Forex

How Do Forex Brokers Make Money?

2009-01-21T14:00:00.001-08:00

Many beginning Forex traders wonder how the Forex brokers earn their money on the common traders, if they are not casinos. Understanding the basic principles of the brokers’ economics will help traders to distinguish real Forex brokers from the «bucket shop» scams and the ethical companies from the unethical. Here is the list of the most common ways for the Forex broker to earn money:

Currency pair spreads. The largest source of income for the Forex brokers, spread is the difference between the Bid and Ask rates. Broker can execute your orders without a spread or with a minimal spread, earning the money that you lose for the spread.
Leveraged spreads. Spreads alone would be too small to be a significant earning source for the brokers. So, brokers offer high leverage. Of course it’s a great tool for multiplying your profit (and also losses), but the spreads are also leveraged. With 1:100 leverage, broker earns 100 times more on spreads than it would without the leverage.
Overnight swap spreads. Brokers pay the overnight swaps to the trader if the difference between the currency’s interest rates is positive in the trader’s position and get paid from the trader’s account if that difference is negative. But those payments are not symmetrical and they are changed so that the Forex broker would always get the advantage. When someone is selling 1 lot of EUR/USD and another trader is buying the same amount of that currency pair, the latter is earning money on overnight swaps, but the first one is losing the amount that is enough to compensate the second one’s earnings and to «feed» the broker.
Payment processing commission. On-line Forex brokers don’t charge commission per trade (except Islamic accounts) and often advertise that as a feature. But some brokers charge payment processing fees — they are deducted only when you deposit or withdraw money and usually are quite small and fixed in currency units, not percentage points. Of course, such commissions are too small to be a part of the broker’s profit, but they are enough to compensate at least a part of the broker’s expenses.
Trading against the trader. The most despised and unethical way the Forex broker can make money is to trade against its customers. And that’s the most profitable way too. Avoid the brokers that earn when you lose. If the spreads are too low, the leverage is insignificant, the overnight swaps are fair and there are no commissions (for payment processing and trading) then the broker is certainly trading against you to make money.

Forex: Keeping It Simple

2009-01-21T13:59:00.001-08:00

Keeping everything simple is a nice strategy in almost all types of activities. Sometimes, simplicity is the only way to become profitable in the Forex trading. Of course, not everyone likes to keep everything simple and not everyone should do that. But simplifying some basic aspects of the Forex trading will help you to avoid unnecessary problems and complications:

Simple trading strategy can be as profitable as some really complex systems. By keeping your strategy simple you make it easier to follow and execute it. Adding complexity in the future can be your next level, but trading with a simple strategy is a very good way to start trading on Forex for real.
Try to follow a simple money management system — trading with a fixed percentage of your account equity is easy and effective. Martingale system isn’t simple and leads to losses. So, with money management simple is almost always good.
Fundamental analysis is a nice tool, but it’s better to avoid reacting on all fundamental news you hear. Keep it simple — select only really important releases or indicators and monitor them when you trade.
One of the best ways to simplify your Forex trading is to hold the open positions for a fixed amount of time. This way, your positions are limited not only with the stop-loss and take-profit levels, but also with the time limit. I prefer limiting them to 30, 60, 360 minutes and 1 week periods, depending on the particular strategy.
Try not to trade on currency pairs with the base currency different from the one, in which your account is founded. For example, if you trade USD/JPY, while your account is founded in USD, your profit or loss can’t be adequately measured, because it inversely depends on the USD/JPY rate.
Look for a Forex broker with the fixed spreads, because trading with the variable spreads can’t be easy. You can’t rely on your strategy, especially if it’s a short-term strategy, if you don’t know the spreads values for sure.

Some traders adore simple approaches to the market, while others hate everything that’s easily understood by high-school graduate and prefer complexity. If you think that you are the one from the first group, then this list will probably help you. If you know some other ways to simplify Forex trading, please, leave a comment to this post.

Double Impact of the Interest Rates on Forex

2009-01-21T13:58:00.000-08:00

Monday, November 10, 2008

The interest rates, set by the world’s central banks, are widely used in the Forex trading. Their changes are monitored by the traders and investors because the interest rates determine the fundamental value of the currencies. It’s important for every Forex trader to understand the impact of the interest rates on the currencies he trades on. It’s easy to find the to know their latest values, but how to interpret them?

In general, the higher the interest rate associated with the currency is, the better it’s for that currency. Higher interest rates attract investors, because they offer a higher yield. Forex traders prefer buying high-interest currencies versus the low-interest ones to gain the difference yield (such trading technique is called carry trade).

On the other hand, the lower interest rates are usually more popular among the traders when the global volatility rises and the world’s financial system experiences problems. The current financial crisis shows that the currencies with the lower yield are the favorites, because they are less risky than he high-yielding ones.

So what to do and how to react on the interest rates? The volatility index is a good tool to measure the global interest rates preference. If it’s below the «normal» level of 30%, the high interest rates act as the attractors and the currencies that have high yield grow. If the index jumps up above that level, the traders prefer to move into the less risky assets and the low interest rate currencies gain.

Disadvantages of the Automated Forex Trading

2009-01-21T13:57:00.002-08:00

In my I’ve described the best advantages of the automated Forex trading. But, of course, I understand that the trading using the expert advisors isn’t always something good. Everything has its own pros and cons; so the automated trading has its own disadvantages and I’ll try to describe them in this article:

No intuition to help your trading. Computers and programs simply don’t have anything similar to that mystical human feeling. While some traders don’t think that the intuition can be helpful in trading, others rely on it — such traders probably won’t be pleased with the automated trading.
Smooth trade execution and uninterrupted run-time of the expert advisors is critical with many trading systems. Unfortunately, it’s something very hard to achieve running EA from your home or work PC. That means that you’d require some dedicated server to run your automated trading.
Some types of strategies are simply impossible to implement into the real expert advisors. The chart pattern or wave analysis and fundamental analysis are extremely hard to code in the trading program. At the current level of the AI development these tasks are better performed by he live trader manually.
The expert advisors should be made quality or otherwise their trading results will disappoint you. Unfortunately, not all expert advisors handle errors and other unexpected events correctly — sometimes this can lead to the huge losses. Moving your working EA from one broker to another can also be a problem, since broker servers differ and what works perfectly on one broker can stop working on another.

As you see, nothing is perfect in this world and, while being the extremely interesting and popular tool, automated Forex trading has its own problems. The wise decision here, in my opinion, would be using both types of trading to your advantage. The systems that can be easily implemented as the expert advisor and are too hard to be traded manually are better to be automated, while the simple systems that involve chart pattern and fundamental analysis are better left for the manual trading.

Advantages of the Automated Forex Trading

2009-01-21T13:57:00.001-08:00

Trading with the expert advisors is seen by many (especially newbie) traders as the «holy grail» possibility. Such traders expect from each EA they find or buy the fast and risk-free profits. Of course, expert advisors are not the «holy grail» in Forex trading. Automated Forex trading is just another tool that can make the trader’s life a bit easier and sometimes even more profitable. Here is the list of the advantages of trading Forex with expert advisors:

With expert advisors you can trade during the time you can’t trade manually. You can set up an expert advisor to trade for you when you are asleep, when you are away or when you are too busy to be involved in the market. Of course, you can hire someone else to trade for you, when you are away, but that’s rather ineffective decision.
Strict following the trading system is another advantage of the automated Forex trading. If you have a strategy implemented in the expert advisor it will trade according to that strategy without any deviations. If you find it hard to follow your own system without modifying it constantly, try using an EA that would do all the work.
Automated trading excludes any emotions form your market behavior. Computers and programs don’t have any emotions and won’t overtrade if they lose. If you are not very good at holding your emotions down, automated trading will definitely help you.
Complicated strategies are not a problem for the expert advisors. For the live trader it’s not an easy task to monitor a dozen of indicators and compare each of them to the entry conditions, whereas expert advisors can do that easily and in no time at all.
«Errare humanum est» said the Roman stoic; that means that despite your experience in Forex trading, you’ll make a lot of stupid mistakes through your trading career. Computers are not human, and if programmed without errors, expert advisors won’t make any errors during the trading.
There are many things a live trader just can’t do — trading on multiple strategies, timeframes and currency pairs simultaneously is one of them. If you want to use your system on several currency pairs and timeframes — use expert advisor. If you want to test several systems at the same time — also use the expert advisor.
The time of reaction, analysis and decision making can be critical in many Forex trading systems. Where manual trader just can’t do it fast enough, automated systems will work fine.

Perhaps, I’ve missed some important advantages here, but this list looks quite impressive to me. Of course, there are certain disadvantages in the automated Forex trading, but they will be a subject of my next post.

The Less Known Evil of the Leverage

2009-01-21T13:56:00.004-08:00

Trading with leverage is extremely popular among the Forex traders. High leverage is considered dangerous because of the risks associated with the fast moving money and poor money management tactics practiced by the majority of the traders. Besides the well known danger of multiplying your losses, there is another evil hiding behind the leverage, which can wipe your trading account easily.

High leverage is advertised by many brokers. Some traders believe that the higher their leverage is the faster they will become rich and the Forex brokers that offer ridiculously high leverage are even praised. But in fact, there is a very practical and mercantile reason for the Forex brokers to offer high leverage — higher earnings.

The higher is the leverage the more money is paid by the trader to the broker in the form of the rates spread. The value of the pip that trader wins, loses or pays as a spread depends on the leverage. With 1:100 leverage a 2 pips spread for the 1 standard lot of the USD based currency pair is worth $20. That’s not a big amount if you have $100,000 account, but if your total trading account is just $2,000? That’s 1% lost despite the fact if you win or lose this position. With 1:10 leverage that spread would worth you only $2. Without leverage the spread payment to your broker would be as low as 20 cents.

Remember that the leverage comes with a price, which is quite high and which is often overlooked by the traders. If you want to learn trading profitably on a real account, try to the leverage as low as possible. Switch to the higher leverage only if you really know what you are doing. Don’t try to become rich quick with the help of the leverage. It won’t allow you.

Variety of Forex Scams

2009-01-21T13:56:00.003-08:00

Apart from being potentially profitable, Forex market becomes more dangerous nowadays. There many scams in the Forex industry and they vary in types and scales. If you want to start trading Forex you should know a lot about such scams to avoid losing your hard-earned money. And if you are the experienced Forex trader you’ve probably already got hurt from some Forex scam and if not — you should also know about Forex scams to avoid them in the future.

Forex broker scam. It was very popular several years ago, but its popularity seems to fade now. Usually it’s just some set-up Forex broker site that promises the good trading conditions and offers some basic «bucket-shop» trading simulation to attract large customer base and run away with their money. Just do your research on a broker before depositing money and you’ll be safe from such scams.
Forex strategies selling. There are hundreds «successful» Forex trading strategies selling on the Internet. Many traders tend to believe that they can spend $300 on such a strategy and become rich with it. In reality the best thing that money can buy is education. Sold strategies are usually nothing but crap. Not only they won’t make you rich, they will probably make you lose your account margin.
Forex e-books selling. Overrated and hyped e-books with a lot of marketing and a little use (if at all) are the actual problem of many industries. Forex e-books selling for ridiculously high prices and promising to tell you «the best kept secrets of the millionaire traders» are nothing but wasted money. You’d better lose that money in Forex trading, trying to find your own strategy and getting some real practice.
Scam Forex managed accounts. Some people like the idea of Forex, but don’t like to trade on this market, they prefer to invest in it. That’s where managed accounts come to play. It’s a good idea to have some company or a private trade to trade for you and earn a share of profit. But unfortunately there also scam players here. They will just take your money and disappear. Some scam managers will probably even pretend that they are really trading and will show you some profit, hoping that you’ll deposit more. Don’t fall for such scams, thoroughly research your manager or better invest in some reputable managing company.

Forex Trader's Personality

2009-01-21T13:56:00.001-08:00

Knowing your trader’s personality is very important if you want to maintain a healthy, pleasant and, most importantly, profitable lifestyle while working on Forex. People are different and what’s good for one can be bad for other. Some trading methods and techniques will work for the certain kind of traders, but they will fail when you try to use them.

The most notable difference between various trading styles is the frequency of trading. Traders that like action and often «want to do something» perform better when they open several positions per day. Those who don’t like the chaos of the daily trading and like to think a lot before doing something will enjoy the profit from a scarcer trading. There are 4 distinct types of the trader’s personalities by the trading frequency:

Position trader — mostly fundamental analysis driven positions that are opened very rarely — only few per month, often just about 10-20 positions per year. This style doesn’t require constant market monitoring and is recommended for the busy people.
Swing trader — trades more often than the position trader, holding his orders open for the days and weeks. Targets and stops are lower than those with the position trading, but there are many trades per year. This is not a day trading, but it’s neither a long-term trading.
Day trader — one of the most popular types of traders. They trade every day, opening several positions and holding them for a few hours to a day. This style requires a lot of market monitoring and will probably fit only full-time Forex traders.
Scalper — this is the most risky and dangerous trading style. Scalping involves holding a position open just for a few seconds or minutes to gain the small profit from each position. There are dozens of trades each day with the scalping. Almost all brokers prohibit scalping. Another problem with scalping is that the major part of the scalper’s profit is eaten by the broker’s spread.

There some other parameters that can be different for various traders, but the main trading style is the basic difference and the trader that is good with the position trading shouldn’t go for the day trading to remain successful. Try to find out your style as soon as possible and stick with it.

Drawdowns and Money Management

2009-01-21T13:55:00.003-08:00

No matter how good your Forex trading strategy is, you will lose some of your positions. There is no such thing as a 100% sure win in trading, so eventually you’ll encounter some loss. This is where the money management kicks in and helps you to limit your drawdowns in order to save your trading account from the complete wipe-out.

The problem with the drawdowns is that if you lose 10% of your account you need to recover 11% of what remains to return to the breakeven point. Losing 20% will require 25% gain over the remaining balance to recover. As you see, if you trade with the percentage risks, recovering from losses is much harder if you lose more. Trading with a little risk ratio is a good idea to prevent such problem from occurring. If you trade long enough you’ll encounter the streaks of losing trades — with 10 losing positions in a row and 10% risk ratio you’ll lose more than 60% of your initial balance. But if you trade risking only 3% of your current balance you’ll end up with 26.3% total loss. You don’t need to be a genius to see that it’s a lot easier to recover after the 26% loss than from 60% loss.

Of course, trading with small amounts of your account doesn’t look very promising, because you decrease your potential profit. But believe me, if you somehow lose 70% of your account — and that’s not a hard thing to do if you risk a big part of your capital with each trade — you’ll have to more than double your leftovers to reach the breakeven point. Remember, that all professional Forex traders (and even professional poker players) always risk only a small fraction of their capital with each trade.

Switching to Your Own Forex Trading System

2009-01-21T13:55:00.001-08:00

Before you switch to your own Forex trading system or the one that you’ve bought from someone else, I’d suggest you organizing the process in such way that you’ll be able to keep up with your strategy and track your success honestly. Developing a trading system is a hard process, but keeping to it without falling to emotional trading is even harder. Here is a list of the steps I recommend doing when you find your system:

If your strategy uses technical indicators directly or there are indicators that can help you spot entry/exit points exist, write them down and add them to the chart. Avoid adding indicators that are not used by your system.
Write down and open in your trading platform the timeframes on which your system is tested. Don’t try trading on the timeframes that don’t work with it.
Define your entry and exit conditions — whether they depend on indicators or something else, those should be definable conditions. Avoid using something else except your system’s guidelines in your trading.
Before each trade, calculate the position size depending on the risk that is tolerable with your strategy. This will help you with money management and will save you from overtrading or gambling.
Follow your strategy writing down all your profits and losses. Be honest with yourself. If you avert from your initial strategy, try to record that too.
Keep to your system without changing it for a significant amount of time. Try to see its weak and strong sides when you have enough statistics on your hands.

Over three years that I’ve spent trading Forex I developed many trading strategies. The majority of them were crap, but many of the strategies were unjustly abandoned by me, because I’ve failed to use them correctly — continuously modifying the system, «cheating» myself and forgetting to record statistics killed more than one successful strategies.

Using Support and Resistance in Forex

2009-01-21T13:54:00.006-08:00

Support and resistance is the one of the most popular and widely used methods of technical analysis in Forex. It’s simple, easy to understand and doesn’t even require any additional analytical tools except the bare chart of the currency pair. Support and resistance levels form when the price action creates the distinct peaks and plateaus on the chart. Support level acts as a barrier for the rate that falls, while the resistance is the level that prevents rate from growing farther. Buying when the resistance is broken and selling when the support level is broken is an easy Forex technique that made thousands of traders rich. If you plan to trade using support and resistance, don’t forget these important facts:

When the support level is broken it becomes a resistance level, the vice versa is also correct.
Breaking the support and resistance levels isn’t an exact math. False breakouts are possible.
Real breakouts are usually marked with a bar closed below/above the support/resistance level.
Check your charts on the different (larger) timeframes. Some important support and resistance levels can only be seen on the long-term charts.
If the rate bounces off the support or resistance that level becomes stronger. The stronger support and resistance level is the more profit can be gained when it’s broken.

Concluding all that was said above I should also warn you that using support and resistance in your daily trading will become profitable over the time as this method requires a lot of real experience and becomes more powerful with each trading success or failure.

Best Market Hours to Trade

2009-01-21T13:54:00.005-08:00

If you want to be profitable in Forex it’s vital to know how to trade. But knowing when to trade is also a very important condition to succeed in Forex. The market behaves differently depending on the time of the day and the day of week. It’s well known fact to the experienced Forex traders that it’s better to trade when the market is busy and it moves in the large and predictable waves. But when the trading is slow and the volatility decreases, the market itself becomes unpredictable and it’s easy to lose your money. If you want to trade when the market is the most active then learn these three simple rules:

There are several major regional Forex trading sessions — Tokyo (0:00-9:00 GMT), London (8:00-17:00 GMT) and U.S (13:00-22:00 GMT).
The market becomes more active when those sessions overlap: Tokyo and London (8:00-9:00 GMT) and London and U.S. (13:00-17:00 GMT).
The trading is more active in the middle of the week — particularly Tuesday and Wednesday. Friday is the worst day to trade.

So, to trade with the best market conditions available you just need to trade on Tuesday and Wednesday from 8 to 9 AM GMT and from 1 to 5 PM GMT. Of course, not everybody can trade during these time periods. In this case, I’d recommend setting up stop and limit orders to catch the most juicy price movements.

Technical Parameters of the Forex Market

2009-01-21T13:54:00.003-08:00

The technical indicators of the Forex market don’t take information from the air; they are all based on some of the market’s parameters and the appropriate calculation methods. Each indicator is calculated according to its own rules and there is no need to describe them all. In this article I’ll try to describe only the actual Forex market parameters that can fully describe the technical side of the Forex trading.

Trend — a direction of the price movement. Forex market can be in some kind of trend or go sideways. The trend itself can be measured by its direction, starting/ending point, ranges and the inner volatility.
Volatility — a statistical measure of the number of the price changes over a certain period of time.
Momentum — a measure of price movement strength in a term of pips per tick.
Cyclicality — it’s hard to be measured, but it still exists on the financial markets (and on Forex too) and describes the cyclical nature of some price movement.
Volume — the number of the transactions (price changes for Forex) in a given amount of time.
Support and resistance levels — they can be hard to spot, but Forex market generally bounces off of them or breaks them with a significant price action.
Traders’ expectations — they can’t be seen from charts, but they are the part of the technical picture of the market. Stop and limit orders are the important parameters of the market that should be taken seriously.

Some technical indicators use only one or two of these parameters; very few of the standard MetaTrader 4 indicators use more than two technical parameters. And I don’t know any indicators that are based on cyclicality or trader’s positions.

Forex Leverage and Trading with Margin

2009-01-21T13:54:00.001-08:00

What is leverage in Forex trading? Every on-line Forex broker offers trading with certain leverage, which usually varies from 1:2 to 1:500 with the most popular being 1:100. Leveraged trading is also called margin trading, because you only need to have a margin to back your position while the rest is offered by your broker. Margin trading is considered to be more risky, but it also offers high-yielding opportunity which is sought by many Forex traders. If you trade on Forex without leverage you have to spend a big deposit to open a position — you’d have to deposit $100,000 to open a position of 1 standard lot. When you trade with a leverage you can use just a fraction of that money to open the same positions — the rest of the money is «borrowed» from the Forex broker. That means that with just $1000 and 1:100 leverage you can open $100,000 positions and gain $10 from each pip of difference you gain. Of course, you’ll also lose $10 for each pip if the price goes against you. Remember that your margin goes for margin requirement and is held by the broker for the whole period of time while your position is opened. That means that your available margin on account declines usually by 100% of the margin required for holding the position — e.g. $1,000 for $100,000 position on 1:100 leverage. Don’t forget that your position opens with a little floating loss caused by the broker’s bid/ask spread. That means that if you had only that $1,000 in account your position would be immediately closed out by margin call. So, always remember to keep enough available margin to cover your losses, because your broker won’t be losing its own money, it will close your positions instead, if the free margin level falls critically low.

Examples:

With 1:500 leverage and $1,500 in your trading account you can open a position of 5 standard lots and still have $500 left for loss toleration. But with each pip of loss costing you $50 your position will be automatically closed when its loss reaches 10 pips. After that you have $1,000 remaining in your account.
With 1:50 leverage and $10,000 in your account you open 1 standard lot position and $2,000 from your account goes for margin. $8,000 left is enough to hold 800 pips of loss.
With 1:2 leverage and $100,000 in your trading account you can open 1 standard lot position with $50,000 secured as margin and $50,000 left to tolerate up to 5000 pips of loss prior to margin call.

Managed Forex Account

2009-01-21T13:53:00.004-08:00

At some point of the trading experience traders that don’t reach a very successful level with their own skills start to think about using a managed Forex account. Of course, exceptional traders can earn themselves after just a little practice and learning, but for the majority of the beginning Forex participants the frustration of the losses and the inability to learn over a certain period of time leads to the conclusion that they should use Forex account management services. There is nothing wrong with that, but there is something these Forex investors should know:

Earnings may still fluctuate and become losses. When you rely on a managed Forex account the mechanics of your earnings isn’t much different from that when you trade yourself. The traders that manage your account can still experience losses and you may find that your earning is actually negative during some months.
There are many scam-shops in the managed Forex account industry nowadays. With the rising popularity of the on-line Forex trading, the number of the scams in the managed account industry grows exponentially. Try to avoid shady managing companies and sites. It’s always preferable to use the account in the reputable broker with a trading access for the managing side.
The performance of the managed account can be too conservative. Managed Forex trading accounts can turn out to be not as profitable as you might expect. The majority of the account managers use the conservative strategies that tend to protect your assets more than gain profit. So, don’t expect 100% yield in one month or even a year.
Don’t forget about management commission, transfer fees and withdrawal delays and limitations. When you trade with your own money you can do almost everything you want with them at any given moment. When your account is under the management you’ll have to wait before you can withdraw some money or change the management. You tie up your own money with the manager. The management fees can be costly — don’t forget to find out the real amount of money you will give away as a commission to your managing company.

One shouldn’t forget that it’s possible to trade yourself and at the same moment have investments in several of the managed Forex accounts. Diversification is always great and even highly successful traders don’t miss the opportunity to invest into the well-managed Forex accounts.

Pitfalls of the Fundamental Analysis in Forex

2009-01-21T13:53:00.003-08:00

Fundamental analysis is widely used in trading for thousands years. In stock trading fundamental analysis of the companies prevails over the technical analysis in the long-term investing. But in Forex technical analysis is more popular, because of the volatile and short-term nature of the foreign exchange market. Nevertheless, fundamental analysis has its fans and many professionals use it to earn profit. What are the common pitfalls that can wipe the Forex trader’s account if he relies on the fundamental analysis?

Relying on a news effect. You can’t rely on the specific news effect that will be caused on a specific currency pairs. For instance, good news on the U.S. economy not always make dollar go up, while bad news not always make it go down. Additionally there might be a very high volatility period after such releases that would make all your fundamental assumptions fails. Although, this is generally true for the U.S. related fundamental indicators, sometimes the same happens with the other currencies and countries.

Intraday fundamental trading. Intraday use of the fundamental analysis is probably something unique to Forex market, but I know a lot of traders that are fond of it. Nevertheless, majority of them fail greatly, because fundamental analysis usually doesn’t work that way. Fundamental indicators set long-term trends and the short-term change they are causing is volatile and unstable, which may lead to the big losses.

Confusing good for currency and good for economy. More than often economic indicators that are good for the currency of the particular country are hurting its economy and vice versa. This happens because weak currency is often a boon the country’s exporting companies, while a strong currency usually hurt the trade balance and the manufacturing industries. So, remember that not all «good» indicator releases are good for the currency you buy

I use fundamental analysis in my Forex trading, but I am aware of its possible problems. If you want to trade using mainly fundamental analysis — then fine, just don’t forget to be careful with this tool.

When Technical Analysis is Your Enemy

2009-01-21T13:53:00.001-08:00

Technical analysis is the powerful tool to forecast the price action in Forex market. It’s more popular than fundamental analysis in currency trading and is used both by beginning traders and experienced professionals equally. But is it that cool and omnipotent? There some situation when good old technical analysis can ruin your trading.

News of high importance. When very important news are released with the unexpected outcome that greatly exceeds any forecasts, even the most certain technical patterns get ruined. It’s a real trading suicide to rely on technical analysis in the chaos that rules after such releases. Disaster/terrorism news also tend to affect Forex market in a similar way.

Holidays market. Trading during big holidays (such as New Year and Christmas) isn’t advisable at all. Technical analysis fails there because the volume of trading is extremely low and the market becomes highly unbalanced with large spike movements possible in each direction. Big speculators can forge the market to their own liking during such periods.

Bubble rallies and bursts. When some market gets a hype, it’s hardly obeying common rules of technical analysis. In Forex when some currency goes up like a bubble (recent carry trade hype is a good example) another currency from the pair goes down at the same extent. Trading on sharp rallies can be very profitable, but don’t expect your support and resistance levels to work there.

Remember the situations when playing by technical analysis is dangerous and you’ll be able to apply it only in a friendly environment, where your strategy won’t be hurt by any «force majeure». In Forex technical analysis can be your best friend, so don’t let some circumstances turn it in your worst enemy.

How to Trade Exotic Currency Pairs

2009-01-21T13:52:00.004-08:00

Trading with the exotic currency pairs is less popular than with the major currencies pairs such as EUR/USD and USD/JPY, but the mechanics of trading is the same. Both technical and fundamental analysis works the same for exotics and the same strategies that work for the major pairs can generate signals for the exotic currency pairs. But what to do when your broker doesn’t support trading with the specific exotic pair? Changing broker to open a position isn’t a good idea, but there is a way to trade some pairs on the brokers that don’t have them.

The exotic currency pairs are also often called cross pairs, because in reality they are often nothing more than the derivatives from the major currency pairs. That opens a possibility to substitute such pairs with majors. For example, you want to sell NZD/JPY, but your broker has no such pair, though it offers NZD/USD and USD/JPY. So, all you need to do is to sell NZD/USD and NZD/JPY, the resulting positions will give you the same combined profit as the NZD/JPY short position would give you. Another example: if you want to buy EUR/AUD, but your broker only offers EUR/USD and AUD/USD then you just need to buy EUR/USD and sell AUD/USD. The general rule is the following: to go long on cross X/Y — buy major with X in the first position or sell one with X in the second and sell major with Y in the first position or buy it if Y is in the second position. To go short — do the same but vice versa.

Unfortunately this technique has two important disadvantages:

You can’t set stop-loss and take-profit level like with a single currency pair position. You depend on two positions combined and the majority of the Forex brokers doesn’t support combined stop-losses or take-profits on two orders.
Position size uncertainty makes it difficult manage your risks in such trades, because the base currency for those positions can be different.

If you don’t trade exotics too often and you like your current broker, then you probably wouldn’t want to change your broker to get more currency pairs. But if you open such positions more than once a month then this technique isn’t something you need. In this case I’d recommend changing your broker.

Choosing a Forex Broker

2009-01-21T13:52:00.003-08:00

Choosing a Forex broker is an important step to a success in the Forex trading. Whether you are a beginning trader looking for your first broker or an experienced trader seeking to switch brokers, you'll have to be careful in this selection. With the current abundance of the on-line Forex brokers offering dozens of services, bonuses and high quality execution, one need to look for the exact features that would fit his trading style, capital requirements and level of legal regulation. Here's the short list of things for which to look when you choose your Forex broker:

Terms of Service. The first thing at which trader needs to look before joining a broker is its Terms of Service. They should be free from anything that would put trader's money in danger and should give him freedom to manage his account without any serious obstacles. Don't forget to check ToS to know if the broker forbids your trading style - e.g. scalping, news trading, etc.
Trading platform. Trading via a Forex broker with some lousy platform is a real pain for any trader. Check if the broker's platform is good enough (through the demo trading) before registering a real account. MetaTrader 4 platform is offered by many Forex brokers and it's one of the best of the available platforms for the on-line trading.
Regulation. If the broker claims to be from U.S. or U.K. or any other country with high level of Forex brokerage regulation then check the local authorities to see if they are really regulated. Checking offshore companies is almost useless and trading with the offshore broker has its own advantages and disadvantages as well.
Spread. Spread will be your main payment to the broker for using its services. Don't overpay for anything - try to find a broker which offers low spreads. For example, trading with a Forex broker with 7 pips spread on EUR/USD currency pair is really stupid, while the average spread for this pair on other brokers is 2 pips. If you find a broker that offers spreads below average, don't forget to read its ToS to see if there are any hidden commissions in it.
Payment methods. Most of the traders deposit and withdraw their trading funds via wire transfer. But there are plenty of other methods of payment that can be used to trade Forex; PayPal and WebMoney are among them. If you prefer electronic payment systems choose a Forex broker that accepts them.
Minimum deposit. Trading with small amounts of money won't make you rich, but it's a good way to check your broker's real account handling before trading big, so the minimum deposit amount for the Forex broker shouldn't be too high. Some of them accept deposits only from $10,000 and higher - that's not a very good practice, since many traders would prefer trading with just hundreds of dollars before depositing such amounts.
Additional services. Almost every broker offers additional services nowadays. Personally I prefer brokers that allow extra instruments for trading except Forex pairs - like metals, indexes or some CFD. For example, if you trade not very often and prefer long-term trading you'd seek a broker that pays interest on your free margin and offers good interest rate difference payments for your open positions.

Of course, this list is far from full, as there are many other parameters for which to judge the broker and they vary from trader to trader. But you can use this list as a checklist next time you are going to choose your new broker or register with an old one with which you've been trading on demo account for years.

Reacting on Forex News

2009-01-21T13:52:00.001-08:00

Trading on the Forex news is a popular strategy that is generally adopted among both professional and barely experienced traders. Apart from the standard high volatility accompanying important economic releases, Forex traders try to earn by predicting the outcome of the news, successfully forecasting the market’s reaction. However there are three important points every news trader should know before reacting on the Forex news:

Generally it’s a good idea to set the entry orders before the actual news release. Use stop and limit orders to make the entry to trigger automatically and at the desired levels even on a very volatile market.
Setting stop and limit orders for entry is a good way to automate the news trading, but it’s also a good idea to stay near your trading platform during the news release. Sometimes the market demands your personal reaction and your own understanding of the current situation to bring you profits and save you from losses.
You should know beforehand if your broker allows news trading. Many Forex brokers forbid trading during the news of the high importance to the Forex market. They can do it either via their terms of service or via some technical obstacles. Some brokers widen their spreads to extreme values during the news, while the others just stop reacting to the trader’s orders. Don’t even try earning from the news trading if your broker doesn’t allow it.

Don’t be scared to trade on the Forex news. It’s a good tactic for every kind of trader and will work on the most Forex brokers. Just try to avoid the common mistakes associated with this trading strategy.

Carry Trade — Why Did It Work and Why It Won't Anymore

2009-01-21T13:51:00.005-08:00

Carry trade is the kind of Forex trading where low-yielding currency is sold for the high-yielding one and the produced difference between the yields is gained by the trader; usually it’s also multiplied by the margin leverage. So what are the yields of the currencies? Each currency has an overnight interest rate associated with it. If you trade via a broker you buy and sell currencies without a physical delivery, so when you buy a currency you should get paid an interest from a broker, because he gets to «store» and «use» that currency, while you hold the position. If you sell a currency you should pay an interest because you «hold» and «use» the currency you sold, while the position is open. Because in Forex you trade the currencies in pairs you will get the difference between the long currency’s interest rate and the short currency’s interest rate. If you sell GBP/JPY pair and Bank of England’s interest rate is 5.00%, while Bank of Japan’s is 0.50% you’ll lose 4.50% interest on this position, if you buy this pair you gain this difference. In reality, brokers apply some commission to these differences, so you’ll lose more on negative interest and earn less on positive.

These rate differences wouldn’t be so attractive if it wasn’t high leverage that multiplies the gain by tens and hundreds. With 1:100 leverage you get 450%/year holding a long GBP/JPY position. With a higher leverage and a higher rate difference the results are even more impressive. South African rand has 12.0% interest rate associated with it. Buying ZAR/JPY with 1:400 leverage would yield 4600% a year.

No surprise that from 2001 to mid-2007 Forex carry trades were extremely popular. Such currency pairs as GBP/JPY, EUR/JPY, AUD/JPY and NZD/JPY brought thousands percents of profit through the interest rate difference only; considering that those pairs also rose tremendously during that period, such positions made many people rich.

So what happened in 2007 and why carry trade positions aren’t very popular now? Global economy crisis spurred by mortgage lending crisis in U.S. triggered the growth of the global volatility. Central banks stopped raising interest rates and started to focus on growth, while high-yielding currencies started a correction. Higher yields are always associated with the higher risks, so when the global risks increased, the carry traders started to close their positions and spurred a wave of decline on those currency pairs. Currently all those popular carry trade pairs are moving sideways with a little downward slope.

Carry trades didn’t vanish from the Forex market they just became much less popular and no longer last for years. Now carry traders prefer to buy at the local bottoms and hold the pair for weeks or even days to gain their interest rate difference. And this situation will probably last while the global economic growth remains in danger.

3 Advantages of the Long-Term Forex Trading

2009-01-21T13:51:00.003-08:00

As a long-standing supporter and practitioner of the long-term Forex trading it's hard for me judge this style of trading objectively, but pointing out the advantages is an easy task in this case. Apart from the obvious subjective advantages that are appealing to the certain features of the trader's character, long-term Forex trading has some features that are good for everyone:

Spread economy. If you trade on the long-term periods you tend to get more than 100-200 pips from every position, if you trade on the short-term periods your trades will rarely go beyond 50 pips in profit. Assume a broker with 2 pips spread and you make 2,000 pips a month with it (more optimism!). With 10 profitable trades yielding 200 pips each you get 2,000 pips of profit minus 20 pips paid in spread to your broker — that's 1 percent. With 100 trades yielding 20 pips each you get 2,000 pips minus 200 pips left to broker in spreads — that's 10 percent.
Resistance to the short-term volatility. Long-term Forex traders don't have to worry about stop-hunting or the intraday spikes. Their positions are safe from the usual daily market volatility. If you trade long-term you always have enough time to change your position's parameters when something important happens.
Long-term trading is simple. To trade successfully on the long time periods you have to forecast the general trend and the possible exit points and on the long-term charts that's not a difficult thing to do usually. And since you trade rarely you won't need to make the decisions too often, while in short-term trading you have to develop the complex strategies to succeed.

I can't make you switch to the long-term Forex trading if you don't like it and the majority of the traders enjoy the short-term trading, but now at least you know the advantages of the other trading style. If you experience difficulties trading inside the day you could always switch to the long-term trading.

3 Advantages of the Short-Term Forex Trading

2009-01-21T13:51:00.001-08:00

Trading on the short-term periods at the Forex market is often considered a more popular practice than the long-term trading. In short-term trades your positions usually don't last longer than a day, while in the long-term trading they can remain open for years. Although, I prefer to trade on the long-term charts and hold my positions open for the long periods of time, the short-term Forex trading has its advantages:

You can trade on thousands of opportunities when the currency rates change with a high volatility. You can capture every swing — up or down, trade inside the ranges and channels. Even the sideways market can be traded in short-term. When you trade long-term you miss these opportunities.
You don't have to tie up your funds for the long periods of time. Your margin capital is locked only for the short periods and you can even get it out of the trading account if you really need it and then put it back and continue trading without any problems. In long-term trading your money gets caught into positions for months.
The majority of the Forex trading signals work only for the short-term trading. Usually both technical and fundamental signals are played out in several hours of trading on the Forex market. The number of signals and events that influence currency rates on the long-term scale is really minimal.

This is what you get if you like to trade inside the day and use such techniques as breakout trading, scalping, news trading, range trading and any other short-term strategy. Of course there are also some disadvantages in the short-term trading, but they are not the topic of this post.

Functions of the Retail Forex Market

2009-01-21T13:49:00.000-08:00

Retail Forex market became very popular after the development of the on-line trading technologies. Millions of new traders are attracted to Forex each year. They try to earn profits trading the currencies, developing the new intraday strategies and gaining on the long-term trends. But why does the retail FX market exist? Is it only a way to earn money for the brokers and some lucky traders? Here is the list of some functions — obvious and not — that are performed by the retail Forex market:

Earning opportunity — this is probably the most popular, obvious and important function of the retail Forex market. It provides the earning opportunity to traders, brokers, affiliates, webmasters, marketing companies and a lot of other on-line industries. Without a promise of profits retail Forex market would be limited to a simple exchange of the physical or current-account money.
Extra liquidity — this is definitely a positive function of the retail currency market. Although, not many traders use huge amounts of cash on Forex, the total sum of the money provided by the retail customers adds a good chunk of liquidity to the Forex market.
Extra volatility — a not very positive function at a first glance. Retail Forex market makes the rate movement less smooth and more volatile as the traders prefer short-term trading, which leads to the sharp reactions on the daily news and technical signals. Excess volatility is bad for the long-term traders, but it can be good for those who know how to benefit from such markets.
Social function — many communities were formed around the Forex trading. Traders prefer to get help from other traders and they also like to share the knowledge that is related to Forex.
Technical strategy development — popularity of the Forex trading and especially the on-line and automated versions of this trading led to the creation of thousands of the automated trading strategies. Based on technical analysis some of such strategies can be applied not only in Forex trading but in many other industries.

Of course, this list can't be considered as full and complete, but these functions are the main attributes of the contemporary retail Forex market, in my opinion.

4 Reasons to Practice on Small-Size Real Account before Risking Big on Forex

2009-01-21T13:48:00.001-08:00

Practicing on the demo accounts before moving on to the real money trading is an obvious requirement for successful participating on the Forex market. It’s always better to lose virtual money while you are learning new market theories, developing your trading system or improving your practical Forex skills. But is it right to jump from the virtual account to a big real money one when you suddenly realize that you manage to be profitable for a long period of time in your demo trading? Here are some reasons to move on to just a small real account before risking a lot of hard-earned money on Forex:

Real trading is different from virtual, because you get real emotions when you lose or earn money. Trading with $100 on real will get you more real feeling than trading with $10,000 on demo. It’s better to lose $50-$100 to learn controlling those emotions than several thousands dollars.
Know your broker’s real account servers’ behavior. With some brokers virtual trading is smooth and fast, while real account bring unpleasant surprises with order delays, requites, refusals, slippage and stop-hunting. Trading with a small real account can save you big money if you are unlucky to stumble upon a bad broker.
Know your broker’s funds handling practice. Don’t risk depositing thousands dollars before trying small deposits to see how smooth transfers go with this broker. Pay attention to user support if you encounter some problems with the depositing or withdrawing your money. If your broker doesn’t take seriously small money deposits/withdrawals than you should be careful with it, since it may treat big amounts the money in the same way.
Practicing on small real account has another advantage before the demo trading – you get the real rewards when you trade right and you get real losses when you do something wrong. This way you’ll quickly learn to do everything right and won’t be doing the same mistakes again and again.

Demo trading is one of the greatest tools to learn Forex trading, just don’t forget that nothing will teach you better than trading on a real account. But why risk big before being confident in your skills, when you can start with a small-size real account?

The Magic of Moving Averages

2009-01-21T13:45:00.002-08:00

Perhaps, the first indicator you’ve seen and used when you first started to trade Forex was Moving Average. For me it was that. Moving averages come in several forms — simple, weighted, exponential, smoothed, etc. And they present the most basic way to measure the current trend direction and to spot its change. At a first glance simple moving average indicator looks like a miraculous tool that is easy to use and can tell you where to enter a position and where to exit one. Let’s try to understand this indicator — is it really as good as it seems?

What moving average shows? No matter if it’s a simple, exponential or any other form of MA the only thing it’s showing is the average rate of the currency pair over a certain period of time, hence the name. For example, MA with a period set to 7 on a daily chart for any given bar will show the average price over the previous 7 bars (days). That’s not a magic, right? Various forms of moving average just influence the way to calculate the average value (to make the line look more smooth or sharp, or to throw out spikes), but in the end we get the averages of the previous periods.

So what happens when the current price crosses MA? Faster MA crosses slower MA? 3 MAs cross each other? The cross of the MA and a price or other MA (or any amount of other MAs) is usually considered as the buy/sell signal or at least a partial signal. Why? Because they really show a change in the trend. The problem is that the change could have happened long ago (up to the MA’s period bars ago). When the moving average is crossed by the price chart from below that simply means the current price became higher than the average price for the last N bars (where N is the period of MA) — that’s it and nothing else. If MA with a period of 7 days crosses MA with a period of 14 days from below that means that the average price in the last 7 days is higher than the average price during the last 14 days (the actual trend change here could happen up to 14 days ago). Some strategies employ even 5 moving averages cross — that won’t change the fact that the only thing you’ll know when such cross occurs is the ratio of the average price over 5 different periods.

So is there any point to use moving average? Yes, I think that the moving average is a good indicator, but not as a signal producer or a trend change indicator. What does it do best? It indicates the average price. So, it’s better to use it when you want to know the average price over a certain period. You can compare current price to the moving average to consider overbought/oversold state, measure the volatility comparing the price action with the large-period MAs, use the long-term moving averages as the support and resistance levels (because so many traders and even institutional traders use it in this way), etc.

Maybe that’s not a pleasant thing to know if you base your trading strategy on moving averages’ crosses, but the facts don’t lie and with more trading experience it becomes clear that moving averages can’t do magic and shouldn’t be used as an easy way to create another Forex strategy.

The Magic of Moving Averages

2009-01-21T13:45:00.001-08:00

Origin of the Currency Exchange Market

2009-01-21T13:44:00.002-08:00

Forex trading has a pretty long history and could be seen in ancient Middle Ages when foreign exchange just started out as international merchant bankers devised bills of exchange, which could be transfered to third-party payments that allowed flexibility and growth in foreign exchange dealings.

The modern FX market is is variable with periods of high volatility and relative stability . By the mid-1930s, London became known as the leading center for foreign exchange and the British pound served as the benchmark currency to trade and was kept as reserve currency.

After the 2nd World War, when the British economy was decimated and the United States was the only country unscathed by war, U.S. dollar ($) became the reserve currency for most of the countries . In turn, the U.S. dollar was pegged to gold at $35 per ounce. Thus, the U.S. dollar became the world's reserve currency.

To execute these goals the IMF uses such instruments as Reserve trenches, which allows a member to draw on its own reserve asset quota at the time of payment, Credit trenches drawings and stand-by arrangements. The letters are the standard form of IMF loans unlike of those as the compensatory financing facility extends financial help to countries with temporary problems generated by reductions in export revenues, the buffer stock financing facility which is geared toward assisting the stocking up on primary commodities in order to ensure price stability in a specific commodity and the extended facility designed to assist members with financial problems in amounts or for periods exceeding the scope of the other facilities.

At the end of the 70-s the free-floating of currencies was officially mandated that became the most important landmark in the history of financial markets in the XX century lead to the formation of Forex in the contemporary understanding. That is the currency may be traded by anybody and its value is a function of the current supply and demand forces in the market, and there are no specific intervention points that have to be observed. Foreign exchange has experienced spectacular growth in volume ever since currencies were allowed to float freely against each other. While the daily turnover in 1977 was U.S. $5 billion, it increased to U.S. $600 billion in 1987, reached the U.S. $1 trillion mark in September 1992, and stabilized at around $1.5 trillion by the year 2000.

Main factors influences on this spectacular growth in volume are mentioned below. A significant role belonged to the increased volatility of currencies rates, growing mutual influence of different economies on bank-rates established by central banks, which affect essentially currencies exchange rates, more intense competition on goods markets and, at the same time, amalgamation of the corporations of different countries, technological revolution in the sphere of the currencies trading. The latter exposed in the development of automated dealing systems and the transition to the currency trading by means of the Internet. In addition to the dealing systems, matching systems simultaneously connect all traders around the world, electronically duplicating the brokers' market.

Advances in technology, computer software, and telecommunications and increased experience have increased the level of traders' sophistication, their ability to both generate profits and properly handle the exchange risks. Therefore, trading sophistication led toward volume increase.

A Few Tips For Day Trading the Stock Market

2009-01-21T13:44:00.001-08:00

Day trading the stock market involves the rapid buying and selling of stocks on a day-to-day basis. This technique is used to secure quick profits from the constant changes in stock values, minute to minute, second to second. It is rare that a day trader will remain in a trade over the course of a night into the next day. These trades are entered and exited in a matter of minutes.

The main question that most people ask when it comes to day trading is simple: Is it necessary to sit at a computer watching the markets ALL day long in order to be a successful day trader?

The answer is no. It's not necessary to sit at a computer all day long. There are a number of factors to consider, but generally the rule of day trading is to trade when everyone else is trading. In other words, trade in the morning.

As with all financial investments, day trading is risky � in fact, it's one of the riskiest forms of trading out there. The stock prices rise or fall according to the behavior of the market, which is entirely unpredictable. Day traders buy and sell shares rapidly in the hopes of gaining profits within the minutes and seconds they own those particular stocks. Simple to do in theory, harder to do in practice.

If you are constrained by a small amount of capital, you may not be able to buy large amounts of a stock, but buying only a small amount can add to the risk of a loss. And, obviously, it is impossible to predict with certainty which stocks will result in profits and which in losses. Even the best of traders must learn to accept both outcomes.

It's also important to know that in day trading, it is the number of shares rather than the value of shares that should be the focus. If you day trade, you WILL face losses, but even for the more expensive stocks, the loss should be marginal, because prices do not usually fluctuate to an extreme degree over the course of just one day.

The day trading industry deals in a large variety of stocks and shares. Here are just a few:

Growth-Buying Shares� shares made from profit, which continue to grow in value. Eventually, these shares will begin to decline in price, and an experienced trader can usually predict the future of this type of share.

Small Caps� shares of companies which are on the rise and show no signs of stopping. Although these shares are generally cheap, they are a very risky investment for day traders. You'll be safer to go with large caps and/or mid-caps, which are much more secure and stable thanks to a premium.

Unloved Stocks company stock that has not performed well in the past. Traders buy these shares in the hopes of generating profits if and when the stock rises in value. As with small caps, unloved stocks can be a risky choice for day traders.

These examples are NOT your only options when it comes to day trading stocks. The best way to determine which type of stock is right for you is to invest some time for careful research, a knowledge of market patterns, a solid strategy, and a disciplined trading plan.

The key to successful day trading is to be prepared. Know as much as possible about the industry before you begin actually trading. You need to learn to trade ONLY when the market gives the right signals, and ONLY when the volume of activity in the market supports a successful trading opportunity.

A BEGINNERS GUIDE TO FOREX SELF-TRADING

2009-01-21T13:43:00.000-08:00

How do I begin? Please give it to me SIMPLY.

1. The best advice on how to learn to trade profitably is to learn from experts with proven track records. Many learning styles are available to beginners at all levels: books, CDs, online courses, group seminars, even one-on-one mentors who will come right your home for a few days. We outline our Forex-Trader picks in Learning Forex Trading. Learning to trade from experts is worth every penny and has saved us untold thousands in mistakes. We would not recommend starting forex trading without any training. It is not hard to learn, nor difficult to trade successfully, but you must first provide yourself with a basic functioning knowledge of 'the game you're in'.

2. While you are learning you will need charting software to practice reading the Market. Charting is an indispensable tool that shows you in real-time data what the market is doing moment by moment and also what the market has done in the past. As you learn to analyze these charts you can determine what trades to enter and exit, where to set your stop losses, limits etc. There are several good charting software services that you can subscribe to online monthly. See our Forex-Trader tested Charting Software picks in Tools of The Trade.

3. Then, to perform your actual trades online you need a real-time 'trading platform' to execute your 'buys' and 'sells' directly in the Foreign Currency Market. You obtain a trading platform from a Forex Clearinghouse that is connected real-time to the interbank market. There are many good Clearinghouses (also confusingly called Brokerage Firms, Market Makers, etc.) that provide you with the trading platform to trade the funds in the account you have opened with them. Before you begin trading your 'real' money, while you are learning, you will practice on your own 'demo account' with play-money in it, which will be provided to you by the clearinghouse you plan to trade through. The contractual relationship you enter into with your Clearinghouse is a very important one because the Clearinghouse you choose determines many trading features and financial advantages to you both as a trader and as an investor. Forex-Trader tested Clearinghouses are reviewed in Tools of The Trade.

We have outlined a Getting Started path with uncomplicated steps. This is the path that we would take if we were beginning trading over again today with 'what we know now'. The products and services we mention in these steps are all ones that we have personally used for some time with consistent success. As always you are free to forge your own path, and if you do, happy hiking. There is a mountain of products and services try out, and if you find ones you like better we would love to compare notes with you.

Explain More About Charting Services

To trade successfully you also must have good charting software and instantaneous data feeds critical to helping you analysis and interpret the movement of currencies moment to moment so you know when/why to buy or sell -- this you subscribe to monthly. You can get a 2 week or more demo to familiarize yourself with one that has the features you like. The costs also vary, and some companies require a year commitment. There are some free charting services offered through the clearinghouses, but they tend to lack the tools to be truly useful. There are also some costly proprietary Specialty Software charting 'hybrids' which are market forecasters tools that look more like video games than charts.

Explain More About How Clearinghouses Work

A good clearinghouse (i.e.. your computer access/link to the live Forex Exchange Market) is the partner with which you trade the money you have deposited with them in your trading account. After trying and demo-ing many we have found a small handful that are truly excellent for the beginner (and continue to be excellent as you grow) -- meaning user friendly, legally accountable to regulatory bodies, and offering fair costs (spreads) for their services/trading software platforms. There still are many worrisome ones practicing in this closing era of unregulated forex trading (new Commodities laws are imminent).

The topic of matching the right clearinghouse for your needs is discussed more in Tools of the Trade, because it depends on a number of factors -- how much you can open an account with, how much the clearinghouse profit spread, what your liquidity needs are, your minimum/maximum stop loss and margin requirements, even where you live and how much time you have to give to trading in a 24 hr. day.

How Much Does it Cost to Begin to Trade?
Learning to trade will entail the cost of books and whatever training method you choose. It will also include a reliable computer with a minimum 128 Mb of memory to run the charting software and trading platform. Ongoing 'costs of operation' include the monthly costs of high-speed internet, charting software, the email forecasting subscriptions -- plan on spending $150./mo. up for ongoing costs.

What about Pooled Clearinghouse Accounts to Trade with More Leverage?

We strongly do not recommend pooled accounts in any circumstance. Perhaps you are considering self-trading a pooled- together family account because it would give you a perceived advantage of more leveraged funds to trade (50:1 up to 100:1 leverage) -- any risks of loss represent a potential risk to family relationships, and for this reason alone we do not recommend aggregating with family or friends.

However much worse are the too-numerous negative experiences of people allowing their investment funds to leave their control to become part of a 'managed' pooled account. Not only is it a very risky investment idea, it is illegal for anyone to 'pool' accounts without compliance with SEC (a USA Securities Exchange Commission) or international equivalent license. Never relinquish direct control over your money/trading account to anyone (i.e.. the ability to make withdrawals, deposits etc. directly by your own authority into your own account).

A good fund manager, if you do choose to go the (legitimate) Managed Account route rather than the Self-Trader route, will make certain you have your own 'segregated account' in your own name in a bank or brokerage firm. These individual segregated accounts can still be traded together as though they were in a single account by a designated trader as long as the clearing house uses a trading platform that allows it. You, as the investor/account holder, have direct access online to your account activity at all times, and direct control over your own account in your own name (just like a bank account). The importance of this, for the safety of your funds, cannot be over emphasized.

Questions From Our Email Inbox

Thank you for inviting people to learn from your experience. I found that to be very generous. I was hoping you may be able to shed little light on just how to go about finding the right currency pairs to buy.

This is where charting software will make it self-evident for you to know what pairs are 'trending'. Technical analysis using charting software: Elliott Wave, Retracements, Fibonacci patterns, short term trending, etc. Good charting software is invaluable! Look at it as one of your 'costs of doing business'.

I have just begun learning how the FOREX works. There are so few opportunities for the lower economic class to achieve financial independence.

It took us a full year to learn to trade forex to achieve consistent profits, but well worth the time and effort. Forex trading can be the great leveler of the self-investor playing field. I and we believe that with dedication to sound, risk-management trading methods you can succeed.

I'm trying to build a financial base, but I just can't find a door in. Is it possible for me to participate directly in the FOREX with smaller amounts - like $1000?

Beginning with $1K. is more of a challenge and more of a risk (but not impossible). $1K represents 1 lot in Forex Trading, and that is the minimum (leveraged) trade that can be made. Perhaps that $1K would be better spent on trading education?

I have participated in Forex 'Games' and other types of online investments that claim to be investing in Foreign Currency (among other things), with returns of 50% a month and more. I actually did get paid. Opinions please?

We strongly urge you to resist any further temptation to send your money away to an investment-type pool (by this we mean do not send your money away to be under someone else's control and in someone else's account). It is unjustified risk, there are much better ways to begin to experience profits from forex trading. Many such online investments have totally disappeared into the Internet ethers from which they came. Typically these investments give no contact information, claiming to be 'offshore', 'for privacy reasons'. They last a few months, their bulletin boards or email newsletters extoll their climbing numbers of 'members' and pay-outs, then without warning their site goes off-line forever. And you never knew who they were that disappeared with your trust and your money or e-gold.

How do you forecast which currency is next in line to increase?

It is not so much that you want to know when any one currency is going up. You can make profits whether a currency is going up (buy), or down (sell). All Currencies are continually rising and falling relative to other currencies, and forex trading is in fact trading one currency relative to another. Good trading opportunities are always present when you know how to recognize them. Technical analysis using charting software, market sentiment, experience will show you which currencies to pair to trade. Forex Trading is a skill of identifying (and acting on) the probabilities.

How do you choose when to rollover or close positions?

Technical analysis using charting software that (when you learn how to identify what you are seeing) depicts resistance levels (how high it will likely rise to) or support levels (how low it will likely stop dropping at). This is helpful for determining whether to rollover the trade for a bigger forecasted profit the next day. However, a rollover does have additional clearinghouse fees attached. Quick in-and-out trades are closed intentionally with the goal of a smaller profit gain (such as a 4 pip profit).

For example, Beginners, who are learning to read their charts, can do very well closing positions at whatever point they have gained +4 pips profit. This represents a $40. profit (in this example we are trading 1 lot Euro/USD, so 1 pip equals $10.). A $40./4 pip gain is a relatively small move on the chart and may not seem impressive until you consider that If you do this successfully 4 times a day you have made $160. profit. With 4 such daily trades in a four day trading week you will have made $640. (consider also that this is even without the magic of compounding). We leave the monthly and yearly calculations to you.

What indicators do you utilize?
We have tried everything we could ever get our hands on. Over time we have selected the ones that are most consistent and well suited to our trading style. See our review of different indicator tools in Tools of the Trade. You will develop your own trading style (best times of day, favorite currency pairs, best instinctual moving-average chart pattern etc.). But experience with basic technical analysis using charting software is always the starting point. Then you add forex forecasting email subscriptions, Allan Greenspan's body language (no kidding) etc.

Are there any real time & reliable direct (commission free) market maker entry sites online?

Yes. It is not necessary to pay a clearinghouse (also known as a market maker, or forex brokerage house) an additional 'commission' for self-trading using their platform/services. They are usually compensated in the 'spread' between the buy price and sell price.

Tools of The Trade - Preparing to Trade

This is a collection of Forex "Tools of the Trade" -- products and services that we have found to be the best of all we have tried over many years, and additionally selected because the companies behind them have demonstrated reliable service, integrity and value. They are beginner-friendly, yet offering a growing trader lots of support. Look for the Forex-Trader discounts.

To trade Forex successfully you will need the basics:

1. A reliable, reasonably fast computer, preferably with high speed access to the internet (DSL or Cable Modem for example). An Internet dial-up account or the telephone becomes your back-up should your primary access fail.

2. Good foreign currencies "charting software" with a reliable, accurate data feed so that you can track currency movements in real time and perform the technical analysis necessary to trade effectively.

3. An on-line Forex trading account with a brokerage firm which provides a reliable Trading Platform, fair "spreads", quick execution of trades, good on-line reporting, and excellent customer service.

4. A subscription to at least one Forex Trading "Advisory Service" which provides market overviews at least daily. This gives you the context and overall directions of the market and will greatly assist in your own analysis and decision making.

Most importantly, you will need effective training and/or mentoring to master the techniques and discipline which 90 percent of beginning traders lack. This can be home study via cd's or on-line lessons, classes you travel to, or trainer/mentors who come to you.

1. COMPUTER HARDWARE:
Specially Configured for Trading.

MicronPC

There are many good choices for computer hardware. Over the last 6 years we have come to rely on consumer-poll-leader MicronPC to provide reliable hardware and great customer support. Their technical support is available 7 days a week and 24 hours per day and it is actually quick and friendly. We have made a special arrangement with MicronPC to provide substantial discounts to Forex-Trader referrals. Click the link below to see four configurations with detailed information and directions on how to order and receive a discount averaging hundreds of dollars off the price you would pay if you went directly to the Micron website and configured the same machine.

Telekinetics

Computer Trading Hardware For the Consummate Trader.

This is the Quintessence of Trading Computers.
TriKinetic is the only computer manufacturer dedicated exclusively to building trading computer solutions backed by lifetime technical support for the serious trader for whom downtime is not an option. With over 5 years experience and key relationships with the trading industry players, TriKinetic is a leader in complete 'Plug-n-Trade' (turnkey) trade stations.

2. FOREX CHARTING SOFTWARE

E-Signal

This charting software by Townshend Analytics professional charting software, works with a variety of data sources such as Comstock by Standard and Poors, Infotek etc. We use Comstock data for its Realtick is available by the month, a nice startup cost feature for beginners.

3. TRADING PLATFORMS Clearinghouses Providing On-line Access to the Forex Trading Market.

FXCM - Forex Capital Markets LLC A few the many reasons that we have been with FXCM the longest (and happiest) of the many Trading Clearinghouses we've tried -- they are commission-free and offer individual client accounts which are viewable online, their trading platform has the most efficient execution, with trader-friendly spreads and policies for both beginners and advanced traders with either large or small accounts. With an eye to coming regulations they voluntarily registered with U.S. regulatory agencies to demonstrate client assurance of safety through compliance with Securities rules.

A Word of Experience:
FXCM Charting software is free with a demo or live account, although useful it is not as complete as professional charting software. Also, their 'Mini-Account' might seem like a good start for a cautious beginner, however we have experienced much safer and more profitable trading results by learning to trade on their free demo account then, when ready, going 'live' with a 'full-size' trading account.

4. TRADING ADVISORY SERVICES

Trading Advisors are the esteemed 'Forecasters' of the Forex Trading Industry, experts who predict upcoming market moves based on experience, technical analysis and a host of other indicators.

Forex Advisor - Live Trading Advisory

This advisory service is one we are enjoying more everyday, naturally first because of its value and consistently profitable returns month after month with truly excellent risk management protocols. But also because this system is the ultimate in 'live coached trading'. This advisory teaches you risk-safe, consistently successful, profitable trading strategies -- one live session at a time.

A professional trader does all the analysis and posts charts and how-tos online on a leading edge proprietary Live Trading Platform while calling real-time trades with specific entry, exits and stop loss points.

Max's Forex Trader Advisory

This twice-daily Trading Research email advisory service heralds the opening the European Trading Market and later in the day the opening of the Asian Trading Market with market analysis, related insights, movements to watch for, and trading suggestions. Written by Max, the esteemed forex trader from New Zealand, whose passion for, and intimate knowledge of the foreign currency exchange is a good marriage.

SPECIALIZED TRADING ANALYSIS SOFTWARE

Nostradamus
An intriguing 'Wheel of Fortune' compass design displays and forecasts the trends, reversals, etc. of the forex market via sophisticated algorithms. It gives clear buy and sell signals, and continuously displays its trading profit history related to its predications. Subscribe to it monthly per currency pair, or subscribe to all currencies.

80 Trading stategies for forex

2009-01-21T13:42:00.002-08:00

Please pour over the 80 currency trading strategy items on the checklist below that the big dogs use. You'll be glad you did. Please pick up on the fact that you only need four tools to trade the forex with, using my approach – "reading bars," MACD divergence, pivot points, and trendline analysis. That's it. Nothing more! Plain and simple. Don't let the naysayers have you believe otherwise. The world is full of "Doubting Thomases" who are everybody's armchair quarterback, but have never made a dime in this business. They "sell shovels." They don't use them.

Currency Trading Strategy Number One:

When you are just starting out, strive to carve out 20 pips per session, and that’s it. Then, turn it off, and study some more. When you get really good at it, you can then “graduate” to higher returns. So, set your goal at 20 pips and stick to it, until you are a grand master at this wonderful “business” called forex trading. I stress the word business. This is not a game, especially where your “hard-earned money” is involved.

Currency Trading Strategy Number Two:

Spend most of your time on the 15-min chart.

Currency Trading Strategy Number Three:

When you first start out in any particular session, look at the 1 hr chart to get an overall perspective on trend from one session to the next, and what it’s likely shaping up to be at the beginning of the upcoming new session.

Currency Trading Strategy Number Four:

Only look at the 5 min chart if you absolutely have to see what’s behind the current 15 min bar – especially where the bar is elongated, and may have just penetrated a pivot point; in other words, is price reversing course on the 5 min chart, which would obviously not yet be reflected on the 15 min chart?

Currency Trading Strategy Number Five:

Don’t dwell on the 5 min chart, as it contains a lot of “noise” that will whipsaw you to death.

Currency Trading Strategy Number Six:

MACD rules on the 15 min chart. Even if MACD is, say, trending up on the 1 hr chart, if it is trending down on the 15 min chart, that’s what you take your cue from. That’s not to say a shift in price direction is not in the works. It just means it’s coming, but not yet. In the meantime, you don’t want to miss what’s happening “in the now,” which is what is reflected in the 15 min chart.

Currency Trading Strategy Number Seven:

If MACD is trending down on the 15 min chart, and price is wanting to go north, price will sooner than later head south as it perhaps bounces off a pivot point, or gets turned around at a juncture caught by one of the other three “tools” you should be using (“reading bars,” MACD divergence, or trendline analysis). Same thing if MACD is trending up, and price is trying to head south.

Currency Trading Strategy Number Eight:

Only use MACD for divergence, not for buy or sell signals. It is a lagging indicator, and as such is useless as a trigger. It is too slow for that in the forex world.

Currency Trading Strategy Number Nine:

Again, MACD divergence on the 15 min chart is more significant than what you see on the 1 hr chart in the near-term. For those of you who don’t understand what divergence means, keep looking at my own personal forex trading examples on this page on a daily basis for examples of divergence. Basically, what it means is where you see MACD waves “waving” in the opposite direction to price action. That’s why I connect the top of the waves (in a downtrend) and the bottom of the waves (in an uptrend) to illustrate that the waves are “waving” higher in an uptrend and lower in a downtrend – in the opposite direction to where price is going.

Currency Trading Strategy Number 10:

Always “protect” your money by using 20-30 pip stops. Mental stops are okay, but not if you are dead serious about using a “disciplined” approach to managing your money. You will lose three out of ten trades. The three losses should be kept to 20-30 pips. Your wins will by far surpass your small losses, and that’s what stop-losses are all about. Don’t be afraid to lose. Even professional batters strike out six out of 10 times. Lions are only successful 20% of the time in their chase for the kill. Professional golfers lose 95% of the time. Professional poker players lose 50% of the time. So, your chances are better at trading the forex, using my system of course, than in any other venue. Even businesses have “bad inventory.” And, life in general is not always “100%” for sure.

Currency Trading Strategy Number 11:

That all said and done, if you entered a trade close to a pivot point, or a particular significant bar pattern (like a double top, for instance, or a trendline breakout), place your stop on the other side (but not too close to) the event that caused you to take action. This is because price has a tendency to snap back to that situation that caused it to bolt away from it in the first place. If you follow the 20-30 pip stop rule, but a 33 pip stop on the other side of that event would safeguard you against such a reaction, then so much the better. So, yes the stop rule is 20-30 pips, but within reason of course.

Currency Trading Strategy Number 12:

Stops (read “stop-loss”) are for insurance purposes only – not necessarily for taking profits. However, you can most certainly employ “trailing stops,” whereby you keep moving your stop up (or down, whichever the case may be) to protect your profits, as price advances, or declines.

Currency Trading Strategy Number 13:

Only use “reading bars,” MACD divergence, pivot points, and trendline analysis in your forex trading toolkit. That’s all you need for this market. Be a technical bigot. Focus on pure technical analysis, and avoid funnymentals. Even news is factored into price action, so you don’t need to be up on it each and every nanosecond. If you don't have my .pdf file on reading bars, please send me an e-mail, and I'll forward it to you: prbain@tradingsmarts.com As was pointed out to me by a client, "reading bars" includes spotting double, or even triple, tops and bottoms.

Currency Trading Strategy Number 14:

And now for the tough part. I know my documentation says that the forecast low and high for the next trading session can be M1/M3 or M2/M4. However, trading is shades of gray. It is not a black and white business. If it were, the world would be paved in gold, and everybody would be rich. Now, we wouldn’t want that would we? The forex would be nothing more than a Church at the end of a road connected to a river bank at the other end with nothing in between. The point I am trying to make is that the “actual” low and high for the next session could very well be any combination of M1, M2, M3, and M4. It could be M1/M4, M2/M3, or combinations of the other five pivot points. The M1/M3 and M2/M4 calculations are just guideposts, but are not poured in concrete. Price is the number one indicator. It will determine what the low and high are going to be. And one other thing, you should use these forecasts in conjunction with the other three “tools” in your forex trading toolkit – “reading bars,” MACD divergence, and trendline analysis. In other words, if price has been trending down from the past session into the current one, price is trading at, say, M3, and price is still going down, then M3 may very well be the high for the new session, regardless of the fact that my system may have called for M4 to be the high. So, use the pivot points in conjunction with other three possible signals – “reading bars,” MACD divergence, and trendline analysis. I have seen it happen, as in the example just given, where price was trending down from one session to the next right through M3 at the open of the next session – simultaneous with the formation of a “double top” bar pattern. Well, there you have three indications that price was headed south for sure. And, I believe MACD was also trending down in that particular case. So, that was another clue that the high for the session had probably already been put in.

Currency Trading Strategy Number 15:

When you are first starting out, pick one currency of the four major pairs (EUR/USD, USD/JPY, GBP/USD, and USD/CHF) to trade, and become a specialist in it. I would personally recommend the Euro, especially if you are going to be asking me questions, as that's what I focus on with my clients around the world. Get to know its rhythm. When you are doing well with it, then move on, and trade the other three major pairs, as you see fit. When you are in learning mode, you will have your hands full trying to figure out what to look for, and how to manage your trades – enough so that you don't want to be skipping back and forth between currencies.

Currency Trading Strategy Number 16:

Keep a log of all your trades – both good and bad. Analyze where you went right and wrong, and vow not to repeat those situations that could have been done better. This is all part of being organized as a "professional" trader - with good habits. This is not about gun-slinging and winging it with "Hail Mary" passes.

Currency Trading Strategy Number 17:

Important point here: If price action opens in the upper end of the projected range for the session (all the way up to R2, and beyond) – in other words, in the sell area (that area above the central pivot point) – and there are other suggestions that price is too high (such as a particular bar reading, MACD divergence, or trendline breakout), then price has probably achieved the upper end of its price range for the session. The same holds true where price action opens in the lower end of the projected range for the session (all the way down to S2, and beyond) – in other words, in the buy area (that area below the central pivot point) – and there are other suggestions that price is too low (such as a particular bar reading, MACD divergence, or trendline breakout), then price has probably achieved the lower end of its price range for the session.

Currency Trading Strategy Number 18:

If there is nothing to do, then don't do it. Don't just do something because your "gut" tells you to. That can get you in a lot of trouble in this business. Only react to bona fide signals provided by the four indicators talked about above – "reading bars," MACD divergence, pivot points, and trendline analysis.

Currency Trading Strategy Number 19:

Only use an "industrial strength" market maker with the lowest pip spread in the industry. If you would like more information on this, please send me an e-mail: prbain@tradingsmarts.com

Currency Trading Strategy Number 20:

Occasionally, you will see a huge spike up in price, as we did 11 May 03. This just happened to be on a Sunday, shortly after re-commencement of trading, after the weekend respite. Ordinarily, I would take the OHLC numbers from Friday, but given the nature of the wild swing up that evening on one of the 15 min bars, I would then use the OHLC numbers from Sunday night's session close to get a better reading on support and resistance levels for the next session. This is, of course, if you are using a market maker that delineates its break between trading sessions in the late evening - anywhere between 20:59:50 and 24:00 (midnight).

Currency Trading Strategy Number 21:

I often get asked by fellow traders why my pivot points aren't the same as theirs. Good question. The answer is, of course, that you may be using a different market maker, where a daily 24-hour session is "cut off" at a different time. Some end at 20:59:50. Others at five pm. Where you take your OHLC from will have a direct bearing on the pivot points that you calculate using my program. The results will obviously not be the same. But, that is okay – because you want to use the pivot point calculations that are reflective of the last 24 hours at the market maker you are trading with. That way, the resulting numbers will be truly indicative of the support and resistance levels you should be working with during the next session. If you are trading with a firm that cuts off at 5 pm, and using OHLC figures from another source that cuts off at a different time, your figures will be "out-of-sync." I hope this all makes sense. If not, please send me an e-mail: prbain@tradingsmarts.com Also, in your message, you can ask me how to get a copy of my program, if you don't already have one. You can also ask me where you should be trading – i.e., which market maker you should be using. I only recommend "select" providers, after considerable research, and feedback from my clients.

Currency Trading Strategy Number 22:

Former stock traders take note: I say former because I don't honestly know why you would ever want to go back to stocks after having tasted the forex. Don't over-trade the forex. This is not a scalping market! If you have to scalp, do it in slow motion. Currencies trend well. Don't buy too soon in a downtrend, and don't sell too soon in an uptrend. Watch for trendline breakouts to know when to make your move.

Currency Trading Strategy Number 23:

You cannot succeed at trading the forex unless you are TOTALLY committed to trading, and trading it. This is not something to be played with. If you are not going to take it seriously, then try something else.

Currency Trading Strategy Number 24:

Put your emotions in your hip pocket. This is a business, and should be treated as such. If you have any bad habits, the forex will fix them real quick.

Currency Trading Strategy Number 25:

Important point here: If you deem the major trend for the current session, based on everything you have learned to this point, to be down, then think DOWN. Sell rallies. Don't look to buy, or you might get whipsawed to death. Likewise, if you deem the major trend for the current session to be up, based on everything you have learned to this point, then think UP. Buy the dips. Don't look to sell. Former stock traders fall prey to wanting to have it both ways. Maybe, when you get real good at this, you can try. But for now, think one way, and save yourself the grief.

Currency Trading Strategy Number 26:

Another important point here: The major rally for the Euro begins after two am New York time. These are the London hours – the busiest in the forex, bar none. The Euro always – session after session – puts in, on average, 76 pips during the first 12 hours from that time forward. Whether you want to believe it or not, the Euro, once it makes up its mind what the major trend is going to be during those 12 hours, will "drive" to the other end of its range (76 pips) within those 12 hours. So catch the trend, and ride it. Now, it won't be a straight line, of course. Even an airplane taking off or landing encounters some bumps along the way. Same too with the Euro. Once it picks its direction, it will meander all the way to the other end of its range. This will "fake" the dumb money out. They never know what happens to them. To conclude: If the Euro wants to have a down trend during those 12 hours, it will achieve its 76 pips south of where it started. So, think DOWN. If the Euro wants to have an up trend from during those 12 hours, it will achieve its 76 pips north of where it started. So, think UP. The Euro either goes up or down during those 12 hours – not both. Here, I am talking about the major trend, of course. Ah yes, there will be rallies or dips along the way, depending on the direction of the trend (down or up), but like I said earlier, SELL THE RALLIES IN A DOWNTREND, AND BUY THE DIPS IN AN UPTREND. That's all there is to it.

Currency Trading Strategy Number 27:

Something to think about: If you get the above strategy - number 26, then you're going to love this one. It will test your nerve. If you buy into the idea of the major trend unfolding during those 12 hours (check it out here every day, and you'll see living proof), then why not try to get in when it starts to unfold, and "ride it." That will take nerves of steel, because the Euro will go against you from time to time – but not enough so to take out your initial stop. From a risk/reward ratio point of view, you are risking 20 pips to gain 76. Not a bad ratio. What I am trying to say here is why not just put your trade on, set the stop, and go clean the swimming pool while the Euro meanders its way to the end of its range. What spooks a lot of people out is when they stare at price action after they have engaged their trade, and they over-react every time the Euro hiccups. Just leave it alone. So, what's the worst that can happen? You can get stopped out right? Chances are you won't. If you catch the major trend, chances are very much in your favor that you will be richer by at least US$760 per lot. If you trade the action all the way through the trend, you may get beat up real bad, and lose anyway. Let the Euro lead you, not the other way around.

Currency Trading Strategy Number 28:

Every once in a while, I would encourage you to step back from the daily intraday action, and have a look at it from 30,000 feet. Sometimes, we can get too close to it, and not see the trees in the forest. On the daily chart, if you plot trendlines and look for divergences, you will learn a lot about where price is going to go "next." Of course, that's what we all want to know, right? Not only do trendline breakouts and MACD divergences tell a "big" story, but where a daily bar closes will offer up a clue as to where price will likely go in the next session. Study the chart, and you'll see what I mean.

For those of you who don't know what this is all about, the little line pointing off to the right of a price bar is the "close" for the daily session. The little line pointing off to the left is the "open" for that session. In the forex world, the close of one session automatically becomes the open for the next session, as this is a very liquid market, and there are no gaps in trading.

I just thought it wise to pause and reflect at a higher level from time to time. Looking at things top-down is sometimes healthy, and a wise thing to do. We can sometimes get caught up in the minutiae of the daily flurry of price movements, and lose perspective of the bigger picture unfolding above us.

Currency Trading Strategy Number 29:

To reiterate, there are just a "few" things you have to watch out for, and be "patient" for set-ups to occur. Don't just pull the trigger because you "think" it's time to do so. Wait for bona fide "signals." There are only "four" clues you have to look for: "reading bars," MACD divergence, pivot point breakthroughs/tests/violations, and trendline breakouts. That's it folks. That's all it takes to succeed in this wonderful business called forex trading. No other bells and whistles or toys are required, contrary to what you may have learned before. The hardest part for you will be to "unlearn" everything you knew about trading before. Just give your head a shake, and it will go away.

Currency Trading Strategy Number 30:

Although I have said that there are only four clues that you have to look at for price direction – "bar reading," MACD divergence, pivot points, and trendlines – there is actually a fifth. It's called "price." Price is the number one indicator in the sky. It will tell you where it wants to go. Let it point the way. It's like playing cards. Wait for it to reveal its "hand." You just have to be patient and wait. It's called "following the leader."

Currency Trading Strategy Number 31:

I was asked recently about multiple lots – in other words, buying or selling more than one lot at a time. You can either "load up the boat" at your entry point, or you can go at it one at a time – adding additional lot(s), as price moves through each successive pivot point, as it "reaches" for the end of its range. If you are confident that you are "with the trend," and are using good money management techniques, then there is nothing wrong with taking more position(s) along the way. Or, you can do both – load up to begin with, and buy/sell more, as price progresses through pivot points in its tear to the finish line. Don't bail too soon. Remember, currencies trend well (especially the major trend), and price knows where it wants to go. Let it take you there. Use the "five" indicators – "reading bars," MACD divergence, pivot points, "price," and trendlines – to make your trading decisions.

Currency Trading Strategy Number 32:

Be careful about taking trades in between pivot points. This is NO MAN'S LAND, and dangerous territory. Better trades are made in and around pivot points.

Currency Trading Strategy Number 33:

Make sure to take the time to draw pivot points on your 15 min chart, which should be your main focus. This is like the radar screen in the cockpit of an airplane. It is difficult to trade (fly) without points of reference to look at. You don't need to draw them all. They probably won't all fit anyway. At least have those that are close to price action plotted on the chart. You can also plot lines on the 1 hr and 5 min, but you shouldn't be spending much time there, so it may be a waste of time. But, can't hurt. You should also draw trendlines. Where price breaks a trend at a juncture with a pivot point, this is very powerful evidence that price is going the other way. Plot your MACD divergences. The more you see on the screen, the better your trades will be. Draw a line down the screen (on the chart of course) delineating start of session, and where you got your OHLC from to calculate the pivot points for the current session. I think you get the "point," pardon the _expression.

Currency Trading Strategy Number 34:

Just to re-hash and beat an old drum, the 5 min chart is like the trim tab on a sailboat, for you sailors out there. It is small and insignificant, seemingly, but very powerful as it assists in "steadying" the course. Same too with trading, looking at the 5 min every once in a while will give you some insight into what is happening "underneath" the current 15 min bar that is forming. This is important, especially at the end of a run, where price might be trying to do an "end run" or "sneak attack" in the opposite direction to what you're thinking, while you're not watching, of course. But, like I say, don't dwell in "5 min land" as ex-stock traders are wont to do. They are scalpers by nature, but will very quickly get scalped by the forex, as one of my new customers has recently found out the hard way. He now puts a trade on (with stop in place for sure), and goes to the airport to pick up company, or goes outside to clean the swimming pool – only to come back, and see how much money he has made by not obsessing over every little movement. I'm not saying don't pay attention, but what I am saying is too close is too close. Once you catch the trend, and enter a trade because you saw something in "reading bars," MACD divergence, pivot points, trendlines, or price action, let price steer the course, and "wait patiently" for the next event that will cause you to take action. Of course, that action will be taken again because you saw something in "reading bars," MACD divergence, pivot points, trendlines, or price action. If you don't see anything significant, then DON'T DO ANYTHING. Sit on your hands. Don't press enter whatever you do! Oh, and before I leave this point, with a market maker I recommend, you don't have to leave the 15 minute chart to "peek" at the 5 min chart to see what's going on at that lower level, because they show the tick-by-tick action right on the 15 min chart, as the next 15 min bar is waiting to form.

Currency Trading Strategy Number 35:

I was recently asked how many signals he should wait for before pulling the trigger. As you recall, I earlier said that you should only take direction from "reading bars," MACD divergence, pivot points, trendlines – and price itself. Now, how many of these should fire before you engage your trade? Well, certainly, one is enough to set the tone – but all the more convincing where you have a couple or more all lining up and saying the same thing. For example, recently the Euro was in a downtrend from the session just ending, entering the new session still in a downtrend, when price did a double top at the nearest pivot point as the new session started. Well, there you have three things telling you what to do – go short, of course. We had the downtrend, the double top, and the double top banging its head up against the pivot point. Lots of evidence that price was southward bound. I think you get the point. An analogy here: If you're sitting in your car at home waiting to go to work in the morning, and you are waiting for all the street lights to turn green on the way to work before you start the car, you will never get to work. So, the more green lights the better, but one is enough to get you going.

Currency Trading Strategy Number 36:

And now for some psychology. For you newbies out there, your self-esteem will grow the more trades you make. You will not always be right. You will make mistakes. That's only normal when you are first starting out, and even after you have been at it for a while. Don't beat up on yourself when you fail. Just say to yourself, "Next!" You must move on. If you are using wise money management techniques, like 20-30 pip stops, you will survive to see another trade. This is all about preserving staying power. Don't second-guess your indicators (remember, "reading bars," MACD divergence, pivot points, trendlines, and price). You wouldn't dispute the dials and gauges in a plane, or you'd crash and burn. So, why doubt what your indicators are telling you. You must believe in them, and take "action" when they tell you to do so, BUT ONLY WHEN THEY TELL YOU TO DO SO! Have the courage to do so. And, now for the big one. NEVER LISTEN TO ANYBODY ELSE. TAKE YOUR OWN COUNSEL. CLOSE YOUR EARS WHEN YOU ARE TRADING. IT'S YOU AND YOUR CURRENCY. YOU HAVE NOBODY ELSE TO TURN TO. SO, DO IT. AND, STAY AWAY FROM NEGATIVE PEOPLE. DON'T TALK TO ANYBODY ABOUT THIS BUSINESS, UNLESS THEY ARE AS DEAD SERIOUS ABOUT IT AS YOU ARE. OTHERWISE, THEY WILL DRAG YOU DOWN. AND, BE HUMBLE. SAVE YOUR BRAGGING RIGHTS FOR LATER. THE FOREX WILL TAKE YOU DOWN, IF YOU TRY TO BECOME LARGER THAN LIFE. And, finally, focus on success. Be careful what you think about. Your thoughts will mould your actions and outcomes. If you are committed to the end result being successful, then you will get there. If you are always fearful, that affect your psyche. When you stumble and fail, just pick yourself up, dust yourself off, and get on with it. Don't be intimidated by a mistake, or a wrong decision. You will get better at this, especially if you keep a journal of all your trades, and study it to death. Be a professional. Be prepared.

Currency Trading Strategy Number 37:

I recently had a customer ask me what to do when price had headed north through all the pivot points for quite a run and lots of money in the bank, stalled at R2, and then continued its journey north. Answer: R2 is normally resistance. When price penetrated R2 headed north, and couldn't fall back through R2, R2 became support. It was a buy signal when price decided to continue its trek north. Remember, price is King. It will go where it wants to go. You must follow its lead, even if it already has put in quite a tear in one direction – even beyond its average daily range. It will keep going in that direction if it wants to. Remember, currencies trend well. Don't buy too soon, don't sell too soon. Wait for convincing evidence that it has made up its mind. In this case, price played with R2, but never punched down through it with any sort of notion that it wanted to reverse course. Once it made up its mind to continue the journey north, all you had to do was follow suit. Don't fall prey to oxygen starvation at high altitudes like R2. Trust your indicators. Do what they tell you. This isn't about falling for your gut feel that price has gone "too far" up. It could go even further – a lot further, in this case – if it wants to.

Currency Trading Strategy Number 38:

"The more I practice, the luckier I get." (Wayne Gretzky)

Currency Trading Strategy Number 39:

You should not execute trades, as a general rule, in between pivot points. That area is NO MAN'S LAND. Wait for price to make up its mind on direction at a support or resistance level, supplemented by other indications of price direction – "reading bars," MACD divergence, reaction to pivot point, trendline breakouts.

Currency Trading Strategy Number 40:

Don't use MACD for anything other than divergence. Recently, MACD on the 15 was trending up, leading unsuspecting traders to believe that price was headed north. However, price did a u-e at the main pivot point, and headed south to find the other end of its range at S1. You wouldn't see this sudden shift in MACD, because it is a lagging indicator. So, to summarize, just use MACD for divergence and nothing else.

Currency Trading Strategy Number 41:

You should only take trades in and around pivot points – not in between, as stated previously. When price action centers around a pivot point, then take a look at the five minute to see what's going on behind the scenes. Because, you should have been focused on only the 15 min up to the point of price interaction with the pivot point. Now, you want to pay attention to what price has up its sleeve. In the above example (40), price faked out unsuspecting trades when it trended up through the main pivot point, only to tank as it did a price rejection bar on the 15 min chart. Of course, you wouldn't have seen this coming if you were only looking at the 15 min. You would have seen the price reversal on the 5 min, and been ready to head south with price.

Currency Trading Strategy Number 42:

The absence of divergence between MACD and price simply suggests that MACD is confirming that the price trend is intact. But, don't be fooled by this synergy. Please review strategy number 40 to see what I mean.

Currency Trading Strategy Number 43:

Resistance levels (M3, R1, M4, and R2) are levels (or sell zones) where sellers can be expected to outnumber buyers, and push price lower. Correspondingly, support levels (S2, M1, S1, and M2) are levels (or buy zones) where buyers can be expected to outnumber sellers, and push price higher. These expectations are based on my program's interpretation of buyer/seller interaction in the last session. I think you will agree, after close inspection of the results of my pivot point calculations, that price hesitates, pauses, and decides on its course of action in and around pivot points. That's why you should never enter trades in between pivot points, while price is in transit, and in a state of transition.

Currency Trading Strategy Number 44:

Don't let anybody scare you off the forex by saying it is too risky. It is actually less risky than trading any other market, that is exchange-based. The forex cannot be "engineered," as stocks and commodities can be. Also, being a true seamless 24-hour market, there is less of a chance of your stops not kicking in. That's because the forex is highly liquid, trading ~US$1.5 trillion each and every day. It is the most liquid financial market in the world, bar none. And, you get good fills, with fast execution times.

Currency Trading Strategy Number 45:

On May 23, we have had a rather unusual day, in that price "reached" beyond its average range to put in 135 pips in two hours, just above R2, after starting its climb at the main Pivot Point. The Euro reversed course at the double top, and broke down through R2, to mark the end of its run to achieve its average daily range, or better in this case, within 12 hours of the start of trading for the current session. You would have noticed, of course, that the double top formation was also a "railway tracks" bar formation (if you just happened to have been looking at bars, instead of candles). Those two patterns occurring at the same time are a pretty powerful indication that price has run its course. So, keep your eyes peeled for price patterns per se, but also for combinations of patterns occurring at the same time.

Currency Trading Strategy Number 46:

May 23 was supposed to be an M2/M4 day, given the up-close for the last session. But, the actual range came in at Pivot Point/R2. Trading is "shades of gray" ladies and gentleman. Pivot points are not cast in stone. But, they are usually pretty close.

That day, the combination of Pivot Point and R2 achieved better than the average daily range for the Euro, well within the confines of logic behind my pivot point definitions. The central Pivot Point becomes a buy point (read, support), when it is breached to the upside convincingly, and so it became a reasonable starting point for price to commence its "range-finding mission" for the session. Likewise, R2 is a sell point (read, resistance), and so it was a viable target for selling pressure, as the Euro exhausted its "search" for the end of its range for the session.

The main point in all of this is that the full range for the Euro was achieved within the parameters of the pivot point logic and rules, which is the most important point to get out of all of this. By that I mean that the four pivot points below the middle pivot point are all "buy" candidates, and the four pivot points above the middle pivot point (including R2) are all "sell" possibilities. Achieving the full range, or more than that as was the case May 23, is what it's all about, more so than strictly adhering to the M1/M3 or M2/M4 windows of "buying" and "selling" opportunity.

I hope you are beginning to see the power of pivot points in action. You only buy and sell in and around them – not in between, which is what we call "NO MAN'S LAND." Not the place to enter trades. The only caveat here is where price forms patterns like we saw that day above R2 with the double-top/railway tracks combination. Such a reversal phenomenon, especially with two distinct formations occurring at the same time, cannot be ignored.

But, what is significant here is the fact that this "double whammy" took place after price had penetrated R2 to the upside, which to me looked like an exhaustion area – considering the fact that the last point of resistance had been broken. Then, you look for convincing evidence that price is going to continue its trek north, or do a u-e, as it did in this case, and head south.

There are important lessons to be learned in all of the charts I post at this site. So, please study them carefully. There are parallels, as I am sure you can see, between one session’s price action and that of the previous one. In fact, given the nature of currencies trending well, every day pretty much looks the same, except for different actual ranges and different low and high points (read, iterations of the nine possible pivot point lows and highs).

Price will always determine which set of pivot points it is going to work with, and that is why you always follow price's lead. That's also why I call price the "fifth indicator," and perhaps the most important one of the five I work with. By now, you will have learned more about the other four indicators, as you studied the previous currency trading strategy tips.

Please study the charts I post at this site on a daily basis, as they offer important clues that occur each and every day! If you understand what you see in those charts, you can't help but prosper with your trading on a consistent basis.

Currency Trading Strategy Number 47:

Don’t be greedy. I heard it said recently by one of my clients that he walked away from a session with only 150 pips in his pocket, and left a lot on the table. Boy, for somebody coming from the stock world, as he did, he should been thankful for his catch of the day. The point is, if you start out as a newbie looking to carve out only 20 pips per session, then anything beyond that is gravy, and it will surely come over time.

But, don’t forget the old adage, “Nobody can argue over profits in the bank.” If you see a profit, and want to take it, then do so, and be happy. You’ll live to see another day, and take some more profits. Just don’t always grab for the brass ring. This isn't about always hitting home runs. This is about having staying power, and taking one base at a time. When you have good reason to exit a trade, make your move, and be done with it.

Currency Trading Strategy Number 48:

Former Cleveland Brown's coach, the legendary Paul Brown, taught his football players a systematical/methodical procedure of understanding tasks to attain successful results in face of unforeseen, variable difficulties.

So too with foreign exchange trading. Forex trading requires adherence to a set of currency trading strategy rules, which I have set out at this site.

A wide body of research in behavioral finance shows that traders consider the loss of $1 twice as painful as the pleasure received from a gain of $1. That's why they take more risks to avoid losses than to realize gains. They end up buying high and selling low, contrary to conventional wisdom. Follow my currency trading strategy rules, and you'll avoid getting a closely cropped haircut when the forex tanks on you, as it did May 28.

Currency Trading Strategy Number 49:

I had somebody ask me why I waited until 03:00:00am New York time to make my move, in the mean time missing potential in advance of that timeframe. The answer is quite simple. That is when London trading kicks in, and that is generally the busiest session on the forex. You will notice that is when the Euro usually starts its major trend to find its average daily range of 76 pips. Those pips are usually put in within the first 12 hours of trading. Check it out for yourself. It happens each and every day, over and over again.

Currency Trading Strategy Number 50:

"Ascending Triangle": Price forms higher lows, and looks like somewhat of a horizontal line on top and a rising lower trend line. This formation is normally bullish. You take its height at its highest point, and measure that distance from the upper line to obtain the upside target. If you want to see an example of this type of triangle, please send me a note: prbain@tradingsmarts.com and reference May 26/03.

Currency Trading Strategy Number 51:

By combining "pivot point readings" with other signals – like divergence, multi-tops, trendline breakouts, triangular patterns, etc. – you can pretty much tell where price is going next. Normally, I would say that you should only enter trades in and around pivot points. But, given the large distances that can sometimes happen between pivot point areas, you then have to be on the lookout for other evidence of future price direction.

Like I keep saying, trading is "shades of gray." Nothing is always black and white in this business. Trading is as much an art as it is a science. That all said and done, when price does encounter a pivot point, you can see that that point has a powerful influence over price. So, always be on the alert for that next point of interaction with the next pivot point, as it will have a distinct bearing on what happens next.

Currency Trading Strategy Number 52:

If you are trying to catch the major trend that unfolds during the London hours, but are afraid of getting your entry point figured out correctly, wait to catch the next entry point, as the Euro "reaches" for its average daily range of 76 pips. The next entry point will occur in and around the next pivot point that price passes through. Or, you may catch price as it tries to retest the pivot point it just went through. That way, you won't run the risk of getting in too early, when the trend tries to unfold in early trading. Sometimes, price fakes you out, and goes in one direction for a while, and then reverses course, before finally picking its direction. My favorite saying is, "He/she who procrastinates wins." What you are giving up, of course, are those initial pips of the trend, which may amount to, say 30 give or take, but you are more sure of capturing the remaining 46, as the major trend of the session matures.

Currency Trading Strategy Number 53:

I would like to remind you that the pivot points above the central "Pivot Point" have a "sell" bias, and the pivot points below the central "Pivot Point" have a buy bias. These biases hold true unless price action turns a pivot point's bias from sell to buy or buy to sell – i.e., from resistance to support or support to resistance.

On June 6, 2003, you would have observed from price action that M3 held its bias, but the pivot points below the central pivot points were turned from buy, or support, points into sell, or resistance, points. Of course, price action determined this.

The other important point to make is that when the major trend reveals itself, as it did on that day (and does every day, within 12 hours of the start of trading for the session), you should think along the lines of the bias. That day's bias in early trading was "short." Meaning, you should have forgotten how to spell the word "long." Scalpers want it both ways, but that doesn't work in the forex – unless, of course, you want a short haircut. I say this because currencies trend well. Don't second-guess the trend until it reverses itself with bona fide signals. In other words, don't sell to soon, and don't buy too soon.

Currency Trading Strategy Number 54:

Keep those trading journals going! If you always trade the way you always traded, you'll always get what you always got.

Currency Trading Strategy Number 55:

There is nothing that says you have to trade often, or even every day. In other markets, most professional traders catch only three to four really great trades a week, if that! Not so with the Forex. Here, the timeframe is more like a day. However, if you don't see any "ironclad" trades, then don't trade. Turn if off and go golfing.

Slow down, and drive the speed limit. This isn't a race. After all, you are in control of the market, not the other way around. Don't feel pressured into doing something you feel uncomfortable about. Wait for those "perfect set-ups" to make your move. Same goes for those "bad-hair days." If you are feeling out of it, sit on your hands, or go do something else. Take charge of your trading life, before it takes charge of you, and your money.

Currency Trading Strategy Number 56:

I often get asked what parameters I use for MACD. I use the standard default settings. They work just fine. After all, all you should be using MACD for is divergence.

Currency Trading Strategy Number 57:

I have said it before that you should only trade in and around pivot points. The only exception to that rule is if you see a trendline breakout or a bar pattern, like price rejection, that gives a clear signal that price is about to reverse course. If price is in between pivot points, and you are not sure what to do, don't do anything! If there's nothing to do, don't do it. Patience is the hardest thing to master in the forex, or any market for that matter.

Currency Trading Strategy Number 58:

The major trend for the Euro usually starts revealing itself as the London hours kick in. Up to that point, price may "bait and switch" you into thinking it is going one way, when in fact it is setting up to go the other way. It can easily fake you out, before the London hours start to unfold. So, be patient and wait. Look for clues coming out of the previous session as to where price might be going ultimately. Did you see a "head and shoulders" pattern? Did you see a triangle pattern? Do you see price trending in any one direction over a period of time. Do you see any divergence in MACD (on the 1 hr and 15 min charts)? Do you see any channels, where price is looking to break either way? Play Sherlock Holmes. A little bit of detective work will go along way before you dive into the new session. Like the Boy Scouts say, "Be prepared!" Be in charge of your trading. Put your emotions in your hip pocket, and save them for later. Run your trading as if you were running a "bricks and mortar" business. Same principles and rules apply. No different. This is not about betting and gambling. This is serious business. After all, your hard-earned money is at stake. Protect it at all costs.

Currency Trading Strategy Number 59:

I have people asking me all the time why I don't post my trades in real time, or why they can't call me while I am involved in my own trading activities. The answer is quite simple. This page is dedicated to my belief in the old adage: "Give a man a fish, and feed him for a day - teach him how to fish, and feed him for a lifetime!"

Plus, it would be very stressful and time consuming for me to take time away from my own work (and quiet time) to interact with a discussion forum. I am sure you will understand my position on this. I have customers in over 30 countries, and it would be a nightmare for me to react to each and every nuance that came along. A chat room is in our business plan, but at this writing, I don't have any idea of when that might happen. When it does, I will certainly give you lots of advance warning.

I teach people how to fish. I don't give them the fish. I can remember when I first learned how to trade. I had my mentor sitting right by my side each and every step of the way. Then one day he upped and moved, and changed cities. He actually moved to a remote and secluded island to get away from city life. Nice move for him, but it left me in a state of panic. How could I possibly survive on my own? I can tell you, ladies and gentleman, that I really learned how to trade when I had to do it on my own, and those were real drops of sweat rolling down from my forehead all over my face.

This is about you and the market, and you mastering your innermost psyche. Anybody can learn to trade the forex my way. But, what will get you every time is that little inner voice doubting your every move. And, then there's fear and greed that will bite you real hard too. It's the psychology of your mind that you must master. You must become disciplined and patient to a fault. You must react only to bona fide signals, that I teach here. Otherwise, you would be better off heading out to your local casino, and taking your chances there.

The forex is not about gambling. It is about running a business, where there will be gains and losses. Your every effort and constant struggle should be to get a grip on those times when price goes against you. You are in charge. You can get the upper hand on price by trading "smartly," and using good money management techniques, that I also teach here. You won't win every time. But, with my system, you should come out ahead seven out of 10 times. The trick is to limit your losses to small ones, and let your profits soar.

Getting back to going solo without an instructor at your side during each and every step of the way, I recall a friend of mine telling me how he learned to fly. After several practice flights with his instructor in the cockpit with him, they landed back at the airfield, and the instructor turned to Pal and said, "Now, it's your turn to take it up. I'm getting out. You're on your own buddy." Talk about anxiety and stress. Well, Pal took off and landed all by his little 'ole lonesome. But, he was pale and his knees were knocking when he got out of the plane back at home base. He has soloed ever since. It's his passion now. There's something about being able to do it yourself, without a partner holding your hand all the time. It's called "confidence boosting." If you can fly or trade by yourself successfully, there probably isn't anything else in life you couldn't do equally as well. Actually, Navy pilots who land on aircraft carriers make the best traders. But, that's another story for another time.

I can tell you my friend learned more about flying in that one solo session than he did all the times his instructor went up with him. Same with trading. You can do it. Just believe it so. Dedicate yourself to becoming a master at it. Analyze, read, study, think. Ask questions. There is no such thing as a stupid question. Become passionate about your trading. Don't think of it as a get-rich-quick scheme. Do it because you love it. Do it as if you would do it anyway, even if you weren't making money. There has to be an element of fun in it for you. If it's all work, and no play, well you know the answer to that one.

Don't get me wrong. I am here to answer your questions whenever you need my help. I am dedicated to your success, and your happy times with your family. Nothing would give me greater pleasure than to get an e-mail from you telling me how this has turned your life around, and that you are now happily making money trading the forex my way.

Currency Trading Strategy Number 60:

Don't get hung up on reading bars when you think you have caught the major trend. Once the trend is unfolding, you then look for a place to enter - around a pivot point. You look to reading bars to signal a change in the direction of the major trend.

A double top in a downtrend means nothing. A double bottom does. So, a price rejection bar or double bottom in a major downtrend would signal a short-term reversal, and that's all. But, once you see the major trend unfolding – say, on the short side – you pretend you don't know how to spell the word long. Stick with the overall major trend that is unfolding.

These comments relate specifically to the beginning hours of London trading, which is when the major trend reveals itself.

Currency Trading Strategy Number 61:

You need to get to the point where, when you look at a chart without any visual aids, you see indications as to where price is going. This has to become "second nature." At that point, you can trade with ease. And, your stress level will go down, because you will be in control of the market, not the other way around. This only comes with practice, day after day. This takes patience, and staying power. You must hang in there until you get it. Winners never quit; quitters never win.

Currency Trading Strategy Number 62:

At first, if you are fearful, don't trade until you see what you consider to be an ironclad set-up that you are familiar with – an easy one. That may mean waiting out a session or two, but that's okay. There's no rush. I find with some people they seem to have to prove something to themselves or someone else. Some people think they have to scalp all day long for some reason that is beyond me. After all, you are in control. Take your time. Relax. Enjoy it. Sooner or later, you will see a bona fide set-up that you recognize, and bingo you're in. When in doubt, do nothing. When there is no doubt, do something, do anything – pull the trigger.

Currency Trading Strategy Number 63:

Unfortunately, you will not always get all the signals you need to pull the trigger. After all, this is as much an art as it is a science. You cannot always be 100% sure that you are doing the right thing. If you wait forever to get all your ducks lined up, you may wait a long time. My favorite analogy goes something like this: Pretend you are sitting in your garage at home wanting to go to work, but you are waiting for all the street lights along the way to turn green before you pull out of the driveway. Guess what folks? You'll never get to work. Same with trading. Sometimes, you just have to make an educated guess (based on the currency trading strategy recommendations contained at this site) and go with it. You won't always be right, but this isn't about being right. It is about making a decision, sticking with it, and reversing course if you have to. Accept getting stopped out as God's way of kicking you to a higher level. Just one more step to success.

Currency Trading Strategy Number 64:

Thanks to Tom for this: There are two choices to be made – LONG or SHORT when a certain point in the session(M1, S1, R2, Pivot ... etc.) is reached. The BASIC rule is BUY (go long) below the pivot in the S1, S2, M1, M3 zone and SELL (go short) above the pivot in the Zone R1, R2, M2, M4. Obviously it isn’t as simple as this and other indicators such as MACD divergence, reading bars, trends, and patterns all add to the question LONG or SHORT. Bang on Tom! Way to go!

Currency Trading Strategy Number 65:

I have said previously that you should make your buy/sell decisions around pivot points. However, for example, if price is meandering in between pivot points and then does a double top, that would lead me to believe that price is going down. So, there are times when you would want to make your move before waiting for a pivot point to be hit. Of course, there's nothing wrong with waiting for price to do so and then reacting.

Currency Trading Strategy Number 66:

Thanks to Harry for this one: He indicated that I sometimes refer to "price rejection." And, what does that mean. It simply means that a price reversal bar has formed, causing the bar in the middle to have a higher high than the bars on either side of it. The price bar in the middle is essentially a key reversal bar. And, what you have is a "swing change." That is, price is reversing course, and heading south. The same holds true when price is reversing and heading north. You then have the bar in the middle of the three-bar pattern with a lower low than the two on either side, and the one in the middle is the key reversal bar.

Currency Trading Strategy Number 67:

Repetition is the key to success in any endeavor in life, including trading the forex. The more you practice trade, the more you trade real money, the better you get. You just have to keep at it - over and over and over again. Persistence is the key. You're bound to get better at something if you do in constantly and don't quit. Don't let the market psyche you out. When you have a down day, just treat it as experience. Lessons learned. But, try to learn from your mistakes. Keep those journals going. If it's not written, it doesn't exist.

Currency Trading Strategy Number 68:

I get the impression that some of you are not paying enough attention to trendlines. They are very powerful. Price WILL change direction when it breaks the trend, regardless of what other indicators may be telling you. So, draw them, and let them be your guide. REMINDER: In an uptrend, as we saw June 25/03, as long as the trendline holds, buy the dips. In a downtrend, sell the rallies. In an uptrend, don't look to go short EVER! In a downtrend, don't look to go long EVER! Plain and simple.

Currency Trading Strategy Number 69:

Thanks to Stu G. for this one. I have been harping on using MACD only for divergence. But, Stu is right. I do on occasion, as I did June 26th/03, use MACD to confirm the trend. If the price trend has been consistently down over a period of time, then it could very well be that when price tries to go counter-trend, it may just be a retracement or a temporary move in the opposite direction. I usually like to stick with the major trend. In a downtrend, sell the rallies; in an uptrend, buy the dips.

Currency Trading Strategy Number 70:

I was asked by some of my readership what happened Friday, June 27, with all the wide-range bars on the 15-min chart. That was a tough day to trade, even for seasoned professionals. Lots of whip-sawing. Lots of stops got taken out. Trading patterns were dominated by end-of-quarter positioning. A good day to stand clear. So, be prepared for the next end-of-quarter, and the one after that, and the one after that, etc. Mark those dates on your calendar. Trading is as much about being organized and prepared, as it is about being good at it.

Currency Trading Strategy Number 71:

Marathon runners have only one thing on their mind when they are running – to cross the finish line. They NEVER look back. Same too with trading. You should focus on surviving for the long haul. Sure, you will stumble and fall. But, just pick yourself up, just yourself off, and carry on. Winners never quit, and quitters never win.

Currency Trading Strategy Number 72:

Beware of holiday situations like the long July 4th weekend. Trading tends to be thin, and it is difficult to produce meaningful pivot points. Best to just go golfing, and forget about it. There's nothing that says you have to trade every day. Get a life.

Currency Trading Strategy Number 73:

If you are having trouble with your entry points, I suggest you try waiting until you see a hammer or a spinning top, and then pull the trigger. You may wait a long time, but at least you will be sure of getting a good entry point, as these particular candles are powerful precursors to a shift in price direction. Have a look at any chart and see how many of these candlesticks you can pick out. You might be surprised at how many there are. For more information on these bar formations, please read my August, 2003 edition of my newsletter: www.tradingsmarts.com/newsletter0803.htm Obviously, if you click on that link after August 1, 2003 the newsletter will be there. Before then, it won't.

Currency Trading Strategy Number 74:

I just returned from a meeting with a group of young traders who have been at the forex for the past two and a half months. They are making steady progress, and I am extremely proud of them. I thought I would pass along their observations that may prove helpful to your own trading. They have backed off short-term trading, and are more into position trading the forex – using a longer timeframe – taking cues from the 1 hour chart. They also believe that signals that occur on that chart are more powerful than those on the 15 min. For example, a signal on the 1 hour would have more weight than an indication on the 15 min. Basically, what they are saying is that you should wait on a trade for confirmation on the 1 hour chart before pulling the trigger, unless of course you see an ironclad setup on the 15 min chart. Trading is shades of gray ladies and gentlemen. These ideas are working for them. That doesn't mean to say you can't experiment on your own. If you do and find something that works for you, please let me know, and I'll share it with the rest of the gang.

Currency Trading Strategy Number 75:

Clarification re Aug. 22/03 chart, thanks to Bill: Bill quite rightly pointed out in the chart for August 22/03 that there were hammers at 3:01 and between 5:01 and 6:01 that didn't take. My answer to him was that such a candle should be complemented by some other indication of a shift in price direction. For example, in the cases he cited above, price did not break the down trendlines - so, in effect, the hammers' supposed effect was nullified. To conclude, bar formations that should signal a change in price direction should be accompanied by other signals, including pivot points. In other words, what happens to price around a pivot point when you see a hammer? Does the pivot point support what the candle is saying? Thanks Bill for this.

Currency Trading Strategy Number 76:

I was recently asked where one could find volume figures for a currency. None of the popular sites carry it. Nor is it necessary as the Forex is a very liquid market. Volume is somewhat redundant anyway in that regard. You just need to use technical analysis to trade the Forex.

Currency Trading Strategy Number 77:

Pay attention to that news. I had been calling for an advance in the euro and Swiss franc and, sure enough, they both popped on bad unemployment news in the U.S. September 5, 2003. News is not noise in the Forex.

Currency Trading Strategy Number 78:

There are “talking” bulls and bears and there are “real” bulls and bears. The real ones are reflected in volume and open interest. But, these numbers are not available for inter-bank currency trading. However, they are reported for futures markets, which represent a good proxy for sentiment because they are primarily a vehicle for speculation.

Turning points in currency markets often coincide with extremes in open interest levels, which represent extremes in speculation. The key here is to watch for extreme levels and extreme changes in both open interest and volume to signal a possible change in trend.

Open interest numbers are of little use intraday. However, knowledge of a change in trend or extreme speculation in a particular currency based on open interest and volume can be valuable information for any trader in any time frame. That’s where an understanding of how COT works can improve your chances of detecting the underlying bias to a particular FX currency based on its futures counterpart, and anticipating its next move.

As at September 2/03, the commercial traders were extremely long with their net futures positions on the euro FX and the Swiss franc FX, versus the funds, which were extremely short. When you see such extreme divergence between these two camps, you know that price will probably follow the commercial traders’ lead.

The euro FX and Swiss franc FX represented good position trades to the long side at that time. A good buy-and-hold situation for position traders. Sure enough on September 5/03 we had bad unemployment numbers coming out of the U.S., and both currencies popped. Who could have guessed?

Currency Trading Strategy Number 79:

I think there is a misconception out there that you have to trade only the 15 min chart. You can also trade off the 1 hr and daily charts. It just lengthens the cycle. For example, when I called the euro and Swiss franc to rise, you could have taken a position on the daily chart and rode it up. That's all I'm saying. Likewise, you can wait to take a position until you see a valid entry point on the 1 hr chart. Etc.

Currency Trading Strategy Number 80:

For newbie traders, it is probably best to steer clear of Mondays, the day after a holiday weekend and end-of-quarters where there is a lot of position squaring going on.

Of course, there’s more to be learned about currency trading strategy in my original book on trading and the two e-books on trading the forex – available only at currency trading strategy You automatically get all three when you order at that link. If you are reading this page, you probably already have these books, and are reaping the benefits.

80 Trading stategies for forex

2009-01-21T13:42:00.001-08:00

133 Trading tips

2009-01-21T13:38:00.000-08:00

1. Learn the basics of forex trading. It's amazing how many people simply don't know
what they're doing. In order to compete at the highest level in the trading business and
be one of the few truly successful participants you must be well-educated about what
you are doing. This does not mean having a degree from a well-respected university –
the market doesn’t care where you were educated.
2. Forex trading is a zero sum game. For every long there is also a short. If 80% of
the traders are on the long side ,then the remaining 20% are on the short side. This
means further that the shorts must be well capitalized and are considered to be strong
hands. The 80%, who are holding much smaller positions per trader, are considered to
be weaker hands who will be forced to liquidate those longs on any sudden turn in
prices.
3. Nobody is bigger than the market.
4. The challenge is not to be the market, but to read the market. Riding the wave is
much more rewarding than being hit by it.
5. Trade with the trends, rather than trying to pick tops and bottoms.
6. Trying to pick tops and bottoms is another common fx trading mistake. If you're
going to trade tops and bottoms, at least wait until the price action actually confirms
that a top or a bottom has been formed before you take a position in the market.
Trying to pin-point tops and bottoms in the foreign exchange market is very risky, but
exercising a little patience and waiting for a proven top or bottom to form can
increase your odds of profiting and somewhat reduce your risk.
7. There are at least three types of markets: up trending, range bound, and down. Have
different trading strategies for each.
8. Standing aside is a position.
9. In uptrends, buy the dips ;in downtrends, sell bounces.
10. In a Bull market, never sell a dull market, in Bear market, never buy a dull market.

11. Up market and down market patterns are ALWAYS present, merely one is more
dominant. In an up market, for example, it is very easy to take sell signal after sell
signal, only to be stopped out time and again. Select trades with the trend.
12. A buy signal that fails is a sell signal. A sell signal that fails is a buy signal.
13. Let profits run, cut losses short.
14. Let your profits run, but don't let greed get in the way. Once you've already made
a nice profit on a trade, consider taking either some or all of the money off the table
and move on to the next trade. It's natural to hope that one trade will end up as your
"winning lottery ticket" and make you rich, but that is simply not realistic. Don't hold
the position too long and end up giving all your well-deserved profits back to the
market.
15. Use protective stops to limit losses.
16. Use appropriate stop-loss orders at all times to cut your losses and never, ever sit
back and let your losses run. Almost every trader at some point makes the mistake of
letting his or her losses run in hopes that the market will eventually turn around in his
or her favor but, more often than not, it simply leads to an even greater loss. You win
some, you lose some. Simply learn to cut your losses, take your occasional lumps and
move on to the next trade. And if you made a mistake, learn from it and don't do it
again. To avoid letting your losses run, get into the habit of determining an
acceptable profit target as well as an acceptable risk tolerance level for each and every
forex trade before entering the market. Then simply place a stop-loss order at the
appropriate price - but not so tight (close to the market) that the stop could quickly
take you out of the position before the market has a chance to move in your favor.
Using a stop is always the smart move.
17. Avoid placing protective stops at obvious round numbers. Protective stops on long
positions should be placed below round numbers (10, 20, 25, 50,75, 100) and on short
positions ,above such numbers.
18. Placing stop loss is an art. The trader must combine technical factors on the price
chart with money management considerations.
19. Analyze your losses. Learn from your losses. They're expensive lessons; you paid
for them. Most traders don't learn from their mistakes because they don't like to think
about them.
20. Stay out of trouble, your first loss is your smallest loss.

21. Survive! In forex trading, the ones who stay around long enough to be there when
those "big moves" come along are often successful.
22. If you are a new trader, be a small trader (mini account) for at least a year, then
analyze your good trades and your bad ones. You can really learn more from your bad
ones.
23. Don't trade unless you're well financed...so that market action, not financial
condition, dictates your entry and exit from the market. If you don't start with enough
money, you may not be able to hang in there if the market temporarily turns against
you.
24. Be more objective and less emotional.
25. Use money management principles.
26. Money management increases the odds that the trader will survive to reach the
long run.
27. Diversify, but don’t overdo it.
28. Employ at least a 3 to 1 reward-to-risk ratio.
29. Calculate the risk/reward ratio before putting a trade on, then
guard against holding it too long.
30. Don’t trade impulsively ; have a plan
31. Have specific goals and objectives.
32. Five steps to build a trading system:
a) Start with a concept b)Turn it into a set of objective rules.
c) Visually check it out on the charts d) Formally test it with a demo
e) Evaluate the results.
33. Plan your work and work your plan.
34. Trade with a plan - not with hope, greed, or fear. Plan where you will get in the
market, how much you will risk on the trade, and where you will take your profits.

35. Follow your plan. Once a position is established and stops are selected, do not get
out unless the stop is reached or the fundamental reason for taking the position
changes.
36. Any successful trading system must take into account three important factors:
price forecasting , timing , and money management. Price forecasting indicates
which way a market is expected to trend. Timing determines specific entry and exit
points. Money management determines how much to commit to the trade.
37. Don't cherry-pick your system's set-ups. Trade every signal.
38.Trading systems that work in an up market may not work in a down market.
39. Establish your trading plans before the market opening to eliminate emotional
reactions. Decide on entry points, exit points, and objectives. Subject your decisions
to only minor changes during the session. Profits are for those who act, not react.Don't
change during the session unless you have a very good reason.
40. Double-check everything.
41. Always think in terms of probabilities. Trading is all about thinking in
probabilities NOT certainties. You can make all the “right” decisions and the trade
still goes against you. This does not make it a “wrong” trade, just one of the many
trades you will take which, through probability, are on the “loosing” side of your
trading plan. Don’t expect not to have negative trades - they are a necessary part of
the plan and cannot be avoided.
42. The place to start your market analysis is always by determining the general trend
of the market.
43. Trade only with a strategy that you've proven to yourself.
44. When pyramiding (adding positions), follow these guidelines.
a. Each successive layer should be smaller than before.
b. Add only to winning positions.
c. Never add to a losing position. One of the few trade management rules
that we can state we never break is ‘Never add to a losing trade’.
Trades are split into winners and losers, and if a trade is a loser, the
chances of it turning right around and becoming a winner are too small
to risk more money on. If indeed it is a winner disguised as a loser,
why not wait until it shows it’s true colors (and becomes a

d. winner)before you add to it. If you do this you will notice that nearly
always the trade ends up hitting your stop loss and does not look back.
Sometimes the trade turns around before it hits your stop and becomes
a winner and you can count yourself very fortunate. Sometimes the
trade hits your stop loss and then turns around and becomes a winner
and you can count yourself unlucky. Whatever the result, it is never
worth adding to a loser, hoping that it will become a winner. The odds
of success are just too low to risk more capital in addition to the initial
risk.
e. Adjust protective stops to the breakeven point.
45. Risk Control
A)Never risk more than 3-4 percent of your capital on any trade
B)Predetermine your exit point before you get into a trade
c)If you lose a certain predetermined amount of your starting capital, stop trading,
analyze what went wrong, and wait until you feel confident before you begin trading
46. Don’t trade scared money.
No one ever made any money trading when they had to do it to pay the mortgage at
the end of the month. Having a requirement to make X dollars per month or you will
be financially in trouble is the best way I know to completely mess up all trading
discipline, rules, objectives, and leads quickly to disaster.
Trading is about taking a reasonable risk in order to achieve a good reward. The
markets and how and when they give up their profits is not under your control. Do not
trade if you need the money to pay bills. Do not trade if your business and personal
expenses are not covered by another income stream or cash reserve. This will only
lead to additional unmanageable stress and be very detrimental to your trading
performance.
47. Know why you are in the markets. To relieve boredom? To hit it big? When you
can honestly answer this question, you may be on your way to successful forex
trading
.
48. Never meet a margin call; don’t throw good money after bad.
49. Close out losing positions before the winning ones,

50. Except for very short term trading, make decisions away from the market,
preferably when the markets are closed.
51. Work from the long term to the short term.
52. Use intraday charts to fine-tune entry and exit.
53. Master interday trading before trying intraday trading.
54. Don't trade the time frame. Trade the pattern. Reversal patterns, hesitation patterns
and breakout patterns appear often. Learn to look for the pattern in any time frame.
55. Try to ignore conventional wisdom; don’t take anything said in the financial
media too seriously.
56. Always do your homework and stay current on global events. You never know
what's going to set off a particular currency on any given day.
57. Learn to be comfortable being in the minority. If you are right on the market, most
people will disagree with you. (90% losers,10% winners).
58. Technical analysis is a skill that improves with experience and study. Always be a
student and keep learning.
59. Beware of all tips and inside information. Wait for the market's action to tell you
if the information you've obtained is accurate, then take a position with the
developing trend.
60. Buy the rumor, sell the news.
61. K.I.S.S – Keep It Simple Stupid, more complicated isn’t always better.
62. Timing is especially crucial in forex trading.
63. Timing is everything in forex trading. Determining the correct direction of the
market only solves a portion of the trading problem. If the timing of the entry point is
off by a day ,or sometimes even minutes ,it can mean the difference between a winner
or a loser.
64. A “buy and hold” strategy doesn’t apply in forex trading

65. When you open an account with a broker, don't just decide on the amount of
money, decide on the length of time you should trade. This approach helps you
conserve your equity, and helps avoid the Las Vegas approach of "Well, I'll trade till
my stake runs out." Experience shows that many who have been at it over a long
period of time end up making money.
66. Carry a notebook with you, and jot down interesting market information. Write
down the market openings, price ranges, your fills, stop orders, and your own
personal observations. Re-read your notes from time to time; use them to help analyze
your performance.
67. Don't count profits in your first 20 trades. Keep track of the percentage of wins.
Once you know you can pick direction, profits can be increased with multi-plot
trading and variations in using your stops. In other words, now is the time to get
serious about money management.
68."Rome was not built in a day," and no real movement of importance takes place in
one day.
69. Do not overtrade.
70. Have two accounts. One real account and the other a demo account. Learning
doesn't stop when trading real dollars begins. Keep the demo account and use it to test
alternative trades, alternative stops, etc.
71. Patience is important not only in waiting for the right trades,but also in staying
with trades that are working.
72. You are superstitious; don't trade if something bothers you.
73. Technical analysis is the study of market action through the use of charts,for the
purpose of forecasting future price trends.
74. The charts reflect the bullish or bearish psychology of the marketplace.
75. The whole purpose of charting the price action of a market is to identify trends in
early stages of their development for the purpose of trading in the direction of those
trends
76. The fundamentalist studies the cause of market movement, while the technician
studies the effect.

77. Rising commodity prices generally hint at a stronger economy and rising
inflationary pressure. Falling commodity prices usually warn that the economy is
slowing along with inflation.
78. The longer the period of time that priced trade in a support or resistance area,the
more significant that area becomes.
79. There are three decisions confronting the trader –whether- to go long, go short or
do nothing. When a market is rising ,the best strategy is preferable. When the market
is falling, the second approach would be correct. However ,when the market is
moving sideways ,the third choise –to stay out of the market- is usually the wisest.
80. Channel lines have measuring implications. Once a breakout occurs from an
existing price channel ,prices usually travel a distance equal to the width of the
channel .Therefore, the trader has to simply measure the width of the channel and then
project that amount from the point at which either trendline is broken.
81. The larger the Pattern ,the Great the potential. When we use the term “larger” ,we
are referring to the the height and the width of the price pattern. The height measures
the volatility of the pattern. The width is the amount of time required to build and
complete the pattern. The greater the size of the pattern-that is ,the wider the price
swings within the pattern (the volatility ) and the longer it takes to build –the more
important the pattern becomes and the greater the potential for the ensuing price
move.
82. The breaking of important trendlines . The first sign of an impending trend
reversal is often the breaking of an important trendline. Remember however ,that the
violation of a major trendline does not necessarily signal a trend reversal.The
breaking of a major up trendline might signal the beginning of a sideways price
pattern ,which later would be intedified as either the reversal or consolidation
type.Sometimes the breaking of the major trendline coincides with the completion of
the price pattern.
83. The minimum requirement for a triangle is four reversal points. Remember that it
always takes two points to draw a trendline.
84. The moving average is a follower , not a leader. It never anticipates;it only reacts.
The moving average follows a market and tells us that a trend has begun, but only
after the fact.

85. Shorter term averages are more sensitive to the price action ,whereas longer range
averages are less sensitive.In certain types of markets ,it is more advantageous to use
a shorter average and ,at other times , a longer and less sensitive average proves more
useful.
86. When the closing price moves above the moving average , a buy signal is
generated. A sell signal is given when prices move below the moving average.
87. A buying signal on a two-moving average combination occurs when the shorter
term of two consecutive averages intersects the longer one upward. A selling signal
occurs when the reverse happens, and the longer of two consecutive averages
intersects the shorter one downward.
89. Shorter average generates more false signals ,it has the advantage of giving trend
signals earlier in the move .The trick is to find the average that is sensitive enough to
generate early signals, but insensitive enough to avoid most of the random “noise”.
90. Cutting losses is painful for every trader.The ability to cut one’s losses in time is
the sign of a seasoned trader.
91.A channel breakout suggests a target for the currency price equal to the width of
the channel.
92. Long term charts provide important information regarding long-terms or cycles.
The trader can get a correct perspective regarding the real direction of the market in
the long run, the strength or direction of the current trend occurring within that trend,
or the possibility of a breakout from the long-term trend.
93. Common Points All Of Reversal Patterms
A)The first signal of an impending trend reversal is often the breaking of an important
trendline.
B)The larger the pattern,the greater the subsequent move
C)Topping patterns are usually shorter in duration and more volatile than bottoms.
D)Bottoms usually have smaller price ranges and take longer to build
94. The head-and-shoulders formation is confirmed only when the completion of the
three rallies and their reversals is followed by a breach of the neckline. The failure of
the price to break through the neckline on closing prices basis puts on hold or negates
the validity of the formation.
95. The double-top formation is confirmed only when the full completion of the two
rallies and their respective reversals is followed by a breach of the neckline (the

closing price is outside the neckline ).The failure of the price to break through the
neckline puts on hold or negates the validity of the formation.
96. The flag formation is a reliable chart pattern that provides two vital signals:
direction and price objective. This formation consists of a brief consolidation period
within a solid and steep upward trend or downward trend. The consolidation itself
tends to be sloped in the opposite direction from the slope of the original trend, or
simply flat.
97. A Breakaway gap provides the direction of the market.
98. The runaway or measurement gap provides the direction of the market. This gap
confirms the health and velocity of the trend.
99. The runaway or measurement gap is the only type of gap that provides a price
objective. The price objective is the previous length of the trend, measured from the
runaway gap, in the same direction as the original trend.
100. The exhaustion gap provides the direction of the market.
101. Near the beginning of important moves, oscillator analysis isn’t that helpful and
can be misleading. Toward the end of market moves ,however ,oscillators become
extremely valuable.
102. When the oscillator reaches an extreme value in either the upper or lower end of
the band, this suggest that the current price move have gone too far too fast and is due
for a correction of some type.
103. The oscillator is most useful when its value reaches an extreme reading near the
upper or lower end of its boundaries. The market is said to be overbought when it is
near the upper extreme and oversold when it is near the lower extreme. This warns
that the price trend is overextended and vulnerable.
104. A divergence between the oscillator and the price action when the oscillator is in
an extreme position is usually an important warning.
105.-Oscillator-The crossing of the zero line can give important trading signals in the
direction of the price trend.
106.Because of the way it is constructed, the momentum line is always a step ahead of
the price movement. It leads the advance or decline in prices , then levels off while
the current price trend is still in effect. It then begins to move in the opposite direction
as prices begin to level off.

107. RSI is plotted on a vertical scale of 0 to 100. Movements above 70 are
considered overbought, while an oversold condition would be a move under 30
.Because of shifting that takes place in bull and bear markets, the 80 level usually
becomes the overbought level in bull markets and the 20 level the oversold level in
bear markets.
108. The first move of RSI into the overbought or oversold region is usually just a
warning. The signal to pay close attention to is the second move by the oscillator into
the danger zone. If the second move fails to confirm the price move into new highs or
new lows, a possible divergence exists. At that point ,some defensive action can be
taken to protect existing positions. If the oscillator moves in the opposite direction,
breaking a previous high or low, then a divergence or failure swing is confirmed.
109. Stochastics simply measures , on a percentage basis of 0 to 100, where the
closing price is in relation to the total price range for a selected time period. A very
high reading (over 80) would put the closing price near the top of the range ,while a
low reading (under 20) near the bottom of the range.
110. One way to combine daily and weekly stochastics is to use weekly signals to
determine market direction and daily signals for timing(it depends from the type of
the trader). It’s also a good idea to combine stochastics with RSI.
111. Most oscillator buy signals work best in uptrends and oscillator sell signals are
most profitables in downtrends. The place to start your market analysis is always by
determining the general trend of the market. Oscillators can then be used to help time
market entry.
112. Give less attention to the oscillators in the early stages of an important move, but
pay close attention to its signals as the move reaches maturity.
113.The best way to combine technical indicators is use weekly signals to determine
market direction and the daily signals to fine-tune entry and exit points. A daily signal
is followed only when it agrees with the weekly signal. (daily-weekly, 4 hour-daily,4
hour-1 hour).
114. The failure of prices to react to bullish news in an overbought area is a clear
warning that a turn may be near. The failure of prices in an oversold area to react to
bearish news can be taken as a warning that all the bad news has been fully
discounted in the current low price. Any bullish news will push prices higher.
115. -Elliot Wave Theory- A complete bull market cycle is made up of eight waves,
five up waves followed by three down waves.

116 -Elliot Wave Theory- A trend divides into five waves in the direction of the
longer trend.
117-Elliot Wave Theory- Corrections always take place in three waves.
118-Elliot Wave Theory- Waves can be expanded into longer waves and subdivided
into shorter waves.
119-Elliot Wave Theory- Sometimes one of the impulse waves extends. The other
two should then be equal in time and magnitude.
120-Elliot Wave Theory- The Finobacci sequence is the mathematical basis of the
Elliot Wave Theory.
121-Elliot Wave Theory- The number of waves follows the Finobacci sequence.
122-Elliot Wave Theory- Finobacci ratios and retracements are used to determine
price objectives. The most common retracements are 62%, 50% and 38%.
123 -Elliot Wave Theory- Bear markets should not fall below the bottom of the
previous fourth wave.
124 -Elliot Wave Theory- Wave 4 should not overlap wave 1.
125 .Support and resistance are the most effective chart tools to use for entry and exit
points. For purposes of placing stop loss, support and resistance levels are most
valuable.
126. One of the commodities most effected by the dollar is the gold market. The
prices of gold and the U.S. dollar usually trend in opposite directions.
127. The Yen is sensitive to changes in the price or structure of the raw material
markets.
128. The commodity-producing countries (Canada, Australia, N. Zealand ) are more
dependent on Japan than the other way around.
129. The Yen is sensitive to the fortunes of the Nikkei index, the Japanese stock
market and the real estate market.
130. The majority of the pound transactions take place in London with a volume
decreasing significantly in the U.S. market, and slowing down to a trickle in Asia.
Therefore, in the New York market, many banks have to stop quoting the pound at
noon.

131. Swiss Franc has a very close economic relationship with Germany, and thus to
the euro zone.
132. The major markets are London, with 32 percent of the market,New York with 18
percent and Tokyo with 8 percent. Singapore follows with 7 percent, Germany has 5
percent and Switzerland, France and Hong Kong have 4 percent each.
133. Don't use the markets to feed your need for excitement.

INTRODUCTION TO FOREX

2009-01-21T13:36:00.000-08:00

The purpose of this ebook is to introduce the forex market to you. As with many markets there are many derivative of the central market such as futures, options and forwards. For the purpose of this book we will only be discussing the main market sometime referred to as the Spot or Cash market.

The word FOREX is derived from Foreign Exchange and is the largest financial market in the world. Unlike many markets the FX market is open 24 hours per day and has an estimated $1.2 Trillion in turnover every day. This tremendous turnover is more than the combined turnover of all the wordls' stock markets on any given day. This tends to lead to a very liquid market and thus a desirable market to trade.

Unlike many other securities (any financial instrument that can be traded) the FX market does not have a fixed exchange. It is primarily traded through banks, brokers, dealers, financial institutions and private individuals. Trades are executed through phone and increasingly through the Internet. It is only in the last few years that the smaller investor has been able to gain access to this market. Previously the large amounts of deposits required precluded the smaller investors. With the advent of the Internet and growing competition it is now easily in the reach of most investors.

You will often hear the term INTERBANK discussed in FX terminology. This originally, as the name implies was simply banks and large institutions exchanging information about the current rate at which their clients or themselves were prepared to buy or sell a currency. INTER meaning between and Bank meaning deposit taking institutions normally made up of banks, large institution, brokers or even the government. The market has moved on to such a degree now that the term interbank now means anybody who is prepared to buy or sell a currency. It could be two individuals or your local travel agent offering to exchange Euros for US Dollars. You will however find that most of the brokers and banks use centralized feeds to insure reliability of quote. The quotes for Bid (buy) and Offer (sell) will all be from reliable sources. These quotes are normally made up of the top 300 or so large institutions. This insures that if they place an order on your behalf that the institutions they have placed the order with is capable of fulfilling the order.

Now although we have spoken about orders being fulfilled, it is estimated that anywhere from 70%-90% of the FX market is speculative. In other words the person or institution that bought or sold the currency has no intention of actually taking delivery of the currency. Instead they were solely speculating on the movement of that particular currency.

Source: Bank For International Settlements http://www.bis.org
Extract From The Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity.
Currency 1989 1992 1995 1998 2001
US Dollar 90 82.0 83.3 87.3 90.4
Euro 37.6
Japanese Yen 27 23.4 24.1 20.2 22.7
Pound Sterling 15 13.6 9.4 11.0 13.2
Swiss Franc 10 8.4 7.3 7.1 6.1

As you can see from the above table over 90% of all currencies are traded against the US Dollar. The four next most traded currencies are the Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP) and Swiss Franc(CHF). As currencies are traded in pairs and exchanged one for the other when traded, the rate at which they are exchanged is called the exchange rate. These four currencies traded against the US Dollar make up the majority of the market and are called major currencies or the majors.