System Examples

Pulling up the NZDUSD gives us (me anyway) an opportunity to look at how to trade a trend reversal with LOW RISK.

At point A we are expecting our fun with selling to end because we have:

1)Hit MAJOR SUPPORT (psycho 0.5000)

and

2)We have a breakout and a test of our DSRI indicator (thin red line)

There is a Bond Hammer on March 3rd which when considered with all the candles around it testing and proving support, could have been used for a potential triple pip move up to our next DSRI indicator (thick red line).

I didn’t take this trade. I think I was concerned with the validity of the Bond Hammer and proof of support.

On March 18, price flew through our DSRI indicator with a vengeance! It did the same the following day through minor resistance. If ever you wanted a clue that the buyers were now back in control – this was it.

We now know we need to be positioned with the buyers since they have the control and so we start looking for LOW RISK areas to get on board.

The last thing we want to do is just jump on willy nilly without any PLAN. After those “vengeance” bars, the first thing we should be thinking is PROFIT. Where will the Big Boys and those who got in at the beginning be looking to take profit? Well the Italian Ice Cream man is no good since we took out his critical 61.8% sundae sherbert so where then?

We don’t know and we don’t care, we let PASR tell us. On March 26 we have our answer as we see a Mickey Mouse shooting star. This is the SIGNAL to exit longs – it is NOT a signal to enter a short!

OK before anyone questions this and inundates me with PMs, it is not a signal to go short because:

1)Our MAJOR DSRI indicator has been broken to the UPSIDE
2)Price has NOT stalled at RESISTANCE but somewhere floating in space
3)It is NOT a qualified shooting star

However, our little man will question us because technically we are still in a downtrend. We send him packing because we know we have a better test coming up later.

The Daily scalpers and counter trend traders WILL take this BUT we are not teaching that.

On March 31, we have a huge test. At this point, the thin blue line is not drawn so ignore it. She has just put in a very juicy BEOB so get out your shorts you would think. Hopefully not as you remember we are back at what was MINOR RESISTANCE – This is a DOUBLE TEST. The VERY LAST thing you EVER want to do is sell in to support or buy in to resistance.

If the buyers are as strong as they showed us earlier, this should be their platform for higher prices so we would expect a bounce and CONFIRMATION of what was once resistance as SUPPORT.

If the sellers gain control we know that they will smash through this which would change everything back to a bearish scenario.

So, on April Fools’ Day we do nothing except watch. This produces a bullish bar but nothing we can trade with LOW RISK. It is a NOTHING bar. It is neither a BUOB or BUEB and worse still, it didn’t even close above the open of the previous bar let alone its high. We are also very wary that MAJOR RESISTANCE around psycho 0.5900 is only a couple of hundred pips away and we don’t want to get caught in any reverberations around there. So again, on April 2nd we just watch and see a huge bullish bar smash through the Mickey Mouse shooting star and pivot. Again, the buyers have made their intentions perfectly clear.

Time to get out your wallet you think. Not tonight Josephine! Remember what I always expect after a big one? Well sure enough, there she is. More important than this is that big, thick, horrible red horizontal static line up above at psycho 0.5900 lurking like a huge dark rain cloud. What to do now, Gungadin? Just wait.

You’re tired of waiting you say, watching all these pips go by. Well waiting ready to pounce is what separates the guy with all the lolly from the guy who wants to be separated from all his lolly!

While we are waiting, we see a footprint and our new DSRI indicator appear on the April Fool candle. So now we have a benchmark for the buyers.

As expected, MAJOR RESISTANCE does its job and sends the buyers packing with a nice BEEB.

Now we are in NO MAN”S LAND! We are at the turning point. We are at the point where either the technicals change to an uptrend or they revert back to a downtrend. Do you want to be caught in the riptide? No way Jose!

The Daily scalpers and high risk traders will sell off the BEEB down to our DSRI indicator and beyond if it gets broken.
For low risk traders its back to waiting. On April 8th, our DSRI indicator confirms support as the bullish bar bounces off it. Right, you start to get your wallet out again as you are tired of waiting but at the last minute you remember that huge red cloud above and think again.

Again, the Daily scalpers and high risk traders will take the trade back up to resistance.

April 14 delivers very important information. Exactly where our DSRI meets MAJOR RESISTANCE, the buyers were sent home and the sellers took control with another juicy BEEB.

PASR at its finest if ever you wanted an example, Mrs. Robinson!

The moths fly out of my wallet (I’m half Scottish, don’t forget!) and I load up on a gravy train ride. This should need no further explanation and the target should be even more obvious. Even the Italian Ice Cream man helped with this!

On April 20, 21 and 22, we get three chances to get our wheel barrow out or call Securicor and take our haul to the bank.

So, what next? How about some more waiting. I have found that taking another trade straight after a fat, juicy trade only ends up with me giving back and I have done enough of that already thank you, Ma’am.

April 24 makes me wish I HAD taken a trade as we are obviously making another run for that huge red cloud but its too late and in any event, that Mickey Mouse shooting star may act as minor resistance.

Well the waiting paid off – IT ALWAYS DOES – April 28 produced a nice BUEB after a re-test and confirmation of SUPPORT.

Now, wait a minute, is that another footprint I see? Get out the DSRI indicator and sure enough it is. The DSRI indicator draws in our line after the close of the candle on April 28. It also drew one in on the close of the candle on April 23 but this was broken by the bearish candle on April 27 and I have left it out for purposes of clarity.

On April 29, the big fat wallet is out and we stare up at that huge red cloud again.

We watch as price “wobbles” at the Mickey Mouse shooting star high at psycho 0.5800 but we are undeterred because we are trading our PLAN.

As if price is following our script, it closes on 0.5919 on May 7, our huge red cloud, so we run (its very hard running with a wheel barrow full of cash but try your best) once more to the bank with our proceeds.

“”As if price is following our script””, read that again my beauty

OK, “”As if price is following our script””,

This is upside down, inside out and back to front – WE are following price’s script!!!

We are nothing but disciples and followers of The Almighty – ""PRICE""

Hopefully this floats your boat if you have been struggling with understanding PASR.

After we have done our deposit, we realise we are back in no man’s land except this time, we have our second DSRI indicator by our side.

May 8 opens a new door as we get a very bullish close above the huge dark red cloud and we know we have passed over into bullish territory.

Break out traders and the Turtles (of Richard Dennis and William Eckhardt and maybe even the folk rock sunshine pop band) wet their pants as their break out orders are filled.

But wait a minute, there is an even bigger and darker red cloud above at 0.6050, what to do Grasshopper? Tell the BO and Turtles to either get out or change their underwear – and fast!

Meanwhile, patient PASR traders expect a reaction and wait (again) to see what happens. On May 11, we get our answer in the form of a BEOB. Again, the Daily scalpers and high risk traders will trade this down to our DSRI indicator.

Low risk traders sit and wait – again – patiently.

Our patience is rewarded when on, May 18, we get a BUEB but wait, it is more than that!

It is bouncing off our DSRI indicator confirming DYNAMIC SUPPORT. Your local Italian Ice Cream man will also give you a half and half confluence double whipped cornet!

Well, I could go on and on and, as I say, write books on this but I have probably already bored the pants off most of you so I had better stop.

08/27/09
http://www.forexfactory.com/showthread.php?p=3000146#post3000146

Let’s use EURJPY to do a refresher on PASR and understanding PASR.

The first thing we do is draw our MAJOR S&R lines. This now is our grid, or script for trading major worker moves.

If you want to scalp on the Worker, we would add in minor S&R lines but that is a different style.

We have to start somewhere so lets start at candle 1.

The day before candle 1 was a down day and broke through minor resistance so we should expect candle 1 to continue the down move to the next support so lets take it from there.

Candle 1 continued the down move and hit the next support which is MAJOR support. At this level, there were more buyers than sellers and the buyers caused price to rise. They attempted to push prices all the way up to the next MAJOR resistance but met a level where the sellers outnumbered the buyers. This caused price to stop short of resistance where the sellers drove price back to the minor resistance where it CLOSED.

So, from candle 1, we LEARN a lot of information. We know where the buyers and sellers are hiding amongst other things. This also gives us our CONFIRMATION of SUPPORT at this level.

Since candle 1 closed with the buyers in control at resistance, it would be logical to expect them to be in control at the open of candle 2.

Candle 2 opens with the buyers pushing prices back up to MAJOR RESISTANCE where again there were more sellers than buyers. The sellers took over and tried to drive price back down to major support but the buying pressure was too great and the candle CLOSED at minor resistance.

Again, from this, we LEARN even more valuable information.

With candle 2 firmly rejected by MAJOR RESISTANCE and unable to stay above minor resistance and finally CLOSING at minor resistance we would expect the sellers to be in control for the opening of the next candle.

Candle 3 shows another attempt by the sellers to drive price lower but they can only get to ……………MAJOR SUPPORT, the level at which we ALREADY KNOW are where buyers are waiting to pounce. There were only sufficient buyers to hold the price at support rather than take price higher so we know the sellers were in charge at the candle CLOSE.

Candle 4 opens with the sellers making an attempt to drive price lower to……………..the next level of support which is minor support. However, the sellers did not believe they could drive price down there so they only sent out a small group who were only large enough to meet the buyers at that level. The few sellers managed to CLOSE that candle below MAJOR SUPPORT.

Seeing the success with the small group of sellers CLOSING below MAJOR SUPPORT, the sellers sent out the cavalry on candle 5 to drive prices down again which they managed to do to………………….minor support. The only problem was the buyers were stronger down there than they thought and they were repelled BUT they still managed to CLOSE at a lower price than the previous candle meaning the sellers still had the upper hand.

Candle 6 was either a rest day or where a huge battle went on and nobody came out a winner. Either way, it tells us that the buyers and sellers, for whatever reason, had reached equilibrium or balance on the price of 133.72

It is normal, after a day of equilibrium for one side to try and take control but trying to guess which one is where you lose your money. Many traders will say to trade in the direction of the “trend” which would be in the direction of the four candles, 2,3,4 & 5. However, the experienced trader knows (1) what is going on and (2) where we are with respect to price levels. If you are reading this and don’t know what is going on and where we are at then you need to go to the beginning of The Path of Learning.

Candle 7 is basically a déjà vu of candle 5 EXCEPT there was much more activity shown by a re-test of both support and resistance and the buyers managed to CLOSE the candle in control at MAJOR RESISTANCE. This was the buyers sending out a message to the sellers.

Candle 8 saw the sellers getting the message and telling the buyers which orifice to stick their message and proceeded to drive prices lower again. This move caught the buyers with their pants down as they thought they were strong enough to push price lower and quickly had to bring in more buyers to stem the down the move. This was at a previously established very minor price level but strong enough to hold the sellers who were in control at the CLOSE.

Candle 9 was a continuation from candle 7 where the buyers believed they were strong enough to outnumber the sellers to take prices higher which they did. However, they used up a lot of their resources in over coming the sellers on candle 8 and were not able to take price back to the next price level………….minor resistance. They did manage to keep control as evidenced by their strong CLOSE.

Since the buyers did not finish the job they started on candle 9, and with them being firmly in control, you would expect the next day to be a continuation of that move, which it was.

Candle 10 continued the up move to get prices back to minor resistance but, they ran out of steam as evidenced by a strong close well below resistance. We don’t know why they ran out of steam except to know that there were no buyers above that level – a level where they have had problems in the past. What we do know is that they are near to the level where WE KNOW sellers are waiting.

Candle 11 shows us that the sellers are still in control and dominate the buyers and manage to get prices back down to………..MAJOR SUPPORT again.

At this level, the buyers know what to expect and prepare for it by showing up in force to drive prices higher, back up to………..minor resistance. This is shown by candle 12. Unfortunately, the buyers didn’t bring enough troops and they were pushed back the sellers who were still in control. However, there were sufficient buyers to keep price above MAJOR RESISTANCE but with the CLOSE being at the extreme of the sellers range, we know who was in control at the CLOSE of the candle.

As expected, candle 13 showed the controlling party driving prices back down to………………..the next level of support which is at the very minor resistance again. Since they couldn’t quite get to CLOSE at the previous level and despite CLOSING strong, we have doubts whether they will be able to maintain that level.

Candle 14 sees the sellers attempt to drive prices back down to……………minor resistance but again it is at a level where the buyers outnumber them. Since the buyers are now in ascendance, they take control and make a push for price levels at……………..the next level of resistance which is MAJOR RESISTANCE.

See if you can work out candle 15 (there is additional information to help you with this).

This is the natural tug of war or fight or battle between supply and demand and is how a market breathes and moves.

If you think of prices as a battle between the buyers and sellers trying to maintain and gain their “land”, you will go a long way to understanding prices.

Oh, and if you don’t know why box “A” is highlighted, please go back to the beginning of The Path of Learning.

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