Consolidation, Amazing Strategy When Trading Forex

15. Consolidation to starting my own trades

Feb.28 To discuss  consolidation, I will start with a strategy called Cash Trap. My favourite IM Academy educator sat down with some computer programmers over the course of several months. They were able to enable a computer to predict trades as long as a skillful human could help a bit with each trade.

Cash Trap is a strategy resident in a trading tool called Hourglass. When you sign up for the course, you can add Hourglass for $20 USD per month.

Consolidation, the process I prefer

As of this writing, these are the 19 different currency pairs that CashTrap reviews. I’m going to look for consolidation within each of these pairs unless there is some pertinent financial news that makes them unstable.

Note that CashTrap works best when currency pairs are consolidating.

FirstI go to forexfactory.com for the latest financial news. If any of the currencies in that list have a red folder beside them, I will NOT trade that currency in the within 2 hours. For instance, suppose the red folder as at 9 am for the USD. Then between 7 am and 11 am I will not trade any currency pair that has the USD.

Of the pairs remaining, I look at the 5-minute candles to see what is happening to each one of them that has a payout of at least 70%.

The image you see to the right is USDJPY. We first see the long red candles as this pair is trending downwards. Then it begins to consolidate. I’d wait until the second wave is starting to confirm that there indeed is a consolidation. Then, as the red arrow at A is obviously part of the second wave, I would put. As the second green candle is forming at B, I would call.

When are candles are part of an obvious wave, I will trade around the point where they are about one third way towards the next support or resistance line. At C I would put. At at D I would call. a little below E on the red candle I would put. About a third of the way up the green candle at F I would call.

The above trades would all be at 1% of the total in my broker’s account. However, by the time I got to the top of the green candle between E and F, I would have finished 4 waves of the consolidation. After 4 waves, the chance of breaking out of the consolidation is too high. So, I would invest 1% of my account, I could very well have lost my 1%.

Before I lost the 1%, I would have successfully traded 6 times with a 3% profit. The spreadsheet below illustrates how much money I could have made on that consolidation.

Suppose I started with $700.15 in my account. Each trade in this currency pair has a  payout of 75%. After the first trade I would have $705.40 in my account. After the second trade I would have $710.69

in my account. After my sixth trade I would have $732.25 in my account.

(Click here to learn how to make that spreadsheet.)

I would have lost 1% ($5.49 in my seventh trade. That would still have resulted in $726.76 in my account after just one consolidation.

That is interest of 3.8% from less than one hour of trading!

This whole exercise just shows you what you can make by combining consolidation with proper risk management and the miracle of compound interest.

In a consolidation, the prices often more or less travel the same distance before changing direction. This is illustrated in the image here. It should help traders decide when to make their next trades.

I use Blue Gator to help me decide if the currency pair is in a consolidation.

I’ve learned a lot

March 24. I’ve learned a lot since I first started this blog post. I’m definitely winning more than I’m losing.

One thing I’ve learned is that it’s a good idea to look at the 5 minute candles once in a while and look for possible consolidations.

Suppose the CashTrap point system gave over 5 points for the candles to the right telling me to call. And then what if CashTrap began to giving me put signals. I might just look at the 5 minute candles and look to see if there is some sort of consolidation going on.

If  I was at the top of that second wave I would have recognized a pattern. I would feel very comfortable taking the put.

How to remember what you learned in this course

consolidationThe main teacher in our forex course trades foreign exchange currencies live while the students watch online. He consistency gets over 80% of his trades right. How does he remember all those principles of predicting trends and trading forex?

He explained how he remembers that. He made lots of mistakes and studied each mistake to see what he did wrong. The stress of seeing those mistakes helped him remember what to do.

My plan for remembering

If you read the home page of this blog, you may remember my main purpose for even having this blog. I wanted to teach people how to trade forex and I had learned decades ago that the best way to learn something was to have to teach it.

So, I’m going to start trading forex and giving you the reasons for my decisions. After the results are in, whether success or failure, I will explain what I think is the reason for the outcome. In the process, I will begin to remember every step involved with successfully trading forex.

I recommend that you make your own log. It could be online or else in a file on your own computer. Just analyze each trade you make to help you remember the correct process. Do not start trading with real money until you have mastered successful trading using play money in a demo account.

Success could be making a profit in over 70% of your previous 50 demo account trades. Alternately, it could be doubling the amount of money in your demo account.

Examples

April 7 I’ve been a student with IM Academy for around 3 months now. I’ve discovered that with a consolidation situation you can break some of the Cash Trap rules. From time to time I will give an example here of how I won a trade even though I broke some rules.

USDCAD

Cash Trap advised me to put even though the EMA was rising and the Currency Strength Meter indicated a call. ( USD was the stronger currency.)

I suspected that this was a consolidation that would justify breaking the Cash Trap rules. I decided to place a put trade for these reasons:

  • Cash Trap still gave me 5 points.
  • The Bollinger bands were more or less parallel.
  • The 5-minute candles gave a wave pattern like you see here.

I created a put at 232 or more.I ended up putting at 238 and winning at 212. I placed the trade somewhere within that tiny green candle before the very last red candle.

USDCAD again

After a while you may get a few favourite currency pairs. I like USDCAD. I know that it will be one of those pairs with a payout of at least 70%. Too many of them have a lower payout.

Just like the previous time I traded this pair, the EMA was rising and the Currency Strength Meter indicated a call. However, Cash Trap asked for a put. There were a few reasons why I felt justified in taking that put:

  • Cash Trap still gave me 5 points.
  • The Bollinger bands were more or less parallel.
  • The 5-minute candles gave a wave pattern like you see here and I had a hunch that the green line was a reasonable support line.

Cash Trap asked for a put at 188 or more. I put at 207 and won @ 193. Actually, that was a close call.

 

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