MONTHLY PRICE ACTION ANALYSIS (MPPA)

I will discuss monthly price action analysis in relation to the Masterchart for a better understanding of the forex market, I will post the monthly charts for the GBPUSD, GBPJPY, EURUSD, USDJPY and will use GBPUSD to explain what monthly price action analysis is all about.

Attached Thumbnails

 

Successes in forex trading could only be achieved if you have the bigger picture within your purview. To achieve this it is important to realise that you can only have a ‘helicopter view’ of the market in the higher time frames. The higher time frames provide useful insights into the trading parameters within a given period of time, which could be up to 2-4 years. With this knowledge it becomes easier to proceed to the lower time frames and trade confidently within the established boundary.

For a better understanding of the picture, we will now discuss, the Monthly Price Action Analysis (MPAA). As usual we will use the GBPUSD monthly to explain the MPAA for the period December 2008 – January 2012.

A closer observation of the monthly chart for GBPUSD will reveal the following facts:

a) If the cable begins a new year around the lowest point in a yearly circle, the point usually serve as a circle for a bullish run (rise in price)

b) If the cable begins a new year around the highest point in a yearly circle, the point usually serve as a circle for a bearish run (fall in price)

c) Price moves for the first 6 months (Jan-June), consolidates for the next 3 months (July-Sept), and closes for the last 3 months (Oct-Dec)

d) Price generally consolidate around the concrete zones

The question at this point is what is the usefulness of the above analysis in a simple language? The benefit of the MPAA is that the accounting year for the ‘big players’ (banks, hedge funds, investment outfits, etc) starts from January and ends in December. At the beginning of each year, depending on the fundamental factors, the big players push the price to a direction determined by fundamental factors (it doesn’t matter whether it is bull or bear). By the middle of the year, these players used the next three months see whether the bullish/bearish run will continue or not hence the consolidation around this period. These players use the last three months to take their profit and close their books for the year. The big players will never leave roll over their profit to another year. That is the monthly circle for the Cable.

What is then my view for 2013? I.5300 which has proved to be a very strong support on all time frames and most importantly the weekly candle since 2008 was eventually broken in February 2013. If the weekly candles fails to break above 1.5300 and the weekness of the Pound continues, a retest of the support at 1.430 is a strong possibility. You need to however follow one weekly candle at a time. 

I attach a weekly chart showing consolidation around the master charts levels. This area of weekly consolidation is where I called the concrete zone. The weekly charts can consolidate for up to three months. The consolidation area in the chart was between 1.5360 and 1.5780 (about 420 pips) and the Masterchart support is 1.530 until firstly, the body of a weekly candle closed outside and secondly a the body of a weekly candle opens and closes outside this level. A pin outside 1.530 is a false breakout.

What I am trying to do here is to explain this process and give you knowledge to apply it to any situation. To gain confidence in your analysis pick the chart for any currency pair e.g. EURUSD, GBPJPY, AUDUSD, and try the MPAA through this simple process:

Ø Identify where the prices on the monthly chart are in Dec/Jan over a period of 2-3 years
Ø Identify the highest and lowest point for 2-3 years
Ø Identify weekly chart price reaction around the concrete zone
Ø Identify the consolidation areas (concrete zone)


 

THE MASTERCHART AS THE MASTERKEY

Trading requires careful preparation and insightful analysis. This could be overwhelming and confusing to majority of traders. The truth of the matter is that most traders are incapable of undertaking the complex technical analysis required for informed decisions. The fundamental analysis is a different challenge entirely. I read somewhere that you need 100,000 hours of study to fully understand forex trading. Let me tell you the truth, this statement though slightly exagerated might not be very far from the truth.

However, as a resulf of my researches over the last few years, I have narrowed down this complex endeavour into some simple, easy to understand strategy. As a result of these research efforts I have been to develop my unique trading strategy comprising of the following key styles:

a) Mastercharts
b) Concrete Zone Trading system
c) 14 days period Daily RSI
c) 1000 Pips Price Action Analysis (1000 pips PAA)
d) 50 Pips Price Action Analysis (50 pips PAA), etc
These keys styles could be found in my main thread - The Perfect Trading System, you can search for it on FF. On the thread I discussed my general views on forex trading.

I considered it necessary to discuss the mastercharts from all these styles due to its strenght. I also consider Mastercharts as classical charts that could guide a trade for several years. Furthermore, since I have found the usage of Mastercharts very successful by me and my team, I consider it necessary to continue the research by allowing others to use this style and gauge their successes through their postings here. I will only discuss mastercharts here and nothing else.

The major characteristic of Mastercharts are as follows:

a) The circles of most currencies pairs are between (6000 - 9000 pips)
b) The major resistance/support levels are usually 1000 pips apart
c) The minor resistance/support levels are mostly 500 pips apart and 750 pips for AUDUSD, which circle is 1500 pips.
 We shall examine discuss Monthly Price Action Analysis (MPAA) in relation to the Masterchart for a better understanding of the forex market, I will post the monthly charts for the GBPUSD, GBPJPY, EURUSD, USDJPY and will use GBPUSD to explain what monthly price action analysis is all about.

Happy reading!
 

 

THE MINDSET OF A SUCCESSFUL TRADER

THE MINDSET OF A SUCCESSFUL TRADER!


I will today discuss the following specific stepso n how to think, act and develop the mindset of a successful forex trader:

Step 1: Trade the Masterchart. It should be your No. 1 guide: The levels on the Masterchats I posted here are products of extensive research. What is happening in the forex market is that series of bad/good news (fundamental), manipulation/greed by the big players (banks, hedge funds etc) and most times fear/panic by the investing public will always push the price from one support/resistance level to another. The truth of the matter is that the world economy generally is in shambles that is why you will constantly see series of bad economic news followed by series of good news resulting in “bull+bear+bull+bear” usually repeated over and over again on your weekly chart.

Step 2: Trade in the direction of the weekly chart: The most reliable direction in the forex is the direction of the weekly. If the weekly is in a bear/bull mode it could stay that way for 4-10 weeks. Read the post on understanding trend to better understand how to see the bigger picture using the weekly chart.

Step 3: The best trading opportunities are in the weekly: To increase your chance of success, sell only the top of nN, mM and buy around the base of V, U and W on the weekly charts. To identify these level signs, open a weekly chart, look closely and you will begin to recognize them. This simple trick will make your trading live a lot easier. I will begin to post this signs on this thread.


Step 4: Use money management: Use my recommended money management lots/account size ratio as follows:

0.01 lot for $1000 Trading account (max of 5 open trades at the same time)
0.10 lots for $10000 trading account (max of 5 open trades at the same time trades), etc

If you gather more experience or make profit regularly, you can gradually increase your lot sizes or open trades to double the recommended lot sizes.

Go through the early part of this thread for a better understanding of my views of money management.

Step 5: Trade the daily trade-friendly chart: The weekly is your guide and the daily is your main field of play. Trade the daily chart following the direction of the weekly. Study some of the daily charts I have on this thread for better understanding of the daily charts.


Step 6: Trade 1000+ Pips circle. Read and understand the 1000 pips price actions analysis. For the major pairs from the pin of a weekly candle expect 1000 and more before any major reversal. If the destination of 1000 pips PAA is closer to a major support/resistance on the master chart anticipate a touch of that level. Identifies expected levels in advance and you only monitor price reaction around such areas.


Step 7: Avoid thinking in terms of pips:  Avoid thinking in terms of pips but in terms of actual currencies e.g. cent, pence, etc. If you think this way you will avoid the graveyard of most forex traders (i.e. chasing low pips (below 100 pips). If you think in terms of currency you will realize that a move 1000 pips move by GBPUSD move from 1.54000 to 1.64000 is a mere 10 cents. Further a 1000 pips move on GPBJPY from 130 to 120 is a merely 10 yen.

Step 8: Use H4 50 Pips Price Action Analysis: Utilise price movement on H4 candles within 50 pips range to determine where to enter a trade. If you do this you will realize that you can have up 16 hours and more to enter a trade. Trading this way you do not need to sit in monitor your chart endlessly to get trading opportunities. In the worst case scenario you only need to check the chart every 4 hours.

Step 9: Enter trades using only M15 trade-friendly chart: When the price get to your desired areas on the higher time, enter your trades at the best discounts by using M15 on a trade-friendly chart. If you need further explanation read my previous post about creating a trade-friendly chart.

Step 10: Understanding the importance of 50 point level on RSI: 50 point level on RSI on your trade-friendly chart is usually an area where price normally stalls, changes direction or continues on any time frame. Study how price react at this point for a better understanding of price action.

Step 11: Set concrete zone on H4 chart: Price usually trade for most major currency pairs within 250-400 pips over a period of time within a concrete zone. The concrete zone is a good guide on where to place stop losses. For your short term trade, place stop losses slightly above the concrete zone for your sell and slightly below for your buy. Read my previous posts on concrete zone for better understanding of the concrete zones.

Step 12: Stop loss: Most traders recommend that you should not risk more than 2% of your account per trade. This is a fair recommendation, but I do not support tight stop loss. With my maximum recommended lot size/account ratio 2% account risk per trade on $1000 account size trading 0.01 lots is $20 i.e. 200 pips (If you trade the maximum you increase your exposure to 10%). The important thing about stop loss is money management, if your lot size is small you can afford to increase you stop loss settings and give your trades room to breathe. Read my views of stop loss in some of my earlier posts.

Step 13: Take profit at pre-determined level: Set your take profit at pre-determined points depending on your expected returns. If you are trading the weekly chart anything less than 200 pips is a waste of efforts. You should be aiming for 200 pips and above.  Alternatively lock your profits at pre-determined levels and allow your trade to rund