EURUSD, H4 Chart, 11/01/13 week closing

origami-bull

eurusd_h4_12_01_13_review

Trading should be fun most of the times, otherwise it starts eating you from inside.  In order to be fun, you must know what you’re doing.  To know what you’re doing you need a System which guides you through your trades.  I hear analysts, read blogs, news, discussions, de profundis technical details, predictions, prophecies, opinions, assumptions, forex horoscope,  market’s oracles, experts, gurus…..noise….noise….noise…

I love simplicity. A trading System does not have to be complicated or difficult to help you make money in FOREX.  One of my trades the previous days, is EUR/USD where I entered LONG.  Many friends ask me which is my favorite System or tool.  Just like a cook uses different tools to do different things in the kitchen, I have many tools I use, but which one will I choose on a particular case, depends on Market’s current conditions.  I love ICHIMOKU KINKO HYO and I’ll have many posts on it, I love Bollinger Bands, ADX, MACD, Bill Williams’ Alligator and Fractals, Fibonacci and others.

On this post I’ll show you how I use a very Powerful and Nice Trading System which is suitable ONLY to TRENDING Market Conditions.  It comprises of  4 Exponential Moving Averages  :  5, 10, 15 and 65 Periods and MACD.

1st STEP : I jump on my virtual helicopter which is the MONTHLY CHART, and have a look at the market from above, spotting the main trend.

2nd STEP : I then narrow down my vision using the WEEKLY CHART, watching if the Market is on a retracement secondary wave against the main trend.  If the Weekly Chart shows me that the Market moves to the main trend direction, …

3rd STEP : I check the DAILY CHART to confirm that the Trend holds strong and …….

4rth STEP : I use the H4 (FOUR HOURS) CHART, to setup my trade.

5th STEP :  On METATRADER I go to the top menu and click :  INSERT —>  INDICATORS —> MOVING AVERAGE  and once the dialogue window opens I see the PARAMETERS TAB and I click :

1. For 5 EMA :

5EMA

And click OK without changing anything else.

2. For 10 EMA :

10EMA

And click OK without changing anything else.

3. For 15 EMA :

15EMA

And click OK without changing anything else.

4. For 65EMA :

65EMA

And click OK without changing anything else.

Of course, it helps a lot if your chart’s background is black and you have clicked to remove the grid so you have a clear view.

6th STEP :  On METATRADER I go to the top menu and click :  INSERT —>  INDICATORS —> MACD  and once the dialogue window opens I click on COLORS TAB  :

MACD_colors

while I leave PARAMETERS TAB as it is :

macd_parameters

LEVELS TAB looks like this :

macd_levels

and VISUALIZATION TAB looks like this :

macd_visualization

Now I have placed my SYSTEM on my CHART and I’m ready to do my TECHNICAL ANALYSIS Study.  Since the term ANALYSIS is Greek (“technical” is also a Greek term as well) I must say that to be accurate, we must say TECHNICAL ANALYSIS AND SYNTHESIS 🙂  Why? Because ANALYSIS is the first step of searching for data and collecting them. Then, once we know our data we combine them together to make the SYNTHESIS which equals our ….conclusion.  ANALYSIS without conclusion is useless and sterile.  We see such kind of ANALYSES all over the web. Many people make their living out of useless analyses.  We don’t want this. Our SYSTEM must give us a SYNTHESIS that leads to an action which will make us MONEY 🙂

So, it is important to know which is the role of each part of our System to our Overall ANALYSIS+SYNTHESIS.

When do we use this SYSTEM?

– Only on TRENDING Market.

Which TIME-FRAME do we prefer?

– 4 HOURS.  (It works with most time-frames, I just have seen it giving me better signals on H4)

SYSTEM’S RULES

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1.  We  Enter LONG (BUY) once 5EMA(yellow) is just below price action, 10EMA (magenta) is just below 5EMA, 15EMA(dodgerblue) is just below 10EMA and 65EMA(white) is below all three and definitely BELOW Price, while  MACD Signal Line Runs Upward INSIDE the Histogram.

The LOGIC behind this?

Current price is ABOVE average closing prices of last 5, 10, 15 and 65 periods  which means we have an UPTREND.

MACD Signal line running upwards inside Histogram shows that Bearish Momentum is decreasing and Bullish Momentum is increasing and the TREND is strong and will last a bit more.

2.  We  Enter SHORT (SELL) once 5EMA(yellow) is just above price action, 10EMA (magenta) is just above 5EMA, 15EMA(dodgerblue) is just above 10EMA and 65EMA(white) is above all three and definitely ABOVE Price, while  MACD Signal Line Runs Downward INSIDE the Histogram.

The LOGIC behind this?

Current price is BELOW average closing prices of last 5, 10, 15 and 65 periods  which means we have a DOWNTREND.

MACD Signal line running downwards inside Histogram shows that Bullish Momentum is decreasing and Bearish Momentum is increasing and the TREND is strong and will last a bit more.

3. We stay OUT of the trade when MACD Signal Line runs OUTSIDE of the Histogram.

If MACD Signal Line pops out of Histogram we EXIT. Usually this means trend reversal and while MACD Signal Line runs out of Histogram, we stay out of the trade, because that shows sideways move of the price and indecisiveness in the Market.

On my EURUSD Trade above, you can see all rules of my System being valid and confirmed 🙂

You can also see this System in action on my EURJPY Trade below:

eurjpy_h4_12_01_13_review

You can also see the System in action on my third Trade, on USDJPY :

usdjpy_h4_12_01_13_review

On my next BOOK about Trending Markets, you’ll find a more detailed presentation of this System with many charts and examples,  also exploring its effectiveness on various time-frames, but you should rather stick to 4HOURS 🙂

Happy Pips!

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