ABC Advanced Forex Strategy
Hey Traders, welcome to video 25 in the Advanced Forex Strategies course. This is Cory Mitchell. In this video we’re tying up everything that we have looked at throughout this series in the ABC Advanced Strategy. We can use this on all time frames. Brought to you by Investoo.com. So we’re not going to cover too much new in this video. Basically what we’re going to do is try to bring together everything that we’ve learned into a simple strategy that we can look for on all time frames, combine it with the other stuff we’ve learned to really be active in the market if we want to, and we can decide based on this strategy how active we want to be. So as I’ve said in pretty much every video, trend trading is where the money is. The ABC advanced strategy is a hybrid of everything you’ve learned so far. Therefore this video will be both a review and a way to tie together everything you have learned. It gets us in early, keeps risk small, and profits larger than losses. We’re using the same concepts that we’ve used throughout all these videos to help you keep those winners bigger than the losers. That way, even if you’re right only 40% of the time, 50% of the time, you’re still going to come out ahead. Can be used on all time frames, for day trading or swing trading. The strategy is similar to the basic trend trading strategy we discussed very early on in video two. But we are going to make it more advanced. We can incorporate all sorts of different entries. We can use our breakouts, our pockets, anticipating our entries. We’re also going to have to incorporate a more advanced type thinking, like what we learned in Velocity and Magnitude. Looking at the snapbacks, the cup and handles, the triangles, the pennants, all those sorts of things we can use. All those different types of exit methods, entry methods. We can use this to adapt in real time to what the markets giving us, so wears those hats and specific setups we needed. This is a lot more flexible, so we can use those other entry methods, and entry methods on this method, which occurs much more often. That way we don’t have to miss a good opportunity when it’s coming up, but we can also use what we learned in those, especially in the Velocity Magnitude-type videos, to filter out some of those trades that aren’t going to be good quality signals. Strong support and resistance is another good filter. So we’re not taking those trades ever into strong support and resistance levels. So that’s going to help us filter out some of these trades. We always trade in the direction of the trend. The direction of the trend is the most recent magnitude and velocity. So even though the overall trend may be down, we can take trends by noticing when that trend has shifted. So good videos to watch, on the trend shifts and the snapback strategies, cup and handle, and the velocity and magnitude. This ABC strategy occurs very often. It is basically almost every wave that we see. So there are potential trades all the time. So we have a lot of opportunity, but we also have to use what we know to filter out some of those trades. We also have a lot of material to work with for the entries and exits. We’re going to have to decide in real time what is the best course of action. So you are likely going to decide on a few things that you’ve really liked from the course that you’re going to incorporate into your trading. So you don’t have to use it all. I personally always like to anticipate an entry point, so we looked at anticipating consolidation breakouts, anticipating chart pattern breakouts. I like to use that sort of entry a lot, so I anticipate. That way I can keep my risk very small. And then I’m also fairly conservative on my exits. I like to get out most of my position at the 1.6, 2.6, 3.6 times risk, which I have discussed throughout. And then potentially hold portion by position for a larger profit. But if there’s a strong trend, I will also, as I’m getting some out, if another entry occurs, I’ll get some more back in, so that I always have this sort of rotating position going on where, as I get out on some, some of position will hit a profit target, and I’ll be out of it. Then, if I get a pullback, I may look to get in on that position again. So I’m basically replacing what I got out. So that’s the way I trade quite a bit. You’re going to have to come up with your own ways, how you’re going to incorporate all this stuff into a concrete strategy. Then if you go back to the very beginning, the first video we looked at, you got to incorporate that into a trading plan. So now, by the end of this video, you’re going to have a ton of information, a lot of strategies. This video, we’re going to look at some ways you can maybe mishmash them a little bit, so that you get exactly what you’re looking for. Then you’re going to have to go back, write that trading plan, get in there, start practicing it in a demo account. And then look to start real trading. I really like trading on a four-hour chart. I do a lot of swing trading, so I’m just going to use that, but these same concepts would apply to the one- minute chart write-up to a daily chart or weekly chart. So first off, what is the ABC? The ABC is a lot easier to show you than to write it down. Basically all it is, is the start of a wave is A. The bottom of that wave is B, and the end of the pull back is C. So this is A, B, C. So we’re starting here at A, B, C. So this occurs basically everywhere. We have A up here, B down here, C up here or potentially here. So it’s very subjective. This is what I was saying. This will occur often, and we have to use what we know, especially about velocity and magnitude, to help us determine which of these we’re going to trade. So A, B, C. Once we have this pull back, we have a number of options that we can trade. So we can look for simply a breakout of, here we have a bearish engulfing type pattern that we can trade to get us into this downside move. We have a mini-channel breakout, where we have a pretty well-defined set of lows there. So we could have been looking to enter. That would have gotten us in about the same point. We could also use an anticipation type breakout or an anticipation type entry. As you can see, we have this little pause here, so we could have been looking for a pull back into this area. So ideally, our stock would have been placed just above that pause, depending on high far we had placed it outside of that, we may have gotten stocked out on that. So each one of these has different benefits and disadvantages. Another strategy we could have looked at is, if you notice, we are moving within a big triangle pattern. We looked at a number of ways to trade triangle patterns, so we could have just traded this breakout. We could also trade a pull back to that breakout, which is also our C wave. So we are expecting this wave, if we view this as a sort of our A-B, the strong thrust in this direction, and the pullback is our C wave. We’re expecting a further move lower. So you can see how this A, B, C lines up with another type of strategy, which is the breakout and pull back. So we call this the patient breakout strategy. So entering right near this little triangle level would have given an ideal entry for a short position. So let’s look at another couple examples. Once we knew that we were moving within this big triangle pattern, which had been in place for awhile, we can see the price moves up to this level, pulls back, tries to make another high, can’t, and then drops. So now we have a potential A wave here, because we have a strong drop, so our A wave is always a strong move in a direction. So knowing what we know of velocity and magnitude, the snapback strategy, the cup and handle, if that A wave takes out prior waves from the uptrend, from the former trend, we have a potential new trend. In this case, this drop takes out the former low. So we can say, all right. This is an A wave. No really pull backs, although we could have taken trades based on what we know. There’s a little pause here. We could have traded that breakout expecting some more downside, which we would have gotten. But this, really, here is all A until we get an actual pull back. That would have marked our B wave, and we finally have a pull back. This wasn’t really a pull back. It’s one bar, and we didn’t really even make any progress higher. So this, all A down to about here. And in real time, we have to be looking for potential entries. What did we learn when we looked in the Trend Channel training video? We learned to look for open spaces. So we have all this down here until support. So if we’re looking at the very far right of our chart, strong move down pull back. In real time we got to start thinking, all right, where’s the next most likely move? We want to be going short at this point, because there is still open space to the downside. We are moving within a triangle. Short- term momentum’s down. So as soon as we start to get any sort of pause, we start to anticipate our breakouts. We could have traded a breakout to the downside here. Once we broke below the low, that few bars there, looking for a continuation to the downside, where we eventually meet support at this triangle that’s been pretty well- established now. So ABC, we’re incorporating this into everything we’ve already learned. So A is simply a strong thrust, B is the bottom of that thrust, and C is the pull back. We see this over and over and over again. Now we’re at the bottom, so we’re no longer looking for shorts when we’re down near support. Remember, we do not take short trades into strong support, and we do not take long trades into strong resistance. So we wouldn’t take a long trade right up here, for instance, this pull back. This could have been our A, this our B, and this our C. So we wouldn’t look for a move higher into this, because we are getting too close to that resistance area. So no longs into resistance, no shorts close to support. Once we get a very strong thrust off of a support level, we can look for long trades again. So this is the start of our A wave. Strong thrust, we don’t know it’s an A wave until it crosses above these. Highs look similar to a snapback strategy, something like that. B marks the top of that wave. And we need to be able to do this all in real time, so this takes practice. And then the C wave is forming. We’re realizing that we’re in a C wave, so once we see this strong thrust higher, this pull back we know is a C wave, which means we’re looking for continuation in the same direction as this prior A-B wave. So we have a couple entries. Again, we’ve bounced off support line of, for lack of a better word, line of least resistance is up, meaning the next move is likely to be higher. So we have a couple options again. Let’s just go through some of the entries that we have looked at throughout this video series. Potential mini-channel breakout. We have a nice little line of resistance established here. Once the price breaks out, we have a nice clean break to the upside, looking for that continuation. Stops, in almost all cases, go below a recent wave, a few pips below. So stop there. In this type of scenario, we can also look for a pocket strategy type pull back, that sharp move higher. There is a potential that the price could come back in to this hold pocket, in which case our stop would go just below the low. In this case that low, because we don’t know where this is going to come back to at this point. We are putting this order out in anticipation of a pull back into this pocket. So we may have gotten a feel there. Price doesn’t really do much, and it eventually does move back toward the top of the channel. No long trades in here, simply because we were getting too close. And similar here, very tough to take a short trade, as this price is really consolidating. So at this point, we got to take what we know of trend trading and see that there’s not a lot of direction here at all. More likely the range, we’re going to be looking more for false breakouts. Luckily we didn’t get any here or unluckily if we’re actually looking for them. So the price is just narrowing. Other things you can look for is, this doesn’t really have to do with the ABC strategy, but you can look for triangles within triangles or chart patterns within chart patterns. You can see this is narrowing a bit. So when this broke out of this smaller pattern, we can see big triangle, and we’re also within a bit of a smaller narrowing pattern. So a breakout of that narrowing pattern could have been an early indication of the breakout for this bigger pattern. So the ABC occurs very often. Once again, here is another one. So we are in a downtrend. We have to be able to see the reversal happening though. So what happens here? Velocity dies out. From the Velocity and Magnitude video, we’re looking for continuations. We can see this, a very strong move to the downside. A little choppy, but it has a lot of magnitude. This has some velocity to it, but we barely make a new low, indicating that that downtrend is now weak, followed by an A wave. An A wave, as I’m going to mention again, is just a strong thrust in the opposite direction, which takes out or erases a former chunk of that trend. So here, this was the pull back high and the downtrend, and we easily erase that trend. So this, another A wave. And we really have yet to see a pull back, so once that pull back occurs, we would mark the top of B, which we don’t know what it is yet. But if this drops below this consolidation, we are potentially in a pull back, which means that C is going to be somewhere down here. So this provides us a good way or is a good example of how we can potentially trade this. So we can potentially trade a breakout of this consolidation, meaning we would go along right on the actual breakout, so once it breaks this high, and our entry point’s up here, stock goes just below. We can anticipate a breakout, meaning we are going long. We have a couple lows here to go off of, so we can look to enter right about here in this little area near this consolidation low. Stock goes just below, and we are looking for an upside breakout. So not as much confirmation that the price is going to move higher, but we’re trading sort of our ABC strategy, which is basically any sort of thrust, pause, or pull back, and then expecting another move in that same direction. So basically we can think of it as a D wave, if you want to. So D being a move back in this direction. So that’s another way we can trade it. If we get a slow channel downwards, we may be able to use a channel breakout, or a mini-channel breakout, where the price consolidates moving down against the current trend, and then beaks higher. We can also look for a pocket strategy. So at some point we know the trend is higher at this point. We have this strong A wave. So we want to get long. We have those options that we just covered to do it, or we can wait for a deeper pull back into the pocket. One of the main pockets would be right there, so a deeper pull back into here, and then expecting that move higher, which will look something like this, if those represent the price. If we are trading very quickly, so that would be more of a swing trade that could potentially last a few days, we could also look for pockets in the smaller areas. So maybe right there, so I’ll pull back to here, and then move higher. So we can see that covers less distance, so we’re likely to get out of it a bit quicker. These are all ways you can tie together everything that we have learned into a strategy that works for you for your time frame. So as I said, I like to trade on four hour charts, so I’m likely going to wait for a pull back into here. It may not come, and that’s fine; I’ll just wait for another opportunity. In terms of looking at the overall price action, we can see the price is still, if we look at this high, this high, we’re still in a downtrend. Yes, we had a bit of a bottoming process here, but we still could be in a longer term downtrend, based on the longer-term picture. So we could also look for a short position in this area here, which would be a pocket strategy, based on the overall downtrend, so we could say that this whole move down was A. So let me just get rid of a few of these other ones to avoid the confusion. So these will occur on all different time frames. So this whole move down is A. The bottom of the wave would be B, or even potentially there, doesn’t really matter. They’re at a similar location. And now we’re in a C wave. So this is A, and the C wave is our pull back of this major wave. In which case, we could look for an entry, as I mentioned, into a prior major pocket. So our C wave would come up here, and then we are expecting a big move down. So this would be our potential D wave. So A, B, C, and a big continuation of this big down move. So we could enter there. That would be a pocket strategy. This would also align with a pull back to this whole triangle, which we potentially could see again. We saw one already, but that doesn’t really matter. We could see another one. So this would be a potential area if you take a longer-term view of the downtrend. So it’s always a little bit subjective. You got to keep different viewpoints in mind to really highlight where the open spaces are. So right now, long is fine, because we have lots of open space, until about this point here. Then we got to consider there’s that old support level from the triangle. There’s a potential pocket here where, since we’re using this strategy to go short, there’s potentially some resistance there. So lots of open space until to the upside, but once it gets into this area, we also got to start considering the downtrend and some down moves. So that’s how we tie everything together, looking at different time frames, different patterns, different entry points. We can use all sorts of our different targets that we learned about, whether it’s a measured move target based on our triangles for example, the height of the pattern, subtracted or added to our breakout price to give us a potential target. We can also always just use the 1.6, 2.6, 3.6 times our risk. That’s a really easy way to always make sure that your profit’s bigger than your losses. And this ABC strategy just helps us isolate where is the big thrust, in what direction is that going? The B just marks the end of that thrust, and the C is the pull back, and we’re expecting a new wave in the same direction as that A to B wave was. So, as we said, potentially a D wave here, or on a shorter-term time frame, we have this A wave, this can be a B, and then we have the pull back, which is a C. So it occurs on all different time frames. Watch the video a few times. You can kind of see some of the things that I’m getting at here, how we incorporate all of these strategies into something that we can use almost all the time. So ABC, the A is a thrust in one direction, followed by the pullback. So the pullback started by B, and then the actual pull back is our C wave. This occurs very regularly, and we’re expecting another move in the direction of that major thrust. So basically, the A-B wave, we’re expecting another thrust in that direction. The [inaudible 00:25:17], or the signals we take based on this, will be determined by our analysis. So the ABC, as I mentioned and I keep repeating, occurs all the time. We can use any sort of entry we want in them, any sort of target, is a very versatile strategy using everything that you’ve learned. But we’re going to need our support and resistance. Need to know about those trend channels, what’s the trend, what’s the velocity and magnitude. So really looking at everything that we’ve learned. Only risk 1% of your account in the pair, taking multiple positions to get out at different target counts as one trade, so you can also do that. All of these entries, you can take a portion of your position at different entries. You can anticipate on one-third of the position. You can take the next position on the actual breakout, and maybe you take the third, or final, part of your position on a pull back to the breakout point, using the patient entry. So all these different options of ways to utilize everything that you’ve learned. Combine different elements of what we have discussed in the videos to act in real time to take advantage of these trading opportunities. You’re not always going to get a patient breakout strategy. It might not always pull back. So you can use one of these other methods to still capitalize on that opportunity. If there is a question, there’s no question. If you’re asking yourself, “Should I take this trade?” there is no question. There is no trade. You should feel comfortable going into the trade. You should know that you’re reward’s greater than your risk, so if you’re not feeling comfortable with that trade, just step aside. There are always lots of opportunities. Also, if you’re questioning yourself, you should also have a more thorough trading plan, and you should probably practice a bit more, so get in that demo account and try it out until you’re really certain about your entry points and your exit points that there’s no question while you’re trading. As I’ve said in every video, trading losses down to risk of loss. Only trade with capital you can afford to lose. Test out everything. Now you’re going to have to go back, really filter through what you like. We’ve covered a lot of material. You don’t have to use it all. Pick and choose what you like. Go back, create your trading plan, then get in your demo account, start testing it out, tweaking it, and make sure that you’re seeing some profitable results in your demo account before you actually start implementing it with real trading. So you’re now fully prepared to attack the Forex market. You have a load of strategies, a load of ways to get in, a load of ways to get out, and a load of ways to analyze and filter out any trades. So happy and successful trading to you.