Waves & Currents

Overview

The Seacsape Day Trade system owes its origin to the ocean. The waves you can see – the currents you cannot. The surfer in Malibu can see the waves and waits. Waiting, not for the next wave, but for the best wave. The wave that will give a great ride back to shore. Patience required. The waves are visible and, in the same way, so are the candlesticks and moving averages on the chart. Action seems to resemble wave action with a constant price move and pullback and another push and then a pullback … or it that a trend change? But whilst the surfer watches the waves the surfer is also mindful of the currents. These cannot be seen but the surfer feels them when in the water. Don’t get pulled out to sea. Keep away from the rocks. The currents are the technical indicators that tell their own story. Whether they are MACD, OsMA, stochastics, ADX or whatever they are there and deserve our respect.

Objective

The objective of the day trader following the Seascape Day Trade system is to survive. Survival means trying to make a profit every single trading day. It does not matter how much profit. There’s no minimum or target to beat. If a day ends as a loss, so be it. Just get back on the horse and try again tomorrow.

Strategy

Seascape Day Trade is a trend following system that trades CFD’s (Contracts-For-Difference) that uses 500:1 leverage. With this level of leverage a very small price change over a short time period can yield a significant profit or loss. So, it’s best to pay very close attention to the trend when trading.

I only ever trade 10 targets. I’m not scouring the market looking for opportunities. I wait for the opportunities to come to me. 40% of trades are held for less than 60 seconds. 30% of trades are held between 1 – 5 minutes. But It’s not high-frequency trading. Trades are generally not held overnight.

Trades are both Long and Short. I don’t care what direction the market takes. I just want it to move.

Let there be no misunderstanding. Trading with 500:1 leverage is the nitroglycerin of trading. Get it right and large profits can be made. Get it wrong and the trading account will blow up. Not for the faint-hearted.

Seascape does not require fundamental research. There’s no need for news feeds or continuous CNBC. These are distractions that can be unhelpful as they impact objective observation of price trends. A general day-to-day knowledge of world economic and political events is fine but not a prerequisite to success.    

Broker Platform

There’s no shortageog brokers looking to take your money. My broker is located in the British Virgin Islands and therefore avoids the restrictions imposed by the U.S., EU, U.K. and other authorities on the availability of CFD trading and high leverage.

  • CFD broker – Vantage Markets
  • Platform – MetaTrader 4
  • Account – Raw ECN USD 

Target Markets

Using Seascape Day Trade the following 10 very liquid target markets are traded:

  • XUAUSD (Gold)
  • USOUSD (WTI Crude Oil)
  • EUR/USD Currency Pair
  • GBP/USD Currency Pair
  • DJ30 (Dow Jones)
  • NAS100 (NASDAQ)
  • GER40 (German DAX)
  • UK100 (FTSE)
  • BTC (Bitcoin)
  • VIX (Volatility)

Technical Indicators

The following technical indicators are used in some or all charts (See the Technical Indicators section for a full description of the foregoing):

  • Bollinger Bands 20 2
  • Exponential Moving Average 5 (pink)
  • Exponential Moving Average 8 (red)
  • Exponential Moving Average 13 (green)
  • Simple Moving Average 55 (yellow dotted)
  • Simple Moving Average 89 (sandy)
  • Simple Moving Average 200 (yellow)
  • MACD 12 26 9
  • OsMA 12 26 9
  • Stochastics 14 3 3
  • RSI 14
  • Volume (histogram, A/D, OBC, MFI)

News & Fundamental Analysis

  • At the start of each day a review is made of the timing of important scheduled news events (e.g. Federal Reserve interest rate decisions, U.S. non-farm payroll data, inflation data, etc.). The preference is not to have any positions in the market when market-moving news is expected.
  • As U.S. corporate announcements such as earnings releases are usually made after the New York close this generally has little impact on the Trading System so long as there are no significant positions held overnight.. 
  • Fundamental analysis of the trend-following system is not a significant feature.

Single Chart

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8 Target Markets

Eight of the ten target markets are arranged in a profile on the same screen.

Trading Methodology

  • Remember, trading with leverage of 500:1 is nitroglycerin. Highly dangerous if not treated with the greatest respect.
  • At the start of each morning before trading review the 10 target markets. Start with the Daily (D1) profile and then step down the time frame to the Hour (H1) profile and so on to the Minute (M1) profile. Repeat this process multiple times each day. The reason for doing this is to develop a feeling as to the trends in each of the targets in each time frame. Obviously for any given target the trend in the time frames will often be in conflict. For example, the trend apparent on the H1 chart might be up whilst the M5 chart shows a down trend.
  • Check for scheduled events such as data releases, news announcements and speeches. A good source for this information is fxstreet.com. It is advisable to be out of the market when events are scheduled. Markets can move dramatically. Better to be out of the market as it is impossible to predict what direction markets will take when a scheduled event occurs.
  • Expect volatility at 09:00 hours when the European markets open and at 15:30 (09:30 EST) hours when New York opens. Volatility can also be significant during the runup to the New York market close at 22:00 (16:00 EST).
  • The foundation of the Trading System is trend following. It is not based on detailed fundamental analysis. It is not trying to anticipate the reaction of the market to a scheduled event. The goal is to take action after the scheduled event occurs. At best the news output of media such as CNBC are of general interest and do not form a reliable basis for trading decisions. In essence the idea is that everything that is known is already in the market price. The Trading System is designed to react to trends as they start to form and ultimately die.
  • Continuously reviewing the 8-chart profile in various time frames will reveal potential targets multiple times every hour. As CFD trading is available outside normal market hours it’s not necessary to be glued to the computer screen 23 hours/day. Sleeping, eating and socialising are desirable and indeed necessary. The Trading System does not require or expect continued presence in the market. However, when a trade is “live” the trader must be in front of the screen and totally focussed on the task on hand. Toilet breaks and grabbing a coffee are fine. Going off to lunch is not. Do not expect to make a profit whilst asleep, eating in a restaurant or shopping.
  • When a target is selected for more detailed review switch to the Single Market Target profile. This shows 5 charts of the same target. From right to left: time frames M15, M5, M1, Volume, Kurisko Stochastics.
  • There are a couple of old trader sayings “… the trend is your friend” and “… bulls live above the line, bears live below the line”. Traditionally the “line” refers to a daily chart with the 200-day simple moving average. Recognising the trend is an essential element of the Trading System. For this a simple letter system can be used on all charts in all time frames. When the current price is above the 20-period SMA this is referred to as 1A. If the 8-period EMA is above the 20-period SMA this is a 2A condition. If the current market price is above the 8-period EMA this is a 3A condition. This implies a strong uptrend in price on the chart under review. Conversely if price is below the 20-period SMA the condition is 1B. If the 8-period EMA is below the 20-period SMA this is a 2B condition. If the current market price is below the 8-period EMA this is a 3B condition. This implies a strong downtrend in price on the chart under review.
  • Trade execution whether buy or sell generally takes place on the Single Market Target profile. Before execution the Kurisko stochastics on the left chart should be reviewed. The 4 charts of this section show an enhanced view of the M1 stochastics with each chart having a different time frame. The lowest chart (60-10 parameters) gives a clue as to whether the envisaged trade has a low risk. In other words a “low hanging fruit”. When the stochastic is below the 20% look out for an uptrend to develop. When the stochastic is above 80% look out for a downtrend.
  • Whilst viewing the Single Market Target profile take a close look at the OsMA histogram. When the histogram approaches or crosses the zero line this can be the final trigger needed to execute the envisaged trade. Crossing up over the zero line implies an uptrend. Conversely, crossing down under the zero line implies a downtrend.
  • Prices don’t move in straight lines. Typically in all time frames they appear to “stairstep” up or down. With a trend underway it can be attractive to enter/exit multiple times. Each time grabbing a small profit and awaiting a modest pullback ready to enter a trade again. If the trend appears strong without significant pullback then “layering in” can be an attractive way to build a multi-trade position ready to exit by “layering out” or exiting all positions at the same time.
  • Losses – these are the problem. Small loses have a habit of becoming large with the inevitable result that the trading account is blown up. There will be good days when everything seems to work wonderfully. Other days it’s the opposite. Getting used to this is a challenge but it’s impossible to be right all the time.
  • Protect capital. Exiting a losing trade is somehow motionally uplifting. It’s a relief to stop the pain. Having the courage to exit losing trades before they become lethal is a necessity. Practice makes perfect, hopefully.​

Trading Rules - Technical

Let your winners run and cut your losers quickly. Yeah, right. Easier said than done. Remember, profits are not a problem – losses are the problem when trading with 500:1 leverage. Here are some general rules:

  • No single position to exceed 10% of equity.
  • Set theoretical stop losses on individual trades at no more than 5 – 10% of equity.
  • Total positions not to exceed 20% of equity.
  • If equity is down 10% consider exiting everything and stop trading today. Maybe today is simply not your day. Don’t blow up your account today so you’ll be around tomorrow.
  • Be careful of holding multiple targets that are correlated. Correlation is a two-edged sword.
  • Margin Level less than 200% spells danger. Get ready to exit all positions.
  • Don’t try to be the Big Kahuna. Gradually “layer in” a profitable position by taking multiple small positions as the trade goes in your favour.
  • There must be three technical reasons for entering a trade.
  • Stochastics can stay overbought or oversold seemingly forever. Keep alert – look for the crossover that will eventually come.
  • Pay attention when price is outside the Bollinger Bands on charts of all timescales. Price will have a tendency to reverse or move sideways so the next candle is inside the Bollinger Band.
  • Narrow Bollinger Bands indicate sideways move. Keep awake and be ready for the action.
  • When the moving averages look like spaghetti …. relax, stay out.
  • Beware divergence of the individual currency pairs or indices. Better to trade when correlated.
  • Weak $ = strong gold. Right? Yeah, but never when you really need it!
  • Check the time as planned announcements are usually made on the quarter/half/hour.
  • Watch out for candlestick reversals precisely on the 15M-30M-45M-1H times frames.
  • Keep an eye on volume. After a decent move often volume will slack off. Maybe the target will catch it’s breath and move sideways waiting for the moving averages to catch up before continuing the move. Or maybe a reversal is in the offing. It’s tricky.