10.6 EDSEL

[art]

yep, i was pip, eurnzd, up and down like a whores knickers

[Wavegarrick]

@ Art

[boldtrader]

yep, i was pip, eurnzd, up and down like a whores knickers

Love it...

[boldtrader]

Since this forum has been so generous and I have benefited much, I wanted to offer some info on the price action and practices in an effort that others may benefit. I hope it is not too much. If it is, then my apologies as I am only trying to give back.

Throughout our trading career we will come across and experience any number of market dynamics and variations of market activity. But there are some things which never change. The buying and selling activities of market makers which are often cleverly disguised, but with a keen eye, can be easily discerned.

The example of the EURNZD trade posted previously will explain the ideas and concepts behind the trade setup and take profit level I posted in the charts on EURNZD. As many of you may have read in some of my previous postings either here or other forums, my experience at a big 5 trading desk gave me the opportunity to learn the tactics of the chief dealer / head trader of the book. It is that experience by which I have formed my style of trading. I am not suggesting that you change your trading style or even try to mimic or copy my style. I offer this info for educational purposes only. The Edsel system is a great system. If it is working for you, don't change what you are doing.

Two precepts which do not change. If you are a buyer, someone must sell to you. It will either be a Market maker (lets use a bank for this discussion) or another trader. Since most traders are not large enough to trade a book, then their trades are bundled with other traders at the dealer desk before being sent to a bank/counter party.

During ranging market periods, the MM wins. During a trending market, the MM's must work to offset their negative position. Why negative position? Here is what happens. In a trending market, as it breaks out of a range, the retail market will be buying the breakouts which will be tripped based on Stop Limit orders for entry. In order for the retail traders to buy, they are buying from the MM's/banks. This places the MM's/banks in a negative position. Thus in a trending market, MM's are working to offset their negative position.

Remember, that on a breakout, a majority of positions are entered using stops for entry. Once entered into the position, the retail trade market has the tendency to use those same levels of entry for their stop protection level.

I first recognized this condition from watching the dealer software show the aggregate stop levels of the book. It became apparent that these levels became very important to both the dealer/MM and to the unsuspecting retail trader. When comparing these levels on a typical chart, these levels would repeatedly show up as trading points which breached previously known highs/lessor highs and previously known lows/lessor lows. Connoisseurs of WD GANN will recognize this from his famous book on trading commodities.

These levels were constantly seen as a breach of or a breaking of support/resistance levels. Thus looking at the screens/charts, what you would see would be a swing high / swing low point and matched with a varying degree of aggregated stops of the book. What was even more impressive was that this "condition" was a constant process in both directions over any degree of time period.

Fast forward to current markets, ECN's, new modern technology and improved speed. Market vibrations are quick, instant and easily recognizable. There are two basic formations, MST and Dual MST. MST is an acronym for Market Structure Trade or broken support/resistance levels.

Using the breakpoint levels (broken support/resistance) became very important to the process of recognizing where the MM's are most likely to have their stops placed or more importantly, where the retail market would be aggregated. Example: If the EURUSD has been in a 35 pip range of 1.3535 x 1.3570, then for the market to break out of the range, it must move above 1.3570 or below 1.3535. There must be a supply / demand increase outside of these levels. This demand increase is mostly represented by stops. As long as the market trades in the range, the mm's are trading the opposite of the retail market and will win on most trades.

However, if price moves above 1.3570, traders are buying and the dealers/mm's are selling. If traders are tripped long at 1.3572, the most likely place for a protective stop to be placed will be at the 1.3570/1.3571 or even 1.3572 for break-even. Dealers/MM's know this information and practices. It is this level that is targeted. Remember.. they are short and must trade / work to get positive and make money, particularly if they are trading based on the "Daily Fix". On a trending market, they will begin to build positions, fading the move, with the purposeful intention of trading back to the breakout level to force out any stops which may remain in the market. As they have accumulated positions by fading the move, as price moves back to the breakout level, they are making money and the long retail trader is losing.

The EURNZD trade which I posted was just such a trade. The trade was combined with the Edsel system and Dual TMA bands. I go a bit further and add GANN Octaves and Linear Regression Channels, but that is my style of trading. They tend to show me confirmation of future price levels. Look closely at the chart for the take profit level I posted (in advance) and you will recognize it as a level of resistance which had been previously broken and subsequently retested. That is the level where I closed the short on EURNZD. After the retest was completed, in my opinion, a majority of stops were cleared. In the process of clearing out the stops at the lower level 1.6350/45, the price action created a broken support level at 1.6365. This meant that price needed to move back up to clear out the shorts at that level. In this price action setup, it triggered additional buy stops sufficient to push the market to new highs, much like a short squeeze. Look at the subsequent price action after making a new high at 1.6450. Price reversed to move directly back down to the new broken resistance level of 1.6385. By the way, these numbers are also considered to be the natural numbers whereby most price action can be expected to react.

A key point to remember and monitor. As price moves near an MST level, monitor the STO7. If price is nearing the MST level and the STO7 moves into its zone (> 80 or < 20), expect a reversal off that level. That is why I choose to exit at MST/TP levels as they tend to be reactive levels where price can reverse, even for a short time. By adopting these types of practices, you can find yourself exiting a position near tops/bottoms of reversal levels on many occasions. Furthermore, you can very often identify future price targets with the ability to place limits orders to exit position. There is more to the process, but hopefully you will get the basic understanding of the price action and movement for identifying future price levels.

Tip: When exiting at a TP level, include the spread of the pair +1 pip for the exit. It is amazing how many times I have missed an exit by 1 pip because of a spread widening at the MST level.

These levels occur on all time periods. Ever wonder why price stops at certain price points or certain levels? Many can be explained such as a retest of a previous high or low, or a fib level. But most are set based on a retest of a broken support/resistance level. This is how many MMs think and trade. This is the style of trading which I have adopted and taught for many years. In the beginning, I used to trade the breakouts but would get caught on reversals of the breakout. Now, I wait for the breakout to occur and reconfirm the breakout level or fade the breakout and trade back to the MST.

Using the Edsel system, I can choose to trade in the direction of the H4 or setup a counter trade. It is obviously much easier to trade with the market flow vs against. I can see the break points and can build the position, trading in the direction of H4 Edsel. For newer traders, it is best to trade with the main flow.

Cheers Team.

[art]

Great stuff bold, could you just nip over to London and give me a few lessons, bring Bob with you

[trucomallica]

Bold, what is your interpretation when price breaks out and then goes back into the range and ends up breaking out through the other side of the range?

What happens when, after the breakout, price just keeps going and doesn't return to the break level? the MMs just take losses?

[nanningbob]

4H CSS also have eur and nzd cross. Now do you let your winners run. This is how CSS helps you make this decision. If NZD stays above the 20 and the eur crosses the 0 and then -20 this is a let your winner run trade. If you notice my chart I have 3 setup trades. First one is just a quick profit, second based on V move it will break lower than the previous low. Third trade is enter below an earlier low and let it run. The CSS will let me know if this third trade will run or not. I profit quickly, I profit on a breakout, I profit if it runs. If my CSS signal changes my mind. I will profit 1 or 2 trades and stop the third. That is how I play it.

Hi Bob, something made EURNZD spike back up against our trading direction, how do you manage this situations. In my case it just hit 240 MA which is my fixed SL, I play it this way 'cause I'm not comfortable bearing DD, but I'm curious to know if you're still holding your position. Thanks for the analisis on this trade mate! and hope to see you out in green.

I have explained this before and I dont mind at all explaining it again. I do not enter my full positions when I trade. I start with a third and add to my position if price goes in my direction. If price goes away from me I will do one of two things. Was my direction wrong or do I need to add another position. If I am wrong I lose 1/3 of my position instead of a full position. (for example if I trade .30 lots my first position will be .10, 2nd .10, and 3rd .10) I ascertain that eur/nzd stayed in its range so I entered my 2nd position at the top of the TMA band at the 1.6400 line. So now when price moved back into my direction I ended up with the first trade being BE but the 2nd trade in a nice profit. Close out both positions and instead of taking a loss (like the one in one out philosophy teaches) I ended up in profit instead of taking a loss. That is how I always play a ranging market.

Why do I do that? Because it is said the Forex market will range 70+% of the time so I have a 70% chance of such a strategy succeeding. If I add my CSS reads to the mix which at the time is EURO strong and NZD slightly stronger I actually increase those odds. So while everyone else is cussing and swearing at the market, I ended up with a profit once again. I am back at step one of my analysis with a trade sitting at 163.00 and the next just below the previous swing low at 162.500. If price goes through those two then I profit one and will let the last trade run because that is my CSS read. If CSS shows break out, NZD stays above 20 and eur goes below 0 and then -20 I will add to my positions and finally be at my full lots that I allow myself to play with.

If I am wrong and the 2nd trade continues against me like the first trade then I will ascertain whether to play a 3rd to retrace or bail (the most likely because now the trend is well beyond the 240 line and going against me. However, my loss is lesser than my profits because I am only playing part of a full position instead of the whole thing. I call this multi-level trading and it is practiced by many a big player. If you think people who play millions (billions of dollars) are entering their full sizes and 30 pip SL your smoking something. They know the market is volatile and unpredictable in the short run so they partially enter positions until they are into the trend and then add. I have copied such a strategy. That is why you hear me preach so often trade small and live to trade another day. I dont go for home runs, I am a singles hitter and then when those couple of times a year (like last year during the JPY run) I pile it on and get the big winners. It only happens once,twice possible 3 times a year so that is when I make my good money. The rest of the year I work on getting my 5-10% a month and try to collect big when the markets breakout and run.

I keep my losses small not with tight SL that get banged every day but I keep my lot sizes small so I can play the market and ride out these spikes, reversals, news, and games that brokers play. I let them play their stupid game and when they are done, I place my 2nd position and go back into profit. I am only interested in major trend changes not the day by day jumping around. As long as I am in a range or rally/dip in the trend I stay in there. I close out positions when I think I am on the wrong side of a major trend change.

ONE MORE NOTE: If some of you are dumb enough to think that is martingaling dont put your crap in my thread. Go start another one and rail there, I am done arguing with you about this. It was the major reason I left FF.

[nanningbob]

Bold Trader I love your stuff feel free to keep telling us what goes on behind the scenes. Thank you it is highly appreciated to have someone with your back ground and experience posting here. Welcome.

[nanningbob]

eur/nzd we are right back where we were yesterday. For those of you that are not familiar with the eur/nzd it is the 2nd most volatile currency for the major pairs; its cousin gbp/nzd is the most volatile. You either give it room or get eaten for lunch very quickly as some of you found out yesterday. However, the CSS read is still the same, I am still looking for the Breakout trade and then possibly a trend trade. I have not changed. I did pick up over 70 pips on my 2 trades and I explained how I did that in a previous post and why. So looking for it again.

[boldtrader]

Woah, I bet there'll be some huge gaps this sunday night.

Grabbed some pips on AUDUSD short, selling the upper channels. Counter traded the up-move, closed at first retest of broken support.

Nice gap down. Next down side target is 0.8995

Cheers.

AUDUSD Target just hit.. 0.8995.


Cheers.

Bounce coming, with a trade back up to 0.9015; Will look for about 30-35 pips or so..

AUDUSD Target hit.. just closed at 0.9015 at retest of break point as alerted previously. Entered Long at 0.8987, 0.8962, and 0.8948.

Cheers.