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Day Trading FX Futures (6E and 6B futures) using HTF (High Time Frame) HCR/LCS (High Close of Resistance/Low Close of Support).
I have an advanced trader friend (Ellen) that trades cash FX with this method, and does quite well. I'm still wanting to be able to do a TST Combine in the future, and I wanted to explore using this method for Day Trading FX Futures. The main difference with what Ellen does is that she may hold a trade open for several days in order to get to her Take Profit area. That just isn't possible with the rules of the TST Combine. Trades can't be carried overnight on a Combine.
So, I need to try this out and see if I can adapt it to trading it with a smaller trading window of the TST Combine. Ellen is trading 4hr candles against the Monthly/Weekly/Daily (Higher Time Frame) closing levels. One of the other forums developed an indicator that places these HCR/LCS levels automatically against the deeper swing points on a Metatrader (MT4) chart. Since that indie is someone else's property I won't share it in here as a download, but I have permission to use it. That's what you would see on my MT4 charts.
It was a recent posting that Fat Tails did in my other thread that got me to thinking along the lines of doing FX Futures, instead of GC (Gold Futures) for the TST Combine. FT related that there is a relationship between FX cash market and the FX Futures market for session times that are ending at 5:00 PM EST. If I'm mis-representing this...somebody point it out to me. Better I make mistakes earlier rather than later.
The basics of this method don't need any indicators on chart other than the HTF levels (Monthly, Weekly, Daily closes). But, other confluences (like moving averages) can also be on there. I normally also put on Big Round Number (BRN) grid levels as these are very important from an orderflow point of view. Stop Limit orders occur at the BRN's (even numbers) and the 0.0050 (50 pip or 50 tick) increments.
The less indies, the less clutter...and the less mental noise you have for making decisions.
A Monthly swing high close is called a 'M HCR', a Monthly High Close or Resistance. A Monthly swing low close is called a 'M LCS', a Monthly Lower Close of Support. In the same vein you can have 'W HCR', 'D HCR', 'W LCS, and 'D LCS'.
The method uses the close of a 4hr candle to indicate how the prevailing sentiment is moving prices on either side of that HTF level. When a 4hr candle has closed below a HTF, we say that Price Broke Through and Closed Below (PBT&CB) that level. That level is then seen as Resistance for the next 4hrs. You would normally expect that prices would continue to close on the lower side of that level and use it as a resistance.
When a 4hr candle closes above a HTF, we say that Price Broke Through and Closed Above (PBT&CA) that level. That level is now seen as support for the next 4hrs. You would normally expect that prices will continue to close on the upper side and use that level as a support.
Because of the way orderflows occur in these areas (think Liquidity Vacuums) price will normally retrace back to the HTF level that the 4hr candle has just closed across. Entry is made at the HTF level in the direction of the closing candle, and a Stop Loss is placed at the other end of the 4hr candle.
This is the basic setup.
The setup gets violated if a succeeding 4hr candle closes back on the other side of the HTF level that you're using for a sentiment direction. Unless you have other confluences (like a slow moving average) that let you believe the trade is still good...scratching the trade is your best bet, since sentiment has shifted against the setup.
The one addition to Ellen's method that I find significant is using the BRN's (the 100 tick and 50 tick) increments. Price doesn't always retrace back back to a HTF level after a 4hr bar closes across it. For whatever reason. But, the BRN's usually get some sort of price action retesting them because of the resting stops that are clustered nearby.
It's easier to see this on charts than it is to talk about it.
Yes, it is important to know that sometimes the close is close enough. I'm going to be showing FxPro Metatrader4 FOREX charts. FxPro has it's 'Close' of the day at 5:00 PM EST
Here is a Daily GU cash FX chart with the levels that I'm watching. A Daily Confirmation Close (DCC) is an important aspect of this method as it gives further confluence that a level is either a Support or a Resistance. The beauty of using a chart that 'Closes' at 5 PM, is that you can see the Daily sentiments and then plan where you might want to make a trade in the next day.
Ellen only trades cash Fx, and she is watching about 13 pairs on FxPro. She scans her charts at 3 - 4 PM, to see if she has any good setups occurring that look promising. Because she is using the same indicator that I have on this chart, it's easy for us to compare notes.
Here is the GU 4hr chart with some PBT&CB/PBT&CA notes on it.
In the case of a PBT&CB where the Daily trend is is bearish, Ellen's version of the method that she trades places a Sell limit order at the level that the 4hr bar passed through. When several levels are passed through, she splits up her trading idea into several parts and places a Sell Limit order at each level that the bar closed below.
The only thing I see differently from her is that I also pay attention to the any nearby 50 tick lines that very 'Close' by. I figure that there are a lot more traders watching these than may be watching the 'Close' lines.
It's later in the afternoon on Friday. It's unilkely that there will be any large moves (large enough to trade on) now that London has gone home for the day.
Focusing in on the last two 4hr bars you can see where PBT&CB 4 levels in a tight group. All 4 are playable as a resistance opportunity as the Price Action retraces back and retests all or just some of them.
W HCR at 1.5962
W LCS at 1.5956
D HCR at 1.5955
BRN at 1.5950
The expected Draw Down against a playable resistance is normally less than 20 ticks. The best stop loss placement is normally on the opposite side of the 4hr Setup bar. In case that seems overly aggressive (optimistic) you can use the 4hr ATR (Last 30 bars Average Range...30 4hr bars is one week).
If the setup is occurring in between 50 tick lines (as is happening here) you could use a SL on the other side of that next higher 50 tick line. Ellen places initial SL 40 to 65 ticks away depending on recent PA volatility. But she is also trading from a multi-day perspective.
Great charts Eric, thanks for posting, actually what I meant was that the 'Close' really is the important thing for a tell.
It is clear that the big boys are well informed by 4 hourly closes in many markets, and when they coincide with other important levels or momentum plays they can be powerful indeed. I'm about 5 years late getting to the importance of the Close after getting sidetracked by a certain Mr Neely's insistence that cash H/L data was far more important, it isn't, they both have much to tell.
I definitely agree about the Close being important as a tell. It was the collective thinking of the trading crowd that this level was where they found value at the end of the day's trading session (5 PM).
And where the closes wind up in relation to the closes of the Monthly, Weekly, Daily swing high and low closes, gives you an important clue as to where the majority of the crowd sentiment is leaning.
If you step back and look at the weekly picture...there is a very small range of what the market sees as too much to pay for buying GBP...where the sellers step in and sell the market back down.
Even with what's going on in Washington with the Government Shutdown and its stalemated state, GBP still couldn't trade above 1.6150. And this is also near where the GBP traders found their best value back at the start of the year (Blue highlighted area).
On the Space story, we haven't had a lot of thrashing around in the area GBP is trading into now. Our next part of the Story may be playing out near the1.5750 area.
Price flipped back and forth between Resistance and Support at 1.5727...that may be our next area of consolidation...where the GBP traders find a balance in the value of GBP/USD. It's important to have an idea where the market can trade into, without letting this idea turn into a bias that blinds you into one-directional thinking. Majority sentiments towards future news events could still send us back up to re-test the recent highs 200 ticks higher...just as easily as sending us 200 ticks lower. Anything can happen. That's why the 4hr method works so well for reading the current sentiments.
Where are the HTF levels and where are we closing around them? Very important to keep the closes in mind.
