I am glad that you find this method useful.
Please feel free to ask any question when and where you feel any difficulty.
Protocols and Diplomatic Channel:
When we know about the Kolachi Concepts about Protocols of emas and Diplomatic Channel we have a definite edge over ordinary trader.
Those who have ever read about Fluid Mechancis or Dam spillways, they can better relate the price behaviour in the Diplomatic Channel like Hydraulic Jump.The price flows down like water from the spillway, gets floor at the lower ema of the channel and then comes the hydraulic jump to dissipate the energy of the fall, so consequesntly price rises up and when it touches the upper ema of channel it almost loses its hydralic jump energy and then again it comes down.
Those who do not understand hydraulic jump I will explain it in price terms.
Please look at the daily chart of aussie.You can see that price touched ema200 (the lower ema of DC100/200) and then jumped up.The rise upward was in obedience of protocols as there was cross due between ema21 and ema55.The price touched upper ema of DC100/200 simultaneously when cross gone through and the price slipped down again.
Now the protocols of emas held ema21 from crossing ema200 because a cross between next higher emas that is ema55 and ema100 wa sdue.If this cross would have happened then ema21 would have been allowed to cross down but seems that process has been intercepted for a while as cross is not through but going parallel and ema21 is also parallel to and seems heading up.Therefore , the wma5, the slave of ema21 has been called up by ema21 as it has been rejected by ema200.
N.B.Kolachi Method and its Rules are copyrighted (2006) under law
Look at the chart below and look at the chart of previous post.
The chart shows that wma5 has passed through both emas and has gone up almost 40 pips.
Following is the analysis of gold done by David Kolachi on 16th Oct.,2006.Since then gold has risen 1000 pips.
"Daily Chart: Looking at the daily chart we see that ema21 has been rejected by ema200 , therefore wma5 has been called back by ema21 to follow.There are fair chances that price may touch ema 100 at 604."
Long Term Analysis: (This analysis was posted on KT on 17th October,2006)
Looking at the daily chart we can see that ema21 has sloped up and wma5 has crossed through ema200 as well as ema21.Whereas ema55 has almost become parallel to ema100 which shows that there is a flexibility for price to cross through them and touch 617 level.As soon as price will touch 617 level the wma5 will be testing ema100, which probably will reject it and a downward journey make continue toward 500 level.
Looking at the daily chart we can see that wma5 has given fresh cross to ema21 which is also slighly tilted up.The immediate ema for testing is ema55 which may be a potential hurdle for wma or ema21.The approcach angle of wma5 is sharp so it seems wma will cross through ema55 and the immediate target is high of doji at 1.9073.MACD is supporting our view.
Looking at four hourly chart of cable, we observe that it is quite bullish.wma5 has crossed ema200 while ema21 has given fresh cross with ema100.The ema55 is fast approaching ema100.It seems price is under obedience to axis and tossing the sides.No immediate target for clue.
As the hourly hcart is not showing any clear picture, we come down to half hourly.
Looking at it, we note that there is bearish divergence on it.The wma5 has once tested ema21 and going to test it again.The potential hurdle is ema55 which comes at 1.8800.Any spike down should be stopped at ema100 at 1.8765.
Looking at the over all picture of the currency we feel that price may come down a little and then it wll shoot up to 9100 handle.As daily and Four hourly are in bullish mood, any repulsion of wma5 on lower charts may be taken as signal for going long.
N.B. These are human probabilities and only God Almighty knows the future.
Looking at the daily and hourly charts we get a clear picture of bullishness, so I have not posted their charts.
Looking at 4h chart, which is showing that wma5 has crossed through ema55 and ema100 whereas ema21 is about to cross axis.MACD is supporting a definite up move.
The obvious target is previous high at 150.40 which may not be visible in posted chart.
Hi, maybe I dont understand something - but risk to reward is calculated before enternig a trade and it could not be changed during the trade.
During the trade can only be changed risk and only if a SL is moved to new level. For example risk of loss is reduced to zero at breakeven, risk of not reaching a certain target is zero if we move SL to that level.
So we have here three different ideas; risk to reward, risk of loss, risk of not reaching target. Could you explain which one you are talking about?
Thanks for reading
Thanks for asking question.
You have quoted me from Pyramiding in Kolachi Method.
I am talking about risk reward ratio.
Suppose we take a trade and our SL is 100 pips and out TP is 300.So our ratio is
Risk:Reward :: 1:3
Now when we want to pyramid meaning that we want to add a lot to our running trade, we again need to assess the profitability and viability of new trade.
Let us say now market has moved 100 pips in our favour in running trade and we wat to add a new trade here.
Now we know that target is fixed.Hence we hace TP =200 for new trade but our SL is 100 pips as per our Money Management rules.
Hence for Pyramid trade we have,
Risk: Reward :: 1:2
Therefore for new trade our cross sectional area is less than what we had in our first trade.
In first trade we had much better reward chances and in second one we have lesser ratio.
That is why Kolachi Method does not advocate pyramiding.However, pyramiding is allowed in KM as per MM rules.
Thanks for answering my question... I like your method and the fact that you share your insights with fellow traders. I plan to join your circle next week.
Thank you, may be the godess of wealth be with you.