RISK DISCLOSURE STATEMENT / DISCLAIMER …...10 Sideways You will find sideways markets before and after many news announcements, and depending on the timeframe you are trading, throughout

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RISK DISCLOSURE STATEMENT / DISCLAIMER AGREEMENT

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1. Preface

Sometimes the best position you can take is no position at all. Often in the FX markets

you will find killer setups that follow through like a dream trade should. Other times there

will be nothing that you can trade, and sitting on the sidelines is the best position you can

take.

Every trader wants to make money, and the only way to do that is to be in the markets.

When the markets are not moving right, being in the markets can be a bad proposition.

Not taking a trade can save you from losing money, and when the markets are chaotic,

losing money is the only thing that can happen.

From day to day, you will find certain currency pairs that are moving very nicely and others

that are not. When you are analyzing your different charts, you will have to decide what

pairs you feel are tradable and what pairs you will want to leave alone.

This is a decision you will have to make on a day to day basis, so knowing what to trade

is just as important as knowing what not to trade.

If there is one thing I want you to remember, it's this:

The Market Will Keep Doing

What It's Doing Until It Stops.

This means that if the market is move well, it will tend to keep moving well.

This also means that of the market is moving badly, it will keep moving badly, and this

includes when you place a trade.


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2. What Looks Good

We always want to put the advantage in our favour, always. It’s not a bad thing, it’s not

trickery and it’s not cheating if we wait for nice market conditions before we take a trade.

One time about a year ago, a gentleman accused me of having an unfair advantage by

waiting for a nice tradable market. He seemed really upset that I was waiting for nice

setups while he was taking all the trades and getting hammered doing so. He accused

me of “Cherry Picking”.

What???

Shouldn’t that be part of your trading system, whatever trading system you may be using?

You wait for other signals, a clean market should be one of them. You do want to have

the advantage and the better the advantage, the higher your hit rate will be. And that is

what counts.

In order to determine what kind of markets to stay away from, it’s a good idea to know

what kind of markets we should be attracted to.

The following is an example of a pretty market. It moves like an intermediate dancer, it is

graceful and flowing. From time to time it stumbles, but it quickly gets back into its

rhythmic swing.


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Below we have a picture of the EURUSD 15 minute chart. You can see that it has a graceful

flow to it. Price moves up and down fairly consistently and has only a small amount of

chop. The indicators also display a smoothness to them. They reflect the market

oscillations and they too flow quite nicely.

Image 1

When price moves in a direction, it moves in that direction!

The market looks orders and organized. It is in fact very tradable, this is a picture of a

beautiful market.

Of course no market will be perfect, but in the image, we can see how the market is fairly

smooth and quite tradable.


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3. What Looks Bad

Basically, anything that doesn’t look like the previous chart should be cautiously analyzed.

There is an element of common sense as to what kind of market should be left alone. If

there are no discernible peaks or valleys, if the market is chaotic looking, if there is no

rhythm to it, these are all things to be avoided.

Below I will list a handful of conditions that you should consider stepping aside for.

Alternating Colors

The market is making alternating colored candles, similar in length, one after another.

Below you see an example of the EURUSD Daily chart where there was a period where the

market was extremely undecided.

The candles were printing white, grey, white, grey, white....

Image 2

Alternating colors are a sign of strong indecision. At this point, anything can happen. The

market could take off in any direction with little or no warning.


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Railroad Tracks

Railroad Tracks are a set of 2 candles next to one another. They are longer than average

and they both are different color. The market shot up and then right back down again,

or bolted down only to immediately rebound. This is often fundamentally driven, and

often there is something more to follow. This is an element of “oops, we made a mistake”

by the market participants. From here, things can get tricky.

Image 3

Railroad Tracks can also mess with your indicators, your levels of support and resistance,

your hair-do and where you place your stops. Many times railroad tracks will have you

placing huge stop losses on an unreliable trade. Until things sort themselves out and

establish a flow once again, I like to sit on my hands.


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Upper And Lower Wicks

There is a scenario where you will get a market that is very undecided and will form many

longish wicks on both the top and the bottom of the candles. The market rallies and

drops off very quickly. It will do this over and over, and at this point there is no method

to the madness.

Image 4

These wicks will look like the legs of a centipede. During this phase, the market can

wander up wards, downwards or just sideways. In any direction, there is still an undecided

direction in the market. The bulls and the bears are fighting it out and they are equally

strong. Knowing who will give up first is difficult, as it could be anybody’s game.

There is a lot of market movement, but very little in market direction.

Wicks form poor peaks and valleys, and in a wicky situation, there will be no

distinguishable peaks and valleys.


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Saw Tooth

The saw tooth is a market condition where price displaying a variety of candle types. It

can be moving up or down overall, but it chops about in doing so.

Image 5

A saw toothing market is kind of like the junk drawer of candle formations. You will have

everything from tiny dojis to longer engulfing to long wicks to spinning tops and so on.

It’s a random mash of nothing good.

Very difficult to trade and will likely stop you out before hit your target.


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Sideways

You will find sideways markets before and after many news announcements, and

depending on the timeframe you are trading, throughout the day in the off sessions.

A sideways market is just that, price is moving sideways and making very small undefined

candles. When price is in these little ranges, the indicators are forced to interpret the

market in some manner, so will get a lot of fake signals that mean absolutely nothing.

Image 6

In the above example, you see the market doing absolutely nothing at all. At this point,

there is no battle between the bulls and the bears, they are at a kind of equilibrium.

This type of sideway market will often occur during the last half of the New York Session

and depending on the pair, through the Asian session. This occurs because there is very

little money changing hands between countries. When you have a lot of currencies

changing hands between countries, there will be fluctuations in the exchange rate. When

those exchanges are quite or slow, the exchange rate can't be affected as much and this

results in a flat sideways market.

This flat market is where the saying comes from, "although the FX markets are open 24

hours a day, not all of those hours are good to trade".


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Shark Tooth

This will make sense when you see the charts. The market makes very quick and sharp

highs and lows. The flow is very erratic and the highs and lows are quite close together,

even though the price does move quite a distance, but overall, the market hasn't chosen

a direction to move.

Image 7

“Long and sharp” are the key defining words to describe a shark tooth market.

Trades in a Shark Tooth market will almost always be stopped out because of the large

sweeping movements it will make.


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Long Entry Candles

Large entry candles are good to avoid entering a trade on. The market only has so much

potential to move so many pips, and if your entry candle is larger than average, it will have

used up a good deal of the potential move in that one candle.

Image 8

My rule-of-thumb is if the entry candle is 2.5 times larger than the candles that came

before it, I will miss the trade.

The market moves in waves, and these waves are fairly consistent in how many pips they

move. If, for example, the waves of market movement are approximately 100 pips, you

don't want to enter on a candle that is 70 pips long as it has used almost the entire wave

potential in one candle.

The Stop Loss has to be so much larger, and going for a 1:1 target, the Take Profit will

also have to be very large. You will be asking more form the market than it can deliver.


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Big Initial Move

When the market makes a lengthy move, the price will often want to take a break

afterwards. this break will result in a choppy market as it settles or rests. It can move

sideways or even look like it wants to attempt a move again in the trend direction.

The market needs its recovery time, and this will be a long sideways pause or a healthy

temporary reversal. If we don't get that, the next push will often be very short lived

resulting in a lost trade.

Image 9

Trades after a big move are hit or miss. I generally want to leave them alone, for me, they

are too risky.


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Another example of what the market does after a big move. The long trade that was

signalled after the big move would have been a loser.

Image 10

The pullback was only a few candles after the big move. This one was only 3 or 4 candles

before we got a signal to go long again, and this isn't generally enough recovery time. I

like to see around 10 candles to properly recover.


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Below is an example of a pause in the market that allowed the market to resume its move.

It was a pullback over several candles instead of only 3 or 4.

A 10 candle pullback is a nice number, but it's not written in stone.

Image 11


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4. Time Of Day

Even when the market is moving well, there are certain periods of the trading day that

should be avoided.

Although the Forex markets are open for business around the clock, not all times of day

make good times to trade.

This will apply more to the smaller timeframes, to the 5 and 15 minute charts. If you are

trading the 1 hour, 4 hour and the daily, these off periods will be absorbed by the size of

the candles. The 4 hour and daily you won't even notice the slow times, the 1 hour will

present you with a few smaller candles that don't really affect the trade you may be in.

On our charts, we have an indicator called the Market Hours indicator. When set up

properly, it will show us the different sessions that occur and at what times.

There are 3 main sessions:

Tokyo session (Asian session)

London session (often called the European session)

New York session (US session)

But on our indicator, we have 2 more sessions, the Frankfurt session (the real European

session) and the Sydney session (Australian session).

Image 12

Sydney Tokyo Frankfurt London New York


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Each session has business hours that go from 8 am to 5 pm.

Every currency has a home session.

EUR = London

GBP = London

AUD = Tokyo

NZD = Tokyo

USD = New York

CAD = New York

JPY = Tokyo

Each currency will move best during its own session, or during its county's hours of

business.

Currency pairs are built of 2 currencies, so we will see some pairs move over a longer

period of time.

For example:

The EUR/USD will move well during both the London session and the US session.

The GBP/JPY will be active during the Asian and the London sessions.

On the other hand, there are pairs that have currencies that are most active during the

same session.

The AUD/JPY will be most active in the Tokyo session.

The EUR/GBP will be most active in the London session.

The USD/CAD will be most active in the New York session.


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Pairs that get outside of their session will move, but they will move slower and with less

momentum.

The AUD/JPY won't move as well during the London session as those countries' currencies

are not open for business then.

The US session is an interesting session and it's important you become aware of this

aspect of it.

The New York session is quite active during its first half, while it overlaps London. Once

London closes, the USD currency pairs will get slow and start to move sideways.

Image 13

The currency markets are a give and take, the exchange rates change when there is buying

and selling of currencies. Once the London session is closed, the last session in business

is the New York session, and from then on, there is no other country to trade with. Once

there is no exchange, there is no change in exchange rate, so the market will get quite

flat.

In the image below of the EUR/USD, the London session moves dramatically compared

to the slow markets outside of London. Although the EUR/USD contains the USD, the

market is still quite slow during the second half of the New York session.


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Image 14

Taking this knowledge, many traders who will only be able to trade during the Asian

session now know to look to pairs like the:

EUR/AUD

EUR/JPY

GBP/AUD

GBP/JPY

AUD/USD

AUD/JPY

NZD/USD

NZD/JPY

USD/JPY

There are going to be times that the market moves well in different sessions, but as long

as you are aware of the currency vs the session it moves best in, you will keep your losing

trades to a minimum.


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5. Conclusion

This seems like a lot of different instances where you would not take a trade. Fortunately

for us these don’t happen all the time. The market moves in a tradable manner a lot more

regularly than any of the non-tradable examples in this manual.

It is important to be aware of what kind of market conditions you could lose your shirt in.

When things aren’t as they should be, it’s a wise thing to either pass on the trade or just

sit it out until things become normal once again.

There is nothing wrong with not trading when the opportunities aren’t choice. Don’t

confuse not trading bad markets with hesitation or fear, that’s not it at all. Sitting out bad

market conditions is the best position you can take as a trader.

Remember this always:

The Market Will Keep Doing What It's

Doing Until It Stops.

Thank you very much for your time and your consideration.

Best of luck to you in your trading and in your life as a whole.

Documents

RISK DISCLOSURE STATEMENT / DISCLAIMER …...10 Sideways You will find sideways markets before and after many news announcements, and depending on the timeframe you are trading, throughout