GBPUSD Weekly Elliot Wave analysis

GBPUSD is currently in a wave 3 or wave 5 of a long-term corrective wave C. We probably are at the begining of a wave 5 of that C corrective wave. So, for next week, I am projecting a bullish run up to 1.68 (161.8 fib extension of the last correction) and then the continuation of the big bearish trend, that will eventually take us below 1.35. If we’re in a wave 3 of C (though not likely), we may get a bigger bullish rally before we go down again (maybe up to 1.7320).

Taking into account that EURUSD has a strong correlation with both GBPUSD and EURJPY, we should expect the same iminent bearish continuation for both. But, as I said, next week we will probably witness a final bull rally, so I’m bullish on these pairs next week. If this is the case, then EURUSD may have a top near 1.4719 high of December 18th, 2008. So I expect a break of 1.4330 to the upside on the EURO and a break of 1.666 on the GBP. A possible top on EURJPY would most probably be 145.46 and I’d expect a break of the 139.21 high.

These highs could be taken out tuesday or wednesday, as we have a lot of important news coming out. So watch out for this and good luck!

This is my trading plan. I have it printed and sticked on the wall, above my laptop, so I can see it, and also on my desktop. Here goes:

« Morning preparation

1. Open up http://forexfactory.com/calendar.php and set alarms 20 minutes before and 20 minutes after an important news release (marked in red). That will make sure I don’t trade during important news.
2. Open up http://bloomberg.com and read the latest economic news.
3. Open trading platform, check the charts for new s/r levels and mark them. On the most obvious levels, add a limit order and set alarms 30 pips before the limit orders get triggered, so I have time to delete the orders if I must or manage the trade when it gets triggered. On other levels, put alarms 20-30 pips before price gets there, so I have time to watch price and decide if I trade the level or not.

Money management rules

1. Do not risk more than 2% of the current equity on a trade.
2. Use a mental stop loss of maximum 30-40 pips and a fixed 70 pip stop loss (this will make sure the broker can’t hunt your stop).
3. Do not use scaling in at all!

Trade management rules

1. Manage the trade from the M5 chart.
2. Move stop to breakeven when the trade is +20 pips and a 5 minute candle has closed after the trade was +20.
3. Target for a short should be 10-15 pips above a significant suport level. Target for a long should be 10-15 pips below a resistance level. Target for countertrend scalps should be equal to the stop or twice (RRR 1:1 or 1:2). If a trade doesn’t have a significant profit margin, then don’t take it.

Emotional rules

1. Do not fear taking a good trade!
2. Do not be greedy, thinking you must always win! Cut your losses short! Let your profits run, but exit at significant resistance. Do not be greedy and turn a winner into a loser!
3. Do not get angry after losing a few trades. Losing is part of the game. Do not take a trade just for revenge. Only take the good ones. No overtrading and no overleveraging. You cannot get rich over night!
4. Once you’re in a trade, keep your cool, try to concentrate and focus on the trade, stay rational!»

If only I could always stick to these rules, I would be a consistently profitable trader. The only way I can lose using my method of supply/demand (support/resistance) is by not sticking to these rules and especially to money management rules. I hope having these in front of me all the time will help put me on the path to success.

Cheers!

My Forex method

Click there to see a nice “mind-map” of my Forex trading method.

1. Multiple top/bottom breakout trade. This is one of the most simple trades I take. Here’s a chart from today:

Multiple top/bottom breakout trade

Notice that the breakout is in the direction of this powerful bullish short-term trend (look at the daily and you will see what I’m talking about). That gives me confidence that the move will be strong and most likely break the last swing high. Trades taken with the trend are always the best.

2. Support and resistance bounce trading. High probability trades, good RRR. Take a look at today’s chart:

Trading with the short/long-term trend

3. Pin bar trading. These are high probability trades. Take a look:

Pin bar trading

4. DBHC (Double bottom, higher close) and DTLC (Double top, lower close) setups. See chart:

DBHC and DTLC setups

5. Inside bar breakout trades. See chart:

Inside bar trading

6. Outside bar continuation pattern trading. See chart below:

Outside bar continuation

That’s what’s in my arsenal and this is what I’ll use to make my trade decisions from now on. I’ll be taking the best trades.

Cheers!

PS: Many thanks to Steve from NoBrainerTrades.Com, Nial Fuller from LearnToTradeTheMarket.Com, Nick from Forex4Noobs.Com and James16 from James16Group.com from which I learned a lot and their insight has helped me build my own strategy and integrate their thoughts and years of experience into my trading arsenal.

Hey guys. I decided I need to compile a set of rules to follow. I noticed that I lose because I don’t stand by my own rules. You see, from childhood, we are denied certain things. People give us rules. So when we grow up, we tend to want more freedom. We hate rules. In the Forex market, nobody limits you. Prices are always moving and if you find a way to guess what the market will do at any moment, then you have unlimited profits. And so, it’s hard to respect some rules in this market, until they become a habit. Until you become disciplined… So I think the best way to do that is to write my rules somewhere, print them and stick them on the wall, behind my laptop, so I can always see them. So, here are my rules:

1. Before opening up my platform, check out the economic calendar, see if important news releases came out that day, how did they affect the market, what other important reports are following and when and how can that affect the pairs I’m trading. Also read fresh financial news from the Bloomberg site and open up Bloomberg live TV. This gives me some hints about the market sentiment and what the general bias is for the pairs I’m trading (bullish or bearish).

2. Open up my platform. Update my charts if needed (maybe new support and resistance levels have formed). Check the MACD on the daily and H4 charts to see what the long-term trend is and check the MACD on the H1 chart to see the short-term trend.

3. Based on price action, momentum and market sentiment, make a forecast on how the price might act for the day, identifying the key areas that are most likely to act as a turning point. Write down this forecast.

4. After two consecutive losses, if emotions take over and I feel fear, greed or anger, stop trading for the day.

5. After two consecutive winners, stop trading for the day (euphoria is a killer).

6. If I win one trade and then lose the next one, stop trading for the day (don’t spend all my profits).

7. Always use a risk/reward ratio of at least 1:2 and optimally 1:3 or more. If the trade has weak chances of achieving that ratio, then don’t take it.

8. Only trade the H1 and H4 charts.

9. If in a bearish breakout trade, do not close the trade manually until I see clear confirmation that the price is using the resistance as support again. Only then think about closing the trade and trading the bounce. Likewise in a bullish breakout trade.

10. Cut my losses and let the profits run. Don’t widen the stop loss, stick with the RRR, only take partial profit if there are clear signals of reversal. Scaling out of positions will probably help at first.

11. The trend is your friend, stupid!

12. Buy a support only once, second time look for a breakout. Sell a resistance only once. Second time, look for a breakout.

13. Do not risk more than 2% of the account on a single trade.

14. Only trade your favourite pair, until you gain experience. If you watch more than one pair, you will not keep focus. Fall in love with a single pair and trade that until you are consistent!

15. Control your emotions. You will not win all the time. Losing is part of the game. Do not get angry when you lose. Don’t fear taking a good trade. If you only take high-probability trades, you should not feel fear or anger. Accept your losses and look forward for the winners. They will come if you don’t panic. Emotions confuse you and make you do things you normally wouldn’t. So stay as calm as possible. If you can’t stay calm, close the platform and take a walk, watch TV, do something else until you are calm.

16. Look at smaller timeframes like M5 and M15 when price is heading towards a support/resistance line and look for price action signals that would show the line will hold or will break. Especially look for pin bars forming, to jump in on the retracement. Breakouts are usually straight forward and you can predict them by price momentum/energy and the number of previous bounces off that support/resistance line ( if an intraday line already has 2 previous bounces, I would look for a breakout if price goes back to that line).

In the next article, I will compile a list of trade setups that I will take consistently.

Cheers!