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Frequently Asked Questions - Part 5
Q: Sometimes I get a signal on 30 minute chart, but not on 10 minute and sometimes opposite which should I use? A: You should use whichever time frame produces a valid setup first. The markets are forever changing and sometimes you will find plenty of setups on one particular time frame and with out warning the trades may dry up and show up on another time frame. This is why you should look at a few time frames and currency pairs.I have been using your system for a while and I have a few questions. Thanks, it has paid itself already! In general I have found your candle stick and histogram entry to be the best way of entering the market. - David Q 1: I have tried another setting for the MACD after reading a book “Dynamic Technical Analysis” by Philippe Cahen. Wiley Trading. 2001. He uses an MACD with the settings of 9,19,6 (ref page 42) and it seems to get a 1 bar advantage to the 12,26,9 setting. Your comments. A 1: Yes you are definitely right about getting a 1 bar jump but... In trading there is unfortunately always a compromise. Anytime you use a strategy to get in earlier you also raise the incidence of getting into a choppier market. On the other hand, if you use say an even slower MACD setting then I recommend , you would eliminate even more of the "whip-saw' trades, but you would get in even later and miss more opportunities. The setting I use is not some magic number, it just represents a good compromise between getting in too early or too late. Q 2: I have difficulty deciding if I am in a non trending state after entry. How do you decide that? Will ADX help, say on higher timeframe? Or is there a better way of deciding that, say if the market doesn’t move after 5 bars, get out, or something like that?? A2: I don't use the ADX because often it doesn't really recognize a strong trend until much of the move is over. Remember just because the ADX is showing a strong trend doesn't guarantee that it will move 1 pip more in that direction. It jut reflects what has happened, not what is going to happen. No indicator can do that! As a rule of thumb for buy entries, if after entry you keep seeing all the MACD histogram bars above zero then you are in a strong trend. Q: Does a setup bar still count as a setup bar when it gaps the previous bar? Thanks for all your wonderful teaching. - Mark A: That's a good question... The reason I say that is that I don't see that situation arise much. I would say this as a rule of thumb: Lets use a buy setup as an example... If the setup bar gaps up and the distance of the low of that bar is more than 3 pips above the high of the previous bar, then pass on that trade. Q: Why buy or sell on or two points above or below the current prince? - Walt A: The reason we do this is that it is considered a confirmation signal. If the market didn't hit that buy/sell area of 1-2 pips, then it would indicate a lack of momentum and follow-through. Quite often what you will observe is that by not getting the confirmation signal, you are kept out of a bad trade. Q: When counting histogram bars to qualify a set up bar, do all the bars have to exceed the "100" value before they can be counted among the minimum 5 bars required to qualify the setup? Or... do we just consider them to be "neutral' bars? A: There is no need to look at the value when looking for 5 histogram bars. When looking for buy setups, as long as they are above the zero line that's all you need. Posted: 7/29/06
Q: I recently had a
set up on the daily GBP/CHF on 15 July, that made 400 pips and
is still active at 300 pips. Not bad for a neophyte!! The question is... Have you tested your method with daily charts and found them lacking? Or, did you just ignore that time frame? - Dave A: It can be used on the daily charts, but once you get into that big of a bar, your stops can be 200 pips or more. For most traders that is simply too big to consider. That is why I don't discuss those times in the manual. Q: I know that ranging and choppy markets are best left alone but your system still works if - and it's a big IF - a sufficiently distant stop loss is employed. I have used a 40 pip stop loss and have avoided being stopped out until the market goes back in the direction indicated originally. the gains are usually small (10 - 12 pips) but it is worth it provided, of course, one is prepared to take a higher than usual risk. I'd be interested in your comments. - Ken A: Your observation is 100% correct. This is actually a technique that some professional traders use in trading range market conditions. They will use way bigger stop losses then the general public and as a result they almost never get stopped out. WARNING: While that techniques works in the hands of very skilled traders it can back-fire for others. it can especially back-fire if the market breaks into a strong trending mode. Q: Thanks for the videos. Do have a question. After the trigger bar has formed, (small body, lower high, higher high than previous bar) are we looking for the wick or actual candle body to close higher than trigger bar. I've found a fair amount of false signals when it's only the wick closing above trigger bar. Do you use anything else to filter out any possible false signals. - Rod A: We are looking at the wick which runs the full length of the candle-stick. In both the manual and videos I talk about how to identify choppy markets. This is one of the best strategies to cut down on false signals.
I would like to know what
broker you use to get the software you show on your video?
Thanks for the system and the post purchase bonus info you've
been providing. Keep up the good work especially your video
commentary. I haven't gone live with the system yet but it does
look promising. My questions are:
Q1- Let us assume on a 60 min chart that a trend has been
happening and we're seeing say 15 histogram bars in the
direction of the trend. A setup bar has occurred around the 9th
histogram bar but a break through hasn't occurred for that setup
bar. Another setup bar is plotted on the 15th histogram bar of
the trend. Now do we enter a trade so late in the trend given
the confirmed setup bar despite the age of the trend? So in
general how many histogram bars after the 5 initial trend
indicating bars, are still good for taking trades when a setup
bar is plotted? In other words can we say a setup bar is valid
if it occurs between the the 5th and the "Nth" histogram bar,
otherwise it may be too late and risky to take a trade and one
should wait for the next trend to develop. -David
A: It is hard to answer your question without knowing how far the trend actually moved. You mentioned it was going on for 15 bars, but what is more important, how many pips did the trend already move. I have talked about this elsewhere but if the market has run say 200 pips very quickly then you need to use a bit of common sense and not jump in for the first time. Don't forget too, there will always be new trades setting up. Q: Should I look at the daily and weekly charts to make sure I am trading with the trend? A: In theory it makes total sense to trade with the bigger trend, but let me explain how this is often counter-productive. This program is primarily designed to capture shorter term trends that last a few hours to a day. It uses the MACD as a means to determine short term trend and momentum. That's all we need to catch some great trades in their early stages. Also remember that the short term trend gives birth to the longer term trend. There are 2 reasons I discourage traders from looking at the bigger trend. 1.. It makes things more complicated as you have yet another thing to gel. 2. Trading with the daily and weekly trend can be dangerous for the day trader. Here's why... When a trader thinks they are going with the big trend it can give them a false sense of security. They get so focused on the big picture that they forget that intra-day the market could move 200 pips against the overall trend. In the big scheme of things 200 pips is nothing, but as a day-trader that is a huge move. The bottom-line is that they think that because they are going with the trend nothing can go wrong. Many times what happens is that they get into a losing position and keep letting it go farther and farther against them as they cling to the idea that it will turn around because they are trading with the trend.
Q: I'm finding that I see
an awful lot of setups way after they're tradable...:-((
With a bunch of different pairs
and a bunch of different time frames, that's NOT surprising..
The question is.. In your
experience, what timeframe/currency pair have you found to be
most productive in terms of trades and profits?
A: There are 4 causes of seeing trades too late. 1. Inexperience - This can easily be overcome by spending time at your PC. After awhile these setups will jump out at you and spotting them will become second nature. 2. Charting Software - Most free charting software that comes through your broker doesn't have the capability of placing multiple charts in one window. This really slows the ability to see the setups as it takes time to jump from chart to chart. In my Trade Station software I can place 4, 6 8 or more charts on my screen at a time. This helps me to rapidly scan multiple currencies and time frames. 3. Lack of focus - If you have a lot of distractions in your trading area, it can cause you to easily miss setups. Some examples of this would be having the TV on, the dog jumping all over you, the telephone ringing etc... 4. Making things more complicated - What I mean by this is trying to incorporate indicators and strategies not taught in your manual. I see this happen all the time and only ends up back-firing on traders. In answer to the best time frame/currency pair. Stick to the major pairs with 3 pip spreads. There isn't one "Holy Grail" time frame to trade. The market is forever changing and sometimes the best trades could setup on a 15 minute chart and without warning that market gets choppy. Other times the 30 or 60 minute could produce the best trades. As a rule of thumb, if the time frame you are looking at looks choppy, then don't trade it!!! Please see your manual as I have a video that talks about this. Q: I really appreciate your FAQ's and videos you send. One question I have is how you handle the potentially volatile news both in the European and U.S. sessions regarding your system. - William A: I don't worry about news as often it is what provides the necessary volatility in the markets. Without volatility there is little movement and less chance to make some bigger trades. Another reason you can't worry about news too much is because we can't control when it comes out of nowhere. For example say you are in a trade and war breaks out or another 9/11 type event occurs. Those type of events thankfully are very, very rare, but the bottom-line is we have no control or advanced warning over unforeseen events. The only thing we can control is to place protective stops to minimize our losses. Also don't forget that really good unforeseen news can cause losses for you if you are trading in the wrong direction. One last thing to remember is that there will be times you are in a trade and news hits the markets that may quickly add another few hundred pips to your profit level. Many traders only think of unexpected news as a source of losses. Another reason I am not over-concerned about news is that my strategy is based on technical analysis patterns only. Many newer traders think that watching the news is very important. On the surface that would seem to make sense. The problem lies in the fact that there are can be hundreds of new economic and political news stories coming out around the clock. With that many it is easy to get information overload and totally become totally paranoid about ever entering a trade. Q: When is the best time to trade? A: Anytime there is a setup. The forex markets basically trade around the clock and unless you live on a diet of coffee, you can't watch it all the time. Sure you will miss a lot of trades when you are not at your PC, but don't worry as the only thing that matters is catching a good trade while you are watching. By watching a few currency pairs and a few time frames like the 15, 30 and 60 minute charts you will more often than not find a trade setup regardless of what time of the day/night it is.
Q: When I turned computer on this am. there were already 15 bars below 0 then 4 above then 2 below. I Was very hesitant to make a sell order for fear that I was too late getting into this downturn. I went ahead and things worked out. In general, would it be better to wait for a new trend when you have this many bars(17) in one direction or does this just reinforce your odds to be successful in your trade? Also, if the setup candle is not short, but the price keeps trending do you keep waiting for a short candle or do you go ahead and get in? - Rich A: To keep things simple, just remember that you can't take a long trade until you have had 5 consecutive MACD bars above zero and you shouldn't think about going short until you have 5 consecutive MACD bars below zero. So in the example you mentioned you could keep shorting the market as you never had 5 above. One caveat: You need to use a bit of common sense. If the markets has been going down 200 pips and you haven't entered a short trade yet, then you may want to stand aside. This is because the markets don't keep going forever in one direction. After a large and rapid move in one direction they will tend to retrace in the opposite direction or go sideways for a lengthy time. One other point of clarification... Say you have had 5 or more MACD bars above zero. You would obviously now only be looking for buy setups only. Lets say that you the have 2 bars below zero, you don't need to get 5 bars above zero again before you can look for another buy setup. This is because as I said above, once you have 5 MACD bars above zero, you don't look for short setups until you have 5 below zero.In answer to your question regarding "short candles". Because we base our entry and stop loss levels off of our setup bar the length is very important. For example if the bar is 40 pips in length then you are going to have a sizeable risk involved. For some of you, that is ok, but for others the risk would be too big and you would need to pass on that setup. Q: Greetings Jeff, I have reviewed the manual and videos. It does seem advantageous for new people like myself who want to start the process of trading without being overwhelmed by learning conventional analysis. Especially when we want to be as certain as possible without being hindered by the analysis itself.
If for example (as in trade #4 in the manual), I am viewing a
30 minute chart having five upper histograms, indicating a
probable buy-pattern trend. I then spot a set-up bar (higher
high and higher low, 50% body), which is four bars or 2
hours "before" the current time-bar. The current time
bar actually has a lower high and a lower low (and it may or may
not have a 50% body) to the previous bar.
My questions are:
Can I still trade with the current-bar price, which is not
a set-up bar, on the basis of the true set-up bar that had
happened four bars before the current time-bar?
I am having the idea that it's a still a good decision because the trend can go up since all the indicators already converged two hours earlier?- Does a trade need, or is it better, to be based on the current (or last) time frame? A: I prefer the setup to fall on the 5th MACD histogram line above zero or later. The example you are giving has the actual setup on the 4th bar. This is rushing the setup and you could get caught in a choppy market. Of course there will always be exceptions to this and you will have some great trades if the setup occurs on bar 4. Just realize by entering sooner then recommended you are being more aggressive. If you are comfortable with the system and making money then you can be a bit more aggressive. Just don't enter any earlier than on the 4th MACD histogram line above zero. Q: Do we just have to just wait for +/- 100 histogram bars even though they don't appear to happen very often? Also - Is there a chart system that shows a zero-line reference you can direct me to? A: Don't get hung up on the +/- 100 histogram bars because a lot of software programs don't let you get good readings. The main reason I put that in there is as a means to milk a trade you are already in. For example is you are long in the market, the MACD may dip below zero ever so slightly. This could be due to slight choppiness in the market. Any reading of less than (- 100) indicates very little downward strength and therefore you would just stay in your long position. If you can't see the MACD readings clearly for the exit strategy just mentioned, just use one of the other exit techniques outlined in the program. Q: I want to do Day Trading only. Should I use 15 minute or 30 minute charts? Is the MACD method more effective on 30 minute charts? A: You can use the 15 minute up to 240 minute charts for day trading. If the market is really smooth you can look at the 5, 8 or 10 minute charts. Unless you are really experienced don't mess with charts less than 5 minutes.(can lead to over-trading) The MACD works equally well on all recommended time frames. Q: What is the logic behind the need for the set up bar to have a body which is less than 50% of the total length? A: The logic is based on observing the candle-stick pattern happen over and over again for the past 15 years. I just kept seeing explosive moves follow the bar. Not to sound like a wise-guy, but as long as I make money I really don't care what the logic is. Remember, the markets trade on fear, greed and emotions, not logic. If it only worked on logic then we could win on every trade. Let me give you a prime example of how 'yours truly' missed out on a lot of money trying to be logical. After I had been trading for 2 years I had the good fortune of becoming friends with a professional Bond and S&P 500 day-trader. He told me that I could meet him at his office and watch him trade and if I wanted take the same trades. I was really excited and thrilled that I could make some money off of what he was doing. Well guess what? Every time he said he said he was getting in, I would ask for his reason and even after he explained, I would ask if he was still sure. I would also wait and wait for more and more confirmation and before I knew it, it was too late to jump in. When the dust settled at the end of the day he made $2400 and I made zip. The bottom-line is that I second-guessed a pro and tried to figure out everything logically. Want to know one of this traders secrets? He didn't over-analyze and wait for things to be perfect. When the setup looked good enough, he just jumped in. This wasn't a fluke as I saw his account statements over the years. Q: Why should we have 5 histogram bars to confirm the trend? What is so magical about the number 5? A: The 5 is the minimum amount of bars needed to show a strong enough indication of which way the trend is leaning towards. Any less than 5 and you will be jumping the gun too much. Any more that 5 and you may be getting in too late. One again the 5 is based on thousands of hours spent looking at charts. Q: Part 1 - In your e-book, page 27, Trade #9, on far right side of chart, MACD histogram still showing extreme negative status below zero line as price is rising after large decline(2 large red candles), question is, how can I avoid staying in this "short" trade with histogram well below zero line while price is moving up against me, as in this chart and example? Part - 2 Can one use the length of histogram bars to judge momentum of a movement? If so, how can one use this info to enter/exit a trade sooner for greater profits and less risk of loss or a divergence reading as in chart example above? A: Part 1 - The way you avoid it is to decide on your money management plan ahead of time. If for example you decided you were going to exit when you bit a big number target then it is possible that you may have gotten out before the market rallied back up. If you are aiming to really milk the trade and decided to use "wait until 2 bars go above the zero line" to exit, then you just have to accept that you could possibly give some of the profits back. However... You need to realize that the market stair-steps up and down. It never moves in a straight line. For this reason you just need to relax and give the trade some time to work itself out. One of the biggest mistakes I see traders is making is getting way too nervous the minute the market takes away some of their profits. As a result they panic and pull the plug on the trade. The next thing they know the trade went another 50 pips. Another thing you can do... Say for example you are up 40 pips. You could tell yourself that you are not willing to walk away with less than 30 pips so you just tighten up your trailing stop. A: Part 2 - Don't try reading too much into the histogram bars as you can faked out of a lot of trades. Once again, just applying good money management is all you need. Also you need to apply discipline to apply your money management rules. The bottom-line is that there is no perfect way to exit a trade except using 20.20 hindsight. I know it is tempting to want to really gain a deeper meaning into the MACD, but as I already mentioned the markets don't move on pure logic and that is why you don't want to read too much into it. Here is some great feedback from a fellow course member regarding the MACD: "I have traded for 6 years but frankly your use of the histogram was the most enlightening from all the technical books and magazines, etc. I have encountered on the simplicity and practical use of the histogram." Congratulations, Clifford Pages, Ph.D.
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