AUDUSD

Hi,
Attached above are 2 charts of AU which should be an interesting pair in the upcoming week. One chart is the daily and another is the weekly. As you can see from the daily, there is a strong resistance at 0.7202 and a double top at 0.7266. These have been serving as very strong and reliable resistances for the past month or so. They would continue to act as strong resistances in the upcoming week. If they do get broken, we could see AU go all the way to 0.7813... Lets see. Unless these resistances are broken, i will keep shorting this pair whenever it gets near 0.7200..

MM and VSA

Here is a chart which was put up by a great visitor of my thread in FF to explain a different concept. I am posting this here as it is a great example of how MM and VSA work together. In case anyone is wondering what VSA is, it is Volume Spread Analysis. It is a study which tries to predict SR points and PA based on the volume and the spread of price bars/candles.

Rather than going into details of VSA, which is rather complicated, let me try and explain the chart in very simple terms.

On the EU chart, in the first circle, price has broken thru the 2/8 support level and you can see that the candle that broke thru the support has a very wide spread. This shows that there have been lot of sellers right through the candle. This selling started at the top of the swing at around 1.3380 but the big sellers came in only in this bar and it is this huge selling that pushed the price through the support and make the support break possible....So any candle with a wide spread breaking through a support is a sure confirmation that the support has been broken. So you can surely expect some more follow through selling after the bar as well.

As you can see the follow through selling continued and in the second circle, there is another wide spread candle/bar which broke thru the support at 1/8 MM level. This also points to big sellers at those prices who managed to break support. Again, this confirms the break of support and leads to some more follow through selling.

The body of these wide spread bars/candles has a lot of sellers residing in them. So next time, if and when price manages to come back to the level (into the body of the bar/candle), you can expect the same sellers to be waiting there once again. This is what is happening in the third circle where the price has come back to the body of the wide spread candle and is faced with a lot of sellers who had initially pushed the price down in the wide spread bar/candle (second circle). The same sellers again start selling in the third circle and u can see how price struggles to go through the body of the bar/candle in the second circle. It needs a lot of buying to absorb all the selling made by the sellers at the body of the bar/candle in the second circle. Finally, after 3-4 hrs, all the selling has been absorbed and the price breaks thru support turned resistance and goes through.

Now the same situation happens in the fourth circle. This time the fight is between the sellers who were residing in the body of another wide spread bar/candle (first circle). You can see that price is struggling to break through and buyers are trying to absorb all the selling. But this time, all the buyers are simply not able to absorb all the selling and they lose the fight. The sellers residing there win the battle and price goes down again.

After this, you can see some more wide spread bars/candles to break through support. It is because of the above explanation that we can expect to find resistance (or a lot of sellers) at the last 2 circles in 1.3184 and 1.3245).

In all this, you can see how MM managed to pick all the SR points correctly. So, it is not that there is SR cos the MM levels are there. It is just that the SR levels have been picked out superbly by MM. You can see similar things in the other chart on USDCHF as well.

See how beautifully MM and VSA work together.

Newbie Syndrome

Today, i would like to discuss about what i call the newbie syndrome. Most of us, when we start out, have small TPs in our minds and we all enter forex after some thorough study and all studies tell us that we need to have strict SLs. So when we start out trading, we have good TPs and SLs and we trade diligently.
With this kind of trading, we slowly accumulate our profits and suddenly we find that we have doubled our account and we feel happy and proud. But as the size of the account grows and as we make more and more successful trades, we forget our good habits and slowly fall into bad ones.

We forget that we need to have SLs, we forget that we need to set good TPs. So what do we do? We find that some of our SLs get hit and then the pair travels in the direction of our trade. So, slowly, we stop using SLs. We keep losing trades and we keep hanging on to them hoping that somewhere somehow some magic would happen and we would get back to parity on our trades. We also become greedy and start having impossible TPs. We forget the strategy that we used to make so much of profits and start trading with no strategy at all. This slowly leads to degradation of our account and one fine day, we find that our account has been wiped out totally.
The best way to make money is to be patient with our profits and impatient with our losses, but we always do it the other way around. We are impatient with our profits and we close our successful trades with very small profits. We are very patient with our losing trades and we keep waiting and waiting hoping that it would come back but the trade never comes back and it either closes out our account or someday we get a flash, understand that the trade would not come back and finally close the trade with a huge loss.

The above is the newbie syndrome and i guess many of us would have gone through it. So find out what strategies made you make a profit and stick to it. Dont change it. Times would change and your trades would keep going up and down but stick to strategy. Keep studying the market, its changes and keep analysing and keep developing new and better strategies in sync with the changing market. Analyse your new system thoroughly and make sure that it would be a profitable one in the long run before you decide to leave out your previous trading system and switch to a new one.

Understanding MM levels

There seems to be a lot of confusion on how to trade these MM levels....lemme just introduce to you what these MM levels are at a high level...and believe me, this is all that u need to know about the MM levels if you are going to trade using PA and MM levels...

Murray Maths tries to divide everything into octaves (i.e. by 8)...whether it is price or time or whether it is forex or stocks or whatever...everything is divided by 8.. So what the MM indicator does is basically divide 2 important price points (at swing lows and highs) into octaves. This leads to 8 levels which are called the MM levels. These are the standard MM levels. Apart from this , these can be extended further in both sides to form the overshoot levels....In fact, you can keep extending these levels on either side for as long as you want.

Just as in fibs, the amazing point here is that the price seems to respect these MM levels as points of SR. How or why, i really dont know but we know that it does.

There are 2 points of confusion here : one is the fact that the MM levels change with the TF that the chart is in and two, the MM levels seem to repaint. Heres why :

As the MM levels are calculated based on swings in the current timeframe, the swing in each timeframe would be different. The swing in a daily chart would be much bigger than the swing in a 5M chart. Thats why the MM levels differ according to the TF of the chart. The MM levels, irrespective of the TF that they r calculated in, do act as SR points but the MM levels in lower TFs are weaker than the ones in higher TFs. In other words, you can be sure that the price would respect the 4/8 MM level in a daily chart much more than it would in the 5M chart.

Next question is, does the indicator repaint? Yes and No. Since the MM levels are calculated based on price swings, as long as the price continues to swing within the 2 points with which the levels were calculated, the MM levels wont change. But if on any day, there has been very less or very high volatility which has caused price to swing much less or much more than the normal swing, then the swing points would have changed and hence the MM levels would need to be recalculated. Thats why i make it a point to close and open my charts atleast once a day especially if on that day, the price had swung very less or a lot more.

Hope this is clear.

A sample PA setup

Attached is a chart which i will use to explain one of the PA setups.

Attached is a 5M chart with the 1H MM level plotted on it. One of the basic things to understand is that for a true break of a SR to happen, the bar which breaks it should have a higher spread than the ones around it. This is true 85% of the time and the logic behind that is simple. A resistance level is the level where we have a lot of sellers. So, in order to break thru this level, a lot of buyers need to be there to absorb all this selling and when they do buy a lot, they push the price higher than normal. So, in this chart, u can see that the bar which broke thru the resistance has a bigger spread than others. This confirms the break.

You can also see that after the break, the price runs away for 2 bars and then retraces back to the nearest support. This happens 80% of the time and this retracement back to the support confirms the break and provides us with an opportunity to get in long with a very small SL. As you can see, after the break, the retracement happens and after the retracement, the price simply runs away.

Profits, Losses and Stop Losses

Everyone needs to understand that losses are a part and parcel of the trading game. There is no way that anyone can avoid it. No one can be 100% successful always. So we need to take losses in our stride and try to minimize them as much as possible.

Trading is a game of percentages. If your win percentage is 50%, you are not doing great. But just increase that percentage to 70% and you would be sitting on a huge amount of profits. You need not be successful 90% or 95% of the time. Just being successful 70% of the time would make you a hugely rich man. We need to learn that and also accept that. But we need to ensure that we are atleast 70% successful consistently and this is where choosing your supports and resistances comes into the picture.

Does knowing support and resistances always make you successful and guarantee that all your trades end up in profits? No..Not at all. The knowledge of supports and resistances and other tools of the trade increases your chances and your percentage of your successful. Thatll. When you start off trading, you have 0% chance of success. Maybe you have some luck on your side and so your chances increases to 10-20%. That might make you win trades initially but in the long run, you would end up a loser. As you learn more and more the tricks of the trade and improve your knowledge and strategies, you slowly increase your chances of success and only when you increase it to above 50% do you start earning profits on a consistent basis. That is why there is no one in this whole world who keeps winning in his trades right from day one till the end of his trading career. No one can keep winning always. We need to remember that. Our main aim is to increase our chances of success as close to 70% or 80% and not 100% cos you never can be 100% successful always.

Now lets move on to stop losses. Stop losses are something which no one ever seems to get it right. Its tough for any trader to deal with the stop loss. Which is the ideal SL for my trades? Is it 100 pips or 300 pips or what? No one has endless money to keep hanging on to losing trades forever. If we did, we would not be trading. That is why it is good to have enough money, have good money management so that your SL is big enough to handle your losses. There is no fixed SL for any currency pair or for any trades as such. Your SL should vary depending on the pair and also depending on the situation and how and where you have taken your trade.

Yesterday, I had talked about averaging. I had said that averaging should be done only in the direction of the trend. While the trend is still intact, you can extend your SL to the maximum extent that is possible for you. Lets take GBPJPY as an example. It is in an uptrend right now. Lets say that it has met with some resistance and so you have taken a short. Having a SL of 300 pips for your short when it is against the trend is foolish. So if you want to trade against the trend, have your SL at a safe place where you know that it is not going to come back. For GBPJPY, it can be 75-100 pips maximum.

On the other hand, if you know that you have taken a trade with the trend, you could afford to have a much bigger SL and also add to your losing trades as well for the purposes of averaging. Your SL can even be 300 pips for GBPJPY if you are sure that the trend is still intact while having the same SL for a trade against the trend would be foolish. So the SL will always vary with the currency pair and also the situation under which the trade is taken. This is why it is very important to understand whether a move against your trade is due to a change in trend or due to a retracement. How do we identify that? We will discuss this sometime soon.

Money Management - 2

he concept of stop loss and money management cannot be stressed enough. It is very easy to makemoney in the forex market. How much you make and in what time depends on how good you are. Let meexplain how easy it can be. Any sane person can find the long term trend in a currency. Just open the daily chart and find in which way the chart is moving. If it moves up from left to right, then the trend is up. If it moves down from left to right, the trend is down. Simple. You dont need to know rocket science to find this.

Next, you need to have enough money and you need to buy lots in the direction of the trend. Assume that you have $5000 in your mini-account and you buy 1 lot which would cost you, say $50. This means that you still have $4950 for handling the situation when the buy goes against you. Assuming that you buy EURUSD, the price has to move 4950 pips for you to burn up your account and be out of the trade. And what is the chance that the price would move 4950 pips against you if you had bought it in the direction of the trend? One in a million maybe. The price may go 300-400 pips against you but it will always come back if you had bought the pair in the direction of the trend. So making money in forex is as simple as picking the direction of the trend and having enough money to sustain your losses.

As said before, how much money you make and how soon the price, after it moves against you, comes back depends on what juncture you picked up your lot. It may come back in a few hours or days or months but it will surely come back. If you had picked it up at the right point and in the right direction, it will come back sooner. If you did not pick the right moment, it will still come back but it will be later. This is why you need to know the supports and resistances and the direction of the trend. If the trend is up and you go long at a support, even if the price breaks through the support and drops, it will surely come back. You need to wait patiently.

So always have enough money in your acccount and choose the time you get in, carefully. Lots of time is still left and the market is always going to be there. So dont hurry and dont blow up your account. There have been instances when many users open a $250 mini account and buy 1 lot in the wrong direction and blow up the account in a few days time. They keep doing this 4-5 times before they start realising this. Whereas, if they had spent time to accumulate that money (4 times $250 is $1000), they could have invested $1000 in the account and chosen the right moment to get in and thus made money. $1000 gives you a much better chance of survival than having $250 in your account.

So keep it simple. Choose the direction, choose the time and go for it and make money!!

Attached is a sample chart with the MM level indicator. Look how the price follows these levels strictly.

Murray Maths

Murray Maths is a very complicated technique involving complex calculations. It involves dividing price and time into octaves and coming up with supports and resistances based on that. Thankfully for us, we need not understand what goes on behind the scenes and we need not know how it is calculated. We have a very good MM level indicator which draws the MM levels for us.

It draws the levels by choosing the highs and lows of the current chart and diving that into octaves. Since the indicator chooses the current chart, the MM levels vary according to the time frame of the chart. Of course, the MM levels in chart of higher TFs are much stronger SR than those on smaller TFs. For the indicator and PDF on MM levels, please refer the thread on FF.

Supports and Resistances

Supports and resistances are points in the price of an entity (it can be a share or a currency pair or a commodity or any other entity) where the prices stall. They have got more to do with history and user sentiment. Lets say that the price of the entity is 5 to begin with. It begins to rise and it keeps rising and seeing this price, more and more people would want to jump in and they keep buying and the price rises even more. This means that the demand is more than the supply and as long as this happens, the price will rise.
The price will continue to rise until a stage is reached where people start to feel that the price has become high enough or those who bought it early feel that they have earned enough profit. Lets say that at this point, the price of the entity is 10. So, people start feeling that the price has risen too much (this is also called overbought conditions) and slowly start selling. The demand becomes less than or equal to the supply and the price slowly drops from 10. As the price continues to drop, the people who plan to make money on shorts also jump in and the buyers (even though they might have very less profits or are in loss) start getting panicky and they start selling and the price starts falling more and also at a faster rate.
So the price continues to drop from 10 and thus 10 becomes resistance as the price has not breached 10. Next time the price comes close to 10, the buyers and the sellers will look at past history and find that 10 was the place where selling started the previous time and so the buyers would want to get out at that point just to be on the safer side and so 10 becomes a even bigger resistance.
The price drop from 10 continues and at one place, the opposite to the one explained above happens ie. the users feel that the price has dropped too much (say at 2) and they start buying again and the price starts to rise again. Thus 2 becomes the support.
Remember, the greater the amount of time that a support or resistance has not been broken, the stronger it is. Even yesterdays high and low are resistance and support respectively but they are not very strong as they are quite recent prices.
So, always watch out for supports and resistances. The big banks and traders dont sit with their ema or whatever indicators and buy and sell based on that. They look out for stops and resistances and buy / sell based on that. So be careful, watch out for opportunities and get a feel of the market before jumping in.

Money Management

what i have personally learnt is that price action is King. I have tried hundreds of indicators, standard ones in MT4, ones posted on FF, ones on russian forums, u name it, i have used it.....thru all this, i have found that price action is the best...indicators seem to work but they work only for specific periods and for specific types of markets, they dont always work....so one week, they work very well, u make a lot of money and u start trusting it....so next week, cos of ur trust, u start to overleverage when u take trades and what happens ? the indicators dont work and u lose whatever u earnt and more....

Studying price action is not easy...it takes time, it takes experience to understand how the price moves, when and why...forex is not a get-rich quick scheme.....but when we are ready to spend so many years in our respective work areas (manufacturing, automobile, software etc.) to get some money, its amazing how people tend to get impatient when they enter into forex and they tend to over leverage.

Lesson no. 1 is 'dont ever over-leverage'....u should not risk more than 3% of ur account in any trade...ever....if u do, u are bound to lose in the long run...u could win in a week or mnth but u will lose in the long run....thats for sure....

reason why people over leverage is cos of greed....lesson no. 2 is to control greed....but its a contradictory thing....lets face it...most of us trade cos we are greedy...we are not happy with the money that we are earning and we want more...thats why we move to trading...but, the trade experts say that we should not be greedy....how can u avoid something which was the very reason that u entered into forex in the first place?? its tough....its really really tough....it took me about 3-4 yrs to control greed....

but just remember this, do u realise that by earning just 50 pips a day using a $1000 account using 3% leverage, u could be making $1000 a mnth after just 5 mnths? and $2000 a mnth after just 7 mnths?? $2000 a mnth is more than enough for a lot of us...and i could go on and on on how we could keep building this amount....

what i have said is not impossible...anyone could afford $1000....3% leverage is a standard leverage...and 50 pips a day is very much possible if u know what u r doing....so, all that i have said above is possible for all of us....but it keeps a lot of self control...

u could make 50 pips a day just by trading for 2 hrs a day during the euro or the US session.....but being patient and waiting for the right trade is the key...thats where everyone loses....

Introduction

Hi All,
I am Karthik from India. I have been trading forex for the past 4-5 years (never realised that i was trading for so long until i checked my records today !!). Anyway, as the title suggests, i trade mainly using Murray Maths and Price Action. I run the very succesful thread at Forexfactory on the same topic (http://www.forexfactory.com/showthread.php?t=159471) . Before i go any further, a little history about my forex career.

As stated, i started out about 4-5 yrs back. I have lost a lot of money and i have also gained a lot of money. But most importantly for me, i have learnt a lot during the journey. As my experience grew, i also started managing accounts. I blew up some of these accounts (along with mine) initially, due to various reasons, which included the fact that i was new to managing accounts at that point of time and also due to the investors themselves who wanted me to over leverage inspite of me repeatedly warning them about the risks involved.

Anyway, as stated, i grew up and learnt a lot and now i am a fund manager with a company in Slovenia (www.traderobot.com). I am not a full time fund manager or forex trader (yet) and i have other businesses to take care.

Anyway, i wish to use this blog to share some of the lessons i have learnt so that i can fast track some of you guys and also help some of you avoid the pitfalls that i faced. I will not only try and share what i learnt, i will also post charts and reveal how i trade.

Lets see how things go...