Trend Lines- Enormous Profits Small Risk by Mark McRae

This particular technique requires a little practice and it is something that is well worth looking out for. I call it roofing and flooring. It is best done using a large time scale like a weekly or monthly chart and then lowering the time scale for entry.

It works like this. First bring up a weekly chart of the market you are following. We are only looking at two bars, any two bars which, we shall call bar 1 and bar 2. You then draw a trend line connecting the bottom of bar 1 and bar 2. From there you extend the trend line into the future (the week coming) and that shall be know as bar 3.

The idea is that in an up trend price will often come back to that very short trend line. As it approaches the trend line of bar 3 you can enter the market with very little risk and massive potential.

In the example of the Japanese Yen/US Dollar the low of the bar was 122.57. The trend line came in around 122.60. You could either have entered long at the trend line of 122.60 with a top loss below the trend line at say 122.40 or you could have dropped down to a 5 minute or 15 minute intraday chart to watch price action at this level.

The idea is you are only in the trade for 1 bar so you would close out at the end of business on the Friday. In this case the close was 124.50 which, was a gain of 190 pips (Approximately $1526).

The reverse of this is true for a down trend. Draw a trend line along the highs of bar 1 and bar 2. Extend the line one week forward to find an entry level. The trend line in this case was around 123.00 and the actual high of bar 3 was 123.19. A stop could have been placed at around 123.40 or you could have dropped down to an intraday chart to look for an entry. The actual close of bar 3 in this example was 120.24 if you had entered at 123.00 you would have made 276 pips (Approximately $2295).

If you drop down your time frame you can wait for price to hit the trend line on bar 3 and when it starts to move in your direction jump on board. In an uptrend once you are in you can place your stop below the low of bar 3 and in a down trend you can place your stop above the high of bar 3. See chart below.

Good Trading

Mark McRae

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Information, charts or examples contained in this lesson are for illustration and educational purposes only. It should not be considered as advice or a recommendation to buy or sell any security or financial instrument. We do not and cannot offer investment advice. For further information please read our disclaimer.

How To Nail The Market When Everyone Else Is Wrong by Mark McRae

Picture the scene - you have done your analysis and have been waiting for the breakout of a range. You might even have identified a head and shoulders or double bottom. So anyway, you have a trade all set up and you are just waiting for the move. Let's say you have identified a rectangle and are waiting for the breakout. You have your orders set up so that if it breaks up you are automatically taken long. You're trading an hourly chart so you are checking it frequently to see if there has been any movement.

Suddenly- bang- the market starts motoring up. Your buy stop takes you long and you are sitting pretty. You start to watch the market and check to see that your stop loss is in place. Then suddenly without warning the same bar that made you feel like you should start counting your money turns around and heads back down.

As it heads back down you just know it's going to take your stop - and it does. Now you no longer have a position. You start to look around for another entry or setup to get a trade on: but wait - we just missed a huge opportunity.

In this lesson I want to explain a great way to benefit when everyone else is wrong. Here's the theory. Most trader are very single minded when they trade. They get an idea into their head and it stays there.

Once they have decided they are going to go long on a breakout they generally stick with it. This is particularly true of well-defined technical levels like the 52-week high or low. It could even be a trend line or chart pattern. The thing is, it could be anything.

If you follow only one or two markets you will know what I am taking about. Even though you shouldn't listen to other traders you will probably have a fair idea of where the major support and resistance levels everyone is watching.

Remember also that trading is as much about the study of human behavior as anything else. Once one of those big levels breaks everybody and their dog will try and get on the right side of the move. This is where we come in - listen up, this is important.

When The Market Doesn't Do What You Expected It To Do, Chances Are It's Probably Doing The Opposite.

For example - lets look at our greedy little friends who went long on the breakout and got wrong footed. Some of their stops will have been taken and some of the kamikaze crowd without stops will be filling their pants. This is exactly where we jump in - when everybody else is exercising damage control.

To take advantage of this we need two plans. Plan A and Plan B. As you probably guessed, Plan A is to go with the crowed: if the market breaks in the direction you first assumed it might, then you are there. You have an entry point, a stop loss level and a probable target already worked out.

Plan B is where we excel. If the market breaks the other way, we also have a plan.

In the chart above you can see that we had a down trend followed by some consolidation. The market first went down to form support and then headed back up to the upper trend line.

Now very often consolidation will break in the same direction as the trend, so it wouldn't be unreasonable to expect the market to break down, which it did. This would have taken us short, with a stop probably at the previous resistance and a measured target on the down side of the difference between the support and resistance.

This is what happened next.

Instead of continuing down the very next bar became a reversal bar.

Side Note: For the two period reversals up, the first period should be at the end of a strong down move. The close should be near the low of that period and it is preferable that this low is a new recent low. The second period should open near the close of the first period and should regain most if not all of the first period's losses and close near the high of the first period. There does not need to be a reversal bar for this to work. It just so happens there was one in this example.

So now the market is doing exactly the opposite of what we expected. Being the opportunists that all good traders should be - we close the short position and open a long position with a stop below the low of the failed breakout.

We are now long the market with a stop loss in place - but we need a target. The first target I would head for would be the previous resistance. The reason I would choose this is simple. We may be headed into a long period of consolidation and the price might start oscillating between support and resistance.

However as the failed breakout also happened to be a two period reversal, I might keep the long and just monitor what happens at the resistance level. Depending on market conditions I might also have an order to add to my long position.

The important thing here good buddies, is to always be ready to exploit what the market is doing. When you see an obvious failure of a - trend line, support/resistance or a chart pattern, have a plan in place to take action. Don't just watch it - exploit it.

I know some traders who only trade this way. They watch for easily identifiable patterns, which everyone is watching and exploit the failed move.

Good Trading

Best Regards
Mark McRae

Information, charts or examples contained in this lesson are for illustration and educational purposes only. It should not be considered as advice or a recommendation to buy or sell any security or financial instrument. We do not and cannot offer investment advice. For further information please read our disclaimer.

Intraday Trading Tactics by Mark McRae

In this lesson I want to discuss intraday tactics that you should be aware of when you start to trade intraday.

By intraday I mean very short time frames such as 1 minute, 5 minute and 15 minute charts. This will apply to traders who actively trade and probably trade frequently during the course of the day.

Regardless of what technique you use to enter and exit the market this approach will aid you in deciding if you are on the wrong or right side of the market.

The first thing you should do when trading intraday regardless of the security is to have some general idea of where the market has been recently. You cannot of course start the day with a strong directional bias. The reason you cannot start the day with a strong bias is that intraday the markets can be very volatile and if you have stubbornly decided the market will go one way and it starts to go another you will find it difficult to change direction. This is because you will try and convince yourself that the move against you is temporary.

To overcome this directional bias I use the following discipline to help tell me when the market is doing something different from what I expect. To analyze the market first think of what happens in a typical up trend or down trend.

Let's say that in an up trend the last two-day have made higher highs and higher lows. The close has also been higher for the last two days. In order for that little up trend to continue what should happen?

For the up trend to continue on day 3 you would expect a higher low, a higher high and a higher close right! So lets look at what should happen on the third day.

On day 3 I would first like to see a low in place in the early part of the day. I often find that when an up trend is continuing the low is made first. In a down trend I like to see the high of the day made in the early part of the session.

As you can see from the chart above of day 3. We had the open then early in the day a low was made. As the day progressed the high of the day was made towards the later part of the day and then finally the close.

So how does this information help me? Well, if for example the low of day three continued lower than the low of day 2 I would begin to wonder if the market was retracing or reversing.

If the low of day three took out the low of day 2 when I expected it not too I would stand aside until I had a clearer picture of where the market was headed. It may just be that the market will continue up after making a low lower than day 2 but why take the risk.

I also like to see the low of day 3 tested in some way. As you can see from the chart the low was made then the market made some progress upward and then came back down to near the newly formed low where it found support (buyers).

This for me is a great indication that there is some demand at that level and gives me an opportunity to enter the market with very little risk as I can place my stop under the newly formed low.

As openings can be volatile I like to watch the first 30 minutes to 60 minutes to see how the market is shaping up before taking a position. I start with no definite directional bias but I am aware of what has been happening in the last few days and if it does what I assume it will do then I am ready to take action.

If it does not do what I assume it will do then I know that I may have miss-read the market and am ready to rethink my tactics for the rest of the day. As you should know by now the market is always right so its OK to have an opinion but don't get married to it.

If the market takes out the low of day 2, stand aside and rethink your approach for the rest of the day particularly if the move is a strong move in the opposite direction from where you thought the market would go.

The one thing you shouldn't do is wake up thinking that the market is going up (or down) and just keeps trading in that direction. Don't fight the market, it will always win. Just go with the flow and realize when you are not going your way.

Good Trading

Best Regards
Mark McRae

Information, charts or examples contained in this lesson are for illustration and educational purposes only. It should not be considered as advice or a recommendation to buy or sell any security or financial instrument. We do not and cannot offer investment advice. For further information please read our disclaimer.