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Dynamic Trading Approach

Dynamic Trading Approach” is the technical analytical approach that we use to formulate our trading recommendations that are used by banks in over 60 countries through Reuters network for more than 15 years.

It is developed in-house by Wilson Leung and our analysts throughout the years. It has been time-tested and continually improved over time. It enables us to identify an emerging trend very early, often capturing the highs and lows, and helps our users trade with the new trend before others notice it.

Dynamic Trading Approach is a synergic combination of:

  1. Trend analysis and pattern recognition
  2. Trend following indicators and oscillators (includes Exponential Moving Averages, Bollinger Bands, MACD, DMI, ADX, RSI & Stochastics).
  3. Retracements and projections.
  4. Elliott Wave Theory.

Below is a summary of Dynamic Trading Approach. Subscribe to AceTrader Packages and get the over 80 pages, over 60 charts manual of ‘Dynamic Trading Approach – Technical Analysis for Forex and Other Markets’ free of charge.



Dynamic Trading Approach
I. INTRODUCTION
II. TRENDSTTER’S ‘DYNAMIC TRADING APPROACH’
III. STEPS IN "DYNAMIC TRADING APPROACH"
1) TREND ANALYSIS AND CHART PATTERN RECOGNITION
2) BUILD AN ARSENAL OF ‘TECHNICAL INDICATORS’
3) USING RETRACEMENT AND PROJECTION FOR PRICE FORECAST
4) BASIC ELLIOTT WAVE THEORY FOR FRAMEWORK
IV. SUMMARY OF ‘DYNAMIC TRADING APPROACH’
V. APPLICATION OF ‘DYNAMIC TRADING APPROACH’
VI. APPENDIX
I. INTRODUCTION
Countless numbers of investors, large and small, have been attracted to the foreign exchange market by the prospect of making a fast buck.

To make their speculative trading decisions, these investors often use fundamental factors such as current economic performance (trade balance, gross national product, unemployment rate, interest rate differential among underlying currencies etc.) and also some future expectation of these factors to make their speculative trading decisions.

How well have these worked to make money consistently in the past? What about the future? The straight forward answers are: “Not very well in the past and not in the future. “

The foreign exchange market is one of the largest and also most volatile markets in the world with an average daily turnover of over US$ 1 trillion. Price quotes fluctuate almost constantly with dominant interbank traders who follow the dollar’s movement virtually tick by tick. Their job is to make price moves or create volatility in order to benefit from these moves. That’s why dollar can rise one and a half yen (150 basis points) against Japanese yen in a day and then fall two yen the next day without any news on fundamental reason.

The use of technical analysis, a method of studying price action based primarily on price and the trading volume, is very useful and can very often give reasonably good results in predicting future price movement. The purpose of technical analysis is to identify a trend in its early stage and to trade in the direction of that trend. “The Trend Is Your Friend” advises every speculator to follow just that.

Because of the size and volatility of the global FX market, technical analysis is the best tool to apply in this so called “perfect market” where there are many willing buyers and sellers at all times and no single large play (even a central bank) can have a long lasting impact in this market.

The virtue of technical analysis is its simplicity of analyzing just one major element, “the price action”. The logic behind this is price action discounts everything, because everything (i.e. economic & political factors, market’s psychology, both expectation & reaction) has been reflected in the price itself.

Technical analysis is very powerful method of forecasting, as the analyst is not influenced by prevailing market sentiment and he can make a more objective judgment of which way and how far the price is likely to move in the future.

II. TRENDSETTER’S 'DYNAMIC TRADING APPROACH'
The financial markets are dynamic in nature, one cannot set a few pre-defined rules and expect the market to obey and follow them. The market is always right, it sets its own rules. A trader’s success lies in closely observing the market and adopting the appropriate trading strategies that would enable him / her to be on the right side of the market.

One of the first tasks of an analyst is to identify whether the market is trending or ranging and then to apply the right strategy, with a view to trade with the trend in the first case and to ‘buy low and sell high’ in the second.

Dynamic Trading Approach attempts to achieve this using trend analysis and chart pattern, technical indicators and combining these with price retracement and projection together with basic Elliott wave analysis.

III. STEPS IN ‘DYNAMIC TRADING APPROACH’
1) Trend Analysis and Chart Pattern Recognition
  (A) Trend analysis – trend is your friend

First, determine the time frame you trade in and focus on the chart which covers that time frame because your trading decisions should be based primarily on this chart. Then, look at the chart of the next longer time frame to get the overall perspective and framework for trading.

(B) Chart Patterns – extend your imagination

Price patterns are extremely important and useful to keep you on the right side of the market. People often tend to overlook the importance of price patterns because they look so simple.
2) Build an "Arsenal" of Technical Tools
  These are essential tools to guide and help you to make a more objective interpretation of the market. Technical indicators can be viewed as various gauges in the instrument panel of your motor car whose purpose is to let you know the condition your car is when it is moving.
The signals generated by these gauges are ‘objective’, i.e. speed you are cruising at, level of petrol in the fuel tank etc. For instance, once you see price breaking certain key chart points and hourly oscillators particularly the MACD and RSI readings are now rising from previous low territories, you will know there is a lot of upward momentum (strength) in this move and even though oscillators’ readings are high, you should enter a long position as soon as possible or on a 25-50 point temporary pullback and NEVER go against it.
3) Using Retracements and Projections for Price Forecast
  Even in a rising market, price does not move up smoothly, there will be a series of countertrend moves known as pullbacks or correction, sometimes of great magnitude before the prevailing trend resumes.

The use of Fibonacci retracements is very effective to locate so called dynamic support or resistance especially when the actual chart support or resistance are very far from current price level. Once the correction is over, the future price forecast can be made with a high degree of accuracy using projection technique.
4) BASIC ELLIOTT WAVE THEORY FOR FRAMEWORK
  This is one of the most controversial disciplines in technical analysis, you either believe it or discard it, however, time and time again, if you are proficient in counting the wave patterns objectively and are able to count them correctly, very often, you can achieve incredibly accurate results.


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