Tramline Trading Forex, A Real Life
A real-life example of how
Tramline Trading Forex works in a real time example trade in AUD/JPY.
by John Burford, author of "Tramline
Trading, A practical guide to swing trading with tramlines,
Waves and Fibonacci levels".
Tramline Trading Forex
I wrote my new book
those traders who wish to learn and follow my simple but highly
effective methods which incorporate strict, but equally simple, money
management rules. It is a visual chart-reading method where
patterns are sought.
Once a certain
pattern is identified, high-probability trades can be entered at low
risk (close stops) and price targets can be established.
Using a combination of tramlines (a method using trendlines that I
developed), Fibonacci levels
and basic Elliott Wave
ideas, my method is
ideal for traders that have a life outside of trading, because most
orders can be planned in advance and resting stop or limit orders
placed when convenient.
Here is a real-life example of how my Tramline Trading system works in
real time in
This is a very popular cross to trade,
because it follows the commodity
cycle: the AUD is a commodity-producing currency, while the
JPY is a commodity-importing currency. Their interests are
very much opposed, which results in very large waves – ideal for swing
This is the daily AUDJPY chart going back over a year:
Trading Forex: Fig 1 - Tramlines Drawn on the AUDJPY Chart
Last year, the steep decline off the 105 high occurred in five clear
impulsive Elliott Waves, with the third wave long and strong, which is
a typical requirement for an impulsive pattern.
At the fifth wave low, there was also a large positive momentum
divergence between the simple momentum reading at wave 5 and that at
wave 3 (red bar). This is a huge warning to expect the
decline to end soon and to expect a relief rally. That is a
signal to take short trades off the table and bank your profits.
The rally off that low has a clear three-wave A-B-C
structure, which is
counter-trend. When the C wave ends, that means the relief
rally is over and the main downtrend can resume. That is the
ideal place to enter short positions.
Why Draw Tramlines?
I have drawn in my tramline pair where the tramlines enclose all the
trading since the low. The upper line is a line
resistance, while the lower line is a line of support.
is a key concept in my method. It means that if the market
can break out of this channel, the move is likely to be a strong one.
The market is currently testing the upper tramline, and there is a
small negative momentum divergence at the most recent high.
This is a clue that the rally is likely over.
The other clue is that the C wave has reached the Fibonacci
level, which is the most common level for a turn to occur. I
always look for signs of a turn when the market has reached this level.
My Conclusion - the rally is over
The bottom line from the daily chart:
It appears the relief
rally is about over and the main down trend is about to resume with a
price target on my lower tramline in the 90 region. Lower
But I trade off the hourly chart - the daily isn’t fine enough to
pinpoint accurate entries.
Trading Forex: Fig 2 - 5 Complete Elliott Waves in AUDJPY
This is the hourly chart showing the rally off the 21 May
low. The Elliott Wave count is clear – there is a textbook
five waves up. The third wave also sports its own five
With the fifth wave making a new high in the 96.50 area (and with the
negative momentum divergence on the daily), the scene was set for a
reversal. In Elliott
Wave theory, fifth waves are always
Tramline Trading System
My trade entry
A short trade entry was in the 96 area with protective stop above the
wave 5 high.
The market has recently retreated in two clear waves so far and as I
write, my wave 1 low has been broken and that is a clue we are likely
in a third wave down.
According the Elliott Wave theory, third waves are usually long and
strong and my immediate target is the 21 May low in the 93 region.
How will I handle the trade?
In terms of trade management, I am short from 96 and because the market
has moved in my favour by a distance greater than my original risk, I
can employ my Break-Even Rule. That means I can move my
protective stop to my entry point.
The result: the worst case scenario is a wash trade where I will suffer
no loss if the market moves back up through my stop. This is
a great money management method
to use of you want peace of mind while
If there is one thing that can improve your performance it is this: get
yourself into a state of mind where you are not anxious what the market
does after your entry. You will not lose money if you can use
the Break-Even Rule.
And the best case scenario? A move down to the 2008 low at 55
for a stonking profit of over 4,000 points, or $40,000 for a simple
This is the method I use to analyse markets and it can be used in
virtually any market that has large participation, such as forex and
Guest post by John
author of Tramline
Trading, A practical guide to swing trading with
tramlines, Elliott Waves and Fibonacci levels.
Publisher: Harriman House
Published: 14 July 2014