Simple method: the “perfect” trading

Posted by on Nov 28, 2012

By Mauro D'Urbano


Trading in forex with method

The perfect trading

 

Often insist on the fact that the trading both simplicity and clarity. Even more if done professionally, serious, profitable. After the initial phase of “knowledge accumulation”, simplification, the selection tools and the “cleansing” of the chart are steps required for the establishment and development of a profitable trading activity.

I’m one of those traders who fail ever to work surrounded by lines and dozens of indicators, each of which provides a contrasting, returning an overview definitely confused.

look at this chart of  the pair  EUR/CAD:

eur/cad simple trading

 

The double top

 

I am a trader who considers the price as the most important indicator. Prices, and the results of tests on key levels.

In this case, the market is in a bullish trend since August, which can be interpreted as a whole down retracement that is seen on the left side of the chart. The price comes in 1.2990 area/1.3000, a static level important and heard repeatedly throughout the 2012: right there forms a double top.

First of all, price analysis: a few basic elements, and simply and unequivocally identifiable. You all know what is a trend, what is a retracement (the earliest subjects of any course of trading), and how to trace important levels. That must be a few, visible to all, visible in a matter of seconds. (a tip for those who suffer from the presence of “code” and struggle to understand what’s really important to trace level: use the line chart greatly simplifies their lives).

Double top is a graphical configuration is also simple identification, in which the market’s going to hear for two times the same price level, without being able to overcome it. The reversal is most effective when placed on top of a bullish move, as in this case.

Zoom:

eur/cad canadian forex

 

How often do I get to seek potential timeframe of confirmations and trading opportunities, in this case in the short direction. And just about the highest known two items to me very familiar, simple, clear. And that much I love trading …

 

First, on double top level I look a penetration attempt, a kind of false break failed. Not only that: in return, price forms a “shooting star“(green), which is a clear bullish reversal candle with a small body and long tail “bearish”. Excellent confirmation.

Another confirmation: what is the only indicator mounted on this chart? The stochastic, which many of you know. Parameters: 10 6 3, that experience led me to believe the best. Using the stochastic to find divergences. Divergence is a “different” between price and indicator, which are two different things. The indication is that something could change, and use as a “filter”, confirming or otherwise of my idea of trading. This course in order to maximize the chances of success (I am a trader and a trader works “playing” with the odds). In this case, the 30 and 31 October the price continues to rise, forming the highest growing, while the stochastic DOES NOT eventually fall into the highest growing too: in the case of reversing bearish divergence.

An important level heard by the market. A graphical configuration inversion. A false break with indent (I’ll discuss later how and why I prefer to operate on market weakness rather than on breakage). A reversal candlestick pattern. The confirmation of a stochastic divergence in favor of my idea short. I have everything my way is to enter the market, starting from the “resulting” level test which I singled out: the market does what he wants, but the odds are on my side.

Trade planning is also very simple, linear, and rational: stop loss at 1.3030, over the top, which is where my idea short would be “denied” by the market and I wouldn’t just accept it.

Only the minimum target. We are in the presence of a double maximum “improper”, or better than a double-a level test. The pattern “double top” is active and confirmed only at the break of the neckline (turning point), which is the statically in blue. The pattern is then only potentially outstanding, and the neckline is the only possible target of a financial operation of type short.

Optimization of trade: after a candlestick pattern as the “shooting star” highlighted, a brief retracement on static level “falsely broken” is extremely likely. This allows me to enter a market risk-return ratio certainly improved.

The consideration of risk-return ratio is the last step in my process of planning of the trade, but not the least important. On the contrary: I’m a trader, and I know that despite the merits of my arguments at the time of “click” the mouse is the marketplace to decide for me. This means that the times in which the market respects the “task” that I assigned to the form, I want to earn enough to cover subsequent loss, inevitably and inexorably will come.

The risk-return ratio is the ratio of how much I earn if successful, and how much risk of losing the alternative hypothesis. As far as I’m concerned, I’ve never considered a single trade where that relationship is at least more than 1. In this case, with a stop loss of less than 50 pips, I 180 potential target points. RR ratio exceeding 3.

I feel absolutely fundamental this element, an integral part of the management of capital and risk. In this way I have no need for “reason”, and neither do most of the time: also available with 50% loss my trading is profitable.

 

So here’s the summary process is methodical, the reasoning that leads me to a trade. In Summary:

1) A rational method, simple, done some rules and confirmations on the behaviour of the price to determine the most probable of the Directorates;

2) defining the trading area: stop loss, target, optimizing entry point;

3) definition of trade management and money management to calculate the size (in my case the risk per trade is never greater than 1%);

 4) coherence of the operation with the need to satisfy a performance ratio-risk to me.

 The outcome of the trade and other educational/operational insights in my next article.

 

Good Trading everyone!

 

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