CHART SET UP

http://www.forexfactory.com/showthread.php?p=2017770


CHART SET UP

Support/Resistance lines (S/R) - start from the month chart and work your way down to the 4 hour to see where the price is bouncing at least 3 times. Draw bold lines for the higher time frames monthly, weekly and daily. For intraday time frames use thinner lines so that you will know which lines are the strongest. The more times that the price bounces off of a line, the stronger that line is. These are key levels that I look for to be broken when entering a trade.


Trend lines - I use these the same way as S/R but the key in making these work is drawing them effectively. Look for stronger, more dominant trends zooming in from month to 4 hour.

http://www.babypips.com/school/trend_lines.html

OBSERVATION

I call my method The Breakout Method because that's exactly what we are looking for. This is where we will spend over 95% of our time waiting for the price to make certain chart patterns. This will put us on alert to get ready to trade once the price "breaks out" of the pattern. I've seen the price go crazy like 800 pips on GBP/JPY and more but we are just looking for a piece of that.

There are mainly 3 patterns that I look for:

Symmetrical Triangles http://www.babypips.com/school/symme...triangles.html

Ascending Triangles http://www.babypips.com/school/ascending_triangles.html

Descending Triangles http://www.babypips.com/school/desce...triangles.html

After a big move I also look for reversal patterns so be on the watch for these:

Double Top http://www.babypips.com/school/double_top.html

Double Bottom http://www.babypips.com/school/double_bottom.html

Head and Shoulders http://www.babypips.com/school/head_and_shoulders.html

Reverse Head and Shoulders http://www.babypips.com/school/rever...shoulders.html


PUTTING IT ALL TOGETHER

After spotting any of the triangle patterns, what you are looking for is for the price to make a candle outside of the triangle. This will be your first indication that the price is about to make a sizeable move. Don't enter any trades just based on a break of the pattern but wait until the price breaks through the nearest S/R level that it has bounced from several times or until the price has broken out of the channel. For an example look on the GBP/JPY chart May 14th through May 20th. You will see that the price is trading in a sideways channel from 202.41 to 205.00. I will not place any long trades until the price breaks through the 206.00 level (not 205.00) because I have a cluster of trend lines on my chart as a "Do Not Trade" zone and short trades below 202.41.

To recap:

a) Spot a triangle pattern

b) Then look for the price to make a candle out of the triangle

c) Then wait for the price to break the nearest strong S/R level. This will be your entry. Stop loss (S/L) should be set one S/R behind. Take profit (T/P) should be your next S/R. If the move is big I stay in the trade but trail my stop one S/R behind in case the price moves against me.







Hedging strategy:

This sounds all perfect in theory but the price sometimes does the unexpected. Occasionally my T/P is not hit and the price reverses back to my entry level. So, what I do is open a hedge position once I know for sure that the price is reversing. Example, if your take profit is set for 80 pips but the price hits it's highest level then reverses to within 10 pips of your entry price it is a good time to open a hedge position. I rarely hold my hedge positions for profit but rather for loss protection exiting the positions at break even (B/E). Though you can hold your hedge position and close @ the next S/R level but make sure you close your first position to B/E.

After spotting a reversal pattern, I watch the price and look for a break of the nearest strong S/R level and follow step c) from above. Often times before a trend reverses the price will trade through a sideways channel sometimes for a week or more after a big move.