Hi there, it's Brad Gilbert here and welcome to part 4 of How Do Bankers Trade Forex? and this is all about technical analysis, identifying the entry levels in the market.
Now this is one of the key areasthat traders in the banks will sit and wait for, they will wait specifically forthose key entry levels because they are sort of characterized as low risk highprobability, why? Well when they enter the market at these levels they know therewill be a shift in momentum, okay or they are backed up by support with eitherbuying or sell orders, and this is the real mechanics of getting your trading systemcorrect.
You can have the direction right, but if you get the entry levels wrong, well then you're going to come unstuck, and there's nothing more dishearteningabout sort of, trading losing money when you know what's going on.
Alright, so payattention to this, it's very simple, now I guess you know what, this is one areawhere traders Google and it's sort of non-stop looking for answers where Iget in? They buy indicators, they buy robots, the buy all of these things but it'sthe simplicity model of support and resistance that I was trained in 1990, right and this is the way we were trained in New York, London, Sydney allover the world, except for Japan that was a little bit different, but I'll come intothat.
So this is the way traders globally are trained to what to analyze in themarkets, now once you understand your simple technical setups, and where thoseentry levels are, well then sure by all means you can overlay some moreadvanced structure on top of that, whether it's Fibonacci's, some movingaverages, and all these sorts of things but understand, right the people you seeon TV the analysts, they have like a two to three minute time slot to fill, nowwhat they do is, if they just came out and said well supports or in Euro it'sat 1 17 50 and resistances of 1 18 20 that's it, that's what the traders arefocused on.
But for that two minute time slot that's not enough, so what they dois they make it sound Hollywood okay, we've got Fibonacciretracements coming in at 1 18 20 and 10 there's support here from movingaverages and Bollinger Bands and all sorts of all sorts of crap right, sodon't get caught up into what the economists or theanalysts are talking about.
Anything that comes out of a bank, will be advertising, marketing and it will have a whole heap of jargon in there.
If you were allowedto talk to the traders at the bank's inside those teams, they willtell you straight up, we've got support here, we've got resistance there and that'sit, and that's what they focus on.
Alright, so for this section what I wantto do is break it down into a simple format, I'll give you a bit of a slidepresentation and then I'll show you using Reuters Xenith how easy it is to drawthese trend lines, and then you can sort of follow the market, now when wegenerally are drawing our technical analysis, what you're looking for you?Your not looking for any of the answers I'm just looking for, a confirmation that thetrendline is a good trendline that usually comes with say, three touchesbecause then I'll know traders will focus in on it, and what we're trying todo with technical analysis, and this is very important is, you're not trying tofind some fancy entry level that only you can see, we're looking to identify entrylevels that the whole market can see, and most importantly what the bankers arelooking at.
If you're not looking at the market the same as the bank is and wherethey enter the market, you could be working against them, you know this is allabout trading with the market right, so if you identify the key entry levelsthat the bankers are using and this is the way I'm going to show you how itworks, well then you're going to be working with the market, and your resultswill show that, okay I mean you'll have more consistent results youwon't have that sort of up down, up down, down down, up all over the place this isabout identifying the best trading opportunities not just a tradingopportunity the best, and then once you know how to do that then you can reallyisolate the really great trades where you've got sentiment bias and then agorgeous entry level that sticks out like a sore thumb, all right.
Now let metake you through the slides and I'll come back and explain some more as we go through Xenith, okay, the part of the market that most traders get wrong right it'ssimple and what they usually do is that overcomplicate, now how do they do that?Well it's actually quite simple right, so let's just focus on when do you enter themarket you look at all the charts, you're lookingat the currencies every day and you're wondering, “I can see it going up butwhere do I get in?” because you can get those retracements which could knock youout of these trades before you actually get going.
So what do the bankersfocus on? Okay well they focus solely on support andresistance trendlines, right, entry levels come from your trendlines yourtechnical analysis, now indicators, now let me just explain where theseindicators come from, okay now I'm using them for direction or entry, or both, nowin that part 3 Fundamental Analysis we went through where the key sentimentcomes from the central banks, and then the short-term bias comes from thoseeconomic data releases, that's why the currencies go up and down.
You know ifyou've got absolutely no idea about central bank's, economic data releases, orfundamental analysis for that matter well, the only alternative you've got, isgo and try and look at some indicator, whether it's a Bollinger Band, MovingAverages, Parabolic Stop & Reverse, Average Directional Moving Index, MACD'sall these things, they're the only things you can rely on to potentially make yourtrading decisions, now I can tell you once you understand the fundamentals, ifyou've been using those in the past you will come back and just kick yourself, because the fundamentals give us the direction these indicators are forpeople who have got no idea what they're doing at all, and how is this different tothe commercial traders? Well they don't use them, right, they don't use any of these, they haven't got time to sit there and wait for a three to four hour time lag forone of these indicators to tell them to buy or sell.
Generally if you're using these, you'll be buying when the markets selling andvice-versa, and that's where you get those inconsistent results, so what'syour job? Every day when you come back to the market, it's all about technicalanalysis, look for those entry levels, if you don't have them, well that's itthere's nothing to be found, but if you do have some well that's the best time to really focus, as Isaid, isolating the key levels, okay your tranel eyes your support andresistance is the key to isolating those low risk high probability trades.
Sotechnical trendlines, what are they? Well this is kids play, okay, it's join the dots, join the highs with the next high, and you have resistance, it's as simple as that, you join the low to the next low and you have support, youget three of these lines touching points, then you've got strong levels and that'swhat we're looking for, all right, resistance slopes downwards, support slopes upwards, now sometimes support can be horizontal if the levels areall horizontal, don't start drawing horizontal lines just randomly throughlevels, traders at the bank's are very specific they stick to the highs, andlike for resistance they will focus on the highest point to the nexthigh, they don't go halfway through the level and same for support.
So typicalanalysis, okay as I mentioned, support on the downside, resistance on the topside, and then you come across to where the current market is, and then youisolate where the currency is above those trendlines, so in this situationright, there is three levels, one on the downside and you've got two resistancelevels on the top side, there the levels that traders focus on for their entrylevels, okay we call them key entry levels and that's what you need to getinto your head, its simplicity, and once you actually go back, you can go back over your charts and have a look through the historical way these work and you willsee, that you know, we're not making this up orders, where are the orders? Okay, wellwe've got resistance on the top side, support on the downside, inside those two levelsyou'll have sell limit orders on the topside and buy limit orders on thedownside.
Outside those two levels on the top you'll havebuy stop orders, and sell stop orders this is why we know what to do, and when to doit, at what levels right, that's what the bank is a focusing on because they knowthis is the way the market works, alright so focus on support andresistance at current market levels and you will know when momentum is shiftingbecause these trendlines will tell you the answers.
Now trendline retracement, I just wantyou to understand the way technical analysis works, especially around brakes, okay now, say for example we've got a support trendline, and the current hasbeen above it for some time, now it comes over to the brake level, now a lot of thetime in normal market conditions the currency will not explode down throughthese levels, but if you've already got a support level when the currency breaksdown through that support line that support line will now become resistance, okay it's job has changed as soon as it breaks down through that level, okay, you need to understand that, it's a very simple but importantconcept.
Okay so for example if you've got the market sort of moving as I saidabove the trend line, this line will act as support the whole time until itbrakes, do you see it bouncing off that trendline? But then once it breaks it nowacts as resistance, from that point on, straight away, and this is theway to decide either way traders and all the banks trade, so thatmay have been a support line for three months, as soon as it breaks traders arenow using it as resistance, right very simple important trendlineretracement principle.
Alright, so what else can I tell you about this? Alright, well the first rule is, now the currencies don't drop a hundred pointsstraight away, all right, this is one of the key things where traders get alittle bit psyched out, spending too much time in front of your computer can bedetrimental, when you see a trendline break, right the market takes time tp getgoing what happens is it enters the barroom brawl and I'll explain what thatis in a minute, but what you get is it breaks down, it comes back and reteststhe trendline a number of times and then it starts to go, in this situationyou've got one, two, three, four, five tests of the trendline and then it shootlower, right so, understand the way trendlines work, all the currencies workwhen they break technical analysis levelstrendlines all support, there's a time period usually before the currencies startgoing.
So the first half of the trade is very slow and then you'll see straightafter that, you see a very quick move to the downside.
In this case, two hours andit's gone you know, 70, 80, 90 points, that's where the cash is, so be patientaround these breaks.
The second rule okay, as I just mentioned the first leg cantake four to six hours and then the second leg is very quick, so don't sit infront of your screens and watch the price action that will do your head in, and have you second-guessing yourself, so first of all, understand it takes timefor the currencies to go, either up or down, and then the second part of thetrade would be very quick, so make sure you don't waste your time sitting infront of the computer, waiting for the cash to come in.
You will do your head inand you'll be wasting a good part of your day, and trading is all about asmuch about lifestyle as it is being patient and consistent, all right sothat's one thing you can do to avoid things, once your position is live theideal thing is, give the market time to move.
I would literally go over and pullthe plug out of power point to make sure you don't keep looking at the market, themarket will do whatever it's going to do you staring at the screens will not changethe outcome and you need to understand that the technicals will take care ofbusiness, if you've got the fundamentals working with the technicals, well thenmore often than not you're going to be on a winning trade.
So there's no need towatch the cash, the best thing you can do is come back and check it in three tofour hours and see how much cash you've made then, alright then you can make some decisions around whether you take profit, let the position run, or do somethingelse.
Alright so trendline retracement onceagain, so just looking at this you've got support, resistance, okay so how can Itake advantage of this? Well if it's in a sort of up trend, your not sure what's goingon, you can place a pending stop entry below the trendline, okay this is theeasiest way to take advantage of break trades.
Don't get your order really closeto the trendline because it's not until it moves more than ten points outsidethat bar room brawl area let we get the consistent move.
So theidea is, you identify the current technical setup, okay, if you thinkthere's a potential for a turnaround on the fundamentals, a breakdown of thetechnicals we'll place a pending stop entry below that bar room brawl section, and your order will be kicked in, and the cash will just flow as the currency breaksdown, it's a pretty simple.
Now you can see there in the bottom section of thatchart, I've got Stochastics, and this is a real-time, momentum gauge, thisis probably only indicator I use that I've seen consistently used across allthe banks okay, Stochastics, it's a tool, it's a tool how traders can managemomentum, now when there's economic fundamental releases coming up, they'repretty useless, all right, you don't understand when youcan use it, when you don't, so when those stochastics apply, well the normal marketconditions obviously, no economic data scheduled, they're a great tool for whenthere's no data, because you're just trying to gauge when momentum is shifting, ifthere's no central bank announcements, once again they come into play, nofundamentals, but they are very good for us to manage our positions.
As I said, ifyou've put a trade on, let me just give you an example over here, if you put atrade on and the currencies move say 30 or 40 points in your favor, and it'sstalling, well if the currency gets to a situation where it's oversold oroverbought, well then it may be a situation where you go “you know what”this is stalling on the downside, it's oversold, I'm going to start taking someof the position back, it's a great tool to manage positions.
IfStochastics are mid-range well then don't give it any sort of credence, allright, don't give it any sort of weight.
What you want to be outside on the topside above 80, and below 20 they're you gauge is and that's what the tradersare looking at, this is the same setup of the guys at the banks will have, and when Stochastics are above 80 they would consider the currency overbought sothey would they would stop buying, and if it was below 20 they would consider it oversold and they would stop selling, all right, as I said, if you're if you've got aposition when it gets to these extremities, it may be time to manage theposition.
Now, let me come back so I've given you a sort of run-through oftechnical analysis, the simplicity of support and resistance trendlines, andtrendline retracement, how it works, but the bankers look for specific entrylevels, they look even harder than that they look closer, and you may have heard me sort of saying there, the Bar Room Brawl.
Now this is an area, that, I sort ofdescribe, as an uncertain trade zone.
Right, now where is it?Well 95 percent of volume, or somewhere between 90 to 95 percent of volume, takesplace around the trendlines and that's where the market repositions itself forthe next potential move.
Now the guys at the banks, all right, ten points eitherside of support and resistance they know it gets sticky, right they know it gets, there's a lot of others in there, a lot of people trying to sort of get inwith as little risk as possible, but what happens is it creates a massive amountof, a lot of trades turning over and a lot of uncertainty around whether itgoes up or down, and you see traders turning over their positions aroundthese levels because, they think it's going up, then it's going down, it's up, and down it just does this all the time, so what traders at the banks do they theytrade outside these, if they think it goes down they will sell beforeresistance, okay twelve or thirteen points below, and they've lookingfor a break they'll wait for it to break at least ten points before they get intothe trade right, it takes a long time to work this out but after almost 20 yearsin the banks, it's very easy to see when the decisions are made around puttingtrades on.
So inside the bar room brawl as I said, it's not a great place to trade, and the idea, why we call it the bar room brawl is.
think of it this way if youwalked into a like a biker bar right, and they were smashing chairs over eachother's heads, would you go inside and ask for a drink? Probably not, but if you go to a nice bar, and there was just nice people sitting down, good musicyou're going to sit down have a drink, that's what you want to be doing, so that bar room brawl section is a very wild, erratic, non-directional areaso you want to try and avoid placing your pending orders inside there, outsidethat, the currencies have more specific direction.
So entering outside of adownside or above the market, that's where the cash is, you will get intotrades and more often than not, be correct especially on those break trades.
So The Bar Room Brawl 'Range Zone' so what we're talking about? Okay we'retalking inside support and resistance, bankers sell inside the range againstresistance, and they buy inside the range on support.
The 'Brake Zone', well this iseasy and this is one strategy you've really got to take advantage of.
The bankers buy aggressively on the break outside that ten points above resistance, andthey sell aggressively on a break ten points through the support levels, okay I can tell you this, is this is game time.
So what you want to do is as Imentioned before, avoid placing pending orders inside the bar room brawl, why?Because you're getting caught, theres less chance of you getting set in the market, you'll miss a lot of the trading opportunities okay, so if you really wantto, if you're really confident with the direction of the currency, put the ordersoutside that because you will know you will get set, okay, it may sound more aggressive and it probably is, but you want tobe successful you've got to be aggressive.
But say for instance you cometo the market you've been busy all day and you come into the market to justchecked out what's going on, well occasionally you will cometo the screens right, and the currency is trading inside the bar room brawl wellthis doesn't change the concept, but what you can do is, if you're very confidentwith direction you can actually put a trade on with less risk, right becauseit's already in there, and so you're looking for a move to the topside well, you know what you can actually put a trade on here with a bit of shorter stopso you can take advantage of that, but as I said that's just opportunistic, ifyou actually put this order on the market probably gets set four times outof ten okay, as a pending order but if you come into it and that's onthe trendline itself well then that's a chance for you to take advantage of theopportunity, and as I always say, luck is when preparation meets opportunity, you could get a nice trade on here with even less risk than what you usuallywould have in your trade plan, so trading live in the bar room brawl, okay, sobasically the same position as a sell limit order, okay, you can actually sort of put, you know where the sort of parameters are to getit set in a position so if you're getting set in the middle as I said, youcan actually reduce your risk, or you can actually give yourself a biggerstop-loss in that sense, so for instance you're trading around, right on thetrendline itself, you can still go on with your same trade plan, give yourselfa bigger breathing space, okay give you a bigger chance of staying in a positionwith the same risk profile that you usually have.
So you can take advantage, either reduce your risk or keep the same risk profile and that's pretty much itguys the, trading with technical analysis will show you where the gorgeous entrylevels are, and this is a major, major component to being successful.
Don'toverthink it, don't over complicate things with tricky indicators which aregoing to have you second-guessing.
Now once again if you have any questionsaround identifying the entry levels, technical analysis, by all being send usa email at info@traders4traders.
com or jump on the live trade zone the247 Trade Zone and you can ask us questions there, we're here to help, now as you would have heard in part 3 fundamental analysis, this gives usa connection to the news and all the economic data releases in real time, thisis your connection to, the trends or sentiment from the central banks, as Imentioned before, also the general bias that comes from the economic numbers, but funnily enough also, this is where the traders do all their analysis, rightthey don't have, generally a separate platform we use MT4 as retail traders toexecute our trades, but all their analysis is done on Reuters or Bloombergfor that matter so what you're doing is, you're justlooking to join the dots okay, as I said here's a good example of a short-termtrendline in the Aussie Dollar, now that trendline is broken, what you wouldgenerally do is, is remove the trendline, okay, once it's brokenshort-term, you're now looking for the next part of the trade, now, what you cansee here is by sort of bringing the scope of the downside, you'llstart to see where the support lines are, okay now if I just go back overhere to the daily chart this is where I'll find the longer-term trends, so whatI'll be looking for here is, okay I just come over here, I go to the bottomlooking for support, I'll go to the most, lowest low, and then I'll look forthe next low, from there so if I just jump on that, and I look for the next low, okay this will be my long-term resistance, let me just get on thatbottom line, look I'm not quite on the low there, so makesure when you are drawing these trendlines that you are very specific, okay sothere's our, absolute low, so if I just come back here to see where thatis, now you're looking for corresponding support levels, okay so again from the the next low to the low after that right, so we've gotthe long-term low down here, around now that's going back to 2001 thenyour next support level on the daily chart is at 70 90 and then from here upwiden this back out into the current market you can see there's a niceformation here, structure you've got starting point one, two, almost a thirdtouch here and this is perfect technical analysis, now you would be doing thesame on the top side, so you can see going back to 2011 we've got a highertop in now the next high from there comes in here and quarter 1 2013 that'sour next major resistance level now once again you would find that high the nexthigh most relevant high, to the next high itself which is not far off where themarket was recently so you've got a resistance line there, now these tools once you get used to navigating around hourly and dailysupport do make a lot of sense, as I said the more professional the tool, themore functionality and the more precise, okay so if I widen this out to bring thecurrent market into focus, you can start to see very clearly, but where thesupport and resistance lines are but the bankers are looking at, now if I go back into the hourly's right this is one of the key things so, all thetrading that traders do on an intraday basis is on the hourly charts, not 15minutes not, 4 hours, not the daily it's the hourly bar charts, right you can seemy charts are very clean, so down below here you can see that, if I just need bring that up a touch, you can see where that support line is, so sometimes ifyou're looking at the currency, the current market level, you think “wellthere's not much around” right, 'what am I looking at here?” What I would be doing ismaking sure you know where all the trendlines are and as I've just shrunkup the right-hand axis, so you can see where they are so now you can actuallyfocus very clearly 74 9 at the downside and up here at 76 12 the Aussie in between this, has a scope to move higher up towards 76 right, or split down a 74 90, when it's mid-range the currency can get very loose and trading decisions aroundthis time are not all awesome, by any stretch, right so you know here at themoment, let the Aussie go there's nothing to do just wait, alright so when itgets close to the trendlines that's when we focus, right if you identify theopportunity as having no entry levels well you don't really have a trade butthen you can come across, and as you can see I've got the major currency pairslined up, I've got sterling here in particular, now you can see here, actuallySterling's got a great setup, now if a trendlines to be confirmed you need at least three touches and in this instance you don't have to be pedantic, close enough is goodenough, so on the downside here in Sterling down here at 130 60 we've got oursecond low here at 130 72 that's the start, one, two then we've got a low overhere corresponding around 132 20 okay, funnily enough on the thirdtouch, usually the bankers are trading ahead of it right so that it rarelytouches right on, so you got one, two, three touches.
See where sterling is now, now there's a lot of things going on in cable, we're waiting for the CPI data, youknow, that's coming out shortly as in over the next day, then we've got alsothe Brexit EU summit so oddly enough the currencies dripped a lot but itstopped here, see how it gets sticky around the trendline this is the bar roombrawl in action, as I said you don't want to get, if you're looking for a bravetrade here you would wait for it to drop more than 12 points 12 or 13 pointsthrough that level and then you would get in, because what you can get is, asituation, if I widen this out okay it's been sitting at around here for 1, 2, 3, 4, 5, 6, 7, 8, 9 hours if you're sitting in front of the screens for 9 hours waiting for amove, you have just wasted 9 hours of yourlife, alright so just be aware, draw your trendlines, you've got entry levels, putorders in the market, or wait for it to get to those levels if you don't haveany, now as I mentioned Dollar Yen is the different country in the world fortrendlines and technical analysis entry levels, now I've got trendlines on hereas well as the Ichimoku Kinko Hyo Cloud, now the cloud is a massivegiant moving average, all right this is, you've got to understand this is the wayJapanese traders trade, and because it's got critical mass you focus on theIchimoku Cloud particularly during the Japanese session, now most of theJapanese traders are classic day traders they trade during the day and at theevenings they generally close their positions so when you're looking at thecurrencies, the Yen, Dollar Yen and also the Yen crosses especially during thatAsian session, make sure you have a look at where the cloud is, now when thecloud is below the currency pair the top of the cloud acts as support and the bottom of the cloud acts as a secondary support level, just like trendlines alright so, but when the when the currencyis below the cloud, it acts as resistance, so just think of the cloudright, as 2 support or 2 resistance levels, and when it breaks down through, so just at current market levels when it's breaking down through the cloud a bitonce it breaks down through the cloud the top of the cloud then acts asresistance, exactly the same ways trendlines do, so the Ichimoku Kinko Hyo Cloud it's no different than trendlines it's just, that's what theJapanese traders look at and to get an overall aspect of all trades in themarket, I include trendlines on my charts to make sure that I'm looking atthat, from both angles where this becomes particularly gorgeous if you go throughthe Advanced Pro Trader Course, okay on our site you will actually see theIchiban Strategy (I've labeled it) it is one of the most highest successfulstrategies I would use, and that's where the trendlines match, when the trendlines match up with the cloud that's when you get all traders globally, Japanese and everyone else, all trading in the same way whether it's a break orsupport level, and that's when you get a really gorgeous trade, and what you cando is, you can really load up on those opportunities, so don't think the cloud, because you don't understand it, it's hard to understand it's not, gothrough the course on our site it will explain detail how it works and then youcan take advantage of it as well.
Alright so that's pretty much where it is, sowhat you're doing is, on a daily basis is, you're just scanning your charts right, whether it's the majors or you're also looking of the European crosses, or yougo through the Sterling crosses, and you have all these currency pairs in your chartsyou'll notice, I always have the Ichimoku Kinko Hyo Cloud on my Yen crosses, ofcourse you have to, it's very important that you know exactly wherethe Japanese traders are placing all their orders as well, but then, you knowlooking at your charts, I also consider looking at my major currency pairsin four different time frames, okay I've got the hourly time frame here on theleft, and the daily, the weekly, and monthly.
Now thatgives me perspective on a short-term aspect as well as a long-term aspectbecause sometimes you can get caught up in the price action and you think “youknow what Euro's going lower here” but look at the daily chart is actually justtrading sideways, so another good principle to use as you go through thecourse and you're looking at our daily analysis on our site, you'll see that wedo use four different time frames to give us perspective of long-term versusshort-term trends, and price action.
All right, so that's one way that you canreally take a very close look at the market at the same time have a littlebit longer term levels, and when you see the longer-term levels breaking down orup, and that's when it's time to get excited because that's a trend break andif that correlates with a central bank announcement or an economic data release then that's when you've got a really awesome trade and you do need to load up, you'll soon realize that trading professionally you're waiting for thegood opportunities.
Okay and one of the most important things to do is, isunderstand, you've got to wait for the market to give you the cash.
Now I get alot of questions around day trading “can I day trade?” Well of course you can, butonly when the general market setup provides it, now the economic datareleases might provide it, or good trendlines if you're trading mid-range andyou can go through your charts just like I was doing there before, well that will give you the answers around what you should be doing and whatstrategy you use.
Technical analysis is simplicity in motion, don'tovercomplicate it, don't load your charts up with loads of indicators, because nowyou should understand where the direction is coming from, and now your charts aregoing to tell you where to get in, now it's about fine-tuning your executionand bringing all those components together to fine-tune your tradingmethodology.
What is going to happen is you're going to start trading with themarket, not against it, and that's when you're going to become a successfultrader.
I hope you've enjoyed this one, once again, don't forget if you have anyquestions send us an email at info@traders4traders.
com or jump on thetrial or if you remember, jump into the 247 Trade Zone and ask thequestions that you want the answers for, we're here to help and help you become asuccessful trader, I hope you've enjoyed this.
We've got one last one to go afterChristmas, we're going to bring it all together and that's going to fine tuneyour whole trading system.
I look forward to seeing you in 2018.