RIDE THE TIDE

RIDE THE TIDE
Let’s say you enter a trade based on the techniques covered so far. You
enter a long position intending it to be a day trade. However, the market
performs extremely well, closing sharply higher by the 5 P.M. (EST) close.
102 FOREX CONQUERED
FIGURE 2.28 Buy Signals at Support and Sell Signals at Resistance
Used with permission of GenesisFT.com.
What do you do? If you are only in one lot position, stick to your plan, or
place a hard stop beneath a reactionary low, or simply get out. If you have
multiple lot positions on, take profits on a portion, and let the balance ride,
placing stops at your break-even level or slightly higher, specifically if you
have substantial profits built into the trade. This way, you can afford to ride
the tide in case the market goes into a hyperbolic bullish trending mode.
But if the market has been in a bullish trend, then you need to adjust your
strategy and anticipate that the market might go into either a congestion
phase or a trend reversal mode. This is where a trader really wants to apply
the trading rules that state that you ignore buy signals at resistance and instead
look to take sell signals at resistance. If you are day trading, as soon
as a setup occurs and you enter a trade, using the methods discussed so far,
you should be able to determine a loss strategy such as placing either a
hard-stop or a mental-stop close only above a session’s high (more on this
later). My exit strategy for taking a profit can be figured in one of two ways:
(1) I can use the predicted pivot point support target, or (2) if the trade does
move in the desired direction, I can exit at the end of the trading session,
which concludes at 5 P.M. (EST). If it is a Friday and you do not want to hold
positions over the weekend, then your exit strategy would be to exit the
trade before the close.
If the market has been trading on average in a wide range of 98 PIPs, as
Table 2.1 showed, you can use that information to your advantage by expecting
at least a 59-PIP profit target or more. Let me demonstrate as we review
my theories as shown in the chart in Figure 2.29. This is a 15-minute
chart from the trading session on August 10, 2006. As you can see, the market
trades near to the predicted pivot resistance level, where if you practice
patience and wait for a trigger to develop, which in this case we are looking
for a sell signal at resistance, you would have been handsomely rewarded.
Once the signal is generated, place a stop above the high. From the
entry to sell at 1.2877 to the stop-loss placement at 1.2913, this translates to
a 36-PIP risk factor. The first profit target would be 59 PIPs lower than
your entry at 1.2877, that is, 1.2818; and the second profit target would be
set at the predicted pivot point support target at 1.2779. That would give a
trader a 98-PIP profit objective. As it turns out, this trade went profitable
from the get-go. If you implemented a trailing stop from the initial 129.13
risk level down to your entry price at breakeven, you took absolutely no
heat on this trade. This system of combining pivot points with the pivot
point moving average will help keep you on the right side of the market and
hopefully let you accrue consistent profits.
The methodology just discussed can be programmed in most software.
The method is extremely robust and can be improved with just a few simple
discretionary inputs, such as take sell signals at resistance, ignore the
buy signals when they are generated near resistance, only take buy signals
Pivot Point Analysis, Filtering Methods, and Moving Averages 103
at or near support, and ignore sell signals. Use the predicted support and resistance
levels as profit-setting targets; and, most important of all, wait for
the signal to trigger—do not anticipate a signal. This system works across
various time periods and under different conditions, such as bullish, bearish,
or neutral. This gives it a high rating for being a very robust methodology.
As I stated earlier, the parameters I use in this book are a variation of
what is programmed in my proprietary library with Genesis software. This
is a system that generates buy and sell signals based on the principles we
have gone over so far. The greatest feature with this software is that it highlights
a sell signal with a red triangle pointing down, and it signals when the
trigger occurs to buy with a green triangle pointing up. These signals coincide
against resistance levels to sell and support levels to buy. As you will
see in many of the charts in this book, when the arrow indicators line up
against pivot point support and resistance numbers, it offers a fantastic visual
trade confirmation, based on solid technical analysis theory using predefined
strategies. It is a system like this that can definitely help traders
stay focused and can help reduce the destructive emotional element of fear
that forces traders out of winning trades too soon and the greed that generally
gets traders to buy the top of rallies. These indicators help traders develop
patience by waiting for the actual signals to generate, rather than
acting on anticipation. These signals and methods covered in this book can
104 FOREX CONQUERED
FIGURE 2.29 Entry Triggers and Profit Target Methods
Used with permission of GenesisFT.com.
be applied with most charting packages. In fact, 26 years ago, I was calculating
the pivot point support and resistance numbers with a hand-held
calculator; and I was not using candle patterns, which show depth and
breadth of the current market condition in a colorful manner versus onedimensional
single-colored bar charts that we used in those days.
One of the neat things about this book is that it comes complete with
your own pivot point and Fibonacci calculators. All that needs to be done
is to input the data for the high, the low, and the close; and you will have R-
3 down to the S-3 numbers calculated for you. It is very easy to use; all you
need are the prices for the forex market for the time frame you wish to research,
such as the daily, the weekly, the monthly, or even a quarterly time
period.