Trade the break-out, trade the bounce, or wait for a perfect signal.

Trading the bounce from a recent price reversal that is hitting major support, will more times than not be more reliable than trading the break-outs to new highs. Contrarian trading the bounce tends to create more trades you are already in as the new break-out occurs at the other end; you are then selling as others are looking to buy the new breakout. No point trying to plow a new field when we can follow the lines that we just saw set, the task is so much easier when we are retracing moves that recently happened, the resistance is lighter.

Look for a move back to a main support area (previous session low, main pivot point area, daily Simple Moving Average etc), wait for the market to show that the price has held, look for confirmation from other cross pairs that are moving in the same direction as your proposed trade, and get in before the Perfect Signal has formed. The art of contrarian trading is to not over-leverage the positions, and look to be buying the overall direction of the daily chart trend, after a pull-back rather than as a new break-out.

This leads on to looking for Perfect Signals; how many trades set up that when the Perfect Signal comes, (everything aligns, trade gets taken), they suddenly reverse the moment that you get in? By waiting for too much confirmation or not having a plan in place that allows for disciplined Contrarian Trading a Perfect Signal to enter will most times fail. It has become Perfect by having already moved from a Contrarian bounce off a major price point.

Contrarian Trading; taking bounces off Trend-lines, Pivot Point lines, SMA's, whatever they are that can be justified at a major Price Point, but it is harder to do, needs more discipline, and has far more fear attached to it for new traders than just waiting for the Perfect Signal. However, if it is properly planned and taught it is the easiest way to trade because it is following the overall trend. The 4 Hour and 60 Minute charts are key, Pivot Point lines help dramatically.

The Perfect Signal then becomes to a Contrarian Trader their signal to exit, along with the other Pro traders. Hence the reasons for the reversal just after those looking for the perfect signal have jumped in.

It is Trading with the overall Trend, but only after a pull-back to a pre-determined price point. Trend, discipline, plan, and open mind; Contrarian Trading.

Written by TheLFB Trade Team

Identifying Breakouts

Step by Step Guide To Identify Trading Breakouts Into Uptrends Using Simple Technical AnalysisBy Peter Lim Platinum Quality AuthorIf you need help in identifying when a stock has already break out of a trading range and is ready for a rally or move into uptrend, here is a simplified guide.Call up the chart of the stock you are interested in, and perform the following steps:1. Volume AnalysisWhen stocks fall in price, there should be an increase in volume to denote selling or distribution. There is normally a sudden spike in volume when the stock hits a near bottom or bottom. This volume spike shows that selling is exhausted, as the last remaining weak holders of the stock give up in despair as prices continue to drop and throw out their last remaining stocks, causing the volume spike.Correspondingly, look for an increase in volume as the trend changes and there is an break out in price, when buyers come in to pick up the stock as they perceive the price has gone down low enough.2. Pattern AnalysisBefore a stock break out of a trading or consolidation range, there are tell tale signs and specific patterns that you can usually find. Among the bottoming patterns are candlestick patterns such as hammers, inverted hammers, piercing lines, rising stars, bullish engulfing patterns. Of notable interest is the inside day or included day pattern, which is commonly sighted before the outbreak. When there is an inside day, pay attention!3. TrendlinesTrendlines is a simple way to identify outbreaks in trend. Connect the tops of previous high price ranges or the bottoms of previous low price ranges to form a trendline. A penetration upwards of the trendline will denote a outbreak to the upside and a outbreak to the downside denotes further correction.4. OscillatorsFavorite oscillators to show overbought and oversold regions of a stock are the Stochastics and its close cousin, the Stoch-RSI. By themselves, they can lead to whipsaws as oscillators can be overbought or oversold for long periods. So oscillators like these should be used in conjunction with other indicators for synergistic interpretation. The out break into uptrends is denoted by the stochastics or the stoch-rsi moving upwards above the lower level which is normally fixed at 20% ( oversold level), and where 80% is the overbought region.Trading outbreaks is a fine art, where some successful traders have been very successful in removing all emotion that prevent them from taking immediate action. Some of them have "perfected" their trading systems to recognise trends and patterns using just price bars and time- without any other technical indicators - so that they can trade their proven systems without being paralysed by too much analysis. To them, trading is both fun and profitable, as they have proven to outlast the many market crashes and have continued to increase their personal wealth by trading.Need more information about trading to provide a consistent income? Discover for free how a professional trader creates his 5 figure income using 3 powerful proven trading Price-Action trading strategies involving No-Indicators, and how you can personalise these same systems for your own use today-and best of all, these systems can be applied for trading stocks and shares, futures and commodities and forex.

breakout part 3

Here we have a steep uptrend as shown by the price action and our uptrend line. Instead of guessing as to where this dramatic advance in price might end or at what price level is all the supply, we can simply draw an uptrend line by connecting the pivot lows and look to sell short on a breakout (breakdown in this case) of that line. As in the last example, a natural target can be the origin of that rally in price as shown by the dashed red horizontal line on the bottom of this chart.
Keep in mind that the most important part of trading is managing risk properly. We focus on this extensively in class. The focus of this piece was to help with entries as that is the beginning of a good risk averse strategy. The breakout entries discussed are equally appropriate in any and all markets so don't think this is just for Forex. Never forget, whether the candles on a screen represent a chart of stocks, futures, Forex, options, football trading cards, rare coins, or anything traded… They are all just people and price. We would quantify a breakout in price the same way in any and all of these markets. If you are watching the buying and selling of a David Beckham rookie card and you see that the last one available at the current price level just sold, what is about to happen to price?

breakout part2

This again is a chart of the EURUSD. The down trend line is drawn once we have two points on a chart which is what is always required when drawing trend lines. Once we have this, we simply draw the line and wait for price to breakout above the line for a long entry. The logic here is that price is trending down because it is at price levels where supply exceeds demand. We want to buy this market when it reaches a price level where demand exceeds supply (more buyers than sellers). Instead of trying to guess at where this might be, the price action on the chart will tell us this if we just wait and watch. When price eventually breaks out above that down trend line, it happens because it has reached a price level where there are more willing buyers (demand) than sellers (supply). This is where we would want to take a low risk entry and buy. While there are many profit taking targets that we cover in class, one logical target for profit is the origin of the decline in price that started the whole downtrend in the first place. This is shown as the dashed red line on the chart above.

breakout part1

I will discuss the two most popular breakout entries; Support and Resistance Breakouts and Trend Line Breakouts.
Support and Resistance Breakouts

Once in a while I hear someone say that breakout trading worked best in the late 90's in the stock market. Well, someone who learned to trade in the late 90's and who does not understand breakouts might say that. In those days, you could buy anything at almost any time and make money. Today, breakout trading is where you see most of the money being made in Forex trading by those who truly understand the structure behind a true breakout getting paid from those who don't.

The chart above is the EURUSD. Notice the horizontal resistance line and let's work left to right in our understanding of what's really happening behind these candles in the chart. The first circled pivot high on the left becomes that pivot high because supply in this market greatly exceeds demand at that price level. When price reaches the line, some of the sellers that make up that supply get to sell but there is still much more supply than demand so price has to fall. The drop from that first circled area is significant as we would expect. The next time price revisits that level, it declines again but this time, the decline is shallow compared to the prior visit. This is because each time you revisit the level, more sellers that make up that supply get to sell so the supply and demand equation is becoming more in balance. The analogy here is the chopping down of a tree (not a great example, I know). With each chop, you are removing mass from the tree and therefore, the tree is more and more likely to fall with each chop. In trading, the mass is the supply and demand. Moving left to right, price comes back to that level a third time and falls but again, the decline is shallow suggesting that there are simply not many sellers at that level remaining. Next, price revisits that level a fourth time but this time, instead of declining from that level, it bases sideways suggesting there are no longer more sellers than buyers. This is when you get ready to buy because in Forex trading (and any other market for that matter), price is likely to move higher. One would feel comfortable taking a low risk entry on a breakout here as the objective price action tells us that there are simply few sellers if any left at that price level. This is a trade we take in the Forex Trader Part 1 and 2 classes all the time. This is also a trade you will see taken very often in our Extended Learning Track (XLT) – Forex Trading class . Does every trade work? Of course not, that's trading. This is why it is so important to understand what is driving the movement of these candles. This in turn helps you understand the structure of a breakout. For shorting, we would just do the opposite of what I am suggesting here. If you want to see an example of a shorting opportunity just like this one, print this page out and turn it upside down.


The Trend Line Breakout

Trend line breakouts and breakdowns are a very popular entry in Forex and other markets. Much of the time, this is the only type of entry a student will practice in class all week long because they become comfortable with it as it is simple to understand and can produce some strong moves for a trader. by Sam Seiden

Breakout of daily breakout

Current trading method was developed as an addition to original Midnight Setup strategy, but can also be traded alone or in combination with any other Forex strategy.
The idea is to filter out some big portion of false breakouts in our case above/below daily candles.
Setup: daily charts and 5 min charts, no indicators.
Entry rules:Using rules from Midnight Setup strategy we get ready to enter on the break of the daily candle's high or low.However, this time instead of placing Buy/Sell stop orders above/below daily candle, we aren't placing any, but rather waiting for actual breakout to occur. Would be a good idea to set an alert signal on a trading platform that will call us when the first breakout is in place.
Immediately after a breakout above/below daily candle on daily charts we go to 5 min charts, where we wait for the price to finish its first advance and start retracing back.
Here comes the idea of Trading Breakouts of the Breakouts:On 5 min chart we mark the very first extreme level set by the price (highest high or lowest low depending on the breakout direction) and place Buy Stop or Sell Stop orders +10 pips above/below that extreme. This way our order will be triggered only if the price confirms its directional intentions... Otherwise, it was a false breakout. Quite often after the breakout on Daily charts, 5 min charts first extreme point reveals the real nature of the breakout. Price may never reach that extreme again, or it can come and make double top/bottom pattern and back up. Not all but many losing trades can be avoided by Trading Breakouts of the Breakouts.
Along with advantages, there are some not very critical disadvantages of this method:First of all, we are going to enter a bit later after the initial daily breakout and thus will definitely miss some pips from the starting breakout point.Second, if the breakout is extremely powerful, our 5 min retracement may never come or come way too late. Chances for that are quite small, usually there is always something to spot on 5 min charts, but exceptions may occur.Third, you can't set it once in the morning and forget about it for the rest of the day. You need to be there to spot the first 5 min retracement and set appropriate orders.
------ by; Edward Ravy ------

Surviving in a volatile market

In the last two weeks, my mini account got hit hard. I executed several poorly-timed trades, twice entering the market just as it turned south and moved against me without warning, for losses of just over 10% of my account.
In one of those trades, I went long the AUD/JPY just as a fresh round of risk aversion slammed the market, but I assumed it was just some big traders taking profit off the table, moved my stop down to a level that I figured would never get hit, and went to bed. In the morning, my equity and my jaw both dropped.
Don’t get me wrong. I can deal with the market moving against me; it happens to everyone whether they admit it or not. The trick, though, is to minimize the losses and maximize the gains through good money management, not to ASS*U*ME that a certain level of support will make a good stop-loss level and then turn out the light. I mean, I should have just donated the money to my favorite charity and saved myself a lousy morning.
So here, for all to see and gloat over, are some rules of survival in a volatile and choppy market.
Keep the fundamental announcement calendar right by the keyboard. Economics are kinda chancy these days, with many reserve banks stuck between rising inflation and falling growth. They can’t raise interest rates without risking weaker growth and they can’t lower rates without risking stronger inflation, and everybody knows it. So traders are watching fundamentals closely, hoping to confirm or refute expectations of future interest rate and therefore market movements.
When an announcement is pending, think about exiting trades associated with that currency, unless of course you’re absolutely certain what it’s going to say, and even then, consider getting out. Economic indicators have been surprising both experts and amateurs lately, and the market has been moving radically in response. As an example, when the FOMC released their interest rate decision last week, the market at first interpreted the accompanying statement as hawkish and the dollar started rising, only to fall off a cliff a few minutes later. A lot of amateur traders got slammed.
When the ECB moves this Thursday, it’s likely to happen again, so hang onto your hard hat and your money. Consider waiting until the direction of the market’s move has been confirmed before joining it.
Don’t trust the market. A choppy and volatile market is no place to ignore basic good trading skills. Take the time to mark support and resistance levels; look for channels, Fibonacci retracements, and chart patterns; calculate ADR levels; and look for levels where more than one of these technical indicators coincide. That’s where the bulls and bears are likely to make their stands, where the market is likely to turn, and likely spots for an entry or exit. Look for confirmation (as I should have done) before committing to the trade, and use good money management techniques, never risking more than your established maximum amount per trade.
Check the chop before you dive in. A trick I learned from Dean Malone of CompassFX is the five-period moving average channel, with one SMA calculated on the high price and the other on the low (an example is visible on the USD/CAD chart above). Check the price action on the four-hour chart before trading. If it shows a series of dojis, spinning tops, and random bull and bear candles clustering within the channel, then the market is choppy and it will be even harder to grab a few pips than normal.
Trade pullbacks, as the 5EMAs trading system teaches. Movements aren’t likely to be sustained for long, as many currency pairs, particularly USD crosses, are pulling inside rather narrow ranges like tortoises inside their shells. When an honest profit has been made, consider taking it off the table. The alternative is to see a good trade head south, taking your profit with it.
Trade channels and place hedges above and below for breakouts. As the daily chart of USD/CAD above graphically illustrates, range-trading is in right now. Since late November of last year, USD/CAD has moved within three cents, plus or minus, of parity (marked by the central red horizontal line) and although a number of pundits are predicting it will rise out of that range later this year, well, it hasn’t yet. the forex writer