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The gartley pattern part 1

By admin | May 10, 2009

The Gartley pattern was outlined by H.M. Gartley in his book Profits in the Stock Market, published in 1935. Gartley reversals appear on all time frame charts. These patterns form near important support or resistance levels and are very powerful. It’s important to note that these patterns as with most patterns work best if found in harmony with a larger trend. As with any strategy, there are warning signs that the trade may not work, such as long range bars or gaps into the entry area. With that said, let’s look at an example trade that was done during the writing of this article In April of 2009. We followed a one hour trade on a bearish Gartley pattern on GBPJPY.

The Gartley Pattern is always preceded by a larger move prior to its formation. This move can be up or down and would therefore present opportunity for a bullish Gartley or a Bearish Gartley. This article focuses on the bearish Gartley. A visual of the patterns overall look is found in Chart 1.

The Gartley’s basic structure is an AB=CD retrace into the prior longer move. An AB=CD move is simply this; A is starting point at bottom/top, B is the first major swing point. The distance from A to B should be noted. The C point is found as a higher/lower swing than A followed by a move in direction of the A to B move and somewhat equidistant as A to B thus forming AB=CD. See Chart 2.

The D point of the AB=CD is complete at a 1:1 ratio, however,  many times it moves  1:1.272 and occasionally  1:1.618. 1:1 or 1:1.272  are Fibonacci expansions found in AB=CD patterns and are preferred entry areas especially if it harmonizes with another Fibonacci (or FIB) ratio from the original larger move. (More on advance Fibonacci techniques can be found at http://www.fibmarkets.com) This creates the entry area with a stop above the swing high from the prior larger move.

This cannot be stressed enough; Appropriate risk management must be used to ensure stop loss is appropriate to trade. The reason is simply put; we don’t know anything for certain in trading! A trader must be able to carefully allocate their risk capital and establish a maximum stop loss that gives these patterns room to play out without damaging the trading capital, should you be wrong on your analysis.

In part II of this article, we will discuss trading targets, risk management, and appropriate ways to scale out of a trade and ensure profits.


Contributed by Toyogo00, Lori, Bert, & FibMaster at
http://www.traderzine.com
All content of this website ©TraderZine.com all rights reserved.

Topics: Forex, Futures, Minis, Options, Stocks, Technical Analysis | No Comments »

Trading with the MACD indicator

By admin | May 5, 2009

The MACD (Moving Average Convergence/Divergence) is a trend-following momentum indicator that shows the relationship between two moving averages of price. The MACD was invented in 1979 by Gerald Appeal. This is probably the most popular indicator whether you trade Stocks, FOREX, or Futures. The MACD is commonly used as a trend or a momentum indicator.

The MACD indicator is the difference between a 26-day and 12-day exponential moving average. A 9-day exponential moving average (a trigger line) is displayed over of the indicator to show buy/sell opportunities.

Calculating the MACD

MACD = EMA(12) [p] – EMA(26) [p]

SIGNAL = EMA(9) [MACD]

p = price

The most popular ways to apply the MACD are:

1. Crossover signals

2. Overbought/oversold alerts

3. Divergence

4. Trend determination

MACD Crossovers

The basic trading rule is to sell when the indicator falls below its signal line. Similarly, a buy signal occurs when it rises above its signal line. It is also popular to buy/sell when it goes above/below zero.  

MACD Overbought/Oversold Conditions

The indicator can also be used as an overbought/oversold indicator. When the faster moving average pulls away dramatically from the longer moving average (i.e., it rises), it is likely that the security’s price is overbought and will soon return to normal conditions. Overbought and oversold conditions vary from one forex pair to another.

MACD Divergences

An indication that an end to the current trend may be near occurs when the indicator diverges from the security. A bearish divergence occurs while MACD is charting new lows, and prices do not make new lows. A bullish divergence occurs when the MACD makes new highs and the price action does not make new highs. Beware of using divergences without confirming data– they fail more than they succeed. Both of these divergences are more significant when they occur at relatively overbought/oversold levels.

MACD Trend Identification

To find the trend, we need to calculate the difference between the MACD line and the signal line. The standard representation is to plot the MACD and signal lines on top of a histogram which represents the difference between the two. Most charting systems will display the histogram at the click of a button.

Since the MACD line is created from the 12-period and 26-period EMA lines and when the MACD histogram crosses zero from below, the shorter-term 12-period EMA simultaneously crosses the 26-period EMA from below. Since the faster 12-period EMA is more influenced by recent prices ( the crossing of the 26-period EMA from below), it indicates recent prices have trended higher; this is seen as a bullish signal.

When the 12-period EMA crosses the 26-period EMA from above, the MACD line will cross zero from above. This indicates that recent prices have trended downward and is seen as a bearish signal.

When the histogram is positive and rising, an up-trend is indicated, so long trades are favored. When the histogram is negative and declining, the chart is in a down-trend indicating that you should trade short.


Contributed by Toyogo00, Lori, Zorlev, Robma & FibMaster at
http://www.traderzine.com
All content of this website ©TraderZine.com all rights reserved.

Topics: Forex, Futures, Minis, Options, Stocks, Technical Analysis | No Comments »

How to Determine the Direction of a Trend

By admin | May 4, 2009


Before you decide to go long or short, there are several criteria you should check:


I. Pick a time frame that you like to use as the trend time frame / chart.

An up trend on one time frame (eg: daily) can be a consolidation on the higher time frame (eg: weekly).It is also important to check direction from a bigger time frame to get the context of the overall trade.Check for the long term trend, intermediate trend, and short term trend. Know at what stage is the current price at your own time frame.Is the price in an up trend, sideways/consolidation, or down trend?


II. Check for trend.

There are multiple ways to check for a trend. Below are a few of them:
- Based on price action: A series of higher- highs and higher- lows for an up trend, a series of lower- lows and lower- highs for a down trend.

- Based on trend line /trend channel: Trendline and trend channel can act as a leading indicator. To draw the trendline, just connect the two lower-lows / pivot lows for an up trend and connect the higher-lows / pivot highs on the down trend.


- Trend Indicator: There are many popular indicators you can use to define trend: Moving average, MACD, Stochastic, RSI, etc. Most indicators are the lagging indicator. They lag the price. So the indicator should be used as the confirmation to filter when to get in and get out after you identify the trend using the price action.


Trend structure:


- Higher-highs and higher-lows or lower-highs and lower-lows are the building blocks of a trend. Supply and demand caused the price to fluctuate and form the higher-highs and higher-lows or lower-highs and lower-lows. – The price structure can also be the support and resistance area. – It can also become the objective entry and exit. – The price structure is the basis of trendlines and can exist on all time frames.

Trend reversal:


Breaking the trendline does not mean a trend is reversing. The price could do some consolidation or retracement and then continue the trend. Breaking the trendline could mean there is a trend change, and we must be prepared to act according to the price action after the trend-change situation. Trend reversal is a process; typically, you will see some pattern forming such as head and shoulder, double top / bottom, false breakout, etc. before the trend change occurs.


A simple method is usually the best; just use the price action and trend line to identify the trend and only use an indicator to confirm.


Contributed by Toyogo00, Lori, Iteng & FibMaster at
http://www.traderzine.com
All content of this website ©TraderZine.com all rights reserved.

Topics: Forex, Futures, Minis, Options, Stocks, Technical Analysis | No Comments »

Trading for Forex profits

By admin | April 28, 2009

Why is it that very few traders succeed in the forex trading market while 95% of forex traders fail? Below are some pointers to help you:

1. Get Rich Quick

Obviously, forex trading is not a get rich quick scheme, it will not make you wealthy overnight. Becoming successful requires patience and knowledge. Success requires some forex education, patience, discipline, emotion control, etc. before you will be profitable.

2. The holy grail

People are always asking, What is the best forex trading system around? Unfortunately there is no trading method that will make you rich. Starry-eyed traders can waste time and money trying to find the holy grail forex trading formula but never achieve success. The main reason is that the markets changes every second and the forex markets can change suddenly.

3. Education is key

forex traders lose money is that they don’t have the right education or understanding of the markets. You need certain forex training education, seminars, a trading methodology and then a coach to guide you. This takes time and effort.

4. Discipline is the Vital to Success

Discipline is so important in FX trading. It will reward you by accumulating profits if you have it. Without discipline, losses are certain. Never trade emotionally, never break your rules, never lose sight of your risk control.

5. Don’t rush, give yourself a chance

Novices will chase after a trade because they do not want to miss a golden trading opportunity. If you miss a trade relax, wait for another, remember the Forex Markets are open all day 6 days a week they will be there for you tomorrow and next week too. Be careful not to add stress by being desperate.

6. Control your risk and trades

too often traders forget about risk and money management as they have the belief that they are never wrong and put all their money into every trade. The professionals never risk anymore than 3% per trade.

7. Trading Plan
Have a trading plan. Plan the trade and then trade the plan. Many traders have to quit because they fail to have a trading plan. A strategy is vital to your survival, and a trader’s ultimate outcome.

8. Be Realistic

With all the hype out there, Forex traders can be misled. You need enough capital. It takes time to absorb the knowledge. Keep a realistic perspective.

9. Find the knowledge you need
When you begin to trade, find a mentor, find trader who are willing to help. The more you learn, the better you will be. The most highly recommended trainer and mentor is “FibMaster” Neal Hughes. Study his trading video seminars and he also has daily forex calls.

Topics: Forex | No Comments »

Introduction to Forex Options

By admin | December 12, 2008

Forex options are a great way to invest in the forex. This introduction will give you the basic information you need to start understanding forex options and how they can be a great tool for risk control and speculation.

Forex options are available from certain forex dealers in over-the-counter versions, just like spot forex contracts. If you are interested in setting up a demo account with a dealer that offers forex options, click here. Forex options are also available as exchange-traded securities, which means you will need an options broker to trade them.

You can buy and sell forex options. When you buy, or go long, a forex option, your risk is limited to the amount you paid for the option. When you sell, or go short, an option, your risk is unlimited, just like going long or short a currency pair. In this section we will talk about using options as a long trade. In later sections, we will talk about how you can use options on the short side.

Types of basic forex options

Puts: Put options increase in value if the price of the currency pair drops. If the price of the currency pair rises the put will decrease in value. A put gives you the right to sell a currency pair for a specific price. That means if the price of the currency pair is dropping, your put is going to increase in value because you have the ability to sell the currency pair for a higher price.

Calls: Call options increase in value if the price of the currency pair rises. If the price of the currency pair drops the call will decrease in value. A call option gives you the right to buy a currency pair for a specific price. That means if the price of the currency pair is rising, your call is going to increase in value because you have the ability to buy the currency pair for a lower price.

Characteristics of forex options:

Expiration: Forex options are only good for a specific amount of time. You can choose the expiration date when you first purchase the option. For many of the strategies we use at PFX, buying an option that expires in 30 days is usually sufficient Sometimes you may need to sell the option before expiration to prevent it from expiring worthless.

Strike price: Forex options have a specific strike price attached to them. If you buy a call on the GBP/USD because you think it will rise in value, the strike price is the fixed price at which you could buy the GBP/USD. If your strike price was 2.0000 and the currency pair was priced at 2.0250, you would have the ability make a profit of 250 pips by exercising that option. But you don’t actually have to exercise the option to make a profit. You can simply sell the option back on the open market, and make the same profit.

Although there are many strike prices to choose from, in this lesson, we will concentrate on the at-the-money strike price, which is equal to the current spot price. In a later lesson, we will talk about out-of-the-money and in-the-money strike prices and how you can use these in other options strategies.

Leverage: Over-the-counter forex options enjoy the same flexible leverage you enjoy with spot forex contracts. The exchange-listed forex options described above control around 10,000 units of the base currency, just like a mini-spot contract. If a contract costs $190 your leverage is approximately 50:1. That is comparable with a forex spot contract.

Forex options strategies

Strategy #1—Speculating with a long option

Let’s assume that you think the EUR/USD is going to rise during the next week or two. To take advantage of this rise, you could buy the forex contract or buy a call option. The call is a good alternative because it has a fixed amount of risk associated with it but could still accumulated unlimited profits. In the video, we will cover this situation and show you how the call increases in value as prices change. If you are analyzing a pair that you think will decline in value, you could buy a put instead of a call to take advantage of the downside opportunity.

Because you cannot lose more than the amount you paid for the call or put option, the option acts like a stop loss. Most traders will not hold an option until it becomes worthless. But if you were determined not to exit the trade, at least you know that you won’t be surprised by the worst case scenario.

Strategy #2—Hedging risk with a long option

Assume you are long the AUD/USD and that the pair is close to resistance, but you believe it is going to break up through resistance and continue moving higher. A surprise decline could eat a lot of profits very quickly, and you want to protect your position. You could set a stop loss that is close to the market, but you have a very high chance of being stopped out on a whipsaw. This is a very common frustration for new and old forex traders. What if instead of setting a stop loss, you bought a put option?

If you buy the put and the pair drops, your gains on the put will offset the losses on the pair itself. This will caps your losses to the downside. If the pair rises, the put will lose value, which will partially offset some of your gains on the pair. But as long as the potential gains are greater than the cost of the put, the trade is still worth it.

article by www.learningmarkets.com

Topics: Forex, Options | No Comments »

Which is better – Forex Futures or Spot FX?

By admin | December 12, 2008

You will see a lot of marketing materials out there explaining why the spot market is so much better and cheaper than the currency futures market, but how much of it is fact and how much is hype? What are the real differences between these two closely related markets? Is it really cheaper to trade spot forex? Aren’t there also advantages to trading futures? This is an important topic because so many of the differences are related to trading costs, which is often a neglected subject among new and experienced traders.

Currency futures versus forex spot tradingWarning: It is very common to see incorrect or misleading information about futures and the trading costs associated with them in a spot forex dealer’s marketing materials, or in the materials that some forex educational sites give you that are just copied from the dealer’s propaganda. When in doubt, check it out. If what you read here doesn’t jibe with what you previously understood, you may have been given faulty information.

Let’s begin this lesson by analyzing the major attributes of each market—futures and spot. Doing so will help us determine if either market really has an advantage. We will be ignoring some non-issues like leverage rates, expiration and “guaranteed” orders.

1. 24 Hour Market—Advantage: Neither

Some spot forex advertising makes it seem like the only place you can trade 24 / 7 is in the spot forex market. That is not actually true. Both currency futures and spot forex effectively trade 23-24 hours a day, 5 days per week. The market is essentially closed from Friday afternoon through Sunday afternoon if you are in North America.

 

2. Spread—Advantage: Currency Futures 

The spread in the currency futures market is not fixed. Depending on the liquidity of the market at the time, the spread can be one pip or less and an effective limit order may cut the spread to nothing. In the spot forex market, you can have a variable spread like this, which may widen with market conditions or a fixed spread, which does not change but is usually wider (2-3 pips on the majors) on average than a variable spread.

It is important to note that some spot dealers offer spreads on some pairs that are below one pip, but that is not the case for all pairs they offer. For example, a very good dealer is currently showing their average spread on the EUR/USD as 0.9 pips. That is lower than the currency futures market by 0.1 pips. However, they are showing an average spread of 2.5 pips on the GBP/USD, which is a full pip higher than the average for the GBP/USD currency futures contract. On average, the spread in the futures market is narrower across the majors and major crosses than the spot market because the futures market has more liquidity and price competition than an individual dealer.

 

3. Commissions—Advantage: Spot Forex

Spot forex dealers do not usually charge commissions. The spread is where they make their money, which is one reason it is a little wider on average than the currency futures market. However, let’s put this in perspective. A quick survey of good futures brokers put the average commission costs at $3.15 per side. That means an entry and exit (round trip) would cost $6.30 per contract or 6/10ths of a pip. Once commissions are added to the spread cost above, the advantages between currency futures versus spot forex become much closer to neutral.

 

4. Flexibility—Advantage: Spot Forex

Spot forex dealers are extremely flexible on lot sizes. This is great since a full 100K lot may be too large for many new traders. Some dealers will slice the lot sizes anywhere from 10,000K to 1,000K. The currency futures market generally has two lot sizes. A full-size contract is usually a little larger than the 100K lot in the spot market. A mini contract, which is only available on some pairs, is usually about one half the size of a full-size contract. Larger lot sizes can make money management in a small account extremely difficult and may be the only clear advantage spot forex has over the currency futures market.

 

5. Roll Over Interest vs. Carrying Charges—Advantage: Currency Futures

Because one of the ways a forex dealer makes money is by trimming the interest payment or increasing the interest charge on a particular pair, this premium tends to be a little higher in the futures contract. However, the cost or benefit of this interest is integrated into the price of the futures contract itself, which makes it harder to see at first glance.

Here’s how it works. Imagine that you are 45 days away from the GBP/USD futures contract expiring. That contract’s current price is 1.9811 but the spot price is 1.9866. This difference (also known as the cost of carry) is created by the value of the interest that will accrue between now and expiration. By the time this contract expires, in 45 days, the futures price will equal the current spot price exactly. That means that if prices were held steady you would make the equivalent of 55 pips as the futures price came up to meet the spot price. By contrast, the highest rollover rate we could find from a forex dealer on the GBP/USD would pay the equivalent of 38 pips in interest premium during the same 45 day period. Similarly, the charges for being on the non-interest paying side of the transaction is less in the futures market than with a spot forex dealer. The details behind why this happens are beyond the scope of this lesson but if you want more information, let’s continue the discussion in the forums.

 

6. Transparency—Advantage: Currency Futures


Currency futures are exchange traded, which means that you can see order flow, volume, open interest and outstanding orders. Forex dealers do not share that information, and because the market is so distributed, information available from any one dealer is probably not comprehensive enough to give a clear picture of what is happening in the market as a whole. $83 billion worth of currency futures trade on the CME exchange every day alone. The largest retail forex dealer in the market trades $11 billion a day in total notional value.

 

 


Summary


The fact that forex dealers will split up a forex lot into very small slices makes the spot forex market the hands down winner for small traders.


Larger retail traders should seriously consider the futures market as an alternative to the spot forex market. Trading costs are nearly identical, the exchange is more transparent, the product breadth is equivalent and interest is better.


Every trader should realize that trading cost differences are not just limited to whether or not you are paying commissions. Trading costs include average spread, commissions and interest premiums or charges. When looked at together, these two markets look a lot more similar than you may have thought.

 

Thoughts


There is a lot of debate about the “future” of the currency market. Will the OTC dealers win or will the innovations and size of the futures exchanges crush the remaining benefits offered by the spot dealers? Over the next couple of years, don’t be surprised to see exchanges begin listing flexible spot contracts along side futures contracts.

John Jagerson
www.learningmarkets.com

Topics: Forex, Futures | No Comments »

What are Candlesticks?

By admin | October 15, 2008

By Steve Nison

“A good beginning is the most important of things.” (Japanese proverb)

WHAT ARE CANDLESTICKS?

Japanese candlestick (also called “candle”) chart analysis, so called because the lines resemble candles, have been refined by generations of use in the Far East. These charts are used internationally by traders, investors and premier financial institutions.

Candle charts:

* Are easy to understand: Anyone, from the first-time chartist to the seasoned professional can easily harness the power of candle charts. This is because, as will be shown later, the same data required to draw a bar chart (high, low, open and close) is used for a candle chart.
 
* Provide earlier indications of market turns: Candle charts can send out reversal signals in a few sessions, rather than the weeks often needed for a bar chart reversal signal. Thus, market turns with candle charts will frequently be in advance of traditional indicators. This will help you to enter and exit the market with better timing.
 
* Furnish unique market insights: Candle charts not only show the trend of the move, as does a bar chart, but, unlike bar charts, candle charts also show the force underpinning the move. Enhance Western charting analysis: Any Western technical tool you now use can also be used on a candle chart. Candle charts, however, will give you timing and trading benefits not available with bar charts. This merging of Eastern and Western analysis will give you a jump on those who use only traditional Western charting techniques.

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CONSTRUCTING THE CANDLESTICK LINE

The broadest part of the candlestick line is the real body. It represents the range between the session’s open and close. If the close is lower than the open the real body is black. The real body is white if the close is higher than the open. The real body is white if the close is higher than the open.The thin lines above and below the real body are called the shadows. The peak of the upper shadow is the high of the session and the bottom of the lower shadow is the low of the session.The color and length of the real body reveals whether the bulls or the bears are in charge. Note that the candle lines use the same data as a bar chart (the open, high, low and close). Thus, all Western-charting techniques can be integrated with candle chart analysis.At Candlecharts.com, we have found the candles are most potent when merged with Western technical analysis. Accordingly, we harness the best charting techniques of the East and West to provide you with uniquely effective trading tools.
                         
USING INDIVIDUAL CANDLE LINES

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A critical and powerful advantage of candle charts is that the size and color of the real body can send out volumes of information. For example:

* a long white real body visually displays the bulls are in charge
* a long black real body signifies the bears are in control.
* a small real body (white or black) indicates a period in which the bulls and bears are in a “tug of war” and warns the market’s trend may be losing momentum.
 
While the real body is often considered the most important segment of the candle, there is also substantial information from the length and position of the shadows. For instance, a tall upper shadow shows the market rejected higher prices while a long lower shadow typifies a market that has tested and rejected lower prices. The slogan of our firm is “Helping Clients Spot Market Turns Before the Competition.” This is based on the powerful fact that candle charts will often provide reversal signals earlier, or not even available with traditional bar charting techniques.

Topics: Fundamental Analysis, Technical Analysis | No Comments »

Riding the Waves: Managing Longer-Term Position Trades for Larger Profits

By admin | May 25, 2008

by Timothy Morge

Many traders look at longer-term charts and see the large moves that can occur on these longer time-frames. But not many traders catch these large moves. Is it impossible? The key to catching these large moves is using a low amount of leverage to limit your exposure, finding a high probability entry set up with an initial stop loss order that is tucked above or below a market formation and then using sound money management orders to ‘box in’ profits as they accrue.

Let’s look at a daily chart of the Euro FX Futures from early April, 2006:

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You can see that the Euro had appreciated significantly against the U.S. Dollar after September 2003 and then began a fairly steep pullback. As always, the question is this: Has the longer-term trend changed to the down side or is this a pullback in a long-term up trend. Price does turn back higher and begins climbing above prior swing highs but it then trades lower and briefly moves below the Lower Median Line Parallel. When price closes back above the Lower Median Line Parallel, it is a sign of strength and that strength is further confirmed when price makes a new high for this move, breaking above the prior swing high. At that point, I draw in a Sliding Parallel, a line that carries the same slope as the Lower Median Line but is drawn off the extreme low made below the Lower Median Line Parallel. This line should now contain any price pullbacks IF price is now in an up trend.

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Here’s a closer look at the same Chart so you can clearly see the price action as it breaks below the Lower Median Line Parallel and then closes back above it. You can see that as price breaks above swing highs, I add in the Sliding Parallel.

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When price comes back down to test the Sliding Parallel below the Lower Median Line Parallel, I initiate a long Euro FX position at 1.2538, with a stop 15 ticks below the prior swing low, at 1.2488. I believe this has all the makings of a long-term up trend that could take months to unfold. The key is to find an area that allows me to hide my initial stop loss order underneath a market formation, where buyers are likely to come into the market. These new buyers should act as a buffer, protecting my stop loss order from being filled unless I am truly wrong about the direction of this market.

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Good things come to those that wait, or so I am told. About five months later, after an orderly climb, price climbs above a prior swing high just above 1.3450. When price makes takes out this swing high, I cancel my initial stop loss order and move it below the latest swing low, at 1.2888. I have a nice profit locked into this trade now [more than 300 ticks], but I think this is just the beginning of a major move higher. My goal on this trade will be to catch a ride to the Median Line, a move more than 800 points from the current price. To do this, I will have to strike a careful balance between protecting my ‘boxed in’ profits and not moving my stop profit orders too close to the current price action.

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Longer-term trading takes patience and attention to detail. Several months later, Price makes what appears to be a significant high and then sells off to test the up sloping Lower Median Line. It then bounces out of the hole. When it makes a new high for the move, I move my stop profit order from 1.2888 to just below the swing low at 1.3306. Once again, it is a balancing act of protecting some of the potential profits I have in this longer-term trade while still leaving my stop profit orders far enough away from the current action to give the trade the freedom to mature and hopefully trade up to meet my profit target—the Up Sloping Median Line.

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After making a new high, price again sells off, this time breaking through the Lower Median Line Parallel and tests the Sliding Parallel. Because I am less than 100 points from being profit stopped out of my original position as price tests the up sloping Sliding Parallel—and I still have almost 500 points in profits—I add a new long Euro position at the test at 1.3386. I use the profit stop I am already using for the first long Euro position at 1.3306 for this new position as well, since it is tucked below the prior swing low. I am now long one unit at 1.2538 and a second unit at 1.3386.

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Once again, a little patience and careful planning goes a long way. Price climbs out of the hole and makes a new high for the move and when it breaks above the prior swing high, I move my stop order from 1.3306 to 1.3366, below the swing low that recently tested the Sliding Parallel and the area where I added my second position. I can continue to ‘box in profits’, as long as I don’t get too close to the market’s action.
How long can I ride this wave? I’ll keep riding this wave higher until price either makes it to my profit target at the up sloping Median Line or price hits my trailing stop profit order. At this point, it doesn’t matter which order gets hit—I stand to make a good amount of money per contract.

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Patience generally does get rewarded and you can see price eventually begins to pull away from the Lower Median Line Parallel to the up side. I am eventually able to cancel my stop profit order at 1.3366 to 1.4013, just below the most recent swing low. I now have just under 1500 points of profit in the first long Euro position and about 600 points of profit per contract in the second position.

I am still carefully balancing ‘boxing in profits’ without getting too close to the current price action, because the prices on this chart still look like they want to run higher and test the up sloping Median Line, and if possible, I want to protect some of my potential profits but still give this trade all the room it needs to mature.

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Price finally makes it to the up sloping Median Line and I close out both positions at 1.5625. Though this was a very long-term trade, it paid off handsomely: I got long the first position in October of 2006 and netted just over $38,000 per contract; I entered the second position in August of 2007 and netted nearly $28,000 per contract. The wave was long and the ride demanded patience and a balancing act between protecting profits and letting the long-term trade mature. But by carefully hiding my stop orders below market structure, I was able to let this trade mature and stick with it for the long ride.

Catching these larger moves can be very profitable and extremely rewarding if you have the patience and perseverance to stay with the plan and ride the wave to its final destination.

I wish you all good trading!

Best,

Tim Morge

tmorge@sbcglobal.net email me

www.medianline.com

www.marketgeometry.com

Topics: Forex, Technical Analysis | No Comments »


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