Trend reversal patterns. How to see the trend reversal?

[Den_D]

Hello, dear traders.
I would like to ask some questions about classical reversal patterns.
First, I’ll shortly tell my story.
In December, 2006 my old friend called me by phone. I was glad to hear him and we agreed to meet in a cafe. In the cafe he told me that he is a trader on Forex. I was interested with his work and he invited me home to demonstrate his work.

I was surprised very much with his home. I haven’t seen him for 3 years and he was not too rich before, but now he is all right, lives in a very expensive house, has a beautiful car etc. I was really glad for him. In his trading room I was impressed with 2 powerful computers with 4 monitors and he explained that usually uses only one of them and the second is for better security – if one crashes, he can use the other one immediately.

He turned on the computer and told me only to look while he would try to explain everything. After that he easily earned $3000, impressing me a lot. After all, he presented me with 2 books about trading – J. Murphy’s "Technical Analysis of the Finacial Markets" and B.Williams’ "Trading chaos".

Seeing such trading example I thought that trading is really easy and decided to try it too. My friend recommended me to try demo account first. I’ve bought a computer, opened an account for $10000 but tried demo first as my friend said. I’ve read those books and liked them very much. After a month of practice I doubled my demo account and consider myself to be ready for the real account. My trading at the real account was quite good for the first time. I’ve got some profit and was pleased with my trading but I wanted more. Once I opened a position and added to it when the price went in my direction but the price immediately reverse and I was shocked with loss. Of course, I wanted to win the money back but I traded with fear of loss and lost again and again. I added $5000 to my account but lost them too in a week. My friend told me to stop trading and read the books again.

I tried to use reversal patterns in trading but often they disappointed me. Could anyone tell me what am I doing wrong, please? Here is the illustration of one of the patterns which I tried to use.

It’s a classical reversal pattern called “Head and Shoulders”, described in the book of John Murphy.

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[FXNorm]

Go to hectortrader.com and watch his free videos. He trades exactly
like you do. You will see your mistakes. His trading method is a little too conservative for me, but, You will learn something.

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[briclayer]

seems like u trade with too high gearing but if u lower ur initial lotsizes i think u within short time will be more comftable in ur trading.All this get rich in hurry,really i think its nonsens too many aspects to deal with, but with patience it will come, i have been trading live for 3 years and i still have a lot to learn. As i am very bad for fundamental analysis i have developed a momentum sytstem based on weekly and daily charts just to let go my emotions ( also with low gearing) that gives me an edge. my system has not given me 1 signal to go short euro/usd for a year so current im very pleased :-). so i have not had any problems following the main trend even that im bad for fundamental. daytrading is not for every 1 if u are a daytrader.I am not a profesional but the above is what i have learned on the hard way and i am focusing to learn the fundamental aspect in trading and im not playing with big money yet, i really figured that to play big u need a big account, u must think about what it would cost to start a coffe shop what it would cost just to rent it in a monthly basis. Maybe the experts will comment their advice.

bricklayer

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[mp6140]

Oh my golly gosh ---- youre starting backwards !

Rare indeed is the newb who can trade the one minute chart well, not that its that hard, but you really need to know where things are going, how far they will move and when to leave the field !

I use the Linear regression channel or the DeMarker trend lines (essentially the same things) and go flat when the price reaches that point, waiting to see if we break out, or bounce down (up if youre short).

But, while I dont think you should be scalping at the moment, why not try a longer timeframe, such as the 15 minute chart, and try your methods that way! This will give you longer runs, slower speeds and allow you to get used to how the markets function. Using Heiken-Ashi candles to verify trend direction would be a good idea as long as you use regular candles for entries and exits.

Definitely use fibs for retracements off of highs (or extensions for rises off of dips) --- if the currency passes the 23% mark, I pretty much figure its going to the 50% retrace, and set my tp at that point --- use them and see if it works for you.

A last suggestion --- At all the download sites for MT4 you will find a custom indicator called "support and resistance" --- try using it and see how the currency seems to find those points !

Forex is a very "technically" driven trade, depending on support, resistance, fib retracements and the Linear Regression Channels. News will move a currency, but strangely enough, you will find the price will return almost exactly to where it left its trend, so technically oriented and agreeable is forex !

enjoy and trade well

mp

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[DrForex]

You should read Fooled by Randomness - The Role of Chance in the markets and Life by Nassim Taleb.

You're friend was lucky. You thought he was skillful. Now you try to become skillful but what you need in the game you play is luck.

You are making the same mistake as all the other losers that make up the vast majority of trading losers. You can also know this: they largely trade in the same way, acquire the same technical analysis and money management "skills" and proceed to lose.

You need a complete paradigm shift in your approach to the forex market.

It will not be easy because you will have to admit that you were wrong and when you thought you were correcting your mistake you actually compounded it and were more wrong. You can continue compounding on this mistake or you can make a change by making a big change and actually put the odds in your favour, ever so slightly, like the casino and you can have a thriving business.

You can start by reading my book. In there somewhere I have a picture with a massive trend and trend reversal ... the kind of thing that made your friend rich. There was only one problem. It was an up "trend" on a 1 minute chart on a down day. Guess who made money?

You are trading in what I call the randomness vortex and in the randomness vortex there is only one type of winner: lucky fools.

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[trader]

Originally Posted by Den_D

Hello, dear traders.
I would like to ask some questions about classical reversal patterns.
First, I’ll shortly tell my story.
In December, 2006 my old friend called me by phone. I was glad to hear him and we agreed to meet in a cafe. In the cafe he told me that he is a trader on Forex. I was interested with his work and he invited me home to demonstrate his work....

An interesting and important theme, I think. Did you believe to that pattern when opening positions?

[Den_D]

Originally Posted by trader

An interesting and important theme, I think. Did you believe to that pattern when opening positions?

Yes, I believed it. And there were quite a lot of positions in profit.

[trader]

Originally Posted by Den_D

Yes, I believed it. And there were quite a lot of positions in profit.

I also used that pattern before, but a time ago I started to study at the Masterforex-V trading academy, where I knew a bit more effective reversal pattern. The difference from the above illustration is that the first bearish wave should break the previous low at point A and then not break the previous high at point B as shown on the illustration below.

[Den_D]

Originally Posted by trader

I also used that pattern before, but a time ago I started to study at the Masterforex-V trading academy, where I knew a bit more effective reversal pattern. The difference from the above illustration is that the first bearish wave should break the previous low at point A and then not break the previous high at point B as shown on the illustration below.

Ok, now I understand some of my mistakes.