November 17, 2015Daily Analysis

11/17 Analysis: Focus on the process, not the outcome

The first step in our analysis is to always look for the strongest currencies and pair them against the weakest currencies. At the London open, we have the JPY (yellow line) as clearly the strongest currency and below, we have the EUR (pink line) clearly the weakest.

This is not an immediate trade opportunity, however because we don’t have momentum in the market. We are looking for steep lines to the far right going in the direction of the current trend.

When we don’t have that, you can either:

  1. Wait for momentum to appear in the market


  1. Place a pending order 10 pips below the current price

Momentum did move into these currencies and it temporarily continued in the right direction:

This is exactly what we want to see. The JPY is turning up now with a steep line to the right indicating momentum has moved into the market. And we see the same pattern on the EUR to the downside.

All of the criteria for our breakout strategy have been met for this trade.

When we look at the chart below, price did start moving in our favor initially:

We got the move we were looking for but it didn’t hit the 20 pip profit target per our breakout strategy. Instead, it went 10 pips, reversed and then stopped us out.

However, because we use a trailing stop the loss would have only been 10 pips instead of the full 20. This is how you minimize losses when they happen. And they will happen. But, the entry rules were met and this was a good trade regardless of the outcome. Focus on the process and making good decisions and the result long term will be positive.

You can watch the entire video analysis below:

[00:00 – 6:55]

[slide]              [1st view indicator: brighter, easily distinguished colors – yellow up, lilac down]

                        Hello, I’m James Edward from Welcome to another Currency Strength Analysis training video. This is the first analysis video since we’ve introduced the new indicator. [cursor slowly circles generally] Hopefully, you’ve seen this already on the Web site and you are finding it more useful now that you can go to the sections up there and go to the settings [points menu bar] (up here) and can change the background color to suit yourself and can, actually, change any of the currencies colors. So, it is more customizable and I hope that that is useful to you.

The example that I’m going to show you today is, actually, a losing trade and that a good thing. I think it is important to talk about losing trades because it is losses or the unwillingness to accept losses which is, probably, the biggest downfall for most amateur traders because they simply don’t like taking them and they don’t know how to handle them, so it is important, from time to time, that we do look at the losing aspect of some of these trades.

So, first of all, doing our initial analysis, we are looking for strong currencies which are strengthening and weak currencies which are weakening. This is what the indicator looked like at the start of the London Open earlier today. So, hopefully, very obviously, you [can see you] have a strong (yellow) Japanese Yen (JPY) and a weak (pink) Euro (EUR). That, in itself, is not a trade at this particular moment because, remember, what we are ideally looking for is these lines [points yellow, pink] to be steepening in the direction of their trend. You can see that neither of those two currencies are doing that.

Well, what you can do in this situation is place a pending order 10 pips below the Open price on the Euro:Yen chart. You could place a pending order to sell that 10 pips below the Open and, if this trend does carry on, it is automatically traded, or, you could wait for an increase in momentum and get in with a Market order. So, if I fast forward this two minutes into the Market–

[slide]              [2nd view indicator: yellow / red / green up, pink / blue down]

(continues)… you can see some opportunities developing, here. So, this is two minutes after London has opened. You can see Euro is now turning down more steeply; the Yen is moving back up. So, you now have a continuation of that trend, you may want to get involved there.

Something else that is worth looking at here is the British Pound is moving up to steepness and the Swiss Franc is moving down to weakness–although, that is not as obvious as the Yen against the Euro, that is something to keep an eye on because we are looking for momentum developing. And, I’ll fast forward it again. So, this is two minutes after the Open, if I’ll fast forward it a little bit further–

[slide]              [3rd view indicator: yellow / red up, pink / lilac / blue down]

(continues)… you can see that, actually, the Japanese Yen (JPY) got even better and the Euro got even better. (This is seven minutes after the Open.)

So, let me go over–

[slide]              [B&W vertical line EURYEN.MS]

(continues) … to those charts. Euro:Yen, first of all.

As I said, this is a losing trade. This is the London Open at this point, here, on this small price bar [points] here and you can see that the price did, initially, push down and, actually, picked up more and more momentum [points deepest low] over the first ten or 15 minutes. That is what we were just looking at on the indicator.

Had you entered in at the two-minute point (which was the first indication that something was happening), you would’ve got[ten] in on this [points entry bar] price bar and the price, assuming you got in right at the bottom–(We always work on a worst-case scenario in these videos.)–the price still went 10 pips–or, almost 11 pips into profit. But, then, it did reverse [draws cursor up climb] and you would’ve been stopped out for loss.

But, remember, you would’ve been stopped out for a significantly-reduced loss. You entered these trades with a 20-pip stop-loss. If the price has moved down 10 pips, you stop-loss has already trailed down 10 pips, as well, always remaining at exactly 20 pips behind the entry, which means, by the time the price actually did reverse and you were stopped out (on this pull-back, [points top longest bar of climb] here) when the Market went sideways and then it pulled back slightly, you’d have lost half of your initial risk. If you’re risking one percent on the initial entry, you only lost .5 of a percent. That is an important thing to remember!

What we are doing with these losing trades–or all of these trades–and this is what I want to talk about with the losing aspect–is, we’re not predicting the Market. A lot of new traders will enter a trade like that where–

[slide]              [3rd view indicator: yellow / red up, pink / lilac / blue down]

(continues)… if they go to the indicator, they think they all the conditions right–which they do

[slide]              [previous B&W vertical line EURYEN.MS]

(continues) … so they enter that trade and it doesn’t result in a win, so that gets them disheartened because they don’t understand odds and probabilities and they don’t understand random distribution of those wins and losses in the Market. They think that something has gone wrong: either they did something wrong or that the indicator is wrong or the system is wrong. That isn’t the case.

What we are doing (and I’ve said this before) is trading with the odds on our side. You have a higher probability of success–

[slide]              [3rd view indicator: yellow / red up, pink / lilac / blue down]

(continues)… if you trade strength against weakness when there is an increase in momentum. But, a higher probability doesn’t mean a guarantee. Anything can happen in the Market at any given time and today, the Market was absolutely dead.

[slide]              [previous B&W vertical line EURYEN.MS]

(continues) … This is the Euro:Yen. You normally see this pair move around about 150, 160 pips. Today, it was in a 50-pip range for the entire day. And the price just hasn’t gone anywhere all day. We entered, as per the system break out, when the flurry of activity of a new financial center opened, but we can’t control what happens after the fact. You have to get used to that. It is an integral part of trading. As long as you execute your strategy consistently, taking those trades where the opportunity arises, trading your stop-losses down, you will have applied three basic principles:

(1) You will be cutting your losses quickly if the price goes against you.

(2) You will be letting the windows run because you are trading it down and taking, on average, a bigger profit than your loss. Your average stop–or, your average loss on this system will be around 10 pips whereas your average win is 20 pips, so, you have that 2:1 reward-to-risk ratio and–

(3)  If you’re trading only one percent, you are maximizing the protection of that risk.

And, those are the three principles you need, in general, to be profitable. Add into that that you are trading a genuine–

[slide]              [previous 3rd view indicator: yellow / red up, pink / lilac / blue down]

(continues)… of strength against weakness and you have a highly-profitable system–but, not on every single trade–only over the long term. Your edge will only balance out over the long term. This is an important thing to get used to and, actually, accept.

After you’ve pulled the trigger and you’ve entered this trade–

[slide]              [previous B&W vertical line EURYEN.MS]

(continues) … what happens next is out of your control. You cannot control where the price goes. If the Market doesn’t make profits available, we can’t take them. That doesn’t matter because tomorrow, there will be another break-out opportunity and the day after that, will be another break-out opportunity and you will win more often than you lose. Your average win will be bigger than your average loss. And, over the long term, month on month, you will be profitable.

And, that–

[slide]              [previous 3rd view indicator: yellow / red up, pink / lilac / blue down]

(continues)… is how professional trading works.



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James Edward
James Edward has been a successful Forex hedge fund manager & educator for over a decade. He founded Complete Currency Trader, a London based firm that has consistently trained individuals to become professional and profitable traders long term using the individual currency strength analysis methodology. CCT is an elite Forex educational firm and has a reputation second to none with over 90 positive reviews and an overall 4.538 out of 5 rating on the third party verification site Forex Peace Army. James’s affable personality, expert knowledge, notoriety for getting results, and steadfast dedication to his clients, has secured his position as one of the most trustworthy, liked, and in demand authorities in the industry.