Following on from yesterdays live training session on trading ranges, lets now take a look at the over night range and how to actually find the S/R levels.

On the chart below you can see GBPJPY 15 min chart from this morning session.  The red and blue arrow shows the last swing high and the last swing low to be made as price was trending up making higher highs and higher lows.

Price action then moved into the overnight session and made multiple swing highs and swing lows during the Asian session, but price was contained between these levels for the majority of the session with a brief pop out of the range about 3am (UK hours). In this case I can also use a little common sense and include that slight move high as a part of the overall range levels for my long and short trigger levels.

After this range has been identified all I do now is simply wait.

Answering my 3 basic questions I have found out where price is and what it is doing, and now I’m preparing myself for a trade. If price goes up, down or sideways I can formulate a trading plan.

• Up - Long break out
• Down - short break out
• Sideway - wait

as it turned out my long trigger level was hit and this meant I’m now looking for the first bar not to make a new bar high IE a pullback.

With my current trade management tactics I have already scaled out a portion of the trade to lock in some profits on the position, the remaining portions are a part of an overnight trade and an intraday trade which is still being managed with profits locked in on the trade.

This was a trade we discussed in real time in my trading room and in the interest of full disclosure it took two attempts to get in this trade… yes folks that right I took a small loss first before the winning trade eventually held. -25 pips to be exact. Ive nothing to hide from admitting my monetary losses and I do take them gracefully as the only person I would be fooling by trying to hide them is myself.

Current snap of this live trade.

As always open to questions. We Will be running through the price action reading in the next live training session next Wednesday so you can see in more detail how I came to select the levels I chose for my range above.

Enjoy

Phil

Hi Folks,

Below is a reproduction from my site and from todays seminar explaining how I identify and trade range break outs.

Also attached is a copy of the power point presentation that was used which expands on a few points raised that are not addressed in the article below.

As we didn’t have time to take some questions and answers I’ll more than happily take them here on the comments section.

Enjoy

Phil

Download FXStreet-Breakout-Trading.ppt

Range Break Outs form the basis of my core trading. Generally speaking I call most consolidation patterns a range whether it is a triangle in one of its many guise’s, a head and shoulder pattern, and so on. The point is to identify a period on the chart when price is contracting which then should lead to a period of expansion.

By keeping it simple and not trying to figure out what the pattern is called I can reduce the thinking time significantly and the actual time involved whilst trading as a pattern develop and progresses through its various stages of development as one pattern develops into another and different (text book) rule sets need to be applied.

What I am therefore interested in is where are the consolidation patterns extreme levels of support and resistance. This way i can treat them all in the same way and not have to worry about what it is called, has it broken a trend line? Is it a genuine break of the pattern? This list of questions can go on and on depending on the pattern and how price action develops.

The two range patterns that I distinguish between are;

• Intraday or overnight ranges
• Swing or Longer term ranges

The only notable difference between the two set ups is the way I identify a target.

Once the range has been identified I can then think about how best to go about trading it.  Generally speaking the move into the range dictate the most likely direction of the break out move, 65% of the time it is a continuation pattern 35% of the time it is a reversal pattern. 

With this figure in mind, if the move into the range is up I will be looking for reversals off the low (more on this later) and break outs of the high of the range.

Rules for trading the range once identified.

• Trade the first pullback after the break out of the established range.
• Stop loss goes past the event that caused me to get into the trade
• Targets for intraday trades are based on an average days movement
• Targets for swing trading (longer term) ranges are the height of the pattern added to the break out point.

Range consideration

• Ideally the overnight range should have developed near the previous days high or low for higher probability trade set ups.
• If the overnight range is in the middle of the previous days high low range then this becomes a lower probability set up. (usually price will be consolidating in the bigger picture)
• If price is in the middle of a larger range then it is also not the best location to look for a trading opportunity.  Waiting for price to be at the range highs or lows and assess for reversals or breaks is the highest probability option.

Intraday example

Looking at a quick example, once the overnight range has been identified and in an "ideal" location I am now waiting for the pattern to "break out" of its consolidation.

Once price has broken out of the range, to avoid getting into a false break out situation, to enter the trade I am looking for the first corrective bar or a "pullback". My current usual routine is to start looking for this pullback on the 89 tick chart. (if you don’t have access to tick charts then a 2 or 3 minute chart will work just as well).  After this IF the pullback develops but does not trigger the entry order I will then move up to the next time frame as price continues to develop a pullback on the 15 min chart then the 60 min charts.

Now my entry has been identified by the first pullback after the break out the stop loss, also identified by the same pattern, is going past the event that caused me to get into the trade.

The way the I currently manage my trades is to remove the risk on the trade by scaling out a portion of the position. This is a simple formula. 

I trade in multiples of 3 lots, I will look to remove 2/3rds at 50% of the size of the stop loss size.  For example, If I have a 30 pip stop loss 50% of the stop loss size is 15 pips, 2/3rds of the position will be removed at +15.  The last 1/3rd of the trade remains with its original stop loss level.  If this last 1/3rd gets stopped out then I will have overall a break even trade. 

• 2 x +15 = 30 pips
• 1 x -30 = -30 pips
• Profit on overall position = 0 pips

After this I have a risk free trade and my final target is based on an average days movement (discussed previously)

Swing example

Following the same philosophy, identify the range, wait for price to trade past the range boundaries. wait for price to pullback this creates the entry and stop loss levels.  Target is the height of the pattern added to the break out point.

Wait for break out of the range to establish entry and stop loss levels

Entry established beyond the pullback. Stop loss goes past the event (pullback high)

Target is the height of the pattern added/deducted to the breakout point

Wait for trade to hit target.

Below is a short video outlining the Asian session Break out method

Below is a short video highlighting some of the pitfalls of trading breakouts the way most of the texts books say.

Ultimately I’m looking to avoid false breaks and provide myself with a reduced risk trades when price is ready to move and start trending out of the range bound location

Hi Folks, I hope everyone is finding some good trading opportunities out there in the Forex world.

One of the things I would like to mention in this short news letter revolves around patience. For most new traders this can be a major stumbling point. As one of my students in the live trading room always say "Its the waiting, always the waiting" that can mean success or failure of a trade or a trading career.

Below is one such trade that required a lot of patience. Firstly, as the pattern developed (several days of extended consolidation) then for the trade to develop and trigger its entry. But the killer was waiting for the trade to hit my first target to scale out a portion of the trade 4 hours for a very small first target of +15 pips.

The thing I need to remember is that there is nothing wrong with this trade, it has not voided the pattern in that it has not stopped me out but neither has it started to move. I like to give each trade the opportunity to move and I’m looking for a certain sequence of events to develop before I start move my stop loss location to lock in profits.

Some of the things that new traders can fall in to the trap of doing are;

• Trade tinkering
• Feeling the need to be doing something
• Placing a trade as a result of that need to be doing something
• Adjusting stop loss’s for no reason other than "Its moved 10 pips"
• Closing out a trade because " It ‘aint movin’ "

So what can you do to prevent some of these things which all pretty much revolve around Patience or the lack of it and the need to be doing something.

Firstly, remember that there are 3 trades you can place;

• Long
• Short
• No Action

Not placing a trade or taking no action is a perfectly valid decision to make when trading. You really do not have to be placing a dozen trades per day to be a day trader.

Set out a trading plan - This is a must for any business and yes folks this is a business. All business have a plan of action. Know what your going to do, why your doing it and when you are going to do it.

Follow my 3 simple rules trading plan to help make sure you have not missed anything

• Where is price now?
• What is it doing?
• How can I get involved, if price goes up/down/sideways whats my plan?

If your plan is telling to that there is no trade or no action to do on a trade, then DON’T do it.

There are several things that I used to do and some that I still do to that helped me to overcome some of the above problems whilst I was trading.

I don’t have my trading platform always in view so I cant see my positions, P&L, or be tempted to place a trade. I used to actually close it down and log on only when I had a trade to place or one was setting up. Personally I find it all too distracting and all the information you need is on your charts.

Replace that need to be doing something on your trading and transfer it to something else.  For I time I always had a demo account open and I used to hammer away at any sort of trade I "felt like placing" this proved to me that this compulsion would not be useful in my live trading.

I transferred that compulsion into something useful,  testing idea’s, strategy variation, money management tactics, new markets, etc. To this day this is something I still do as I have turned a negative compulsion into a positive routine, developing idea’s so that when/if market conditions dictate change in my trading plan I have a catalogue of different scenario idea’s to select from.

Changin my plan is actually something that does not happen often but I found myself recently changing my trade management tactic from something that had served me very well over the last 4-5 years as a direct result of what I considered a serious change in the market environment.

I think I’ve rambled on enough now about this subject and I hope it gives you a few idea’s or makes you see somethign that might need to be changed in your own trading and how you can go about changing it.

If you would like to talk some more to me about it please feel free to contact me.

Happy Trading

Phil

Hello folks,

My name is Phil Newton and I’m the owner and developer of www.trading-strategies.info which provides education on trading forex mainly via streaming video and a real time trading room where all my trades are exposed and detailed as they develop.

The Team at FX Street have very kindly agreed to start weekly presentations of how I look at the forex market and make a living from it. Here on the blogs I intend to reproduce some of the work from the presentations and my website so this blog will be more education focused.

Blogging is new to me so I would ask you to all to be kind and patient while I find a groove with this blog and get it into a regular format that makes sense.

And now a little bit about me and my trading style. Firstly, I’m a self taught trader and I managed to start my trading career with a high degree of success but this doesn’t mean to say that I have not experienced my ups and downs just like everyone else.

I focus entirely on price action and patterns with an intra day objective to "capture the main move of the day" I also hold trades for overnight or swing trades with a focus on average of 2-3 days but as we know this does depend on what the cross rates are doing.

In my trading I will typically employ multiple strategies (2-3 currently, but can be as many as 6 with all my set ups) on multiple cross rates and adopt an aggressive swing/intra day style on 3 cross rates and a more passive swing/intra day style on 9 cross rates.

My first presentation will be on the 28th May and we will be running through my core trading set up. I’ll look forward to speaking with some of you and please feel free to comment on anything you see here.

Kind regards

Phil