STRATEGY #1: Moving Average moving average is simply a way to smooth out price action over time. By “moving average”, we mean that you are taking the average closing price of a currency for the last ‘X’ number of periods. Like every indicator, a moving average indicator is used to help us forecast future prices. By looking at the slope of the moving average, you can make general predictions as to where the price will go. As we said, moving averages smooth out price action. There are different types of moving averages, and each of them has their own level of “smoothness”. Generally, the smoother the moving average, the slower it is to react to the price movement. The choppier the moving average, the quicker it is to react to the price movement. We’ll explain the pros and cons of each type a little later, but for now let’s look at the different types of moving averages and how they are calculated. STRATEGY #2: Simple Moving Average A simple moving average is the simplest type of moving average (DUH!). Basically, a simple moving average is calculated by adding up the last “X” period’s closing prices and then dividing that number by X. Confused??? Allow me to clarify. If you plotted a 5 period simple moving average on a 1 hour chart, you would add up the closing prices for the last 5 hours, and then divide that number by 5. Voila! You have your simple moving average. If you were to plot a 5 period simple moving average on a 10 minute chart, you would add up the closing prices of the last 50 minutes and then divide that number by 5. If you were to plot a 5 period simple moving average on a 30 minute chart, you would add up the closing prices of the last 150 minutes and then divide that number by 5. If you were to plot the 5 period simple moving average on the a 4 hr. chart………………..OK OK, I think you get the picture! Let’s move on. Most charting packages will do all the calculations for you. The reason we just bored you (yawn!) with how to calculate a simple moving average is because it is important that you understand how the moving averages are calculated. If you understand how each moving average is calculated, you can make your own decision as to which type is better for you. Just like any indicator out there, moving averages operate with a delay. Because you are taking the averages of the price, you are really only seeing a “forecast” of the future price and not a concrete view of the future. Disclaimer: Moving averages will not turn you into Ms. Cleo the psychic! Here is an example of how moving averages smooth out the price action. On the previous chart, you can see 3 different SMAs. As you can see, the longer the SMA period is, the more it lags behind the price. Notice how the 62 SMA is farther away from the current price than the 30 and 5 SMA. This is because with the 62 SMA, you are adding up the closing prices of the last 62 periods and dividing it by 62. The higher the number period you use, the slower it is to react to the price movement. The SMA’s in this chart show you the overall sentiment of the market at this point in time. Instead of just looking at the current price of the market, the moving averages give us a broader view, and we can now make a general prediction of its future price. STRATEGY #3: Exponential Moving Averages Although the simple moving average is a great tool, there is one major flaw associated with it. Simple moving averages are very susceptible to spikes. Let me show you an example of what I mean: Let’s say we plot a 5 period SMA on the daily chart of the EUR/USD and the closing prices for the last 5 days are as follows: Day 1: 1.2345 Day 2: 1.2350 Day 3: 1.2360 Day 4: 1.2365 Day 5: 1.2370 The simple moving average would be calculated as (1.2345+1.2350+1.2360+1.2365+1.2370)/5= 1.2358 Simple enough right? Well what if Day 2’s price was 1.2300? The result of the simple moving average would be a lot lower and it would give you the notion that the price was actually going down, when in reality, Day 2 could have just been a one time event (maybe interest rates decreasing). The point I’m trying to make is that sometimes the simple moving average might be too simple. If only there was a way that you could filter out these spikes so that you wouldn’t get the wrong idea. Hmmmm…I wonder….Wait a minute……Yep, there is a way! It’s called the Exponential Moving Average! Exponential moving averages (EMA) give more weight to the most recent periods. In our example above, the EMA would put more weight on Days 3-5, which means that the spike on Day 2 would be of lesser value and wouldn’t affect the moving average as much. What this does is it puts more emphasis on what traders are doing NOW. When trading, it is far more important to see what traders are doing now rather than what they did last week or last month. STRATEGY #4: Scalping By the very nature of trading in the pits, scalping is best defined by trades that are very short term in nature. This presupposes small consistent profits from trades that last no more than a few minutes. The risk management aspects of these trades are such that they must be followed without question, or when the position doesn’t perform as expected. Scalp Patterns Pattern 1: The 15-minute Opening Range Scalp (15ORS pattern) This is my all-time favorite method- it’s easy to do, need no more than telephone or Internet access to a broker, and is very reliable. It differs from the usual notions of opening range breakouts in that profits are taken so quickly that the trade lasts no more than 1 minute. Setup: Wait for the first 15miute range to form from theopen. Entry: Enter on a buy stop 2 tics above the high of the first 15min range or Enter on a sell stop 2 ticks below the low of the first 15 min range Profit exit: Close out positions on an immediate 1-point profit Stop Loss: Exit for loss on a 1 point loss from entry or Exit if trade is open for more then one minute. Pattern 2: The 10 o’clock jiggle (10OJ pattern) As mentioned in the last few issues, 10 o’clock New York time provides ample opportunity for the market to reverse its current intraday trend from the open. Setup: Wait for the market to make to 15-minute bar closes from the open. If the market is near the intraday high for the 1st 30 minutes of trading, be prepared to go short. If the market is near an intraday low for the same time period, then be prepared to go long. Entry: For sell setups: Enter on sell stop 1 tick from low of the last 15 min bar. For buy setups: Enter in buy stop 1 tick from high of the last 15-minute bars Profit exit: Close out positions on 1.5 point profit Stop Loss: Close out on 1 point loss or if trade takes more than 1 minute. Cancel all stop entry orders (if not hit) after 10.30 has passed. No re-entry rules here. Pattern 4: The Penny Pincher (10PP pattern) Setup: On 10 minute candlestick bars, look out for bullish or bearish engulfment. Entry: Timing window: only take trades within first hour and last hour of the trading day. For bullish engulfments: buy at market price when the white body of the current bar exceeds the high of the last dark-bodied bar (see above) For bearish engulfments: sell at market price when the current dark body of the current bar goes lower than low of the last white-bodied bar. (see above) Profit Exit: Close out position for a 1-point profit. Stop Loss: Exit for a 1-point loss or if the trade lasts more than 30 seconds.

STRATEGY #1: Moving Average moving average is simply a way to smooth out price action over time. By “moving average”, we mean that you are taking the average closing price of a currency for the last ‘X’ number of periods. Like every indicator, a moving average indicator is used to help us forecast future prices. By looking at the slope of the moving average, you can make general predictions as to where the price will go. As we said, moving averages smooth out price action. There are different types of moving averages, and each of them has their own level of “smoothness”. Generally, the smoother the moving average, the slower it is to react to the price movement. The choppier the moving average, the quicker it is to react to the price movement. We’ll explain the pros and cons of each type a little later, but for now let’s look at the different types of moving averages and how they are calculated. STRATEGY #2: Simple Moving Average A simple moving average is the simplest type of moving average (DUH!). Basically, a simple moving average is calculated by adding up the last “X” period’s closing prices and then dividing that number by X. Confused??? Allow me to clarify. If you plotted a 5 period simple moving average on a 1 hour chart, you would add up the closing prices for the last 5 hours, and then divide that number by 5. Voila! You have your simple moving average. If you were to plot a 5 period simple moving average on a 10 minute chart, you would add up the closing prices of the last 50 minutes and then divide that number by 5. If you were to plot a 5 period simple moving average on a 30 minute chart, you would add up the closing prices of the last 150 minutes and then divide that number by 5. If you were to plot the 5 period simple moving average on the a 4 hr. chart………………..OK OK, I think you get the picture! Let’s move on. Most charting packages will do all the calculations for you. The reason we just bored you (yawn!) with how to calculate a simple moving average is because it is important that you understand how the moving averages are calculated. If you understand how each moving average is calculated, you can make your own decision as to which type is better for you. Just like any indicator out there, moving averages operate with a delay. Because you are taking the averages of the price, you are really only seeing a “forecast” of the future price and not a concrete view of the future. Disclaimer: Moving averages will not turn you into Ms. Cleo the psychic! Here is an example of how moving averages smooth out the price action. On the previous chart, you can see 3 different SMAs. As you can see, the longer the SMA period is, the more it lags behind the price. Notice how the 62 SMA is farther away from the current price than the 30 and 5 SMA. This is because with the 62 SMA, you are adding up the closing prices of the last 62 periods and dividing it by 62. The higher the number period you use, the slower it is to react to the price movement. The SMA’s in this chart show you the overall sentiment of the market at this point in time. Instead of just looking at the current price of the market, the moving averages give us a broader view, and we can now make a general prediction of its future price. STRATEGY #3: Exponential Moving Averages Although the simple moving average is a great tool, there is one major flaw associated with it. Simple moving averages are very susceptible to spikes. Let me show you an example of what I mean: Let’s say we plot a 5 period SMA on the daily chart of the EUR/USD and the closing prices for the last 5 days are as follows: Day 1: 1.2345 Day 2: 1.2350 Day 3: 1.2360 Day 4: 1.2365 Day 5: 1.2370 The simple moving average would be calculated as (1.2345+1.2350+1.2360+1.2365+1.2370)/5= 1.2358 Simple enough right? Well what if Day 2’s price was 1.2300? The result of the simple moving average would be a lot lower and it would give you the notion that the price was actually going down, when in reality, Day 2 could have just been a one time event (maybe interest rates decreasing). The point I’m trying to make is that sometimes the simple moving average might be too simple. If only there was a way that you could filter out these spikes so that you wouldn’t get the wrong idea. Hmmmm…I wonder….Wait a minute……Yep, there is a way! It’s called the Exponential Moving Average! Exponential moving averages (EMA) give more weight to the most recent periods. In our example above, the EMA would put more weight on Days 3-5, which means that the spike on Day 2 would be of lesser value and wouldn’t affect the moving average as much. What this does is it puts more emphasis on what traders are doing NOW. When trading, it is far more important to see what traders are doing now rather than what they did last week or last month. STRATEGY #4: Scalping By the very nature of trading in the pits, scalping is best defined by trades that are very short term in nature. This presupposes small consistent profits from trades that last no more than a few minutes. The risk management aspects of these trades are such that they must be followed without question, or when the position doesn’t perform as expected. Scalp Patterns Pattern 1: The 15-minute Opening Range Scalp (15ORS pattern) This is my all-time favorite method- it’s easy to do, need no more than telephone or Internet access to a broker, and is very reliable. It differs from the usual notions of opening range breakouts in that profits are taken so quickly that the trade lasts no more than 1 minute. Setup: Wait for the first 15miute range to form from theopen. Entry: Enter on a buy stop 2 tics above the high of the first 15min range or Enter on a sell stop 2 ticks below the low of the first 15 min range Profit exit: Close out positions on an immediate 1-point profit Stop Loss: Exit for loss on a 1 point loss from entry or Exit if trade is open for more then one minute. Pattern 2: The 10 o’clock jiggle (10OJ pattern) As mentioned in the last few issues, 10 o’clock New York time provides ample opportunity for the market to reverse its current intraday trend from the open. Setup: Wait for the market to make to 15-minute bar closes from the open. If the market is near the intraday high for the 1st 30 minutes of trading, be prepared to go short. If the market is near an intraday low for the same time period, then be prepared to go long. Entry: For sell setups: Enter on sell stop 1 tick from low of the last 15 min bar. For buy setups: Enter in buy stop 1 tick from high of the last 15-minute bars Profit exit: Close out positions on 1.5 point profit Stop Loss: Close out on 1 point loss or if trade takes more than 1 minute. Cancel all stop entry orders (if not hit) after 10.30 has passed. No re-entry rules here. Pattern 4: The Penny Pincher (10PP pattern) Setup: On 10 minute candlestick bars, look out for bullish or bearish engulfment. Entry: Timing window: only take trades within first hour and last hour of the trading day. For bullish engulfments: buy at market price when the white body of the current bar exceeds the high of the last dark-bodied bar (see above) For bearish engulfments: sell at market price when the current dark body of the current bar goes lower than low of the last white-bodied bar. (see above) Profit Exit: Close out position for a 1-point profit. Stop Loss: Exit for a 1-point loss or if the trade lasts more than 30 seconds.
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