Advanced Trading Techniques – Capitalising On The Momentum.

*Learn How To Scale In An Existing Trade And Exponential Increase Your Returns!*

This post is fairly advanced in regards to the frequency and accuracy of trading required to successfully profit from this style of trading. The techniques I am going to show you in this blog post are built on standard methods of trading but they are being used in a very aggressive and confident manner. You will only be able to do this if you have practiced the techniques and understand when to implement them and how to control exposure and risk whilst creating the opportunity to exponentially increase your profits on a single market move.

Before I start, I recommend that you read my previous blog post on risk management and controlling exposure on your positions. It is important that you understand and have mastered this before you start trading. The blog post can be found via the link below:

https://diaryofafinancekid.com/2019/04/26/risk-management-how-to-calculate-and-control-your-exposure/

Let’s begin.

Like all good trades, it starts with clean and simple technical analysis. I tend to never trade on timeframes lower than the 1 hour unless I am specifically day trading via my strategy I have previously talked about and created a book on. The reason for this is that it tends to be too choppy and I don’t always like to spend hours in front of my computer waiting for the perfect 15 minute or 5 minute trade to appear.

In the first example I will show you, on the GBPJPY FX currency pair, I was first looking to enter a simple 4 hour trend continuation short trade with a Reward:Risk ratio of over 4:1. It was after the initial entry was net risk free with no exposure that I decided to use the momentum in the market on that day to capitalise further. The chart below shows the original technical analysis for the 4hr short position entry.

GBPJPY 4 hour timeframe chart
(Pre Trade Analysis)

As you can see on the chart above, I kept the analysis clean and simple and used basic trend/wave analysis and the fibonacci retracement tool to predict where the next swing point was going to appear. I then waited for price to approach my entry zone at 143.00.

Remember, at this point I was not interested or planning to trade the lower timeframe charts because I don’t need to. This 4hr short trade set up is perfect for me with a nice 4:1 RR ratio and very little trade management required after entry. I was keeping things nice and simple. These sorts of trade set ups are the ones you should all be looking to learn to spot and enter because they don’t require an extensive amount of knowledge – just a price chart and basic trendline and fibonacci retracement tools.

What happened next was interesting.

GBPJPY 4 hour timeframe chart

As anticipated, price climbed back up to the bearish trendline I had drawn on but it was earlier than expected. I had my short order ready at 143.000 so it was executed anyway and I was now holding a short position on the GBPJPY FX currency pair.

For those that don’t already know, if you are shorting a specific FX currency pair you essentially have placed multiple trades with your broker but you don’t see this. For example, I am short GBPJPY I am actually selling the British Pound and buying Yen. This is why you get negative and positive swap fees on FX positions because you have to pay the interest of the currency you are selling and get paid the interest on the currency you have bought.

The purpose of this document is to show you the power of scaling in on momentum moves and using this to increase profits whilst retaining your original exposure and risk levels. So let’s look at what happened after I entered the GBPJPY short position and I will talk you through how I managed to turn a 4:1 RR trade in to a near 11:1 RR trade by using the strong bearish momentum in the markets.

The image below shows the 15 minute timeframe chart after my initial short position had been triggered and price had began to drop.

GBPJPY 15 minute timeframe chart
(Position 1)

After testing the resistance zone at the 4hr 0.618 fibonacci retracement level once more, price then made a lower high on the 15min timeframe and snapped down. The bearish momentum had come in to the market.

Price then broke through the 15minute support zone (blue line) and pulled back slightly to retest it from below. This is where I became interested in looking at adding to this trade because of the following reasons:

  1. At this point my original position was net risk free and 50 pips in profit.
  2. Strong bearish momentum break through the price support zone.
  3. Bearish wedge continuation pattern forming on the 15min timeframe.
  4. Price rejected the previous support zone from below and the 15min Fib 0.382 retracement level.

I have not yet written a blog post entirely dedicated to pattens or the fibonacci retracement levels but I am a big fan of using the 0.382 level for momentum continuation moves.

All of the reasons listed above gave me confidence to manually enter a second short position on the GBPJPY FX currency pair. My first position was net risk free so my total exposure was now back to my normal limit of 1R.

GBPJPY 15 minute timeframe chart
(Position 2 entry)

The idea behind this style of momentum trading is this… price can’t move in a straight line for ever. Momentum moves have to stop and breathe before the carry on and this is when I look to enter. So long as you stay smart and pay attention to what price has managed to do in the last momentum move, you can then confidently enter on the small pauses and pullback to then increase your returns on the same market swing.

After entering this second position I then had the opportunity to more than double the R:R ratio of my original 4hr trade thanks to the power of scaling in. This second entry was very aggressive with only a 25 pip stop loss but my profit target stayed the same. I was still aiming for the 4hr fib 1.27 extension level to complete the 4hr wave pattern.

Let’s look at what happened next.

GBPJPY 15 minute timeframe chart
(Positions 1 & 2 shown)

The chart above shows what happened to GBPJPY during the 2 hours that followed my second position entry. As I explained, the bearish moment was still apparent and the 15min consolidation was purely there as breathing space for the markets before it continued on its journey. Price proceeded to break through the previous daily lows with a large bearish momentum candle before again pausing for around 1 hour.

At this point of the day I was in my office and watching this move play out. In my opinion it is quite rare to see moves like this play out so perfectly well and it is definitely recommended that you take full advantage of them when they appear. At the time of the chart above the 2 positions were now running at a combined return of just under 2.7 R compared to a possible 1.3R if I had just left the original position to run.

Once I had seen this next was of bearish momentum come back in to the market I was determined to enter again on the next consolidation before a 3rd daily bearish momentum wave might appear. If you haven’t read up on the Elliot Wave theory then I highly recommend you do so. It is very simple but highly effective and will help you when trading the phases and waves of the financial markets on all timeframes.

I entered a 3rd and final short position on this 15 minute pause. It could be considered a flag continuation pattern but that doesn’t really matter. Price has made 2 bearish momentum moves with a pause in between and I am betting that it repeats this process again.

GBPJPY 15 minute timeframe chart
(Position 3 entry)

You will all know from my previous blog post on risk management and exposure that I will not enter extra positions until existing positions are in profit and net risk free. I therefore moved my SL on position 2 to entry price to maintain a net exposure of 1R across all 3 positions whilst exponentially increasing my profit potential again. At this point I was still targeting the original target profit at 140.320 and was planning to hold all 3 positions until this level was hit.

Let’s do a quick recap of the analysis I have used so far to potentially take a 4:1 trade to over 20:1 R:R.

Position 1 (original trade entry) – Bearish trendline bounce, lower high, 0.618 Fibonacci retracement level.

Position 2 (scale in) – Bearish wedge continuation pattern, price support broken, 0.382 Fibonacci retracement level.

Position 3 (scale in) – Price pausing after strong bearish move, riding the daily momentum.

Now let’s look at how the trades played out and my eventual exit of all 3 short positions.

GBPJPY 15 minute timeframe chart
(All 3 positions shown)

As predicted, price went on to make a 3rd bearish momentum wave on that day. I have marked on the waves I used as part of my analysis so you can see what I mean. The 3rd and final wave was the biggest of the 3 taking price down to the low 141 prices which was a near 100 pip drop in just over 1 hours trading.

I eventually exited this trade the following morning after price failed to continue downwards with no more bearish momentum moves presenting themselves. I took profit on all 3 positions after price made a double bottom at 141.100 and began moving sideways. A large bullish engulfing gave signs of a reversal and a momentum change coming in to the market so I manually closed all 3 trades for a total return of 11 R:R.

  • Short position 1 executed @ 143.00 +2.75 R:R
  • Short position 2 executed @ 142.532 +4.77 R:R
  • Short position 3 executed @ 142.232 +3.53 R:R

Total maximum exposure was always kept at 1R by using the risk management techniques I explained in a previous blog post. Click here to read it.

Low Timeframe Scaling In Trade Examples:

Below are 2 more examples of fairly aggressive trading where I have used the same techniques to scale in to an existing trade to exponentially increase returns. Both of these trades are recorded in my February 2019 trading journal which can be found on my downloads page via the link below.

https://diaryofafinancekid.files.wordpress.com/2019/02/the-golden-month-journal-ver-0.1.pdf

CADJPY Short:

CADJPY 1 hour timeframe chart

My first entry on CADJPY was a simple double top resistance zone short entry. Price was decelerating towards a resistance zone and then made a lower high and rejected the 84.00 key zone.

Once price broke the supporting trendline I entered a 2nd short position on the retest of this trendline along with a lower high being formed.

I then scaled in again with a 3rd position on the next 1hr price consolidation. This is a similar concept to trading the 15 minute consolidations but on a higher timeframe. The end result is the same.

NZDJPY Short:

NZDJPY 1 hour timeframe chart
NZDJPY 15 minute timeframe chart
(Position 2 scale in shown)

My first short position was not one of my most accurate of entries but it did the job. A conservative 35 pip SL kept me in that position whilst price continued to test the resistance zone before it eventually broke the larger 4hr ascending wedge pattern I was wanting to trade. Price then made a huge bearish momentum move to the downside.

I scaled in to this trade with a second position entered on the next 15 minute consolidation. After such a big bearish move I was expecting price to stop and gather itself before it continues. I entered a 2nd short position on the 3rd touch of the 15 minute wedge continuation pattern as shown above in image 2.

End Note:

So there we have it… a rather long blog post but I have tried to pack it with as much description and information as I possibly can. I would like to stress the importance of you practicing this style of trading before going and doing it on a live account. It is aggressive, it is high risk and it does require a lot of accuracy to work well.

That being said, if you have a solid risk management strategy and stay on top of your total exposure you will be fine. Remember, don’t be greedy and KEEP IT SIMPLE! Everything I have shown you in this blog post is using beginner trading techniques like chart patterns, fibonacci and support/resistance but if you implement them correctly they is highly effective.

If you are interested in day trading on the lower timeframes then you can find my day trading strategy guide below:

Thank you for reading and I hope you have a fantastic weekend. Please LIKE, FOLLOW and SHARE this blog with your friends to make sure you all don’t miss out on new content.

DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.

Advertisements

2 thoughts on “Advanced Trading Techniques – Capitalising On The Momentum.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this:
search previous next tag category expand menu location phone mail time cart zoom edit close