Trading the Line in FOREX
I talk about "trading the line" and watching the "test/exceed" of a line often in the GoodmanWorks trading room. It is an extremely useful concept that, unfortunately, few traders use to maximum advantage.
In the context of the AUD/USD walkthrough, it would be used if the trader decided not to take the final one-half position off at the over.
Put simply: a line is the current swing component of a 1-2-3.
A line may be a component of a propagation swing. See Figure below. On the left, the Bounce 3 is the current line.
[caption id="attachment_13231" align="aligncenter" width="550"] The Line in a PropagationâTest/Exceed[/caption]
Each component swing has a test (beginning point, or BP) and an exceed (end point, or EP). A point is an exceed to the first swing; a test to the next swing.
AgainâThe test of a line refers to its beginning point, or BP. The exceed of a line refers to its most current ending point, or EP.
Here you would be able to use the line to quickly see if anything important has happened to the PTS. If it has not moved out of the line by going past the test or the exceedâmove on.
Tip: If you simply ID the current line and the test and exceed, you know everything you need to know about that chart until the test or exceed is broken. A line may be a component of a trending swing, or intra-swing 1-2-3s. See Figure below.
[caption id="attachment_13232" align="aligncenter" width="550"] Trading the Line[/caption]
Trading the line (TTL) refers to a trending market past the under take-profit; Line/Test/Exceed may refer to either a propagation swing or a trending swing, within context. If you decide to not take the over, simply move your S/L up to the nearest orâif they are closeâthe next-to-nearest line test. Do not forget to add the spread for the pair to the stop-loss.
Using 1-hour charts, I typically get one or two TTL trades a month. They are usually 300 pips to 400 pips, but 500 pips is not uncommon. I have taken as much as 700 pips trading the line past the over.
Three items concerning lines and intra-swing 1-2-3s:
- In the great scheme of things the line is a swing of some large matrix.
- The secondary swings tend to be much shorter than a propagated secondary swingâand they are only connected to the most previous swing in the opposite direction, unlike a propagation, which is, of course, connected to the previous 1-2-3.
- In trading the line, the SPS of a 1-2-3 becomes the FPS for the next FPS in succession as the trend develops.
When a market trades for a time between the test (T) and exceed (E) it is a time hashâat least at that time frame. Below, the price movement between the red line is a time hash relative to this time frame. At a smaller time frame, of course, there may be swings, matrixes, and even waves building. See Figure below.
[caption id="attachment_13233" align="aligncenter" width="550"] Time Hash[/caption]
Following lines instead of bars has two applications for the trader:
- It allows you to follow more markets, as it only takes seconds to see if the current line test or exceed has changed.
- It keeps you from taking action when there is no reason to take action (time hash, news). Time hash is hypnotic and tends to make the trader rationalize and want to do something. Charlie used to say, "We'll do something even if it's wrong," and this is what he meant, I am certain.
The basics of trading the line: If the exceed is broken, the swing in question is continuing and you have a new Test Exceed range. If the test is broken, the swing in question is complete and a new swing in the opposite direction is formedâwith its own Test/Exceed. In between those is time hash. See Figure below.
[caption id="attachment_13235" align="aligncenter" width="550"] A Perfect Line[/caption]