EURUSD is looking bullish at the day-to-day level and is pushing the lower day range. This makes it a Category 5 candidate if and when candlesticks begin forming above the four-hour baseline.
USDCHF is below an upward sloping four-hour baseline. However, the day-to-day sentiment is bearish, and at 0.9123, the pair is not all the far from the bottom of the upper day range reversal zone at 0.9160. So, in which direction will it go?
At 1.6462, EURAUD is at the upper band of the four-hour price range and just above the midpoint of the day range. The day-to-day sentiment has been bullish for three days now (since Wednesday). You would therefore expect to see the rate drop at the start of next week, so watch to see whether it does or not, and if so, by how much. (This would be a Category 4 trade.)
When AUDJPY reached 0.7147, it made contact with the top of the lower "reversal zone." Since the day-to-day bias turned bullish on Thursday, this suggests the pair ought to offer a return if and when it crosses above the four-hour baseline. Again, watch to see whether it does or not, and if so, by how much. (This would be a Category 5 trade.)
GBPUSD and NZDUSD are similarly structured.
USDCAD is in the exact opposite situation.
At 124.83, EURJPY is above a down-sloping four-hour baseline, which is a Category 3 setup. An ambitious take-profit target (should the rate turn south) is calculated at 124.45. Watch to see if the pair makes its way in this direction, and if so, whether it ultimately reaches the designated target.
GBPJPY is also above a down-sloping four-hour baseline. An ambitious take-profit target is calculated at 137.82, which is just eight pips above the top of the lower day range reversal zone at 137.74.
EURUSD is looking bullish at the day-to-day level and is pushing the lower day range. This makes it a Category 5 candidate if and when candlesticks begin forming above the four-hour baseline.
USDCHF is below an upward sloping four-hour baseline. However, the day-to-day sentiment is bearish, and at 0.9123, the pair is not all the far from the bottom of the upper day range reversal zone at 0.9160. So, in which direction will it go?
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Sunday / August 9, 2020 / 2:40 PM PST
I selected what looked to be the toughest asset to trade on Friday that I could find—a neutral pair that was stuck in consolidation—to evaluate how one might trade it using the Lower-time-frame Binary-option-tunnel Pullback strategy/tactic/technique.
For the sake of identification, I'm going to call these measures:
It would seem that it might work to enter long positions when candlesticks make contact with the bottom of the tunnel, setting the take-profit target for the top of the tunnel, provided that the 3 fanning moving averages are sloping upward, and the snake is evidencing signs of a reversal. (See the red circles.)
Conversely, one would enter short positions when candlesticks make contact with the top of the tunnel, setting the take-profit target for the bottom, provided that the 3 fanning moving averages are sloping downward, and the snake is again displaying signs of a reversal.
Waiting on the snake to give the go ahead rather than automatically entering positions when contact is made between the candlesticks and the upper or lower bands of the tunnel will hopefully help one avoid being stopped out by false positives/head fakes as occurred above the dark arrow.
One might (or might not) have concluded that the snake showed signs of reversing upward here, but if so, continued monitoring would have immediately revealed that this was certainly not the case, giving the trader ample opportunity to exit the position quickly to minimize his or her loss.
Stop losses can be set just slightly above or below the tube, as appropriate
NOTE: You can nix the chart that appears in Post #54. If you try to use this tactic on a 5- or 15-minute chart, you are going to miss way to many opportunities due to not monitoring price action closely enough (in enough detail). To maximize the effectiveness of this approach, you are going to have to trade on a one-minute chart! And of course, if the 3 moving averages are tangled up with one another rather than fanning out, use of the strategy should not be attempted.
Category #6: Lower-time-frame Binary-option-tunnel Pullback
I selected what looked to be the toughest asset to trade on Friday that I could find—a neutral pair that was stuck in consolidation—to evaluate how one might trade it using the Lower-time-frame Binary-option-tunnel Pullback strategy/tactic/technique.
For the sake of identification, I'm going to call these measures:
- 3 Fanning Moving Averages
- Tunnel
- Tube
- Sidewinder
It would seem that it might work to enter long positions when candlesticks make contact with the bottom of the tunnel, setting the take-profit target for the top of the tunnel, provided that the 3 fanning moving averages are sloping upward, and the snake is evidencing signs of a reversal. (See the red circles.)
Conversely, one would enter short positions when candlesticks make contact with the top of the tunnel, setting the take-profit target for the bottom, provided that the 3 fanning moving averages are sloping downward, and the snake is again displaying signs of a reversal.
Waiting on the snake to give the go ahead rather than automatically entering positions when contact is made between the candlesticks and the upper or lower bands of the tunnel will hopefully help one avoid being stopped out by false positives/head fakes as occurred above the dark arrow.
One might (or might not) have concluded that the snake showed signs of reversing upward here, but if so, continued monitoring would have immediately revealed that this was certainly not the case, giving the trader ample opportunity to exit the position quickly to minimize his or her loss.
Stop losses can be set just slightly above or below the tube, as appropriate
NOTE: You can nix the chart that appears in Post #54. If you try to use this tactic on a 5- or 15-minute chart, you are going to miss way to many opportunities due to not monitoring price action closely enough (in enough detail). To maximize the effectiveness of this approach, you are going to have to trade on a one-minute chart! And of course, if the 3 moving averages are tangled up with one another rather than fanning out, use of the strategy should not be attempted.
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Dude! I don't know what you were looking at. These descriptions are not matching what I'm seeing right now. EURAUD's day-to-day sentiment was bearish, not bullish. And the four-hour baseline was sloping upward, so why would you expect to see the rate drop at the start of the week? I'm afraid what you wrote yesterday was nonsense!
Sunday / August 9, 2020 / 4:15 PM PST
The week just got started, so spreads are still too wide to start trading and candlesticks are only just now starting to paint normal, but here is what I've seen so far...
EURUSD, GBPUSD, NZDJPY and NZDUSD climbed above a downward sloping four-hour baseline and then came back down, so these Category Three trades would have panned out if short positions were entered near the top of the tunnel and profit was taken at the bottom of the tube on a one-minute chart.
The opposite was true of USDCAD. These trades would have been worth approximately 10 pips each.
USDCAD
The week just got started, so spreads are still too wide to start trading and candlesticks are only just now starting to paint normal, but here is what I've seen so far...
EURUSD, GBPUSD, NZDJPY and NZDUSD climbed above a downward sloping four-hour baseline and then came back down, so these Category Three trades would have panned out if short positions were entered near the top of the tunnel and profit was taken at the bottom of the tube on a one-minute chart.
The opposite was true of USDCAD. These trades would have been worth approximately 10 pips each.
USDCAD