Different kind of signals
86 Copyright 2008-2009 by f-fx.com All rights reserved The “Riding the Trend” pattern
Below you see another great kind of signal, easy to recognize.
It appears only during an already confirmed trend, and confirms its continuation.
Draw a trendline as support of the main movement, or put a moving average in your chart to see immediately a possible reverse.
You can stay inside this trade until the end, when the cross appears because this is the pattern where the exit indicator works best.
As in the previous case, place your trailing stop and forget.
The “Flat” pattern
This is the typical patterns you will have inside ranging markets. When the trend is not
definite, you need to be careful about this kind of signals. These are the signals which can give you a lot of pips, but which at the same time is better to take with great attention and stop losses tight and an exact take profit.
As a main rule from trading common sense, avoid trading on ranging markets without a clear trend. If you want to do that, go scalping on a smaller timeframe with the scalping technique explained in the next chapter.
Anyway if we assume to absolutely don’t know when the ranging condition will be broken, many traders like to stay in the market when the price is going near a resistance line, or instead assuming that we fell able to predict the direction of the next move, many traders try to “buy low and sell high”, on the opposite direction of the current trend.
So in example if price is near the support line below, but volatility is low and there are no reasons (technical and fundamental) for a breakout, we can buy when the price is bouncing over the support line, and is better to do that on the opposite direction of the last candle, to catch the best entry price, much closer as possible to the “turning point” of the support line.
Stop must in this case placed few pips under the turning point, and few pips below we will place a pending sell order too, to catch the breakout movement.
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This technique is called “channel trading”. As you can see from the chart below, it is very useful for the short term forex trading to make position around the trend line and to close the position for profit taking near the channel line.
Anyway, this is not our strategy. We want to follow Sync trading System signals. You need to understand one thing about how signals are generated. Sync signals are the results of the output of a set of indicators which serves to analyze the strength of the current trend. When the trend is already started and has the necessary power to supply a movement at least long as much as needed to be traded with profit, the signal is given.
Often this condition appears near important support or resistance lines: this is a natural phenomenon called “congestion”: near a turning point the price action is strong, but that doesn’t mean absolutely that a breakout is going to be made. So often the signal is given 10-20 pips before the turning point, but the indicated trend change immediately when price bounce on the resistance level and the trade reverse in a loss.
No systems in the world are able to cares about resistances and channels, this kind of work can only be made manually. So you need to learn how to do it the right way, if you want to achieve a better win/loss ratio.
Believe me, it’s not a really hard work. If you’re able to locate the button to draw a trendline into the mt4 platform, you can do it.
Ok, let’s see in the shoot below a typical flat channel with not so much space for trading, and some signals which, if traded “from arrow to cross” without thinking and no stop losses, just give us a total loss of about 50 pips.
What shall we do to avoid that?
The first thing to learn is to never be in hurry to enter a trade. If a signal is good, it will be tradable for at least the next 3-4 bars (a pair of hours), so relax and take your time to make a shoot of the situation.
Once learned that, the first thing to do is always check if there are important support or resistance lines in front of the price path indicated by the Sync Trading system signal.
In the case above, is quite easy to draw a channel around the graph, or at least note that for the first Sell signal the previous min level is few pips under the current price.
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When the first Sell signal is given, the action inside the channel is already over after 3 big short candles. Note that these are real Japanese candlesticks, not Sync Channels. Normal candles will be used for the examples below for better viewing of the price action.
Our hypothetical trade goes in profit of about 10 pips, but strongly reverses when bounce on the previous min level, confirming the channel pattern drawn. The trade ends with the cross signal for a total loss of more than 20 pips.
So we can’t follow only arrow and crosses here, but there are two different ways to trade these signals profitably:
1. Scalp the last part of the movement inside the channel. Entry immediately at the given signal, stop loss with a trend line (better to work with the timing 5min chart technique explained on the next chapters) over the current movement, take profit immediately at the support line of the channel. If a breakout appears, a new trade can be opened.
2. Wait for the next candle confirmation. Only enter the trade when next candles confirm the trend breaking the support level. Place the stop few pips above the support line inside the channel for a possible pullback, first take profit level is equal to the distance between the borders of the channel.
The “pullback” pattern
This pattern also appear when a signal is given just before a resistance line, and it’s another good reason to follow Sync Trading system signals in a trend-following view, waiting for the confirmation of the signal from the next candle.
Some newbies users of Dynamic Sync trading System ask me how to setup the arrow signal to appear more quickly, to catch movements at the beginning.
It is possible, we can even use arrows wich appears immediately when every small movement start. But it’s useless for our strategy.
They forget that 90% of the movements showed in a chart are only noise.
You’re free to scalp is with a lightning-fast indicator if you want, but Dynamic Sync Trading System, I repeat again, is a trend-following system built to catch the big move behind the noise. Because of this, entry/exit indicator works as a filter and cut all the small, natural movements inside the main trend.
This kind of action involves a bit of inertia, and when there aren’t good condition to let the main move begin, for istance in tight ranging markets, the signals arrives delayed and must betraded as explained above.
Another common problem caused by this inertia is the pullback which sometimes appears immediately after a given signal.
As example, you can watch at the last short signal in the previous chart.
Remember that the signal is given immediately at the closing of the previous candle so the entry price correspond to the close price of the previous candle.
In the chart of the previous page, the last signal appear after a steady short movement, just few pips above the border of the channel.
Immediately, the price makes a pullback below the midline of the channel, just to resume the main short movement until the low border.
The way to avoid this inconvenience is the same as the precedent one: avoid enter immediately the trade near a resistance line, and wait for next time confirmation.
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Pullbacks appear also in trending markets, and maybe a great occasion to spot a better than indicated entry point, so we need to consider them not just a problem, but as an opportunity.
Let’s see an example below of a good signal given in a trend market. I’ve highlighted the working levels:
1. Is the entry price. The signal is given at the end of a 1-2-3 pattern (explained below) of a Ross Hook. The trend is already established, but the lower support line (the grey line) is too much closer and there’s not so much space for the movement to continue its run immediately.
2. Stop loss level for our trade. Correspond to the previous high top.
3. A small +5 pips gain immediately after the given signal. The price arrives closer to the support trendline, but fails to break it. A technical pullback start.
4. Pullback’s top level. We’re in loss of about 20 pips, but far from our stop loss level. We notice that the pullback ends exactly inside the downing channel of the current
movement. Immediately the main trend resume strong and we reach out take profit at 1.2825, bouncing again over the grey support line.
5. Price goes in sidewinder and breaks the high resistance line. Trade is definitely closed.
Note also that corresponding to the doji candle after the pullback you get an “add to sell”
signal. These signals are given exactly when the price makes a pullback or slow down in an established trend. If you feel secure with your analysis or better you’ve waited for next candle confirmation before enter the trade at the given signal, you can add (or enter) here with the same stop loss of the main trade.
As a main rule of money management anyway, never add to a losing position.