NickB method-Knowing When To Stay Out

http://www.forex4noobs.com/education/nickb-donttrade.php

A good traders not only know when to enter the market they also know when to stay out. One of the biggest problems for newbies is not knowing when to stay out of the market. They feel compelled to be in a trade every single day. I know this because I have been there and I see it in traders I speak to every day. They jump in a trade to quell that compulsion, they lose, and then surprisingly they are shocked that they lost. Trading Forex is about making profit not about taking as many trades as possible. Some days, some weeks even are just not good times to trade and you should not be in the market. So let’s go through some of the times you should stay out of the market.

Economic Releases (ER’s): I stay out during certain economic releases. Generally speaking it is only during highly volatile ones for the pair I am trading and USD releases. So if I am trading GBP/JPY I will steer clear of trading during major GBP releases, major JPY releases, and major USD releases. On the 4hr charts most ER’s not very significant. They might push the market 10 or 20 pips in one direction but with a 50 pip stop more often the position is safe. However major news releases have the ability to move the market fifty, one hundred, or even a few hundred pips. So when a major news release is close I usually jump out of or do not enter trades. You can see news releases for the coming weeks here. The ones to steer clear of are the red USD reports and the RED reports for the pair I am trading. So for GBP/JPY any red GBP or JPY reports.

Important Speeches: What happens when there is an important speech is traders around the world flick on Bloomberg and listen intently much like pigeons waiting for scraps of food. As soon as the speech giver gives their thoughts on the economy (even accidently) traders start taking shorts or longs and the market goes crazy. If what they hear is good they buy if it’s bad they sell. Often times after they hear something good they hear something bad and the currency flies up and then plummets all in the space of a few min. To be honest I am making it sound a little crazier than it is, very few speeches are actually like this. The speech givers are usually pretty careful about what they say but if they do slip up and say something prices can fly in all directions.

For me it is just a whole lot safer to stay out during important speeches. But what are important speeches? Well I only really care about speeches from central bank leaders. America’s central bank leader Ben Bernanke is a dangerous man, a few wrong words out of his mouth can have a major impact on the USD and many other currencies along with it. The British CB leader Mervyn King can do the same especially with the GBP. I also watch out for Jean-Claude Trichet’s ramblings as they can affect the Euro and other currencies along with it. So in short when one of these three men are up on the podium I do not enter any trades.

You can sometimes catch speeches live on Bloomberg TV which is available free online here. To see what speeches are coming up I use the ForexFactory calendar found here.

Range Bound Periods: Sometimes a currency pair will fall into a tightly ranging period. A tightly ranging period is when the currency pair moves far below its ADR and seems to be stuck between two points. Earlier I gave you the ADR of GBP/JPY as 281 pips, in the image below we see GBP/JPY bouncing between two lines about 120 pips apart.



At times like this I tend to saty out of the market. When the currency pair picks up again and starts trading at it’s ADR I will get back into the market. Sometimes I may enter but if I do my targets will certainly be much lower.

NickB-Tailoring Targets & Stops to Market Conditions

http://www.forex4noobs.com/education/nickb-tailoredstops.php

Gauge Market Conditions

There are a few things you should consider when judging how much profit you should aim for on a trade. 95% of the time you should just go for your normal S+R line target discussed above. However your targets should sometimes change depending on market conditions. In a very fast trending market your targets should be much higher. In a very slow ranging market your targets should obviously be much lower. How do you know if a market is moving fast or slow?

Slow: A slow market is usually a ranging market. You can tell the pair is moving slowly when it is moving far below its ADR. So on GBP/JPY with an ADR of 286 if the market is ranging 150 pips I would call it slow moving

Normal: 95% of the time the market will just be in normal conditions. When the market is moving at or near its average daily range it is a normal market.

Volatile: A volatile market is usually a strong trending market. You can tell the pair is volatile when it’s moving far above its ADR. Again using GBP/JPY as an example ADR is 280 if the market is moving 350 pips it is fast moving.

Holding a 70 pip target and stop in a very fast moving market is not a good idea. The price is moving much faster than normal so a normal target and stop will not be as effective. So when market conditions change you need to change your targets and stops.

Picking Targets For Market Conditions

Again I have a little equation that makes all this stuff very simple. To pick your targets for a slow moving market you just take the ADR and divide it by 5. This is exactly the same as figuring out your scalp line targets. Using GBP/JPY as an example:

GBP/JPY ADR = 281 pips
281 / 5 = 56.2
GBP/JPY Slow moving market target/stop = 55 pips

To pick your targets for a volatile market you take the ADR and divide it by 3. Again using GBP/JPY as an example:

GBP/JPY ADR = 281 pips
281 /3 = 93.6
GBP/JPY Volatile market target/stop = 95 pips

That is all you have to do. Now whenever you notice the market is moving far above it’s ADR you use your volatile market target if it is moving far below you use your slow market target. As always these may need refining with time but they are a great starting point.

NickB method-Stop Losses

http://www.forex4noobs.com/education/nickb-stops.php

Risk Reward Ratio

When people first start trading the Forex markets they are inundated with information from self proclaimed trading gurus. If you have been around Forex4Noobs for a while you probably know I believe 90% of these trading gurus are failed traders and 99% of what they is usless. Theyll tell you whatever sounds good so they can get into your pockets. One of the most consistently told lies is that your stops should always be half of your take profit. Whenever I hear this I have to laugh, it is just so completley ridiculous, if you actually think about it for a moment it makes little sense. If you are planning to lose 50% of your trades your then yes it makes sense and yes your stop loss should be 1/2 your take profit. I don’t know about you but I certainly do not plan to lost 50% of my trades I plane to win 80% and statistically I do.

Look at a pair like GBP/JPY which moves 280 pips per day on average. Who in their right mind would hold a 35 pip stop on this pair? I know that routinely on my trades GBP/JPY moves 40 or more pips against me before going in my direction. If I had my stop loss at 35 pips I would lose a lot more of my trades. In fact had I listened to these trading gurus who say your stop must be half your take profit I would probably not be a trader today. So if that little lie is planted somewhere in your head get rid of it now because it is not going to help you.

Calculating Stops

My stops are the same as my take profits. So on GBP/JPY with a 70 pip TP I have a 70 pip SL on S+R line trades. On scalps with a 50 pip TP I have a 50 pip SL. For any other pair you might want to trade just use the formula discussed earlier to calculate your take profit/stop loss.

NickB method-Spotting and Taking Reversal Trades

http://www.forex4noobs.com/education/nickb-tradingreversals.php

Reversals are something I rarely discuss because I do not trade them much. They are however a large part of my method so I will explain them here. Trading reversals is simpler than you might think. All you are doing is using candle patterns such as LWP’s and S+R or Scalp lines togather.

What Reversals Look like

So far in this book I have explained how you can take line break trades based on S+R lines and I have also gone over some important reversal patterns. We already know that a S+R line is a barrier at which the price is going to have trouble breaking through. We also know that LWP’s and GP’s indicate possible reversals. If you look at the chart below you can see highlighted a S+R line and an LWP forming on top of it. This is what you should be looking for to enter a reversal trade, it really is that simple!



This next example is slightly different but it still counts as a reversal trade. If you traded the line break on this one it would not have worked out and that happens trades do fail. However now that an LWP has formed on the line you can trade the reversal and hopefully make some pips back.



When an LWP forms on, near or past a line it indicates that the line is strong and that the price can not sustain itself at that level. This is a very clear indication that the price will probably reverse.

Trading A Reversal

Now that you know what too look for you need to know how to trade it, this is the harder part. You will first spot this pattern after the reversal candle closes. It will probably look a little something like this. You have the LWP’s preceeding trend, the LWP’s reversal and the S+R line.



At this point you should be thinking that a reversal is probably coming. You could enter here but personally I find it a little too risky. I like to find the closest applicable line or place one and use that as my entry. If there is a scalp line near by you can use that as your entry level otherwise you will need to place a temporary line. There is no exact distance I do this all by eye. In the example above there is no scalp level so I need to place a line at the nearest applicable level. As far as I can see the best level to place it at would be the low that formed two candles prior two the reversal candle.





As you can see there is now a temporary line. This line play absolutely no significance 99% of the time. It is only important when entering a reversal. This is because I like to see it break something no matter how insignificant to confirm it is an actual reversal. I know it sounds a little crazy but this is the safest way I have found so far.

So now the only thing left to do is wait for that line to be broken and enter the trade. I target 60 pips on the full position on a trade like this one. As for the entry itself you should be looking it at the same way you would a S+R line.

Reversal Trade Targets

You should target the same amount of pips you would on an S+R line. That target can however be refined, I target 60 pips on GBP/JPY reversals as opposed to the 70 pips I target on S+R line trades. I target 60 pips on the full position I do not close out half and move my stop to break even with reversal trades. If you are trading a new pair it is best to start by targeting the same you would on an S+R line and refine the target from there.

NickB method-Trading Scalp Lines

http://www.forex4noobs.com/education/nickb-tradingscalplines.php

When To Enter Scalp Line Breaks

Scalp lines are much simpler to enter. However it is still not just a case of entering instantly on a line break. You should still take momentum into account in much the same way you would for a S+R line break. I am not going to explain momentum again since it is the same in application to scalps as it is to S+R lines so the explanation is on page 20.

Beyond this there isn’t much to write about entering a scalp line trade. All it takes is a little practice, just keep candle momentum in mind.

Picking Scalp Targets

You can also use a simple equation to pick your scalp line targets. Everything is pretty much the same except for scalps you divide by 5. Again you will probably need to tweak the target slightly over time, but dividing the ADR by 4 gives you a good starting point. Here is an example:

GBP/JPY ADR = 281 pips
281 / 5 = 56.2
GBP/JPY SCALP line target = 55 pips

In reality I use a 50 pip target for my GBP/JPY scalps but this gets you very close. I have tried it on 10 different pairs now and every time it has given me a good target to start with.

How Long Do Scalp Lines Last

I would not want a normal scalp line on my chart for any longer than 1 month. If it is a very strong scalp line I may keep it on my chart for up to 2 months. A strong scalp has to have rejected a major trend or even possibly a medium strength trande but had two or more bounces. 90% of scalp lines would not be left on my chart longer than 1 month if they are not broken.

If a scalp line is broken it should be removed immediately. I only ever use a single scalp line one time and them I remove it.

NickB method-How To Trade S+R Lines

http://www.forex4noobs.com/education/nickb-srline-positions.php

Depending on your account size and weekly goals you can trade S+R lines a few different ways.

Close Full Position At Target: The simplest way to handle the trade is to set a target of 70 pips and close out the full position once the target is reached. The 70 pip target is always 70 pips from the S+R line not from your entry. So for example if you have a S+R line on GBP/JPY at 218.00 and you are entering a long break you target 218.70. As soon as you see the candle reach the 218.70 point on your chart you close. If you enter a short at 215.00 your exit target would be 214.30. As soon as the candle hits 214.30 on the chart you exit. This is by far the easiest way to trade S+R line breaks.

Lock In And Target More: When you first enter you target 70 pips from the line just like the method above. When your target is reached you only close out half your position. You then move your stop loss to break even and try to target more with the second half. If it reverses and your stop is hit you will be stopped out at break even and lose nothing on the second half. You will have gained 70 pips on the first half of you position and 0 on the second half. If however the second half continues to move in the direction of the break that second half can make you 100-200 pips or maybe even more.

Personally I use the second method but I am beginning to phase it out. Closing the position with 70 pips is much easier and safer. After adding up the numbers it seems that the ‘lock in and target more’ way of handling trades makes about the same amount of pips as the easier ‘close full position at target’. So there really is no advantage to only closing out half and trying to target more with the second half.

NIckB method-S+R Line Targets

http://www.forex4noobs.com/education/nickb-srline-targets.php

Picking Targets

Targets vary depending on the pair you are trading. You cannot have the same target on GBP/JPY that you have on EUR/USD, because EUR/USD moves only about ½ as much. A little trick I have learned is to figure out the average daily range (ADR) of the pair and divide it by 4. This gives you an idea on what you should target on a normal S+R line trade. You will probably need to tweak the target slightly over time, but dividing the ADR by 4 gives you a general idea. To save you time I have figured out the ADR for you.

GBP/JPY ADR = 281 pips
281 / 4 = 70
GBP/JPY S+R line target = 70 pips

GBP/USD ADR = 172 pips
172 / 4 = 43
GBP/USD S+R line target = 45 pips

I’m sure you get the idea. I will let you figure out the rest of the targets for yourself.

USD/CHF ADR = 111 pips
EUR/JPY ADR = 183 pips
USD/CAD ADR = 117 pips
AUD/USD ADR = 111 pips
EUR/USD ADR = 127 pips

These are all the ADR’s I have figured out. If you want to trade any other pairs you will have to figure it out for yourself. Remember, I only trade GBP/JPY, so I cannot give you more accurate targets on other pairs. This is the best way to get a general idea. All you have to do now is tweak the target based on your observations.

Refining Targets

Once you have picked your target for a pair you apply it to your trades on that pair. If after some time you notice that the target is often not hit you lessen it. So for example above with GBP/USD we figure out based on the ADR being divided by 4 that we should target 45 pips. If when using that target you notice it is often not reached you simply lessen the target to 40 or 35 pips. If instead your target is hit and it often moves beyond it you could increase your target to 50 or 55 pips.

Keep in mind that this usually takes months of observations I do not change targets based on two or three trades. My targets on GBP/JPY have been refined by 3 years of data.