- Personal Finance
The Profitable Clean Chart in Forex Trading
To be profitable in trading is something difficult, but I am sure there are traders that have gained profit everyday. They have acquired consistency in their methods & profits. So, is there any strategy or method that make us go into the right path in order to learn trading better?
Here, I want to share with you my method of how to help you to be a better trader. Actually, this method of trading has been used by many successful trader out there and they usually named with naked trading. Yes my method that I want to share more or less is the same and I want you to use this method too, because this kind of method will help you a lot in your trading.
Instead of "naked trading", I will use the term "clean chart". What is a clean chart? It is a simple clean chart without any indicators. You have to trade based on the trend and price action only.
Before dig down deeper to the clean chart topic, I will talk a little bit about patience because it is so important in trading. After years of trading, myself, learned that patience is one of the key parts in profitable trading. Without it you will only stuck in the market and making one profit for another loss. If you have mastered the patience you can override the greedy trading, prevent you from choppy trading, staying calm when you suffered from losses, and many positive trading attitudes.
We will need patience to trade this clean chart because as we know, the market often to be choppy. Many traders did not have the patience to wait for the entry setup to presents itself. The majority of us always want to make money as fast as we can regardless the condition of the markets. This become worst after we encountered losses because we want to gained our money back.
The patience for me is to be able not to trade everyday, maybe three times a month or so just to wait for a clear entry. How do we find a clear entry? Just wait the market is neat not choppy, the price must be trending, and the entry is easy to spot. If you can not see the clear entry, just don't trade it.
Now look at the picture bellow. Maybe many of you who read this still using this kind of noddle method right? To many indicators will help you drain your profit, believe me. I'm sure you can not answer my question when I ask: why you use simple moving average rather than exponential? why you use stochastic with setting %K: 5 %D: 3? The point is that if you do not know why you use them, don't use them.
Compare to the picture above, this kind of clean chart is much more better. You can easily know the overall trend, the high & low points, and the entry points. We know that the market only making a nice movement for about 20%, that is why we need patience to wait.
The basic method is to enter long at the high of the previous high and enter short at the low of the previous low. Of course you must know the overall trend.
To make it more understandable, I will provide you with examples of how we would enter trades based on the clean chart. Take a look at the pictures bellow.
Lets look at the chart, in trade example 1. Trading this kind of clear chart will generate you a good amount of profit. You just have to trade on breakouts, in this case you just wait for a breakout followed by a pullback and place a stop order after the price retrace from its pullback. The red line is the support that has been broken and became resistance, and the opposite. This kind of trading is very relaxing, not stressful because your entry is very easy to spot.
The key is you just buy when the market is bullish, and you just sell when the market is bearish. In trade example 2, the market is clear and you can easily spot the high and the low points to enter. Forget all the complicated indicators that you use right now.
This kind of chart can be found on every time frame from the lowest to the higher time frame. I do prefer the higher time frame, anything more than 4 hour chart is very good. Just a tips, when you trading higher time frame, you will filter a lot of noises and moreover it will give you more time to think and adjust your position. If you trading lower time frame such as 5 minutes you will get so many fake breakouts and you have to spend a lot of your time in front of your monitor.
At this point maybe some of you are still unclear. Ok, to make it more detail I will explain the steps for trading this method. Although not all our entry will be resulted in profit but surely it will increase your probability of generating more profit than loss.
First, you have to find the initial breakout.
What is that? It is the first breakout that made the price reversed, the catalyst of a trend. A good strong trending market usually starts with a reversal breakout pattern.
Looking at the chart above (Initial Breakout 1), the blue area in this chart is the initial breakout. It formed a double top pattern then break lower and make a good bearish trend.
Take another look at the chart bellow.
The blue area shows the reversal breakout that leads into a good bullish trending movement. We must understand that not all the initial reversal breakout will generates a trend, but this is Forex, all we have to do is just try to filter our entry.
Second, you have to wait the price to make a minor retrace or a pullback.
Minor retrace means a pullback that is not break the previous support if you bullish and not break the previous resistance if you bearish.
Lets take a look the picture bellow.
The blue area is the reversal breakout followed by a nice bullish trend. The support line is the red line. We can see clearly that after a breakout at green line, the price has managed to move lower / retrace (yellow line) but it did not break the support line (red line). This is a good example of how it is the minor pullback and a good sign that the buyer is stronger than the seller.
Ok, now we know the reversal breakout and the minor retrace/pullback, now what?
The third is to set your entry point.
To enter the market is just simple, place your buy stop order at the recent high (if you bullish) and place sell stop at the most recent low (if you bearish). In other words, you just trade a simple breakout.
Entry Example 1
The chart on the right is the entry example. After the reversal breakout was formed (blue area), the price made a minor retrace (yellow line) and did not break the support at red line. We can be sure that the price will likely to going up, so that we placed buy stop order at the recent high at green line, and yes it goes up.
Entry Example 2
Point A is the initial breakout, it is a big bullish bar or we can called it bullish engulfing pattern. The up movement take a break in point B and it makes a minor retrace (pullback). You see that the pullback is not able to go lower than the point A, we can be sure that this is a support area (point C). After determining these three points now we can set our buy stop at the high of point B, we enter long at point D.
In life, everything should be made simple but effective. So as in our trading activity. One of the best ways to get this is to trade as simple as we can but more profitable. Just throw your indicators away and start to trade with a clean chart.
In this article examples, those are looked easy, but in real trading it will not. Even though this method is simple, but we have to practice a lot to understand it. Try to be patience to wait for a clear setup is the key.
I hope this article will help you to understand and trade the market better. Please note that in Forex there is no guarantee that every trade will be profit, all we can do is filtering our trades.