Why Do Candlestick Patterns Work? Learn To Trade Price Action

This article was first published on Tradeciety Trading Academy.

Price action and candlesticks are a powerful trading concept and even research has confirmed that some candlestick patterns have a high predictive value and can produce positive returns. Especially interesting is a research paper by Gaginalp and Laurent in which they showed that the candlestick patterns:

Three White Soldiers, Three Black Crows and Three Inside Up have a significant short-term prediction value for the course of price. 1 Their research showed that those patterns are predictive about 75% of the time for most of their data sets.

 

Why do candlestick patterns work?

Traders often mistakenly believe that the patterns themselves drive the markets. The first important thing you have to know is that you can’t treat candlesticks like blueprint templates which is what 99% of all trading websites teach you. It’s just wrong!

Only when a trader knows how to “read candlesticks“, he will be able to understand what the patterns tell him about the underlying market dynamics, the behavior of traders, and whether buyers or sellers are in control.

The trader who can follow the path of price and who knows how to interpret the thought-process of other financial players can take advantage of this knowledge and use price action to his advantage by reading his charts like a pro.

 

Two proven candlestick patterns

As mentioned earlier, there are a few patterns which seem to have a much greater predictive power and we will now examine two of those patterns to gain a better understanding of how to read the information provided by candlesticks and price action. Afterwards, we will take a look at the most important dynamics that allow you to understand any candlestick pattern.

Three Black Crows. The Three Black Crows pattern is a powerful bearish pattern because it nicely shows the fight between bulls and bears. Each candle opens higher than the previous close, but every time bears take over and push price back down again, making a new low each time.

The Three Black Crows pattern shows that, although bulls create a gap up, they don’t have the power to push price higher during active trading hours. Bears are in control. Often, the Three Black Crows pattern is followed by a strong sell-off once the bulls finally give up and stop pushing price higher. The Three White Soldiers is the opposite, bullish, version of the Three Black Crows.

Three Black Crows bearish candlestick pattern

Three Black Crows bearish candlestick pattern

 

Three Inside Up. The Three Inside Up pattern is an extended version of the well-known Inside bar pattern. The initial bearish candle is followed by a small bullish candle and the whole second candle typically falls into the range of the previous candle. The smaller second candle shows a change in sentiment: the initial bearish price move stopped and markets consolidate. If the smaller second candle has a wick sticking out, it usually is a much stronger indicator for an upcoming shift in direction. The third candle is a larger bullish candle which breaks above the high of the first candle, finally confirming the change in direction.

The Three Inside Up pattern is a reversal pattern because it shows the slowly changing sentiment of market participants from bearish to bullish.

Three inside up candlestick reversal

Three Inside Up reversal candlestick pattern

 

Candlestick facts – understanding all candlestick formations

There are many dozens of candlestick patterns out there, but we highly discourage you from trying to remember all of them – it won’t make you a better trader. Instead, learn to read price and what the way price moves tells you about what is going on in the markets. The way we explained the thought process behind the Three Black Crows and the Three Inside Up pattern should be applied to all candlestick patterns and price action. Once you understand that it’s not about identifying exact patterns, but about knowing how to read price movements, you can analyze charts in a completely new way.

There are three main components of any candlestick pattern:

 

1. The size
Are candles getting larger or smaller? As seen in the example with the Three Inside Up pattern, the candles first become smaller (indicating a shift in sentiment and bears leaving the arena) and then become larger again when the bulls take over. When analyzing price action, always compare the size of the most recent candlesticks to get an idea of what is going on and what momentum is doing.

 

2. The wicks (shadows)

Wicks can provide a variety of different information: A wick can show the rejection of a price level like on the Pinbar pattern, but it can also show indecision in the markets like on the Doji pattern when wicks stick out to both sides and a large candle without wicks often indicates greater strength and more conviction.

 

3. The close

As mentioned earlier, a candle that closes near the high or low and thus does not have wicks often shows greater strength. Analyzing the close of a candle in combination with the size can provide meaningful insights about the current strength and the balance between bulls and bears. When the price is trading into important support and resistance levels, the close is also very important and it can often indicate the likelihood of levels holding or breaking.

 

You can apply those three concepts to all other candlestick patterns out there and you’ll very quickly realize that the only thing you need to know about candlestick patterns is those three aspects. Here is what we mean by this:

Pinbars: A meaningful pinbar is usually relatively large in comparison to prior price action. The wick should be long and stick out into the opposite direction of the ongoing trend to show the shift in direction. And the close should be very near the top/bottom and only leave one wick to confirm the sentiment change in the new direction.

 

Doji: A doji signals indecision and, therefore, it is usually smaller than past candlesticks. A doji typically has long wicks to both sides which further illustrates the indecision and the close is very near the middle of the candle. You can see that all three clues (size, close and wicks) point towards indecision.

 

 

Engulfing: The engulfing pattern shows a reversal and the clues are very obvious usually. The first candle is small and indicates a temporary pause in the ongoing trend. Then, the next candle is typically much larger and the small candle completely falls into the range of the large bar. This shows that the trend pause is over and that markets have changed their mind. The large bar usually has a very strong close near the top/bottom with very small wicks, further confirming the strong trend change (see infographic below).

 

 

As you can see, every single candlestick pattern can be dissected easily by analyzing the size, the wick and the close of the candles. Thus, you can stop remembering arbitrary patterns and focus on reading the real price.

 

Two components of price action trading

Besides understanding what a single candlestick pattern tells you, there are two additional concepts that will help you identify high probability price action signals and avoid signals that fail more often. When trading price action, it’s important to be very selective and not jump on any one signal; blueprint-thinking and looking for fixed rules should be avoided in trading in general.

 

1. Comparing candles
This is often a very overlooked aspect of price action trading because most traders just look for blueprint patterns and focus on individual candlesticks. However, if you want to trade price action successfully, you have to set recent price action in relation to what has happened before. A small pinbar after a trend wave with large candles is less meaningful than a larger pinbar after a trend with small candles; an engulfing candle that just barely engulfs the previous one has less predictive power than a candle that engulfs the previous one easily. Always look at your chart as a whole to put things into the right perspective.

candlestick_pattern_size

 

2. Location

The concept of location means that you only trade price action signals around high probability price levels. Instead of jumping on every price action signal you see, you can significantly increase your odds by only trading around high impact support and resistance areas or supply and demand levels. Although you need to be more patient, your trading will benefit significantly as well.

candlestick_pattern_location

 

And that’s all you really need to know when it comes to understanding candlestick patterns and price action trading. Don’t make it more complicated than it has to be and focus on what is really important.

And don’t forget: candlesticks are just a way to visualize price information – it’s a manifestation of crowd behavior in the markets. Candlesticks are typically not meaningful to trade them by themselves, but by combining price action with other trading concepts, you can generate a robust trading methodology.

 

How to read candlestick patterns

How to read candlestick patterns

 

References:
1 G. CAGI NA L P and H. LAURENT: The predictive power of price patterns (1998), Applied Mathematical Finance 5, 181–205

The post Why Do Candlestick Patterns Work? Learn To Trade Price Action appeared first on Tradeciety Trading Academy.

Money Management in Forex: More Than Just Trading

This article was first published on Winners Edge Trading.

 

With this article, I, believe that your Forex hunting next week will become even more profitable. Why is that so? The subject is on Money Management!

Introduction

We have discussed the all the angles on and the importance of Stop Losses in the articles called “The Ultimate Guide On Stop Losses”, click here for Part 1 and click here for Part 2. If you have not read that guide, make sure to take a look!!

Of course, the Stop Loss is just a part of the entire equation in our world of Forex trading. Here,we are going to continue with this material, but we are going to look at a broader topic: Money Management (MM). MM is, of course, a vital topic, and is of equal importance as Risk Management, Trading Strategies, Trading Psychology, and Trade Management.

 Money Management (MM)

Let us start with the question: what is basic Money Management? The core goal of successful money management is maximizing every winning trades and minimizing losses. A master of money management is a master Forex trader!!

Money management is a method to deal with the issue how much risk should the decision maker/trader takes in situations where uncertainty is present?

You might ask yourself, isn’t basic money management the same as risk management? Risk management, in fact, is your choice how much risk you want to place on a trade. You are always in control how much risk you place on a trade: whether that it is 1% or $100, but I would recommend using a standard % risk (not $) of your designated trading capital. Every trader’s first goal is to preserve the trading capital, which is achieved by being very disciplined in the field of risk management.

In Money Management every trader is actually looking at the reward to risk ratio, or R: R ratio in short. Money management calculates the balance between the risk and the reward of the trade.  In Money Management the following definitions are vital:

1)      The risk is the stop loss size (discussed in previous articles);

2)      The reward is the profit potential (take profit minus entry).

How many pips a Forex trader has earned is really not of much value, unless the pips risk is mentioned as well. Anyhow, it would be better to focus on Rate of Return % and $/money earned. This is what all businesses do and all of us should treat trading as a business.

Reward to risk ratio

The ratio between the two is crucial. A trader that targets a quarter of the risk has just won one “battle” but has just lost the “war”. In trading terminology, this means that a trader might have won a trade, but ultimately the win means nothing and that Money Management has set them up for failure. Why?

For a trader to become long-term profitable with a 0.25 reward to risk ratio, the trader would need win 4 trades to compensate 1 loss. With this equation, the trader has not made any profit. Of course this R: R makes no sense: a trader needs to get above the 80% win % to achieve profit. Not an easy feat.

With a 1:1 Reward to risk the trader only needs to win 51% and more to be profitable. In practice, it would be better to have 60% wins or more. With a 2:1 R:R a trader only needs 35% win rate.

reward to risk ratio

Here are all of the mathematical statistics to make sure you are a profitable Forex trader:

  • With a 0.5:1 R:R… You need minimum 67%+ wins
  • With 1:1 R:R… You need minimum 55%+ wins
  • With 2:1 R:R… You need minimum 35%+ wins
  • With 3:1 R:R… You need minimum 28%+ wins
  • With 4:1 R:R… You need minimum 21%+ wins
  • With 5:1 R:R… You need minimum 17%+ wins
  • With 10:1 R:R… You need minimum 11%+ wins
  • With 20:1 R:R… You need minimum 6%+ wins

Here is a fast way of calculating if you have correct and rational control over your capital which provides positive mathematical expectancy:

Fomula: Win % x Take profit size – Loss % x Stop Loss size

Win % for example 30% * take profit pips 55 – loss % for example 70% * 20p = 2.5 (positive = long-term win).

The smaller the stop loss, the better the R:R ratio when using same target OR the better the odds of win % when using same R:R.

Question

I would like to ask you for some feedback! I think the best way to learn is by sharing the experience with each other. What kind of Reward to Risk ratio do you usually target? Please place a number and we will know it’s the ratio! For example, if you usually target a 3 reward for 1 risk, then please write down a 3. Thanks so much!!! By the way, here is a great Forex educational video where you will see how powerful the concept of a 2:1 R:R really is. Make sure to take some time to watch this great Forex training webinar –> “risk to reward ratio.

R:R using Fibs and Elliott Wave

Minimize the risk of Fib trading and decrease the potential stop loss size by splitting your trading into multiple parts. If a Forex trader decides to put their entire risk of the trade (for example 1%) on the 382 Fib, then they have no opportunity to add a trade even if the currency would retrace deeper to the 618 or even the 786 Fib.

Splitting the trade into 2 or 3 parts allows for flexibility and psychological ease as well: a trader does not have the feeling that they will miss a trade with tying themselves down to a single entry point.

Splitting the risk into 3 positions would mean that the trader choices to split the chosen risk of 1% into 3 parts. The risk can be evenly divided among all 3 parts (3×33%) or more weighted to one Fib level (for example 20%-30%-50%).

APR 12 2013 2

With a 1% risk total, this means either 3 trades with 0.33% or 3 trades with 0.2%, 0.3%, and 0.5%. This is called cost averaging. Businesses used it often: it makes their inventory cheaper. For us Forex traders, it makes the average stop-loss smaller and that is great for our R:R.

Forex traders can do the same for Fib targets. By splitting the trader with different take profit targets, they can optimize the profit average of all positions and the entire trade.

The Elliott Wave can be used to decide which Fibs and with which division % the trade is taken. For example, for a  wave 2 the trader can choose to put the risk on the 500, 618 and 786 Fib with the following division of the risk: 25% on 500 fib, 35% on 618 fib, and 40% on 786 Fib. For a wave 4 the division would be skewed higher: maybe 50% on the 382 Fib, 25% on the 500 fib and 25% on the breakout.

The EW can also be used for Fib targets. A trader should aim for higher targets if a wave 3 is expected and for closer targets if a wave 5 is expected.

Position Sizing

Position sizing is important because it allows the trader to adjust it size of the trade according to the market conditions. If a trader takes a fixed position size of 1 mini for example, the loss can vary widely depending on the size of the stop loss. With position sizing that can never and a trader is always in control of their risk!

To summarize:

With position sizing, the stop loss size is not important for risk management. No matter what the stop loss size is, Forex traders always choose the risk percentage level!!

With position sizing, the stop loss size is important for money management. The stop loss size is an integral part of the Reward to Risk ratio.

Here is how any trader can calculate position sizing’:

1)      Determine the desired risk level (risk management) à a trader determines the risk level of that particular trading strategy, trading week, trading day, market structure, and that particular trade;

2)      The trader needs to determine the best stop loss placement: not too close to market action, but not needlessly distant as well (please read the articles about stop losses);

3)      The trader needs to choose an achievable and realistic take profit target –> because we already did an article on stop losses, I was thinking of doing  1 on take profits next week… but it depends if there is any interest. Would you like an article on Take Profits?

4)      The R:R expectancy ratio should be provide a positive mathematical expectation.

For example:

  • Deposit = 5000 EUR
  • Risk = 1% from Deposit = 50 EUR
  • Currency pair = EUR/USD
  • SL = 30p = 300 USD on a standard lot basis
  • Size to open in order not to risk more than 1% = Risk/SL = 50/300 = 0.16 lots

Leverage

Be careful with the leverage you use! A good rule of thumb is to use for example 5:1 leverage. That way a Forex trader is not over trading. For example, if your account balance is 5,000 USD, then your total is the capital of $5000 multiplied by your leverage of 5, which equals $25,000. A mini lot is $10,000, so that would be 2.5 minis. Use this formula to calculate how much risk you are taking: (SL times/multiplied by Leverage)/100 %. For example if the stop is 30 pips: (30 x 5) / 100 = 1,5 % of risk.

Trading capital

Regarding the trading capital, a trader has several options.

1)      Reinvest the profits back into the trading capital. This way the trading capital gets larger and a percentage risk of the capital is realizing a higher return in USD (same percentage risk though);

2)      Withdraw all profits. This way the trading capital remains the same;

3)      Semi-flexible approach with some withdrawals and some reinvestment;

I think that option 3 is the best money management approach. Growing your account is a great thing, but you want to withdraw some money once in a while so that you still realize that the numbers are your account are still real and not fake! Then again, withdrawing everything will take away the advantage of compounding your profit. So option 3 is the best value.

Step approach:

What I approach for point 3 is a step approach. This is how it goes:

1)      Use the same current trading capital for your risk management until you have a drawdown of x % or a profit of  x% (the numbers are your choice);

2)      Once you hit your drawdown maximum, you will use the new trading account balance as your trading capital;

3)      Once you hit your profit target, you will use the new trading account balance as your trading capital;

4)      If you hit your profit target, you can decide the division of withdrawal and add-on % of the profit. So you could choose to withdraw 50% of your profits and add 50% of profits to your trading capital. The new trading capital balance would be your old trading capital + 50% of the profits.

Multiple accounts

Another part of your money management strategy is that you want to make sure that you are diversified.

1)      Preferably you are only investing a part of your savings into the Forex trading capital and you have a  decent percentage of your savings invested in other vehicles – if possible;

2)      You have multiple accounts with different goals. This is to spread the risk of having your trading capital on one account. The different accounts can also be used for different strategies and purposes: one could be for long-term trading, the other for intermediate;

3)      Keep part of your trading capital on your account. Even though you want to trade with a certain amount of money, there is nothing wrong with keeping a part of it on the bank account. I do not think that a trader needs to put all 100% on the trading account, but make sure a margin call is not needed if you opened a trade with 1 mini ;).


Big favor from me. Could you please retweet this article or share it on Linked in? That would be really awesome! Its an important topic and want to make sure that everyone is on board with this topic.

For those who already share regularly, I thank you for your efforts!

 

Identifying Trends through Synchronization

This article was first published on Winners Edge Trading.

Synchronization can be defined, according to businessdictionary.com, as the “process of precisely coordinating or matching two or more activities…or processes in time”.

Well, what we’re looking to match in Trend Synchronization is simply the forex market trends across various time frames.

I’ve written before here about “rolling up” (or down) trends as being one of the strongest and easiest to follow trend indicators. Rolling up or down refers to the successive trend directions given across different time frames:

Whenever there is a trend change, it is indicated first on the 1-minute time frame chart, then on a 5-minute chart, then 15-minute, 30-minute, 1-hour, 4-hour, daily, weekly, etc.

But here’s the thing: there are many, many times when the trend changes (at least temporarily) on a shorter time frame chart, but an indication of trend change on longer time frames never follows. For this reason, it’s important to always be aware of the trend as indicated all the major time frames and how to identify trends in data.

You can certainly trade using a 15-minute chart as your primary reference, but you will trade much more successfully if you’re aware of whether or not the current trend on the 15-minute chart is in sync – agreement – with the trend as shown on longer time frame charts. If it is, if the trend is synchronized across multiple time frames, then there is a much higher probability that you can ride a trade in that direction for substantial profits.

 

Why identifying trends is important:

Synchronizing the trends accomplishes 2 goals simultaneously which are the 2 most important things to do for making more money in your account

– Increases your Profit potential on each trade (and R:R) by letting the trend carry trades further
– Boosts accuracy because the power of multiple trends is pushing price in your direction

If on the other hand, higher time frames are still showing a distinct, longer-term trend in the opposite direction from what’s showing on your 15-minute chart (or whatever TF you’re trading), then the price is likely to reverse at any time thereby reducing the probability of winning your entry.

The Problem with tracking Trend Synchronization

Well, the trouble I have is that I’m forgetful, inattentive, impatient, and lazy. Other than that, I’m a perfect trader.

 

But, seriously, here’s the thing:

When you’re trying to monitor the market, follow the news, analyze potential new trades on multiple currency pairs, AND return your girlfriend’s phone call, it’s just very easy to fall into the habit of not regularly checking the current trend across every time frame from 1-minute all the way out to the daily time frame.

And even if you were diligent enough to do that (doubtful, really – when I’m trading off the 1-hour chart, I can honestly say that I do not faithfully check the trend on the 5-minute chart every single 5 minutes), that’s a lot of work and effort…

And 9 times out of 10, the trends are not going to be lined up and so it is a lot of work and effort for no gain.

 

Problem solved:

Winner’s Edge Trading has a tool available that automatically keeps you continually updated as to the existing trend on all the commonly used time frames—all from whatever TF you happen to be on at any moment.

A cute little box that sits out of the way on one side of your screen and that shows you at a glance whether short term and long term trends are synchronized – all pointing in the same direction – or not.

Identifying TrendsNow, you certainly do not need this tool to use what I have shared in this article. I highly recommend you sync your trends whether you want anything from us or not…

But with that said, we highly recommend these tools because TREND is SO important and the Break & GO tools do more than just give you the trend.

Using the tool is a lot easier than manually changing the time frame in your chart window 7 or 8 times – Not to mention the fact that by the time you get all the way to the daily time frame, you may have forgotten…”Was it the 15-minute or 30-minute chart that was showing a downtrend?”…

Instead, this fantastic tool provides you the complete spectrum of trend indication across multiple time frames in a clear, visual representation. It will also help alert you to potential trend change at pretty much the earliest possible moment.

In short, it provides you with important information in an easy-to-see visual format and simplifies your life as a trader by putting the information right at your fingertips with the click of your cursor.

 

Get the Break & Go Tool Here:

Oh, and the trend is just one feature of the Break & Go tool. To learn more about them, Click Here.

We have tried to make it as easy as possible to be continually aware of the trend across multiple time frames and to instantly be notified of trend change whenever it occurs on any time frame.

Soooo…Get it. 🙂 – (it’s on sale here)

And even if you’re not interested in our tools, be sure to let me know what you thought of the synchronization idea and if you plan on using it to improve your trading.

Best wishes in your trading, and please feel free to share this article across social media or scribble any comments/questions below.

 

 

Yours for Winners Edge Trading,
Jack Maverick

Support and Resistance Tips Identifying Decision Spots in Forex

This article was first published on Winners Edge Trading.

Strike 3.0 consists of two complete trading strategies, including entries, targets, stop losses, sizes and trade management for each strategy. A significant element of these strategies is Support and Resistance levels for entries and exits. Support and Resistance levels are prices at which the trader can expect the price to react in some way. Most commonly they consist of moving averages, daily and weekly pivots, psychological levels, Fibonacci retracement and extension levels, key weekly and daily price levels and much more.

Support and Resistance Levels Are Self-fulfilling Prophecies

Support and Resistance levels are like self-fulfilling prophecies. A trader identifies a level at which he believes the price will react (reverse or break through.) He places orders at that level in expectation of a price reaction. Many other traders also think the price will respond a particular way at that level and they act accordingly. Pretty soon you have a preponderance of traders expecting the price to react at that level. And because this huge group of traders has acted on that belief, the price reacts the way the traders expected it to act.

The larger the group of traders that expects a support or resistance level to break or hold, the more likely the level will do exactly as expected. Not every level has the same number of traders (or perhaps I should say the same amount of capital) dedicated to the price reaction so that some price reactions may be smaller or larger than others. But you can usually judge the importance of a level by the way price has reacted to it in the past.

How Can I Identify A Significant Price Level?

You can start with the most obvious levels: those of the more common indicators. Moving averages, Fibonacci retracements, daily, weekly and monthly pivots, psychological levels, any number of other tools. Of these, we typically use Moving Averages, Fibonacci and psychological levels in our trading room. Be sure not to use too many, or you may end up with “Analysis Paralysis,” the inability to take trades because there’s always a level three pips away from your current position.

In addition to the indicators, we identify and use price action support resistance levels (for simplicity’s sake, let’s call these levels S/R .) Price action S/R is simply the price zones at which price has reversed direction. We look for these zones on Weekly and Daily charts and identify them with lines. These lines are just representations of zones that can be 10-20 pips wide. Remember a line is never just a line; it’s always a zone.

How Do I Draw the Best Support and Resistance Indicator Lines?

Support And ResistanceTo identify lines on a particular pair, we start by finding the “fractals.” A fractal is a candle that protrudes above or below the two previous and two subsequent candles. You can use the Bill Williams Fractals indicator in your MT4 platform to help you find them. Draw a horizontal line at a nearby fractal. It may not be the nearest fractal to the left of the current candle, but it should be near the current price level. Then look to the left along the line and see how often price “respected” the line. In other words, this particular price level has been significant in the past. Since it’s not just a line, a price may not quite reach the line or may push through the line, and we still consider that the line was respected. The line can also be recognized when a candle body touches the line as well. There can be instances where the line was passed through, but prior and subsequent candles beside the pass-through candle may have respected the line. If your line is well respected, you’ve chosen a good line. Typically, we will initially draw a couple of weekly lines and a couple of daily lines on either side of the price. You may want to color-code your lines, so you know which are weekly (more relevant) and which are daily (less important.)

How Do I Use Support And Resistance Lines?

In the Strike 3.0 Reversal Strategy, we use S/R Lines for our “line in the sand” on reversals. Once we’ve identified a pair for reversal and we have Strike 3.0 Reversal signals, we will look for a nearby S/R line to place our order. Typically we’ll put it five pips ahead of the S/R line (5 pips above for a significant reversal, five pips below for a short reversal.) We try to pick a critical S/R line (preferably a weekly line) at which price would have a strong rejection. We will also use Fibonacci levels, Pivots or Psychological levels (levels whose price ends in zero) for use in finding targets for our reversal trades.

In the Strike 3.0 Momentum Strategy, after we get our Momentum Signal, we set a limit order ahead of the 20 periods Simple Moving Average for a pullback entry. We have an initial target but will adjust the objective ahead of an S/R line. This is a summary of how to calculate support and resistance levels.

Trading as a business – my step by step guide

This article was first published on Tradeciety Trading Academy.

You have all probably heard that you need to treat trading as a business if you want to be successful. But what does this actually mean? Instead of letting it be just another meaningless phrase, let’s take a deeper look to fully understand it.

The ideas behind “treating trading like a business” are very important to get you on the right track and after we have taken a look at the different aspects, I am sure you will get some ideas on how to take your trading to the next level and treat it more like a business.

 

Your setups are your products and services

Every business has either physical/virtual products or services to sell in order to generate profits. The business, hopefully, knows everything there is to know about their products, where it is from, how it is built, what the benefits are, what the potential struggles are, how to keep improving their product, what their customers want, and how to use it in the best possible way. The business must be the #1 expert in what they are offering. Obviously.

As a trader, your setups and your strategies are your products. Your setups are a set of rules and triggers to help you find potentially profitable trades. Whether your setups consist of classic patterns, indicators, pure price action or a combination doesn’t matter here.

What is important is that YOU must be the expert in your setups and patterns. You must know every little detail, when the setup works best, during which market conditions it doesn’t work, in which markets and timeframes to use it, how to improve the odds, how to set stops and pick targets, when to move stops and how to manage trades, when to add to a position or take some off the table, when to stay out, etc.

Most traders lack consistency and are far from being experts because they always change their approach. Do you think a business can be profitable if they’d change what they are selling every week? No!

So, really commit. In my trading, for example, I trade very specific patterns and most of my trades look very similar. This comes from years of specializing in only those setup types. For years I have been looking for the same things, patterns and price clue every single day, without deviation.

If you want to learn how to trade like me and use my strategy, take a look at our trading courses and masterclass.

 

Losses are costs and a part of doing business

We have all heard this phrase and I hate it. Why? Because it has lost its meaning.

Every business has costs and you need to buy material, build plants, hire workers and invest in research and marketing. But for a business, it only makes sense to spend money if you’d expect to get a return on your investment. If you hire someone without skills, blow your marketing money for the wrong target audience, buy over-priced and useless material or purchase a private jet although your company is barely profitable, should you really look at those costs as a part of doing business`?Well, obviously not.

Yes, losses are part of trading but there are losses and then there are losses.

Losses are only good if you have followed your rules and most people lose because they don’t have an approach or break their rules. Those losses are not part of trading and your trading business.

Thus, always ask yourself: was this loss my own fault (breaking rules, etc) or did I fully respect my rules and the trade just didn’t work out?

Only if you can rule out the possibility that you messed up, then a loss becomes tolerable and part of doing business.

 

Selling your business and retirement

I keep saying it:

Most people want to be full-time traders and trade for a living but then trade like they have to retire tomorrow.

A businessman usually opens his business because he believes in what he is doing, he has a long-term vision for his operation and he is following a self-determined lifestyle. Only very few businesses start with the goal to close down operations in 6 months and sell everything for millions of Dollars and then sit on the beach all day long and sip a cold beer. Those people are driven by the wrong motives and the failure rate is then absurdly high.

Traders must also understand that they are in it for the long term. But even more important, they have to understand the implications that come with such a vision and a long-term approach:

  • One trade does not matter. Stop stressing out about single events. You will take thousands of trades.
  • Risk should be low. A trading career is not built on a few hundred percentage annual return but on small, modest and low-risk gains. Variance is deadly and emotionally taxing if you want to do this as your profession.
  • Be patient. Learn your craft step by step and fully understand that time is on your site. It’s still worth it if it takes 5 years to become profitable.

 

What would the pro do?

I love this concept and you can also apply it to any other area of your life.

Professionals and the ones at the top do things differently and approach the area of expertise disciplined, organized and with conscientiousness. The next time you are about to do something, ask yourself “what would the pro do in my situation?” Would he really add to a losing trade, or widen his stop loss, or chase price, or listen to a random guy in a trading forum to bet his money, or buy into an ICO of something he doesn’t understand because he can 10x his money tomorrow? You can see where I am going with this…

Stop doing those things you know you should not be doing and start living in the pro mindset.

I know from experience that it won’t be easy and you won’t succeed all the time, but get into a habit of consciously looking at your decisions and actions and ask “what would the pro do now?” It will get you into a different mindset where you move in a better direction step by step.

 

 

Your office

Maybe it’s my German nature but I am a big proponent of having a clean and organized work environment. It will not only improve your productivity but it also signals to yourself that trading is something you take seriously. If you can, dedicate a part of your home as your “trading office” where the only purpose is trading and doing trading-related things. No Facebook and no Youtube – just trading.

I find that when I keep my office, my desk and my computer clean and organized, I work better and I enjoy it more as well. Avoid distractions and prove to yourself that trading is important to you. I don’t have my phone in my office, I block social media sites during work and I don’t watch Netflix in the background.

Remember: “what would the pro do?”

 

 

Have a plan for your business

How do you start your trading day? Do you just fire up your trading platform and start hunting trades across all timeframes?

A business usually always has a plan, businessmen know what their goal is, what their objectives are, they are prepared, they analyze costs and opportunities and they also analyze past projects and keep accurate numbers of everything that goes on.

A trader must have a plan before he starts his trading to avoid being just reactive. I sit down every weekend and every morning and I analyze all my Forex pairs, I look at the timeframes that I trade and then I create my trading ideas. I know when I want to get in, when I stay out of a market, what the price action has to look like for me to get interested and what a no-trade scenario is. For that, I use my trading plan and I also use price alerts to stay on top of things.

This is only possible, though, if you know your products and services a.k.a. your setups and strategies. It all ties together.

Once done with my trading, I write all my trades in my trading journal. I analyze how I followed my plan, if I missed something, where I went wrong, what I did well, how I could have made more money and how I could have minimized losses.

Have you ever seen a business that operates without a real plan and without analyzing how their projects worked out? No, such businesses quickly fail because you don’t have any idea where the money is coming from, where it is going and how to fix things.

 

Your ‘Why‘ and company statement

Every business has a mission and they usually know exactly why they are in business. Under Armour wants to do great sports apparel, Steve Jobs believed in Apple and a design-driven tech company, the IKEA founder loved building things, Mark Zuckerberg wanted to create a network for people, Thomas Edison was a passionate inventor, Elon Musk wants to take humanity to the next level etc.

When I ask traders why they are trading, I hear things like: money, Ferraris, beaches, traveling all the time, private jets and alike…

And whereas there is nothing wrong with those things in general, it just doesn’t go deep enough and once you hit your first brick wall, just being driven by money will not motivate you to push through.

Instead, think about ‘why’ you want money in the first place. Do you want to stay close to your family, see your kids grow up and work from home, work less but on more fun projects, start another business based on your passion and have trading as a side income, or are you just fascinated by the financial markets and money isn’t the objective at all?

Whatever it is, be clear about it and see how trading fits into your overall lifestyle choices. You are more likely to succeed if you really understand why you are doing things.

 

 

The post Trading as a business – my step by step guide appeared first on Tradeciety Trading Academy.

Using Multiple Trendlines to Identify Better Trades

This article was first published on Winners Edge Trading.

trend

Multiple Trendlines!

What am I talking about? – Good question.  To put it very simply, I’m talking about the value of looking at multiple trendlines in order to:

  1. Determine the trend
  2. Determine the strength of a trend
  3. To identify potential trade entry or exit points by identifying strong levels of support or resistance in a market

What?  You mean trendlines can help you do all that? – Yes, that’s exactly what I mean.

One of the oldest trading adages is, “Trade with the trend”, or, “The trend is your friend”.

Well, here’s the thing: Even if you’re not interested in trading with the trend, if you prefer taking contrarian trades looking for a change in market direction, it will still improve your trading success to know where the trendline levels are and to identify convergence of multiple trendlines.  What’s convergence of trendlines? – Just give me about two or three paragraphs here to cover something more basic, and then I will happily explain the concept.  Don’t worry, it’s an easy concept; you’ll get it with no problem.

Drawing and thereby identifying trendlines is simple enough – a basic trendline is constructed by just drawing a line connecting across either the lowest low prices (for an uptrend) or across the highest high prices (for a downtrend) over a given time period.  Look, here’s one now, an uptrend trendline, in red, on a 4-hour chart of the Aud/Usd pair!  You can easily see that the current price is well above the trendline, and therefore price could retrace substantially – all the way back down to around the .7100 level – without violating the basic uptrend that’s indicated.

jack1

Moving average lines can also be used as trendlines.  Here’s the same chart with 10 (dark blue), 50 (light blue, thick, dashed lines), 100 (red dots) and 200 (yellow, thick) exponential moving averages (EMA) plotted on it.  Notice how the 100 and 200 moving averages are close to each other and also, for the moment anyway, basically running along the trendline that we drew earlier.

jack2

THAT’s convergence of trendlines.

Convergence of Trendlines

Convergence of trendlines is simply when two or more trendlines come together.  That can happen in one of two ways:

1 – Different trendlines on the same time frame, such as the trendline of a 10-period moving average and the trendline of a 50-period moving average on a 1-hour chart, can converge – draw close together or even actually meet at a certain price level

2 – Trendlines are drawn on different time frame charts, such as a 1-hour chart and a 4-hour chart, can converge around the same price level

You can easily see an example of point “1” that I already alluded to in the chart above.  Now let’s see if we can find an example of point “2” by looking additionally at the 1-hour time frame chart.

Okay, let’s see what we can see.  Notice that the basic trendline, as it appears on both the 4-hour and 1-hour chart, runs down around the .7080 to .7100 level.  Now, how is that helpful?  Well, for one thing, the multiple trendlines running along the same level represent additional trend strength at that price level.  Secondly, that level might be a good point at which to place a buy order attempting to enter the market.  I know, I know – you see a market turn and move significantly to the upside and you want to jump in and capitalize on it.  But the fact is that both time frame trendlines show that price has run well above the trendline.  The odds are that it will back off, retrace downward a bit, that price will at some point test those trendlines.  And that’s another good piece of information to have: If price were to decline well below the existing trendlines, especially on a daily close basis, then one should consider the possibility that the trend will not last long-term and that the market may turn back to the downside.  It might be reasonable to place a stop-loss order somewhere perhaps just below the .7020 level, about 60 pips below a .7080 entry point.

Okay, so we’ve identified multiple trendline price levels, possible buy entry points, and possible stop placement, potential market reversal indication price levels.

You can analyze other points on the charts, too.  Notice that the 100 EMA on the 1-hour chart roughly coincides with the 50 EMA line on the 4—hour chart, both coming in around the .7160 level.  That, too, can be seen as multiple trendline convergences, and identifies another potentially important price level that may provide support for the market.

The Significance of Converging Trendlines

Trendline convergence is important, (A) because it provides an indication of where the trend is stronger, and (B) because it provides an indication of greater overall trend strength when multiple trendline convergence occurs.  Conversely, however, if there is not any trendline convergence, or if in fact different trendlines drawn on different charts and across different time frames show conflicting trend indications (like an uptrend on a 15-minute chart, but a downtrend on a 1-hour chart), that is an indication of trend weakness.

Rolling Up Trendlines

One of the best indicators of a developing long-term trend is what I refer to as “rolling up trendlines”.  That phrase refers to trendlines that begin turning upward first on the lowest time frame charts – like 5-minute or 15-minute charts – and that then receive longer-term confirmation as the trendlines on ever higher time frame charts – 1-hour, 4-hour, daily and weekly – also begin to turn upward in succession, so that eventually all time frame trendlines are pointing in the same direction.

Rolling down trendlines refer to the gradual time frame succession of trendlines turning to the downside, first on the lower time charts and then on the successively higher time frame charts.

Going in either direction, increasing confirmation of trend on successively higher time frames represents very strong trend confirmation.

The Problem and the Solution

It’s somewhat problematic, however, to be continually checking back and forth across half a dozen time frames looking for multiple trendline convergence.  It’s just a lot of work, one of those things that you just naturally start to wish could somehow be automatically indicated to you.  Plus, it’s easy to miss something, looking at multiple indicators on several different charts.

Hope this article is helpful for you.  If so, please feel free to share it around social media and help out other traders.

And keep on coming back to Winners Edge Trading, because we will keep on sharing all the helpful trading tips that we can think of.  (And we can think of a LOT of them, trust me.)

Best wishes,

Winners Edge Trading

After reading all of this valuable information about trading with trends, I have something I would like to offer you. Since you are in the market to find a great trading strategy that uses trend trading techniques, I will give you exclusive access to my trading system which I call the Strike 3.0 for an extremely low price! I have many trend trading techniques to choose from. If you want to learn more about this limited time offer click this link: https://info.winnersedgetrading.com/limited time+trend_trading_strategy+SPECIAL+OFFER

 

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Trading The Bull Trap – Eliminating Losing Traders

This article was first published on Tradeciety Trading Academy.

How often did you experience a situation where a trade looked so obvious but then immediately reversed on you and you had to realize that you were, once again, entering at a very wrrong spot?

A bull trap occurs when traders take a long position and then have price reverse and move lower very sharply.

The long-positioned trader is trapped and this pattern often follows a very similar rhythm of luring traders into “obvious” long trades, followed by a sudden move against the traders.

Bull traps often happen around previous highs where it looks as if the price is continuing the rally. Especially amateur traders often tend to enter too early around such key levels (read about FOMO here). It’s especially dangerous if price rallies for a bit in their favor ad the trapped traders feel too comfortable and too attached to their trade.

When price then reverses, they hold on to their loss too long and/or add to their existing position. As price keeps moving against them, the loss becomes larger and larger until it hurts so much that trapped traders are forced out of their trades – this accelerates the reversal even further.

 

 

Bull trap orderflow – What really happens

To fully understand the dynamics of the bull trap and then to use this information to our advantage, we have to look at the orderflow and the thought process behind a bull trap. Here are the individual phases:

1) Prelude: a long sell-off where people missed profit opportunities and/or are becoming too greedy and want more.

2) Price then sets up a new trend wave that lures people into entering new positions. It looks like the price is starting a new trend wave by breaking the previous lows.

3) Price goes a little in the favor of those ‘trapped’ traders, creating a feeling of confidence and security.

4) Price reverses to the upside. People in disbelieve hold on to their trades that are suddenly turning into a loss. Others add to their loss, hoping to average down.

The professionals are the ones who are aggressively buying and the amateurs are still happily selling, hoping that price turns again.

5) Price rallies further and the trapped short traders are now facing huge losses. Most are forced out of their long trades which means that they have to buy which accelerates the rally.

You can see, the bull or bear trap is more than just a pattern, but it’s a way of visualizing and understanding how the average trader approaches the markets and why the professionals usually always win.

intro

 

Trading with insurance – 2 great tips

I specialize in trading new trends and for me, it is essential to understand the dynamics of bull and bear traps because it is one of the most reliable and profitable types of reversal signals. You can learn all my setups and strategies here: Tradeciety trading course

Once you can see where traders are trapped, how the average losing trader makes the same mistakes over and over again, and how the stops that get triggered accelerate price moves, you can make much better trading decisions and start trading against all the losing traders.

However, before we get into the types of bull traps, here are our two insurance concepts as reversal traders:

 

1) The late entry

For new and inexperienced traders, this is the hardest concept to follow and principle to internalize but it will make a huge difference in your trading. Never sell while price is going up and don’t buy when price is doing down. Only sell when price is already going down and only buy when price is going up.

Ever trade has 3 entries and whereas amateurs are either too early (entry 1 – predicting) or too late (entry 3 – chasing), professionals enter with confirmation.

3 entries

 

 

2) A moving average

The easiest way to make the concept of ‘insurance’ work is by applying a moving average to your charts and only trade in the direction of it. Even popular and super successful market wizards like Marty Schwartz use this exact concept.

This means that you only trade short after a bull trap once price has broken the moving average to the downside and you only enter a long trade after a bear trap after price has broken the 20 SMA to the upside.

Of course, there is a little more to trading than just trading a break of the moving average, but using a moving average as your filter will automatically keep you from making the most common mistakes.

USDCAD_2

 

Types of bull and bear traps

Now that you understand the dynamics of how traps and squeezes work, we can take a look at a few different examples because, after all, trading is a game of pattern recognition and one type of setup rarely only has one way of presenting itself. As you will see, the bull trap and the squeeze patterns come in different forms and it pays off to understand the little nuances and dynamics that drive price. I explain all trap and squeeze patterns in our strategy course.

 

Double top squeeze

This is the most classic pattern where you have two swing points where the second swing penetrates the prior high and then immediately gets rejected.

The second failed breakout attempt is a clear signal that the market doesn’t have the power to start a new trend. The following selling-momentum is creating a new downward trend.

 

Gap squeeze

During a gap-squeeze it looks like the price is gaining momentum on the gap and traders see themselves in profits longer. However, price just as fast gaps into the opposite direction and squeezes the trapped traders. The reversal on a gap trade is usually much faster since the squeeze happens suddenly and much stronger.

gap-squeeze

 

Engulfing bar squeeze – Range squeeze

The engulfing bar and range squeezes are not commonly discussed but they happen frequently. After a tight range or a slow trend, price suddenly makes a violent move and many orders will get triggered by the spike.

This type of squeeze works so well because it works in the complete opposite way how most losing trades think and you can exploit their weaknesses.

 range-squeeze

  

You can see, the bull trap is not a standalone trading system but it’s a MUST KNOW price and market dynamic because it is the type of market behavior that exploits the weakness of the consistently losing traders. There is always someone else on the other side of your trade and, thus, you should think twice who is buying from you and why do they want your trade.

 

To learn how to trade the squeeze and other powerful setups, take a look at our trading courses: Tradeciety trading courses

The post Trading The Bull Trap – Eliminating Losing Traders appeared first on Tradeciety Trading Academy.

What is the best timeframe for your trading?

This article was first published on Tradeciety Trading Academy.

“Which is the best timeframe?”  is maybe the most common question I get every day and I want to address it finally and hope to provide some tips on how to approach the timeframe choice.

 

What two choose between?

Typically, traders choose between the higher timeframes (1H+) and the lower timeframes (<1H) when picking their timeframe(s).

It is very important to understand the differences between the individual timeframes so that you can pick the ones that work well for your personality type and complement your strengths.

 

Why choosing a timeframe?

You do not want to be all over the place and focusing on a certain set of timeframes usually makes for a more consistent trading approach.

Many traders make the mistake of continuously dropping to lower timeframes during their trading. Often I see that a trader says he trades the higher timeframes but then I see him lurking around the 15min or even 5minute timeframe because he wants to “finetune” his trades.

Although having a multi-timeframe approach can be helpful, it is best if you just focus on a maximum of 2 closeby timeframes. For me personally, that means that I am on the 4H and Daily and I usually never go lower when trading those two. Moritz, on the other hand, uses the 5min and 15min as his two daytrading timeframes.

In our premium Forex course, you get two systems based on the different timeframes. You can test both, see which timeframes works best for you and then make a decision together with us about your future journey.

 

 

Step 1: The personality and skillsets

First, ask yourself whether you are good at making decisions fast under pressure or if you are better at longer-term strategic thinking?

Second, are you OK with taking fewer trades and holding them for longer periods or do you need the action every day and don’t mind to get in and out of trades faster?

You can already see, the differences between the skillsets a trader needs to bring to the table differ significantly for low and high timeframes. Make sure to observe yourself and be aware of where you fit in.

Step 2: Timeframes and the emotional side

Timeframes and emotions go hand in hand and the timeframe you choose has a huge impact on how emotions impact your trading.

Are you ok with being patient and can you wait for longer periods until you get a trade or do you easily get bored when not having a signal all the time?

Do you quickly recover from losses and can move on to the next trades without being influenced or do you need time to process a loss and pick yourself up again? A huge issue many day traders have is that they believe they need the constant action but they can’t process losses fast enough and are always in reactionary mode during the day and easily fall into the revenge-trading trap.

Higher timeframe traders have time to walk away from the charts, digest a loss and clear their minds. This can be a huge advantage for emotionally unstable traders.

Also, day traders on the low timeframes must be able to focus during their trading sessions. If focus is a problem for you, then being a day trader will give you a hard time when you are easily distracted, unorganized and then end up chasing price.

 

 

Step 3: Technicals and price action

First, you must understand that you can basically trade any system on any timeframe. A head and shoulder pattern works the same on the higher as on the lower timeframes. Moving averages, trendlines, support/resistance, candlesticks or any other indicator is completely neutral and can be applied to any timeframe. It simply does not matter!

But now you might say “But I lost money using the X trading technique on the higher timeframes…” As yourself: was it really the “system” that did not work out or was it YOU that messed it up. 99.99% of the time, it’s not the system that is the issue, but the trader himself.

Where the timeframe choice makes a difference is when it comes to intra-day volatility. On the lower timeframes, things can sometimes move very quickly whereas you have a more smooth price development.

Also, news impact the lower timeframes more but you can easily navigate around or just sit out a news event on the lower timeframes.

Some traders report that they have a lower winrate on the lower timeframes, they can also overcome variance much faster. When you get more trades, losing streaks will not last as long and you get more chances to make up for it.

Finally, the spread has a different impact as well. On the lower timeframes, the spread can make up a significant part of your profits whereas the spread isn’t too meaningful on the higher timeframes.

 

Resume: Pay attention to yourself and choose the best timeframe

As you can hopefully see by now, picking the correct timeframe has to be done with caution and the “best” timeframe will be different for every trader.

The goal of this article is to highlight how the different timeframes affect a trader and how you can choose the best timeframe for you based on understanding your strengths and weaknesses.

The post What is the best timeframe for your trading? appeared first on Tradeciety Trading Academy.

Bollinger Bands ® Explained – The Best Trading Indicator

This article was first published on Tradeciety Trading Academy.

Bollinger Bands ® are among the most reliable and potent trading indicators traders can choose from. They can be used to read the trend strength, to time entries during range markets and to find potential market tops. The indicator is also not a lagging indicator because it always adjusts to price action in real time and uses volatility to adjust to the current environment.

In this article, we show you how to use Bollinger Bands ® to improve your chart reading skills and how to identify high probability trade entries.

In our pro Forex trading course, you will learn how to use the Bollinger Bands ® to find and time entries step by step as well with one of our many setups which we teach and trade.

 

Bollinger Bands ® explained 101

As the name implies, Bollinger Bands ® are price channels (bands) that are plotted above and below price.

The outer Bollinger Bands ® are based on price volatility, which means that they expand when the price fluctuates and trends strongly, and the Bands contract during sideways consolidations and low momentum trends.

By default, the Bollinger Bands ® are set to 2.0 Standard deviations which means that, from a statistical perspective, 95% of all the price action happens in between the channels. A move close to the, or outside of the outer Bollinger Bands ® shows a significant price move – more on that later.

The center of the Bollinger Bands ® is the 20-period moving average and the perfect addition to the volatility based outer bands.

Bollinger Bands explained

 

Trend-trading with the Bollinger Bands ®

Bollinger Bands ® do not lag (as much) because they always change automatically with the price.

We can use the Bollinger Bands ® to analyze the strength of trends and get a lot of important information this way. There are just a few things you need to pay attention to when it comes to using Bollinger Bands ® to analyze trend strength:

  • During strong trends, price stays close to the outer band
  • If price pulls away from the outer band as the trend continues, it shows fading momentum
  • Repeated pushes into the outer bands that don’t actually reach the band show a lack of power

 

 

Chart analysis with Bollinger Bands ®

The screenshot below shows how much information a trader can pull from using Bollinger Bands ® alone. Let me walk you through the points 1 to 5:

1) Price is in a strong downtrend and price stays close to the outer bands all the time. This is a very bearish signal.

2) Price fails to reach the outer band and then shots up very strongly. Suddenly failing to reach the bands can signal fading momentum.

3) 3 swing highs with lower highs: the first swing high reached the outer band whereas the following two failed. A bearish signal.

4) A strong downtrend where price stayed close to the outer band. It tried to pull away, but bears were always in control.

5) Price consolidates sideways, not reaching the outer band anymore and the rejection-pinbar ended the downtrend.

As you can see, the Bollinger Bands ® alone can provide a lot of information about trend strength and the balance between bulls and bears.

BollingerBands_trend

 

Finding tops and bottoms with Bollinger Bands ®

We highly recommend combining the Bollinger Bands ® with the RSI indicator – it’s the perfect match. There are two types of tops that you need to know about:

1) After a trend move, price fails to reach the outer Band as the uptrend becomes weaker. This signal is usually accompanied by an RSI divergence

2) During a consolidation, price spikes into the outer Bands which get rejected immediately

The screenshot below shows both scenarios. The first is the top after a divergence. You can see how the trend became weaker and then eventually failed to reach the outer Band before reversing. I marked the second spike with an arrow which was a trend continuation signal as price failed to break higher during the downtrend. The strong spike that was followed by a fast rejection showed that bulls lacked power.

 BollingerBands_spike

 

You can see that the Bollinger Bands ® are a multi-faceted trading indicator that can provide you with lots information about the trend, buy/seller balances and about potential trend shifts. Together with the moving average and the RSI, Bollinger Bands ® make for a great foundation for a trading strategy.

If you want to learn how to trade profitably with a step by step trading approach and a powerful trading system, take a look at our premium trading courses.

 

 

See the Bollinger Bands ® in action


 

Reference: www.BollingerBands.com

The post Bollinger Bands ® Explained – The Best Trading Indicator appeared first on Tradeciety Trading Academy.

The Huge Benefits of Being a Scalper

This article was first published on Winners Edge Trading.

Benefits of Being a Scalper

Scalping is one of those controversial words in trading, isn’t it?

And while there are many ways to do scalping wrong, there are actually some HUGE benefits to scalping forex.

1. Market Conditions Won’t Kill Your Strategy

To me, this is the biggest reason to consider scalping. When you are trading on the longer time frames and the market is ranging or just sloppy, it is extremely difficult to find high probability trades that offer an appealing Risk to Reward ratio.

But while the market may be sloppy on the daily chart, it’s still moving hundreds of pips which creates huge opportunities for a scalper.

There is virtually never a time where several pairs don’t have enough movement for a scalper to find trades with great profit potential.

2. Your Equity Curve is Prettier

This reason could get a little complex, but I will keep it simple for this article’s sake. It’s actually the biggest reason to consider scalping when you think in terms of compounding wealth.

In short, the more trades you take the less variance you will have.

Think about it this way: If you take 100 trades over the course of the year, you are bound to have streaks within that period. And by averaging around 8 trades per month, if you have a losing period where you lose 14 out of 16 trades, for instance, you would create several month drawdowns on your account.

However, if you are taking 100 trades per month and experience the same kind of streak (14 out of 16) that losing streak would only represent a few days of drawdown which makes for a much more consistent equity curve trading over the long term.

 3. A Single Trade Won’t Sink your Boat

As a scalper, you typically trade a much higher frequency than the average trader. One benefit of this is that no single trade should carry a lot of size or risk. Even if the market spikes or does something unexpected, you are not likely to face a massive hit when scalping.

4. You Don’t Need to be (THAT) Patient

When it comes to scalping, you don’t need quite the self-control as you do with other methods. Most methods put a huge emphasis on patience, but with the majority of trades not being open for long, scalping requires much less patience and self-control.

 5. You get to Avoid Some Annoying Parts of Trading

As a scalper, you typically don’t have to worry about rollover/swap that can negatively affect your earnings. It’s also not likely that you will be holding a lot of trades that could gap on you and cause unnecessary losses.

6. Some other Reasons it can Make Sense

There are several other reasons that scalping can make a lot of sense, but I hope this article sheds some light on why we have been thinking more and more about scalping (especially with some of the tricky market conditions).

Forex Power Indicator Training

This article was first published on Winners Edge Trading.


I have produced a video that gives a detailed training on how to use the Forex Power Indicator that we have created for our readers to use. I think this video will give you an idea of a great way to find trades using the indicator. Because the indicator actually is not a signal tool but rather it is a tool that is used to find high-powered trends. The reason we like the power indicator so much is that we find the strong trend and try to ride it.

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Currency Correlations and Using them to your Advantage

This article was first published on Winners Edge Trading.

currency correlations

Mark Thomas — Trade On Track

There’s always a buzz around the forex world in regard to correlations between currency pairs and how you can use them to your advantage in your trading. While I haven’t personally downloaded or read any of the “secret” reports on this subject, I thought it might be useful to discuss this topic and to give some examples of how I use currency correlations in my own trading.

A “correlation” is a statistical measure of the relationship between currency pairs. It measures how much or how little a currency pair follows the direction of another currency pair. Currency pairs often move in tandem or in opposite directions to each other, which is quite understandable given the fact that the base currency may often be the same. For instance, the AUD/USD pair has a very high correlation with the EUR/USD pair. Over the past week, the two moved in the same direction 95% of the time. The correlation coefficient is expressed as a number from -1.0 to +1.0. A negative number means that the currency pairs moved in the opposite direction to each other more of the time, while a positive number means they moved in the same direction more of the time. Taking this to the extremes, a correlation coefficient of -1.0 means the two currency pairs moved in opposite directions to each other 100% of the time, while a correlation coefficient of 1.0 means the two currency pairs moved in the same direction to each other 100% of the time.

You can research and monitor the daily closing prices of currency pairs yourself, then calculate the correlations, or you can find a resource that does it for you! One such resource is : http://fxtradeinfocenter.oanda.com/charts_data/fxcorrelations.shtml . Oanda provides a visual tool which lets you quickly see the correlation between currency pairs over the last week, month, all the way up to 2 years. Taking a look at it today reveals that the AUD/USD and NZD/USD closely correlate with the EUR/USD pair (over the last week). This varies over time, but with experience these correlations will become ingrained in you and you’ll be able to make good use of them in your trading.

How do you make use of correlations? There are several ways in which I use the correlations between currency pairs. In general, correlation coefficients are calculated on end-of-day prices, so you would think they may not be very useful for intra-day traders. However, I have found that if currency pairs are closely related over the period of a week or a month, then they will often move in tandem throughout the day too. Here are some ideas for how to use correlations:

  • To confirm an entry signal. For example: If I have a trading system that gives me a buy signal on the AUD/USD pair but I am not completely confident, I’ll go to the EUR/USD, NZD/USD or even the GBP/USD to see if a similar setup is possible on those pairs and whether there is little resistance to price moving up. Quite often, there may be an obvious resistance level on the AUD/USD that makes me nervous about buying, but if there is little or no obvious resistance on the correlated pairs – that gives me the confidence to take the signal and enter. If the EUR/USD is able to push upwards quite nicely, then I can be confident the AUD/USD will push up too.
  • To avoid false breakouts. I especially like to use this during the European session when there are often false break-outs on the GBP/USD. If it looks like the GBP/USD is making a move and I’m ready to enter a trade, I’ll flick over to the AUD/USD to see if it is moving strongly in the same direction. The AUD/USD is a lot less volatile than the GBP/USD, even though they are often closely correlated. So, quite often the AUD/USD will NOT break-out when the GBP/USD breaks a support or resistance level, which gives me a clue that it is probably a false break-out and to hold off entering that particular trade.
  • To diversify your market exposure. If you take a long position in both the AUD/USD and the EUR/USD, then you’re effectively taking the same trade but with double the stake. Keep this in mind when you’re calculating your risk … sticking to a 2% risk level per trade is not a good enough rule, you need to ensure that you don’t risk too much over correlated pairs too. If you have multiple trade setup options, it’s best to diversify your exposure by taking say a EUR/JPY trade with a USD/CAD trade (two pairs that are NOT closely correlated).
  • To hedge your trades. This is, in a way, opposite to the above advice, but I have often used it to my advantage. If you have trade entry signals that seem to defy the general correlation rules, then you might actually like to take both those signals. For instance, the EUR/USD pair nearly always moves in the opposite direction to the USD/CHF pair. If my trading system gave me a buy signal on the EUR/USD pair as well as the USD/CHF pair, then I would probably take both entries with confidence. The reason I would be confident is that it’s likely that at worst, the correlation factor would be in play and one trade would win and the other would lose – with a net effect of a small or nil gain. At best, both trades would win.

Even if you only like to trade one currency pair at a time, always consider looking at the correlated currency pairs to see which way they are going and whether or not there’s upcoming support/resistance. Looking at correlated pairs can give you the extra confidence to enter a trade or even to exit a trade at the right time. Knowing the currency correlations can also help you manage your overall risk in the forex markets.

How To Trade A Divergence – A Step By Step Trading Guide

This article was first published on Tradeciety Trading Academy.

Divergences are one of my favorite trading concepts because they offer very reliable high-quality trading signals when combined with other trading tools and concepts.

Although indicators are somewhat lagging – just like price action is lagging too – when it comes to divergences, this lagging feature is actually going to help us find better and more reliable trade entries as we will see below. Divergences can not only be used by reversal traders but also trend-following traders can use divergences to time their exits.

In my own trading strategy, divergences are a big part for one of my setups and in combination with other signals. I do not recommend trading divergences by themselves but they are a good starting point.

 

What is a divergence?

Let’s start with the most obvious question and explore what a divergence really is and what it tells you about price. You’d be surprised how many people get this wrong already.

A divergence forms on your chart when price makes a higher high, but the indicator you are using makes a lower high. When your indicator and price action are out of sync it means that “something” is happening on your charts that require your attention and it’s not as obvious by just looking at your price charts.

Basically, a divergence exists when your indicator does not “agree” with price action. Granted, this is very basic and we will now explore more advanced divergence concepts and see how to trade them, but it’s important to build a solid foundation.

divergence-101

Bearish and bullish divergence. Price and indicator are out of sync. Divergence foreshadows reversal.

 

 

An RSI divergence

#1 Revisiting the RSI

Divergences work on all indicators, but my favorite by far is the RSI (Relative Strength Index). The RSI compares the average gain and the average loss over a certain period. So for example, if your RSI is set to 14, it compares the bullish candles and the bearish candles over the past 14 candles. When the RSI value is low, it means that there were more and stronger bearish candles than bullish candles over the past 14 candles; and when the RSI is high it means that there were more and larger bullish candles over the past 14 candles.

 

#2 When does an RSI divergence form?

Understanding when your indicator is high or low is important when it comes to interpreting divergences and I generally encourage traders to look beyond the squiggly lines of their indicators to explore what it really does.

During trends, you can use the RSI the compare the individual trend waves and so get a feeling for the strength of the trend. Here are the three scenarios and the screenshot below shows every single one:

(2) Typically, the RSI makes higher highs during healthy and strong bullish trends. This means that there were more and larger bullish candles in the most recent trend wave than there were compared to the previous wave.

(1) When the RSI makes similar highs during an uptrend it means that the momentum of the trend is unchanged. When the RSI makes an equal high, it does not qualify as a divergence because it just means that the strength of the uptrend is still up and stable. Higher highs on the RSI do not show a reversal or weakness. It just means that the trend is progressing unchanged.

(3) When you see that price is making a higher high during a bullish trend, but your RSI makes a lower high, it means that the most recent bullish candles were not as strong as previous price action and that the trend is losing momentum. This is what we call a divergence and in the screenshot below, the divergence signaled the end of the uptrend and it makes a downtrend possible.

What-is-a-divergence

 

#3 Conventional technical analysis is flawed

Classic technical analysis tells us that a trend exists when price makes a higher high – but like too often, conventional wisdom is seldom right and usually simplifies things too much. A trader who only relies on highs and lows for his price analysis often misses important clues and does not fully understand market dynamics. Even though a trend could look “healthy” at first glance (higher highs and higher lows), it might be losing momentum at the same time when we look deeper at the candles and the momentum.

Spotting a divergence on your momentum indicator, thus, tells you that the dynamics in the trend are shifting and that, although it could still look like a real trend, a potential end of the trend could be near.

 

How to trade a divergence – the optimal entry

I am a pure reversal trader and early-trend trades after divergences are my bread and butter trades.

A divergence does not always lead to a strong reversal and often price just enters a sideways consolidation after a divergence. Keep in mind that a divergence just signals a loss of momentum, but does not necessarily signal a complete trend shift.

To avoid trade entries that don’t go anywhere, I highly suggest you add other criteria and confirmation tools to your arsenal. A divergence alone is not something that strong enough and many traders experience bad results when trading only with divergences. Just like any trading strategy, you need to add more confluence factors to make your strategy strong.

Below we see how price made 2 divergences but price never sold off. The divergences, thus, just highlighted short-term consolidation.

 

EMA_hold

 

 

Tip: Location

Location is a universal concept in trading and regardless of your trading system, adding the filter of location can usually always enhance the quality of your signals and trades. Instead of taking trades just based on a divergence signal, you’d wait for the price to move into a previous support/resistance zone and only then look for divergences and trend shifts to time entries.

The screenshot below is a great example: On the left side, you see an uptrend with two divergences. However, the first one completely failed and the second one resulted in a massive winner. What was the difference? When we take a look at the higher time frame on the right we see that the first divergences happened in the middle of nowhere and the second divergence formed at a very important resistance level (yellow line and yellow arrow). As a trader, you first identify your support/resistance zones and then let price come to you. Such an approach will impact your performance in a big way.

 

Divergences are a powerful trading concept and the trader who understands how to trade divergences in the right market context with the correct signals can create a robust method and effective way of looking at price.

If you want to learn more about divergences and how to trade reversals, you can take a look at our trading courses where you will learn our whole strategy step by step.

 

The post How To Trade A Divergence – A Step By Step Trading Guide appeared first on Tradeciety Trading Academy.

Forex Outlook, USD Strength, Higher Yields, Crypto Charts & More

This article was first published on Tradeciety Trading Academy.

For me, following the different markets and asset classes is like a huge puzzle that is always changing infront of your eyes. Today, I took a few minutes to go over some charts, share my thought process and explain how I set up my trading environment.

Here are some of the key points and themes:

  • Monday was a strong day for the USD when the Treasury 10 YR yield rose to 2.7%. The effect seems to be completely reversed as of writing this on Tuesday mid-day European time. How traders react once the US opens will be interesting.
  • The EUR/USD support at 1.235 held firmly and the price is back at the highs for now. If the USD strength holds up, a move higher is likely. The EUR is also being bought at the moment.
  • The S&P saw a down day yesterday but is still trading well at all-time high territory
  • Gold is showing early signs of a top-pattern but is also recovering at the moment. The price showed one lower high but bears weren’t able to completely reverse price. Will a continuation of a S&P bearish move push Gold higher?
  • Bitcoin is struggling at support while Ethereum is performing stronger and just trading 200 points below the all time high.
  • There are no major news scheduled today but it’s NFP week once again

Let’s see how this plays out, how the US traders will react and how the USD, the S&P and yields push the markets going forward.

The post Forex Outlook, USD Strength, Higher Yields, Crypto Charts & More appeared first on Tradeciety Trading Academy.

80/20 Principle in Forex Trading

This article was first published on Winners Edge Trading.

The 80/20 Principle is a very effective concept in achieving efficiency.

It allows you to focus on core revenue making activities instead of wasting resources on unimportant tasks. The principle is one of the essential concepts in modern day business and it has the same value for Forex trading.

This blog post discusses what the 80/20 Principle means, why it is so effective, and how Forex traders can benefit from it.

I highly recommend actually reading the post instead of scanning it. Information overload is rampant in our modern society and we are not used to focusing on any topic for longer than 30 seconds…

But the 80/20 Principle is an enormous time saver so if you spend 10 minutes now it will have an endless return in the future: a good example of great reward (lifetime saving of time) to risk (5-10 min of reading).

80/20 PRINCIPLE EXPLAINED

The 80/20 Principle is often named differently such as the 80/20 Rule, The Pareto Law, the Pareto Principle, and others. The rule was discovered in 1897 by the Italian economist Vilfredo Pareto.

The pattern underlying the 80/20 Principle is that the distribution of results is predictably unbalanced. The 80/20 rule states that 20% of the input will create 80% of the results (output).

Put in different words: 20% of the resources will create 80% of the success.

Input/resources could be time, money, effort, skill, etc that a project, person or business puts into achieving goals. Output/success could be anything: profit, revenue, membership count, customer satisfaction, etc.

The main point is that the numbers are highly unbalanced. Humans tend to think that each unit of effort or resource has (almost) an equal importance in achieving success but the 80/20 Principle clearly explains that the numbers are highly skewed. Probability theory explains that it is “virtually impossible […] for the 80/20 Principle to occur randomly.” (Source: the 80/20 Principle by Richard Koch, page 13)

The 80/20 balance is not fixed and 80/20 numbers are examples. The ratios could be different: 30% of the resources generate 70% of the success. In fact, they don’t have to add up to 100 either: 5% of the profit could derive from 50% of the customers, 75% of the revenue stems from 25% of the products, or 65% of our achievements are based on 20% of our efforts.

Last but not least, what is the importance of the 80/20 Principle? The significance for businesses is absolutely stunning. The value of knowing that, for instance, 90% of your revenues and 85% of your products are generated by 22% of your customers is enormous. The owner or manager can then allocate sufficient resources, time and energy to this group. Deeper analysis, however, is always needed. For instance, there could be a future customer that has a potential of generating big business. The 80/20 Principle helps with knowing what is happening NOW and what/where a business should investigate, but deeper analysis is required before conclusions are made.

For more information, examples, usages, and argumentation of the 80/20 Principle, I highly recommend reading the book 80/20 Principle by Richard Koch, who explains why the 80/20 Rule is valuable and how it can be used for business, our personal lives and personal efficiency.

80/20 PRINCIPLE IN TRADING

Forex traders can use the 80/20 Principle too! In fact, there is almost an infinite number of ways for how Forex traders can apply the analysis from the 80/20 Principle. The 80-20 rule not only holds true for the analysis of our P & L account but for a wide range of topics.

Number 1: trading performance. Traders can analyze these relationships:

  • Are the majority of losing trades caused by the same mistake?
  • Are the majority of losses coming from a few trades?
  • Are the majority of losses coming from a small number of days?
  • The same questions can be asked for profits and winning trades as well.

Number 2: individual performance (personal effectiveness). Traders can analyze these relationships:

  • How much time is spent on each task and how much benefit does it bring?
  • What are the crucial tasks in my trading that lead to the most results?
  • What actions are the most beneficial for my results?

Number 3: the market. Traders can analyze these relationships:

  • 80% of the time the market is in the middle of a move (not reversing), whereas 20% of the time the market is forming a top or bottom.
  • 80% of the time the market is not trending and 20% of the time it is trending;
  • 80% of the market moves are noise, 20% of the market moves are an actual signal;
  • 80% of the time the market is in a consolidation and 20% of the time it is in an impulse.

Number 4: strategy performance. Traders can analyze these relationships:

  • Do the majority of the trading opportunities occur at the same points during the strategy?
  • Are the majority of my wins generated by a minority of the same entry type?
  • Do the majority of my filters have very small impact on the performance?
  • Do a minority of my tools and indicators have the most positive impact on the strategy?

It is important to note that the Pareto principle can help traders with understanding their own performance80/20 Principle and the market’s movement in more depth.

The above questions and ideas are just examples. Everyone is highly encouraged to analyze and find connections that benefit you as a trader. This is not limited to the above and many more ideas can be created.

In fact, we encourage you to use your thinking cap and evaluate your trading from the 80/20 Principle. Do you notice any cause and effects? What facts did you discover about your own trading when using the 80/20? Let us know down below in the comments section!

The 80/20 Principle is a trader’s golden rule as it allows us to focus on the most important and valuable core tasks, methods and resources. And the focus is the only way anybody can enjoy their tasks, be in the ‘flow’ of things, learn and retain information, direct their attention to a specific goal, and valuable goals (read more in “Focus” by Daniel Goleman). If  you are interested reading more of 80/20 Principle By Richard Koch, to learn more about the ‘doing more with less strategy’, you can find his book here.

Thanks for dropping a comment down below. I would appreciate your ideas.

Happy Hunting!

Confluence in Forex Trading Finding & Balance

This article was first published on Winners Edge Trading.

Confluence in Forex is a concept that allows Forex traders to combine various technical analysis tools and instruments to judge whether any particular trade has better or worse odds of success. Basically, the idea mitigates the over-reliance on one tool.

Today’s article focuses on how using this technique can be a tremendous asset for any Forex trader.

WHAT IS CONFLUENCE TRADING?

Confluence trading forex means that a trader is analyzing whether various tools and instruments provide confirmation of support and resistance at a similar or same spot on the chart.

Confluence in forex

For instance, if a 50% Fibonacci retracement, a 50 period EMA moving average, a -61.8% Fibonacci target and a trend line all align themselves at one spot on the chart, then this is called trading confluence. There is a combination of elements joining together at one point on the chart.

When various tools and instruments are confirming a spot on the chart to be of importance, then the likelihood of price, in fact, reacting to this level increases. In general, price moves from one level of support to the next level of resistance, and it is the trader’s judgment to analyze which levels are worth trading. By having layers of confluence at one spot, the trader improves their ability to understand which levels are critical and worth trading. Please note that it is not needed to have all of the tools and/or indicators aligned or perfectly matching.

This technique is valuable for all types of traders:

1)       It can be used on all time frames – from intraday up to position trades;

2)      It can be used in both discretionary as non-discretionary trading strategies;

3)      It can be used for (almost) all types of strategies and analysis.

ADVANTAGES OF CONFLUENCE?

Ultimately each concept used when trading should lead to an improved reward to risk balance in relation to the profitability. Trading confluence helps achieve that goal. How does trading confluence achieve that?

Simply put, the reason is this:

1)      Each tool or indicator has an expected win rate, expected the reward to risk, expected drawdown. These expectations and averages vary from time to time, depending on the market structure. For instance, trending trades work great when the market is moving, but range traders are more successful when the market is having a slower day.

2)      By combining tools and indicators, the trader is eliminating the weaknesses of each tool or indicator when used separately. Or in other words, the trader effectively decreases the risk of relying on one particular technique and thereby receives more confirmation for a setup. When a Forex trader utilizes the confluence concept, a trader can choose to filter out trade setups where multiple tools are not in harmony and in sync. The trader thereby increases the overall aggregate performance.

 

DISADVANTAGES OF CONFLUENCE?

Are there any disadvantages? Yes. The danger lurks when a trader overuses the concept and starts over combining tools and indicators.

When too many indicators and tools are used, the chances of all of the tools and indicators being aligned are far smaller. Besides the disadvantage that the chart will lack simplicity and clarity, the trader will fall into the trap of paralysis of analysis where multiple concepts are always contradicting each other.

Effectively the trader is looking for the perfect setup that has everything aligned and by doing so the Forex trader is actually filtering out all price action and thereby avoiding trading altogether. Although this will not cause loses, it would be impossible to make any gains.

FINDING A BALANCE IN CONFLUENCE

That is why finding a balance is a vital realization when trading confluence. A balance needs to be found in various elements such as:

1)      The number of tools and indicators used: when too many tools and indicators are used the chart becomes cluttered and the process of analyzing them could be lengthy and vulnerable to interpretation mistakes. Also, the danger of paralysis of analysis is likely.

2)      How many tools and indicators need to be aligned: when an FX trader is using certain tools and indicators, it does not mean that all of them need to be aligned. Traders can look for a certain mixture of confluence, although this can be better achieved when trading with a discretionary method. Which mix is required can depend on the market structure to enhance results.

3)      A good rule of thumb, which my mentor has always told me, is this: find 3 reasons to take the trade and make sure that there maximum one but preferably zero reasons not to take a trade. Remember everyone needs a mentor; make sure to get one yourself.  If you are looking for a mentor please click here.

HOW TO TRADE CONFLUENCE

After going through paragraphs above, it becomes obvious that a confluence trading system is a major benefit for Forex traders and thus recommendable in most cases. The goal is the find a balance and equilibrium when using confluence which matches and fulfills the various goals each one of us has formulated. Multiple time frame analysis can be used for trading confluence as well but be careful with over combining time frames to avoid the paralysis of analysis, overcrowded charts, and excessive filtering out of trade setups.

13- 3- 2014 eu d

Each trader has strategies that accumulate to a certain winning streak, losing streak, a number of opportunities per day/week/month, drawdown, win percentage, loss percentage, average win, average loss, profit, etc. By either tightening or weakening the level of trading confluence, the trader can tighten or loosen the number of opportunities and alter the equity curve to meet the expectations and goals of the trader.

Another element that requires attention is whether there is potential syn-energy between various tools and indicators – or a complete lack of it. For instance, using an oscillator to measure whether the trend has reached a position of oversold or overbought would make little sense as the trend can push further than a trader expects  (looking for divergence, however, is a different story and does make sense). However, using Fibonacci retracements and targets to see at which levels the two do match and meet make perfect sense and is a great example of trading confluence using well matching tools.

In our trading room, we are certainly a regular user of trading confluence. Our tools and indicators are geared towards finding areas of with trend continuation setups. For that purpose, we use EMA’s, Fibonacci, trend lines & channels, 1 oscillator (to measure the presence of divergence), price action (momentum/correction), candlesticks, and chart patterns. Each of these tools has their own specific moment in the sun and certainly, not all tools are employed at similar moments. Each tool and indicator has their specific use depending on the stage of the TOFTEM model. For more information what is technical analysis, join our trading room!

Do you use confluence in forex? Do YOU have a rule of thumb when looking for confluence? Let us know down below!

 

A Million USD Forex Strategy (Part 1)

This article was first published on Winners Edge Trading.

I am sure that you are going to love this article. I will be revealing one of my long-term strategies, which I like to call ‘a million USD forex strategy’. I know that all Forex traders, including myself, are especially fond of trading strategies. This is a very simple yet highly effective and profitable trading strategy.

Best yet: I will be giving away all the details of this strategy for FREE of charge. That is the kind of thing we do here at Winners Edge Trading!

I do have one favor I want to ask from you…

In exchange for the free strategy, I would like to ask you if you could take the time to write a comment down below… I would really appreciate that!!

Also, don’t forget to add us to twitter. We send our great content day in day out so it would benefit you tremendously. https://twitter.com/@winnersedgetrad

The Million Strategy

At Winners Edge Trading we know that some of you who are reading this eBook do not have hours and hours a day to track the Forex market. Everyone has busy lives and full schedules.

This strategy is going to focus on long-term trading so that the method Is beneficial for everyone.

But it is important to realize that the strategy is actually useful for all types of traders, from swing traders to day traders, but even intra-day traders can benefit from the knowledge.

The first thing you need to do is check out this long-term trading strategy article from Nathan called “long-term-trading-strategy-for-forex”.

Now that you have done that, let me tell you some more details.

1)      Because the strategy is classified as a long-term strategy, it was obvious that it needs to be an “end of day” strategy. So we will be using the day and weekly charts.

2)      Also, we really didn’t want to create something that takes a ton of time to analyze. So another requirement is that the strategy uses very simple methods.

My mission succeeded: the strategy only requires a few minutes of your time every day and is straightforward.

Here is an example:

example 12

That is all a Forex trader needs. As you see the chart is very basic:

1 Fibonacci;

1 indicator (fractal indicator).

Because in a way, the only aspects Forex traders need to care about is where do I enter, where do I set my stop loss and where is my take profit? And that’s it!

This strategy answers all 3 questions quickly – without having to stare at your screens for 24 hours a day. This free Forex trading strategy meets all these criteria and more:

  • It  only takes a few minutes a day to monitor the potential setups and any actual trades;
  • It requires none or very few indicators as to keep the chart simple;
  • The strategy is simple and straightforward;
  • The strategy is effective and profitable;
  • The day chart is used as to allow for end of day trading decisions.

The motto of our company is providing you an edge, a Winners Edge, and by reading this strategy article you just created that edge for yourself.

Before we dive into the exact details of the strategy, I need to make sure that everyone has a certain understanding of Forex trading. So I want to share with you a few links. Please read the ones that are valid and interesting for you:

1)      How to trade Forex;

2)      Forex strategy basics; 

3)      Before you trade have a plan.

It is a very powerful trading system that will be a great addition to your Forex trading arsenal.

Please read on for the details of the trading plan. In the next part, you will be able to discover the ins and outs of the setup, entry, stop placement, and trade management.

The ABC of the strategy

First of all, the strategy is feasible and usable for all major currency pairs and major crosses.

The currencies love to move in cycles, patterns, and waves from level to level. As we all know, there are many kinds of levels in the markets: examples vary from trend lines to consolidation zones.

Lows and highs are also examples of key levels. Their big advantage is that their numbers are clear and straightforward leaving little doubt and room for error. A day high will remain a day high no matter what. There is no doubt about their validity and are very easy to use for any measurement or strategy.

PLUS the big advantage is that BANKS use these levels as well. One simple word of advice from one trader to another is: avoid going long close to a daily high and going short close to a daily low. But this is not the strategy of course.

The next step in the process is… creating an edge. And not such any kind of edge…

The Winner’s Edge

That edge will be created via our filters. You might be asking yourself: why do we need a filter?

In fact, a trader could take a trading decision based on every single candle. But is it profitable?

Most likely not! That is why we are releasing this free Forex trading strategy guide book.

A filter makes sure that we only trade upon a certain set of conditions, which gives us Forex traders that edge.

The edge we are looking for in the strategy is to catch a currency when it is

a)      either going to make a trend continuation or

b)      either going to make a substantial trend reversal.

In other words, this strategy is aimed at finding turning or continuation spots on the day chart.

That sounds very simple… and it is.

Before we move on, make sure to read these vital articles:

1)      the process of trading; 

2)      trying a new strategy. 


The Juicy Part

So now you might be wondering, how do identify those continuation or reversal spots within our Forex strategy? We thought you’d never ask!

We can measure a pause in the market by monitoring the highs and lows of the day candles and keeping track whether and when it fails to make a new candle high or low. If the currency fails to make a new high or low, it equals a minor resistance or support level in the market.

Here is the definition:

In an uptrend a pause of one day (no new daily high) is equal to a minor resistance;

In an uptrend a pause of two days (no new daily high) is equal to a major resistance;

In a downtrend a pause of one day (new new daily low) is equal to a minor support;

In a downtrend a pause of two days (no new daily low) is equal to a major support.

These minor or major resistance and support levels are great trading opportunities because they indicate either a potential trend continuation trade or a trend reversal setup.

Now we have formulated the definition of a trend:

A trend is when the currency makes new highs or new lows;

A temporary halt of the trend is when the currency fails to make a new high or low.

example 2

At this stage I advise you to read these great articles before continuing:

1)      the best trading system;

2)      Forex trading system.

 

Catching the Pips!

You are probably wondering how do we catch the pips! Hang on for the ride traders! This is a great Forex trading strategy so you will not be disappointed.

The first thing we need to know is that; a failure to post a new candle high or low means that the power in the currency was not sufficient to push the price to new highs or lows.

Basically, this could translate into two scenarios:

The currency is pausing for continuation of original trend direction;

The currency is setting itself for a reversal.

The great thing is, Forex traders can profit from both directions!

example 3

That is the best thing about Forex trading. There is earning potential both ways. So no matter what, Forex traders can capitalize on movements on the Forex market: up or down.

As you can see in the example below, the currency kept making higher highs and higher lows and made a fantastic uptrend (indicated by the green circles). The triangles within the green circles are an indication when 2-day candles did not post a new high or new low, aiding visual ease to identify a string of highs and lows – in this case, higher highs and higher lows.

example 4

Here below is another example when the currency kept making lower lows. There were several pauses and 2-day candles could not post a new low. After a small retracement, the currency continued with its downtrend.

example 5

So far we have covered all the basics. Before we dive into all the details of the actual trade setups and trade management details, I need to make sure that everyone is clear on the following matters as well:

1)      Introduction to Forex trading investment;

2)      Ultimate guide to Forex trading investments;

3)      Forex trading seminar;

4)      Forex income;

5)      Trading the Forex; 

6)      Forex day trading.

That concludes part 1!

Make sure to keep an eye out for part 2, which will be released next week Friday on May 24.

We are going to discuss the Forex strategy in great detail:

1)      the with the trend trade setup

2)      the counter trend trade setup

3)      the filters

4)      where to place entries, exits, take profit

5)      trade management

Then the week after we will release part 3 of the Forex strategy (Friday, June 1)  which will provide some great bonuses for this strategy and will be the extra cream on top of the cake!

Once again, I would truly appreciate your feedback on each of these articles!!

Hope you enjoyed it, and make sure to read the next 2 sections which are going to be AWESOME.

Wish you Good Trading today and a very great weekend!

Oh and here is that twitter account: https://twitter.com/@winnersedgetrad

Chris Svorcik
Winners Edge Trader, Writer, Educator

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Are You A FOMO Trader? The Fear Of Missing Out

This article was first published on Tradeciety Trading Academy.

FOMO – the Fear Of Missing Out – is a daily enemy for all traders and FOMO is influencing our decision-making as traders on many levels.

From making us jump into trades too early without confirmation, to closing winning trades too soon when we don’t want to give back profits, to risking too much because we cannot be patient when growing our trading account.

We want it all and we want it NOW. Does this sound familiar? Then FOMO is probably also a problem for you. In this article and video, I share why we are driven by FOMO and how to overcome this common issue.

 

 

What drives FOMO trading (Fear of missing out)?

 

FOMO can have a variety of causes and here are the common ones:

 

Impatience

When you do not want to wait for the setup and just want to get into a trade because you fear that the price might run away.

 

No long-term perspective

When you do not understand that there will be hundreds and thousands of new trades waiting for you. Many amateurs put way too muchimportancet on one trade alone and want to force this trade to win whatever it takes.

 

High expectations

When you think that you need to double your account by next month and you are missing out if you do not make a lot of money as soon as possible. This leads to higher risk and large position sizes.

 

No rules

When you do not have a system or rules, to begin with, then FOMO is your default mode, always jumping in and out of the market, not really knowing what you are doing.

 

Lack of confidence

After a few losing trades, many traders will try to play catch up and then enter random trades just to get into the market and hopefully somehow generate a profit.

 

Over-confidence

When you come from a winning streak and feel invincible and then take random trades or too large positions because you think we can “feel” what the market is going to do.

 

 

Overcoming FOMO

There are a few very specific tips and concepts that can help you deal with FOMO in a better way:

 

Filters and rules

First of all, you need a trading system. A system gives you specific rules for entries, exits, stop and target setting, trade management, and risk management. if you do not have a system, you can learn to trade with us here: Tradeciety’s trading course 

Rules will make sure that you have some structure and consistency in your trading (if you stick to your rules).

 

No-mid candle decisions

I encourage our students to follow this simple rule of just looking at the charts when the candle is closing and to only make entry and exit decisions when a candle is fully closed.

Mid-candle decisions are often driven by emotions and this simple but effective filter rule can improve your trading immensely.

 

Understand the implications of your system and your timeframe

It is so important to understand the timeframe you are trading. How many trades per day or week can you expect? How long do you usually go without a signal and what is normal waiting and holding time?

Backtest or go back to your journal to get those numbers and it will create a confidence once you know what you are dealing with and what to expect.

 

 

Man up – developing self-discipline and self-respect

In the end, you just gotta do what you gotta do and understand that there are no shortcuts to anything worth having.

We always know what we should be doing but we do not keep the promises we tell ourselves. We look for excused so that we do not look bad on the outside but inside of us WE always know that we messed up.

You need to overcome this and you have to develop self-respect. Start doing the things that you know are right. You can start in your daily life.

Instead of buying the chocolate, move past the candy section or get an apple. Instead of binge watching Netflix, study, read or journal your trades. Instead of drinking the 4th glass of wine, take a water and make sure that you are ready for the next day.

You have to develop your discipline muscle and it doesn’t have to be hard and overwhelming. Start small and prove to yourself that you CAN do those things which you know are right.

 

 

 

 

 

 

FOMO trading

The post Are You A FOMO Trader? The Fear Of Missing Out appeared first on Tradeciety Trading Academy.

Trading cryptocurrencies. Does technical analysis work for cryptocurrencies? My take on trading cryptos

This article was first published on Tradeciety Trading Academy.

Please make sure to read my foreword before proceeding and also read the full article before establishing an opinion about this article.

This article is my personal opinion and it’s not intended to be seen as any type of investment advice. It is purely for entertainment purposes. Trading any financial market is inherently risky and you have to make sure to understand the risk before making any decisions. (full risk disclaimer)

 

Introduction

My goal with the article is it to share my personal view, things that I have learned about the crypto market after following it for over 12 months, issues I see with other traders who contact me and I also want to provide my opinion on different aspects about the cryptocurrency market.

We will take a step by step look at the crypto price action, explore the new market, the players, talk about trading vs. investing, price discovery and more. If you are looking for specific buy or sell recommendations, this article is not for you. But if you want to get a different view without the hype and drama, chances are that you will enjoy this piece 😉

 

Crypto markets are new

Doh! You probably didn’t need me to tell you this, but let’s start at the beginning. And yes, although a bitcoin chart will date back to 2013, when it comes to mainstream attention, the crypto market is still a baby compared to other established financial markets.

The implications of this fact are manifold as we will see shortly. But what it basically means is that we are all exploring uncharted terrain and everyone is figuring out as we are going. The players in this market are new, many without any prior experience in financial markets. Regulators are trying to make up their minds, governments are dealing with the unknown and even the technical aspect is developing on the fly. I am not saying that this is bad (or good) but I am just stating the obvious so that we can lay the groundwork.

I find it very fascinating to witness the creation and the development of a new market right in front of our eyes. No one knows what will happen next month or next year with this new market and where this is going, but following it from an interest-driven perspective is fascinating to me. It also unveils a lot about how humans tick from a greed and fear perspective, how we are hard-wired and you can even learn a lot about yourself too. This is a very valuable lesson for anyone, regardless of whether you see yourself as a trader or just a “normal” person.

 

The players in the crypto market

Before we take a look at price charts and technical analysis, let’s see why the crypto market is so unique.

From what I am seeing, it seems that the composition of the people who are involved in trading the crypto market is unique.

First of all, many people are relatively tech-savvy because buying, storing and the technical side of the crypto market is often not as straight-forward as it is with other markets where you can just ring up your bank and have them buy any company stock for you or you open a broker account and buy/sell assets with just one click. The average Joe hasn’t gotten into the crypto market as much yet, although the mainstream media is pushing more and more people into it.

The players in the crypto market can be (very) broadly categorized. What they have in common though is their appetite for high variance.

One group of people who are interested in cryptos are below the average age of the typical investor in let’s say stocks or futures. The reasons for the demographic difference could be due to the tech side of things and that the newer generations are more open to new technologies. However, as other broker research has confirmed in the past, there could be another factor behind the unique composition of the crypto market:

“Poor, young men who live in urban areas and belong to specific minority groups invest more in stocks with lottery-type features. Investors with a large differential between their existing economic conditions and their aspiration levels hold riskier stocks in their portfolios.” (1) 

Another major group is made up of hedge funds, major (investment) banks and other big financial players. Those have a large appetite for variance and are betting, just like the first group, on a potentially huge return by being early adopters. However, this second group usually understands the risk associated with it much better and is more diversified. Plus, they have done their homework and know what they are getting into.

Finding your average investor or speculator is not as common yet. Entry barriers, price fluctuations anunderstandingunderstaning for this space are the main drivers. This unique composition of high-variance players is creating a unique set of financial actors.

 

The market is always changing

Because there are always new players coming into the market and many of the exchanges cannot even keep up with the flood of registrations, it also means that the composition of market participants is always changing.

What this does is that the dynamics of the markets are always changing as well. The more people with little to no prior trading experience are entering the market, the less predictable the price discovery could become. Volatility spikes can increase and the rally vs. sell-off dynamic (which we will cover later) changes all the time as well. Dips could potentially target the inexperienced participants and try to shake them out. Fakeouts and shakeouts are commonly known in other financial markets and they could also manifest in the crypto market.

Just a brief look at Bitcoin and Ethereum below with the ATR indicator (Average True Range – an indicator that measures price fluctuations) show how the price dynamic has changed. The rise in the blue ATR shows clearly how the price fluctiations have accelerated up until the point where the markets have topped for now.

 

 

Black swan events

The price discovery is driven by people who are buying and selling their cryptocurrencies and one contributing factor to how people make their buying/selling decisions are the so-called black swan events.

What is a black swan event?

The black swan is a term that describes unexpected and unforeseeable events which can cause major price fluctuations.

In the Forex market, the unpegging of the CHF, the BREXIT or the flash-crash were all so-called flash crash events. Those events can lead to major price movements within seconds where all the liquidity is sucked out of the markets and the price just tumbles for hundreds or even thousands of points.

Many people argue that black swan events could become more likely in the crypto market as well. Some reasons for such an argument are the increasing likelihood of government interventions and regulations. Add to that the unique composition of market participants and a knee-jerk sell-off reaction could easily turn into a large price drop. Especially now with the advent of crypto futures and CFDs it becomes even easier to express a short position. We have already seen one incidence in ETH during June 2017.

I am not a gloom and doom guy but I am just stating the obvious and something that many euphoria-driven, inexperienced crypto traders do not fully understand because they haven’t experienced such a black swan event in the past or a market cycle for that matter. This becomes especially dangerous if you are trading cryptocurrencies on margin which is a whole different story.

 

Cryptocurrencies and technical analysis

Now let’s finally dig into some charts. I have been looking at price charts, mainly Forex, for the past decade and charting is a huge passion of mine. I’d also say that I am relatively good at finding patterns and understanding price moves. I have been also following cryptocurrency price charts for over a year now to explore whether it is worth applying the concepts of technical analysis to those charts or stick to a buy and hold psychology.

Here are my observations to this date when it comes to technicals and price action for cryptocurrencies:

 

Round numbers

Round numbers, especially on the Bitcoin market seem to be working quite well. Round numbers can often have a psychological impact and other financial markets often show similar characteristics.

Of course, they do not work all the time, like any other tool of technical analysis, but it appears that the market participants are paying attention to them. One big contributing factor could be the exposure to financial news where Bitcoin gains popularity nearly every time a big round number is approaching. For inexperienced participants, those round numbers are also easily identifiable.

 

Breakouts

Before the increase in volatility and when the Bitcoin market used to be a pure bull market, up until reaching the top below 20,000 late 2017, breakouts were the way to go. Horizontal breakout buying seems to have worked very accurately but since the market has topped and been fluctuating more, this strategy is not as helpful anymore.

 

Support and resistance

Bitcoin is the largest crypto market with the highest market capitalization and the price has started to follow more conventional support and resistance concepts recently. It is far from being a perfect market but the fact that the price is paying more attention to those concepts seems promising. It is still not something I would trade actively like I do with Forex, but it sparked my interest more and I am keeping an eye on it.

 

However, this effect seems to be limited to Bitcoin mostly for now. Even the second and third largest cryptocurrencies are not there yet and their technicals do not look as accurate as Bitcoin does. Although you can see that the price does respect some levels some of the time, the accuracy goes down and also the steadier flow we are used to from looking at Forex, Futures or stocks charts cannot be compared. And once you start going down the list of cryptocurrencies, the effect becomes less and less visible.

 

Price dynamics – sell offs vs. rallies

One of the most important factors of charting cryptocurrencies is that the price seems to undergo different phases:

Greed – Fear – Loss of interest

Again, I am not saying that this is a truth set in stone, but I am sharing my personal view and the impressions I get from interacting with traders daily and paying close attention to the financial and mainstream media.

Whenever Bitcoin puts in a rally, it will be prominently featured on various financial media channels. When it dips, the fear mongers come out and predict the next big drop or even the end of crypto for good. And during periods of sideways movements, people lose the interest for a while. This phenomenon confirms, at least for me, my hypothesis from above that the composition of the crypto markets is unique and inherently different from other established markets.

Again, as a person who has been involved in financial markets since I was 15 this is fascinating to watch and it helps you understand human psychology and motives in a new level as we will explore now.

 

Speculation vs. income-generating – the role of the crypto markets

Whenever I get asked by people about my take on the whole crypto market, I give the same answer.

As a relatively conservative person, when it comes to financial markets and risk, I do not advise (short term) speculation into the crypto markets. If you have some spare money that you can afford to lose without regrets or having to change your lifestyle, the crypto markets could be worth a shot. However, you need to understand the risks that come with it and you have to understand that you could lose all your money. Make sure to really read the fine print and consult your financial advisor first.

You must understand the risks and you must understand how cryptocurrencies and the technology behind it. The amount of people who have no idea how financial markets work, what an exchange is, how blockchain works and what wallets are, but are still eager to buy cryptocurrencies is astonishing. Granted, you might not need to know all the technicals, but if you invest your hard earned money, you better do your homework.

In this context, I have to also emphasize the importance of knowing in what you invest. Many people will randomly look for the smaller cryptocurrencies just because they hope that they will hit a home run and 100x their money by next week.

If you follow such an approach, it is essential that you research in what you invest. Understanding the technology, the coin, the team and the legalities. This is especially true when investing in smaller ICOs where many horror stories are circulating through the internet. If you do not have a complete understanding of what you invest in and if you haven’t researched it, you are getting ready for a disaster.

 

What does it say about yourself?

I think there are many lessons that the current crypto market can teach you about yourself.

Are you the kind of guy who doesn’t do research and just buys a random crypto because of the name or because of a random tip? What does this really say about yourself, your work ethic and your attitude towards money?

Are you looking through forums or social media channels and hope to get fed a signal although you have no idea what you are actually investing in? What does it say about your greed level and your willingness to put in actual work to get to where you want to be?

Really let this sink in and learn about yourself. It’ll be a valuable lesson.

 

Long vs short-term

Furthermore, the time horizon of your investment decision has to be clear in advance. Do you believe in the general idea behind cryptocurrencies and the blockchain technology? Do you think that it will transform the world as we know it? Then you should probably have a long-term view and not worry about the short-term fluctuations. You are also more likely to do the research, be open to new ideas and not just hope to make a million dollars by next week.

Many people say that they want to invest long-term but immediately get into the day trading mindset where they following their portfolio tick by tick.

 

Forex vs Crypto

For me personally, I clearly differentiate between Forex/Futures and the crypto market. Whereas I see the crypto investment purely as a speculative, all or nothing scenario, my Forex/Futures trading has a very different role. As I stated earlier, I am keeping an eye on the development of the crypto and the blockchain scene, but from a trading perspective, other established markets such as stocks, Forex or Futures can offer a more reliable trading experience.

 

Reference:

(1)  Kumar: Who Gambles In The Stock Market? – Accessed through: econ.yale.edu

The post Trading cryptocurrencies. Does technical analysis work for cryptocurrencies? My take on trading cryptos appeared first on Tradeciety Trading Academy.

A Profitable Scalp Method Revealed(Updated)

This article was first published on Winners Edge Trading.

This is a profitable scalp method and I call it “5 Minute Silence Time”. First of all, want to note that I’m not using Stochastics in my analysis and also my swing trades and I don’t like indicators at all but in this scalp method we are going to use this famous indicator as I had worked with stochastics almost 3 years before. This Profitable Forex Strategy will help you find accurate trades in short period of time.

Method Profile:Best Stochastics Scalping Strategy


1. EURUSD M5 Chart
2. Stochastic 14,3,3
3. 80 and 20 levels on the stochastics indicator
4. Profit targets are 7 pips and 10 pips
5. Stop loss is 15 pips

How to Trade without Stochastics:

The general rule of trading is to trade only once a day and after 15:00 New York time. After 3 pm we wait for Stochastics to go above 80 or below 20 and exactly at the close of that candle we will go short or long respectively.
Look at the chart below, this was the previous signal for last day:
A Profitable Scalping method
This is another example of this method:
profitable forex scalping strategy
There is another rule here: If at 15:00 Stochastic was already above 80 or below 20 then you should wait for it to go around 60 (for the first case) and go around 40 (for the second case) and then wait for a buy or sell signal.
This is called Stochastic neutral zone in this method, so if stochastic was already in the strike zone then you should wait for it to go in the neutral zone and then wait for a signal.

This is called Stochastic neutral zone in this method, so if stochastic was already in the strike zone then you should wait for it to go in the neutral zone and then wait for a signal.
Here I have to note that all signals are based on K% in Stochastics, so you should wait for the K% to go above 80 or below 20 for a signal.

Here I have to note that all signals are based on K% in Stochastics, so you should wait for the K% to go above 80 or below 20 for a signal.

This method works great in low volatility market, I choose after 15:00 NY time because of this issue. So we can use this method whenever we find out price action is narrow and volume is too low such as this week and also holidays.I will write about my general idea about this issue later.

 

With this article, we hope you develop a trading mindset with a profitable scalping method without using stochastics.

Comments are open so if you have got any ideas and opinions please do not hesitate to write it down.

 

SureTrader CEO calls bull on cryptocurrency, KODAKCoin

This article was first published on SureTrader.

On January 9th, The Eastman Kodak Company announced that it would be launching its own digital currency called KODAKCoin. According to Kodak the cryptocurrency will, “allow photographers to take part in a new economy for photography”. However, talking to the New York Post Guy Gentile, CEO of SureTrader called the newest cryptocurrency “completely useless”.

The 130-year-old company partnered with London based paparazzi firm, WENN Digital. Together they will launch KODAKOne the image rights management platform and KODAKCoin. The exempt initial coin offering (ICO) opens to qualified investors on January 31. Weeks before, Gentile appeared as a guest on Bloomberg’s “What’d You Miss” and called such moves “pump and dump schemes”. The CEO said that companies in need of capital publish press releases announcing their move into the cryptocurrency industry to boost their stocks. Then eventually a secondary offering follows, leaving retail buyers holding the bag.

Before its announcement on Tuesday, Kodak’s stock was trading at around $3. After its announcement it jumped to around $6.80, rising again to $10.60 the following day. But, on Thursday as reports of doubts came in from Wall Street the shares dropped 21 percent to around $8.40. Gentile being a professional day trader began tweeting as the stock moved. On his Twitter (@GuyGentile) he warned, “This has the potential to be a super squeezer and could get over $20. But it will crash after the squeeze be (careful) shorting this”. Walking away with a gain after shorting the stock the expert trader tweeted, “Thank you for the easy money”.

But Gentile is not the only one calling out Kodak. Bloomberg’s columnist, Matt Levine also criticized the announcement. The former investment banker believes that the post-film photography company does not need to use blockchain technology or their own currency to operate a web crawler and central database for photographs or to create a market place to buy and sell images.

In his article,“Good Luck Spending Your KodakCoins” Levine points out that due to Kodak’s exempt ICO, middle class individuals will not be able to buy KODAKCoin stocks. All purchasers must be accredited investors, having either $200,000 in come or a net worth of $1 million. The former lawyer also highlighted the fact that the digital currency will be hard to sell for cash. The SEC warned about private-placement securities like KODAKCoin in 2014 saying, “you should not expect to be able to easily and quickly sell your restricted securities. In fact, you should expect to hold the securities indefinitely.”

 

About SureTrader

SureTrader is a division of Swiss America Securities, Ltd. and operates as an online, discount stock and options broker dealer for active traders. Brokerage services are not intended for U.S. residents. SureTrader offers a trading platform accessible to all experience levels with market access to retail traders and investors all at a cost-effective price and with the latest technology. SureTrader’s platforms technology includes real-tie quotes and stock charts in web-based, downloadable or mobile applications for flexibility and convenience. It also features lightning fast stocks, options order executions coupled with real-time market data, advanced order types, multiple charting features, including technical indicators and more. For more on Sure Trader, visit www.suretrader.com.

The post SureTrader CEO calls bull on cryptocurrency, KODAKCoin appeared first on SureTrader.

Day Trading vs. Longer-Term Trading

This article was first published on SureTrader.

Day trading, or intraday trading, all takes place within 24 hours. Technically, longer-term trading refers to anything beyond that one-day period, but for most traders, longer-term trading involves weeks, months or longer. Day traders may also conduct longer-term trades and long-term traders may do some intraday trading. However, the strategies and analytic tools differ for each type of trading. Longer-term trading is also part of an investment strategy, while day trading is more akin to gaming than investing. In either type of trading, traders can profit or lose money depending on their securities choices and timing.

What is Day Trading?

As with any type of trading, the aim of day trading is buying low and selling high. The day trading difference is that such buying and selling takes place within 24 hours. The day trader aims to take advantage of small price movements within that time period. A day trader must have a high-risk tolerance to achieve success.
Before getting started with day trading, traders must develop a day trading strategy and should perform paper trades on a simulator before trading with real money. They need access to day trading software and the charts and analytic tools necessary for successful day trading. Day traders must develop entrance and exit strategies for their fast-paced trading.

Since day trading is risky, traders should only use risk capital – funds they can afford to lose. A rule of thumb is to only risk 1 percent of trading capital per trade. The average day trader makes dozens of trades daily. They also take advantage of leverage offered by brokerage companies, allowing them to take positions that are more than the money in their trading account. For example, if a day trader has $20,000 in his trading account, 2:1 leverage allows him to purchase securities worth twice that amount, $40,000.

What is Longer-Term Trading?

Besides buy-and-hold investors, who may not sell securities for years, there are other types of longer-term traders. These include swing traders, whose positions are held for days or weeks. If day traders opt to take longer-term positions, they often decide to swing trade.

The Trading Process

Since day trading is done on an intraday basis, it requires more of a time commitment from traders. Successful day traders spend at least two hours daily trading, and many of them trade throughout the day. The two-hour minimum is really for those with a job outside day trading. The most active time for North American day traders is when the U.S. markets open, but should a day job get in the way they can trade the European markets which are open late at night in North America. For these day traders, their best timing coincides with the London markets opening.
Long-term traders don’t experience the same time constraints. They can do their research and make their trades at what they feel are the appropriate times. Many long-term traders take the time-honored route of purchasing high-quality stocks and holding on to them for years. It’s the “slow and steady” form of investing, relatively safe over the long-term but not too exciting.

Research

Day traders rely on various tools to guide them when buying and selling. Multiple monitors for their computers can aid in tracking analytics and a security’s performance, as well as keeping traders up-to-date on the day’s news. Information about a particular stock or industry can suddenly affect relevant stock prices. There is a myriad of tools available for day traders to conduct technical analysis, and the trader’s decision is usually a matter of personal preference. Such tools include charts, which the trader must learn to read, and oscillators, which portray overbought or oversold conditions. Other valuable tools include volume indicators, breadth indicators – showing overall market sentiment – and overlays, which show price movements. Day traders also depend on trading strategies, again a matter of personal preference. Common day trading strategies include the simple trend strategy, which involves “riding the trend,” range strategies, which indicate the security’s support and resistance levels, and breakout stock trading. The latter occurs when a security breaches its resistance point.
Long-term traders rely more on fundamental analysis, looking for a stock’s intrinsic value. It means examining a company’s financial statements and digging through the balance sheet, cash flow statement and income statement. An in-depth analysis of this information reveals the fundamentals of a company, and from there a long-term trader can decide whether its stock will rise or fall within a certain period and buy or short shares.

Seeking Returns

One major difference between day trading and long-term trading is the amount of return the traders seek. A day trader may seek returns of 10 to 15 percent monthly, while a long-term trader hopes to attain the same level of returns annually. In that sense, day trading and long-term trading is based on a different psychology. Successful day traders must outperform long-term investors. Otherwise, day trading makes little sense because of its inherent risks. Day traders look for more frequent profits which are smaller in nature than the less frequent profits of long-term traders.

The SureTrader Advantage

Whether you’re a day trader or prefer to trade on a longer term, you need a competitive brokerage with a state-of-the-art platform. SureTrader offers low fees and low minimum balances, top trading analysis and 6:1 leverage for intraday traders. For novice traders, we provide a simulator, so you can learn to trade and develop strategies before using your own funds. That’s just part of the SureTrader advantage.

Sources
https://www.thebalance.com/day-trading-versus-long-term-investing-4139868
https://www.investopedia.com/ask/answers/12/difference-investing-trading.asp

The post Day Trading vs. Longer-Term Trading appeared first on SureTrader.

Information On Gold Investments

This article was first published on Winners Edge Trading.

 Gold Investments

Many people involved in financial trading enjoy keeping an eye out for new investment opportunities and ideas. Of course, the majority of trading occurs in the ordinary stock market, which is something that most people understand on at least a very basic level. However, when it comes to alternative forms of investment, there are many people out there who could best be classified as interested, but not necessarily well-informed. For example, consider the idea of investing in gold.

Gold investment is an idea that tends to be in and out of popularity, and for people who have not undertaken this sort of investment before it can be a tempting idea. To be clear, the term “gold investment’ refers to buying actual, physical gold rather than investing in gold mining companies. This is what separates gold investment from just about any other type of financial investment, both in terms of how it works and why it is done. If this is something that interests you, here are a few words on some of the basics of gold investment.

First, before you actually go about investing, you will need to figure out how to do it. Gold is not a commodity that is traded in ordinary stock markets, but instead something that can be bought and sold on websites.  Of course, any financial dealing on the Internet needs to be approached with care, so it may be worth noting thats an extremely popular and secure site that provides you with updated gold prices and safe storage of any gold you may purchase. The site allows you the flexibility and security to buy and sell gold as frequently as you may wish, and with as high a volume as you like, ultimately making it very simple to trade in gold bullion if you wish to do so. One good way to invest in gold is to look for gold stocks.

So why should you actually bother investing in gold? Typically, gold bullion is bought as something of a safeguard rather than as an attempt at financial gain. This is not to suggest that gold is always a safe investment, but rather that it involves a different set of strategies than ordinary investments. When you purchase a stock, you are hoping you make money on it. Often, people who purchase gold bullion are instead hoping to avoid the devaluation of the money they already have. When economies struggle and currencies lose value, you can effectively lose “wealth” without actually losing money, as your currency will be worth less. It is in times like these that some people turn to gold in order to protect their existing assets until currency becomes more dependable.

This is a guest post on behalf of Bullion Vault, written by freelancer Dennis Price.

How to find the Right Currency Pair to Match Your Trading Strategy

This article was first published on Winners Edge Trading.

 

One of the most important things in trading is picking the right currency pair, combined with the right trading strategy. Choosing correctly has the potential to make a huge profit, while choosing the wrong pair will lose money. This is one of the similarities that the forex market shares with the stocks market- except rather than trading individual stocks we’re trading currency pairs.

 

When you trade it is important to make your money work for you, As Kevin O’Leary says:

trading strategy

 

There are three main things to consider when choosing your pair in the Forex market.

 

First, identify whether the pair is a trending or non-trending pair.

Second, figure out what type of strategy you will be trading.

Finally, you want to know the average true range of that pair (which means how much the pair moves on a day-to-day basis).

This article will explain in detail how to choose the perfect pair to trade for your specific trading style and strategy.

 

Winner's Edge Trading Strike 2.0 on a downtrend.

 

Step one: Identify the Trend

The first thing you must do when choosing which pair to trade is to identify the trend. A trend is defined as the overall direction in which the market has moved in the recent past, for example “the Aud/Usd has been in a downtrend for the past 6 months”. You can identify trends either by using trend lines or by applying moving averages (MA) to your charts. If the pair has not been trending, it will be important to take note of the sideways trend before you decide which pair to trade.

 

Step two: Pairing your Trend with the Trading Strategy

The next step to finding the right pair to trade is to make sure that those pairs fit the strategy you intend to trade. If you’re trading a trending strategy- your pairs must be trending pairs. If you try to trade a trending strategy on a pair that is sideways, you will have a losing strategy. If you have a trending strategy and you identify pairs that are trending, your chance of being a profitable trader goes up a great deal. Additionally, if you find a pair that has been moving sideways for a period of time it will be important that you choose a range trading or sideways market trading strategy to match up with those pairs. There are many strategies that you can apply for each different pair but it’s important that you know what the behavior of each pair is before you trade it. Many traders make the mistake of matching up the right pair to the wrong strategy.

Currency pair AUD/CAD on a sideways trend. Template from Winner's Edge Trading Strike 2.0

 

Step Three: Noting the ATR

Average True Range (ATR) is the amount, on average, of movement in pips in a single day.  ATR is important because if you don’t know how much a pair moves on average, it is much more likely that you will hit your stop loss. This is important when determining the pairs you want to trade based on your strategy and trading objectives. If you are an aggressive trader who is scalping and trying to make a high percentage gain in a short period of time, you will want to take special note of the pairs that have a high ATR because those can move a lot so you don’t want your stop loss too tight. Knowing the average true range of the currency pair and the strategy you’re planning to trade makes a huge difference in the success or failure of your trading.

Most traders overlook carefully selecting the currency pair that they’re trading and believe that they can trade any pair with any strategy. This trading strategy is one of the main reasons that rookies lose money, so don’t make the same mistake of pairing the wrong pair/strategy. You’re now armed with the information to pick the right currency pair with the right strategy to enhance your trading.

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Master Candle Setup Example

This article was first published on Winners Edge Trading.

USDJPY

Looking at a weekly USDJPY chart, you will notice that we have embedded weekly Master Candles set up. For those of you unfamiliar with Master Candles, they are candles that engulf the next four following candles. Trading a break of a Master Candle on any time frame can be very profitable, but trading a break of a weekly Master Candle can be especially profitable.

Usually, when I trade hourly master candles, I place my stop on the opposite side of the master candle. If the candle is too wide to maintain my risk parameters, I will place my stop in the center of the master candle. Since this master candle was around 385 pips wide, I planned to trade the break as if it were a break of a lower time frame candle and try to set my risk around 50 pips. That way I will be able to trade the break with decent size and hopefully get a piece of the initial move.

In this example, the price action was about 25 pips above the low of the inner master candle which is near 88.95. I placed a pending sell order at 88.85 to allow for a head fake and I’m setting my stop at 89.35. When I have 20 pips profit, I took 1/3 of my trade off and move my stop to break even. From there, I followed my stops down using the hourly chart, placing my stop at the top of the prior hourly bar.

A Zero to a Million Trading Strategy

This article was first published on Winners Edge Trading.

Zero to a Million Trading Strategy

SPECIAL REPORT: Jack’s “Zero to a Million” Trading Strategy

Right now I’m revealing what my trading strategy is for the “Million Dollar Forex Journey” account! If you want to see an additional strategy you can try out our profitable double trend trap strategy.

All right, just to recap:

-We’re going to make a million dollars (or more) through forex trading.

-We’re going to do it in 18 months (or less).

-And we’re going to start with next to nothing – $50.

I’m going to give you the basics of my trading strategy today and then I’ll share more details about it in future follow up articles.

This strategy IS designed to consistently offer excellent risk/reward opportunities, and, executed with some modest amount of intelligence (lucky for me that’s all it requires), should consistently produce winning trades that far outnumber and outpace losing trades.

MY 15 MINUTE CHART STRATEGY

HERE IT IS, the deep, dark, mysterious, intricate, secret system, worked out by an ancient Chinese Taoist sorcerer and kept closely guarded for centuries by inscrutable Zen currency traders:

Open a new chart, set the time period to 15 minutes.  Load 3 EMAs (exponential moving averages) – the 5, 10, and 50 EMA.  When price and the 5 and 10 EMA lines all cross above the 50 EMA line, buy (or, conversely, when they all cross the 50 EMA line, sell).  I know, I know – the complexity of it is staggering, right?

You can also add the 21 and 35 moving averages – as well as the 100 and 200 SMAs (simple moving averages) just for higher time frame reference – but the 5,10, and 50 provide the basic trading strategy.  I use EMAs weighted to the close – but that’s just my personal preference.

I’ve adjusted things a bit to my own personal trading style, but the credit for this outstanding strategy goes to a friend and fellow trader, Clay Ferrell, who was nice enough to share it for free at the Forex Factory forum (you can read more here at “Trading Systems”à”CHOROS System”, but fair warning, there are 500+ pages of discussion – and that’s not even the original discussion thread!).  The original rule is to enter on the first retrace touch to the 10 MA (after price and both MA’s have crossed over the 50 MA).  However, I often enter when the price has crossed and made a 15-minute candle close past the 50 MA.  I do that because I’ve found that price itself is a better indicator than any moving average (and because patience is not one of my virtues).

The initial stop loss shouldn’t be more than 10 or 12 pips, at most, below (or above, in a sell trade) that 50 MA line, nor more than 10-12 pips away from your entry point.  One of the main strengths of this strategy is its low risk.  The theory behind this strategy is that once that 50 MA line is crossed by all three – price, the 5 MA, and the 10 MA – that 50 MA line should pretty much hold as support/resistance.  It works best when the 5 and 10 Mas are both rising at a fairly steep angle.  The 10 MA line should continue to rise (in a buy trade), and also act as initial support for the price.  Eventually, the price will come back through the 5 and 10 MA lines and test either the 35 or 50 MA line.  The FIRST time this happens, the 50 MA will usually hold – that is, there probably won’t be a 15 minute candle close significantly (i.e., not more than 4-5 pips) to the other side of it, and often price will just touch the 50 MA line and immediately bounce off of it.  The game is often over the second time that the 50 MA is challenged – it’ll give way, and price and the shorter moving averages will all decisively cross back over it in the opposite direction.

This is a short-term trading strategy and it’s important to move your stop aggressively once you have a profit of about 10 pips – better to get stopped out with just a small profit than to let a profit turn into a loss.  Many times I’ve been stopped out with a small profit and initially wished I was still in the trade and been tempted to jump right back in…but an hour later ended up thinking, “Boy, I was sure lucky to get out with a profit on that”.

Below is a screenshot of a 15-minute chart showing movement both above and below the 50 EMA line.  Note how once there’s a significant move above or below the 50, the 10 EMA tends to act as support/resistance.

Trading Strategy Example one

And here’s another – note the pin bar that precedes across up and over the 50 EMA, that could then have been ridden for a very nice profit.

 

Trading Strategy Example 2

I urge you to set up your own charts with the three moving averages and watch the market action for yourself.

That’s my basic 15-minute trading strategy.  Of course, it’s not quite that simple in actual trading and there’s a bit more to it than that, too much for me to cover in the space of one article.  I’ll provide more rules and trade filters for using the strategy in upcoming articles, so stay tuned.

Believe it or not, if we can simply average catching one good trade a day with this strategy, we will make it to our goal of a million dollars in 18 months or less.

1 – Learning.  You have to become an expert in your business, and that’s certainly true if your business is currency trading.  You need to put in the time and effort to always be learning how to improve your trading.

2 – Patience.  Starting a business with less than $100, and making a million dollars in less than two years sounds fast.  And it is.  But it can seem oh so slow in the beginning.  When you’re only seeing $5 or $10 profits, it doesn’t feel like you’re getting anywhere.  You want to be already up there making the “big coin”.  But you simply have to steel yourself to be patient, to be content with gradually increasing your equity.  Just averaging small daily profits will make that million dollars a reality.  You might even try reminding yourself every day you make a small gain, “I’m doing it – I’m making a million dollars.”

3 – Diligent adherence to a good, solid trading strategy.  It’s amazing how many traders discard a basically sound strategy just because it has a few losing trades.  They forget all the times it worked wonderfully.  No trading strategy is going to work every time – nothing’s perfect.  But I’ve found that a number of times when I thought, “Oh, this strategy doesn’t work”, that I’d often lost money, not because of the strategy but because I’d departed from the strategy.  For example, sometimes I’ve jumped the trade too early, getting in as soon as price moved across the 50 EMA line – I looked back later and saw that there was never a 15-minute candle CLOSE across the 50 EMA – I’d violated the rules of my own strategy.  The trading strategy wasn’t at fault – I was.

MUCH MORE TO COME:  I’ll be back next week with more information on my basic trading strategy (and on another one I’ll be using) and how you can follow the progress of the Million Dollar Forex Journey account, seeing each trade I make.  As always, I welcome comments, suggestions, prayers, and gifts of chocolate and liquor.  J

“As you have freely received, freely give…” – (Matthew 10:8)

Jack Maverick

Jack Maverick is a writer and forex trader. Find him on Google+ at https://plus.google.com/u/0/103534926809963693894/?rel=author and check out his novel, the psychological thriller “A Cross of Hearts”, on Amazon at http://www.amazon.com/Cross-Hearts-J-B-Maverick-ebook/dp/B006GHJ0ZC/

Manual Trading or Automated Trading?

This article was first published on Winners Edge Trading.

These days, there is a lot of discussion about automated trading vs manual trading.

One of the main things that have caused these discussions is the flood of automated trading systems that have come into the marketplace. There are THOUSANDS of Forex trading robots out there, and almost everyone claims to turn tiny accounts into millions of dollars overnight.

Now, hopefully, we are beyond the point of believing these ridiculous claims; however, we shouldn’t let these EA scams steal the validity of real automated trading systems. The truth is that automated trading can work; many major investment institutions use highly optimized trading robots to pull money out of the market, so there is a way to make money using these robots… BUT…

Is a Good Robot better than a Good Trader?

Manual Trading or Automated Trading

 

Like in any good argument, there are certainly advantages to both. For me, it is impossible to say one is better than the other, but let us dive into the argument and see what we may discover.

 

We will look at automated trading systems first.

The first advantage that jumps out to me about automated trading is simply the nature of having a robot trade. It is exact, perfectly disciplined, and doesn’t make mistakes (if programmed correctly, of course).

One of the biggest problems that a trader faces is his ability to be disciplined and stick to his plan. With automated trading, you can be assured that the robot will be completely disciplined and stick the plan you set up. Often times, it is the ability to stick to the plan that makes the difference between a profitable trader and an unprofitable trader so that is a point for the robot. (+1)

Not only will a robot stick to the plan and be disciplined, but a robot will always execute correctly. A robot won’t take a buy when it should be taking a sell, it won’t enter the wrong lot size and it won’t misplace the s/l or t/p. This is a huge benefit in trading because mistakes like the ones mentioned are killers to your overall success. That’s another point for the automated trading. (+1)

Robots can also take in more data than a human trader. That means, if your strategy applies to a whole bunch of different currency pairs, you can probably only monitor a few at a time. With an automated system, you just plug it into however many charts you want it to monitor and BAM, it won’t miss a signal. Another point for the robot…(+1)

But wait! There’s More!!

Not only will the Robot trade with better discipline, better execution, and more range BUT ALSO, a robot doesn’t get tired. While you pick the few hours that work best for you, the trading robot will be plugging away at the markets 24 hours a day. That is 3 , 4 maybe 10 times as much as a manual trader trades the market… Yet another advantage point for Mr. Robot trader. (+1)

Okay, Okay. The human trader has been beaten enough; time for him to fight back.

The Human Forex Trader

The main thing that a human forex trader has that a robot doesn’t is a brain. Where a robot can only execute decisions based on the scenarios that programmed into him, a human can take into account everything that is going on and process it together.

A human can take into account fundamentals that are occurring unexpectedly (like a hurricane in Japan). (+1)

A human can see that the market is moving awkwardly slow or unreasonably erratic and pull out his trades. (+1)

A human can decide when he has enough profit and when he thinks the momentum will continue in his favor. (+1)

A human can get a feel for the market–he can get “in the zone.” (+1)

So there are actually a lot of bonuses to being human–who knew?!

 But there are also bonuses to not having to think, not having emotions, not having a limit to the information you can process.

So which one is actually better? Manual trading or automated trading? 

 

 

Using a Forex Checklist to Develop a Good Trading Habit

This article was first published on Winners Edge Trading.

forex checklist

 

One thing I do that helps me to open good trades and avoid bad trades is a Forex Checklist. This checklist has a list of rules that must be in place before I enter a trade. I have found that if you create your own checklist, it will assist in having the discipline to stick to your plan. The best part about having this list is that it is not complicated or difficult to remember. Actually, the list is very easy and after using it a few times, good trading habits begin to form. By using the forex checklist I have developed my trading profits has gone up because this technique has increased my trading winning percentage.

Our Recommended Forex Checklist

  • First I identify the trend and look for trades that fall within the direction of the trend.
  • Next, I find the signal that I will enter the trade
  • Then I identify support and resistance points
  • Lastly, I determine the amount that I am going to risk on the trade

After these steps are in place I then place the trade and log them in my forex trading journal. I think you will find that something as easy as a simple forex trader checklist can dramatically improve your trading. Trading doesn’t have to be complicated to be successful. It is best to keep it as simple as possible so not to outsmart yourself.

Please share in the comments below any type of checklists that you have developed that have helped you in your trading. Do you have a pre trading checklist? What does your forex checklist contain?That will help all of us become better traders as we share tips with each other.

 

How To Use Pending Orders for Protection and Profit

This article was first published on Winners Edge Trading.

The currency markets operate 24/7. That’s a lot more than any of us can remain sitting at our computer screens, obsessively monitoring each price tick up and down for all our currency positions and everything we want to be in.

That’s where pending orders come in. Using pending orders, you can give your broker instructions on when to buy or sell even when you can’t be on the computer yourself. You can use these pending orders to protect yourself by automatically exiting your position during a downswing that happens even when you aren’t looking. You can also use them to set yourself up to profit if the price reaches an advantageous level for buying when you are away from your keyboard.

The Basics

There are two basic types of market orders: “Buy” and “Sell.”

Compass

So far, so good, right?

These two basic types of orders – to buy or sell at current market prices – are called market orders.

But not everything is always so straightforward. Sometimes, as a trader, you may want to have a ‘standing order’ to sell under specific circumstances or to buy under specific circumstances, without further intervention from you. 

These orders are known as “pending orders.” You enter a pending order, and you specify what you want your broker to do if a given security or currency hits a certain price and passes it, either on the way up or on the way down.

In theory, your pending orders help protect you from a market meltdown when you have an open position and you happen to be away from your terminal or otherwise out of touch with your broker and can’t place the order, personally.

There are four basic types of pending orders common in forex trading:

  • Buy limit – an order to buy a security if the security reaches or goes below a certain price, selected by you. This helps protect you against a sudden price decline. You might set this limit just below an apparent support level, on the theory that if this support level is broken, there’s no telling how far the price may fall until it reaches a new level of support.
  • Sell limit – an order to sell a security if it reaches or rises above a specified price. This order helps you take some profits off the table. You might set up a sell limit at or above your target price for a security. This is the point at which you believe a security is fully-valued.
  • Buy stop – Also called a “stop order to buy.” This is an order to buy a security if it reaches a price at or above a certain price. You might set this just above a key point of resistance, on the technical trading theory that if a security breaks through this resistance point, it is set up for a bullish run to the upside.
  • Sell stop – A standing order to sell a security if the price plunges below the current asking point. You might place this order just below a key level of support, on the technical theory that if whatever had been kicking in at that price to buy the security in the past is no longer there, the security is set up for a bearish run. You want to be out of the position, or even take a short position, which allows you to benefit from price declines.

The precise procedure for plotting and/or entering them will vary depending on your trading software and brokerage.

Caution: These orders aren’t holy writ: If you place an order into a market that is falling or rising fast, and isn’t very liquid, you could see the market skip right past your stops or limit orders.

The faster your brokers’ execution speed is, the more likely they’ll be able to execute your trade at your requested price. But they have to do it by matching your order up with a willing counterparty. There is no guarantee that someone will be out there wanting to buy what you’re selling at any given price point. Your account could suffer losses because prices move beyond your stop and limit orders before your broker is able to execute the order. In other words, your pending orders are only as good as your broker’s execution ability. That’s not much of an issue in normal times – unless you’re trading on very short-term movements and heavily leveraged, or both. But it is a big issue in times of great volatility and uncertainty when bid-ask spreads can be very wide.

Clear as mud?

Let’s look at a few examples, just from charts I’ve created today (Click to see the full graphic)

Sell limit order

The Sell Limit Order, Illustrated

If your pending order worked, it saved your bacon! But sometimes markets overwhelm limit orders and other pending orders, just by moving too far, too fast, for the broker to match you up with a willing counterpart at that price.

Let’s move on to another example, the sell limit order, sometimes used as a ‘profit-taking’ tactic. That is, once in a while, the trader wants to to be sure to take the money and run before the market can turn against him:

Sell limit, illustrated

The Sell limit order may help you take money off the table after you profit.

These two are defensive moves, designed to help limit your risk. The next two pending orders play offense. They are designed to put you in the way of a trade you have reason to believe has a better than even chance of being successful. (If you think there are sure things in Forex, put your money in CDs).

Here is the buy stop, or the ‘stop order to buy,’ illustrated with an actual chart:

Buy-stop illustrated

A “buy-stop” directs your broker to buy if the price rises above a certain level.

And the last common pending order is the sell stop. Here’s how it might work, using a real chart:

 

Sell Stops

The Sell Stop can help protect you from sudden declines in the price of a security or currency pair.

 

-Jason Van Steenwyk

 

Time-Based Trading Strategies- Think Outside the Square

This article was first published on Winners Edge Trading.

 

 

As forex traders, we’re generally trying to develop trading systems based on patterns we see in price action or in momentum or other indicators. But, what if we took “time” into account as well? Here are a few time-based ideas to consider while you’re pondering the markets and how you can profit from them.

All traders are looking for that edge. Regardless of what all the hyped-up websites say, forex trading is not an easy game. As individual retail traders, we’re competing against the best minds, the most experienced and skilled traders in the world. If you looked at it logically, they hold all the cards, they have a big-brother view of what’s going on in the markets every minute of the day. Does this mean we don’t stand a chance? Not at all – we just need to be a little bit creative sometimes with our trading systems and we can beat them at this game.

The majority of traders build or buy trading strategies that are based on price action and other indicators. A trend-following strategy often uses the cross-over of moving averages to indicate a signal to enter a trade. A break-out system is usually based on price breaking through a trend line. What if we ignored trend lines, moving averages, RSIs, MACDs and any other indicator which we pollute our charts with? What if we solely looked for patterns in time and we built trading strategies based on our findings?

Here are a few ideas for you to start with, but feel free to develop your own ideas and blaze your own trail.

1. Look at the first few minutes of the trading session. For instance, if you’re trading the New York session, then look at the first 10 to 15 minutes of the start of that session (8:30 NY time). Do you see any patterns or consistencies from one day to the next? Does price tend to keep moving in the same direction if a push is made during the first 5 minutes or the second 5 minutes of that session? Or, does it tend to move in the opposite direction if a false push is made within the first few minutes. Study the EUR/USD at the start of each session for a week or two and document what you find. Break it down into 5 minute lots to start with and see if you can find any patterns. Then, break it down even further, to 1 minute lots to see if there are other patterns. You only need to find something that happens more often than not. That puts the probabilities in your favor and allows you to develop a profitable strategy from your findings.

2. Look for price movements in the last 5 minutes of an hour. Many trading strategies rely on the closing of a bar (often the hourly bar) to signal an entry. Sometimes the price is up and down like a yo-yo during the hour, then it makes a strong push in one direction or the other during the last 5 minutes of that hour. To study this, you might have to zoom into a 5-minute chart and draw vertical lines at each hourly point. See if you can find any common price action that seems to be related to the price action within the last 5 minutes of the hour.

3. If you’re trading a trend, let’s say an uptrend, and you’re attempting to buy at the dips in price, try to also take the time scale into account. For instance, as the trend goes up, price tends to move in waves, up and down, up and down in a steady upwards direction. Count the number of bars separating one wave bottom to another. Do this for at least 3 wave bottoms and calculate an average number of bars. When you’re about to enter at a dip (bottom of a wave), see if it corresponds with the consistency in times that you’ve calculated so far. You might find that you’re entering too early and it’s best to wait for a bar or two before entering.

4. Look at how price action flows through from one session to another. For instance, does the movement during the London session tend to continue through to the NY session, or does it go the opposite way?

These are a few time-based ideas for you to ponder while developing profitable trading strategies. I’m not saying to throw away all your chart indicators, but just be aware that you could greatly improve the probabilities of profitable trades by taking “time” into account as well.

-Mark Thomas