The first step is the act of finding qualified candidate trades. If you have no ac- tive trade in the market, then you are monitoring both the EUR/USD pair and the three monitor pairs you selected.
Tier 1: USD Major Tier 2: USD Major Tier 3: Cross Rate
EUR/USD GBP/USD EUR/GBP
USD/JPY AUD/USD AUD/JPY
GBP/USD USD/CHF GBP/CHF
New traders should focus only on tier 1 pairs and move on to tier 2 pairs and tier 3 crosses only after success in tier 1.
Primary, Secondary, and Tertiary Markets
After you have traded for a few weeks, the three-tier approach is ideal.
Initially, I recommend only two tiers:
• Tier 1: the three charts of the USD/EUR selected in accordance with your profile.
• Tier 2: the three candidate markets for which you are monitoring only the middle-range chart. For candidates, I recommend pairs that show a relatively high degree of thickness. Don’t trade or monitor crosses (pairs not including the USD) until you have traded with real money in your account for several months.
I use bar charts exclusively to monitor candidate markets. GSCS is used to select trades and enter and exit the market. The other tools in the FxCodex toolbox I use primarily to check my conclusions and perhaps catch opportuni- ties I may have missed.
Look at your candidates from several perspectives:
• Does the market under consideration meet your stylistic requirements?
Directional movement, volatility, thickness, and rhythm should all be examined.
• How do those characteristics match up with your profile? See Table 9.1.
Tr a c k i n g M a r k e t s 127
Tier 1 Chart Scales
Guerilla trader: tick, 1 minute, 5 minute.
Scalper: 1 minute, 5 minute, 15 minute.
Day trader: 5 minute, 30 minute, 1 hour.
Position trader: 30 minute, 1 hour, daily.
Tier 2 Chart Scales Guerilla trader: 1 minute.
Scalper: 5 minute.
Day trader: 30 minute.
Position trader: 1 hour.
All traders should step back and review the price behavior on daily and weekly charts at least once a week.
Two Market Tiers
Candidates should meet all of these criteria:
• Appropriate pair or cross.
• Suitable market environment.
• Good money management.
• GSCS criteria.
Candidate Markets
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If the candidates’ characteristics match up well with your profile, con- tinue. If they don’t, keep monitoring. Never accept a less-than-perfect-looking candidate. Sit on your hands until one shows itself to you.
Does the candidate have the basic swing characteristics for a GSCS trade?
You will need some experience with GSCS—or whatever interpretive method your codex includes—to make this determination intelligently. If you are using GSCS, stick with the return and double intersection formations for now. This requires anticipating how formations are built over time and requires a bit of experience. The more charts you study, the more you will be able to quickly spot candidates. See Figures 9.1 and 9.2.
FIGURE 9.1 A Goodman Return Candidate.
This is the basic paradigm for a return candidate. The fourth wave (endpoint circled) is the critical return wave.
TABLE 9.1 Candidate Markets versus Profile
Profile Yes No
Pair (cross)
Market environment Money management GSCS criteria
Tr a c k i n g M a r k e t s 129
FIGURE 9.2 A Goodman Double Intersection Candidate.
This is the basic paradigm for a double intersection candidate. The circled endpoint represents the double intersection of the 50 percent move of two waves—the waves of the first three smaller waves and the wave of the third wave. It is the author’s considered opinion, after 30 years in the market, that the return and double intersection are the two most useful formations in all of trading. For more information please see “Currency Codex” on www.fxpraxis.com.
Look for markets with the appropriate characteristics and attempt to vi- sualize the GSCS wave potentials in them. See Figure 9.3.
Summary
For a potential trade to move from candidateto select, it must meet further cri- teria; to move from select to trade, even more. This layered process approach can seem tedious and at times boring. Most trades will never make it all the way from candidateto tradestatus.
When you are able to watch two or three markets and monitor four or five more, you will have all the opportunities you can handle, irrespective of your profile.
Because you are actively trading only a single market (USD/EUR), the time between trades may be longer than you would like. The guerilla and the scalper will find more trades than the day or position trader simply by virtue of the time frames of the charts selected by each type of trader.
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FIGURE 9.3 Waves in Progress—Mapping.
Anticipating wave propagation is key to success in trading GSCS. Which wave is primary and which wave is secondary? In this example, is wave 3 the beginning of wave 3 of the first wave or is it wave 2 of the second wave? Reference to the next larger chart scale often provides important clues. If this is a 15-minute chart, refer to the hourly chart to determine the primary trend of the market.
But by using this filtering process, you are assured not to miss anything in your codex. The trades you make will be the strongest of the strong.