I See Great Opportunity Here
Here are the rules for trading I am going to use to trade
GBPAUD [and by extension for those who wish to trade EURAUD, GBPJPY, and EURJPY].
1) I
place a colored [your choice of color from platform selection] horizontal line
at the Monday open [00:00]. [Note: Sunday afternoon action goes into the prior
weeks candlestick chart.]
2) This
weekly open line is our demarcation line for being long/short. 30 pips + or –
from this open marks the price for initiating long/short positions. From there
I follow the yellow/plum line signals.
3) At
any time during the week if the market is in this “no mans land” of + or – 30 pips
from the open, I ignore all signals until it moves one way or the other out of
this box.
4) The
current Risk Model [RM] for GBPAUD is RM = 2; since I am more conservative, I
choose to use the aqua exhaustion line for liquidation should price hit it or
go beyond it.
5) I
don’t know for absolute certainty which market hours I will trade this pair.
Since AUD is the denominator pair, and the Asian session includes Australia as well as China
news, we are going to see some nice price moves, especially in the later Asian
session when China
usually releases economic news. Initially I am going to try and catch the later
half of Asia, all of Europe, and see what is happening at the start of US
trading before I call it a day. I don’t know if I can keep this schedule, but I’m
going to give it a shot.
6) My
goal is 100+ pips per week on multiple lots.
There are 3 areas I want to cover in more detail to show you
what to do when the algorithm presents you with these circumstances; 1) exhaustion
line exit and then re-entry, 2) placing of stops and/or liquidation based on
the yellow/plum signals, and 3) one special rule after large moves.
In a strong [up or down] moving market, often times the
market will move to the exhaustion line, back off, and then start again with a
vengeance in the original direction without ever presenting us with a “new”
signal. How do we handle this so we can get back in after some minor
correction?
[Click Too Enlarge To Full Screen]
The candlestick chart directly above is from Friday’s action; the first yellow arrow is our long
position entry; the boxed yellow arrow is our exit because the aqua exhaustion
line has been hit. So what do we do now to get back in?
You wait for the plum and yellow lines to get very close to
each other after the exhaustion move; you re-enter the market in the blue boxed
area with a tight stop [the white horizontal line]. This stop is a) just below
previous current support, and b) if hit the plum line would be below the yellow
line signaling you wouldn’t want to be long anyway. Just looking at the chart,
your risk here is about 10-15 pips [bid price].
When the market slows down, you have to be more judicious in
a) following the plum/yellow line signals, and then by default b) setting your
stops.
[Click Too Enlarge To Full Screen]
The candlestick chart directly above is from Thursday’s price action, the blue box highlights an
area where price is starting to congest and get choppy; we don’t know how long
this will last, but the last thing we want to do is get in, then get out, get
back in, get out again, etc., all the while suffering the dreaded chop-chop 10
pip losses numerous times.
When you start to see this, you have to recognize it, and
then place an appropriate stop level where, if hit, the chop will have ended.
Here, in this example, the 2 horizontal lines would be appropriate stop levels
for a long position. The first one [in white] is obviously tighter than the
second one [in green], and which one you choose depends on your risk tolerance.
They both are good choices. This is how you handle the chop.
There is a special rule for trading; anytime a week is up or
down more than 500 pips from the previous week [and closes the week at or near
the high/low], the lower threshold for getting short is changed from -30 from
the open to -150 pips from the open if the market was higher, and the higher
threshold for getting long is changed from +30 pips from the open to +150 pips
from the open if the market was lower.
In addition, if the market was up that 500 + pips, all long
signals can be taken to the -150 pips from the open and if the market was down
that 500 + pips, all short signals can be taken to the +150 pips from the open.
This special rule IS ONLY FOR WEEKS FOLLOWING 500 + PIP MOVES IN THE
MARKET, WHERE THE CLOSE IS AT OR NEAR THE HIGH/LOW. IT IS NOT FOR OTHER WEEKS. This
allows us to take advantage of carry over momentum from week to week when the
market is trending strongly IN ONE DIRECTION.
So, since last week saw GBPAUD up about 530 pips on the week
and closed very near the high of the week, the special rule is in effect for this
upcoming week. Therefore, from the open on Monday, -150 pips from
the open we follow the long signals, and if the market goes -150 from the open
we would then follow only the short signals.
[Note: for EURAUD and GBPJPY it is a 400 pip week, and for EURJPY
it is a 300 pip week. The threshold level for EURAUD and GBPJPY is also 150
pips, and for EURJPY it is 100 pips.]
For those of you who either don’t know what the algorithm
looks like on the chart or don’t have a Forex-Metal MT4 demo [or live] account,
the following 3 charts are for the entire day of Friday. I am including them
here so you can see with your own eyes the power of the algorithm.
Friday November 22, 2013, 5 minutes at a time from the
Forex-Metal server 00:00 [Thursday night] to the Friday close at 21:50 are
reproduced below in three consecutive charts.
00:00 to 08:00 – Grid Box Is 11.5 Pips
08:00 to 16:00 – Grid Box Is 9.0 Pips
16:00 to 22:00 Close – Grid Box Is 11.5 Pips
When you look at this day, you should intuitively understand
why I want to trade this FX pair. Overlayed onto the 5M candlestick chart is
the “long term –vegas Big Bang Algorithm” in RM = 2 mode. Since the week is
“up” [i.e. green on the weekly candlestick] we are only interested in being
long the pair. Therefore, we want to get long on the plum line crossover of the
yellow line.
The power of the algorithm has at its heart the yellow/plum
line crossover. The margin of error on this visual representation is about 5.2%
from the pure math; close enough for us to be right there when momentum changes
via the Fibonacci ratios and the most important of the Gann angles.
As Bert once told me, “kid, your analysis doesn’t have to be
perfect to make a million bucks in this business; you do, though, have to be
perfectly disciplined”.
I want to remind everyone again, I have Patrick Mikula’s 209
page [PDF] “The Definitive Guide To Forecasting Using W.D. Gann’s Square of Nine” publication from 2003. Over the
years, I have read and reread this hundreds of times; it is a great source of
inspiration, thought, and ideas. Every time I revisit this work I see something
different and get a bunch of ideas I want to think through and then check out.
Of course, most often times my “out-of-the-box” ideas bear no fruit, but it
adds to my education and market perspective. After all, I’m just a student of the
market.
If you would like this publication for your electronic
library, simply email me at vegasalgo@yahoo.com
and I will send ASAP.
Have a great day everyone.
-vegas
