Hi My Name is Mark Deaton I have been trading options for about 12 years and in the last 5 years have begun to trade forex and futures. I think where we start, our passion lies, as I always feel like options is “home” for me.
The only reason I started trading Forex and Futures was because many times the stock market is flat, and trading a flat market is boring, risky and un-fulfilling. So one day several years ago I began to watch a few forex pairs and oil futures. CL to be exact. I began to watch these other instruments, and it wasn’t long before I recognized that my favorite low risk – high odds set-ups printed on these forex pairs as well as the Oil Futures chart.
In fact you really couldn’t tell the difference, technically they were identical! (This was good news for me!)
So began my journey into trading lots of asset classes. When I realized that a chart, is a chart, is a chart, I decided to really polish my technical skills and begin to monitor these asset classes for clues as to which asset class is in a true and verifiable pay cycle. Truly this stems from some Elliot Wave theory and it goes like this – When a new trend begins, it usually does so in one of just a few ways. Doesn’t even matter what time frame we are talking about a 5 minute trend can last a couple hours, a 1 hour chart trend could last a day or 2, and a new trend on a daily chart could last 2-5 weeks right ? So it’s all relative, keep that in mind.
Now back to a new trend. So the trend starts, usually behind that new trend, was unpredictable price action with wild highs and lows, attempts to breakout that failed and so forth, and before that, we would usually find a prior trend. (Bear with me.) Now this isn’t perfect science, if it was we would all be rich. The problem is that these payout IMPULSE cycles are happening on all time frames, sometimes they overlap, and sometimes they are overextended, but there are some things I’ve observed that I can count on. Lets first look at a pay cycle and a consolidation period with wild price action. AND by the way, in Elliott Wave theory this (in its simple form.) is simply your impulse waves, 1,2 and3, followed by an A,B,C corrective pattern.
However what I’m about to show you is much easier to wrap your hands around OK?
I’m not an Elliott Wave expert, but I do subscribe to the theory because It’s true. Let me show you what I mean and keep in mind this is the same for ANY ASSET CLASS and any FINANCIAL INSTRUMENT that has good volume. It’s just that there are times where one stock, forex pair, or particular asset class is more cooperative than another – the trick is to get in front of those that are!
The Trick is To Find Those Asset Classes
Like I said the reason I like to sniff out the asset class that pays is because I want to be WHERE THE MONEY IS! How long are you going to stare at a chart and See no visible signs of any predictability before you realize that your instrument is consolidating and you aint’ gonna make no money! Instead of staring at that chart make a note “this thing is consolidating” and get back to it, in the mean time go find an instrument that is in long term consolidation or wave 2 and begin to take the steps necessary to pinpoint HIGH ODDS and LOW RISK together – Don’t forget HIGH ODDS and LOW RISK are married, til death do they part – never take a trade unless it has both ingredients. The husband is HIGH ODDS and the wife is LOW RISK and you can’t have 1 without the other – EVER! (This takes a little practice but it can become second nature.)
BACK TO pay cycles – Now keep in mind that within a LARGER PAY-CYCLE there can be smaller consolidation cycles and smaller pay cycles as you see in this image. In fact you don’t even need to switch to another time frame to see this print out it’s right here on the daily chart of the S&P 500. This stuff can get advanced but once you understand it all you will get eh “Ah Ha” moment like none other in your life as it relates to making money in the markets.
Many of you think you understand this and you really don’t. I’m not being a jerk Its just that I have had long conversations with traders who have 5 years on me that tell me “Ya ya I know what you mean”, and after some discussion and questioning I realize they have no idea at all what I mean.
So notice on this chart I’ve market the first consolidation period that followed a nice bearish pay-cycle with “C” thi is identifiable by the lack of direction in price action. Look at that first square (click on the image to enlarge) there’s a double bottom almost a double top etc… Clear indecisive wild highs and lows and the fact that it appears after a nice paycycle is more evidence that this instrument, stock, forex pair or whatever is consolidating.
There’s just one good thing about this consolidation and that is that a pay cycle will follow! Notice what follows in the next red square is a clear cut pay-cycle. It even has 3 very nice impulse waves. If you were a novice you could easily grab thousands of dollars in profits from wave 2 and 3 and if you really knew what you were doing you would be long at $75 dollars and the right option in this case would easily yield 100% return.
Once you understand pay cycles you remove 70% of all the DUMB TRADES you would find most novices getting themselves into. When you get to a point that you know how to identify not only a high probability low risk set-up but also the liklines of a new pay cycle you change the playing field.
That’s what its all about my friend – Changing The Playing Field! – I mean who want to eek by ? Not me folks this is the stuff that makes the BIG MONEY. Please read it twice this is not bait to get you to buy something its real stuff that took me years to figure out and its my gift to you…
You can go even further with your “will to be accurate” by trying to only target a wave 2 in a pay cycle. This is how I started out, I searched for consolidations, wild and crazy price action the kind that scares everyone off! Once I found it i tried to verify that there was a recent pay cycle before the chaos (important right?) then I let wave 1 confirm the beginning of a pay cycle, and I follow swing structure into wave two. With a clear understanding of swing structure and a nice barrier between your entry and your stop, this is a golden key combination to unlimited profits in any market.
Hope this helps !