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brownsfan019

20 EMA & Patterns on FOREX

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This thread was mainly focused around the ES and other stock indexes, I'd like this thread to be about the same trading premise but on Forex.

 

Just in case we get someone new to this thread, here's a quick review of the chart setup:

1) 5 Minute Candlestick Charts

2) 20 EMA (exponential moving average)

3) That's it.
;)

And the entry setup:

1) A pullback to the 20 EMA

2) A candlestick pattern*

* candlestick pattern(s) to be used is up for debate. BearBull suggests using hammers and inverted hammers only; whereas I am open to most patterns.

 

IMPORTANT CONSIDERATION: The idea presented here is a possible ENTRY idea. As discussed in a few threads here on TL, there are many, many different ways to exit a trade.

 

WHY FOREX?: A few reasons:

 

1) I know very little about forex, so hopefully this thread could get some experienced forex traders chiming in about the markets and what to expect. I'll do my best to post some charts and we'll see how it looks.

 

2) It is said the forex can trend more than indexes, so maybe this entry system might work better than on the indexes (just a guess at this point).

 

3) I'm all about leveraging my time. If I can watch a couple indexes and a few currency pairs and trade where the primo setups are, that has my interest.

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Some charts from 9-29-08

 

All charts are from the FXDD MetaTrader demo software. If I were to pursue this further, I would need to investigate FX brokers as Open ECry does not have an FX division (yet).

 

I believe these are the main pairs, but could be wrong. If there are other pairs I should watch, please let me know.

 

 

attachment.php?attachmentid=8130&stc=1&d=1222701035

 

 

attachment.php?attachmentid=8131&stc=1&d=1222701035

 

 

attachment.php?attachmentid=8132&stc=1&d=1222701035

 

 

attachment.php?attachmentid=8133&stc=1&d=1222701035

5aa70e8d787ef_9-29-08EURUSD.png.aad8921dd23ebf67c84f539a6ea3eff2.png

5aa70e8d7c878_9-29-08GBPUSD.png.af1741da2f5fd6d5f378fa18ca755c1b.png

5aa70e8d809ce_9-29-08USDCHF.png.79c8dacaecf2dcc913d34d4059325ad1.png

5aa70e8d845e4_9-29-08USDJPY.png.11e159b304e867a06aa87d4dd7518f07.png

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BF,

 

.coming over here from your other invitation post and this is the first thing I noticed...

 

As far as pairs go you might consider substituting EurJpy for the UsdChf.

EJ has plenty of bang for the buck / action, a reasonable spread, etc while

UsdChf is almost perfectly (negatively) correlated with the EurUsd (so even if a setup occurs in the swissf it will follow what the EurUsd does.)

 

hth

 

zdo

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Good to know that this simple setup can be observed and exploited on a consistent basis even in the forex market. In conjunction with some basic understanding of Wyckoff principles i.e buying and selling pressure via price/vol should provide further confidence and enhance trade management.

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Good to know that this simple setup can be observed and exploited on a consistent basis even in the forex market. In conjunction with some basic understanding of Wyckoff principles i.e buying and selling pressure via price/vol should provide further confidence and enhance trade management.

 

Ahh! There goes the simplicity. Im just joking. If it works for you then thats all that matters.

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Hi all,

 

My first post. Here is a trade I caught using the 20EMA system on AUDJPY on the 15 min chart. I exited at around 61.00 support level. On hindsight, i should have let the trade ride further down. Oh well, still need to learn how to manage my exits.:crap:

 

 

attachment.php?attachmentid=8687&stc=1&d=1228124152

AUDJPY_15min.thumb.jpg.164fbf502156e1c6af981a09788dc3e8.jpg

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Oh well, still need to learn how to manage my exits.:crap:

 

 

Exits are the toughest thing about this game. Entries are the easy part. If you followed your plan no need to beat yourself about the exit.

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Keep the posts coming... I think you're on to something and you are taking good trades combining pin bars / inverted hammers and candlesticks with the 20 ema.

 

Looks like the only thing you really need to standardize is your management/exits.

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Thanks daedalus.

 

Here's one which wasn't very successful albeit on a 5 min chart. The inverted hammer formed on the 20EMA and it also looked like a H&S was developing. Perhaps, my mistake was shorting it too close to the support level although eventually, the price did turn south. attachment.php?attachmentid=8709&stc=1&d=1228293394

GBPUSD_5min.thumb.jpg.a82cbc6cd2fcc3f030c714d08fdcf110.jpg

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Here's a current one which is still running.

 

Price broke down the symmetrical triangle and its eventual retracement hit a resistance on the trendline and 50EMA which was followed by a 3 bar candle reversal. Then, an inverted hammer formed on the 20EMA (red line).attachment.php?attachmentid=8716&stc=1&d=1228374395

 

Bump: Continuing from my previous post, the trade turned out alright. This time I tried spliting my exits by closing half the position after a certain level of pips. Perhaps not the most optimal way of profit taking.

 

attachment.php?attachmentid=8717&stc=1&d=1228378642

GBPUSD_15min_example2.thumb.jpg.d3780990134f98e9478ee151872e718a.jpg

GBPUSD_15min_example2_exit.thumb.jpg.8f6f7b5b7753836b0d909f12f9e81d4e.jpg

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I've been testing a similar system that uses an 21SMA (not ema); it doesn't make much difference. Perfect bouncing is a coincidental rarity for either. I've been using an indicator developed for metatrader to give an arrow alert as soon as 1 (2 min bar) exceeds the wick of another 2 min bar in the opposite direction. Not my own, but developed from someone on FF.

 

I've noticed that waiting for a "bounce" off the 21 in trending conditions does give a higher probability trade on certain conditions. But personally the time and effort involved in monitoring such low time-frames is very labour intensive for what is often a pretty rare signal indeed. And totally dependent on a trend which may never occur. I don't believe its tradeable as a standalone system but something that can be added to the traders repertoire should the oppotunity present itself.

 

The danger I've found in the backtesting/forward testing that I have done, is that the winners with hindsight are so easy to spot it gives a false sense of success rate. Everybody can see that lovely trend bouncing off that 20/21 MA a mile off. But there are plenty of hidden losers. On closer inspection I personally have found it very difficult to guage a correct stoploss for such bounce trades on entry. Such bounce trades can often come after a consolidating ranging period oscillating around a particular MA such as the 21 or 200 MA. But can often continue to range after entry. I've found it dangerous to assume that just because it has seemingly just 'respected' the MA that it will continue to do so; it often does not. This is demonstrated in some of the failed trades shown by learningtotrade. Taking that in mind, I like to see that price has previously shown a tendency to take the MA as support/resistance before the signal I intend to take. That is, a consistent retracement to the MA that is easily indentifible.

 

These events maybe too rare occasions for sufficient trading oppotunities though. In my opinion this is tantamount to restricting your trading to the coincidental times that price retraces to an MA which at the end of the day is a lagging indicator. I hope someone proves me wrong and finds something sufficiently profitable in this and has the patience for it!

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All charts looks great in hindsight that a strategy works like deepblue27 had said. When trading live, its a completely different story.

 

When price retraces back to the EMA:

>> how do you know if it will not go against you? I know that some say trade in the direction of the EMA [but it lags].

>> how do you know how much momentum is left when it finally retraces to continue further in your direction? I know of Support/Resistance, do you just focus on the daily S/R from the previous day or would you use dynamic S/R?

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Hey guys, Im new to this site. Looking into other markets. Have traded forex for just over a year,

 

@ Brownsfan the 5Min charts in forex will WRECK you. I know from experience lol :). Considering the Market is open 5 days a week 24hours a day its actually tormenting if you have a 5minute strategy. Sure you get more profit but eventually the extra profit was not worth the time in my opinion.

 

The thing I also find with your idea is that the 5min 20 ema is not helping me out in terms of . . . Generating order flow in the direction I want it to go in.

 

If I was using an ema I would use something like . . I have had nothing but success with the 1HR 62 ema . . On all timeframes above 1HR particularly on GBP/USD One Hour . .

 

If I was trading the 5Min what I would do is express the 1Hour 62 ema as a 5minute ema . .

 

1HR 62ema becomes the 5Min 744 ema.

 

If anyone is curious backtest it on GBP/USD for a while and see how often it holds and generates nice candle patterns off of it. You would have less trades as well, with a higher probability of winning (In my opinion)

 

Also try putting up all round numbers on your 5Min charts, so if you are trading 5Min put up all .1000 .1500 .x100 and .xx50 levels, and just look at how price reacts . . .

 

I always try my best to intraday trade AWAY from the big round numbers instead of into them, a better chance of protecting your stop loss and of getting a good reaction in terms of legitimate candlesticks on the 5min.

It's just how order flow builds up around round number in my experience. . .

 

 

Disclaimer : I am by no means a forex expert or anything, nor am I claiming to be. But this is an interesting forum and an interesting discussion so I just thought I would chime in :)

 

Trade well everyone.

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Just in reference to the poster above me, his comments are Highlighted

 

 

 

I've noticed that waiting for a "bounce" off the 21 in trending conditions does give a higher probability trade on certain conditions.

 

Really ? Can you please expound on what you think is causing this ? Also what timeframe is this ?

 

The danger I've found in the backtesting/forward testing that I have done, is that the winners with hindsight are so easy to spot it gives a false sense of success rate. Everybody can see that lovely trend bouncing off that 20/21 MA a mile off. But there are plenty of hidden losers.

 

Agree with this.

 

On closer inspection I personally have found it very difficult to guage a correct stoploss for such bounce trades on entry.

 

Agree with this too . . I always try and put stops where price cant get them.

 

These events maybe too rare occasions for sufficient trading oppotunities though. In my opinion this is tantamount to restricting your trading to the coincidental times that price retraces to an MA which at the end of the day is a lagging indicator. I hope someone proves me wrong and finds something sufficiently profitable in this and has the patience for it!

 

Yes indeed MA's are lagging, however I use them as floating support and resistance on higher timeframes. I like to get a confluence of factors working in my favour before taking any trades. . .

 

 

Enjoyed reading your post.

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