The three unchanging laws of market movement

[James]

For the benefit of those who do not read my Team Forex thread (this was posted there)...

There are three things which are certainties in trading:

1. The market moves in waves.

2. Wave tops bottoms are governed by the universal laws of the Golden Ratio Phi. It is therefore possible to identify where the peaks troughs will form.

3. The absolute wave frequency amplitude will vary but the golden ratio(s) do not.

That is why it is possible to profit trading peak to trough or vice versa in any market volatility direction whereas following moving averages (for example) will let you down in low volatility markets.

The chart shows yet another "golden" moment at 1.7985 when cable hit Phi.

[amarnath]

Hi James

can you please further explain / point out a free link to learn more about Golden ratio phi how to apply to charts. Also i tks for good informative threads along charts

[James]

The golden ratio is 0.618

SQRT 0.618 = 0.786

SQR 0.618 = 0.382

0.618/0.382 = 1.618

0.618*0.382 = 0.236


There is more but I will have to look it up. In fact there is lots more - a whole universe full of it.

Try looking up some books at Amazon - search Fibonacci - there are a few good .

Free links? sorry but I don't know any. I prefer to pay for own hard copies of everything for my dusty ole library

[TrendlineBreak]

Hi James

Have looked at these numbers in the past with interest but could never work out where to draw the high low when you approach a level do you say - its going to push through or its going to bounce off.

Couldn't you equally have started the high at the peak before which would have changed the levels.

Whats your guide to how far to go back for the 100% 0% base lines.

[James]

A lot comes an experienced eye. However it is soon learned. Try drawing them different places try not to focus on the small moves look for daily 4 hourly significant moves to draw .

Then once you have the fibs determine a general direction (this is probably least important) then look for evidence of reversal into your preferred direction off the fibs. The key is to find evidence of reversal such as spikes doji's tweezers engulfing cles.

Fibs are especially important when they coincide with other fibs SR lines Bollingers T/L's etc.

[James]

To briefly add:

Exiting a profitable trade is more difficult than entering one. I try to trail my stops under or above the nearest signnificant fractal. Once stopped out for a profit look to re-enter in the same direction(assuming your view has not changed) on a significant counter trend move using the same principles as my previous post. If you can get oversold/bought hourly conditions again before entering even better.

This is my trading strategy in a nutshell I have used it for 5 years. I only came unstuck when I tried to change my thinking become smarter than the market.

This is very important: using averaging tools such as MA's stochastics RSI etc etc will work fly well in times of high volatility large swings but in a low volatility incrementally trending market you will get wiped out. My systems work in all market conditions. The only thing I have added recently is the observation of reversal type cles to signal an entry rather than blindly entering on important levels.

[forex1]

Originally posted by James
The only thing I have added recently is the observation of reversal type cles to signal an entry rather than blindly entering on important levels.

James
On which charts do you look for find the reversal type cles to be most reliable - 1hour 4hour daily or a combination?

then once the reversal pattern is formed - where do you enter the trade where do you put the initial stop loss?

Maybe you can use the GBPUSD example mentioned above to illustrate the reversal pattern that made up your mind entry point initial stop loss maybe profit target.

Many thanks!

[James]

I look for them on 4hr charts. Daily are reliable but too slow hourly can have a lot of false signals. Once formed against a technical level I enter on the 4 hour rollover. Stops 10-15 pips under/above the reversal cle. I sold GBP at 3PM EST on October 8 at 1.7940 stops above the 618 fib at 1.8000.

Another example: Just bought EUR/JPY at 135.30 stop 135.00 target open. 135.20/30 is the confluence of two fibs previous resistance