+206 Pips+46.4% Growth 19 Trades 84.2% Wins.

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A friend at work is looking at Forex for the first time. But he has limited time so he wondered about buying a trading robot. What he really wants is some trade ideas rather than an automatic trading bot.

While I don't normally try to do trade setups as that is antithetical to Guerrilla Trading, I ventured that I could throw out a daily trade idea or some such thing.

There is more thought behind this than I am going to go into right now but here is the trade idea for the Friday Trading Day (5:00PM PDT to 1:59 PDT or 0:00 GMT to 20:59 GMT):

If EUR/JPY (currently at 134.50) closes on a 15 min candle below 134.10 then go short at best available quote within 5 min. Enter 134.10(+/-) Stop Loss 134.67 Target 133.10. Move stop to breakeven when positive 35 pips. If price fails in two attempts to close below 133.80 on the 15 min chart take profit immediately after second failure. Trade may be re-entered once the 133.80 barrier is broken by a close below.

Close trade at best judgment by 11:00AM PDT (19:00 GMT).

+216 Pips +51.3% Growth 22 Trades 72.7% Wins.

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-662 Pips -65.9% Growth 16 Trades 43.8% Wins.

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+206 Pips +24.1% Growth 5 Trades 100.0% Wins.

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+30 Pips +1.9% Growth 12 Trades 66.7% Wins.

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At Cub Scout Day Camp all week! Only took one trade.

+3 Pips +0.3% Growth 1 Trade 100.0% Wins.

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-200 Pips -26.0% Growth 19 Trades 52.6% Wins.

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+62 Pips +4.6% growth 27 Trades 59.30% Wins.

+250 Pips +12.4% growth 10 Trades 80.0% Wins.

-18 Pips -3.4% growth 15 Trades 66.7% Wins

-146 Pips -25.9% growth 22 Trades 50.0% Wins

Here it is

I will explain each trade shortly. but for now here is the results.

As I have my 216 pips this week, I am just looking at charts for the heck of it. I looked at a 4 hour chart, which I never use for active trading, and I saw a well formed channel. I want to ananlyse that channel and to say how it could be traded and then also what the dangers are.

First the chart:

The channel is drawn by recognizing high point A and high point B. A trend line is drawn on those two points. Then a parallel trend line is drawn starting at Point C. This can be done in real time if you are looking for it. The Bottom trend line is the ultimate target.

Unfortunately, price does not move in a straight line. Before price reaches the bottom of the channel 730 pips lower, it will drop and pullback and drop and pull back in moves of several hundred pips in each direction. An intermediate target is needed or even several targets. Rob Booker teaches (and developed I believe) targets inside the channel based on Fibonacci Retracement levels of 38.2%, 50.0%, and 61.8%. These are drawn as pink dashed lines on the chart. Rob's term for these lines is Fibbles.

Of particular note is the 50% Fibble which is the center line. Notice how price reacts at that line. When I draw channels in real time, I will look to see how precise the reaction is at the 50% Fibble between price at Point C to price at Point B. If there is clear reaction I will assume the channel is valid.

I can then take my trade going short sometime after Point B with my target being the 38.2% Fibble or the 50.0% Fibble. Note that the earliest entry for a short trade is after Point B is confirmed as a high point by a bearish close of the candle. I labeled this as "1" with the take profit point as "2".

Once inside the range bounded by the 38.2 and 61.8 Fibbles, price can go either direction unpredictably. It is not wise to enter a trade in that no mans land. Except when.....

Price drops dramatically and then pulls back. Once price has gone down far enough, then I will go short again after a significant pull back.

How do I know what "far enough" is? It is a candle closing well below the 62 EMA and in the range of the 61.8 retracement level (not the 61.8 Fibble but rather a standard horizontal retracement.)

How do I know what a "significant pullback" is? It is reaching the 50% Fibble. At the touch of the 50% Fibble I will have a trade short trade set up (a Sell Limit).

My ultimate target is the bottom of the channel. But in the first touch on the 50% Fibble I am running out of day and week as it occurs on the Thursday before Good Friday. I would close the trade. I never suggest a carry trade. (Though I carry trades on a Demo Account as part of my "What IF..." experimentation/dinking around).

On the week open, price again reaches up to touch the 50% Fibble from the bottom. Go short Baby go short!

There are problems with this analysis from hindsight though. The next chart will illustrate.


Point B1 is the high of a bearish candle. If I were watching the chart in real time, it is near the close of that candle that I can venture to draw the upper trend line and then the lower parallel trend line begins at Point C. The candle closes. I say to myself "Hey SELF!!! Look what we've got here! Its a 750 pip channel and we are near the top. SELL, SELL, SELL!!"

So I go short while simultaneously wetting my pants in excitement and anticipation.

[Now begins the alternate scenario] But then price doesn't go down. It goes up. And Up. And Up. Finally, it hits point B2. I am down 200 pips. What went wrong?

I went against the trend. Or more accurately, Point B1 wasn't the high point in the channel. Point B2 was the real high. A new channel is illustrated by the Khaki-colored dashed lines. Notice that the reaction at the 50% Fibble is still valid between Point C and Point B2. Everything that was valid in the first chart is still valid in the alternate scenario. I just chose point B prematurely.

This is a real danger in trying to spot channels in real time. What is the peak (or bottom if the trend is down) marked by point B. If I choose B correctly, then I will make a whole lot of pips. In hindsight, Point B is obvious. But often too much time has passed to take that first trade. In real time it is very, very difficult to know when a peak has just occurred.

Another problem with trading on the 4 hr chart, is that the moves good and bad can be huge. A swing of 100-150 pips against your position does not invalidate the analysis. To endure the swings of price when based upon 4 hr indicators, a stop of 200-300 pips is necessary. If you tried a stop of 50 pips, I can assure you that 90% of your trades will stop out.

A rule of thumb is, indicators in higher time frames (4 hr and higher) will be more accurate but the stops will need to be 4X greater than required in lower time frames (1 hr or less).

I don't trade based upon higher time frames. I am happy to take a trade for 17 pips. My most frequent target is 40 pips and my best trades are made in much less than 4 hours.

A New System

I have put forth a new system I call Guerrilla Trading. I will try to describe the characteristics.

It is fast and aggressive. Trades are made quickly by attempting to enter at a turn of price, or just before a breakout. While trading is most often done with the trend, it is marked by entering on a pullback. Often one trade will close and another will be opened very shortly afterward in the opposite direction. Guerrilla Trading tries to move with the market. It does not wait for a trend to be established.

Guerrilla Trading is done on a 15 minute chart. Hourly charts and 4 hr charts will be looked at frequently and particularly to confirm or check longer term trends and indicators at the higher time frames. But trading decisions are made on indicators, support/resistance levels, and other factors charted in a 15 minute time frame.

Those Nasty Stops
Stop free trading has become the norm in Guerrilla Trading. Now before you dismiss me as a raving lunatic, hear me out on this one. I was putting a 20 pip stop on every trade, only to get stopped out prematurely on otherwise successful trades. I then changed to 30 pip stops and then 40 pip stops. The results were a drop in my win percentage towards 50%. The only safe stop seemed to be 100 pips. But, I was taking all my gains at around 30-40 pips. I was usually happy with 17-20 pips. It seemed unwieldy to have such a large stop for such smaller gains.

So I dropped the stops. If I was in a trade wrong it was generally very obvious. If all the factors that caused me to enter the trade in the first place remained true, I would hold the trade to a successful conclusion. Now this is truly trading insanity. I do not recommend stop-free trading for anyone. But it works for me. Follow my trades and see how I pull it off. (or just comment and call me nuts)

The Indicators Used

Guerrilla Trading uses the following indicators:

3x3 EMA-- a 3 period Exponential moving average shifted forward 3 periods. This indicator originated from Joe DiNapoli. It is colored a red solid thin line on my charts.
62 EMA-- a 62 period Exponential Moving Average. It is used as for dynamic support and resistance. It is also a short term trend line. This average is taught by Rob Booker, my first and foremost trading hero. It is colored a blue solid thick lined on my charts.
248 EMA-- a 248 period Exponential Moving Average. This is nearly equivalent to a 62 EMA on a chart four time frames higher (15 min x 4 = 1 hour). This also is taught by Rob Booker. It is colored a gold solid thick lined on my charts.
800 SMA-- an 800 period Simple Moving Average. This is used to see longer term trends. It is also taught by Rob Booker.
Pivot Points-- These are a sets of levels (points) that pivot around the pivot point which is the average of the open price, close price, and high price from the previous day. I use the 24 hour period ending at 5 PM Eastern Standard/Daylight Time. The Pivot Point is a magenta dashed line. R1,R2, and R3 are aqua-colored short dashed lines. S1, S2, and S3 are chartreuse short dashed lines.
MACD Histogram-- A chart of the spread between the signal line and the trigger line in a MACD indicator. When the value is 0, the signal line is equal to the trigger line meaning the two are crossing. I don't trade on the MACD, but a system of trading after a peak or trough on the histogram was followed for a long time. When trading with a trend, it can give a very good signal. Such a system is the McGrew Dots.
Slow Stochastic-- I use the values put forth by Joe Dinapoli. This serves as an overbought/oversold indicator. I don't base any trades on it but I do use it in a perverse way that requires its own post and explanation.

Other Indicators and Trading Aids

Trend Lines-- These are drawn from high points in downward moving trends, and from low points on upward trends. Trendlines are drawn as they develop by looking for two distinct points. A trade can be executed when price touches (0r approaches) the trend line for a third point. Also a short stop can be placed on the other side of the trend line or a position can be taken when a price candle has closed on the counter-side of the trend line such as in a breakout trade. I draw trend lines as a red solid line. My trend lines are rays (going to the right as far as the chart extends).
Parallel Trend Lines-- These lines will contain a price range between the parallel lines and are often called channels. Rob Booker teaches a channel system that is very good in which Fibonacci levels are employed. I generally do not trade in channels so I don't draw them very often. Certain very reliable patterns, such as a flag pattern, uses parallel lines to illustrate the pattern. These are colored the same as trend lines.
Horizontal Price Level-- A line is drawn, usually dashed, to show a recent or long standing high or low. The purpose is to look for a double top or other such pattern. Also it can be used to show a breakout or continuation movement.
Fibonacci Retracement--This is perhaps the greatest single indicator to show why price movement stops and moves (the up and down undulation) at distinct levels. This requires many posts to even partially explain. Simply put, when price has made sustained and lengthy movement in one direction (the length of the trend if you will), price will retrace (retract) to the levels 23.6%, then 38.2%, then 50%, and then 61.8%. Whole books have been written concerning Fibonacci levels. Mathematically, the levels are based on geometric extrapolations of the golden ratio. [for fun: 38.2 + 61.8 = 100; .618 squared equals 38.2; .682 cubed equals 23.6] Click the links for more information.

Putting Everything Together

Guerrilla Trading uses all of the indicators described and looks for trades based upon several trading systems and signals. In its simplest form, it tries to catch movements at their start based upon support and resistance as illustrated by the charted indicators. The most common line of demarcation is the 62 EMA, and that is followed by Pivot Points and then Fibonacci Levels. Pivot Points are the most common profit target followed by Fibonacci Levels. Of course, because it is guerrilla trading, all generalities are only good as long as they are useful. The priority of the indicator or signal is dictated by the conditions of the market at the time of the trade. (Now I need to wash my mouth out after spewing such verbal gobbledygook).

Look for more later

I have made 7 trades this week for a gain of 216 pips. I have gone 7 for 7. Once I exceed 200 pips I stop trading on the live account and switch over to a demo account.

Previously, my thought was to post my trades as they were occurring but I tend to focus on the trade charts while a trade is open and active. Therefore all you get is a recount.

At the open of this week, I was a little pensive as it was coming on the heels of a narrow market due to Good Friday and the Easter holiday. I was looking for an upward bias in the Eur/Jpy.

By way of explanation, I am trading only the Eur/Jpy. Interbank FX is the broker that I use. The trading platform is MetaTrader. Click on the following 15 min. chart to enlarge.



The market opened with a big push down. 45 min later (3 candles) price closed above the 62 EMA (the blue moving average). I entered my first trade of the week as it was testing the previous closing price level. The trade entry point is illustrate with a green arrow. The trade soon turned south. The next candle closed above the 62 EMA, so I stayed with the trade. Had it closed below the 62 EMA I would have considered closing the trade at a loss. Notice that at one point I was down 32 pips. My target was a few pips shy of the Pivot Point (shown as the magenta dashed line in the above chart). I really like using pivot points--including Resistance and Support Points-- for my profit targets. This currency pairs seems to respect them consistently. The 1st Trade was successful for 40 pips.

I followed the charts off and on while the family watched The Ten Commandments on DVD. A bearish divergence pattern developed. This is shown on the chart with the khaki-colored trend lines. The trend line is measured on the price chart covering three successively higher points. The divergent trend line is shown on the MACD Histogram where each associated point is progressively lower. As price had been gone up for over 200 pips in 5+ hours, I was of the opinion that a reversal was in order. So my 2nd trade was to go short once two candles had closed down after the peak.

I was almost immediately in the hole and the prospects did not look well. Yet I held on because I was convinced that a reversal was imminent. I had no stop placed and I was willing to go down 80 pips or so. I was in fact tested at -79 pips, yet I chose to hang on. The Tokyo market was about to open and I wanted to see what happened. When price pulled back five minutes or so before the Tokyo open, I entered my 3rd trade going short.

Price fell dramatically at Tokyo open and I set profit targets on both trades to a level I felt would safely be reached which was near the 62 EMA. The trades soon hit their targets. The 2nd trade resulted in a gain of +10 pips and the 3rd trade yielded +60 pips.

The next set of trades is illustrated in the following chart.


Note that Fibonacci Retracement levels have been drawn (the thistle-colored lines with labels 23.6, 38.2, 50.0, 61.8 and 78.6 Deep). Fibo levels help show where price will pause or react. Note that at the 23.6, 38.2 and 50.0 levels price held before continueing downward. Also at the 50.0% level it reacted and pulled back up beyond the 38.2% level.

The fourth trade was entered gong long when price had hit the 248 EMA (gold colored moving average) and held at the 50% retracement level. I entered the trade when a candle closed above the 248 EMA. The 4th trade hits its target of +30 pips fairly handily.

Waking up at about 11:30, I checked the charts to see what was happening. I was a little annoyed that I had not set a trade to go short when price hit the 62 EMA from the bottom. That is the sort of trade that has a high percent of success and can be done with a fairly tight stop loss (say 20-25 pips). Nevertheless, it was apparant that price would continue to go down. I entered the fifth trade on a inner candle pullback (my own term for price action within the candle where price has gone to a high or low extreme and then pulls back before returning in the same direction of the extreme). I set a stop of 27 pips (10 or so pips above the 248 EMA) and a target of 60 pips to the support level S1 (the chartreuse colored short-dashed line). The 5th trade made its target of +60 pips while I slept.

The sixth trade was a bit risky. I got up Tuesday morning to note the big drop in price overnight of over 100 pips. The 62 EMA had crossed the 248 EMA going down and my belief of a reversal being in effect from the high just before 12:00 AM GMT and also the bearish diviergence pattern noted earlier. As much as anything else though, I have noted that in my time zone PDT, price continues in the established direction during the morning hours most generally. I needed 20 pips more to make 200 pips for the week. So I went short.

Price ranged for 30 pips or so up and down. After observing the range, I entered a seventh trade going short when I was -32 pips on the sixth trade. I changed my targets to be identical on both trades. The 6th trade closed at the target of +4 pips. The 7th trade gained +32 pips.

If you ever see price ranging 30-40 pips on successive candles, you can trade short and long for a couple of cylces. Note the range and close any trades at a loss if a candle closes outside the range. This pattern happens about once a week on the EUR/JPY but there is no advance indication. You know it when you see it and you trade it then. In this instance I started out short at the bottom of the range and I watched until I could grab it at the top of the range.

Bottom line: +216 pips in 2 days of trading. The report of my trades is shown below. Note that I don't like the native reports generated by MetaTrader, so I import the data into a spread sheet so I can add better analytics (such as average gain, average loss, return for the week, etc.). Just click on the expand arrow in the upper-right corner of the Adobe widget to see the document in full. The name is x'd out but all other parts are actual.