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Old 04-16-2006, 05:07 AM
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You should stay away from discretionary trading. It won't do you good, really. If you make decision at your own discretion, you'll put your emotion--fear, nervousness, greedy--into it. Instead, you should have specific rules to evaluate when to enter, exit, stop loss, and take profit; and how much money you should risk each trade. Mechanical trading works beautifully for many market wizards for many years.

You seems to have entry signal from "raw" indicator crossover. My research has proved it's a bad idea--basically lots of crossover system that I've tested fails miseribly because of whipsaws. When market swing wildly, the indicator just crosses up and down wildy too. That is lots of false entries. Hence, as whipsaws is uninvitable in highly volatile market, entry from indicator crossover is really a suicide.

But, in fact, indicator crossover is best used for exit. A crossover of moving average or MACD represents a break in trend either temporarorily or permanently. In other words, it suggests that "the old trend is most likely dead, just close your positions and be ready for new trend." You can see in the chart, whenever MACD crosses, the trend breaks, then eurusd goes sideway for hours until new trend is created. This answers your question, "how to identify break in trend."

When the trend is broken, it doesn't mean the market must reverse itself. Says, when the uptrend is broken, it doesn't suggest the succeeding trend would be downtrend. The market can choose to go up or down freely. That's why you see the eurusd moves up, sideway and then up again, and sometimes up, sideway, down...

While the indicator crossover suggests diminishing of trend, a significant break of support/resistance line suggests the birth of new trend. Price penentrating support line suggests a downtrend, while price penentrating resistance line suggest an uptrend. At any given time, the market has many levels of support and resistance, each has unique degree of importance. The more important the level, the stronger the trend is. The stronger the trend, the farther and faster the market moves. If confirmed by some indicators, the break of support/resistance will ultimately signal a good entry.

To sum everything up:
  • Don't use indicator crossover to open position.
  • But do use crossover to close position.
  • Break of support/resistance + confirmed by indicators = good entry

Well, what I briefly described is thoroughly writen in Alexander Elder's books:
"Come Into My Trading Room" and "Trading For a Living" (check my blog). Highly recommended for you.
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