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 Higher low, lower high system

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PostSubject: Higher low, lower high system   Sat May 28, 2011 3:00 pm

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Higher low, lower high system

The original idea behind this thread, a good trader said to me that the first retracement is the best trade. The first higher low/lower high.
These retracements provide good opportunites to enter into a move with a
relatively small stop loss. A hl/lh confirms a test and failure to
follow through at a certain level.

Trades 1 and 3 are the turn trades, at key levels and price extremes
(of the session). They are typically in and around the London open
where stats show turns are likely. The London open head fake. Trade 2 is
when a trend has been established.

1)Higher lows and lower highs at extremes from 5 min (also known as 1 2 3
tops/bottoms). I want to see supporting information from the 15 min
chart and for the turn to be at a key level ie pivot, round number etc
etc. Whilst some entries will be at the point 3 we do look to enter on
the X.

Below is the 123 reversal when the price fails to make a lower low or higher high
1. trend line broken (I don't use TL's)
2. lower high in an uptrend, or a higher low in a downtrend.
3. break below the previous low in an uptrend, or above the previous high in a downtrend
At point 3 the reversal is
confirmed and everybody’s brother is getting in. A stop run often
follows to re-test the penetration at point 3. Quicker traders may get
short at the X.

Attached Images

Attached Images

2)What I'll call 100% system trades that will follow the 1hr and 15 min
candles with entry from 5 min higher lows and lower highs. I do not want to see an obvious contra indication from 15 min candles.
I would like to be selling a 5 min lh after an engulfing negative close
candle/shooting star with little/no lower wick on 15 min. I'll start
showing more 15 min charts, see from page 37. A good example of not
wanting to sell a lower high against wrong 15 min candles would be on page 53 and again page 58.

3)A 2b reversal trade which is a variation of the 123 top/bottom and is
also an indication of a test and failure. I use some indi's on charts
ONLY TO SPOT DIVERGENCE for the 2b trades.

"In an uptrend, if prices penetrate the previous
high but fail to carry through and immediately drop below the previous
high, the trend is apt to reverse. The converse is true for downtrends."
[Vic Sperandeo in "Trader Vic: Methods of a Wall Street Master"]
The 2B principle gets its power from the
large number of stop-loss orders in the area of the X. Many traders who
bought the breakout will have their stop-loss orders there, so if prices
fall below the blue line those stops will be hit, driving prices back
down with thrust. If you enter a short as the breakout traders are
bailing out of their positions, the burst of selling can propel your
trade into the green so quickly that, before you can enter your
stop-loss order, prices have moved far enough in your favor to set your
initial stop-loss at break even. The inverse is equally effective for 2B bottoms.

Another name for the 2B is "spring." Imagine the blue line in the graphic as a rubber band. The bigger the poke above the blue line, the stronger the reversal
potential if the breakout fails. This same principle works on failed
triangle breakouts and failed trendline breakouts. If you were
unfortunate and bought the breakout, instead of putting just a stop loss
at the X, consider making it a stop-and-reverse. This pattern occurs at
the tops and bottoms of consolidations as well as at major reversals.

I was unable to copy the picture from the website, see the charts here

The London session, gu will regularly do 125 + pip ranges. Each time
there is a stall and turn that extreme becomes the starting point
potentially for the session move. This bigger move is more likely to
happen after 9.30 gmt than before. Between 7 and 9 am gmt a decent range
is around 50 pips, numbers show something like 70-80% of the time these
are the London open head fake moves.

Some knowledge of candlestick analysis is required as you want to be trading the right candles. Consider key levels for turns (eg round numbers, D W and M pivots, some fibs, S/R areas), follow the 1hr for trade 2, are we above below 1hr 8 lwma, look at 15 min candles, 5 min hl/lh's.
Once set up on 5 min price should move a pip or so beyond the high low
of the set up candle to confirm the trade. The set up candle should have
little/no wick in direction of trade eg if buying little/no upper wick.

Stops: Around 15 pips 1% of capital.
Exits: Up to you. Please consider that Mrs V has been inducted
into The 20 Pips Bank Hall of Fame and thats something I have to listen
to all the time.

7-9 am gmt exits will be taken at key levels due to the small ranges in
Frankies hour that typically exist and the inevitable LO head fake.

After 9 am gmt we will look for the FH/LO range to break. Once that has
happened we will hope to benefit from longer moves. In and around LO a
turn can happen quickly so we look for a decent 15 min candle. Early US
moves can take 1-2 hours to come into play.

The 1 hr chart shows in general upper wick shooting stars basically
you'd expect a fall. The arrow down shows the oversize shooting star the
10 am candle.
5 min chart. The red line shows the close of the 1hr 10 am candle. To
the left of the red line see the arrow down. Lower high at an extreme
for session and with the previous 1hr upper wicks a decent trade, see 1
above. To the right of the red line are several clear lower highs in
direction of trend, see 2 above. The gold line is the MTF ma to show the
1hr 8lwma on 5 min chart. Entries taken from doji's and candles with
little/no lower wicks when selling.

Attached Thumbnails

The first post is looking to find the
trend for the day. Once price has moved around 100 pips eurusd and
gbpusd can easily have good counter trend trade bounces off round
numbers and pivots.

This morning gbpusd fell 100 pips to the central pivot, bounced, had a
higher low just above 1.8500. I look for higher lows/lower highs off 5
and 1 min charts.

Attached Thumbnails

Hopefully this will help. These charts are current so the following would have been trades.

Eurusd had a spinning top on 1hr 3 candles back so thats a good
indication that the run up has stalled and an opportunity to look to

The first lower high was on the 5 min chart 5 past the hour at 11,05 and a 2nd opportunity to sell was highlighted.

So whilst I'm not looking at every hourly candle to enter a new trade
once in you'd be looking to trade each lower high/higher low until the
run has ended. I would be looking at 1 hr candles that show a position
contrary to the direction I am in.

Your first clue that the run has ended will usually be a higher
low/lower high against the direction of the trade you are in from the 5
min chart.

Attached Thumbnails

take a look at the next set up plz.
the 12:00 hourly candle was bearish forming a LH so we should look for shorts in next hour.
The next hour was all bullish but the 13:55 formed a LH and crossed the
5ema down. that was a big profit short but should we take it after such a
bullish hourly candle?

Attached Thumbnails

vantage, it will be great if you could post more examples.
take a look at this trade. bullish hourly and HL crossing the 5ema on 5min.
something wrong with his trade or a valid signal that got stopped?

Attached Thumbnails

One of those do you don't you this morning.

The 4 am hourly candle was a positive close and there was a (not shown)
higher low when the 6.05 5 min close. This was just a touch too early
for me this am.

The 5 am had another higher positive close so the bias is buy. The 6.30 5
min candle closed just below the 5 ema. Flip a coin time do you , don't
you. If you're going to take a chance I'd much rather take a chance
going in the direction of the trend. For me the 1 min chart helped make a
decision to buy.

Attached Thumbnails

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