Tagged "breakout"

Introduction

I had planned on releasing the Support/Resistance article this week (as per the Training Schedule for October 1st), but I have a surprise for you that is well-worth the wait: a new strategy BUILT-IN to CandlePro AND this article on how to use that feature in your trading! It is a 2-for-1 :).

What is the Double/Triple Strategy?

The Double/Triple strategy is a confluence-based strategy that looks for multiple candles in the same timeframe that all point in the same direction. For example if there is a BULLISH Doji on the 15m EUR/USD and a BULLISH Hammer on the 15 AUD/USD. A triple is when the EUR/USD, AUD/USD and GBP/USD all line up together and are considered stronger than a double.

How do I detect new Double/Triple signals with CandlePro?

Great question! Detecting new double/triple signals with CandlePro is easy – just search for new candles like you normally would and any double or triple signal will be noted with this symbol:

Here we can see an example of a double EUR/USD and GBP/USD symbol:

What are the entry and exit rules for this strategy?

These are basic rules. Adapt as you see fit for your trading strategy and other factors such as trend, quality of signal, etc.

1) Enter trade in the direction of the signals

2) Place stops at least as far away as the CandlePro recommend Min SL found on the Performance Report

3) Have tiers of targets with the 1st target equal distance with the SL or at the Max recommend TP level (in Performance Report) – whichever is closer. At this level you can either take profit if you are scalping OR move SL to break-even to eliminate risk in the trade. Place 2 more targets at appropriate S/R levels, and at each target move your SL up to the previous target level (so for example at T2 I would move my SL to T1).

Note: The best results always come from looking at the charts and using support/resistance levels that make sense, but for those that want a more cookie-cutter approach these are the steps I recommend.

Three Tips for Better Performance

1) EU+GU doubles are better performers. The system is setup to detect a double on EU+GU, EU+AU or AU+GU, BUT not all of these combinations are created equally. By far and away the EU+GU signals are the most powerful, representing much more volume than any AU combination. That doesn’t mean you can’t trade an AU double – it just means the setup (including trend, price action, etc) has to be cleaner than an EU+GU setup.

2) A triple should be viewed as an EU+GU with a AU as a kicker (in poker a ‘kicker’ is a side card that breaks ties between competing hands). That means trade the EU+GU as the primary, AU is extra confirmation and an AU trade should be taken based on the chart.

3) As with everything in forex looking for more confluence – rejection or breakouts of support/resistance, trade with the trend, look at different timeframes, look for signals with good RR ratios. In the FX markets every little drop helps. Remember, it is all about stacking the odds in your favor.

Trade Examples

Rather than re-invent the wheel here with trade examples I’m going to point you to Neil’s (@ukfitness) CP blog where he has been successfully using this strategy for almost 2 months now. Great job to Neil for keeping such a good trade journal and for identifying a winning strategy.

Click here to go to the journal.

Conclusion

Doubles and triples are powerful cross-pair signals that work because they reflect underlying shifts in currencies. Combining them with forex fundamentals such as money management and trend trading are yet another way CandlePro will help you improve your trading.

8-27-08

4:26a GMT – USD/CAD has plenty of room to fall on the 4-hour and daily charts, which is backed by a strong downtrend on the weekly and monthly charts. Oil prices have hit monthly lows and a rise in oil prices (which is a leading indicator for the CAD) would indicate a fall in the USD/CAD as the CAD strengthens. Pair is consolidating in a triangular pattern (yellow converging lines on chart below). Support is currently found above 1.0400. Below this level I expect a 100 pip fall to 1.0300 at a minimum.

Trading Idea: shorts favored on a break below 1.0400 with initial targets to 1.0300.

(click to enlarge)

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7-28-08

14:51 GMT – The GU pair stayed within the triangular breakout pattern overnight (from my last signal), rising to the of channel resistance (yellow lines below) where it is now. I still expect that signal to hold to hold true as the pattern in the same. In the short term I expect the price action to return to the triangle channel bottom (blue line) currently around 1.9875.

Trading Idea: Short-term shorts preferred below yellow channel trend line below, with targets at 1.9915, 1.9885 and 1.9855.

(click to enlarge)

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7-28-08

1:14a GMT – GBP/USD has been moving slowly downward over the past several weeks (yellow channel lines below), in a larger upward channel over the past few months (blue channel lines below). The downward channel has hit the bottom of the upward channel and has formed a nice triangle pattern (purple lines on chart below) and I believe the the breakout of that triangle will provide us with the direction of the pair to come in the next few weeks. The daily charts show a bearish picture over the past year so that is my inclination for the future, though the shorter term 4H charts (below) show a bullish channel (blue lines).

Trading Idea: look for the pair to breakout of the purple triangle lines below. Pair could go either way. Long targets are 1.9953 and 1.9987 in the mid-term. Short targets are 1.9836 and 1.9765 in the mid-term.

(click to enlarge)

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5-22-08

6:54a GMT – Pair has tested 1.58 several times today and yesterday and was unable to break through. After retreating down and gaining some ground from the overbought hourlies the EUR poised for another breakout.

Buy – 1.5808
S – 1.5883
L1 – 1.5833
L2 – 1.5865

UPDATE – 7:15a – Pair quickly dropped from 1.58 after getting up to 1.5815 leaving us with a 50 pip loss. Will analyze this one in more detail later.

Trade Result: -50 pips loss.

Analysis – Basically the more conservative trend lines (the ones on the outside) won out on this one. In hindsight this could be expected since the pair had bounced off them twice in the past 12 hours. The matching trend support further confirmed the upper trend resistance.

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5-21-08

23:46p GMT – Placing two entry orders above current consolidation just below large round # at 1.5800. Current price action is around 1.5786. Treating the four candlestick, 50 pip rise from 1.5750 as a flagpole and placing entry 5 pips above flagpole and large round # at 1.5805. Stop and first exit are relatively tight as RSI is pretty overbought at this point but fundamentals back more EUR gains. In the direction of the trend and have a nice down curl consolidation below 1.58 as bears try and fight back but I think bulls will win this one.

Buy – 1.5805
S – 1.5780 (25p)
L1 – 1.5830 (25p, move second stop to break even)
L2 – 1.5870 (65 pips, at the bottom of former support levels)

UPDATE – 3:57a GMT – Signal cancelled, again. Break to the downside negates signal. We will look to buy dips.

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5-21-08

17:07 GMT – EUR/USD has broken to the upside and crashed through known channel resistance. Their might be one more channel resistance that I redrew that matches current price action (see chart below) so I have placed my buy entries 13 pips above the possible channel resistance. Nice flagpole, in the direction of the trend and wicks are more or less levelling off at a horizontal level. This is a combination of a breakout trade and a flagpole trade. Also note that because of the rising resistance line these entry orders will only remain open for a few hours at most.

Buy – 1.5795
S – 1.5765 (30 pips)
L1 – 1.5825 (30 pips, move second stop to break even)
L2 – 1.5865 (70 pips, I may actually remove this limit and let price action run depending on the signals as the rising support will provide a profitable exit in any case)

UPDATE – 19:24 GMT – Buy entries, both stops and L1 were all raised 2 pips as we enter the new hour because the resistance slope is about 2 pips. So the entry is now 1.5797, for example.

UPDATE – 20:22 GMT – SIGNAL CANCELLED. Last hour closed above my channel resistance and no quick rise happened. Also the hourlies are heavily overbought which might limit the gains and a slight divergence has peaked out over the past 10 hours.

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5-21-08

6:29a GMT – Pair has broken below support level at 103.40 and is currently consolidating below that level. We will look for selling opportunities as the pair approaches now resistance at 103.40.

Trading Idea: Wait for a candlestick entry on a clear bounce off resistance to sell. Rising trend line is still currently intact from 5/9 lows and a major channel could be forming. Also, rising RSI trend line from that date is still intact as well. If the pair does not close below 103.40 today then look for buying opportunities above that 103.40.

Result: +70 pips

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6:18a GMT – USD/CAD has been consolidating in a tight horizontal channel now for the second day after the 100 pip drop from 1.000. Due to the declining trend lines, the declining RSI hourlies and the nice horizontal line that the candlesticks are forming along the 0.9900 support I expect the pair will break through. Look for .9975 and then .9950 as the next support levels ( support back in early March).

Trading idea: place an entry sell order 10 to 15 pips below the support level at 0.9900 with targets around the .9950 range.

UPDATE – 8:01a GMT – after a 31 pip decline to .9875 the pair rebounded sharply and produced a bullish engulfing candlestick all the way back up to .9920. This is why breakout orders on the USD/CAD make me nervous ;)

Weekly update – Pair did drop to .98770, a 31 pip decline from where the pair was at the time of analysis. ATR was about 15.7 with a 3 pip spread so a stop/L1 of 20 would have been sufficient, meaning this would have been a profitable trade of +20 pips at least. On this pair, in a strong downtrend I would much prefer buying on rallies though, as the trades have a much higher chance of hitting my L2 and L3 meaning the money management scenario is way better.

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5:54a GMT – AUD/USD pair is consolidating beneath .9600 after a 70 pip flagpole rise 6 hours back. My inclination is that the pair will shoot through the 0.96 resistance after consolidation but because the entry would be just below a large round # and because of the overbought hourlies I am not placing a signal or entry order on this one. A rising RSI trendline does confirm the direction.

UPDATE – Pair did rise 30 pips, hitting as high as 0.9615 which is a 20-year high. since then pair has retreated back below .9600 but has been unable to break support at .9570. Our overall bias is still up.

Weekly Review: Good no trade. Pair rose 30 pips before falling back down to .9560. A standard flagpole trade would have called for an entry at .9596. The pairs high before dropping back was .96170 so a 20 pip stop would have barely squeaked by while a 25 pip stop would have been a loser (remember first lot is equal to risk or the stop). The ATR was around 18 with a 3 pip spread so a 20 pip stop would have been acceptable (especially given the caution of the large round number) but a 25 pip stop would have been more conservative.