22 May 2010

High Intensity Forex

This is one way to trade in Forex, using the 1 minute chart. Do it in bursts of a few hours, as losing concentration on this leads to loss of money. I do it with USD/JPY, as it moves cleanly. The main problem is to keep an eye out for trending, which usually happens in a breakout.

Thus look at higher time frames, especially 30 min, and keep an eye on developing chart patterns which usually signal a breakout. Look at EUR/USD 30 min now and then to see what it is doing as it adds momentum to USD/JPY.

If you hit a range which tends to happen between sessions, i.e. from say 6-8 pm NY time then it can be quite profitable as you can even pick tops and bottoms. How do you do this ? I use a visual method. In this you look for, in a bottom, a momentum upwards in a candle formation and in a top, a momentum to fall. It really is quite visual, it looks like a fountain spurting up or falling off a cliff...!

Keep an eye on chart patterns on the 5 min, which might indicate for example you are actually retracing in an Elliott Wave and thus your range play could turn into a trend play...if you are on the right side of it. Be ready to cut and run, set your losses very small, a few percentages at most of your margin.  

I use RSI and MACD and the Ehler Fisher Transform. All these generate computer thrusts forward up or down when they hit oversold or overbought, which is what you are looking for. For the MACD look for the MACD turns and crosses. Divergences are high probability plays on this, especially using the Ehler Fisher Transform. Keep an eye on the Awesome Oscillator, it is good for trend momentum changes.

In general you are not supposed to use too many indicators, but you need them here. They are really telling you what the computer programs will do, they are like heuristics rather than rules, just be aware of them. As I said it needs concentration.  

Set a loss limit of a certain  percentage, say 10%, at which point you turn off your trading program and chill....! This is very important, you can get locked into losses so easily, everything is at high speed...not fun at all.  Never go long at the top of an Elliott Wave (this is maybe the main mistake to make in Forex and so so so easy to do).

This will finish you, as the candles consolidate in too tight patterns for the cost of the trade to make money. It is a good idea as well to check for volatility, as this tends to invalidate technical indicators.  

When it works it is a lot of fun...there is an educational idea to this, which is giving you an intuitive feel for the way the market moves. The forex market is different from equities in some respects. It seems not to have long memory processes. This is a radical computational difference. It means you have to trade with the computers.

Does it work ? Like anything in forex, there is an element of luck, it depends on how random the market is. If it isn't so random it works, if it is, it does not.

© 2010 Guy Barry - All Rights Reserved.