- Make sure that your plot of the ADX also includes the plot of the Plus DI and the Minus DI. The pattern begins when the ADX is above both the Plus DI and the Minus DI. Most often when the ADX is above both the Plus and Minus DI the ADX will be at a high level, perhaps greater than 30 or 35. The high level of the ADX indicates that the previous trend was a very strong one. Now we are going to try and catch the reversal of that strong trend.
- With the ADX at a high level and declining, look for a crossing of the Plus DI and Minus DI. If the Minus DI crosses above the Plus DI it indicates that a strong up market has ended and weakness has set in. If the Plus DI crosses above the Minus DI it indicates that a strong downtrend has ended and a new uptrend can be expected.
- These reversal patterns should be entered only as the market moves in the new direction. (We suggest that you use stops for entry triggers.) Once you have entered the trade you should expect a substantial move in the new direction.
- Be sure to use a stop loss at the recent low or high of the previous trend. Be willing to make more than one attempt to catch the new trend. (Sometimes the Plus and Minus DI will cross back and forth more than once before the new trend emerges.)
Average Directional Index for Vtops and V Bottoms
May be have often described how the ADX (J. Welles Wilder's Average Directional Index) can be a useful tool for measuring the strength of trends. To briefly summarize our previous advice, we have found that when the ADX begins to rise it is telling us that a strong trend is developing. A rising ADX has proven to be a particularly reliable indicator after a market has been going sideways for a while and then begins to trend. For best results, the ADX should begin its rise from a low level (less than 15 or 20) because the low level of the ADX indicates that a sideways basing pattern has been formed. Most of our applications of the ADX strategy have been predicated on finding these highly profitable patterns where a trend suddenly emerges after an extended sideways period. Unfortunately not all trends begin with a sideways pattern. There are many V tops and V bottoms that our rising ADX strategy fails to capture. In a V pattern the ADX rises and then peaks out and declines. The ADX does not begin rising again in time to catch the change in direction in a timely fashion. By the time the ADX falls and then begins to rise again a major portion of the new trend will have already been completed. As we have pointed out in our previous Bulletins, any entry on a rising ADX that was not preceded by an extensive sideways period is not a very reliable pattern. Recently in our research on using the ADX for trading stocks we have observed another ADX pattern that we believe shows great promise. This new ADX pattern signals very timely entries that allow us to profit from possible tops and bottoms that are V shaped. Here is how these V shaped top and bottom patterns can easily be recognized:
Trend Lines Breakout System
Breakout systems like this are always in great demand. It is quick, easy and with a proper use has a true winning rate of over 90%.
Currency pair: GBP/USD, EUR/USD - tested. Other pairs may also be used. Time frame: 1 hour. Indicators: none.
Trading setup:
For this Forex system to work properly a trader needs to know the basics of identifying swings high and low, rules of drawing trend lines, plus be able to use Pivot Points. These are very simple things we believe every trader should know.
Our working range includes 5 candles: from midnight to 4:00 am EST (including the 4:00 am candle). Optional: draw a midnight vertical line for visual aid.
Within those 5 candles look for a valid swing high and a swing low of the price. Draw an Downtrend trendline connecting a found swing High to the most recent swing High of the previous days. (Make sure the last one is valid High to draw an Downtrend trendline through it). Do the same for the swing
Low: connect it to the most recent swing low of the previous days, make sure you are pulling the right trend line using the rules of drawing Uptrend trendlines this time.
If a trader sees, for example, no Swings High in the 5-candle range, that means there will be no downtrend trendlines this morning.
The Entry is on the break of either one of the trendlines and is immediate without waiting for a current candle to close. A protective stop is placed just above/bellow the candle that broke through the trend line.
Profit target:
Usually the whole action is unfolded within the next three candles (count in the candle that had violated the trendline but only if it closed on the other side of the trendline). So, after the actual breakout we have 3 hours or 3 candles to trade, after that we will exit with whatever profits are made.
Main rule: Using Pivot points + timing
Profit target is going to be the nearest level of support or resistance according to Pivot point levels. If, however, after only one candle this target is reached, it suggests a very strong market, thus we would stay in trade and set the goal for the next support/resistance level. We would also choose the second Pivot point level of support/resistance as our profit goal if the first Pivot level appears to be too close to our entry point. We have three candles to trade after the breakout, that's why we can trade calm and allow our goal to shift to the next Pivot Point level.
It is an absolute traders' discretion of whether to set the target at the nearest Pivot point support/resistance level and leave the trade once the target is hit or using a timing factor exit after the two / maximum three consecutive candles.
Tip: running two orders can save lots of nerves. First target - the nearest Pivot point support/resistance level. Second - on the close of the third candle.
Another simplified option would be with fixed targets and timing
For example, EUR/USD target = 20 pips - spread, GBP/USD = 40 pips minus spread. These are only suggestions, and for other currency pairs = testing will tell... Hold position open for the next three candles. If the target is not reached within those three candle, close all trading positions anyway.
That's it. Simple and very effective.
Happy Forex trading!
Edward Revy, http://forex-strategies-revealed.com/
Currency pair: GBP/USD, EUR/USD - tested. Other pairs may also be used. Time frame: 1 hour. Indicators: none.
Trading setup:
For this Forex system to work properly a trader needs to know the basics of identifying swings high and low, rules of drawing trend lines, plus be able to use Pivot Points. These are very simple things we believe every trader should know.
Our working range includes 5 candles: from midnight to 4:00 am EST (including the 4:00 am candle). Optional: draw a midnight vertical line for visual aid.
Within those 5 candles look for a valid swing high and a swing low of the price. Draw an Downtrend trendline connecting a found swing High to the most recent swing High of the previous days. (Make sure the last one is valid High to draw an Downtrend trendline through it). Do the same for the swing
Low: connect it to the most recent swing low of the previous days, make sure you are pulling the right trend line using the rules of drawing Uptrend trendlines this time.
If a trader sees, for example, no Swings High in the 5-candle range, that means there will be no downtrend trendlines this morning.
The Entry is on the break of either one of the trendlines and is immediate without waiting for a current candle to close. A protective stop is placed just above/bellow the candle that broke through the trend line.
Profit target:
Usually the whole action is unfolded within the next three candles (count in the candle that had violated the trendline but only if it closed on the other side of the trendline). So, after the actual breakout we have 3 hours or 3 candles to trade, after that we will exit with whatever profits are made.
Main rule: Using Pivot points + timing
Profit target is going to be the nearest level of support or resistance according to Pivot point levels. If, however, after only one candle this target is reached, it suggests a very strong market, thus we would stay in trade and set the goal for the next support/resistance level. We would also choose the second Pivot point level of support/resistance as our profit goal if the first Pivot level appears to be too close to our entry point. We have three candles to trade after the breakout, that's why we can trade calm and allow our goal to shift to the next Pivot Point level.
It is an absolute traders' discretion of whether to set the target at the nearest Pivot point support/resistance level and leave the trade once the target is hit or using a timing factor exit after the two / maximum three consecutive candles.
Tip: running two orders can save lots of nerves. First target - the nearest Pivot point support/resistance level. Second - on the close of the third candle.
Another simplified option would be with fixed targets and timing
For example, EUR/USD target = 20 pips - spread, GBP/USD = 40 pips minus spread. These are only suggestions, and for other currency pairs = testing will tell... Hold position open for the next three candles. If the target is not reached within those three candle, close all trading positions anyway.
That's it. Simple and very effective.
Happy Forex trading!
Edward Revy, http://forex-strategies-revealed.com/
Trend line tunnel
Creating a support/resistance tunnel on the price congestion and trading on the break of this tunnel is a milestone of Forex trading discoveries.
This trading system/approach needs no indicators and can be applied to any currency and traded in any time frame where coiling in a tight range is spotted.
Entry rules: Find consolidation on the chart and draw two horizontal trend lines – support and resistance. Once the price breaks trough one of the trend lines and a current price bar closes outside the tunnel – buy/sell in the direction of the breakout. (If price pierces the trend line, but did not close outside the tunnel, cancel the previous trend line and draw another one according to the new conditions).
Note: also very often happens that once the price makes it through support or resistance it rocks down/up very quickly and so, more aggressive entry can also be adopted – without waiting for the current price bar to close.
Exit rules: not set, however, it is believed, that the price after breaking the tunnel will travel the distance equal to the width of that tunnel.
Advantages: very simple and extremely effective. It can provide 100% profitable entries if short profits are taken - usually with the close of the first candle right after the entry. Disadvantages: very accurate and well thought entry point should be picked. Orders placed very close to the tunnel can be triggered by sudden whipsaw early before real breakthrough occur.
http://forex-strategies-revealed.com/
This trading system/approach needs no indicators and can be applied to any currency and traded in any time frame where coiling in a tight range is spotted.
Entry rules: Find consolidation on the chart and draw two horizontal trend lines – support and resistance. Once the price breaks trough one of the trend lines and a current price bar closes outside the tunnel – buy/sell in the direction of the breakout. (If price pierces the trend line, but did not close outside the tunnel, cancel the previous trend line and draw another one according to the new conditions).
Note: also very often happens that once the price makes it through support or resistance it rocks down/up very quickly and so, more aggressive entry can also be adopted – without waiting for the current price bar to close.
Exit rules: not set, however, it is believed, that the price after breaking the tunnel will travel the distance equal to the width of that tunnel.
Advantages: very simple and extremely effective. It can provide 100% profitable entries if short profits are taken - usually with the close of the first candle right after the entry. Disadvantages: very accurate and well thought entry point should be picked. Orders placed very close to the tunnel can be triggered by sudden whipsaw early before real breakthrough occur. http://forex-strategies-revealed.com/
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