Three Trades Live Examples

Learning To Read The Lines

 Contents
Contents.....................................................................................................................................................2
Pre-Amble..................................................................................................................................................3
Reading The Lines ....................................................................................................................................4
Constrainment Entries................................................................................................................................9
“Touch” Trades.........................................................................................................................................11
5/10 EMA Entries.....................................................................................................................................20
A Full Session Example...........................................................................................................................23

Copyright Clay Ferrell, 2009

 Pre-Amble

This is a continuation of the manual “The M15 Dance Manual.” All of the previous disclaimers and
cautionary statements still apply and you trade this strategy, if you choose to do so at your own risk and
agree to hold harmless and free from liability the author and all of his or her heirs, assigns or agents.

You will notice that there is not much commentary in this document except what is on the images
themselves. This document's purpose is to provide a few more “live” examples of how this strategy
works and how to perhaps manage the trades it generates a bit more efficiently. YOU MUST READ
THE MAIN MANUAL before attempting to use this part of the strategy or this part may cause you
problems, though it will seem simple enough when reading it.

First, you will notice that there are more of one type of trade than others. That is because it is the
stronger and more prevalent “signal” generated. Just enjoy and learn to “see” the Dance so you can
follow the lead of the Market.

In this part of the manual we also talk about learning to read the “lines” on the chart. Having started
with four time frames, and then eliminating the M5, it became apparent that there is a way to read the
interaction between the 35SMA and the 50 EMA that alerts you early to slowing price, shows you
exactly where price will go “sideways” in consolidation and also tell you where the tops and bottoms of
that area are. You can also place very strong S/R Levels using the Daily Chart. Just keep in mind that
not all S/R levels are created equal. Some hold amazingly, powerfully well and some not at all.

We'll cover that in this part of the manual.

 Reading The Lines

The manual has undergone a few changes from the time it was created to now. The main changes are
that now there are only three Moving Averages used and three time frame charts. The MAIN signals
come from the M15 chart and you could consider that you are both entering and “fine tuning” the
entries with it.

For simplicity's sake, Long trades are almost always in the direction of the Trend Of The Moment, and
the same is true of Shorts. The exception is when Price is “Captured” between the 35 SMA and the 50
EMA on any of the three charts. In this sort of P/A area price literally does a “Ping Pong” between the
two main Moving Averages. When it does break out, it tends to be an “explosive” break out.

This happens most often in M15, and sometimes on H1. When it happens on D1, but it does happen.
Most of the time any “capturing” of price on D1 will be between the 10 EMA and one of the others.
Most of the time, it also won't last more than a day or two as price tends to explode out of that area
pretty quickly.

The following chart is from a normal day's trading and both the Gbp/Usd and Eur/Jpy are shown. The
images after that in this section show each currency separately and how to use the differing time frames
and the “Lines” on each of them as well as the best way to set S/R levels.

As you can see, the charts are very clean and easy to read. You can see some standard S/R levels at the
Round Numbers, which we do use (read the manual) as well as “Touch Trades” from all time frames
and even a “Price Capture” on Eur/Jpy H1. Notice that the “Touch Trades” on H1 and D1 are
extremely strong signals. We will define those a bit further in this part of the manual.
Lets take the Gbp/Usd first.

In this chart you can see some things “after the fact” very clearly. The real trick is to learn to see this in
“live” time. There is a method to be able to see that. In the chart below, the first trade is the H1
“Touch” trade, which you can also see is a Round Number trade on M15. They coincide PERFECTLY.
The second trade, as Constrainment trade is also being “constrained” on H1 in this case by the 10
EMA. The third and fourth trades on M15 are 10 EMA “touch” trades which are less obvious on H1,
but are “with the trend of the moment” and the “angle” of the 10 is very pronounced as well as there is
never more than two bars to “get there” for the “touch.” Three or more bars would be less solid a trade.
Same on all “touch” trades at all “lines.” The fifth trade is also a “Round Number” trade on M15, and a
35 SMA “touch” trade on H1. Again, they coincide perfectly.

Without much analysis, that is 5 total trades that would have netted easily 100 pips or more on this
day's trading. The obvious fact is that you would not have caught them all, as you have to sleep
sometime. That is why I talk of 100 pips and not more. The fact is that the total “value” of all five
trades is well over 200 Pips.
The fact is that using H1, you can find one additional trade in this day at the 1.5200 Level, a “Round
Number” S/R trade. It is BOTH a “Round Number” AND a more traditional S/R entry against Support.
Here it is.

While it looks really “tasty” there is nothing but pure P/A for which one could have taken the bounce
off the 1.5150 Round Number. IF you are trying to capture every last single pip, you could have
attempted that as “Pin” bars are part of this strategy, but the main issue is to maximize the gains and to
MINIMIZE the risk. There are more than enough trades in a day with more than enough pips to gain
without taking more risks.

In addition, not one of these trades would have required more than an 11 pip SL. Now on to the
Eur/Jpy, which was a lot more challenging on this day. Next page please.
The MAIN thing to learn from this day's Eur/Jpy trading is that Price is “Captured” between the
35SMA and the 50 EMA the entire day. That means it is “choppy” or at best, “ranging” for the whole
day and trades are more difficult to spot. Normally days like this should be avoided, but to show the
flexibility of the strategy, let's take a look at it.

The areas marked with circles are all entries and because of chart space for comments, I will make
them here instead of on the chart.

You can see some pretty good entries, based on the normal rules of “The Dance” but in this sort of
“chop” it would take some pretty good experience and confidence in the rules to trade them. The first
circle is a trade I took where a Doji hits EXACTLY on the 10 EMA and was good for about 24 pips.
Not a bad trade.

The next three entires are all trades against the 50 EMA, and the first one is also a bounce against the
Round Number. The thing about it is that you had to be willing to exit IMMEDIATELY at the very
next bar because it ended in a doji AT THE 10 EMA. If not, the next bar retraced and you would have
probably lost the trade. The second is a Doji long against the 50 EMA and the third is a “touch” against
the 50. NO SHORTS were acceptable here “by the rules. If you were watching the H1, those three
trades were also at the H1 10 EMA. THAT is all the confirmation you get in “chop” for a trade. The
last area of decent “by the rules” trades are the larger circle of “constrainment” against the 50 EMA as
well, but these are shorts. The 10 EMA is BELOW BOTH the 35 and the 50 in this area. SO “by the
rules” we are now looking for only shorts.

Keep in mind that this area is not a very good area to even be looking for trades, but if you must trade
something like this, this is how it's done. The rest of the chart is such a mess you should not even look
for a trade there.

NOW FOR SOME FUN. There are areas where price is obviously not being able to go above or below
a specific Round Number. How in the world would you catch those. You could just take a “flier” on
the Round Number, or depend on all the “wick through” that can't sustain a move.

Or, you could look to the H1 and D1 charts for some stronger S/R levels as demonstrated by former
wick tips from previous P/A. In the next chart you can see some of that very, very clearly. Then, if you
compare the two charts, you get some amazing levels of S/R to trade against. Here is a chart marked
with those levels. I zoomed the M15 out for a minute to make it an H1 so I could mark the levels you
see on H1 below, and the levels are pretty amazing.

Using the wicks of longer Time Frame bars can give you some very, very strong S/R levels to use as
both entries and exits.
 Constrainment Entries
Trade 1:

Probably could have stayed in longer by not moving my SL at the end of each bar by the rules, but it's
not worth the risk on news days.
 “Touch” Trades
Trade 1: “Touch” trades are very strong high probability trades and extremely counter intuitive. They
are even stronger on H1 at times.

NOTE: There was an earlier “touch” that was also acceptable and good for about 45 pips before it gave
an exit signal at the doji on M15. ONE BAR for 45 pips is not bad! This trade was ultimately good for
+58 pips.
Trade 2: This trade was exclusively an M15 entry.
Trade 3: This was a good “Touch” trade taken on the Sunday open. Not normally a great time to
trade, but “Touch” trades seem to be very, very strong so I took this one. Series of four images.
Trade 4: This is as close as I will get to showing a bad trade. You don't learn from those, but this time,
it also shows a good trade and how trading by the rules would have made the good trade a GREAT
trade. Had I taken the first trade SHORT like the rules called for, this would have netted out a LOT
more pips total. The confluence of the Round Number and the 35/50 lines actually “converging” and
touching sort of threw me. Then it “wicked through” as well and I just wasn't ready for that sort of
signal here, but I SHOULD have been.
Trade 5: This trade is based on price being captured between the 35/50 lines, WITH LOTS OF ROOM
for price to “play” between them for a while. The “distance” between them here is 66 pips at the
“touch” of the 50 EMA.

The Next chart shows how and why I moved to Be to wait out price development. Remember, the
Target is the opposite Main MA. Price is at a “turning point” here and could just as easily go either
way. Pressure will be down because of the overall trend, and this was a large retrace already of slightly
over 50% of the original move, but no “real” direction has been established here.

Once it “Ping Pong's” around in this “trapped” area a bit, the thing to be looking for is an explosive
exit. If price takes me out here, I will look to re-enter at the next “touch” of a Main MA, which ever
way it goes and then wait again. These trades almost never need more than a 10 pip original SL on the
entry, and can often yield 30 to 50 pips pretty quickly. Not a bad RR for trading.
When the bar closed, it still seemed like the downward pressure was strong, but there wasn't enough
“room” to tighten my SL without choking the trade as price had only moved about +15 pips. So I
decided to wait the next bar out before making a decision to exit. Keep in mind that I have a “free”
trade here with 7 pips already locked in. This is as good as it gets unless you nail a big move on a
touch or a constrainment entry and then have it run in your favor really fast.

The next chart is the last in this series for this trade. Comments are on the image below.
In fact, the trade stopped me out at my 12 pip SL before COB. NOW, I will NOT take another entry
UNLESS it “touches” one of the other Main MAs as price has sidelined me for now. The only other
way to trade this would be to enter, move to BE and then wait until it hits the opposite MA as it most
likely will. The problem with that is that you risk not getting any pips if a news event or some other
factor makes price move back against the trade quickly and then continue the retrace. There is no way
to account for an early stop out like this one was.

To quote a friend, “Some do, some don't, so what? NEXT!”

 5/10 EMA Entries

Trade 1: Entry was a bit late. Had I entered properly, I would probably have kept this trade a little
longer than I did. As it is, I got +2 on it and could have taken more, but was waiting for it to move a
bit.
Trade 2: This was a quick trade and I wasn't looking for huge pips because it's so close to prior P/A
S/R. I also missed the earlier 10 EMA constrainment entry which was good for around 40 to 50 pips.

You can also see on H1 that Price hit the 50 EMA again.
 A Full Session Example

This series of Trades was completed after a sharp drop on the Pound that I missed most of because I
was exhausted. Still, it shows the power of this strategy. Comments are on the images below. Just be
aware that it started with a “Touch” trade against the 50 EMA, then several additional “Touch” trades
that could all have also been considered “constrainment” entries short as the MAs involved held price
short pretty strongly.

The Entry:
I think this session is a very good example of the overall strategy. I netted +19.5 % profit in the
account (actually a bit more but who's counting) from this session alone. If you stick to the “perfect”
signals, you won't go wrong and you will make lots of pips. There are tons of opportunities to trade
perfectly “by the rules,” so DON'T PUSH IT! Let it come to you “by the rules.”
 A Co-Ordinated Re-Entry Trade

Often, if you get stopped out on a trade, it's not because you made a mistake on direction. I used to
fight this issue all the time, pulling my hair out when Price would stop me out, then run my direction
for 30, 50 even 100 or more pips. Using three TF charts has really helped that issue as seen in this
trade below. Comments are on the image.