Today we’re getting back to basics. Everywhere I look I see “secret forex systems” and “advanced day trading strategies”. For starters we all have to understand why retail forex traders lose. You ready for this….they try to apply rules to a market they do not control. Its that simple! Now you’ve probably heard me say that before but have you really stopped and thought about what it means? Plain and simple we have to STOP trying to make the market conform to a set of rules that we term as forex trading strategies! The banks already have a clear defined way they trade, and it is their forex trading strategy we must follow. Trying to custom fit rules to yesterday’s price will result in tomorrows failure….this I can promise you. So let’s get back to basics and determine the simple forex trading strategy we can all use to follow the banks in the forex market.
Forex Market Trends
Understanding how the forex market trends over the course of a given week is essential to day trading on an intra-day basis. Simply put the market tends to cycle in pushes of 3. This is not only seen on the shorter time frame charts, but the longer ones as well. Take a look back at the Weekly chart of the EUR/USD. For the last 4 years starting in June of 2008 the Euro has made very clear cycles of 3 both up and down. As you move to shorter time frames this 3 push cycles remains clear and more often than not it is clearly discernible.
The fact that the forex market, and all other markets move in cycles of 3 is not something new to Day Trading Forex Live….in fact it is a belief that has been around longer than anyone reading this has been alive. The key is to keep your forex trading simple with respect to this market cycles behavior. Here are some keys to keeping track of this 3 push market cycle.
1.) Use a 1H chart to view the overall picture.
2.) Weekly cycles tend to be created over the course of 3-4 days.
3.) Each move should be at least 90 pips to be concidered an actual push in the weekly cycle.
Keeping these simple rules in mind can help you determine what cycle in the overall weekly push you are in. Why is this critical to your success? Lets consider some examples. Assume you have a first push down. This should give you a strong bias that you will be seeing two more cycles down over the next few days. Understanding this solves the problem of direction and therefore all that is left to be answered is the timing of your trade entry. To consider the timing of your trades lets move on to the second key to a simple forex trading system.
Bank Manipulation Times & Price Point Confluence
Over trading is one of the biggest killers of retail forex traders. One of the greatest points about day trading the BANKS forex trading strategy and not our own, is that they have specific times they will intentionally manipulate the market before they allow it to trend in the direction of the overall weekly push as discussed above. As a general rule of thumb these high probability trading times are from 2-5AM EST and 8-11AM EST. Have you ever heard of the Frankie fakeout? Manipulation around the European open (2AM EST) is so common it got its own nickname! So now we have 2 pieces to the puzzle. We know how they will tend to drive the price over the course of 3-4 days, and we know when we should be looking for these moves to start….but we need yet another piece of the puzzle to further nail down the exact timing of our trade entry, and that is a confluence or coming together of price points.
If you have read anything on this site you have probably read and now see how smart money manipulates the price around common points retails traders are most likely to use. To learn to trade forex with the banks we must think like the banks. Because we cannot see where retail orders are stacked we have to use the most common tools of the retail trader to understand where smart money will more than likely create a false manipulation move to take out retail stops. With a bit of practice and common sense this is very easy to do, and can be used as a stand alone simple forex trading strategy or filter. Here is a list of common points we will see market manipulation….ADR (Average Daily Range), Previous Days High/Low, 200EMA & 60EMA, 61.8% Fib, Key Support/Resistance Levels, Psychological Barriers (Round Numbers), Pivot Points, ect. The more of these points coming together at one price level the higher the probability a manipulation pattern will occur there. Lets discuss these manipulation patterns and put all the pieces of the puzzle together.
Forex Candlestick Manipulation Patterns
Lets preface this paragraph by saying we are not forex candlestick pattern traders, nor are we chart pattern traders. Candlestick and chart patterns only serve a purpose after we have determined what cycle we are in, we are within a manipulation time, and then they occur at a high probability price level as mentioned above. Without all the preceding points candle and chart patterns mean nothing to us. Lets go to the charts for a better understanding of what manipulation looks like…
The chart above shows a nice example of a day trade I took in the live forex training room a few weeks back. Lets break down why I took this trade and it starts with the overall cycle as mentioned first in this article….
1.) We had a second push up the previous day and therefore we were looking for the third push up this day which would complete the weekly cycle.
2.) I don’t have this marked but the market moved 128 pips against the overall direction of the market. How far did we say the market needs to move to be concidered an actual push in the overall cycle….at least 90 pips right? The same is true for a retracement. It had retraced well over 90 pips against the overall weekly cycle which gave me further confidence this move down was coming to an end.
3.) The time of this trade was 10:45 which was within the typical NY trade setup window of 8-11AM EST.
4.) The market had come into and made a stop run reversal of the 1.2200 psychological barrier.
5.) Notice the nice reversal legs (or railroad tracks) which occurred after the other criteria was satisfied, and this therefore gave an entry signal.
If you understand how, when, and where the banks tend to drive, turn, and trend the forex market you will greatly increase your odds of trading the forex market successfully. The bottom line is we all must learn to trade forex with the banks as they are indisputably the driving force behind each and every large move that is made in this marketplace. Because the banks are the driving force behind the forex market it is logical that we learn to trade their strategy rather than trying to apply rules of our own to a market that they control