TRENDING –
Here is when “going Sailing” can get fun, as successfully
catching a nice trend that can last for weeks, or sometimes months, can mean
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racking up hundreds or even thousands of pips. Obviously this will positively
affect your account balance as well as your confidence levels.
If you look at any chart over the past 10 years you’ll see that every year there
are a few significant trends… always following a “bunch”. What this should
mean to you is that this isn’t something you can expect to happen every day
(or even every month), but if you wait patiently sooner or later a good
opportunity will come around (meanwhile trade other strategies).
Here is a chart that shows a trend that has developed after a “bunch”.
(became un-bunched). Though they started to un-bunch you still need to wait
until the market moves beyond a technical price point. Like I said before, you
don’t just use the S.E.X. lines alone to form trading decisions, but rather you
use them in conjunction with other techniques. Here I drew a horizontal line
(as you can see on the chart) at 1.1083, which is at that previous high. Until it
crosses over I don’t go long as the market may turn around before that as it
may still be in a consolidation pattern. Basically you’d enter similarly to
“Surfing” by waiting for a nice small wave (which always happens) once it
crosses this technical level. In this case you happen to have a nice wave
(circled) that happened right at that technical level (actually it was 1.1076, but
close enough) that you could enter in on either using a big surf (having a stop
set at the low of 1.0932 = 144 pips after you got in), or if you were to be
bolder you could have tried catching a tiny surf (using more lots thus
ultimately getting more potential profits) the following day by stalking a
micro trend that happened after the breakout. Soon after entering the trade,
once your assessment would indicate that it would be relatively safe to do so
(so as not to get stopped out prematurely before the trade has any chance to go
profitably) you’d set your stop at a break even point.
If you were to look at the chart again you’ll notice that I also drew a trend
line. What is more interesting is that the 20 S.E.X. line acts kind of like a
moving trend line in itself. Here are a few interesting characteristics of the 20
S.E.X. line as a trend line.
In this chart the 20 SMA is black, and the 20 EMA is purple (remember, on
your charts it doesn’t matter what colors you choose). Notice that as the
market has started to trend upwards the purple line crossed over and stays
above the black line. This shows you that the market is now trending up. The
farther apart these lines get shows how strongly the market is trending. The
closer they get can show a slow down in the momentum of the trend, or if they
start colliding towards each other it may mean that the market has begun
reversing. (Those of you who are familiar with MACD will notice the
apparent similarity, and hopefully will recognize the benefit of using S.E.X.
over just using MACD – they work well together too). Looking at the chart
you’ll see that near the beginning of this trend the purple line was strongly
above the black line showing that it was trending strongly. Near the middle of
the trend there was a retracement down, and notice how all of a sudden there
the purple line got closer to the black. After that they got narrower and
narrower unto (poof) they crossed over, yet the candles are still well above the
20 S.E.X. lines. This doesn’t necessarily mean that your trend has ended, as it
could simple be the equivalent of a trend line bounce, as it may pick up steam
again soon, however you do need to pay attention to what happens next.
Notice on the chart that in this case the money (green/yellow 5 period S.E.X.
lines) dipped down and touched the 20 period purple/black S.E.X. lines. You
pay attention to whenever your 5 and 20 period S.E.X. lines touch or cross as
this is to be interpreted somewhat like a trend line bounce or cross, especially
when the actual candles strongly penetrate the 20 line (in this case the candles
just touched the 20 line).
Looking at the bigger picture you notice that we’ve seen a few tweezer tops
(for those of you who are familiar with candle stick techniques), we’re getting
close to our trend line, our 5 and 20 S.E.X. lines appear to be bunching, and it
formed a double top (a potential trend break pattern). Needless to say, when
you start seeing things (such as the stuff mentioned above) you start to get
antsy, and you bring in your stop loss tight. In this example I’ve drawn a line
at the bottom near the top that would be the obvious choice to place your stop
at (1.1629). Soon afterwards your candles plunged through the trend line and
the 20 S.E.X. line, getting you stopped out at that level.
What would have been the P/L of this trade? Let’s say you got in at 1.1076
and got stopped at 1.1629 then you would have captured 553 pips total, then
take away the interest (almost two months worth). Let’s just round it to say
that your total net profit would have been equal to roughly 500 pips. Each lot
you could have traded (using proper equity management) would have gotten
you about $5,000. Not bad for a trade lasting under 2 months, especially
considering that this example is more or less just an average example and by
no means one of the more impressive ones that happen quite often. Also keep
in mind, if you noticed the suggestion mentioned earlier that you enter this
opportunity by finding a suitable “Surf” on a suitable micro trend after the key
technical entry levels, that by using proper equity management principles you
could have entered this trade with 5 or more times the amount of lots you
would normally enter with by the bigger method (but would of course require
more precision timing on your part), thus such a trade could have easily gotten
you $25,000+ starting with the same amount of account equity. This
reinforces why I like to use the techniques taught in “Forex Surfing” as a way
to enter in on trades that would normally require significantly larger stops –
smaller stops mean I can trade more lots for the same ultimate risks (keep in
mind that it’s not a completely balanced trade off as a smaller stop also makes
it more likely that you could get stopped out by simple market noise, however
the extra profit potential justifies the additional risks in my opinion).
To illustrate that the above example is by no means exceptional take a look at
the past year (at time of writing) of the following chart of EUR/USD between
06/28/2004 and today 07/11/2005.
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The huge uptrend on the left is basically a replay of the example we just
discussed in detail. This one could have yielded between 700 to 1000 pips
(depending on how conservatively or boldly you played it) within 2 to 3
months (you do the math of approximately how much this could have profited
you by the size of your actual account using proper equity management
principles).
The huge downtrend on the right that is still in progress to date would yield,
so far around 800 pips. What is interesting to notice is how near the bottom
there it has been rebounding off of the 20 S.E.X. line as though it was some
kind of a trend line. Sooner or later this down trend shall end, and we’ll see
how far it ultimately goes.
forex sato
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