INTRODUCTION

Having understood Trending as a Concept. We can move to actual pragmatic implementation. The first two of a series of coming educational articles will focus on confirming, and profitably trading a very short term trend, to maximize day traders’ yields.

A very short term Trend is the time horizon suitable for day traders, and is a trend where the trader is guaranteed to be trading a trending market for a period of 2 to 3 days ( ½ wk.), usually it is the 1^st half or last ½ of the week. We will be terming this market condition a “Cycle/3”.

A Cycle/3 is really a very short term wave-3, and is an ideal opportunity of wealth generation for retail traders.  

A very aggressive strategy is used to trade a Cycle/3. One that is vastly different from low volatility trends (Wave-5), or picking market tops / bottoms in swing trades.

Examples of how to trade a Cycle/3, will be shown in a pragmatic, focused and aggressive manner, including the money management necessary to successfully compound on the move, during its short duration.

The strategy is specifically adapted to profit from trading on spot currency contracts for price difference (popularly termed FOREX).

Typical Examples of the short term Cycle/3 moves that a short term Cycle/3 strategy will be targeting are shown on the next slide.

ABSTRACT

The strategy aims to catch and compile profits out of one - directional  moves that have little or NO retractions whatsoever.

·    The time duration is 3-6 days at most. Trader is NOT subjected to adverse volatility or to holding time prolonged trades.

·    The momentum on the daily chart must predominantly be trending at or below (<) oversold levels for Bear trends, and at or above (>) overbought levels for Bull trends. - See Chart above. 

IDENTIFYING CYCLE/3 TREND PARAMETERS -

We will be using the standard Cci -100 period on An input parameter of a (5) period moving average. (The 5MA is the default setting on most standard chart packages).

1- The Cci (100) must be above (>)100 on both 1 & 4Hr for trading bull moves, and vice versa for bear moves.

2- A bounce must have occurred at OB (over bought) level on the 1 HR Cci. (See yellow circle on Chart-A)

3- The Cci (100) on the 4-HR needs only to have just taken above  > 100.

 

CHART/A- (above) is a GBP/USD 1HR chart, and will be used as an example.  

Note the bounce out of over bought level on the Cci. (yellow shaded circle).  

At that point 1HR Cci(100) is trending above 100 level, and the 4HR Cci(100) would have just marked above (>) 100 level.  A trending condition is confirmed.

 

CHART/B, above shows that once Cci (100) is >100 on 1&4HRs, (Chart/A) the trader is confirmed to embark on short term  trend trades. The 15-min time frame can be used. On this internal time frame of the 1-HR cycle, price will be continually moving in 5:3 structure advances. This Enables the trader to take continuous trend trades with short term profit projections, without being stopped out. Such consistent trending action is shown labeled in waves 1s & 2s on the chart, with wave -2s never breaking below the bottoms of wave-1s 

Such a condition has been already explained under the "Elliot from a Trading Perspective" section, and is illustrated here on CHART/B above.

Effectively the market is "trending" in one direction 

This principle and the continuous advance in price it generates are indicated in a random manner by the hypothetical trade entries (showing in green arrows) on CHART/B, The arrows confirm that any trades taken at an internal 15min pivot support will trend higher to the next pivot resistance, to complete a 5-swing move. Corrections, being limited to 3-swings, will not break far enough below the pivot support out of which the move originated. And so will not stop out a trader whose stop loss is placed two pivot supports (5-swings) below his entry pivot. 

This finding represents the power point upon which a Cycle/3 short term trending strategy will be based.

High Risk Investment Warning: 

Financial products are traded on margin, and carry an extremely high degree of risk. It is very possible to lose all your capital trading them. Financial Products such CFDs (Contracts for Price Difference) are considered some of the most volatile and risky of financial assets, and as such will NOT be suitable for everyone to trade. More importantly, CFDs are derivative products of, / (and are) impacted by several financial issues and asset classes. Several complex fundamentals become intertwined. And it becomes very hard, even for professionals to assess and acutely understand ALL the risks involved. Under volatile market conditions, Losses could well exceed the account’s initial deposits. Please think very carefully whether such trading portfolios' suit you. Take into consideration all of your relevant circumstances and personal resources, and DO NOT POST your entire account balance to meet margin requirements. Clients can minimize their level of risk exposure by requesting a change in leverage limits. For more information on this please refer to your broker’s Risk Disclosure. Further, do not wavier seeking independent expert and legal advice on trading issues and their suitability to yr geographical location. 

DISCLAIMER:-   

TRADER PSYCHOLOGY - PLEASE TAKE VERY SERIOUSLY

PLEASE CONSIDER THIS WARNING VERY CAREFULLY EVERY TIME YOU READ & STUDY THIS DOCUMENT

The information and illustrated examples elaborated on this document, are for educational purposes only. It should not be assumed that methods, techniques, or indicators presented will always be profitable, and will NOT result in losses. Past results are not a typical setting for future ones. The contents of this document solely represent the publisher’s, experience and findings.

ANY & ALL indication(s) given here have the following inherent limitations:-

1- Trading Analysis is based on the benefit of hindsight, mistakes are seen beforehand & filtered out. Before making decisions based on such analysis, the reader must acutely scrutinize and conduct all possible due diligence, including- but not limited to- seeking independent expert advise.

2- Representation that any account will or likely achieve profits should be diligently and responsibly downplayed . In reality, factors such as the fear of losing, generate neural tensions. These cause closing profitable positions prematurely during gains, and cloud a traders’ judgment during losses, causing the holding of losses, and crippling draw downs. This behavior is typical when users change from a demonstration account to a real one. And as a fact is never forcefully documented by the majority of  brokers.

3- Readers are advised to take seriously the psychology involved in the behavioral aspects associated with taking  high trading risks. Any trade made, at some point, will get tested, the trader will experience losses and question his motives for the trade. If the trade is over leveraged, it will lead to high exposure, and severe draw downs. The trader will be frightened, and despair, dumping the position, under severe stresses, at the very worst time. Volatility leads to rash impulsive decisions. And decisions become irrationally driven by fears, the more volatile a portfolio becomes. Hence, it is said that trading is NOT for everyone.

4- Because of the above, only the reader carries the sole responsibility for all the businesses or investments he /she will be carrying  out or conducting in his / her name(s), regardless of using ideas or material they viewed  / copied / read here or any where else. The publisher(s) will not be held liable in any capacity over losses incurred by readers, stemming from their own actions.

5- Finally, Due to all above listed & more, a consensus of over 70% of retail Forex traders lose money trading or barely break even.

We can now move to detailed examples. 

Example/1 will show how to trade a Cycle/3 strategy in a pragmatic manner. The trend duration being usually 2-3 days. The strategy is designed to take the utmost opportunity of this limited time.

1-THE RISK :-

As mentioned earlier, the market will now be moving in 5:3 pitches on the 15min frame. Under such conditions, the market is in extension, and a correction (wave-2) CAN NOT FALL & SUSTAIN below a local (wave-1), as marked out on Chart/C below.

Instead of segregating where a local bottom of a (wave-2) correcting an internal (wave-1) terminates, and to avoid discretionary projections, the trader will be using a fixed risk measure to place his stop loss at, on all his trades. This is calculated to be greater than  two internal pivot measures = ( Three internal pivot level labels). Such a measure is clearly identified and labeled the (Fixed Risk Pitch), on Chart/C. Note that it covers a distance from P to R2.

Such a stop measure is always greater than a measure of the amplitude of the breakout motive wave-1.  See Chart-C2).

On Chart-C2, the calculated stop measure is One & a half times the amplitude of wave-1, this is on purpose to make absolutely sure of standing out of volatile price spikes when trading.(Remember, a wave-2 cannot take out the bottom of wave-1 in a trend, but could spike below, only to rise back and close above), taking out stops.

The calculated stop loss measure will be termed the "Fixed risk Pitch" as of here on, and becomes the numerical stop measure to use on all trade entries on a daily basis, irrespective of the levels such entries are made at.

Such stops or hedges are clearly shown related to all the entries taken by the trader on a daily basis on Chart-D. Again, note the risk is fixed from each entry taken, irrespective of where the entry is made. See Chart -D, below.

2-ENTRIES & PROFITS :-

Having defined where to place the stops/hedges for each trade. Pragmatic entries can now be taken and recurred at least twice a day as follows:- (See CHART/D) Above.

A- Every day, trader buys the market open, or closest pivot level to market open on the 15-min frame.

B- Take profit at the next pivot resistance above the day open / or (R1) above Pivot level (P) on the 15-min chart.

C- Trade is immediately recurred by making entry slightly above the resistance pivot reached (R1), to take profit at the next higher pivot resistance on the 15 min chart. (See examples outlined on Chart-D below).

TRADE STATISTICS :-

This sequence is recurred onward for a two - three day duration

The trader would be accomplishing 2 trades/day or 2 trades over  1 ½ days, as follows:

 * One trade from open to R1

* One trade from R1 to R2

* Under volatile conditions, one trade from R2 to R3

* Under less volatile conditions, the trade from R2 to R3, can carry forward into the next day, bringing down the trade average to 1 ½ days. 

Internal S/P&R levels are shown superimposed on the price action, on the example shown on CHART/D. Standard pivots are used & can be easily accessed on the indicator list of any charting package.

On the shown example, (CHART/D), about 4 trades are achieved over a 2-day duration. The win rate is 100%

3- ACCOUNT MANAGEMENT & COMPOUNDING.

Because of the short trend duration, it becomes imperative for the trader to be well invested into it, if meaningful profits supporting the trader's life style are to be secured. 

To do so in an realistic manner, the trader will be using profit pitch projections generated by the the 1st day of trading to forward engineer, the optimum yields over the next 2-days of trend duration. (remember the full projected trend duration for a short term Cycle/3 is 2-3 days.) 

1^st day generated profits together with the fixed risk entailed on the day's entries are shown in the yellow box out on chart/E. The 1^st day's readings show a take profit projections between internal pivot levels of 35 -45pts. Against a fixed risk pitch (covering 3 internal pivot levels) of 80 pts.

The data is used as input into the trade & risk management matrix (shown below) to forward engineer, the expected yields to be generated out of the default period for a short trend duration. (2~3 days).

1- On the shown matrix, Fixed risk pitch & take profit values are calculated between internal pivots off chart/E. The trader can then decide on an appropriate risk exposure on his account in % terms.

2- On the matrix:- risk percentages are calculated for 3k & 5K accounts. According to such permissible risk percentages, a trade size can be chosen / allocated for continually recurring  positions on a daily basis.

3- Rewards in (US$) values are next generated based on the chosen trade size/gear used in mini lots, that would be usable under the chosen risk %. Traders should chose suitable sizes that not only relate to yields that are accommodating to their lifestyles, but also subject the trader to comfortable / controllable risk exposure (% draw down),

4- The primary aim of the matrix is to establish a controllable risk exposure. Controllable risk relates to the optimum size that the trader can neutralize through hedging if the market reverses on the position. (Protective hedge implementation, will be explained under example -2.)

5-The statistical win rate = 100%. The optimum trade recurrence / day, estimated at 2, for a 3-day duration. Given that risk : reward is inverted at 2:1 in this strategy (to ensure a 100% win rate), then by simply trading a manageable gear (70K), and at an optimum trade recurrence rate, a regular consistent profit accumulation, should be achievable over regularly trading Cycle/3s, leading to the compounding of profits.

CONCLUSION

A cycle/3 trend is a high profit probability opportunity, into which a retail trader 

should be aggressively geared in. It is a wealth generation strategy when mastered. 

High Risk Investment Warning: 

Financial products are traded on margin, and carry an extremely high degree of risk. It is very possible to lose all your capital trading them. Financial Products such CFDs (Contracts for Price Difference) are considered some of the most volatile and risky of financial assets, and as such will NOT be suitable for everyone to trade. More importantly, CFDs are derivative products of, / (and are) impacted by several financial issues and asset classes. Several complex fundamentals become intertwined. And it becomes very hard, even for professionals to assess and acutely understand ALL the risks involved. Under volatile market conditions, Losses could well exceed the account’s initial deposits. Please think very carefully whether such trading portfolios' suit you. Take into consideration all of your relevant circumstances and personal resources, and DO NOT POST your entire account balance to meet margin requirements. Clients can minimize their level of risk exposure by requesting a change in leverage limits. For more information on this please refer to your broker’s Risk Disclosure. Further, do not wavier seeking independent expert and legal advice on trading issues and their suitability to yr geographical location. 

DISCLAIMER:-   

TRADER PSYCHOLOGY - PLEASE TAKE VERY SERIOUSLY

PLEASE CONSIDER THIS WARNING VERY CAREFULLY EVERY TIME YOU READ & STUDY THIS DOCUMENT

The information and illustrated examples elaborated on this document, are for educational purposes only. It should not be assumed that methods, techniques, or indicators presented will always be profitable, and will NOT result in losses. Past results are not a typical setting for future ones. The contents of this document solely represent the publisher’s, experience and findings.

ANY & ALL indication(s) given here have the following inherent limitations:-

1- Trading Analysis is based on the benefit of hindsight, mistakes are seen beforehand & filtered out. Before making decisions based on such analysis, the reader must acutely scrutinize and conduct all possible due diligence, including- but not limited to- seeking independent expert advise.

2- Representation that any account will or likely achieve profits should be diligently and responsibly downplayed . In reality, factors such as the fear of losing, generate neural tensions. These cause closing profitable positions prematurely during gains, and cloud a traders’ judgment during losses, causing the holding of losses, and crippling draw downs. This behavior is typical when users change from a demonstration account to a real one. And as a fact is never forcefully documented by the majority of  brokers.

3- Readers are advised to take seriously the psychology involved in the behavioral aspects associated with taking  high trading risks. Any trade made, at some point, will get tested, the trader will experience losses and question his motives for the trade. If the trade is over leveraged, it will lead to high exposure, and severe draw downs. The trader will be frightened, and despair, dumping the position, under severe stresses, at the very worst time. Volatility leads to rash impulsive decisions. And decisions become irrationally driven by fears, the more volatile a portfolio becomes. Hence, it is said that trading is NOT for everyone.

4- Because of the above, only the reader carries the sole responsibility for all the businesses or investments he /she will be carrying  out or conducting in his / her name(s), regardless of using ideas or material they viewed  / copied / read here or any where else. The publisher(s) will not be held liable in any capacity over losses incurred by readers, stemming from their own actions.

5- Finally, Due to all above listed & more, a consensus of over 70% of retail Forex traders lose money trading or barely break even.

This second example will treat how to protect sizable holdings in the trend through hedging. Traders will note that a Cycle/3 strategy implements a hedging technique to neutralize sizable held positions in the trend's direction, should the market abruptly reverse on such holdings.

This is clearly noted on Chart/D - Example/1. The advantages behind implementing such a hedging technique instead of actual stops, will be illustrated in depth on this example. 

CONFIRMING A CYCLE/3

To confirm a bearish Cycle/3  Trend

1- The Cci (100) must be below  (<)-100 on both 1& 4Hr.

2- A bounce must have occurred at OS (over sold) level on the 1 HR Cci. (See yellow circle on Chart-A)

3- The Cci (100) on the 4-HR needs only to have just taken below < -100.

Chart/A is a GBP/JPY 1HR chart, and will be used as an example . Note the bounce out of over sold level on the Cci. (yellow  circle). At that point 1HR Cci(100) is trending below -100 level, and the 4HR Cci(100)  would have just marked (<) -100 level.

A trending condition is confirmed.

Chart/B marks where both 1&4 HR momentum's are running in confluence <-100 on the Cci. (red shade on Chart/B).

The Chart also marks where the 100 period Cci on the 1HR rises >-100, and diverges from that running on the 4HR (still running <-100).

At that point trade conditions get violated, and the trader will need to move out of his opened trading positions.

In order to do so gracefully, without incurring losses, the trader will use a hedging technique, which will be illustrated in full under this example.

TRADE PARAMETERS  (THE RISK) 

A fixed risk measure for the trader to continually use in stop / hedge placement, is identified as a measure equal to the distance between three internal pivot levels .

On the left side of Chart-C, such a measure is clearly outlined , and defined as the (Fixed Risk Pitch). Note that it covers a distance from PàR2

ENTRIES & PROFITS

Pragmatic entries can now be taken in an array and recurred at least twice a day as follows:- (Chart/D)

A- Market is sold once a 1-HR trigger effects, and profits taken at the next lower pivot support to trade entry on the 15-min frame.

B- Trades are recurred regularly & immediately by making entries at each support pivot at which profits are collected, with profits pragmatically taken for such entries at the next lower pivot support on the 15 min chart.

C- Internal  S/P&R levels are shown superimposed on the price action, on the example  shown on Chart/D Standard pivots are used & can be easily accessed on the indicator list of any charting package.

D- For each entry made , a stop or hedge order to counter protect the long entry is placed at the already calculated fixed risk pitch - but measured from entry. See Chart/D.

On the shown example, about 5 trades are achieved over a 2-day duration. The win rate is 80%

E- target fails to be met on trade (5). And market reversal leads to a hedge getting opened at (6). - Chart/D2.

PROTECTIVE HEDGING:-

The section boxed out on the chart is the zone that will be focused on and magnified on the next slides for hedge illustration. -Chart/D2.

The 1HR Cci (100) divergence to levels >-100, confirm that the market is maturing into a short term bottom that will encompass a basing formation within this box out. Chart/D3. 

DEFINING HEDGE PARAMETERS

A- The market’s sharp reversal triggers open the protective hedge at (6) once market rises > the fixed rate pitch. See chart/E

B- Once the hedge is triggered open, the trader becomes carrying an open –ve floating P/L =-500 pts, as marked on Chart/E.

C- Hedge parameters are defined as the internal pivot levels on the 15 min chart between which current market prices are moving or reverberating. These are shaded on a daily basis (Chart/E)

D- On the day the hedge is triggered, the hedge parameters are between S1 @ 153.82 & P @ 157.14 and these represent the two levels at which the open hedge (both long & short) positions need to be closed out = neutralized. (shaded S1&P levels @ Day/1 - Chart/E).

E- The next day, the hedge parameters rise to R1 @ 158.25 & P @ 153.65. These become the updated levels at which open shorts & longs incorporating the hedge should be neutralized. ( Shaded P&R1 @ Day/2 - Chart/E)

G- The trader CAN NOT and SHOULD NOT speculate that the market can fall below the lower boundary of the day’s hedge parameters at the pivot level (P) on the 2nd day.  So the instance the market falls to (P), the sell position is automatically closed at -155 pt loss. (Chart/E2).

 

H- on a bounce out of the pivot level, the long position can be closed out at break even, or at R1 = 158.25 for profits. (Chart/E3)

I- The trader now stands out of the issue (GBP/JPY) altogether (is neutral), not holding any positions (long or short), as parameters for trading a Cycle /3 short term are NO longer valid.

OVERALL (P/L) CALCULATIONS

A- As shown on Chart/D, the trader would have accumulated profits = 690 Pts. And as the loss on the hedge equated to a loss of -155 Pts, the overall Net profits on the position are = 535 pts.

Trade duration(s) was 3 days.Win/Loss ratio = 80%

TRADER DISCRETION

A- As shown on Chart/B, (4hr frame), the reversal was strong to the degree that it almost broke out in a bullish cycle/3 move.

B- The trader could have made money on the long side of the hedge (by reversing into a Cycle/3 bullish strategy), to offset the loss on the short side.

C- but the trader had NO means of confirming this before the fact. Thus the pragmatic decision to close out both sides of the hedge was correct if the Trade's profits are to be secured. 

ACCOUNT MANAGEMENT & COMPOUNDING.

Take profit & stop loss or (hedge range) measurements are deduced from the 1st trade. - (yellow box out on CHART/D). The data is used as input into the trade & risk management matrix (shown below) to forward engineer, the expected yields to be generated out of the default period for a short trend duration. (2~3 days).

1- Fixed risk pitch & reward values calculated between internal pivots are taken off Chart/D. (past slide). The shown risk/reward in ($) values are based on the shown size/trade gear used in mini lots. The GBP/JPY is a very high volatility pair, and the trader can immediately come to the conclusion that trading a (3) minis is far too risky on a 3k account, according the max tradable size for a 3k account becomes (2) minis at 33% draw down risk, and 55% equity projection. 

2- In this manner controllable sizes  are traded, that are relating to the size the trader can neutralize through hedging if the market reverses on the position. This has been already illustrated under this example. The Trade management matrix also shows that high volatility pairs like the GBP/JPY are best traded on 5K account, to ensure comfortable held Risk.

3- Note that though the win rate falls to 80%, (Due to the last hedged trade), but that even on an inverted risk : reward at 2.25 :1 in this trade example, the matrix generates a manageable gear (20à30K), that at a minimal trade recurrence rate, secures profit accumulation, allows the trader to neutralize a losing position through hedging, and leads to compounding of profits, as the strategy gets shifted between issues on the overall account).

4- The strategy’s parameters (fixed risk pitch) ensure that the pragmatic taking of all 1x4HR triggers, even when there is NO higher degree trend confirmation on the daily chart would result on short term profit accumulation. In this example, there was NO higher degree trend confirmation on the daily frame.

CONCLUSION

The strategy’s parameters (fixed risk pitch) ensure that the pragmatic taking of all 1x4HR triggers, even when there is NO higher degree trend confirmation on the daily chart would result on short term profit accumulation. In this example, there was NO higher degree trend confirmation on the daily frame.

High Risk Investment Warning: 

Financial products are traded on margin, and carry an extremely high degree of risk. It is very possible to lose all your capital trading them. Financial Products such CFDs (Contracts for Price Difference) are considered some of the most volatile and risky of financial assets, and as such will NOT be suitable for everyone to trade. More importantly, CFDs are derivative products of, / (and are) impacted by several financial issues and asset classes. Several complex fundamentals become intertwined. And it becomes very hard, even for professionals to assess and acutely understand ALL the risks involved. Under volatile market conditions, Losses could well exceed the account’s initial deposits. Please think very carefully whether such trading portfolios' suit you. Take into consideration all of your relevant circumstances and personal resources, and DO NOT POST your entire account balance to meet margin requirements. Clients can minimize their level of risk exposure by requesting a change in leverage limits. For more information on this please refer to your broker’s Risk Disclosure. Further, do not wavier seeking independent expert and legal advice on trading issues and their suitability to yr geographical location. 

DISCLAIMER:-   

TRADER PSYCHOLOGY - PLEASE TAKE VERY SERIOUSLY

PLEASE CONSIDER THIS WARNING VERY CAREFULLY EVERY TIME YOU READ & STUDY THIS DOCUMENT

The information and illustrated examples elaborated on this document, are for educational purposes only. It should not be assumed that methods, techniques, or indicators presented will always be profitable, and will NOT result in losses. Past results are not a typical setting for future ones. The contents of this document solely represent the publisher’s, experience and findings.

ANY & ALL indication(s) given here have the following inherent limitations:-

1- Trading Analysis is based on the benefit of hindsight, mistakes are seen beforehand & filtered out. Before making decisions based on such analysis, the reader must acutely scrutinize and conduct all possible due diligence, including- but not limited to- seeking independent expert advise.

2- Representation that any account will or likely achieve profits should be diligently and responsibly downplayed . In reality, factors such as the fear of losing, generate neural tensions. These cause closing profitable positions prematurely during gains, and cloud a traders’ judgment during losses, causing the holding of losses, and crippling draw downs. This behavior is typical when users change from a demonstration account to a real one. And as a fact is never forcefully documented by the majority of  brokers.

3- Readers are advised to take seriously the psychology involved in the behavioral aspects associated with taking  high trading risks. Any trade made, at some point, will get tested, the trader will experience losses and question his motives for the trade. If the trade is over leveraged, it will lead to high exposure, and severe draw downs. The trader will be frightened, and despair, dumping the position, under severe stresses, at the very worst time. Volatility leads to rash impulsive decisions. And decisions become irrationally driven by fears, the more volatile a portfolio becomes. Hence, it is said that trading is NOT for everyone.

4- Because of the above, only the reader carries the sole responsibility for all the businesses or investments he /she will be carrying  out or conducting in his / her name(s), regardless of using ideas or material they viewed  / copied / read here or any where else. The publisher(s) will not be held liable in any capacity over losses incurred by readers, stemming from their own actions.

5- Finally, Due to all above listed & more, a consensus of over 70% of retail Forex traders lose money trading or barely break even.