Price action strategy the STEAMM

The uptrend in EUR/USD since the beginning of 2002 to the end of 2004 was perfect for trading.With the opening of London usually a new leg in the direction of the trend started.Pullbacks

“An inve stme nt in knowle dge pays the be st inte re st.”

~ Be njamin Franklin

Trading is a zero sum game

If you are winning someone else is losing and vice versa

This is the first thing you have to understand about the financial markets

If you don't get this you have good chances to join the 95% club of unsuccessfultraders

The good news is that you can make nice income working from home just a fewhours a day because trading is like any other business

The other important aspect of the trading is that it is not an art gallery whichmeans that technical analysis is not all you need to know

You must learn how markets operate which are the main players and what theyexactly do

Also you have to learn what market conditions you can trade and which financialinstruments you should use

To tell the long story short trading is a business and you have to treat it like thatand if you consider treating it like a hobby you’d better do something more relaxing

The fact that trading is a zero sum game implies one very important requirement

- you must have an edge if you want to be a successful trader

This is the reality and you can't change it

After the 18 years that I’ve spent on the financial markets as an individual trader,risk manager (during the world financial crisis) and FX dealer (during the EU debtcrisis) I‘ve learned one thing - the ULTIMATE trading EDGE you need before you nameyourself experienced trader is KNOWLEDGE

It is not a holy-grail trading system or secret method for analysis.

Financial markets are always changing and if you want to make money in thelong term you must adapt

And you can't adapt to the new market conditions if you don't have sufficientknowledge

You have to know how the markets work, what the large participants do, whattypes of instruments you can use, how the fundamentals affect the prices, etc

Remember! Knowledge about the markets will pay the highest interest on yourcapital

Bon voyage!

-Svetlin

A short history

Financial markets are changing often and in order to trade successfully, you need

to use a range of a few strategies to trade the different market conditions

More important, everyone should have a specific trading style that suits his/hertemperament, experience, vision of the financial markets as a whole, risk aversion, etc

In this book I will try to explain in more detail what exactly my trading style isand how I trade the FX market

For the past 15 years I have seen a lot of strategies that work well and then fail,but it could not be otherwise

Technology is developing too fast and it is used by large funds and banks to givethem an advantage Also the role and behavior of market makers are changing and thatalso requires adaptation of some rules of the trading systems

There is no way in the presence of super-fast computers and the light-speedInternet and increase of the daily volume from 1.2 to 5.3 trillion USD, to apply the samestrategies without any change It should not be forgotten that the methods of the classicaltechnical analysis were developed in quite different conditions and speed ofdissemination of information

The currency market was not available for many of the current players back then.More popular were the stocks and commodities futures

The development of various technologies allows almost anyone to trade on theforeign exchange market, as well as contracts for difference (CFD) and any otherfinancial instruments

The development of the same technologies, however, created the so-called "highfrequency traders" (HFT) Armed with super-fast computers, servers and the Internetconnection they have significant advantage over other market participants

In the middle of the past decade, the forex market was joined by large sovereignfunds (mainly from Asia) They significantly increased the liquidity, but started to have

a serious impact on price movements EUR/USD managed to reach 1.60 in 2008 fueled

at least partly by sovereigns buying This trend was not confirmed by the fundamentalsand as a result, the pair tumbled to 1.23 in just 3 months This event convinced me that itdoesn't matter what I think about the forex market or what the classic fundamental andtechnical analysis are telling me

Much more important is what the big market players are intending to do Theyhave the resources to move the prices wherever they want, and their only purpose is tomake more money from money Everything else is irrelevant for their managers andtraders

For the above stated reasons, I found that for me it is best to follow the "bigmoney", of course as far as possible

It is wishful thinking to imagine that a manager of a large fund or dealer at amajor bank in London or New York would call me to tell me exactly when to buy orsell Somehow I have to identify what they are doing and try to follow their actions

Initially I started with trading strategies based on technical indicators and chartpatterns This is inevitable, since at the beginning there is no way that you have anaccurate idea of what exactly are the financial markets and what's working best

In fact, these strategies were working very well, because the market was not ascrowded as today Also the computers were not the largest group of traders The uptrend

in EUR/USD since the beginning of 2002 to the end of 2004 was perfect for trading.With the opening of London usually a new leg in the direction of the trend started.Pullbacks were pretty clear creating good entry points

Around 12:30AM London time a deeper correction after a test of the Europeansession extremum (high/low) used to start, which was providing great tradingopportunities The most popular chart patterns worked almost perfectly and breakouts offlags or triangles on 1- hour chart could be traded easily

In 2006, however, major sovereign funds joined the forex market They werewell capitalized with money (mainly dollars for diversification into other currencies)from exports (China) or the high prices of raw materials (the Middle East, Russia) Themarket was no longer the same and the old strategies did not work so well Funds hadenough resources to buy or sell without any retracement This immediately changed thenotions of divergence, overbought and oversold conditions

First breakouts of chart patterns were usually false, because the entry and exitpoints were crowded Then I found out about the price action trading and the othermethods of Joe Ross

TTE (Trader’s Trick Entry) is an excellent strategy and can be used in anyfinancial market, as long as there is a trend However, I did not like the size of the stopand I had to do something to reduce it Trends were not as clear anymore and I had totrade on 1 minute chart.

Unfortunately, at such small time frame this strategy is not effective Then Idecided to add the good old moving averages to my trading toolbox This of course didnot happen by accident

After long hours of screening time, I noticed that before the next leg of the trendstarts, the price retraces to the moving average Of course there is no way it will always

be the 20-period EMA, because everyone will learn the set up and trade it Therefore Ihad to find a filter that can restrict the number of losers, but at the same time notincreasing the size of the stop The quote reading was perfect for achieving these goals.Moreover, it could help to meet the basic principle of the strategy, which is to followbig money

As I wrote, the quotes are the first source of information that can be used bytraders to get an idea of what orders are executed Of course entries had to be in thedirection of the trend, and the moving averages could be used as dynamic trend linesand support or resistance levels Their location and direction gives us insight onwhether a trend is present and whether it is bear or bull

Basically, this is the short history of my trading strategy that I named first TTE ofTTE (the terminology of Joe Ross) and then someone came up with the name STEAMM(Simple Trick Entry And Make Money) As I said, every trader must have a range ofstrategies In this book you can read about how I trade at the spot market Everymorning, I start by reading the main news affecting the financial markets (not just forex),quick overview of the closing of the previous day (in all major markets) and drawingthe so-called road maps

Road maps

Roadmaps show the technical picture and give me the first entry levels for theday They depict the major support and resistance levels and especially the points ofconfluence

I draw my road maps on 15-minute chart, but everyone can select the time framesuitable for his trading style

The road maps show all major price levels from daily to 15-minute chart Mostimportant for me are the levels on the 1-hour chart, as they are often tested throughoutthe day

Longer-term traders can start with weekly or monthly charts and go down to

4-or 1-hour time frames In such cases it may not be required to update the road map everyday I use the following levels of support and resistance:

- Swing highs and lows

Also it makes no sense to trade all financial instruments that are available Youhave to choose only 2-3 major currency pairs and learn everything about them At somepoint you can guess, with a good degree of probability, what comes next just bywatching the quotes or the candles

I trade mostly EUR/USD, GBP/USD and EUR/JPY and sometimes the stockindices DAX and FTSE The whole procedure of drawing of road maps takes less than

5 minutes On charts 1 and 2 you can see road maps for EUR/USD and EUR/JPY Theellipses show the buying zones, while the rectangles show the sell zones

The first area where you can look for a long position in EUR/USD is 1.3045/40.This area is based on the confluence of the central pivot point and the 200-period EMA.Short position could be open around 1.3100, where we have a round number, swinghigh and a pivot (R2) Between the two sell zones there are several resistance levels(upper boundary of a consolidation, pivot, and Fibonacci retracement) but none of them

is strong enough

For EUR/JPY the situation is slightly different The pair has been in an upwardtrend and therefore it is much safer to open only long positions We can identify to buyzones and as they are within 10 pips, it is advisable to look for a long entry betweenthem, or closer to the second one (129.80)

When you plot all support and resistance levels on the chart, it looks like amaze The idea is not to look at all horizontal, vertical and diagonal lines Important for

us are only the points where there is a confluence of at least 2-3 support or resistancelevels In addition, I have set some priorities For me, most reliable are the swing highsand lows, moving averages and trend lines All other levels are only for confirmationand without one of the main, I would not look for an entry The more types of supportand resistance are concentrated at some point, the more likely there is someone else tobuy or sell around the same level

Road map EUR/USD

Chart 1 - Source: MetaQuotes Software Corp

Road map EUR/JPY

Chart 2 - Source: MetaQuotes Software Corp

With a few more examples of roadmaps I will try to make it clearer how thelevels of support and resistance are determined and the principles for defining the buyand sell zones

On Chart 3 of the currency pair EUR/USD was initially in a downtrend, but thenthe price entered a period of consolidation

In such cases, the direction of the market is no longer clear and we can look forshort and long entries

On road map initially could be marked first two levels in each direction If thetechnical picture changes throughout the day, the roadmap should be updated The firstbuy zone is 1.3200/195 Round numbers are always very good support and resistancelevels and this time about 5 pips below the figure we have a swing low, at which wasformed a bullish engulfing pattern This shows that there was a strong reversal of thedirection of the price move, which is an indication of the presence of larger bids

The next buy level is 1.3160 At this support the downtrend stops, then themarket goes into consolidation, which forms upward price channel When a strong pricemove ends, it is usually not by accident It could be expected that, when the same level

is tested again, there will be a good bids or offers Sell zone will be just over 1.3250

(swing high and Fibonacci level) and then around 1.3270 (swing high, central pivot and

200 EMA) I would prefer to look for short entry around the latter

Road map EUR/USD

Chart 3- Source: MetaQuotes Software Corp

On Chart 4 is presented a roadmap of USD/JPY The pair has been inconsolidation and therefore we can select entry levels in both directions As 20, 50 and

100 EMA show some signs of an upward price move, the first buy zone is between95.15 and 95.00 In principle, a break below 100 EMA will put the bears in control, but95.04 is a swing low, and 99.00 is a round number

Major market players like to break minor levels and when the price goes to astronger support, they start to buy If there is any stronger support (swing high/low andround number) near, I prefer to look for entry around it Short position could be openaround the upper boundary of the consolidation, which in this case is 95.80 The entryset up could be 2B (false break of the swing high)

Road map USD/JPY

Chart 4 - Source: MetaQuotes Software Corp

On Chart 5, you can see another road map of EUR/USD In this case, thecurrency pair is in an uptrend and it is better to look mostly for long entries Two smallbreaks of the trendline however indicate that the prolonged uptrend is facing difficultiesand therefore we can determine also a sell zone This will be the last swing high(1.3415), which could be tested at least

Appropriate entry techniques are 2B (higher high) or TTE in anticipation of a 2-3 top reversal (lower high) Three buy zones could be identified on this chart Thefirst one is 1.3385/80 and it is formed by swing lows and 100 EMA The second buyzone (1.3370/65) is stronger, as there are two trend lines and 200 EMA As I saidupward price move was long and may need a larger correction This is why I haveidentified a third area to open a long position (1.3330/25) This is determined by theswing low where a strong rally started In this case, I would open a long position in thefirst zone, only if the quotes or price price action strongly confirm the entry The secondand third zone are much better options

1-Road map EUR/USD

Chart 5 - Source: MetaQuotes Software Corp

Trading before the London open

Once you have the technical picture and buy and sell zones you can follow theprice action to determine the exact entry levels, while the pair did not show clear signs

of trending Usually the direction of the trend for the day is determined after the Londonopen with a break of the Asian range The buy and sell zones can be used during the rest

of the day If the currency pair is in a clear trend, it is advisable to open positions only

Road map EUR/USD

Chart 6 - Source: MetaQuotes Software Corp

On Chart of 7 you can see how the situation has evolved during the day Beforethe opening of the Frankfurt started an upward price move, which ended at 1.2881 Wecan refine the position entry on a chart with a smaller time frame The price nears thefirst area for opening of a short position and during the test 200 EMA is just above thesame area In this case you can sell at 1.2880 or ate the 200 EMA, which is one piphigher The initial protective stop is from 6 to 10 pips The target of any downwardprice move is the low of the previous day (1.2830 ) With such a stop you will tradewith a maximum risk/reward ratio of 1:5 to 1:8 Depending on the rules for positionmanagement that ratio may fall to 1:3, which is also acceptable In this case, the positionwould have survived with a stop of 6 pips, and the maximum profit was between 20 and

40 pips

After the initial test of the resistance there is another one, which I think gives abetter opportunity to open a short position In my experience, the test always occurs

around 7:30 AM GMT (±10 minutes) In this case we have a very good price actionsignal At 7:20AM there is a large white candlestick that breaks a few pips above theresistance level This shows that the bulls have serious intentions to drive the pair upand test the round number However, the next candle shows that the bulls may have theintentions, but they are not strong enough Two consecutive inside candles form, and thesecond one's range is the lowest range for the last four periods.

When there is no follow-through after a strong price move, we can expectreversal With two successive inside candles the entry level is clear We could place asell stop order 1 pip below the minimum of the second inside candle (in this case1.2880) The initial stop is above the last swing high (1.2887) Seven pips stop isperfectly normal for this position You can see that after the break below the insidecandles the downward price move is fast The pair tumbles 40 pips in about 30 minutes.This is precisely the idea of this strategy To open a position when major players arelooking for liquidity before the London open They know their job well, and we justhave to manage the position in order to catch a larger part of the price move Of course

we have to do this with very small risk

Short position in EUR/USD

Chart 7 - Source: MetaQuotes Software Corp

False break – 2B

In general, it is not advisable to trade when the market is in consolidation andhas no clear trend Unfortunately, the currency pairs are trading in a range very often and

it is better to have a strategy for such cases

Most importantly, this strategy must have very precise rules for a protective stopand money management The problem with the ranging markets is that the price has noclear trend and we have to guess what will happen

Another, much larger problem comes from the fact that many traders do notmanage their risk and open position without stop If you trade in a trend that is not sofatal, but if the market is in a period of consolidation, it may cost you the entire account.When a currency pair has traded in range for a while, both bulls and bears havegathered enough power to start a new trend after a breakout When this breakouthappens, if you are in the wrong direction, you can realize huge loss for a very shorttime As novice traders do not realize that, they often trade without a protective stop,and suffer severe consequences The stop is mandatory in every situation, but if youopen a position when the market is in consolidation, you should place it every time

The 2B strategy (a.k.a false break or turtle soup) is very suitable for trading in arange The levels for entry and initial stop are perfectly clear I think this should be amandatory feature of any strategy and is something that should not be compromised Theidea is to buy around the lower boundary of the range or sell around the upper boundary,after a false breakout This false breakout shows that the bears or the bulls still do nothave the strength to drive the market down or up and possibly the consolidation willcontinue Furthermore, during the breakout some traders will open new positions in itsdirection When the price returns back in the range, their stops will be hit and some ofthem will reverse This will accelerate the price move further

The rules of the 2B strategy are pretty simple Position is open when the pricebreaks one of the boundaries of the range, and then returns back below or above thebroken boundary 2B can be used as a standalone strategy or as an option for entry forother strategies The boundaries of each range are determined usually by swing highs orlows could be determined very accurately When the price breaks one extreme we canprepare an order to open a position in the opposite direction of this breakout The entrylevel is the oldest extreme ± few pips How many pips you will add or subtract from thelevel depends on what time frame you are trading

For example, on a 1-minute chart it is better to subtract 1 pip of a swing high ifyou want to open a short position, but on the 1-hour chart you should use a buffer of 2-3

pips For example, let's assume that the upper boundary of the range is defined by the1.3560 swing high When the price breaks above this high we place a sell stop order at1.3559 The stop is on the other side of the extremum, that is reached after the breakout.The positions should be opened only if the size of the stop is within reasonable limits.When the break is too large it could be a start of a new trend The first objective of theprice move is the opposite boundary of the range Therefore, the size of the stop mustensure a risk/reward ratio of at least 1:3 If the break is too large and does not allow us

to do that, just skip the signal and wait for the next one

Chart 8 shows one perfect example of a situation in which can be used the 2Bstrategy Generally, during the Asian session liquidity is lower and therefore usuallycurrency pairs trade in range The first price move when the European traders come towork is often false Usually it is used by the larger market participants to find liquidity

to open positions for the main price move, which begins after the London open In suchcases it is better to wait for a false breakout and look for 2B entry Let's see whathappens on Chart 8 The lower boundary of the Asian range is 1.51350 and the pricebreaks below Immediately we place a buy stop order 1 pip above this level at 1.51375(the spread should be added in this case) The calculation is pretty simple:

1.51350 (previous low)+ 0.00010 (buffer) + 0.00015 (spread) = 1.51375

You can open the position with a market order, but the stop order is a muchbetter option I recommend the stop order, because it eliminates the human factor

If you try to open the position with a market order, a moment of hesitation andyou will miss the entry

When you place the entry order you should use the options of the tradingplatform and attach the protective stop Again, I would like to emphasize that the riskmanagement is extremely important and therefore you should try to limit the possibilitiesfor unnecessary errors We don't know in advance what should be the size of the initialstop When I place the entry stop I attach a protective stop of 15 pips to this order Whenthe position is open I calculate the right size of the stop and adjust the level Thus way Ihave a kind of insurance against sudden price spikes that can have unpleasantconsequences for my account Such price moves do not happen often, but if you want totrade longer, you have to take care of everything In the situation shown in Chart 8, wehave a long position in the GBP/USD at 1.51375, with an initial stop at 1.5127 Giventhat we expect a price move to 1.5175, the stop of 10 pips is quite reasonable

In the present example the price move went beyond the initial target 1.5175, butthis is normal given the fact that the entry was around the London open This is a veryimportant issue, so I want to pay it more attention Liquidity and volatility are cyclical

throughout the day, which is largely determined by the working time of the majorfinancial centers The price move will have more potential when we open a position atthe right time The best periods for entry are the opening of the European and U.S.session The biggest market players come to work and their actions can provide strongsupport You should keep this in mind and use it in your strategy In the example onChart 8 the maximum profit was about 60 pips, but the actual result depends on theposition management rules.

2В GBP/USD

Chart 8 - Source: MetaQuotes Software Corp

You can use the 2B strategy not only when the market is in range The trend is asequence of higher (up) or lower (down) highs and lows When the price fails toconfirm a new high in an uptrend, we can expect a pullback or trend reversal In suchcases we can use 2B (false breakout of the last extreme ) for early entry in the direction

of the new price move This entry is pretty aggressive, as the old trend is still intact.Although, if it is successful, the risk/reward ratio will be perfect and it is worth trying.Ideal conditions for such attempts are present when:

- the price move is losing momentum;

- strong support or resistance level is near;

- the market is oversold or overbought

On Chart 9 the currency pair USD/JPY was in an uptrend Another swing highwas broken, but the candles were showing that bulls have some problems First candlehas a long upper shadow and a very small body, which is in the lower half of the range

This is almost perfect shooting star that signals a possible end of the uptrend The nextcandle is a doji with a close almost at its minimum This doji could be used for the shortentry in anticipation of a false breakout of the last swing high of the trend.

With the 2B strategy the exact entry point could be not only the previousextreme, but also a reversal or breakout candle Inside candles with smaller range arealso a good entry point In this example a short position is opened 1 pip below theminimum of the doji candle (100.41) with initial stop 2 pips above its maximum ( thespread should be added - 100.48) Seven pips stop is pretty normal, given that the target

of a possible downward price move is the lower boundary of the consolidation, which

is 100.20 Maximum profit that could be realized from this position was 25 pips In thiscase it was just the start of a pullback, not a trend reversal

2B USD/JPY

Chart 9 - Source: MetaQuotes Software Corp

On Chart 10 you can see another example of the 2B strategy with the currencypair USD/JPY This time the chart time frame is 15 minutes The upward price movereached strong resistance around 100.85 and the market has gone in consolidation Thelatest swing high of the trend has been tested, but the price couldn't break above.Formation of a lower high indicates that a trend reversal could be expected In such asituation it is wise to look for options to open a short position

If we are right we will be short at the very beginning of the new downtrend.Moreover, this all happens just before the London open, which I think is the best time toopen positions, especially if there is some element of surprise (in this case falsebreakout of a lower high)

We have a choice of many different strategies, but in this case I think the mostsuitable is 2B I've noticed that when the entry is not around an important extremum,very good results could be achieved Usually always the best positions are opened aftersome hidden set ups, as almost all market participants are focused on another moreobvious scenario Before most of the good trending price moves, part of the tradersshould be surprised and then forced to close out positions and pursue the new trend.This is providing further acceleration which is very good if you entered earlier

In the example on Chart 10 is 1 pip below the lower high at 100.79 The stop inthis case can be over each of the last two swing highs and the difference is only 3 pips.More conservative option is the higher high, but there are two tests and the possibility

of a third is very small Whatever option you choose, the risk/ reward ratio isacceptable as the first target of any downward price move is 34 pips As you can see,USD/JPY tumbled about 150 pips and the aggressiveness was worthwhile

2B USD/JPY

Chart 10 - Source: MetaQuotes Software Corp

The 2B strategy is not always profitable, but there are situations when you canavoid unnecessary losses

On Chart 11a you can see a roadmap of EUR/USD The pair made a downwardprice move in the previous day and during the Asian session retraced some of thelosses First sell zone is around 1.3030/35, where there are matching a swing high(1.3032), the central pivot and 200 EMA

The next appropriate level for a short position is 1.3040, which is determined

by previous swing low This is a good set up for a 2B entry We have to wait for a breakabove 1.3032 with the hope it will be stopped by sell orders 1.3040 The entry will be

at 1.3031, and the initial stop is probably between 6 and 10 pips The first target of anydownward price move is the round number support (1.3000), which allows anacceptable risk/reward ratio

Road map EUR/USD

Chart 11a - Source: MetaQuotes Software Corp

Chart 11b shows how the situation developed during the day The first breakoutthat allows us to apply the 2B strategy is around 7:20AM London time The initial stop

is 6 pips and the subsequent downward price move is 12 pips Depending on theposition management rules you could realize a small profit or end up with a stop hit atbreak even The price goes up again, be this time we are looking to sell around 1.3034(the new swing high) This upward price move is much faster and on 15-minute chart

we have a large bull candle The bears do not have control of the market anymore and it

is not worthwhile to go short In such cases it is better to miss a trading signal than toincur unnecessary losses Moreover, during the upward movement after the opening ofLondon it's better to look for a STEAMM entry Try to avoid trades that are doomedfrom the start This is one of the characteristics that distinguish successful fromunsuccessful traders

EUR/USD 15-minute chart

Chart 11b - Source: MetaQuotes Software Corp.

STEAMM strategy

Strategy that I designed is based on the "Trader's Trick Entry” (TTE) by JoeRoss The idea is to identify a trend, and then to open a position in its direction during apullback The rules are very simple and straightforward and meet one of the mostimportant principles in trading - KISS (Keep It Simple and Stupid)

As I said the name STEAMM was proposed by a fellow trader and meansSimple Trick Entry and Make Money (STEAMM) The idea of Joe Ross is to use theTTE to open a position before most other traders My idea is to open a position evenbefore Joe Ross Now I will give you the basic rules for opening and management ofpositions, and will explain why and when to apply them

The trend

The first thing we have to determine is whether there is a trend and what is itsdirection As you know very well, there are various methods to do this, but I prefer touse the exponential moving averages (EMA ) When the EMA is calculated, greaterweight is attached to the recent closing prices and the EMA reacts more quickly to thechanges in the direction of the price This enables me to see early when a new trendbegins and to look for entry signal

To determine the trend in my trading system I use 20-, 50-, 100- and 200-periodEMAs As I said, the rules are simple, but they do a good job When the 20-period isabove the 50-period EMA and together are moving up, the trend is bullish (Chart 12).When the 20-period is below the 50 -period EMA and both are moving down the trend

is bearish (Chart 13)

During an uptrend I look only for long entries while in a downtrend I prefer tosell The remaining two exponential moving averages (100- and 200-period) are usedmostly as dynamic support and resistance levels If there is no very sharp reversal, 100-and 200-period EMAs show that the old trend is still valid and can provide goodopportunities for entry The first test of the 200 EMA is one of the best trading signals in

my arsenal I trade it with spot position or binary options For additional filter I use thequote reading

Chart 12 - Source: MetaQuotes Software Corp

Chart 13 - Source: MetaQuotes Software Corp

Exponential moving averages

Once the presence and the direction of a trend are determined, you just have towait for a pullback The first pullback is the best time to open a position in the direction

of the trend The trend is just starting and the price move has more potential The timewhen the major financial centers (London and New York) come to work provides verygood trading opportunities

When more money enters the market, the liquidity and volatility increase Goodplaces for entry are the levels of support and resistance and I use exponential movingaverages for this purpose The advantage of EMA compared to the swing highs andlows, Fibonacci retracement and pivot points for example, is that they are dynamic andquickly adapt to the direction and acceleration of the price movement This fact gives

me an advantage over the other market participants who watch only the static levels ofsupport and resistance

Of course, I chose EMAs as entry levels for my strategy not by coincidence.This happened after watching the market long enough to find out that when a trend isdeveloping, often the pullbacks end at EMA Price usually returns sharply from theEMA which indicates that large orders were filled

Probably a hedge fund or bank open positions at the same level Moreover, they

do not trade for 5-10 pips and the price move will be large enough I will have theopportunity to join at the first correction and make at least a small profit If majormarket participants buy or sell, they probably have a reason for this and it is good for us

to do the same My basic principle in trading is "follow the big money" Of course ifevery pullback ends at the 20 EAM on 1-minute, everyone will begin to open position atthe same place and make money This is impossible in the real life trading Therefore,sometimes the pullback stops before the 20-period exponential moving average occursbefore the middle or at 50- or 100-period This uncertainty imposes the use ofadditional filters to determine the exact level and time of entry

The time frame of the chart is extremely important This is the parameter thatdetermines the initial risk and potential profit for each position The larger the timeframe of the chart we use for generating trading signals, the greater should be the initialstop, but bigger potential profit can be expected STEAMM strategy and almost any anystrategy could be traded on charts with various time intervals I prefer to trade with lowrisk and the 1-minute chart is the right for me The potential for profit is smaller, but ifthe position is open in the direction of the trend of larger time frame, the results could

be much better than expected Sometimes with the risk of 1-minute Chart, you can join a

price move with potential that is normal for daily chart Moreover, the smaller chartsgenerate greater number of signals and therefore they are suitable for people who do nothave the patience to wait to get the perfect conditions to open a position.

If I have to wait several hours or days to find a good set up, surely I would trade

a few others in the meantime As you can guess most of the positions will be losers.From my experience I know, that on a 1-minute chart, 2 to 5 good set ups could beexpected On a daily chart you can wait for good trading signal days even weeks There

is no right time interval that is valid for everyone You should find your own, depending

on how much risk you are willing to take and how much patience you have to wait allthe conditions to open a position to be met

Entry filters

The test of exponential moving average is only the first requirement for the set

up To avoid unnecessary losses it is better to use additional filters, which can reducethe number of losing trades When signals are generated on 1-minute chart the choice islimited, because the price moves are smaller and shorter

For example, you could find a lot of reversal candles or false breaks If youtrade this or any other strategy on a chart with larger time frame, there will be a betterchoice Additional filters that I use are the following:

- levels of support or resistance - usually swing highs andlows;

- quote reading;

- Correlation with other currency pairs and financialinstruments

Large orders could be expected around price level where several different types

of support or resistance match In addition to the exponential moving average, I useswing highs and lows Best conditions for STEAMM are created after a double bottombull flag (Chart 14) or double top bear flag (Chart 15) according to Al Brooks'terminology

The slight difference is that a breakout of the trend extreme is allowed, but therequirement for a double top or bottom, at the end of the correction remains Actuallythis is the most important element of the pattern

What is the logic in using these configurations to open a position?

First, there is the beginning of a new trending price move, which could beidentified by the crossing of 20- and 50-period EMAs

Let's see what the price action is The first leg of this trend ends at some pointand a pullback begins Usually this first leg is with greater acceleration and the 20-period EMA lags behind the current price levels For this reason, the first retracementends before the moving average is reached There is another leg in the direction of thetrend and its extreme is tested This extreme can be broken or not reached The idea ofthe STEAMM set up is that if there is a trend, those who have started it, will continue tobuy or sell at any pullback, until it is valid Once they have bought or sold at any price

level, it is likely they continue to buy or sell at the same level This process will bedouble top or bottom on the chart The bottoms or tops should be formed withinreasonable time limits, because if the trend is strong, the correction should not be verylarge in price and time.

Double bottom bull flag

Chart 14

Double top bear flag

During the second correction however, the swing low of the first one coincideswith the 20-period EMA This is the best place and time to open a long position Theinitial protective stop is just below the double bottom and for EUR/USD (1-minutechart) is usually 4-5 pips For GBP/USD, USD/JPY and EUR/JPY the stop is larger by1-2 pips because of the spread and volatility The first target of the new leg of the trend

is the swing high It is recommended that this distance is at least 2 times greater than theinitial stop, but I'm trying to achieve even 1:3