Mastering the Art of Trading - MT4/MT5 Resources

Hello FF,

It's been about five years since I first came here and I haven't looked back since. I've met some great people along the way and made leaps and bounds with my trading education.

Here are some of them:

A little bit about me and my style

I am 23 years old and downloaded my first demo version of mt4 when I was 18 years old. Since my time at FF I have tried many different trading systems, some of which are still active today and work as they should. The real breakthrough happened when I visited the James16 thread and the rest is unforgettable history.

For quite some time, if I wasn't spending 6 hours a day looking at charts and making at least 10-15 trades a day, I wouldn't consider myself a real trader. It wasn't until a few years later that I realized I wasn't cut out to be a trader on the m5.

I trade 4H and 1H TF every day. I no longer have to spend 10 hours a day in front of charts. In fact 2-4 hours is enough. I no longer fight the “noise” of news surges and short-term order flows. I no longer put money into 10 trades a day. I have as many currency pairs on my watch list as my broker offers. Here you will find a wide range of charts from the major currency pairs to the most exotic ones. Well, a price is a price and it does not change its course of action in foreign markets, not even in non-Forex markets, for that matter. It's not unusual for me to watch over 50 currency pairs at any given time, and yes, it still takes me several hours to make/manage trades.

I primarily trade support and resistance levels following the teachings of James16's group. However, I only use this knowledge in an indirect way to validate and manage transactions. My "system" is somewhat different from traditional james16's stuff, but it's still a pure modification of the material itself through the ideas and research work of very senior members of the group and FX Factory forums.

Basics of the method

Preface

By placing the material contained in this article, I am assuming that my audience has at least some exposure to the James16 group on Forex Factory's public threads or private forums. While this system is not a direct application of James16's material, it is mostly a modification of it, and at its core remains very much intact and in its original form. This approach works best for those who have a good understanding of how we view James16group charts.

Identification of swing points

In simple and clear terms, these points are defined as points in the market where price turns around, either long-term (reversal) or long-term correction/retracement.

These are not hard to spot on the chart. Here's a chart to help you...



Simple enough?

Fake profile

We know that there are two types of traders participating in these markets. New traders are undercapitalized and quite naive when it comes to trading knowledge. And then there are the really big pros, hedge funds, banks and other institutions who know their stuff and have really big accounts. However, these “cool” traders face one major problem, which stems from the size of their accounts. Liquidity issues. The FX market is one of the most liquid in the world, but there is still a problem when a hedge fund wants to sell 10,000,000 units of EUR/USD at resistance, when apparently everyone else is willing to go short as well. Do you understand why? How many traders do you think want to go long in a market that is heading toward resistance? This creates a serious problem and then these people are going to do something to fix it. By the way, these are smart people. Rather than selecting a 10,000,000 position size at a single price level, they break the position size into smaller lots and execute at closely coupled price levels. They also artificially create buy-side liquidity in the market by targeting novice traders.

Small positions sell at support and buy at resistance, creating a "buzz". Or simply cancel all orders, leaving a vacuum for retail traders to push prices higher. Enough manipulation tricks traders into thinking that price is about to break support/resistance. Breakout traders start to get involved. For example, at resistance levels, short traders in the market are likely to have their stops placed above the resistance or below the support (the pros know this!), and they start to panic and their stops start to get hit, creating more buyer liquidity (the stop for a short order is actually a long order). By creating an artificial scenario in the market, professional traders successfully act like sheepdogs and lead the flock to where they want it.

They can now exit their long positions and start dumping huge short orders on traders willing to buy the breakout, which will be a false breakout. Now guess what? All those traders who were long will start to hit their stops as the big orders are driving the price down and creating more selling in the market to push the price down (long traders will be closing their positions by selling off), but the pros are already in and any selling pressure now is just adding cash to their wallets. Some smart people and james16 may be looking at the pin bar that shows this and is short with the big boys too. Do you see now how 95% of losing traders line the pockets of the remaining 5% of traders? Naive traders lose when they go short at resistance levels. Just when he thought he could successfully break through, he also lost.

These professionals have nothing against retail traders. Just like a vast ocean, the survival of big fish means eating small fish. After all, this is a zero-sum game.

So what does a false out look like on a chart?



In areas of strong support or resistance, you will often see price move sharply to signal a breakout, and either on the same bar or over the next few bars will drop sharply back to the swing point. It either leaves a shadow or some dead bars (low range indecision bars), shows a strong move up (like you see in a breakout), and then completely reverses back to RES/SUPP.

What I've said above is good knowledge for those of you who are really interested in going behind the scenes and getting a sneak peek of the "behind the scenes," but it's perfectly fine to get ready and watch the action as it happens from the comfort of your audience seat.

Enough of the minutiae about the chemical makeup of bread and butter…let’s get started on some.

The system explained

How to turn this market knowledge into a consistent and reliable trading approach:

You just need to wait for the price to approach a major swing point . You know that a certain point in the market will be watched by many traders. They may expect different things, hence the "market imperfection", which is what gives you the advantage.

For a short setup, price must move above the highest high of that resistance period (what I call HHR - short for Resistance High High), and fail to reach a close above resistance, preferably on the same bar, i.e. leaving a "wick".

Likewise, for the bulls, I'm looking for a move below the LLS (lowest support low) that fails to sustain and closes back above, leaving a shadow.



Entries will be made at the end of the false breakout . Since it can sometimes be far away from the source itself (in the case of price closing away from a long peak in HHR/LLS), a good idea is to wait for a pullback (which happens often) to HHR/LLS via a pending order once the false breakout is formed . Obviously, the latter strategy may cause you to miss some trade setups, because while price will usually pull back to HHR/LLS at least once after a false sell pattern, it will not do so all the time. For me, it almost always comes down to the level of the setting itself and its proximity to relevant sources. If I find that it is a setup away from the big zone, I may not wait for a pullback and enter on the close, other times I will wait for a pending order at HHR/LLS. Of course, if you get a false close, close enough to HHR/LLS, the close on the bar itself is perfectly reasonable.

Under this method, the false-out setup is not over yet unless your closing price exceeds the false-out high/low. period.

There is enough literature and charts out there that, if you do your homework, clarify that false outs are most valuable until price fails to respect the order flow that produced them. Most of the time this can be illustrated by a strong close above the false exit high/low. Other times, price actually does this (i.e. approaches the fake high/low) and completely reverses in line with the order flow that created the fake.

There's really no way to determine when the fake settings have expired . It is important to understand that a certain degree of ambiguity and gray areas must be deliberately excluded in order for the market to be imperfect enough to allow for the margins to exist. Think about it, if counterfeiting as a phenomenon was repeated exactly every time, the "advantage" it represents for pro players would be lost. Remember, it takes a lot of smaller fish to feed one big fish.

Again -> According to this method, the false out setup is not over yet unless your closing price is above the false out high/low.

This can be a good baseline to provide your method with the rules it relies on. If the price goes in the opposite direction to the false exit and the position is closed strongly, then the false exit is usually unlikely to succeed. Not always...I mean usually.
Interestingly, it raises another major question. Waiting for the bar to actually close above the fake-out high/low is essentially leaving your stop completely open until your close is above the fake-out high/low. This can be particularly detrimental if you day trade. Additionally, it obviously complicates position sizing calculations since you don't know the exact point and can only make a rough guess at the position size.

My stop loss (strictly literal stop loss) is set any few pips outside of the false exit high/low. Again, there are no hard and fast rules here, I can go a little tighter or looser depending on the situation and the size of the wick of the fake stem. For example, if my HHR/LLS line lines up with RN, I can use it as extra buffer and put a tight stop to enjoy a better R:R.

When it comes to stop losses, you have to base your judgment on your assessment of the setup itself and your intuition on ongoing market behavior. This is easier said than done, as decisions about stopping losses are often the ones that involve the most emotion. I can't stress enough that experience comes into play when it comes to intuition, and you have to practice, practice, practice this approach until you start to look beyond your emotions to predict market behavior.

As an order flow method, how well you use it depends not on the rules but on your grasp of the price action and order flow dynamics. That's why I feel knowing James16's stuff is a huge advantage!

Another key aspect. Depending on the strength of the setup, I'll quit at the first major S/R zone, or prefer to stick it out and see if it can break through (for stronger setups)

In the James16 group we discuss the concept of "space and transportation". Trades that encounter fewer highs and lows and HCR/LCS levels have greater potential than flow trades. Traffic here is defined as tight spaces close to trouble areas, especially when you go straight into a consolidation period or into a major PPZ.

"Decent space" is a crucial requirement for me, and unless other factors are in my favor (very strong swing point, large false breakout wick), setting up into traffic will be denied.

Video channel link:

GFX Trading - Master the Art of Trading

Important post links:

Explaining the "Counterfeiting Phenomenon" Through Past Transactions --> Post #45

Risks of Trading in Strong Trending Markets --> Post #46 , Post #221

Handling different 4 hour/daily columns off on different feeds --> Post #48

What is "Trouble Area No. 1" --> Post #64

Understanding the "big picture" --> Post #68

Space - an important consideration for your trading --> Post #84

Using the idea of ​​"multiple confirmations" for fake setups over shorter time frames --> Post #101, a couple of good examples --> Post #111

I am a purely technical trader --> Post #198

How far to the left should you look for a swing point to trade --> Post #242

I'm leaking tips from professionals, which should piss them off and importantly prevent the system from working, or will it? --> Post #249

Dealing with spreads on foreign currency pairs --> Post #255

Did the setup expire when the price hit the stop? --> Post #300

Compilation of important posts from group member Max Pain --> Post #334

Liquidity Equilibrium and Disequilibrium --> Post #460

The trade-off of a single swing point versus multiple highs/lows (i.e. the S/R "zone") --> Post #615 , Post #616