“Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent.” – Calvin Coolidge
“Though I fall a thousand times, yet will I rise and walk again, for I believe that God saves those who persevere.” – Gandhi
There’s really only one secret to making a million dollars – Persistence. You keep after it, you’ll get there. Another quote, whose author I can’t recall at the moment, is, “If you pursue something hard enough, it will begin pursuing you in return”. (Although I guess that one could be good or bad.)
Forex Million Dollar Journey Report: Well, I apologize, boys and girls – I got blown out by a much-more-severe-than-expected reaction to the Australian CPI numbers. Basically I was overmargined, but nonetheless I would have survived on anything less than a perfect storm against my position. Still, one must respect the unexpected in trading. Oh well, I said in an earlier article that I’d love the chance to buy Aud/Usd around .9250, and I got it – it’s just too bad that I got beat up all the way down to that point.
Anyway, reboot, start again. I reloaded the account, and we’ll get a fresh start Monday morning. We can do this – I am going to make this work – and I certainly don’t mind chipping in another $50 to get it rolling again. I mean, come on, when we’ve got our million dollars, is it really going to bother us at all that it cost an extra fifty to get there? So now I guess I’ve only got 17 months, instead of 18, to make it happen, right? No problem. 🙂
Hopefully at least some of you have just been trading the Dance strategy straight up, and are in much better shape than your Forex Million Dollar Journey guide here. (I should possibly consider following my own strategy, right?) Well, I learned something about trying to start with only $50 – don’t violate your own money management drawdown rules, Jack! – and no matter how tempting trades may look, don’t overextend yourself on margin. So with those lessons firmly in hand and mind, onward and upward we go.
I wanted to try this week to get positioned well in short trades on Usd/Sgd and Usd/Nok (mentioned in my article on “Three Currencies” for long term trades). But the Usd/Nok just seems to be way too spiky and have too large a spread to navigate successfully with a small stake, so for the moment I’m setting that one aside. Usd/Sgd did, in fact, retrace to between 1.2580 and 1.2600, as I thought it might, and I took a position at 1.2585, but while it didn’t go higher, it didn’t convincingly break to the downside either. I’ll definitely be watching that one again next week for another possible short entry.
Before I reveal my treasured 4-hour trading strategy, let’s talk about cross convergence. (What kind of convergence did he say??)
Using Cross Convergence
What is “cross convergence”? Well, since I just made that term up, I suppose I should explain what I mean by it. Cross convergence is a term I use to describe a situation where a currency faces multiple lines of support or resistance across different pairs. For example, say that Eur/Usd is up against strong resistance at 1.3850 at the same time that Eur/Aud is hitting up against strong resistance at 1.4900 and that Eur/Gbp is hitting a resistance level at .8300. That’s three different fronts on which sellers are going to be attacking the Euro – that’s a lot of resistance to overcome. And therefore it’s less likely that the Euro will be able to overcome it than if Eur/Usd were merely up against resistance on its own. (If it does overcome the resistance in such a situation, that would be a significant sign of strength.)
I’m not suggesting that you watch every currency pair just to keep an eye out for cross convergence, but I am suggesting that if you have multiple Euro (or Gbp or any other currency) pairs on your screen, then it is something worth paying attention to, another factor to consider in your market analysis. For instance, I regularly have both Aud/Usd and Aud/Jpy showing on my monitors, and before taking a position in either one, I normally at least take a glance at the other pair in order to see how Aud is doing there. Or you might check Eur/Gbp before taking a position in either Eur/Usd or Gbp/Usd. Of course, the various pairs of a given currency don’t necessarily always move together, but a currency’s performance on one front is still something to consider in evaluating how it’s likely to perform on other fronts. And that tends to be more so the case in regard to significant price movements – when a currency is showing very strong upward movement, it’s usually strong across the board, i.e., against virtually all other currencies. Checking cross convergence can be an additional note in checking general currency strength (which you can do right here at Winners Edge with the Forex Power Indicator).
The “3 Parrots” 4-Hour Trading Strategy
(I got that name from Chris’ article on strategy creation. He didn’t use it, so I thought I would. Thanks, Chris!) I decided to go ahead and implement my 4-hour trading strategy in addition to the 15-minute Dance strategy. Sure, it’s a bit dicey to do it with less than $300 or so in the account, since it necessitates running significantly wider stops, but I figure it’s not any dicier than some other stuff I’ve done so far, so why not give it a run? I will, however, at least initially be trading very small positions in that time frame, probably just a couple of micro lots.
Trading off the 4-hour charts can be a wonderful luxury as a trader, as it frees you up from having to watch the pip by pip market action for hours at a time. When you’re trading a 4-hour strategy, about the most diligent you need to be is taking an hourly glance at the markets, and you can probably get by with just taking a peek once every 2-4 hours. And you’re only going to miss one 4-hour candle close while you’re peacefully asleep.
The “3 Parrots” refer to the 3 indicators I use on my 4-hour charts…and I don’t even know what 2 of them are. Seriously. 2 of the 3 indicators I use are from a “black box” system – “black box” means the providers of the system/template don’t tell you what the indicators are – you get the indicator lines on your chart, but you don’t know precisely what they represent. I found kind of an explanation someplace, that read in part, “It uses an extremely particular algorithm…with a custom price action filter”. Uh, yeah, whatever. All I know is that it seems to work pretty well. I tweaked it by adding the Hull Style ADX (shown at the bottom of the chart). The Hull ADX often seems to indicate a direction change just a bit earlier than the other indicators, and in any case serves as a good confirmation indicator.
Here’s a screen shot of one of my 4-hour charts:
You can download the indicators and template for free here, and I’m sure you can find the Hull Style ADX someplace easily enough. Those arrows do repaint, so the performance is not as flawless as appears after-the-fact on the chart. Nonetheless, overall it seems to perform well, and those cute little horizontal rows of dots can provide nice, clear markers of near-term support or resistance, as well as provide simple points for initial stop-loss placements.
The best trades are the ones where the buy or sell indication comes when price is right around the lines crossover point. A good example of this is the blue up arrow you see toward the right hand side of the chart. In contrast, looking at the highest point that occurs on the left hand side of the chart, although that does turn out to be a near-term high, still, you don’t get the best or safest entry point (the signal only appears after there’s already been a huge down candle), and you would have had to endure a significant retracement back up before eventually seeing a profit in the trade.
Referring to the Hull Style ADX that I use, note how (looking right about the middle of the chart) it can be a good 2 or 3 candles ahead of the main buy/sell indicator arrows in foretelling a turn in direction (which is why I’ve got it loaded on the chart). For an even earlier possible indication, I often flick the chart back to the hourly time frame to check what the ADX trend looks like there.
How this trade should go when it works: Once a trade in this system starts moving in your favor, you usually will not see price cross back over the red indicator line, against your position, by more than 10 or 20 pips at most (and often that will just be a brief spike) – so that can guide your stop adjustments as you ride the trade. Note how, in the best possible trade – the move up displayed on the right side of the chart – price never crosses back over the red line at all until the trade actually tops out.
One of the best things about this particular system is that it is precisely the kind of system that can get you in – and keep you in – on a long term trend, enabling you to catch a significant amount of the possible pips in an extended movement either up or down, while at the same time doing a pretty good job, trading within a 4-hour timeframe, of minimizing your risk. Like any system, it’s not perfect and it will see some losses, but on the whole I’ve found it nicely profitable since I began using it a couple of years ago. And, well, that’s about all I can tell you. It’s worth a look anyway – check it out and let me know what you think.
P.S. Trading a longer time frame like this, I would suggest paying attention to major support/resistance areas and to daily pivot levels to help guide you in both entering and exiting trades.
Just to sum up:
– Watch for Cross Convergence providing additional support or resistance
– When trading higher time frames, it’s important to be able to place stops that minimize your risk, but that also allow you to stay in an extended trend
Coming Up Next Week: Well, hopefully a very profitable report, one that points out some strategy adjustments I’ve made. And maybe we’ll take a global look at the long term picture for the Euro.
As always, I wish you the best, and eagerly await your thoughts, comments, condolences, and encouragement. It means a lot to me, seriously, to have you guys (and girls) on board for this journey.
Stay hopeful. I do.