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FIRST RED DAY FIRST GREEN DAY TRADE SETUP

The basic setup — First Red Day

The setup is normally two days. The third day being the trade.

The example is of the EURUSD. We have a Friday that "pumps up" through the high of the week. This is our "PUMP DAY."

Monday opens where Friday closed and throughout the day has a smaller daily range. The CLOSE is BELOW the OPEN. That's the key — we need the market to CLOSE BELOW the OPEN.

A great FRD setup will have a well-defined high-low consolidation heading into the close of the day (as above).

The market trades within this consolidation until the London session where it breaks through the low. This forms our "break in structure" (BIS).

You don't have to have this, but this confirms weakness in the market and gives us an anchor point for the "pump and dump" selloff.

This example is a three session setup: Asia, London, and then into the open of the New York session we get our capitulation through the low of the day with an explosive trade.

This is our trade entry on the 5 minute chart.

Handling Major Red News on the schedule

On this particular day there was Major Red News scheduled for 8:30 AM New York time. As you've heard me say before, I never trade in front of the news. This pullback to the breakout of the news candle was also the close of the 15 minute candle.

I've added the 20 EMA exponential moving average to the 5 minute chart to eliminate indecision for traders on confirming their entry. Once we have our setup and it begins to take shape, the close inside our 20 EMA gives us our entry candle.

In this particular example, if traders entered the trade later in the London session, I would suggest closing all trades before the news. When I have MRN on the schedule, I'll close ALL trades before the news. You don't want to have a massive spike going through your profitable trade and stopping you out, or being spiked out of a trade or stopped by a massive wick. News is unpredictable and my whole goal is to make my trading as stress-free and profitable as possible.

This trade on a normal day without news would have given us our 50 pips of profit. However, by waiting for the news and entering when we did, it was the difference of 5-10 pips. The trade itself, however, was a textbook setup.

We executed our trade entry, stop loss and profit target. Our profit target wasn't hit (until the next morning). I do not carry trades overnight. I would have closed the trade after a couple of hours if my target hadn't been hit yet.

Three Day Setup — Formal structure

  1. 01Day 1 → Pump Day
  2. 02Day 2 → First Red Day
  3. 03Day 3 → Consolidation and SELL SETUP — High of Day, or High of Session (Low Hanging Fruit — LHF)
  4. 04Measure 50-75 pips up (currencies) or 100-150 pips (oil, gold, indexes) from the LOD for a potential "strike zone" level. (Three levels of rise. If the market exceeds that, redraw the HOD and strike zone area.)

First Red Day identification checklist

  1. 0115 minute charts for daily scanning in your process
  2. 02MUST HAVE A PUMP DAY
  3. 03MUST HAVE A DAY AFTER THE PUMP DAY THAT CLOSES BELOW THE OPEN
  4. 04Mark the CONSOLIDATION AREA high-low forming a rectangle into the close.
  5. 05Use the 5 minute charts on trade day with a 20 EMA exponential moving average on the chart.
  6. 06Only take trades that confirm during your 3-hour trading window (Asia / London / New York).
  7. 07The BEST TRADES will confirm right at the 3-hour timing windows.
  8. 08ENTRY is on the BEARISH close back inside the 20 EMA.
  9. 09STOP LOSS will be placed above the 5 minute peak formation high. For most currency majors my stop loss is 15 pips. Oil, Gold, Indexes can be 25.
  10. 10My MAX STOP LOSS usually never exceeds 20 pips on currencies, 25 on Oil, Gold and Indexes.
  11. 11PROFIT TARGET is preset to 50 PIPS. (There will be bigger and more profitable trades in excess of 100 pips.)

Master taking 50 pips out of the market

In the beginning I would suggest mastering the process and execution of FRD setups and securing the 50 pips. Over time, as you gain confidence and consistency with all your trades, you'll begin to identify which trades you can hold for more profit, scale some profits out and potentially leave a trailing position in the market to capture any additional profit growing on the trade.

Important to understand

Other Examples