Swing Saily System
is based on support and resistence with pattern of price.
Time Frame daily.
Currency pairs: any.
Support/Resistance levels
may be horizontal on a chart, but they also may follow a trend and
move up or down as the trend does. To clarify this let’s look at
some charts.
Looking at the chart
above, the top line indicates the resistance level. These are easy to
spot because they tend to be a level on the chart where whenever the
currency pair hits it, the pair immediately turns around and starts
declining. In the screenshot shown, the currency pair actually broke
out above the resistance level for a time (likely triggered by a news
event), and then dropped back down below it a couple of hours later.
The bottom line indicates support levels. This is the price point
where the currency pair tends to hit and then immediately turns
around and start to climb again. With many charts, the
support/resistance levels will be horizontal across the chart, but
they don’t have to be. In a strong up trend or down trend the
levels can also move with the currency pair:
In the screenshot above
the currency pair is in a strong down trend. From the steady decline,
the resistance level is also declining with the currency pair. There
are still definite points where the currency pair touches the
resistance level and immediately retraces, but in this case each time
the price point of the resistance level is lower than the time
before.
Straight Bars
The next thing you need
to be able clearly identify is what I like to call a straight bar.
You may also hear these referred to as pin bars. The basic idea here
is a single bar where the open and close prices are close to the same
point. There are two types of straight bars. There are bullish bars
where the price opened and closed above the midpoint of the bar, and
there are bearish bars where the open and close points are below the
midpoint of the bar. Straight bars look like this:
It’s important to note
that they may not always be as straight as shown above. As long as
the price has opened and closed above the midpoint or below the
midpoint it can be considered a straight bar. In other words, they
may also look like this:
These types of bars, when
used in conjunction with a support/resistance level can be excellent
indicators that a reversal is about to take place. If we have a
bearish straight bar that coincides with a resistance level it gives
us an indicator to sell. In the case of a bullish straight bar that
has also reached a support level, we get a buy indicator. This simple
system is an excellent way to take advantage of swings (and/or
reversals) in price of any currency pair.
In the chart below, the
day has closed with a bearish straight bar. Plotting our resistance
level we can see that the currency pair has also just hit that level.
This is a clear indicator that a reversal (swing down) is about to
happen.
Entry Signals and Stops
Since we are using both bullish and bearish bars with this trading
system, and each coincides with a different type of trade, let’s
look at both long trade signals and short trade signals. The rules
are basically the same for entry, just backwards for each type of
trade (long or short). Long Trade Signals To get a long trade signal,
three things must occur: 1. On the chart the previous day’s close
resulted in a bullish straight bar. 2. The currency has just hit a
support level. 3. The currency has been moving down for at least 3
days prior. Looking at the chart below:
The previous day closed
with a bullish straight bar. The currency has also just hit a support
level. If I could show the whole chart, this is actually a long term
support level and the currency pair has been bouncing off it for
about 2 months. Also the currency pair has been trending downwards
for about two weeks prior. This gives us an entry signal. To enter
the trade, we set an entry point using the midpoint of the straight
bar. We set out stop 5 pips back of the low point of the straight bar
(the red line shown below).
Short Trade Signals
For short trades our entry signals are the oppisite of a long trade.
We are looking for: 1. Previous Day has closed with a bearish
straight bar 2. Currency has just hit a resistance level 3. Currency
has been in an uptrend for at least 3 days prior To put it on a
chart:
In the char above, the
day has closed with a bullish straight bar. The currency has also
just hit a long term resistance level (I also could have drawn the
resistance line from the current uptrend).
Exit Rules To exit this
type of trade I prefer to use a trailing stop. My stop would be set
to trail at the same level as I originally set it. If I set a 50 pip
stop from my entry point, then I would trail my stop at 50 pips.
In the example above, the
bullish bar that gave me my entry signal is 80 pips in length. With a
stop set five points above the bar, and an entry point sat at the
midpoint that means I am risking 45 pips when my entry point is hit.
To exit this trade I simply trail my stop at 45 pips until I stop
out. Using this exit method you will sometimes be able to squeeze 500
pips out of the market in just a few days time. Other times you will
stop out the same day with a small profit, but it all works out to
move your account forward.
Long Trade Example To
begin with let’s look at some long trade examples. Just to point it
out there are actually two entry signals on the chart below. We will
focus on the first one.
Looking at the first
entry signal above, we have: • The day finished with a bullish
straight bar. • The currency has just hit a long terms support
level. • The currency had trended down for about a week. This gives
us a good buy signal so we set our entry point and out stop.
The bar that gave us the
signal is 127 pips in length. It’s midpoint (our entry point is
1.5475. From that we set our stop 127/2 = 63.5 + 5 pips back = 68.5
(or just 68) pips from our entry point. Our initial stop is set to:
1.5475 – 0.0068 = 1.5407 The price then retraces and our entry
point is hit:
In this case for two days
the currency pair starts an upward climb. With our stop trailing at
68 pips, we end up stopping out on the third day at 1.5537. Our
profit on this trade is 1.5537 – 1.5475 = 62 pips.
Short Trade Example To
look at an example of a short trade, looking at the daily chart for
the USD/JPY on the following page, we have: 1. The day closed with a
bearish straight bar. 2. The currency has been in a climb for the
prior 4 days. 3. The currency has just hit a long term resistance
level.
From that we set our
entry point for the mid-point of the bar. Our entry point is hit with
a slight retracement (#2), and then we stop out a couple of days
later (#3). Taking a closer look at how this trade went: Our entry
point is set at 119.94, and our initial stop is set to 120.28 for a
risk level of 34 pips. So we trail our stop at 34 pips.
In this case the currency
pair made a steady decline for two days straight, and we end up
stopping out at 118.23 on the third day for a profit of 119.94 –
118.23 = 1.71 or 171 pips.
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