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Build a strategy for yourself

By Ellen Watson,2014-04-25 12:03
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trading skills

Build a strategy for yourself

    Technical indicators provide some good clues about the probable direction of a market, but

    many do not offer specific price points at which to act. It’s important to know when a moving

    average crossover or other indicators suggest a change in trend, for example, but just where

    do you enter or exit a position?

    In the previous newsletter, we discussed reasons for choosing the British pound/Canadian

    dollar (GBP/CAD) pair to trade what appeared to be the strongest and weakest major

    currencies. We also presented the chart below to highlight times (red circles) when

    VantagePoint’s predicted medium-term moving average (blue line) crossed above or below the actual medium-term moving average (black line) and the early alerts provided by

    crossovers of the predicted moving average differences (red rectangles).

    Enlarge Image

    Source: VantagePoint Intermarket Analysis Software

    Call now and you will be provided with FREE recent forecasts

    that are up to 86% accurate*. 800-732-5407

    If you would rather have the recent forecasts sent to you, please go here

    The prevailing longer-term trend was down, suggesting that a trader favor a short position, and

    the price action at the right edge of the chart seemed to support that conclusion. But there was

    no clear point at which to act. Adding VantagePoint’s predicted next day high (gold line on

    chart below) and predicted next day low (pink line) offered one solution.

    Enlarge Image

    Source: VantagePoint Intermarket Analysis Software

    Call now and you will be provided with FREE recent forecasts

    that are up to 86% accurate*. 800-732-5407

    If you would rather have the recent forecasts sent to you, please go here

    Instead of moving lower in line with the dominant long-term downtrend, the GBP/CAD moved

    up initially after the point where the previous article left off (arrow), as markets sometimes

    seem to do to keep the most people confused. No one knows what will happen next, but we’ll

    lay out a strategy using the predicted highs and lows to enter and exit positions. To do that, we

    need to back up to late January to illustrate how to implement this strategy.

    Here is the basic strategy to trade the resumption of the longer downtrend:

    ? Look for trades in the direction of the long-term trend in this case, short.

    ? Look for supporting bearish evidence from other VantagePoint indicators.

    ? After a short countertrend to the upside or a sideways congestion pattern, trade a

    breakout of the predicted range in this case, to the downside.

    ? Enter a short position 100 pips below the predicted low.

    ? Maintain a protective buy stop to exit the short position 50 pips above the predicted

    high as the market moves down.

    Beyond the basics, there are several alternatives to exit the short position. The tactic on the

    chart below uses a three-unit initial position and takes profits on one unit when the pair drops

    200 pips, on another unit after a further decline of 200 pips and then holds onto the third unit

    until being stopped out when the market descent slows and the price moves 50 pips above the

    lowest predicted high.

    Enlarge Image

    Source: VantagePoint Intermarket Analysis Software

    Call now and you will be provided with FREE recent forecasts

    that are up to 86% accurate*. 800-732-5407

    If you would rather have the recent forecasts sent to you, please go here

    You can make a number of adjustments to this strategy the size of your position, whether to

    take profits (and, if so, where), whether to add to a position using further penetrations of

    predicted lows (CAUTION: Do not sell more units at each lower level as that could lead to a

    dangerous reverse pyramid situation), whether to trade with the predicted moving average

    (blue line) and just stay with a trend for its duration, once you are in a position .

    Whatever you choose, note the direction of the predicted difference lines in the bottom panel

    (red arrows) and their position relative to the zero line. These provide early alerts to shifts in

    momentum and trend direction. Also note the reading of the VantagePoint’s predicted neural

    index (gray line) for short-term forecasts 1 is bullish and 0 is bearish. Tracking our way chronologically through several trades, the predicted low on Jan. 28 was

    1.7151 (1), indicating a short position 100 pips lower at 1.7051 following a short uptrend and

    signs of bearishness. The entry price to sell three units of GBP/CAD was hit the next day,

    setting up profit targets each 200 pips down at 1.6851 and 1.6651 (horizontal red lines). A third

    target at 1.6451 would have closed out the whole short position.

    But to hold open the possibility or riding the market down further, hang on to the third unit and

    keep an exit stop 50 pips above the predicted high. The predicted high on Feb. 22 was 1.6185

    (2), resulting in being stopped out on Feb. 23 at 1.6235 (green horizontal line). The profit on

    this unit was 816 pips to go with the 600 pips of profit on the first two units.

    After a short upside countertrend, you could have come back with another three-unit short

    position. The predicted low for Feb. 25 was 1.6149 (3) and trading in line with the prevailing

    downtrend, you would have sold three units 100 pips lower at 1.6049 on Feb. 26. The first two

profit targets at 1.5849 and 1.5649 were both hit on March 1. Hanging on to the third unit, the

    lowest predicted high was 1.5445 on March 11 (4), putting a stop at 1.5495 that was reached

    the next day (horizontal green line).

    That trade was followed by a choppy period from mid-March to mid-April that would have

    produced several trades for small losses. Then, after making several higher highs and higher

    lows since the previous newsletter article appeared, the GBP/CAD pair dropped sharply

    Tuesday on a strong day for the Canadian dollar.

    Based on the premise that the prevailing trend is still down, that triggered a new short trade.

    The predicted low Tuesday was 1.5491 (5), with the sell stop 100 pips below that at 1.5391.

    Whether that should be a three-unit position may be a question. The price of the GBP/CAD

    pair is almost the same as the GBP/USD pair with the Canadian dollar virtually at parity with

    the U.S. dollar. How much further can the Canadian dollar advance? On the other hand, the

    British pound has weathered the influence of the debt crisis in Greece and the European Union

    and the severe disruption in transportation caused by the Iceland volcanic ash cloud. Has all

    the potential weakness already been factored into the value of the British pound?

    Traders can only stick with their charts and their indicators and then develop trading strategies

    to capitalize on the profit opportunities and minimize the risk, whatever happens.

Ready- FIRE- Aim

Have you ever been excited about a new experience? Maybe heading to the golf course for

    the first time or going to the go-kart track to show your stuff? Do you remember the butterflies and excitement building inside as you near this new experience? It's common to have such

    exhilaration when a new experience arises.

Just imagine with me for a moment, that you were going to have some weekend fun with the

    family at the go-kart track. As you seat yourself into the kart your smile is ear to ear. You feel

    the butterflies fluttering as you rev the gas getting ready for this experience. Prior to taking off,

    you glimpse over and notice your family giving you the thumbs up, chanting things like go dad,

    you can do it, you can take these guys, show them who's boss. Suddenly you realize your

    eyebrows are lowering, your smile moves to a determined grit and you now have something to

    prove. This is not a fish story about the one that got away; you have a live audience!

This friendly little driving around the track has escalated to the Daytona 500, so it seems.

    You move onto the track with fierce determination and no experience I might add. That's ok, how hard can it be, I drive to and from work every day and have never had so much as a

    fender bender.

You move around the track like you're the only one there and suddenly you get squeezed out

    and your kart slams into the tires. As if that is not enough, you get rear ended from another

    kart. That actually hurt. With pride on the line, you immediately get back into action only to

    have a similar experience. This one could leave a mark! Now intimated by this new adventure

    and in a great deal of pain, you finish your ride and force your smile every time you near your

    rooting family with the bulk of your thoughts concentrating on when this ride will be over.

I share this story with you to press upon you how most people enter the trading environment.

    Excitement turns into determination which often leads to pain. If you FIRE before you AIM that

    is...

The bulk of new traders will embark on their new career this year that is similar to the story

    above. They fail to practice, and get kicked around and 90% of them will not exist as a trader in

    12 months. They have told all of their friends about their new career and when they ask how

    things are going they shrug it off with "The market is not right yet" or some other excuse that is

    just as poor as the first one.

    You see, people that want to start trading to offset their income or potentially make a career of

    it have no business entering the trading environment until they get education and practice. The

    title of this article is how most people attempt everything. They get READY and FIRE before

    they know what they are really AIMING for. Some ventures may be forgiving but Wall Street

    takes no prisoners. It will under-handedly seek out anyone with little to no experience or

    practice and make sure you end up in the tires.

Do not let that happen to you! Do you walk over to the fireplace and ask it "If you give me

    some heat, I will give you some wood"? No, it doesn't work that way, nor does trading, and

    you absolutely have to get education FIRST. Many people only have one shot at this, burn

    through your capital before education and you may never get the opportunity to share what is

    one of the greatest businesses on the planet.

I mean think about it, a business that you can work anywhere in the world with just a laptop

    and a internet connection; a business with no employees, no overhead, no inventory,

    etc ....etc.....Most businesses exist for 11 months to pay the bills and employees, only to make

    a profit in just one of the twelve months. Your trading career should not be taken lightly

    especially when you think about what you have your hands on. You should not open a

    business without education and training, so why would trading be any different? Trading

    potentially could give you more freedom and enjoyment than you could possibly imagine if you

    take the right steps to succeed. If you were to open a franchise do you think you could do that

    before you spend the required time practicing and learning the proper procedures? Not a

    chance!

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