Trends are powerful forces that can take time to reverse, and this is where a lot of traders get into trouble – that, and getting on the trend too late are both deadly scenarios.
In this lesson, we will look at ways to avoid the traps that most beginners fall for.
We’ve covered a lot of basics for Python in the previous lessons, and by now you should have plenty of resources for getting the basics down, and to keep moving ahead.
If you haven’t signed up for Finxter’s free email Academy, I highly recommend you do that – there are enough lessons there to keep you busy for a while.
The official Python documentation is another great place to start.
So, with that taken care of, we are going to focus on Forex trading and bot strategies in the next two lessons.
The screenshot below is a very interesting look at the downtrend on the EUR/USD over the last 12 months. You couldn’t ask for a better example, but remember, we want to predict the future, not dwell too much on past price action.
What’s going to happen next? – and do I want to participate? – are questions we should be asking.
There are going to be plenty of opportunities out there, and you don’t need to try and catch them all. As a matter of fact, my most successful robot strategy runs on one pair – the same pair, month after month. It works, so I don’t change it.
Besides the downtrend, you’ll notice one other interesting thing on this chart. In the entire downward move, we have recently produced our first double bottom. The last time we saw that pattern was back long before the trend began.
And if you notice, it just happens to be on our current annual CPP at the end of 2020. A double bottom is a pattern that gets us to pay attention if we want to trade that specific pair. It can signal that the trend is running out of steam or possibly reversing – remember, this is not a guarantee – just something to add to your planning.
We can also see that the double bottom is very close to our annual S2 support pivot. If bears on this trend want to take a profit, and it would be advisable, then this is the area they would look at. That will take pressure off the pair, and could be a chance for bulls to get in.
One other thing to consider is the fact that the Fed is raising interest rates and this could play an important role in this pair. Just something interesting to keep an eye on.
Any reversal pattern like a double bottom, head and shoulders, morning and evening star, hammer, and many others, are simply candle patterns you can use to set price traps of your own.
Just because the chart candles say “buy”, doesn’t mean the market is going to go up. Let’s go to the example I gave in the last video of a very good trader that got killed on the AUD/NZD.
I can’t get the entire picture, but far to the left on the chart, the massive bottom you see on the right half of the chart is a historical area of support.
You can also see that the pair has been in a much smaller range since hitting that level many times over the last 8 years. This is not to say a trader couldn’t make money here with the correct strategy, but the fellow I’m speaking of didn’t have that going on and continued to bang his head simply out of stubbornness
Pro Tip: Get used to being wrong – admitting it, and moving on before your ego wipes out your trading account.
In the next screenshot, I have loosely marked this range on the AUD/NZD. If you look at the thinking behind the other trader’s entries it does make sense – the problem was, that he was using the wrong tactics to implement his strategy.
🧠 REMEMBER: The safety net of a stop loss can be your best friend, or a killer enemy. Traditional wisdom says “Never trade without a stop loss.” Probably because most traders are trying to get rich quick and have a trade size that is much too large for their account balance.
To sum up ranges, selling at the top and buying at the bottom of a range is a logical strategy, just make sure that your tactics are flexible. Picking the exact top and bottom is a messy endeavor.
My most consistently profitable robot strategy is a countertrend method. Does that mean you should be a countertrend trader – absolutely not. I’m going to give you one way you can consider trading. I started learning trend trading first, and it is true, that if you get with the trend you can let trades run for larger profits.
Let’s take that EUR/USD trend from the past year. From the very top, until the present, you’re looking at maybe 1400 pips if you got the entire thing – and got out at just the right time.
Just a side note: In that same time period, my robot earned about 4000 pips in smaller increments, and with less risk. This was on a different currency pair that was not in such a strong, noticeable trend.
This is more proof that you need to find your own style and take what the gurus ramble on about with a grain of salt.
This brings up another good point that is covered in a video by Anton who I linked to before. I didn’t do that just to have an interesting video for the post. It was meant to get you looking into him more.
Another one of his videos discusses the news, all the pundits, and their opinions that you should not listen to. So, don’t take my word for it – research, research, research.
Is it the best? I don’t know, but it is my favorite. It’s called KD, and I’ve talked about it before. KD, or Knoxville Divergence by Rob Booker is really a combination of other indicators – the momentum indicator and the RSI.
💡 NOTE: I’m not affiliated with Rob Booker and don’t get paid to recommend his products. I simply believe he is one of the good guys.
Here’s a video from Rob just so you know who I am talking about:
KD is a suggestion, not a guarantee, that price may switch directions. Combine that with your pivot points and your robot should be ready to trade.
As an example, on the EUR/USD chart above, I would consider setting my robot to long only – because we are at support, and then have the bot trade KD on a smaller time frame. I use the min15.
There are a few subtleties involved, but that is the basic idea.
- Trend, Counter Trend, or Range trading can all be profitable. Study and test each one to find that sweet spot that works for you.
- Picking Bottoms (and tops) is a dirty business.
- Don’t fall into the trap that Support or Resistance are automatic trade areas.
- S & R combined with pivots, and KD can be a powerful setup. (I taught you earlier to learn the lingo.)
- Personally, I have never found a more exciting combination to work with than Python and Forex!
Thank you, good luck, and see you in number 5!
There are only 10 kinds of people in this world: those who know binary and those who don’t.
There are 10 types of people in the world. Those who understand trinary, those who don’t, and those who mistake it for binary.