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Welcome to the Katana Trading System
Named “Katana” because it’s the weapon of choice of the Japanese warrior class, the Samurai followed a set of rules that later became known as the “Bushido”
In trading having a set of rules is paramount to success.
This system is based around using price bars, not time based bars. Price bars in my opinion are far superior in a few ways when compared to time based bars.
Price based bars represent price movement, they will not close until price moves a predetermined number of price increments.
Where the time based bars close as we know after a set number of minutes, but we’re not trading minutes, we’re trading price and price is what will pay you.
The main advantage of this is that the bars are all the same size. Traditional candlestick charting methods like, outside bars, inside bars and doji have no place on a price based chart, some may consider this a disadvantage.
To understand the logic behind this trading strategy, understanding how price moves first will help.
1) Determining the direction of price is the number one priority. ****
In the currency market, price will typically move like this.
Consolidate between set levels, then move to the next set level. That is basically how price moves. These set levels typically are bound by price levels.
These levels are formed around whole price numbers. The strongest of these levels is the xx00 and xx50 levels. That is for example 1.3600 1.3650 1.3700 etc. Mid point price levels like xx25 and xx75 also affect price, those being 1.3625 and 1.3675 for example.
This is how you must view the market. Price consolidation and price moving from one price consolidation level to the next price consolidation level.
To determine the direction of price look back on the chart and determine what price is doing. If price is going top left to bottom right it’s clear that price is trending down. To make things simple, use a moving average of price to simplify this.
The period and type of moving average is of little consequence, what is important is the direction of these moving averages, and where price is in relation to these moving averages.
Once the direction of travel of price is determined, then the direction to trade in is then determined. This is the number one priority, determine the direction of price.
Next understanding how price reacts to price levels and the signs to look for to consider entering a trade.
As I outlined earlier price moves in congestion zones, moving from one congestion zone to the next, typically bound by xx00 xx25 xx50 xx75 levels.
Price also will move between these levels frequently. Once we have determined if price is trending and the direction of the trend, the next thing to do is to wait for price to retrace against the trend direction.
Once a retracement begins and is recognized as a retracement, the next thing to do is to look for a reason to enter either short or long.
To keep things simple I’m not going to talk about price patterns, bar patterns or anything like that. I’m just going to say look at the Stochastic Indicator as a guide as to whether the retracement is a retracement or not, and then look at another Stochastic indicator and use this as a guide as to whether the trend is likely to continue.
This is about as simple as it gets.
Determining where to put your exit positions, is easily determined by the price bars. Using a fixed number of pips as the exit is also an option, the reason being is that the price bars are all the same size, and as such it’s easy to use a fixed number of pips once you have identified a bar to use as the entry bar.
Finding a place to exit is also quite easy as well, typically the next price level in the market is where price will react to next, hence this is the region to use as the take profit.
Direction of pricing
Leunammjadnanas: To further elaborate and simplify what the author is referring to my understanding is that, before you decide to enter into the market either by short or long, you need to determine the direction! Are you with the trend?. This is talking about the understanding of which direction that currency is more dominant over the other one.
This Katana Trading system works best for Long pips traders, meaning one may hold up long hours to few days for a trade. You probably may want to set your chart timing to 15minutes and above to be able to see the direction. However, please be cautioned that whichever currency you are trading, pay close attention to the weekly economic calender and any sudden major spikes news.If you are using metatrader 4, just remember to set expiry date, so you don’t commit yourself waiting for too long and entering in the wrong time.
In a daily or weekly trading, there are high and low daily, and at each market opening and closing. The author says that at price xx00 and xx50 is where consolidation of the trend sets place, often we may refer this as pivot and psychology trading. For example, if you enter into a long from 1.2980, and it hits 1.3000; you tend to visualize that it already crossed the border ( resistance ), and it probably will find its new high and low on each market opening and closing period. Hitting the mid level – xx50, at 1.3050, you visualize that its probably up trend, and traders will tend to enter a long one.
It’s strongly advisable to set take profits, never be entrapped in a trade for too long, that is why scalpers tending to profit quickly and more; is because they take profits and kept it in their equity and balance, before deciding on the next trade.
New Traders and beginners may tend to enter the market in one direction, and hoping their bet is with the trend, this is quite a gambling technique; its is 50-50, either you win or lose when the pips move in whichever direction. This is severely self-defeating for high leverage trades; mostly on Forex Retails Broker; you tend to lose your capital or investment sum more quickly even if you may win. In the long term, you will lose more.
If you have a high volume capital sum, go on a low leverage and lower lot size, open a hedge technique combined with scalping. Meaning to say; You discovered the trend and decided to enter the market.
- Open 2 or more long or shorts depending on the direction. ( always capped it within your management, i preferred 3-4 )
- Set different take profits for each trade. ( Capitalize early profits and keep it in your balance. )
- Set your pips taking as mentioned above.
- Pay attention to the next market opening/closing time. Decide again if you want to close your trades earlier, closing some of them.
- Decide your risk level and risk acceptance; only set stop loss if you are comfortable with it. If you have a high margin, it’s strongly advisable to hold if your leverage or lot size is low; that is what investment is all about! You wait till it hit green, and within your expectation, you close it! (However, this does not happen for retail broker like eToro.)
- At each price level, enter a short and long, preferably 10-15 pips differences of each. For example; long 1.3010, TP at 1.3025. Another Short should be at about 1.3023, Tp 1.3012. You are using a hedging technique, and you are more safer on your investment. This only works during predictable trading or scalping hours.
- Never be greedy! and never assumed! you can be glad not earning more! But you will regret being a fool! for winning a trade to losing one because you failed to take your winning. ( Law of polarity; the pendulum will return to its original position; everyone has a time for winning and losing, but if you understood the law, you will know how to manipulate and not fall within ).
- Clearly understood that! Banks may give you investment returns of 7% per year. Weekly or daily trading gives you winning % which will be higher if you win of course, don’t be greedy! Understood that term ” Trader ” and ” Gambling “. At the end of each month, your winning % should be more than your losing %, and that is your successful investment portfolio.
- You are like sailing with the wind, when its left, you will go left, but when the wind direction changes, you go right, and that is what trending is all about; never pressure yourself to force/trade against the trend and hoping to wait for miracle! Psychology trading; you will be emotional and make irrational decisions.
What goes up, must comes down. Be a life mover, and not be life pawn.
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