November 23, 2013

4 Hour MACD Strategy: Study by Heart Transcript

4 Hour MACD Strategy: Study by Heart Transcript


Right, I am going to run through the market motion one more time. I see a lot of people still doing counter trades, counter-trend trades against the trend. Like the one we discuss on the daily Wrapup about that Swissy coming back to the 21EMA.

This chart and this MP3, you got to have it in your heart, not in your head, in your heart. If you look at the purple rectangle on the chart, the price break through the 89SMA blue line. Point 1, 2, 3 and 4 are just there to let you know that you can establish your market breathing or channel or whatever you want to call it so that you can know in what or between which boundaries does the market moves.

But the main thing is to remember when the price break through the 89 SMA, up or down, it doesn’t matter, as it will come back to the 21 EMA which it did and then it went up to the red number 3 on the trend line, then it came back to that red circle 21 EMA.

All those red circles are all high probabilities trades. They are all of the 21 EMA because we are in an up-trend; except for 4, 5 and 6. 4 is from the 89 SMA as well as the 365 EMA. It gave a nice morning star there. It was highly oversold on the MACD, below the 45 line, horizontal line and that was a high probability trade. So, the market moves away from the 89 SMA, pull back to the 21 EMA, then it move away, pull back to the 21 EMA, moves away, pull back to the 21 EMA.

The only time you do counter-trades, counter-trend trades is when your Risk/Reward Ratio (R/R Ratio) down to the 21 EMA and your stop loss is 1 to 1. But remember, sometime, it only come back to the 8 EMA. You need to keep that in mind as it is a high risk trade unless, if you see just right of number red 3 on top, you will see a lot of bars finding resistance there. If you do a trade somewhere around there, you will be probably very safe to come down to the 21 EMA. That’s how you do it.

The blue circle on top is a counter-trend trade. If you look at the 2nd blue one, you will see that the price come below the 21 EMA and the rule says that; at the end of a run, if it will push below the 21 EMA, it tend to pull back to it, sometime it goes a bit through it and then it come down to the 89 SMA. It’s exactly what happens there.

If you look at the bottom window on the MACD, the pink circles 1, 2 and 3, look at that noise there. You cannot trade the MACD like that, you gone be killed, there is no way you can do it. You have to stick with the motion of the market, around the 21 EMA, around your support and resistance lines, that’s the way to do your deals and it is very important to know that. You have to stick to that, there is no other way you are going to survive by taking every signals.

I still hear people on skype and talking about MACD being busy forming a round top and then there is still a 2 or 3 hours to go. You cannot do that, I mean, you can do it but it is not the way your focus should be. Your focus should be around the price movement, where it is in relation to the moving averages, where it is in relation to your trend lines, where is the movement in relation to your support and resistance lines. That is the way your focus should be. That is: when the MACD gives the signal, all that homework as been done already.

If I am sitting there in front of a 4 hours candle, if I got time to sit there for 4 straight hours, I am analyzing the market. I go to a monthly chart and draw my trend lines, then I go to the weekly’s one, do some in between minor trend lines or support and resistance lines. Then I go to the daily and then go to the 4 hours. Eventually, up and down according to the motion and the rules: what do I anticipate this price is going to do? Is the current movement within the rules? Is it within the system or not? If it is not, I just close it and I walk away. I don’t even think of trading. I do rather 4 or 5 good trades a month then do 10 of which only 4 was good and come breakeven at the end of the day. So, it is not about taking every signals.

Also, another thing that I want to emphasize is not to jump around between 10 currencies. Because you can get a wrong one at currency number one, then you jump to currency number 3 and get another wrong one and then you jump to currency number 8 and get another wrong one, where if you stick at currency number 1, the next signal would have been a good one and maybe the one after that as well. So, instead of having 3 wrong ones in 3 different currencies, you could have 1 wrong and 2 right in the same currency.

So be very careful no to jump around according to MACD signals. You’ve got to look at each pace, motion in relation to the moving averages and in relation to your support and resistance lines. Then, look at market emotions as I said in that summary.

Number red 5, you will see there is a morning star, if you look at 6, there is also a morning star. If you look at number 4 there is also a morning star. That is how you determine the emotions of the market, there is emotions involved in those candles. They tell me that those things have got high probabilities of moving in the right direction. That’s how I do it.

Get your focus on the rules, write it down, make yourself a little copy of this chart and write on it or next to it and try to see and look where the market is satisfying this type of motion. That is where your high probabilities trades are because, then, the Tsunami is over, it means the playing ground is over, this thing got direction now, there is a certain motion, there is a certain rhythm in it and you are going to flow in that rhythm. When you go counter-trend trade, you know that you go against the rhythm and you got to make it very sure that there is enough pips available to do that in a Risk/Reward Ratio, it could be 1 to1 or better, then you take it on.

You got to get this in your heart otherwise you are not going to make it.
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About ArrowFX

Technically analyze the forex market mainly on USDJPY, EURUSD and GBPUSD by using market rhythm method started by Philip Nel on Forex Factory. The thread started on 2007 and still alive.
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