Category: Forex Basic Strategies

This section is a database of simple strategies following the principles of simplicity and efficacy. We describe the principles that every strategy follows and the guidelines for its use. We also qualify them for its potential rewards, easy to follow and risk. The main parameters of the strategy will be shown: Percent winners, average reward-to-risk ratio, expected drawdown, and others.

Forex Basic Strategies

The Dual Candlestick Pattern Strategy

Post author By Reddy Shyam Shankar
Post date 8 July, 2023
No Comments on The Dual Candlestick Pattern Strategy

Introduction

Previously, we discussed a strategy that was based on a single candlestick pattern that uses the concept of ‘rejection’ in the market. However, the pattern may not provide a great amount of success as does not take into consideration the various factors of the market such as trend, momentum, volume etc. In today’s article, we try to formulate a strategy that addresses some of the issues and increase the probability of success. To increase the probability of successful trades, we combine two candlestick patterns and a technical indicator to find trades.

The first candlestick pattern we will watch for is the ‘Rising Wedge Pattern’ that occurs in an uptrend. The same pattern, when observed in a downtrend, is called a ‘Falling Wedge Pattern.’ The second candlestick pattern that is of importance to us is the ‘Descending Triangle’ pattern which essentially confirms the commencement of a new trend in the market. Let us look into the specifications of the strategy.

Time Frame

The strategy is specially designed for trading on very short-term price charts such as the 5 minutes or 1 minute. That means this is a hardcore intraday trading strategy.

Indicators

We make use of just one technical indicator in the strategy, and that is the 20-period Exponential Moving Average (EMA).

Currency Pairs

As we are trading extremely on small time-frames, the strategy can be traded on major currency pairs only. Few preferred ones are EUR/USD, GBP/USD, USD/CAD, GBP/JPY, EUR/CAD, EUR/JPY, NZD/USD, and EUR/GBP.

Strategy Concept

The ‘Dual Candlestick Pattern’ strategy is a simple yet powerful strategy that can be used very often in the market. The strategy revolved around the concept of ‘momentum’, which is extremely crucial in the market. When we gauge the momentum of the market, we get an understanding of the shift in market sentiment. Nothing can be as superior as this when it comes to analysing the market sentiment. The first candlestick pattern gives us an indication that the market is losing the momentum of its current trend and that it could reverse any moment. The price action suggests that the market is unable to move higher, and the price is getting more and more expensive for buyers to take the market higher. Once this becomes evident after a reversal, the second candlestick pattern confirms that the reversal is ‘real’ and there could be further ‘legs’ in the trend.

Since we are waiting for many events to occur in the market, we will end up entering late, i.e. when the majority of the move has happened. Due to this, the risk-to-reward of trades executed using this strategy will not exceed more than 1:1. Even though the probability of occurrences of trades is less, they have a greater degree of accuracy.

Trade Setup

In order to execute the strategy, we have considered the 1-minute chart of CAD/JPY where we will be illustrating a ‘short’ trade. Here are the steps to execute the strategy.

Step 1: Firstly, we spot the ‘rising wedge’ pattern in the market where the pattern must be formed above the exponential moving average. What this indicates is that the market has moved into an intermediary uptrend but might be weakening due to the loss in momentum. Our job is to take a trade in the direction of the reversal. Similarly, when a ‘falling wedge’ pattern is formed in the market, it indicates that the sellers are losing momentum and buyers will take over the market. This pattern has to form below the EMA for an upward reversal.

Step 2: Next, we wait for the market to turn on the other side and reverse in direction. After the reversal takes place, the price should form a ‘descending triangle’ pattern below the EMA. The ‘descending triangle’ pattern confirms two things. First, the market has put a ‘lower high’ and ‘lower low’ which are the essentials of a trend and second, the buyers are not strong enough to take the price higher. In a downtrend, the market should form an ‘ascending triangle’ pattern above the EMA that would confirm the reversal. Here the pattern signifies that the market has put a ‘higher high’ and ‘higher low’ along with the inability of the sellers to take the price lower.

Now, let us see the rules for ‘entering’ a trade.

Step 3: In a ‘short’ trade setup, we enter the market when price breaks the ‘support’ line that was created by the ‘descending triangle’ pattern. In simple words, we ‘short’ the currency pair right when the price starts moving below the previous ‘low’ and creates a situation of breakdown. This type of ‘entry’ is shown in below image where we enter right at the break of the ‘support.’ In a ‘long’ trade setup, things are reversed. This means we enter the market when price breaks above the resistance of ‘ascending triangle’ pattern and starts moving higher than the previous ‘high.’

Step 4: Once entered, it is important to determine the stop-loss and take-profit levels for the trade. In a ‘long’ trade, stop-Loss will be set above the first ‘lower high’ that was laid in by the market after reversal. Whereas, in a ‘short’ trade, the stop-loss will be placed below the first ‘higher low’ that was laid in by the market after reversal. Depending on the number of pips of the stop-loss, take-profit will be set by an equal number of pips. This is done to ensure that the risk-to-reward of the trade is at least 1:1. But since we are trading against the trend, we will move our stop-loss to breakeven as soon price moves 80% of the take-profit

Strategy Roundup

The two patterns needed for the strategy might appear several times in the market but are observed separately. It is difficult to spot both the patterns together, which reduces the frequency of trades. One way to increase the frequency of trades is by watching for these patterns during the market opening, as volatility is high. But the focus here should be on taking successful and high probability trades.

Forex Basic Strategies

Current Economic Conditions

Post author By Reddy Shyam Shankar
Post date 8 July, 2023
No Comments on Current Economic Conditions

Introduction

One of the primary indicators of a country’s GDP is how the economy is performing presently. The current economic conditions are the best indicators of business and economic cycles in the economy. They can tell us whether the economy is going through expansions or contractions. Thus, the current economic conditions are the best indicators for establishing recessions or recoveries, and can also be used to forewarn about potential overheating of the economy.

Understanding Current Economic Conditions

The current state of the economy is a culmination of several macroeconomic and microeconomic factors. Previous economic trends, government and central banks’ policies influence the current economic conditions. Therefore, the current economic conditions can be said to be a gauge of the effectiveness of previous fiscal and monetary policies.

In the US, for example, the Federal Reserve published the current economic conditions in The Beige Book. The Beige Book published the current economic conditions of the 12 Federal Reserve Districts. Below are the components used to determine the current economic conditions.

Employment and wages: The current economic conditions assess the overall levels of employment and changes in wages. Here, the changes are assessed based on industry. It covers the number of people who were laid off, new hires and job vacancies.

Prices: The prices of goods and services produced within the economy are monitored for inflation. The levels of inflation can be used to assess the living standards and the changes in the cost of doing business.

Manufacturing: The changes in the levels of manufacturing shows the growth of the output and potential changes in employment levels.

Consumer spending: This shows the changes in the welfare of households. Consumer spending correlates to living conditions and could be used as an indicator of future economic expansion or contraction due to changes in aggregate demand.

Banking and financial services: This section shows the changes in the issuing of new loans and the rate of defaults. The changes in the number of loans issued correspond to the changes in economic activities. The changes in commercial and industrial loans indicate whether businesses are investing and expanding. The repayment schedules indicate the financial health of businesses. Credit standards, delinquency rates and deposits are also included in this category.

Real estate and construction: This category shows the changes in the construction of new residential and commercial buildings. It further shows the sale of new houses. The occupancy levels and the changes in rental rates are also included here.

Services: This section reports the changes in the demand for professional services such as the demand for payroll services, accountancy and deal advisory services. It also shows the changes in the activities in the services sector as a whole.

Agriculture, energy and natural resources: this section reports the changes in the agricultural conditions. It shows the changes in crop production, the market prices for the harvest, cost of farm inputs, storage costs, and any subsidies received in the agricultural sector. This section also shows the changes in the mining sector.

How can current economic conditions be used for analysis?

By businesses: The current economic conditions show the trends in demand. Businesses can use the data contained in this report to either scale up their production to match rising demand or lower production in case of shrinking demand. Furthermore, producers get to see the regions where their products are performing well and where the sale is dismal. This data can help them make informed decisions for targeted advertising to improve sales or to exit a particular market segment if the costs outweigh potential profits.

By governments and central banks: The data on the employment situation, consumer spending, inflation and agriculture are useful for the government and central banks to make informed policy decisions. The current economic situation effectively shows if the economy is contracting, stagnating, expanding or overheating. Therefore, this data is crucial in informing the type of policy that will be implemented by the central banks and the government. The policies can be expansionary, contractionary or stay the course, accordingly. Furthermore, the current economic conditions can be used as a scorecard to assess whether previous fiscal and monetary policies brought about the intended changes within the economy. If not, then the government and central banks will know how to tweak the policies to achieve the desired results in the economy.

Impact on Currency

When it comes to fundamental economic indicators, forex traders pay the most attention to how the data will affect future monetary policies by central banks.

Source: St. Louis FRED

If the current economic conditions data indicate that the economy is in a recession, forex traders can then anticipate lower GDP levels, and adopt a bearish stance on the currency. Furthermore, they can also anticipate that expansionary monetary policies will be put in place to spur economic growth. Lowering the interest rates as an expansionary policy is negative for a country’s currency. Although the cost of money will be cheaper, investments will also have lower returns relative to other countries. As a result, the currency depreciates.

Conversely, if the current economic data indicates that the economy is expanding, reaching peak levels, forex traders can anticipate higher levels of GDP; thus, adopting a bullish stance on the currency. For the authorities, monitoring the current economic conditions helps determine if the economic expansion is too rapid, resulting in overheating. To prevent the overheating, central banks and governments will implement contractionary monetary and fiscal policies. These policies are meant to ensure sustainable growth in the economy by making the cost of borrowing higher to discourage excessive borrowing. However, the rate of return on investments and government bonds increases. This increase leads to increased demand for investments in the country and consequently, the appreciation of the currency.

Sources of data

In the US, The Beige Book is published by the US Federal Reserve Board. This report is released eight times a year, two weeks before each Federal Open Market Committee meeting since it is used to guide their decision of short-term interest rates.

In the Euro Area, the current economic conditions are published by the Economic Research Institute ZEW.

Forex Basic Strategies

Inflation Expectations

Introduction

Inflation is one of the most tracked economic indicators by policymakers, economists, consumers, businesses and analysts. The effects of inflation are felt throughout the economy – no exceptions. Inflation expectations can help every player in the economy better to prepare themselves in anticipation of future inflation levels. Therefore, we must understand the how the anticipation of the inflation rate impacts the economy.

Understanding Inflation Expectations

Inflation is the increase in the general prices of goods and services that are produced within an economy, over a specific period. This increase in the prices of goods and services tends to erode the purchasing power of a currency. Therefore, assuming there is no increase in wages, consumers can only be able to purchase a lesser quantity of goods and services. There are several causes of inflation, but the primary cause occurs when more money is supplied in the economy relative to the wealth.

Inflation rate: is the percentage increase in the prices for a basket of goods and services over a specific period. It is used to compare inflation over different periods.

Inflation expectation is the opinion about the future rate of inflation. This opinion is derived from different players in different sectors of the economy to guarantee the validity and ensure it the data is comprehensively representative. These players include investors, central bankers, and consumers. Their inflation expectation is based on a variety of economic activities they intend to undertake.

How to Calculate Inflation Expectations

These are the two main methods of calculating inflation expectations.

Market Survey

The central banks conduct surveys to determine inflation expectations. Households, businesses and economic experts are polled to ascertain if their welfare has improved and what they anticipate. The questioned asked mostly includes household finances, inflation, investment activities, changes in the ease of doing business and inflation. The polled panel is nationally representative

Market-based Method

In this method, the expected inflation can be determined by the understanding of the price differential between government bonds and the Treasury Inflated Protected Securities (TIPS). The Treasury Inflated Protected Securities tends to increase the amount of the bonds in tandem with inflation.

In this case, the pricing difference = yield of a government bond – Yield of the TIPS

Let’s look at an example;

Suppose the yield of a 10-year bond is 5%, and the yield of a 10-year TIPS is 3%, the market pricing is 5% – 3% = 2%

The 2% can be said to be average annual expected inflation over the next ten years.

How can inflation Expectations be used for analysis?

The data on inflation expectations can be used by a variety of players in the economy. The inflation expectations data is the primary leading indicator of the rate of inflation in an economy.

Source: St. Louis FRED

Here are some of the ways different market participants can use the inflation expectations data.

Investment decision making: Businesses use the expected inflation data to make business decisions about future productions. They can choose to make changes on their product quality or quantity depending on the inflation outlook.

With expected inflations data, businesses can also make adjustments regarding factors of production. If the higher inflation rate is expected, businesses could opt into paying upfront for production inputs of their businesses. This upfront payment enables them to hedge against a future increase in the cost of businesses, thus protecting their bottom line. Furthermore, businesses can use this data during negotiating for employee contracts and wages.

Household decision making: Inflation expectations plays a vital role in households’ budgeting process. The data enables them to make rational decisions regarding expenditure, savings and investments. If they anticipate higher inflation, households can decide to put more funds into the purchase of essential products and cut back on savings and investments, since higher inflation erodes the value of money.

With lower inflation expectations, households might elect to increase their savings and investment activities since the potential increase in purchasing power will leave them with more disposable income.

Central banks and governments: One of the core mandates of the central banks is to ensure that the rate of inflations is kept below the targeted rate. Using the inflation expectations data, the central banks and governments can make informed policy decisions. These decisions are whether to implement expansionary or contractionary policies.

When the rate of inflation is expected to drop and result in deflation, central banks and the government will adopt expansionary monetary and fiscal policies. These policies include lowering interest rates to pump more money into the economy. Dramatically falling in the rates of inflation can be bad for the economy, as the reduced prices encourage complacency in the economy and could result in stagnation.

Conversely, expectations of higher rates of inflation will compel central banks and governments to adopt contractionary monetary and fiscal policies to avoid an overheating economy. Such policies will include increasing interest rates to make the cost of money more expensive and encourage investments and savings.

Impact on Currency

Since inflation expectations inform the decision of the central banks, it plays a vital role in the forex market.

When inflation expectations hint to lower rates of inflation, the outlook is negative for a country’s currency. The expansionary policies that ensue results in depreciation of the currency since the rate of return of investments will be less lucrative. The low-interest rates also make foreign bonds and treasury bills more attractive compared to local bonds; which results in a net outflow of investments.

Conversely, expectations of higher rates of inflation are positive for a country’s currency. The central banks will adopt contractionary policies like raising the interest rates, which makes an investment into the country more lucrative; increasing the demand for local currency hence appreciation.

Sources of Data

In the US, the inflation expectations data are released monthly on the last Friday of the month. The University of Michigan collates the data.

A comprehensive and historical breakdown of the US inflation expectations data can be accessed at St. Louis FRED here and here.

Statistics on global inflation expectations can be accessed at Trading Economics.

Beginners Forex Education Forex Basic Strategies

Top 10 Ways to Improve Your Forex Trading Skills

Post author By Forex Academy
Post date 7 May, 2021
No Comments on Top 10 Ways to Improve Your Forex Trading Skills

We are always on the lookout for new ways to improve our trading and the results that we are achieving. We have probably tried a lot of things in the past that have either worked or not worked. Instead of just throwing random ideas out there, we are going to be looking at 10 of the things that have worked and have been successful in improving our overall trading. Some may be big things, others very small, but the important thing is that they have the potential to make us a better trader.

Keep a Trading Journal

One of the biggest and best things that you can do is to start a trading journal. A trading journal is basically that, a journal where you write down things that you do, your entries, exits, time trades are open, profits, losses, and more, pretty much everything that you do and the reasons for as well as the results of what you did. It sounds like a lot, but once you get used to it you can fill it out pretty quickly, and once you do it is an invaluable tool. You can use it to find out what you are doing well as well as what you are not doing well or where you are deviating from your plan, this then allows you to make adjustments and then ultimately improve on your trading.

Ask for Feedback

Feedback can be a powerful thing, especially when it comes from other traders. Often when we do something we have a sort of tunnel vision, we see what we want to see and the things that we do have a nice rosy tint on them. Getting feedback from someone else, outside of your own views will give you a new perspective and they may be able to see things that you are doing wrong or that could be improved that you could not. Sometimes it can be hard to take criticism on what you are doing, but accept it and work with it, it is a great way to improve your overall trading.

Practice

A pretty simple one, but practice does make perfect after all. Make sure that you have a demo account available for you to use, this demo account is where you can practice your new strategies or trade ideas, it lets you try things without any real risks to your capital. It is always good to use a demo account, to begin with before you try something for real, so take advantage of one whenever you can.

Budget Your Funds

The old but gold rule of only trading what you can afford to lose. This may not improve your trading directly, but it will certainly help with your mentality. If you are trading with money that you actually need then you will be putting yourself in a situation where you will feel increased levels of stress, this can then lead to bad trades being made. Instead, if we are comfortable with the money we are risking, then we have a much clearer mind and so can concentrate on our trading far better.

Watch Successful Traders

Now, we need to be clear that we are not meaning that you should simply copy other successful traders, that won’t benefit you at all. Instead, you need to look at what sort of things that they are doing. This can then give you ideas on how you can adapt your trading. The things that they are doing are clearly working, so why not try and implement some of those things into your own trading strategy? It can help give you new ideas to improve but be wary about simply blindly copying, that will only lead to losses due to you not fully understanding what it is that you are doing.

Watch the News

This does not have to be on TV or in a newspaper, there are plenty of economic calendars out there on the internet that will give you an idea of what economic news events are coming up and the effects that they could potentially have on the markets. Take a look at these each morning and it can give you an idea of what you could trade or what you could avoid. Keep it in mind when you decide which currency pairs to trade, as high volatility news events could increase the risk on certain currencies.

Try New Strategies

You have your strategy that is working which is great, but there is no harm in trying something new. The strategy that you are using is working for the current conditions, but when they change, it may not be quite as effective. Learn a new one or two, something that you can use when the markets change, not only that, but it will also give you a new view of the markets and even ways to improve your currency strategy. Just try not to go crazy and learn too much at once, this can cause you to get confused and mix them all up.

Ignore Rumors

Rumors are out there and they turn up a lot when it comes to forex and trading. People shouting about how well a currency is going to do, or that an asset is going to collapse. Yet these things very rarely happen. If you are on social media, then take absolutely everything with a pinch of salt. If you are going to look for news, then look at a reputable site, not random people over the internet or sites that are set up for clickbait. This way you can avoid making trades or not making trades based on false rumors.

Use Indicators

Indicators can take a lot of the work out of forex trading, by this we simply mean that you no longer need to do some of the analysis that you otherwise would have. They do not take it all away, you still need to read them and then work out what the data shows, but it can certainly speed up the process, it can also help to eliminate some of the human errors that we have when we read and analyze things. The data given will be more accurate and will be presented a lot quicker than if we were to do it ourselves.

Be Confident

Confidence is a great thing, you need to believe in what you are doing, if you do not believe in yourself then you will end up being reluctant to place trades, not something that will make you much money. Believe in yourself, look back at your history to see how well you have been doing, just try and ensure that you are not getting overconfident this can lead to bad trades, so just believe in yourself but be sure to keep your feet on the ground.

There are ten different ways that you can improve your trading, there will of course be a lot of other things that you can also do, each and every trader will be different with different ideas and different abilities, but there are some things that work for all traders. Try and do as many of them as you can if you aren’t already, and you should hopefully see an improvement in your trading results.

Tags Forex Guidance, Forex Training, Trading Skills

Beginners Forex Education Forex Basic Strategies

How to Achieve Financial Freedom Through Forex

Post author By Forex Academy
Post date 22 April, 2021
No Comments on How to Achieve Financial Freedom Through Forex

In this article, I will present a practical guide with the 3 key points to achieve financial freedom. This means that someone who does not follow these premises will not be able to reach it, but the odds of becoming financially independent are much higher considering everything I am going to tell you next. What […]

What is Financial Freedom?

Financial freedom is to be able to spend your time in the way you prefer, whenever he receives a regular income that allows you to live well by bearing all your expenses without having to work to get a salary. That is, to invest money in certain assets until they generate a higher income than our expenses. That’s what we call financial freedom. This sounds very nice, and it’s also very easy to say, but we know it’s hard to get. Although not impossible…

Normally, people have a job, to which we dedicate about 40 hours a week or so, and for which we receive a salary that allows us to live. In this situation, it seems a utopia to be able to generate revenue on a regular basis without the need to exchange our time for money, but believe me, it is possible.

Why Should Financial Freedom Be Achieved?

It’s not an obligation. If you are completely happy working 8 hours a day and you would not like to do anything else during those 8 hours more than your tasks at work, and you think you will be able to continue working in the same until 65 years (minimum), you’re probably not interested in financial freedom.

Now, imagine that every month you were given an amount of money that allowed you to live well without the need to go to work. In that case, we can say that we are free financially, so if really what we want at that time is to work… Great!

The Fundamental Requirement for Financial Freedom

Most importantly, bearing in mind that if we do not meet this requirement we will not be able to achieve financial independence:

Have a powerful reason.

That is, to have a motivation that allows us to be constant until achieving our goal. It is very difficult to make a habit of any new behavior that we want to implement. On many occasions, if you have not yet reached financial freedom with your current habits, it will be necessary to develop new habits that allow you to reach them.

And if it is sometimes difficult to establish simple habits such as going to the gym one day a week to leave a good tipín for the summer, achieving financial independence is not something that is usually achieved within a few months of establishing some habits. This process takes years, but in my opinion, the reward gained and the duration of the subsequent gratification far outweigh the effort.

The question is…

And you, what are you willing to do to achieve financial freedom? In the end, the goal is not to achieve financial independence, the goal is to be very clear why we want to have free time to decide what to do with it. Spend more time with family? Children? Travel the world? There are thousands of reasons, but you must have a very powerful one that allows you not to give up on the road until you get it. Therefore, the first essential step if we want to achieve financial freedom is to find the main motivation that makes us wake up every morning convinced that we will work to achieve our goal.

Step 1: Calculate how much money you need.

It is very important to keep track of our income and expenses. In this way, we can know if we need 600€, 1500€ or 4000€ monthly to live well with all our needs met (not only the basic ones, we also have to go out with friends, go to dinner, travel, etc.). And not only that but surely a person with 25 years can live and save money with 1000€ per month but someone with 40 years, a mortgage and 3 children will obviously need more income to live well. That is why we need to consider not only how much money we need to live well today, but also in the future, and to do so we need to see what our expenditure might be in the future.

Step 2: Start generating profitability for your money

IMPORTANT: It is impossible to achieve financial freedom without investing our money. This needs to be clear. If we don’t want to invest our capital in any assets, we will never achieve financial freedom. The alternative to exchanging our time for money is to exchange our money for more money, if we are not condemned to work 40 hours a week until we retire.

It is true that sometimes this investment can start out small, and that there are thousands of assets in which to invest (open a business, invest in real estate, invest in vending machines, invest in the stock exchange, do trading…). I will assume that throughout my career as an investor I get an average of 12% annual return. This means that if I invest 1,000,000€ I would get an annual income of 120,000€. Or if I invest 400,000€ I would get an income of 48,000€ per year (on average), or what is the same, 4,000€ per month.

And how can I get that kind of money?

Imagine that my goal is to achieve financial freedom 20 years from now. If I start with an initial capital of €20,000, and I am able to save and invest €500 per month at 12%, within 20 years I will have achieved €496,543 (with inflation of 2.5% per year).

Step 3: Don’t start It’s already costing you too much

In the example we saw above, we can see that after investing 20,000€ + 500€ monthly would be able to reach almost 500,000€ in 20 years. Do you know what would happen if I waited a year to start? If instead of starting to invest today I waited 365 days more, in 20 years would no longer have 496.543€, but 445.657€. I mean, I lost 50,000€ just to start a year later. Doing exactly the same thing, let’s be clear. And what if with my current saving capacity I am unable to achieve Financial Freedom? In that case, a number of things need to be considered.

The first, although it may sound redundant, is that we need to be able to maximize our savings capacity, and for that, there are two options: either we reduce spending, or we increase revenue (or both).

Before you tell me that it is not possible to further reduce expenses, if you really have a strong motivation to achieve financial freedom, you must be in control of what you spend your money on. Only then will you be able to rethink and see clearly whether all your expenses are justified or there is some way you think you can save more at some point. Know what you spend on clothing, food, gasoline, vehicle maintenance, insurance, loans, leisure…

And on the other hand… how do you increase income?

In the first case, if our main source of income is work, we have to think if we can materialize some task on our part that we can take to benefit the company in which we work so that a salary increase can be justified. Are you certainly being as productive as you can? Could you increase your productivity by making some changes to your work routine? Do you lose something by proposing a raise to your boss?

Tags Forex Career, Forex Earnings, Forex Finances

Beginners Forex Education Forex Basic Strategies

What Lot Sizes Should I Be Trading?

Post author By Forex Academy
Post date 22 April, 2021
No Comments on What Lot Sizes Should I Be Trading?

If you are a novice in the Forex market and you don’t know exactly what a lot on Forex is and what this is all about, in this article I will show you what it is and how to know what amount you should use or what amount in lots you should use in your […]

What are Pips and Lots?

The first thing to understand is that pips and lots are two concepts in the currency market that are related when calculating gains or losses in a move that can make a quote for a currency pair.

The pips measure how much the currency varies and the lots measure how much you buy or sell from that currency crossing. That’s why the more you flow in pips and the greater what you’ve bought or sold the more it will affect your account.

How many units make up a Forex lot

When you trade in the currency market you do it as if it were in a pack. What does this really mean? A lot is 100,000 units, so if for example, you make a purchase in the pair EUR/USD of a lot, you are performing an operation worth 100,000 dollars. This type of trading can be done even with much less money in your account, as brokers offer leverage for it.

What is a Micro Lot and a Mini Lot?

You must be thinking that leverage and $100,000 doesn’t sound very good to start with. Definitely not. Therefore, it is possible to do it for the minimum possible and that is where the mini lots and micro-lots come in.

Mini lots are one-tenth of a lot, so if a lot is equal to 100,000 units, when you operate a mini lot in EUR/USD you do it for $10,000. Okay, this is something else, but what if I want to do it for less? Is it possible? Indeed, there is also the possibility of a micro lot, that is 1,000 units. Following the example above, 1,000 dollars.

How to Calculate the Value of a Forex Lot

Understood all these now I will explain how you can know the value of a lot in a currency and how it will affect your account every change that occurs in the price.

Step 1: Choose the currency pair. GBP/JPY.

Step 2: Calculate how much a pip is worth. In most cases, the pip at a crossover is the fourth decimal. In the crossings with JPY is the second (yes, I have put it on purpose for you to learn it well).

GBP/JPY is currently listed at 175,150

If GBP/JPY moves and its price goes to 175.170 there will be two pips varied (175.170 – 175.150).

How much is this variation in my account with a micro-lot?

1000 units * 0.02 = 20 yen.

Step 3: Calculation in your currency. How much does this mean if your account materialized in dollars? We just need to do a conversion by looking at the USD/JPY rate, which currently stands at 107,750. Thus, if one dollar is equivalent to 107,750 yen, 20 yen is equivalent to 0.18 euro.

That is, the change of two pips in our account implies a variation of 18 cents.

Can we give another example for the classic EUR/USD?

Step 1: we have it, EUR/USD.

Step 2: Suppose EUR/USD varies from 1.12500 to 1.2490.

We have mentioned above that in most pairs a pip supposes the minimum variation in the fourth decimal place. This is the case, a drop in the price of the pair of 10 pips or 1 pip.

If in this case, you have bought a mini lot (10,000 units):

0.0001* 10,000 =1 dollar per pip.

You’d be missing a dollar more commissions in this scenario.

Step 3: What if your account is in euros?

1/1.12500 = 0.88 euros. It would vary instead of one euro, 88 cents.

Just as we have calculated the value of one pip in this last case or two in the previous one, we can do it for 100 or 200 and so depending on the entry price and stop calculate what is the maximum you can lose or win in each operation. Easy, isn’t it?

Online Calculator

All right, Ruben. I have understood everything, but I find it a drag to have to be doing these calculations to be able to calculate the potential gains and losses in each operation. Relax, I have a solution for you, here you have a calculator where to do all this in a simple way.

Just choose the currency of account, the balance (use equity), the percentage that you are willing to risk, and stop-loss in the currency crossing you have chosen. From here the rest calculates as you will see automatically.

Commission Per Lot on Forex

You know how lots and pips work in the currency market. I have previously told you that brokers allow leverage so in Forex you will be able to move more amounts than you have in your account.

First, you should be very careful with all this talk. Leverage generates greater potential gains, but also potential losses that can end your account. Now, leveraging here in a controlled manner is another matter. Why does the broker allow you to beat yourself up and move more money than you actually have? Because he’s interested, that means more commissions for him. At times when there is more volume on the market, the more money you will receive for it. Even with all this, I have to tell you that competitive brokers allow you to move up to $100,000 by paying only $7 in commissions. The cost is relatively low for financing the operation.

I recommend that you practice all this in a demo account so that you do not have any doubts. The above calculation can help you do your calculations, but it’s OK to start doing it yourself manually and then check if it’s OK. Also, as you learn and progress my advice is that you can automate all this so there is no miscalculation. Remember that every failure here costs money.

In the end, you have already seen that this pips and lots is not at all complex, everything is in standing with attention to understanding how it works and making a couple of practical examples like these.

Tags Forex Lots, Forex Trade Sizes, Forex Trades

Forex Basic Strategies

Specification Risk: The Advantages of Diversifying Your Trading Systems

Post author By Forex Academy
Post date 9 April, 2021
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Diversify. This is the advice that is repeated time and again in the world of investment. Now, what does true diversification involve? Could we talk about diversification by trading a single asset with a single trading system? In this article, we’ll show you how to do it. Specification Risk: One more reason to diversify your […]

For a while now, I have made a fierce defense of the benefits of diversification, beyond asset diversification. But it is just now, after the big fall and the subsequent recovery (I am writing this with the SP500 trading above 2900 points) when people review their systems, contradict themselves, and regret not having diversified further. It is the great movements of the market that shake our beliefs and cause us to thoroughly review our mistakes and successes. And not having diversified well, may have been one of the great mistakes of the vast majority of investors.

Two different entry points for the same system could lead to very different results over time. We must therefore also diversify the entry points in order to get as close as possible to the expected outcome of the investment system.

This point of diversification is particularly important in systems where binary decisions are made. That is, in those models in which you are invested, or not, is a type of asset depending on a signal. Many Asset Allocation and trend systems follow this philosophy.

In order to illustrate the great dispersions that we can see, in relation to the chosen points of entry, we will analyze the behaviors during this year of a very simple trend system with 2 ETFs. If for a given period the SPY has positive momentum, it will invest in the SPY, if not, in TLT. Every four weeks, we re-measure the signal and make a decision. This system represents in a simplified way the investment in equities or fixed income depending on the momentum of the equities measured each month. We will start by using 252 days (1 year) as a period to measure momentum.

Operating a single entry point generates scattered results. We could say that the problem is that the system is not robust. It would have to work the same or a more similar way even if we varied the points of entry. Many of these systems are designed, and tested, with end-of-month data. However, diversification does not end there.

When we start designing an investment model, we look for and analyze many combinations of parameters in order to exploit an advantage. These combinations are filtered until you find the winners. And finally, the robust zone, which is the one that contains a series of stable combinations over time. It is usual to take the best combination of the robust area and operate it.

However, these parameters are sensitive to variations. What has historically been the best combination may not be so in the future. That the advantage exists and that it is robust, within a zone of parameters, is necessary to operate the model. But the best combination within the robust zone may not always be.

Two combinations of parameters can lead to small differences in the operation (an operation that you don’t take, an output that you do afterward, etc.) but that in the long term materializes in large differences in the results. This sensitivity grows as the uncorrelated parameters of a system increase. It is what is known as “specification risk”.

This sensitivity is closely linked to the types of systems. A permanent portfolio has very little sensitivity, while trend systems, where binary decisions are made (e.g. you are either 100% in equities, or you are 100% in fixed income), the sensitivity is very high. This also applies to intraday trading systems, factor-based investment systems, and all those using parameters. The difference between them shall be the sensitivity of the results to slight variations between the parameters.

This sensitivity may pose a risk of obtaining fewer results than expected by the model. When we started designing our system, we decided to use 1 year as a period to measure momentum and rebalance every 4 weeks. These two parameters appear to be very “current”, but simply that simple decision can lead to very disparate results than would have been obtained with other parameters close to each other.

In the following example we can see how using the variations for the same system, but using 3-4 weeks of rebalancing or 10-11-12 months of rebalancement, the signals begin to decouple gradually. This does not seem to matter, but in the long run, it can lead to large differences. And the more complex the system and the more variations the parameters allow the more they can be enlarged. If instead of an average, it were taking 2 or varied between simple or exponential, the differences in the signals would become more and more frequent.

Specification Risk In the Long Term?

Let’s look at this from a longer-term perspective. As the objective of the article is to raise awareness of the sensitivity to the parameters of some systems, we will continue working with a very simple model. The model will evaluate the momentum at 10-11-12 months of SPY, ignoring the last or 2 months. If positive, purchase SPY; if negative, TLT. Every 3-4 weeks it evaluates the signal and takes positions.

Therefore we have 3 parameters that vary very slightly. The period in which we measure momentum (3 options), the number of recent months we ignore (2 options), and each time we rebalance (2 options). 12 combinations in total. The reason we ignore months when measuring momentum is that assets have different long-term and short-term behaviors. Short-term equity can have an average reversal effect that can affect the long-term trend. Between two systems that differ in that one rebalances every 3 weeks, and another every 4, we find an impressive difference.

We have to know that none has been especially better throughout history. This means that making a decision today about which system is going to work in the future is taking the risk of choosing the worst of the 12. If we do, we will clearly decrease the overall profitability.

There are no longer only differences in profitability, but also in maximum losses. That small difference in signals, at certain times in the market, produces devastating effects. It can leave a system permanently behind. And the truth is, this choice has a big component of chance. It could not have been known in advance what combination, of parameters, would have been appropriate.

This system is designed primarily for educational principles. But it has the basic features of trend systems used by industry and many private investors. If we had decided to apply only the winning combination of parameters, between 1999 and 2009, under the pretext that it was clearly the best combination, we would have found the losing combination between 2009 and 2019. What would have been our mistake? Was the system not robust? The advantage of trend systems is there, but sensitivity to parameters is usually overlooked. The error is not the choice of that particular set of parameters, the error is to choose only a set and not to diversify.

When designing these systems and realizing that the sensitivity of the parameters is high, the first measure is usually to increase the rebalance frequency. It is a natural instinct, but not only is it not beneficial but it is highly harmful. You will find models with many more operations (currently these models rebalance between 20 and 25 times in 20 years) have the same sensitivity to the other parameters. They would still not be diversified. Like the proposed solution to avoid “Timing Luck”, the solution would be to operate all systems, creating an assembled joint system.

Operating the whole of the systems guarantees us to obtain the really expected returns of the trend system, eliminating the risk of choosing the worst of all. In addition, the low rate of rebalancing, of this type of system, plus the fact that much of it is rebalanced on the same days, does not make the costs much higher. For other types of systems, a balance would have to be found between the costs of increased operations and the benefits of risk diversification. This also has an extra benefit: by assembling uncorrelated systems at certain times (when some are long from SPY and others from TLT), while profitability will be the average. In addition, volatility will be lower, producing a better return-volatility ratio.

Specification Risk: Conclusions

This study will demonstrate that operating a single combination of parameters, of a model, is risky even though it has been the best combination in the past. Just as diversification between assets is important and, as we saw in previous articles, the entry points also affect the results of the operation, the diversification between sets of parameters, of a model, is also necessary to reduce risks.

“The purpose of this study is to show that operating a single combination of parameters, of a model, is risky even though it has been the best combination in the past.”

In the trend system used this sensitivity, between values, is very high since the decay, which can occur from one week between systems, causes that in the long term the results differ markedly. However, this point is applicable to the vast majority of investment models. Even two identical systems that in the past have not had any difference in the signal, having different parameters, can produce different results in the future without knowing a priori which would have been the best combination.

Tags Diversifying Trading Systems, Specification Risk, Strategy Diversification

Forex Basic Strategies

This Information Will Help You to Beat the Forex Market

Post author By Forex Academy
Post date 8 April, 2021
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Traders and investors often think about how important it is to read and read books, websites, and all kinds of material in order to improve trading. We spend a lot of time reading, but how much time do we spend on real learning? I’ve already talked about How to win the market and the trap […]

I’ve already talked about How to win the market and the trap of the best and it is very important to practice and learn from the market. In trading the phrase “An expert is the one who has made all the possible mistakes in his field” is fulfilled and therefore we must devote ourselves to learning from them.

The problem of the human being is that he tends to minimize the bad things of the past and then we forget that we have done well and that we have not. To solve this problem Thomas N. Bulkowski decided to make himself a kind of complete statistic of each and every one of the formations from the chartist analysis you found. His conclusions and statistics are found in a book of more than 1000 pages called Encyclopedia of chart patterns.

Bulkowski was investing in the stock market while working as an engineer until at the age of 36 he had earned enough to retire. I think teaching a little of your book will be a good way to understand how statistics are made to achieve a trading system with positive mathematical hope.

Always study the bullish and bass breaking patterns separately. In this case, study the pennants that have a bullish breaking. Translating a little we have:

Break-even failure: Percentage of false breakages of chartist figures.
Average Rise: Average growth after the figure is completed.
Volume trend: Volume trend (either increasing, decreasing, or constant).
Percentage meeting price target: Percentage by which the target price of the figure is reached.

Surprising findings: Surprising discoveries. I must admit that this part is my favorite, the detail of counting down to the smallest appreciation says a lot about their way of operating and understanding the market. In this case, he tells us that the pennants that look big and tall are better than the small and short ones. He also comments that pennants with decreasing volume have a better performance. Bulkowski devotes a section to determine that it is considered a pennant and not before giving numerous examples.

For a trend to have the strength the volume must be growing with it, if there is a movement against the trend and the volume does not follow it, then it is a movement that is not supported by professional money and therefore is a FALSE trend. Now it turns out that the chartist analysis tells us that the pennants are pauses in a trend and one feature of it is that the volume is decreasing. If you look at both branches have seen this peculiarity of the market and therefore it is foolish to study each of them thoroughly, the information is duplicated with other words.

Dedicate yourselves to doing things like Bulkowski, studying patterns, studying indicators, studying yourself in front of the market, but stop reading gurus books, blogs with magic indicators and work!

Don’t be afraid to be wrong!

Tags Beat the Market, Forex Market, Forex Tips

Beginners Forex Education Forex Basic Strategies

Top 8 Real-Life Lessons About Forex Trading

Post author By Forex Academy
Post date 7 April, 2021
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If you ever decide to go the traders’ way, know the only boss you will have to listen to is you. Also know listening to yourself is the harder part of trading. Sounds funny but true. When an established trader thinks about foolish beginnings he can only smile and realize how much he has changed since. Becoming a trader is a lot of work, but it is one that gives many life lessons with a tremendously good outlook for young people. There is one trait that each successful trader has – they are wise. Wisdom requires experience and work, just no way around that. The sooner you start working the better the odds you could retire early. What a trader learns on this path is all about actually becoming a better person and how he sees life around him. Here are the biggest lessons that await you if you decide to become a professional trader.

“Do, or do it not. There is no try”

This line is definitely familiar to the movie series fans but it holds true to trading especially. Hopefully, it also motivates you. The initiative has to be strong, simply because forex loves to cut quitters. This market will test your mettle psychologically above all else. All those who seek to get in for the easy money will be disappointed. Making forex a sort of casino is possible, most people take it like that. Gamblers are hard to stop, only a zero on their account can until they put some more money if they have it. it does not matter how high they went, unfortunately. Those that keep researching ways to beat the casino might be the ones that find their holy grail. There is a crucial turning point here, do you want to be a gambler or a trader. Is this you in the next few years?

“Discipline equals freedom”

This is the title of a book by Jocko Willicks. The book is not about forex trading yet it is an essential life lesson that applies to forex too. There is no trader with results without discipline. By giving an example of a book that actually addresses general life problems with practical guidelines, we want to point out that forex punishes those that lack discipline as life itself. Now forex is not dangerous per se, but it can be to your financial status if you do not have rules that stand in the way to complete disaster. What you want to become is one thing, but the way to that goal is what will define you. Forex does not have feelings, do not expect mercy, mistakes will be made. But that is a good thing, you discover your psychological weak points that would need discipline to patch.

Understanding the Concept of Risk

You have done so many foolish things when you were young, so many songs have been written about that period of human life. Simply, people take irrational risks when young. Why is this so is explained by science but that is not important since you cannot avoid it. Forex is all about how you manage risks and if you stick to the rules you set. If you are on the way to become a forex trader, it is time to make stupid mistakes. Make the hell out of them, however, we strongly advise you to do them on a demo account. Just pretend that demo is the real one. Interestingly, some young traders lack the patience or mentality to accept what they are doing on a demo does not work and go to live trading anyway. This leads us to another lesson.

Patience

Again, one more interesting result of a science experiment, more precisely the Stanford marshmallow experiment showed that willpower has a dramatic effect on the quality of life. Now, patience does not mean you have to wait for something but to keep searching for ways to improve your trading, be it through researching other traders, strategies, indicators, or reading books. Have the willpower to persist despite the failures that could set you back emotionally, feel like it is a “waste of time”. But it is not, it is just another lesson. The results do not happen overnight. According to some experts, the results may come even after two years of everyday work. Patience is also needed in practical trading, however, this is just a smaller scale of this lesson. Now when you know it takes time to get to that holy grail the question is are you willing to do the right trading approach.

Knowing Yourself

On your journey of forex trading, you will discover your personality or better said, accept who you truly are. The sooner you accept your flaws but also your advantages the better. You now know where the potential reason for losses lies. Forex will demand you to cope with the bad habits, and this lesson will translate to real life. These habits exhibit life as well, and when you think about it this lesson improves how you manage your urges that lead to events you do not want to happen. Special skill traders have developed just by trading forex, yet this skill is evident in every elite professional.

Decision Making

This skill is so in demand because it carries responsibility not everybody can take. When the time comes to decide and accept the consequences then it takes a special skill. Sometimes this skill is attributed to leaders. In sports, this is especially evident in the last lap, the last-second shot, the final point in a match that decides the winner. Are you the one who makes it despite the failure consequences? Actually, decision-making is a stealthy skill that just makes noise when it is apparent. Elite professionals are deciding all the time by scaling the upsides and downsides of the decision. In forex, these decisions define trading, but traders eliminate the stress by knowing their strategy or a system work in the long run. They are very cool when it is decision time because they know it is just a matter of probability. In the long run, they win.

Staying Cool

Controlling emotions is a skill and closely tied with good decision-making. You may have the methods and tools that can tell you the odds or what is a good decision. But if emotions mess that up, what good it is? Handling emotions can be done in various ways, it does not mean you need to be emotionless to make the right decision. Many will tell emotional decisions are bad ones. However, it does not mean you need to take a “pill” to stay cool. How about just staying true to your rules? If you have a plan that works in the long run, let it choose for you, there is no reason to change your mind just because you feel like it. In time, you become cool in even the most stressful moments because you strongly believe in something that just works. Now, in life, it is not recommended to be emotionless of course, but every time you need to decide about something important, you will have that attuned, cool, analytical mindset that helps.

Wisdom

The magnificent harmony of what you have learned by forex trading is the most precious part. At this point the results are inevitable. This is the point where you accomplish and turn to higher goals by reaching out to others and sharing what you know. Now you have the responsibility to make a better future for others. Forex trading made you a better person on many levels, not just financially free. The lessons and values learned is just another lesson your personal accomplishments do not mean much if it is not reflected in the life of others.

Tags Forex Examples, Forex Strategies, Forex Tips

Beginners Forex Education Forex Basic Strategies

Forex Strategy: A Simple Definition

Post author By Forex Academy
Post date 7 April, 2021
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We can debate how to define a forex trading strategy but in the end, is it really important? We believe it is more important what elements are crucial and how to use them so you know you have a strategy. It is needless to say that without one you are blind and not make very […]

The Definition

We can find many definitions online but here is one that is simple but covers what is important: A strategy is a set of skills, tools, and information that consistently generate profitable trading decisions. We emphasize the word – consistently, so only when you have something that works over a long time you know that strategy has a meaning. It does not mean every trade or month has to be a winner, professionals usually take several positive months to conclude their trading strategy is consistent. The goal is to have profited from trading, however, we would not plan to gain percentages as goals right away simply because pursuing them might set beginner traders to think about winning only, whereas the true effect on the bottom line is about eliminating losers. Here is how to know you are on the right track to having a good strategy.

The Skill Element

Before all else, you need to be true about it. Follow your plans or everything you designed goes to waste. Your mindset has to be right to pursue any strategy or you are just playing games with yourself. Now, some traders do not rely on tools such as indicators, but they look at the charts at different timeframes and look at how the price is moving. Patterns, volume, and other aspects of the market are considered but they also consider what is going on with other markets, currencies, and any information that moves the upside/downside scale in their heads. This is the skill element of the strategy, and it takes a while to learn fundamental analysis and chart reading. Of course, there are other ways to trade where other skills are developed and could be used in a strategy.

The Tools Element

One example is the use of indicators and rules for them. Technical traders do not want to rely much on their subjective analysis of the charts or events that drive the markets. They may have an opinion or predictions but they do not trade until their indicators confirm it. Even if they think otherwise, they listen to their tools. Their skill is to be able to create a setup of different indicators that jointly create consistently good decisions. This skill to combine the right tools also requires a lot of work.

Technical traders are focused on indicators research and how they can make for a better overall performance with the others. They understand probabilities, statistics, and gauge what tools could mitigate losses. Also, when it is better to create a rule, like closing all trades on Fridays, they implement them into the strategy mix. Technical traders even use indicators for their money management if needed. It could be said that Price Action traders rely on fuzzy values while technical traders prefer precise points where they put Take Profit and Stop Loss orders, for example.

The Consistency Element

Consistency is probably the hardest strategy element to achieve. You can have a strategy with inconsistent results but we regard that as an inconclusive trading solution. It is not a strategy that works in the long term. A car that does not move is not really a car, just a pile of materials.

No strategy works every time on every market. And that is why traders spot the best market behavior for their strategies or develop different strategies for different market conditions. They look for ways to attain consistency with their strategies since they make losses in certain situations. That can only be avoided if they wait for a new period of right market conditions. Traders then implement rules to their strategies. The right market conditions have to be spotted. Technical traders have tools or indicators for that while plain chart readers just observe the candles. Forex trading is directional trading so traders of both kinds often look at the volatility and volume. They make rules based on these measurements and pick only volume/volatility levels where their strategies work best. That is why forex, precious metals, stocks, commodity traders have different strategies.

It is not rare to see mixed strategies, technical indicators with fundamental analysis. These traders take into account more data but often they come up with conflicting signals and therefore need more time for a good setup. Does it mean it is better to mix different analyses to attain consistency? Not really, you can see pure PA or indicator traders that perform exceptionally well.

Consistency can be achieved with a certain strategy, but as said in the beginning, a trader has to be consistent first. This side of trading is not in focus by beginners because working on the psychological part is not fun and you will not see it by reading strategy definitions. Therefore, we would also widen the consistency strategy element to the trader psychology too. This is also a skill, a rule, a tool, name it how you wish, but it is a requirement for any strategy to work. Traders that attain consistency with themselves and with the strategy are the elite in forex trading. They have one of the best “jobs” when we speak financially but also about their free time, stress, and resistance to side effects like different crises.

Building a strategy does not stop when it becomes consistent. A trader explores any ways that the strategy becomes either more consistent or more profitable. It does not mean a trader has to change what is already working well, but exploring other markets where such a strategy with small changes could work. More opportunities open where more profits could be made. A strategy like this is evergreen and could be regarded as a holy grail in trading.

To conclude, you have defined a strategy when you have educated yourself about how different strategies work and then design your own with specific rules, tools, or PA patterns. Have a plan for each trade this way and consider consistency building with loss elimination, money management, and having the right mindset. Only then you know you have a strategy that could be built upon as you advance.

Tags Best Forex Strategy, Forex Information, Forex Strategy, Forex Terms

Beginners Forex Education Forex Basic Strategies

How to Get Better Results Out of Your Forex Strategies

Post author By Forex Academy
Post date 5 April, 2021
No Comments on How to Get Better Results Out of Your Forex Strategies

Some many strategies are developed but all traders have one in common, the element that separates them from the pack (most starters lose). These traders have tested their strategies to the bone which gives them a really good chance to have profits at the end of the year. So, yes, they are slow turtles, actually, they are not racing at all. That element is called persistence, it is present in so many ways and many aspects of trading. Each of the trader’s eras requires persistence which ultimately improves your overall trading skills. Now, here is how to improve results with just this one element, even though we could argue there are many, we believe this one is the one that cannot go away if you want to see the results every year.

Strategies that Work

It would take many pages to describe how you can improve a strategy classified as a reversal, swing trading, scalping, channel breakouts, deviation probability, and so on. You can even mix strategies based on the market conditions or mix the theories to create a “diversified” decision. At the end of the day, backtesting results will judge if that strategy combo is working or not. Strategies that work are the ones that are tested out and give good results over and over in the long term. It is great we have demo accounts so we can test as much as we like, yet we need to be persistent in this endeavor to find the right combo. And this is how most traders start, testing their first strategies. The first and the best way to improve your strategy is by analyzing the test results from the excel table, myfxbook, or any other journaling tool.

The stats are a good giveaway of what is good and bad with your strategy. The P/L line is not always the most important, pay attention to other markers such as the drawdown, profit factor, Sharpe Ratio, and other, trade-specific stats, such as Risk to Reward ratio, how much money you risk per trade, and so on. The amount of attention and work you invest in this stage will equal how much your strategy is improved. However, do not spend a year on one project just to conclude it does not work, take a hit and abandon ship. Persist. There is so much to explore out there.

The Iron Mind Strategy

All that work you have done is paying off, your strategy works consistently in your backtests. Forward tests confirm you can make good money, all you have to do is go live. And disaster strikes. Feeling broken or mad? Does not matter, to make it in this game you need to persist. At this point, if your strategy works mathematically, there is one factor that could ruin your nicely developed system. Your psychology probably failed. The system never had a chance to do its thing because you kept interfering.

We would advise you to start with indicators since they are strict, unlike our minds. Especially on very important trading parts such as risk management. We can get emotional, we might be tired, drunk, or something else, If we let our physical and psychological state interfere with our trading we cannot get persistent results. And there is that word again.

Indicators are an easy solution for this, but it might not be enough, we have to accept the strategy could be better if we interfere less and let the tools work. The extent of how many indicators and tools you have in your strategy depends on you. It still might not matter because beginner traders think they can do better. Some traders drop the indicators once they become experienced reading the charts, some keep them forever and look out for better ones.

Keeping the Mind Open

Traders can put the badges on once they overcome psychological issues. The strategies they have are finally doing what they do in the backtests year after year. With these, they can become pros, using their own money or having investors. However, traders will need to improve on what they already have. They need to be persistent still because at some point the market will change, the same way forex is different today than 10 years ago. Of course, your strategy could work great, even though it was based on the old market conditions, but this is not always the case. Very successful traders could “lose their mojo”, and this happens even to veterans in the industry.

If your strategy is indicator-based, lookout for new versions or adaptation of the same. If you use some moving average, try out a step version of the same. Did you know inverse Bollinger bands indicator can also be a great type of moving average? Improving the strategy requires keeping an open mind about ideas, similar or completely different. Each strategy has something unique, when browsing strategies pay attention to the trading plan, there might be a rule that could benefit your strategy if applied.

Find Good Resources

Exploring the world of forex is very interesting, you never know if some forum from the depth of the search list might be what you are looking for. Interestingly it is mostly the community portals where people share their ideas and creations that are the best sources. If you thought a good source is some popular tv station, you are wrong. Even the websites on the first search result page are more of the same. It is like they are cloned. Know you need to dig deeper unless you like conventional ideas that do not get you anywhere. Presenters on tv are bad traders, they just sound smart with the lines and tools understandable to the masses. We all know better, even beginners who went through babypips’ school know the analysis is much deeper, from a technical standpoint.

Their fundamental analysis also is not what you need. Rarely ever some information from the TV is useful for trading. If you want to really have insights into what is going on with the markets, pay attention to dedicated research channels. They are present on social media like YouTube and Twitter. For example, The Rich Dad Channel is hosted by well-known investor and bestseller author Robert Kiyosaki. The channel is full of fundamental insights about the markets and politics inevitably connected to the USD, EUR, and other currencies. What is great about the channel is that Robert hosts pros who are specialized in certain markets, who in turn have their own channels. You get the idea this is great for exploring other channels of your interest knowing you won’t stumble on shallow analysis TV stations.

Connect with Other Traders

Introverts rarely do this however, when you are really stuck and do not get the results you want, consult with other traders. Forums are a good way to go with this but do not expect someone to hold your hand. More often than not someone has already asked the same question. Still, if you have some new problem worth sharing, you will be amazed at how many smart trades are there who could help. Sometimes it is just words that you might need, not pointers or indicators. If you ever become interested to become a pro trader, try to apply with a prop firm that organizes trader community events. This is a rare value that is very helpful for your strategies and your mindset.

Tags Forex Strategies, Market Strategies, Trading Strategies

Beginners Forex Education Forex Basic Strategies

Apply These 5 Secret Techniques To Improve Your Forex Trading

Post author By Forex Academy
Post date 5 April, 2021
No Comments on Apply These 5 Secret Techniques To Improve Your Forex Trading

There are so many ways to fail with forex trading but so many ways to improve on. Each trader is unique in how he is playing the long forex game, however, common techniques are applied in various forms that make a huge difference to the trader’s psychology and other trading aspects. Such techniques are not always on the scene, frankly, we think most of the good stuff is not in plain sight. This article will try to provide techniques everybody can apply but a few know about.

#1 Use Personality Tests

You will certainly find trading techniques not applicable to you or your lifestyle. Every trader has inherited advantages and disadvantages related to forex trading. Now, it is very rare to connect your results from popular personality tests with forex trading. Did you know you can use these tests to see where you will be great and where you will fail in trading, regardless of the strategy you choose? This is a secret only experts talk about or prop firms when registering new members. It may be a good idea for you to research this topic, however, we will give you some examples. Personality tests are there to help you, so you should answer them honestly, they are just describing your personality after all. We will use 16 personality types created by Isabel Myers and Katharine Briggs.

If you are an extrovert, you are likely happy to start trading right away, opportunities are never missed, you like to take action. All this eagerness, on the other side, is dangerous. Overtrading is a common mistake with these traders, they also get emotional quickly. They should work on rules that will prevent them from overtrading, such as going to the gym, reading sessions, or similar, just away from their trading platform.
Introverts are great strategists, planners, strategy engineers. On the downside, they miss opportunities because of too much information. Another drawback of such traders is their hesitation to talk about their trading that could produce a great idea.
Your lifestyle is how you look at the world and this also defines how you look at fore trading. If you are perceptive, for example, you do not like plans, rigid constructs that tell you what to do exactly. Even though such traders are curious and open-minded, they may lack conviction or confidence. Accepting a decision system solves this, provided a trader follows it to the letter even though he dislikes it in the beginning. More on the personality test is found in our dedicated article.

#2 Achieve Consistency With Indicators

Indicators are a way to go for beginners especially. If your trading is already advanced and consistent you do not have to mess with indicators. Beginner traders need guidance, and indicators are tools just made for that. However, consistency could not be achieved just by plugging random indicators, you will need a system. Indicators are great decision-makers, but you need specialized ones. To be precise, each indicator has its role, what they measure, how they serve best. You will rarely find a good indicator that is universal if that is even possible. Use specialized ones and arrange them to have a system you can follow, do not rely on your instincts, at least not until you build experience.

Your instincts and your psychology do not do well when you start losing. Each time you experience a loss from a gut feel trade, there will be self-doubt. Continue to do so and you might quit trading altogether. By using an indicator system, and following it, you create a foundation where you can relax. On a proven system you know you have a winning formula, drawdown will not shake you as much. Many adverse factors on your consistency will be eliminated this way, forget all the videos about trading that do not implement indicators. Find special Moving Averages for trends, volume indicators for gauging market conditions, and even use indicators for money management. To some, this might not be any secret technique, yet you will be amazed how many beginners do not know the true value of trading systems.

#3 Custom Formulas

Did you know you can use a formula to make your index or a currency basket? Tradingview is a popular platform that allows you to do this. Indicators for MT4 that represent a currency basket, for example, are very rare, but in TradingView, you can make your own by typing one in the symbol box. Currency strength meters are not quite good replicas because you cannot see price action and you cannot factor in or out assets you want. This is still possible for free on the mentioned platform. You can use this formula for the Euro against the other 6 majors:

(EURUSD+EURJPY/100+EURAUD+EURCAD+EURNZD+EURCHF+EURGBP)/7

You can also use inversion (1/X) which is needed for correct chart presentation, such as for the USD basket:

(USDJPY/100+USDCAD+1/EURUSD+1/GBPUSD+1/AUDUSD+1/NZDUSD+USDCHF)/7

On a basket chart, you can analyze, draw lines, put indicators like on any other. This is a secret technique currency basket traders adore, however even if you do not follow that strategy you can use it for a scoring system. If a single currency is trending up then you know to avoid selling it and mark it +1 point if you are looking to buy. This is just one secret from using custom formulas, we leave the rest for you to find out or create one of your own.

#4 Have a Schedule

Did you know trading is not only reading about strategies and ways to win trades? Professional traders have their routines and do not deviate from them. The reason for this trading technique is that it fosters their pros and encloses their drawbacks. It is what makes them have their trading “mojo”. We have mentioned indicators but professionals retain the edge with a routine, especially if they do not have a strict technical trading system.

Take any trading book and you will see a lot of charts and setups, however, rarely about what really makes a professional trader. If you want to use a daily, weekly, or even monthly time frame, your trading schedule is much easier. Lower time frames require your presence but without a schedule, you can mess up your trading big time. If you find yourself looking at the charts for fun, to see what is going on in the middle of the night or similar, this is a sign you need to work on your schedule. FOMO is an unreasonable fear, there is always another opportunity with trading, chasing them is actually bad.

Daily timeframe trading requires very little screen time. Basically, just 30 minutes to check if you want to trade and the news. Each period is one day so you only need to take a look once the candle closes. Set and forget for the next 24 hrs, easy. Lower time frames, on the other hand, require a plan in line with the sessions and the strategy. Execute this plan to the letter and then close the charts, do something else. You will be glad you did.

#5 Using Volume and Volatility

Did you know the trend following strategies are the most successful compared to everything else? Try to develop one with this special ingredient. So, if you are not totally new to trading then you have heard about volatility and volume. But have you noticed very few traders use these measurements? Too bad for them but now you know the secret of trend riding. To connect the two, trends rely on energy that pushes them further, and that energy is measured with volume/volatility indicators. This is a secret once again because rising volume or volatility alignment with the trend start makes such a big impact on trading. Whatsmore, such indicators are not common, which makes them even more special. Incorporate one as a rule for your trading, there are some to be found on the MetaQuotes portal for MT4 or ForexFactory.

Tags forex analysis, Forex Strategy, Forex Techniques

Forex Basic Strategies

Is There Really a 100% Winning Strategy in Forex?

Post author By Forex Academy
Post date 19 March, 2021
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The short answer to this question is simply, no, there is not a 100% winning strategy, the only way that you can avoid losing is to simply not trade at all. It is actually a good thing that there isn’t a 100% winning strategy as if there was, there would be no trading as everyone would be going for the same thing. It is simply impossible for there to be a 10% winning strategy, if there was then trading would not exist, so the fact that reading has been around for so long is testament to the fact that you cannot win all the time, but surely there are some strategies that are almost right all the time? Again no, each strategy has its merits and its downsides, the person trading it has an effect, and more. We are going to be looking at why there isn’t a 100% winning strategy and also why there never will be one.

Let’s get the risk out the way straight off the bat, if you are planning on having a profit with every single trade that you make, then it would be a better and much more profitable idea to not trade at all. As soon as you plan to profit with every single trade, you are basically throwing any sort of risk management out the window and are technically risking the entire account balance with each and every trade. This is simply due to the fact that you will be reluctant to close any trades down when they are in the red, waiting for them to return, if they do not return then you will eventually lose your account. So do not go into trading with any sort of strategy and think that you will have each trade come back as a profit, losses are inevitable and they are a part of trading.

You need to accept that there will be losses and you also need to plan for them, planning for losses may sound pretty negative, but it is in fact one of the most positive things that you can do as a trader. Planning for losses also means that you will be minimising them, a planned loss will cause you to lose a certain amount of your account, say 1$% or 2% of it with each trade, an unplanned loss could be 10% or 20%. You need to plan the maximum loss of each trade, yes you will be making losses, but they are controlled and you can decide before even placing the trade, the maximum amount that you are able to lose on it, one of the primary ways that we stay profitable is by doing this, and we can technically be profitable with more losses than wins.

You may have seen people advertising their strategies as a guaranteed win or as a strategy that has a 100% winning rate, but there are a number of different factors and reasons as to why this is not the case. Simply put, no strategy can account for all market conditions and no strategy can account for natural disasters or certain news events. If the markets moved like the ocean, simply moving up and down in a predictable manner then yes, there probably would be a strategy that could win 100% of the time, the problem is that this is not how the markets move and work. Some strategies work for a few days, others for a few weeks, and others even a year, but at some point, the markets will do something that is unexpected and this will cause the strategy to start to lose.

Forex is partly about planning, but it is also about adapting, when the markets move with a natural disaster or simply go against expectations and trend the other way, you are required to adapt, each strategy has been set up for a particular scenario and market condition, as soon as that changed, if the strategy is left as it is then it will incur losses, you need to be able to adapt it to better suit the new and changing conditions. Of course, you will still be expected to take losses, especially when experimenting with changes, although that is what demo accounts are for.

So while there is not a strategy that will get you a 100% win rate, there are some things that you can do to help improve those odds or at least to improve the chances of you being a profitable trader. To start, you need to manage your money, the losses that you will take need to be managed and they need to be controlled. You need to have a set risk management plan in place that will detail the maximum loss of each trade as well as your risk to reward ratio, so you can ensure that you are more likely to remain profitable overall. The traders that do really well also have multiple strategies that they use, if you stick to one, the markets will eventually turn into a situation where you cannot trade properly with the strategy. Due to this, having multiple different strategies available for you to trade with will enable you to trade better in different conditions and be more profitable in multiple different market scenarios.

If you try to go for a 10% strategy it will only end in disaster, the first thing that will start to disappear is your account balance or equity, as trades start to fall into the red and you refuse to close them. The second thing that will start to deteriorate is your psychology, you will begin to become stressed, you may even become greedy or overconfident depending on how the trading has been going. What is important to understand is that as you try for this 100% win rate, you will begin to really feel the strain of trading, something that can be avoided by cutting losses early on, it helps to take away the stress of holding and seeing red trades as well as protecting your capital. Many traders who go for a 100% strategy and end up losing, will simply deposit more and try again, resulting in even further losses, so the best thing to do would be to accept that there will be losses from the get-go.

To summarize what we have spoken about, the markets simply do not allow for a strategy to be a 100% winning strategy, it just won’t happen, things are constantly changing and most strategies are set up for a single market condition, you should also not leave trades in the red and close them early in order to protect your own balance and capital. So don’t go out there looking for the perfect strategy, instead look for a number of different ones that can be used to help you trade in multiple different conditions, and most importantly, expect losses.

Tags Forex Strategy, Trade Strategy, Winning Strategy

Forex Basic Strategies

These Are Widely Viewed As the Most Powerful Forex Strategies

Post author By Forex Academy
Post date 17 March, 2021
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Any novice in currency trading will soon find out that there are a lot of different currency trading strategies. Therefore, any novice trader will always wonder, what is the best strategy for currency trading? Any foreign exchange trader wants to know which trading strategy should be selected (or created) for the most profitable trade. Indeed, much will depend on the type of trade you prefer, as some strategies are best in short-term trading, swing trading or currency scalping or day trading or positional trading. Certain strategies may be adapted to a day trader or long-term investor. This article explains three currency trading systems that have proven to be working in financial markets.

Number 3: Business Strategy of Trend Line Break

This is one of the oldest currency strategies that is based on trend reversal. The strategy indicates depending on price movements that a particular price level where the current trend will be reversed. This strategy also employs levels of resilience and support, and I understand that it is correct for all assets and all investors, ranging from currency pairs to CFDs or commodity stocks.

Well, let’s see how you can open positions to buy and sell with this strategy:

Find a clear trend and draw the trend line along with its highs/lows. We just need a single line that will break in case of a trend reversal. In the bearish trend, we need the resistance line (red), and in the bullish trend, we need the support line (blue);

Now, we have to wait until the market moves for the price chart to break this trend line. Only the moment when the price breaks and crosses the line is necessary for us to have a negotiating signal;

If the bearish trend breaks, it will be followed by a bullish trend, and so, let’s go into a buying operation (Buy). If there is an upward trend breakdown, the price will be reversed downwards and we will enter into a sale transaction (Sell);

You must enter a purchase transaction when the 2 main conditions are met: the price has been broken through the resistance level (red line), and the price reached the level of the most recent peak of the broken down bearish trend (level of purchase);

A sale transaction is introduced when the 2 main conditions for sale are met: the price has been broken through the support level (blue line), and the price reached the level of the most recent lowest of the decomposed bullish trend (sales level);

By the time the two conditions are met, we can already open a selling or buying position immediately if the price has reached the level we have discussed in steps 4 and 5;

A take profit is set at the maximum/minimum of the previous trend before the low/high where we open a position (Take Buy/Sell);

A stop loss is put on the low/high of the previously broken trend (Stop Buy / Sell);

As you see, this is a simple and cost-effective currency trading strategy that can be used at any period of time and provide a sufficient level of signal accuracy. Statistically, the benefit/loss ratio is approximately 65/35.

Number 2: Three EMA Rupture Strategy

This strategy is one of the basic strategies of the indicator and, like the previous ones, is quite simple and applies the principle of a trend reversal. This is a currency indicator strategy, so you will need to attach three moving averages to the chart.

Well, let’s see how you get into trading according to this trading system.

Place three EMA on the price chart. For convenience, they should be in different colors. In the first EMA, the displacement is -2 and the period is 21. In the second EMA, the displacement is -3 and the period is 14. The in the third EMA displacement is -4 and the period is 9;

Therefore, the blue EMA will be slowed down and when satisfied by other faster EMAs, input signals will be delivered;

A selling sign appears when the green EMA breaks through the red from above and the two lines cross the blue line from above (Sell 1,3,5);

A buy sign is sent when the green and red Mas cross the blue from below, and the red must be crossed by the green MA from below (Buy); The strategy does not suggest particular levels to put a Take Profit and Stop Loss, so, you leave the transaction depending on the market situation, you should be very careful to keep risk management under control;

You should close the position (with a profit or with a loss) when the green and red EMAs cross each other back in the opposite direction after they have entered the trade;

As you can see, this Forex trading strategy is also very simple. A simple average indicator provides clear signals with a profit/loss ratio of approximately 70/30.

Number 1: Commercial Strategy Based on Triangle Pattern Break

I assure you that this is one of the most optimal currency strategies. When you operate with this strategy in currency markets, at least know the main ideas of technical analysis, because you will need to find a triangle pattern on the price chart and mark your legs (limits) with trend lines, which are the levels of support and resistance ( blue lines). The triangle looks like a narrow side channel.

Well, let’s see how you enter operations based on the signals of this commercial strategy:

This strategy hardly offers signals to enter the market at the current price, it suggests the use of pending orders, purchase limit or sale limit order;

When you have already found a triangle pattern, you can start placing pending orders. You must place the order at the price level that will indicate that the price has broken down one of the pattern trend lines;

A purchase limit must be set to the maximum before the pattern resistance line break (buy 1). If a new high arises, the limit order must move a lower high (Buy 2), and it does so until the resistance line is broken;

A Sell Limit order is placed at the minimum before the break in the support level of the pattern (Sell 1). If a new bass emerges, you must move the pending order to the next minimum, and this will happen until the support line passes through;

When one of the pending orders works, you put a Take Profit at the maximum (if you buy) or at the bottom (if you sell) of the pattern;

A stop-loss will be set to the contrary end (low/high) relative to the end that entered an operation. For example, for a sale transaction (sell 2), a stop loss is set at the level of a possible trade purchase Buy 2);

This business strategy is a bit more complex and needs you to have experience in detecting a triangle formation in the price chart, but provides greater trading opportunities. Complexity is compensated with the high accuracy of trading signals with a profit/loss ratio of approximately 85/15.

So, now you know the three best currency strategies that any forex trader should try. We recommend that you test them out on a demo account for a while in order to get the hang of them first. After that is done, feel free to move to a live trading platform and start collecting your profits!

Tags EMA Rupture Strategy, Trend Line Break, Triangle Pattern Break

Forex Basic Strategies

How to Become a Pro At Averaging Down

Post author By Forex Academy
Post date 17 March, 2021
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I have seen in several forums that many investors practice the risky sport of averaging down. This strategy is nothing more than investing more money every time the stock/ ETF/ Fund, etc goes down, so we get a reduction in the initial cost by buying more shares at lower prices. This strategy has several problems… […]

This strategy has several problems…

– Each time we average to lower the average cost we add more money, therefore we add more risk.

– “Money Management” or money management strategy is a martingale (I buy when I lose, that is when I lose). This strategy is perfect when our capital to invest is infinite, which is not very likely.

– It is not recommended unless you know how to do it, because if you do not do the strategy well or do not choose the underlying well, the losses can be very painful.

– We are invested in a broad ETF (there are many companies and good ones) and the ETF has downward swings because of the feeling of the market, and not because of the quality of the companies that compose it, so it is an inefficiency that we could take advantage of if we have liquidity.

– Exactly the same as the previous point but with an individual company. Here I have to say that you do not do it, do not lower your average in individual companies, unless you know how to read a balance sheet and trust very much in your judgment that the company is good and will continue to make profits.

If you still want to average down we’ll see how we can do it. The example I am going to give with a company, and this example can be extrapolated to an index. The company XZY is a large company, what’s more, I would say it is a very large company, with annual dividend increases of around 7% on average, improved margins has an impeccable balance sheet, etc, etc, etc. Ultimately a really good company with very little chance of going into losses, although this is never 100% reliable.

Once we know that the company is very good and its balance sheet is difficult to get worse enough we want to enter it to take advantage of its current price and be able to get quite good returns. The intrinsic value of the stock is €100, and it is currently listed at €60, so it is trading at a 40% discount. I think it’s enough of a discount to go in and have a good long-term return.

I have 10,000€ to invest in the value, and at 60€ I will buy 100 shares of the company, so I will invest 6,000€ initially. Now, because of the current market situation, because of the phase of the cycle in which we are, because the political situation of the country is this or that, etc… it is likely that the market will punish the quotation and we will see it below, even though it is an incredibly good company, which gives us the possibility to buy more shares (more risk) in exchange for lowering the average cost (more profitability) and when quoted at prices close to its intrinsic value, get a few more points of profitability.

Then let’s try to figure out what a super price would be. The super-price is the price at which the company is a very clear investment opportunity and will give us really good long-term returns. For our example I estimate that a super-price for the company is 40€ per share, that is, we shouldn’t care if it goes any lower, because at the price I buy the company, earns enough so that the money invested in it has all the possible guarantees of getting the full return on my investment plus high returns.

At this point, I have 4,000€ in liquidity and a difference of 20€ between the current price of the stock and my super-price. Now the price difference between the current quotation (60€) and the super-price (40€) we have to divide in equal parts, and in the same way our capital in liquidity. Therefore we can divide our capital into 4 parts of 1000€ each and the 20€ difference into 4 parts of 5€ each and in this way we already have the levels in which we will invest additional 1000€ each time the quotation drops 5€ and we will have enough liquidity until he goes down to our super-price.

A rule for you to do well is not to average a price that is less than 8% difference between the initial purchase and the next purchase to average, that is, I will not buy the company at 60€ and at 59€ I will re-invest. Such a small difference between the different prices will not excel in the returns of this long term. In the example I have explained the difference is greater than 8%, so it compensates for the risk with the possible long-term reward.

If instead of having bought 6.000€ initially we had bought less, 3.000€ for example, we would have 7000€ in liquidity to average, we would again divide the difference between the current price and the super-price and divide it into 3, 4, 5 equal parts (to the taste of the investor) and buy when it comes at the price we agreed. This is the standard way of averaging.

We can also increase or decrease the risk by doing the average in different ways…

– Increase the risk: Instead of dividing our capital into 4 equal parts I will give more money to the latest purchases, for example: Instead of buying 1,000€ each time I lower 5€ the quotation, the first 5€ I lower (the quotation would be 55€) I will buy 500€ only (I have left in liquidity 3,500€, the second purchase at 50€ I buy for 800€, the third for 1200€, and the fourth and last for 1500€.

– Reduce the risk: Exactly like the previous point but in this case, the first purchase to average is the most money we invest, and the last one the least, we would invest 1500€ first when the quote reaches 55€, 1200€ when it reaches 50€, 800€ when it reaches 45€, and finally 500€ when it reaches 40€.

By reducing the risk, I am not referring to the operation in general, but to the strategy of averaging downwards. Another day we will talk about selling a part of the portfolio to reduce the risk of the transaction in general.

-It is different from the average if we invest 6.000€ in the first purchase than 4.000€, the more money you invest in a certain price, the more the average cost will approach this.

– We can use the 3 ways of averaging, we just have to know what our profile is and if we will find ourselves doing this high-risk strategy.

– Never weigh at prices below 8% distance between several purchases. The risk does not compensate for the reward.

– It is not the same as a super-price for our example of 40€ that 59€, here it is clear that I will not average, it is not higher than the minimum 8%.

– In companies it is very risky, I would not advise you, you must be almost professional to do it in companies. In indices, it is different, although not all indices, choose one with large companies, and enough, SP500, Eurostoxx300, the VT would be perfect, etc. An idea to know a super-price of an index is to see the return for a dividend that gives and with which you would agree.

This is all, a risky strategy, but using it with a lot of heads and a lot of care can give us joy. As a last remark I repeat that I do not advise this technique in companies and in indices if you do not know how to use it well, it is very dangerous, but now you’re a little more knowledgeable about how to do it and avoid serious mistakes by buying too soon or in an underlying evil.

Tags Averaging Down, FX Averaging, FX Strategies

Forex Forex Basic Strategies

How To Earn $398 Per Day Trading Forex

Post author By Forex Academy
Post date 11 March, 2021
No Comments on How To Earn $398 Per Day Trading Forex

How does earning $398 a day sound to you? Good right? Many of us can only wish that we will eventually make this much, for some it is a reality, but for most, it is a distant dream. Yet it is achievable, but the real question that you need to be asking yourself is whether or not you should be aiming for that amount, and what stage you are currently at. Yes, it is achievable and we will be looking at how you can achieve it, but also why you probably shouldn’t be aiming for something so high straight away.

Should You Aim High?

Ultimately, yes you should be aiming that high, but you should not be aiming that high straight away. In fact, your first goals should be to simply be consistent or even profitable, those are good targets to aim for. If you think about your current trading and your current strategies, what level are you currently at? How much are you making? You will need quite a large balance and a lot of experience in order to make so much per day. Yes, it is certainly achievable, but it is achievable once you have a number of years of success under your belt. Aim high, but do not aim too high too fast.

Start Low

It is important that you start with more realistic targets, start thinking about simply being profitable, that should be your first goal and the first thing that you aim for. Even something like $10 a month is still a positive result and is still a good step in the right direction. Then once you achieve that, increase it, to $20, then $50, then %100, then start looking at weekly targets, $50 a week, $100 a week, and so forth. While many like to look at daily targets, we would actually advise against this, simply because it can force you to make mistakes or to trade when you shouldn’t, but we will look at that shortly.

Daily Targets

We mentioned earlier about daily targets, sometimes people like to set daily targets but we like to think that these can actually be quite dangerous. If you are trying to make a certain amount each day it can lead to over-trading or larger, more desperate trades. This is why we try to place longer-term trades, it takes away a lot of the pressure that you may be putting yourself under. So instead of placing daily targets, try placing a weekly one, this will mean that you can still have bad days and you won’t feel that you need to make additional trades just in order to meet your targets. Weekly or monthly targets are best, just don’t try and put yourself under too much pressure with large and short goals and targets.

It Takes Money to Earn Money

Let’s be honest, if you want to make a lot of money you are going to need a lot to begin with. Otherwise, you will be using ridiculous amounts of risks which could very easily lead to you blowing your account. If you want to be making $398 each and every day then you will either need to be placing some rather large trades or an awful lot of them, either way, you just can’t do this with a small balance, even with a balance of $10,000 you will most likely struggle to get near to this figure. So the simple fact is that if you want to make a lot of money you will need to have a lot of money in the first place. This does not however make the target unachievable, as it will just mean that you will need to build up your account balance first, start small but aim high.

Take Your Time

You need to remember that you aren’t actually in a rush to make his amount, yes we want to get there as quickly as possible but there is no reason to rush and no reason to put your account under any additional risks by trying to get there as quickly as possible. Instead, take things slowly, the markets aren’t going anywhere and so there is no rush to get to your targets as quickly as possible. Use the time it takes to get there to build up your account balance and to learn, learning is a never-ending endeavor within the trading world and so take your time, do not rush, and try learning a little bit extra along the way.

It can be very tempting to rush your way to achieving such a good target, making that much each day is a dream for many and it would allow them to quit their job and work from home. That amount could solve the majority of a lot of our money issues, but it is not something that you will achieve straight away. You need time and money to get to that stage, a lot of time and a lot of money. Set your goals high, but ensure that you do not rush and that you plan your journey there, do not put your account under risks that you do not need to.

Tags Forex Earnings, Forex Strategy, Forex Trading

Forex Basic Strategies

WARNING: You’re Losing Money by Not Using this Forex Strategy

Post author By Forex Academy
Post date 9 March, 2021
No Comments on WARNING: You’re Losing Money by Not Using this Forex Strategy

What if there is a solution to keep your account afloat no matter the strategy you are using? Would you follow it to the letter? Well, such strategies already exist, the issue is beginner traders cannot resist not to stray away from it. Ridiculous as it sounds, most traders lose because they start gambling instead […]

Money Management (“Oh no, that again”)…

You will find many strategies online, ready to be implemented. However, rarely you will find information about how big your trade or position should be. It is a risk management strategy. Yeah, the thing “no one” wants to listen, it is not as cool as some pimped indicator you can plug in. It is the same rule you need to follow when on a diet. You can eat this and this much every day. The desire to eat forbidden food may get the best of you, but if you persist, positive results are unavoidable.

The brain just wants excitement…

Except in trading, you feel the gambling desire. The idea you can double your account tomorrow is very exciting and lucrative. The truth is it may happen, it can happen more than once. The feeling gets you moving. Unfortunately, everything will end badly. Excitement will be replaced with rage or depression. This game has no good ending unless you cash out and never return after a successful account doubling. But again, you will have to stop thinking about doing it once more, the idea of getting rich quickly.

Fundamental, technical, it does not matter…

Fundamental analysis, all the news, and events that you think might get the price of some asset going are answering the question of when and in which direction. Technical analysis does this but more strictly. Money Management answers the how much question. No analysis will help you if the Money Management plan does not exist. Spend so much time developing a good entry and exit strategy, all is for nothing without this boring MM plan. Luckily, once you set it up, it is done, just follow it. Oh, yeah, you have to follow it to the letter.

Your strategy should work…

Finding new ways to trade is great. However, now you know that a strategy needs optimal capital allocation for each trade. If you do not spend much time finding indicators and like to draw support and resistance, Fibonacci, and so on, that strategy is good too. The good news is money management makes any strategy work, essentially it is this thoughtful position sizing that drives your account value up and down. The even better news is that once rounded up, money management does not require you to work on it, just repeat the same for every trade you do.

Easy MM with Ratios…

Ratios are easy to set up. Once you understand the Stop Loss and Take Profit idea, try to go with the generally accepted approach of having at least a 2 to 1 ratio. This just means your TP is two times away from the trade entry price than the SL. Where to place TP and SL is something we have discussed a lot before, but initially, you can take any channel-type indicator that measures volatility. Place TP at the top or bottom of it, depending on which direction you are trading. SL point is easy to place now, just halve the TP distance for a 2 to 1 ratio.

Easy MM with Price Action pivots…

Simply said, pivots are price tops and bottoms you see on the chart. These extremes are used to place support and resistance lines, especially if they are repeatedly appearing at the same price levels. These lines are easy picks for your SL positioning, and if you follow the ratio rule TP is also defined. You can experiment with your ratios, extending them to 3:1 or higher. Now when you know how to protect and capture profits at the basic level, the only thing that remains is how much money to put into every trade.

How much to put into a trade…

Technical traders like indicators and indicators are really good at precisely telling you how much to invest. Volatility indicators usually produce a number to tell how something is volatile. You can try and open fixed-size trades. For example, if you have a $10000 account always open $500 positions. That can be 5% per trade. However, when an asset is really moving, more than others and more at that particular time, that 5% can suddenly become a serious loss, even with a proper SL. Of course, we can simplify things. Currencies or assets that are more volatile, such as the GBP, are not going to follow the same 5% trade saying rule. Simply have it to 2.5%. If you see chart candles that are higher than usual, do the same. Now if we really want to get nerdy and precise as technical traders, we can use volatility indicators to calculate precisely how much to invest. One such indicator is now a standard issue on many trading platforms, the ATR indicator.

Strategy example with Keltner Channel…

The picture below contains two indicators, the mentioned Keltner channel and a simple volatility indicator using the TradingView platform. The strategy uses the Keltner channel to set the SL level, at the bottom for long trades and the top for short. Since the channel can be used for breakouts and reversal trading, and it also shrinks if the volatility is getting lower, we have a universal tool for placing SL and TP. Mix in the ratio rule and the position sizing rule and your Money Management is all set. The green vertical line is our long entry moment. We enter a trade when the price breaks out of the channel AND the volatility indicator is rising, but also we consider if the price has broken previous resistance marked with a red horizontal line. The middle channel line is our SL and TP is twice as far from the market with the green arrow.

As you can see, our TP was hit almost at the top of this small trend. Now, the price action went into consolidation, new support and resistance levels are formed until we notice a new breakout of the Keltner channel. It was a short trade that pierced the support line but failed to make the way to the TP level, we were stopped at the SL. Even though we have 1 win and 1 loss, we are still in the money since the TP to SL ratio was 2 to 1. If we fail again, only then we are at breakeven. Testing your strategy, you will aim to be better than 50%, right? Because 50-50 is just coin-flipping. Even then you will be profitable just because you have a money management plan in place. Now you can do the fun stuff. Find a winning strategy of your own.

Sources of knowledge…

On your way to finding a winning strategy suitable to your lifestyle and psychology is fun, it is like finding parts of a money-making machine. On this very website is a whole library of strategies, concepts, and indicators. Of course, consider tweeter and youtube but also dedicated forums where people share ideas. You will notice that something could blend into your strategy. The best part is you do not have to worry about losing. Even if you are very bad, Money Management will give you many more chances to slowly get it right. It is one universal thing that can be used in many other markets.

Tags Forex Basics, Forex Strategy, Trading Strategies

Forex Basic Strategies

Create a Powerful Forex Strategy In Only Five Steps

Post author By Forex Academy
Post date 4 March, 2021
No Comments on Create a Powerful Forex Strategy In Only Five Steps

One of the first things that can happen to you when you start trading forex is seeing that it is possible to earn money without having a fixed course. This will create a false feeling that trading is easy and you don’t need anything else. Then, the market will put you in your place. But of course, you’ll get pretty high for the previous gain and then the fall will be harder. Then the frustration will be such that you will want to quit trading and think that everything is manipulated and against you. Does it ring a bell?

Why is this happening? You were lucky to start and you don’t have a clear strategy that allows you to trade without those ups and downs as if you were on a roller coaster. If you spend time creating one or more strategies and adjust the risk so that market movements don’t leave you with KO, you can put the odds in your favor.

How can you create a trading strategy? It is very simple, nowadays there are many tools that allow you to create systems and automate them without learning to program. As easy as having to follow a series of steps to make sure you have everything defined and that you don’t leave anything in the air. I tell you the five steps to set up a trading strategy.

Define A Time Period

Your trading strategy needs to be well defined over time. Set when to open a position and when to close it. The exact moment in time or circumstance. In addition to the frequency. if for example will not operate on Fridays or during a strip at night. This is especially useful in some intraday strategies to limit that no trades are made during rollover, as spreads are usually higher and we pay more for each trade. Also interesting not to trade for example on Sundays at the opening or when there is volatility as when macro data is published.

If you do day trading you will look for small time frames trades with the aim of looking for intraday movements in the price, while if you do swing trading you will look for wider ranges in the price and your time horizon will be wider.

Input and Output Indicators

Indicators, as their name indicates, will act to give an input or output signal from a position. An indicator can be simple as a moving average or more complex and personalized. Really indicators with very simple rules work very well over time. For example, we can define in our trading strategy that when the opening price in an hour of EUR/USD exceeds its 20-period weighted moving average, buy and close the position when subsequently, the opening price in one hour is below this average.

The objective of an indicator is to serve as a reference, for example, to detect a trend. Indicators are not the panacea or magic, they are just markers on the way to reach our goal. You have to see it as clues so that everything develops in the best way and get an advantage, but remember that the key is to work with different systems.

Defining Risk Strategy

Defining risk in our trading strategy is not that it is important, it is that it is basic and fundamental. Your system should consider how much you will buy or sell an asset and how much is the maximum you can lose. The maximum amount you can lose can be calculated in euros or dollars or you can calculate it in % of your account. I recommend that you do it in percentage terms to avoid constantly adjusting.

Many traders start to consider how much they can lose once it’s happening, as at first, they believe it’s something that won’t even happen. Incredible but true. This puts them at risk for more money than they can actually assume. Set a maximum percentage you can lose in your trading strategy (depending on your actual risk tolerance), it will help you keep your feet on the ground.

Configuration of Parameters

Where will you place the stop loss? And the take profit or target of each operation? What will be the settings of the indicators you will use? For example, if as I said in the previous example you use a moving average. How many periods will it be? It is important that all of this is well-set, clear, and objective. This way you will have a perfectly defined trading strategy that will not make you think or doubt its execution.

Write Your Strategy

Could you explain your strategy to someone in a simple way? One thing that is often said is that your strategy should be able to enter a post it. Maybe it’s a little radical, but in essence, the shorter and simpler, the more robust and more likely it will work over time.

Writing your strategy is something that will help you understand it. Imagine if you had to tell someone to program it for you. You should be very objective and avoid statements like “much, high, little or low”. You will have to define very well how much is that much, that high, that little, or that low. That will help you not to sabotage yourself and to have the mental clarity to act accurately in reality. Whether you’re operating manually or automated.

[Extra] Keep Track of Your Operations

Many traders create a strategy and simply execute it. If it goes well they raise the amount until they can’t take any more risk, the position goes against them by little, and by going so exposed they blow the account. Others simply carry it out and if it is not profitable at first, abandon it.

Winning traders do not do this, they work with different strategies that monitor proper risk management. This means that your perception is not focused on a single strategy and that you will play everything to one card. You will have a more panoramic view, but remember that you must follow your strategies.

This point is important because it will help you establish criteria where you disconnect strategies that are not working. It’ll help you limit your losses considerably. Many traders live clinging to the idea that they need to be strong no matter what and stay true to your system. But of course, what if your strategy is no longer profitable? This is nothing new, there are trading systems that no longer have a statistical advantage in the market. That’s why working with a wallet is the smartest thing. So you can have some on the bench to replace the headlines when they flounder.

If you operate manually and you are starting to apply a system, quiet, it is good to start, but keeping control of each operation and its result can help you a lot and is basic. You can do this by connecting your account with platforms such as myfxbook, fxblue, etc.

Now you have a roadmap to follow to create your own system (without forgetting to monitor it). Remember that there are tools that make life easier for us and that can do all this for us.

Tags Forex Strategy, Strategy Creation, trading strategy

Forex Basic Strategies

Top 9 Ideas You Can Steal from the World’s Best Traders

Post author By Forex Academy
Post date 1 March, 2021
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As with anything in life, when it comes to looking at the experts, there are always little parts of what they do that we can steal, or at least we can use what they know. This is no different when it comes to forex trading, they are experts for a reason after all, so why not take what they know or what they do and implement it into your own trading? So we are going to be looking at 10 things that expert traders do or what they think and ways that you can then implement that into your own trading.

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” – George Soros

What George is basically saying here is that the markets are constantly changing, you won’t make money by trading what has already happened, instead, you will need to look to the possibilities of what could happen next, if you are able to predict the future movements then you will make money, events that are not expected will help you to make even more as you will be one of hen few trading it.

“Play the market only when all factors are in your favor. No person can play the market all the time and win. There are times when you should be completely out of the market, for emotional as well as economic reasons.” – Jesse Livermore

This is all about patience and discipline, with near traders you often see them placing trades when they probably shouldn’t, this advice and way of reading is great as it means that you will only be placing trades in line with your strategy and avoiding bad trades outside of it. Only trade when the conditions are right and try not to force any trades.

“Many investors make the mistake of buying high and selling low while the exact opposite is the right strategy.” – John Paulson

A pretty obvious one but also an important one. Many traders know that you should buy low and sell high, yet so many of them get caught up in a large movement, something has risen a lot, traders then begin to jump on only for it to turn. They go into their position at the top, now the only way is down. Do not jump onto something just because others are or because something is rising, ensure that your analysis is correct and that it is the right time to trade.

“That was when I first decided I had to learn discipline and money management. It was a cathartic experience for me, in the sense that I went to the edge, questioned my very ability as a trader, and decided that I was not going to quit. I was determined to come back and fight. I decided that I was going to become very disciplined and businesslike about my trading.” – Paul Tudor Jones

Risk management is one of the most important things that you can do as a trader. Having the belief in yourself to continue is fantastic after losses, but you can reduce those losses by using proper risk management techniques. So ensure that you use them each time that you trade.

“I’ve certainly done it – that is, made counter-trend initiations. However, as a rule of thumb, I don’t think you should do it.” – Richard Dennis

It is considered a bad move to trade against the trend, hence the saying of trade. Some people do it but if they are successful it often comes down to a bit of luck that the markets turned at the right time. As a rule of thumb, you should be trading the trend, not trading against it.

“I’ve learned many things from him [George Soros], but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” – Stanley Druckenmiller

Stanley is right, it is vital that you have the right risk to reward ratio in place. You need to ensure that you are limiting your losses and also having the appropriate winning margins too. If you do, you can technically be profitable with just a 20% or 30% win rate (depending on your risk to reward ratio). So it is not about winning all your trades, it is about ensuring that you are profitable.

“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, “I just lost my money, now I have to do something to make it back.” No, you don’t. You should sit there until you find something.” – Jim Rogers

Another one about being patient and it is right. You need to be patient, do not try and force your money to make money, in other words, do not try and force trades. You need to wait until the right market conditions are there, you need to wait until the right trade is there, just do not force it. Leave your money alone until the right trade is there.

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble” – Warren Buffet

While he is incredibly successful, Warren Buffet does like to take risks as he stated in this quote. He is basically saying that when there is a really good opportunity or a really good trade, you should put more into it than you would other trades. This increases the profitability of that opportunity, but it does also increase the risks, so only do this one if you are absolutely certain, but then again, nothing is guaranteed.

“I believe that the biggest problem that humanity faces is an ego sensitivity to finding out whether one is right or wrong and identifying what one’s strengths and weaknesses are.” – Ray Dalio

Many traders just look at the markets rather than themselves, yet the main area that we can often improve is within us and the actions that we take. You need to look at yourself, work out what parts of trading you are good at and what parts you are not so good at, that will give you a direction and work that you need to do with yourself in order to improve your own understanding and abilities when trading.

Those are some of the things that experts say and do, you can try and implement some of them into your own trading, they could be helpful, maybe you are already doing some of them which is great. Take what you can from the experts, they know what they are doing and they are doing it well, but do not blindly follow them, be sure that you create your own trading style and your own instincts, as you want to be around and successful long after they have gone.

Tags best forex traders, Forex Advice, forex trading guidance, world's best traders

Forex Basic Strategies

Signs You Need Help With Your Forex Strategy

Post author By Forex Academy
Post date 22 February, 2021
No Comments on Signs You Need Help With Your Forex Strategy

We all need help with things in life, the problem is that it can often be quite hard for us to realise that we need the help, we need someone on the outside to point it out for us. This is no different when it comes to trading and forex, often we think we are doing fine, only to have someone else come along and tell us that we are doing things wrong or to point out the fact that we aren’t actually profitable at the moment.

When we are told we are wrong or we aren’t doing well, it can make us feel pretty down but it is also the first step to improving and the first step towards being a better trader. So if someone tells you or points out something that needs improving, take it on board and put it into action. We are going to be looking at some of the signs that may be there that could be telling you that you need to make changes and that you may need a little help with your forex trading.

You Aren’t Profitable

Sometimes when we are in the driving seat, we don’t actually realise whether we are profitable or not, we are concentrating so much on our actual trading that we are no longer looking at or recording the results that we are taking. We could be months in, with hundreds of trades under our belt, but until someone comes along and looks at those results, we won’t realise that we aren’t actually making any money.

There is an easy solution to this, you need to keep a trading journal. This will allow you to write down pretty much anything that you are doing, and by doing this, you are setting yourself up for success. Simply down to the fact that you will be able to look back at your previous trades and see exactly what you did and the results of that trade. This way you will be able to see exactly what your profits and losses are, and allow you to work out whether what you are doing is effective when it comes to being profitable.

It’s Too Stressful

Many people find trading stressful, that is one of the many natural emotions and reactions that you will get to trading, the problem comes when people find it a little too stressful. Some find it so stressful that they simply need to stop or they just cannot think of anything else, or even function properly afterward. If stress is starting to take over whenever you are trading you most likely need help, but first, you need to look at how you are trading.

Firstly, the money that you are using to trade with, do you need it? Will losing it negatively affect your life when it comes to things like food or rent? If the answer is yes, that is why it is so stressful and that is why you should not be trading with that money, never trade with money that you cannot afford to lose, it will always be a stressful situation. The second thing to look at is whether or not you’re using the correct trade sizes. If you are using trades too big then you will be putting too much of your account in danger, and seeing the trades go into the red can be stressful when the trade sizes are too large. So limit your trade sizes and only trade with money that you can afford to lose, those will instantly reduce your stress levels while trading. There are also a number of different support groups out there, even just talking to someone, friends, or family works well, can help to reduce your stress levels but getting help from professionals about your stress levels could be an option if it is really getting the most of you.

You Don’t Have Time

Trading can take a lot of time, it also can not take a lot at all, it all depends on you and the strategies that you are using. For many, at the start it can take a long time, there is a lot of learning to do even before you place your first trade, and this can be boring for many who simply want to skip it and start trading, but you need to take the tie to learn. The other thing is that certain strategies take a long time to trade with, there can be a lot of analysis, there can be a lot of trade preparation, and then once you place placed your trades, you need to sit there and monitor them, this is especially true for scalping, where you need to be at the computer during the times of your trading.

If you are someone that does not have a lot of time, then there is not really much point in you trading a strategy that requires you to spend a lot of time in front of your trading terminal. Instead, you should be choosing one that only needs you to place the trade and then the rest will be done for you, these longer-term trading styles are perfect for people who do not have a lot of free time each day to trade. So if you are finding that you don’t quite have enough time, think about switching things up and seeing if you are able to trade more effectively.

Not Knowing What To Do

This is something that is far more common than you may think, yet a lot of people simply do not want to admit it. There will however be situations and times where you simply do not know what it is that you are meant to be doing or how to analyse certain information. Try and get involved in some trading groups and communities. They can really help you out, if you are stuck, ask the question and people will always be happy to help, or even just browsing the community can mean that you find out some information that ultimately helps you to improve and get past your blockage. The moral is to simply ask for help if you are in a situation where you are not sure what to do.

There will of course be other signs that you may need help, if you find yourself in a situation where you are stuck, not understanding something, or cannot see any way to improve, it is important that you talk to people, join an online trading community and talk to people, it is the best way to get around things and people are always willing to help. So if you need help, simply ask for it, it’s the best thing that you can do.

Tags Forex Guidance, Forex Strategy, Forex Trading

Forex Basic Strategies

Ways to Completely Revamp Your General Forex Strategy

Post author By Forex Academy
Post date 22 February, 2021
No Comments on Ways to Completely Revamp Your General Forex Strategy

When you have been trading for a while, you will most likely come across some rough patches, or times where you simply do not think that your strategy is still good enough. Due to this, we will often have to try and change a few things to try and stir things back up and to make a few adjustments. Sometimes, however, you will need to completely revamp your strategy, a complete overhaul to make things more successful. So let’s take a look at some of the things that we can do in order to revamp our strategy and to bring back that spark that it once had before.

Start Over

Sometimes things can become very stale, if you feel your strategy has come to the end of its life then there are still things that you are able to do to try and revamp it. One of those things is to start again from the bottom up. Start with the foundations of your strategy, try and rebuild it based on the current market conditions, this way it will once again suit the conditions of the markets. This may seem a little extreme, starting over completely, but that is one of the ways that you can really tailor your strategy to the current market conditions and one of the ways that you can ensure that it will have the best opportunity to be successful in those market conditions.

Test A New Asset

Sometimes you do not need to actually change or revamp your strategy, instead, you can simply change the asset or currency pair that you are going to be trading. This can put some new life into an already established strategy that you may be using. This once again will enable you to feel as if things are a little fresher even without making any changes. You never know, maybe the strategy will be far more successful on the new strategy than it currently is on the asset that you are trading. So consider this as an option as well as making changes to your current strategy.

Make Subtle Changes

Sometimes you do not need to make large changes, a simple change to one of the parameters or the rules that you use with the strategy could be enough, part of using a strategy is that you need to keep making small adjustments as you go. As the market conditions change, so does your strategy, but the changes do not need to be large. These regular small updates are all things that will ultimately add up to larger changes, so after a year or so of very small changes, the strategy could resemble something that has pretty much nothing in common with the initial strategy that was created. That is the beauty of the small changes, it will create large or completely revamped strategies without needing to spend a long time at once totally changing it up at the same time.

Make Changes to Risk Management

A major part of any strategy is risk management. This is what can potentially make or break a strategy and is the last line of defense for your account balance. Sometimes all you need to do in order to completely revamp your strategy is to change up the risk management that you are using. This may be a change to your risk and reward ratio, a change to the positions of your stop losses, or take profits. Or it could be a change to the size of our trades or even the amount of trades that you place at once. Whatever the change is, be sure to test it first and to ensure that your account always remains safe. Also remember, if your changes to risk management mean that you don’t make as much, you can very easily revert back to the previous plans that you were using.

Be Dynamic

The markets are constantly changing, they are dynamic and will have multiple different trading conditions throughout the year, there will be slow times and there will be times of higher volatility. Due to this, your strategy needs to be dynamic in order to keep up with the ever-changing market conditions. As the markets change, you will need to make adaptations, both big and small changes in order to keep the strategy in line with the markets. This could be changed to your stop-loss levels, your trade sizes, the currencies that you trade, the number of trades being made, and pretty much anything else. Remember that you don’t need to make big changes, but keep track of what the markets are doing, and adapt your strategy and your trading to it.

Look Within

One thing that you also need to do in relation to our strategy, instead of thinking about changing your strategy, there may be something within you that you need to change yourself, or something that you currently do like a bad habit that you need to change. The strategy may actually be working fine, but there is something that you are doing that is causing the issues, or at least reducing the profitability of your trading. So look back at your journal, look back at the trades that you have made in order to ensure that you are following your strategy properly and to help find any bad habits that you may be partaking in, nip those in the bud and your trading will improve without having to make any changes to your trading strategy.

There are many ways that you can change or revamp your strategy, sometimes you only need very small and subtle changes, other times, depending on the market conditions you may need to change the entire thing or even try a new strategy completely. What is important is that you take it one step at a time, and ensure that you are comfortable with the changes, if you are changing something that takes you out of your comfort zone or potentially reduces the profitability of your strategy then there may not be a good reason for making the change. Do not be afraid to make changes though, if one is needed, then it is most likely for the best that you make that change, no after how small it may seem.

Tags Forex Advice, Forex Strategy, Forex Trading

Forex Basic Strategies

How To Construct and Write Up Forex Trading Plans

Post author By Forex Academy
Post date 18 February, 2021
No Comments on How To Construct and Write Up Forex Trading Plans

A good winning Forex trading plan should become the start for any path to becoming a consistently profitable trader. Unfortunately, some traders don’t write one until they’ve shredded some trading accounts. Even the task of writing a trading plan often falls into the category of, “I will do it when I have more time!” So […]

So why don’t a lot of merchants spend some time making one if we’re talking about something so important? The answer is very simple: we don’t like the rules. And this doesn’t just apply to traders. We use the term “us” to refer to the entire human race.

When entering forex, we find an environment without many rules. Except for the ones our broker can put on, we’re free to do whatever we want. This is a somewhat frightening proposition for someone who’s been bound by rules all his life. We attribute to this fact the phenomenon that so many traders fail; they cannot handle the fact that they have no rules to follow. Or rather, they do not set their own rules.

In this article, we intend to check what a trading plan is all about, why it is so important and some points we think you should consider including in your own trading plan.

What Is A Forex Trading Plan?

A trading plan is like the original plan of everything you do as a trader, grouped as concisely as possible, but also descriptively. Your negotiation plan should consist of how and when you operate, as well as what you do before and after each operation.

Anyway, writing your trading plan isn’t the hard part. The hard part is to do it in as much detail as possible while keeping it as concise as possible, preferably just one page. After all, an 8-page trading plan that takes 15 minutes to read is not likely to be consulted often, which you should be doing.

Finally, your plan needs to be reviewed as your trading skills improve. Do not mistakenly think that your business plan is immovable and that just have to make it work.

Why Is A Trading Plan Important?

Simply put, a forex trading plan helps you stay disciplined. Commerce is a business and has to be treated as such. Like a business has a standardized operating procedure to keep things running properly, you must have a trading plan to keep yourself disciplined. As mentioned above, the forex market is a boundless environment and rules, so you need your trading plan to serve as a rule book to help you stay out of trouble.

Building Your Forex Trading Plan

Now is the time to work to put the pieces together. Below we have outlined what we believe are the most important topics to include in your trading plan. This is not a complete list, so you are free to add topics that you think should be included in your trading plan.

Every winning trading plan begins with a well-defined strategy or set of strategies. For us, these strategies could be the indecision candle, reversion pinbar, internal bar breaks, power candle, etc. It is important to define each strategy you will use and also to define the market conditions necessary to validate a setup. Does the market have to be biased or can it be of rank? Should the pinbar occur at a support and resistance level or will you also consider operating continuation pinbars?

Defining Time Frames

This theme is very simple, but it is also crucially important. You have to define the time frames in which you will operate. The omission of this simple rule has caused a lot of headaches for many traders. For example, we know a trader who when he first started in this world of forex, was constantly changed from the time frame. One week he used H1, then he got bored and moved on to M5 the next week.

Not only that, but he was in the habit of entering the market by looking at the H1 graph and then switching to H4, D1, M15, and even M5, just to see if things looked “right”. This person had no idea what he was looking for but was determined to make sure that every time frame looked favorable.

Choose only 1 or 2 time frames with which you feel more comfortable and stick to them. Look for setups in these time frames, operate in these time frames, and exit the operations in these time frames. This is the only way to break with “the dance of time frames,” which I think we’ve all experienced before.

Defining Your Watch List

As part of your trading plan, you will want to define the currency pairs you will operate. As with your overall trading plan, your watch list will change over time. Normally we recommend starting with 10 pairs of coins to observe at any time. This will give you several setups every week even in the highest time frames. As time goes on your business skills will tend to improve and your confidence increases, you can extend the list to include other pairs and even some commodities.

Mental Preparation

No, you should not meditate. Mental preparation is undoubtedly the most neglected topic in a trading plan. Maybe it’s because traders are too busy defining their strategy. Or perhaps simply because people don’t like to talk about their feelings. Whatever the case, this point is a must!

How do you feel today? Did you have a good night’s rest? Do you feel energetic, tired, or something in between? These are virtually all the questions that need to be asked as part of your business plan. We’ve all had those mornings. Whether we’ve been up late with friends, the stress of life that won’t let you sleep, or maybe you got up on your left foot. These things happen to the best too and will continue to happen. It’s your job to assess the situation and find out if you’re mentally prepared to face the markets. If not, maybe it’s best to sit back and do nothing until tomorrow.

The financial markets will always be there and believe us when we tell you that it will be much better to wait to operate until you are mentally prepared than to lose money for a mistake you would not otherwise have made. Just remember, being “flat” (not having open positions) is one position and the safest you can have.

Lay Down Your Risk

As some will know, we do not recommend setting the risk in percentage terms. A much more precise approach is to define your risk level as a monetary value. But on the other hand, setting a percentage also gives some value, so we think it advisable to use both methods combined.

Here we can give an example of how you could define your risk within your trading plan. First, you must determine what your risk threshold is in terms of percentage. We recommend something between 1% and 5%. Let’s assume that you want to risk 2% per operation. The next step would be to define your risk threshold in terms of monetary value. Suppose you have a $10,000 account and are comfortable with risking 2%. Using the percentage rule only, your risk will be $200 on any transaction. But the question is, what kind of risky dollars do you start feeling a little anxious about?

Put another way, how much capital are you willing to lose an operation? The reason you have to ask yourself this is that it will not always fit perfectly with the percentage you have defined above. Let’s say your monetary threshold is $100. Any value above that and your emotions will start to bring out the worst in you. But in the $100 example is half of what your 2% rule tells you that you should risk…

For this reason, it is important to define risk in both terms: percentage and monetary value, and that you risk the least between them. Clearly, these numbers will change as your trading account grows, just be sure to redefine both whenever necessary.

Define Your Multiple of R

Your multiple of R is simply your profit-risk ratio expressed in a single number. For example, if you risk $50 on an operation and your potential gain is $100 (based on your goal), then your risk-benefit ratio is 1:2. In other words, the risk is half of the potential benefit. In terms of multiple of R, this would be a “2R”.

Another example would be to risk $70 to get a potential of $170. By dividing 170 between 70 we get a 2.4R. It is important to define a minimum ratio as part of your trading plan. We recommend 2R, but of course, we each apply the value that best suits you. The higher the value R is the better.

Defining Entry Rules

How are you going to enter into the trading strategies you previously defined in your plan? Let’s take an example, if any of your strategies are pinbar, what kind of input method will you use? Will you enter a “nose” break of the pinbar or perhaps prefer to enter in the middle of it?

If you are open to both methodologies, you should also define when to use each of them. What market conditions justify using the method of entering the middle of the pinbar? What market conditions must be present to justify entering a pinbar nose break?

Defining Output Rules

This is one of the most misunderstood rules when we talk about drawing up a trading plan. Why? Because too many people are so obsessed with developing a setup to operate that they completely forget to look for outlets before entering the market. Although most traders are excellent at finding a possible way out, everyone likes to see how much money they have a chance of making on each operation. But not defining an exit point will prevent you from defining your R-value based on your potential loss.

In this heading of your business plan, you will want to define where the stop loss will be located as well as how to define your objectives. Speaking of objectives, you’ll also want to define in detail how you plan to get out of a winning operation. Will you go out of position completely to the first target achieved, or will you close only half of the position and keep the other half in play? These are questions that need an answer.

Risk Management

Setting rules to manage your risk is an essential part of a good trading plan. Even though you have already established where you will place your initial stop, you will also want to define how you plan to modify it as the operation develops, if you wish to do so. For example, you could use the highs and lows of the previous days to move your stops to safe places and insure profits.

The issue of risk management is what makes a trader. As we said before, it’s not your percentage of winning operations that makes you consistently profitable, but the amount of money you make with a favorable operation vs. the amount you lose with an unfavorable operation averaged over a long series of operations. And the only way to put the scales in your favor is with a solid plan for your risk management as well as a disciplined approach to implementing your plan.

What you do after each operation is as important as the way you mentally prepare before the operation. One of the most important rules is how long you will take away from your trading place before entering the next transaction. This is very important! After losing an operation, you may be tempted to take revenge and take back what you’ve lost. This is usually called revenge trade and is one of the reasons why so many traders fail.

The urge to jump immediately to the market after a winning operation is also very strong. This impulse is caused by 2 thoughts:

You feel invincible. That feeling that everything is going as you expect, so why not take another operation and earn even more money?

Building trust is one thing, but not being able to recognize overconfidence in key situations is called arrogance. And this one has no place in the forex market.

You feel like you have extra money to spend. The profits made in the last operation give a feeling of “I found money”, then no problem if I return some to the market. We call this “casino mentality”. It’s the same feeling that casino players get after winning $500. Instead of leaving with that money won, they immediately bet the $500 just to lose everything and a little more. You must use this part of your operations plan to redefine how to mentally prepare for the next operation.

Summary

The hardest part of writing your own forex trading plan is not defining your rules. The most difficult part is to include enough details to make it effective and yet be concise enough for you to use in practice. Remember that the idea behind putting together a trading plan is so you can go over it daily. This means that it must occupy 1 page (or 2 at most) and must be somewhere that is visible to you. It is our wish that this article has given you some practical tips on how to write a forex trading plan.

Tags Forex Strategy, Forex Trading Plan, Trading Plan

Forex Basic Strategies

An Entirely Innovative Approach to Forex Trading

Post author By Forex Academy
Post date 11 February, 2021
No Comments on An Entirely Innovative Approach to Forex Trading

If you are looking to find something different this is a good sign. You will do well in forex simply because you do not want to repeat what others are doing, including the mistakes. However, being different sets you on a harder road, most of the trading activity will not resemble anything else out there. All the things you come up with will result in a unique trading system specific to you, there is a limit to how much you can learn from others on this road. Still, you ought to do well, you do not belong to the 90% majority of beginner traders that lose wanting to walk the easy path to success. If you set your goals high, be ready to work towards them. Let’s dive into what is considered a unique approach to forex, something that may catch your eye.

Renko Charts

These do not work like regular charts and candlesticks at all. It is a completely different philosophy that aims to cut all the redundant information from a chart. It is dumbed down if you want to describe it like that but in a good way. After all, simple strategies and systems are often the most effective.

Renko charts present the price action uniformly, and simpler versions of Renko charts do not have a timeframe, they have a pip movement scale. Now, before you get all confused, Renko charts are made of bars, similar to the candlesticks except they represent a number of pips the price has moved. How much pips one Renko block will hold is up to you to set up. So, if the price hasn’t moved 20 pips up or down, for example, a new bar will not be drawn on the chart. Consequently, timeframe does not exist, just the pip per bar setting. If the price is ranging in the 20 pip zone for a long time, do not think the Renko chart is not working.

This is one example of a fully developed Renko strategy in MT4: it includes Renko charts, one step moving average, and a modified type of MACD indicator.

Setting Your Renko Pip Settings

Getting the chart simple is a good thing and a bad thing, it actually depends on your personality. Do you like to analyze and go into details or do you like simple answers? Deep analysis might make traders indecisive and even set in the wrong direction while simplicity might not present all hidden truths about the market (pure Price Action analysts cannot see what they need on Renko). Renko is an innovative approach to trading, it defies the traditional analysis. However, it does not mean you cannot be a scalper or a midterm trader. As scalpers like lower timeframes on standard charts, investors might like the weekly. With Renko, all this scaling is in one setting – how much pips movement one bar represents.

Lower pip settings are for scalpers, the chart will move faster. Higher pip settings will generate a bar only once the price is really moving, so it may take a while. Just understand, Renko follows the price, there is no definite time when the Renko bars show up. If you like to trade on a daily timeframe usually, waiting for a candle to close at the exact time of day might be your routine. This routine does not apply to Renko trading. You have to be ready to act when the price is moving and the bars are piling up. Of course, most Renko charts have the alert option, including some other custom indicators with the same function so you do not have to worry about missing the action.

Renko chart with 10 pip settings on a USD/JPY pair

With a 10 pip Renko setting above (it is hard to distinguish lower and higher pip settings just by looking at someone’s Renko chart), understand that Renko follows the momentum. By this, we mean with the 10 pip settings a reverse bar can only form if the price moves 20 pips. Notice a clear downtrend on the right side of the picture, a black upward bar will form only if the price moved 20 pips up, while the white bar needs only 10 pips in the downtrend direction to continue. So, it is double the set value. This is done to confirm the trend is losing momentum. Renko is thus designed to show exit points too.

Renko Pros

Renko is the noise reduction king. If you are looking for black and white answers, Renko will serve. Technical traders love indicators for reasons they are based on numbers, numbers are crisp, there no fuzzy logic with them. Renko can be regarded as a digitalized chart that helps traders decide.

Indicators based on price levels such as Fibonacci and others do not make much sense with Renko. One more reason why Renko is innovative, it will stimulate you to find unique rules and indicators that can match up with Renko. This leads us to the next pro point.

Renko requires the rules you can make up to the point Money Management does not need anything else. Pretty neat, traders do not have to bother a lot to create exit points, where to scale out, measure volatility, volume, trailing and all other info Renko just eats up. Of course, you will have to try out what rules work for you, for example, try the two bar rule, exit, and enter when two consecutive bars appear.

Renko Cons

The truth is, you will need more than just Renko. Even it looks great, a ranging chart might destroy what you have built-in trends before. Whatsmore, Renko is not adjustable except for the pip settings. So the odds are you might need some more tools or rules like in the picture above to get it right.

As rigid as it is, Renko will work better on some trading assets than with others. Once you set up your bar pip value and the rules, all is set for that strategy. There are no messing with it now. You have to be present when the bars appear, and no one knows when it is going to happen. This is probably going to mess with the routine part of trading. However, all this is adaptive to how many pips you set, you can turn trading on and off whenever you like.

Renko Indicators

All indicators work differently with Renko, they pull the data off the Renko charts after all. This also means indicators that you once discarded as junk on a regular chart could make wonders on Renko. Switching to Renko trading is very different from what you used to do, probably you will have to test all the tools once again. The work will pay off as you are not following the herd that loses.

To start, go to the classic forex resources such as forexfactory.com, or forex-station.com where they have Renko dedicated sections. Installing Renko might require to do some research but it is easily done on MT4.

Interestingly, Renko can also be combined with regular charts as an overlay. The example below is a Renko Shade indicator combined with a Vortex oscillator.

And below is a Renko dedicated indicator that measures how much time was needed for a Renko bar to form, called renkoAM. Some traders use it to create exit or entry rules.

That being said, do not be surprised if you plug in the good ol’ MACD indicator and start to get excited as the results just keep the account pumping up. Rarely an indicator is designed to be used on Renko and no one knows the results of this formula. But you can, test it out. If it turns out to be a pip making machine, the secret of the holy grail is all yours.

Crypto Forex Basic Strategies

Do Forex/Stock Day Trading Strategies Apply to Cryptocurrencies?

Post author By Forex Academy
Post date 11 February, 2021
No Comments on Do Forex/Stock Day Trading Strategies Apply to Cryptocurrencies?

The short answer to this question is yes, absolutely, however, you will need to adapt for it to be so. Let’s dive into how. ① Common Ground Did I make money whenever I had the chance? This is your number one question that you would ask no matter the market. When you derive some strategies […]

The short answer to this question is yes, absolutely, however, you will need to adapt for it to be so. Let’s dive into how.

① Common Ground

Did I make money whenever I had the chance?

This is your number one question that you would ask no matter the market. When you derive some strategies from the stock/forex market, you do want to see tangible results.

Crypto is unique but there are also some universalities.

You need a plan because we cannot just flip a coin and decide what to do next. We need a clear idea of how we are going to approach and exit the market so that we can correct any mistakes.

→ Solution: When you come up with a plan, you must stick to it. Also, check your totals and see if your overall percentage of trades puts you in the winning or losing group.

② Community

Forex and stock community spirit tends to be quite strong. The same is true for the crypto people. Especially since it is a relatively new market, many individuals want to take the opportunity and give their projections of the future. Unfortunately, as most of these forecasts are incorrect, the only thing traders get is a false sense of support. What is more, these posts and announcements often create a major hype, causing many crypto traders to forsake common sense and their judgment even when things start to turn sour.

→ Solution: Let go of groupthink and start practicing independence and individuality.

③ Testing

You do not want to follow any advice too piously, especially if it proves not to work for you.

How will you know what works? You will test every strategy and idea you find interesting.

Most successful traders had to hit rock bottom to realize what they can do better. Still, you can avoid this scenario if you take time to record your trades and ponder on the ways to make your returns higher.

→ Solution: Like in the forex/stock market, you need tests to be able to improve and learn from your mistakes.

④ Money & Risk Management

Money management is key for long-term success. Without it, we are all just playing the lottery.

Crypto is amazing because, once you limit your downside, the upside can be infinite.

→ Solution: Set your risk at 5% maximum of your entire portfolio.

⑤ Algorithm

Traders claim to have successfully used the same algorithm they applied in forex trading for trading crypto. Still, you can trade cryptocurrencies without an algorithm. What you cannot do, however, is avoid money management.

Crypto is known to move 25% to the positive and then 25% to the negative in only one week (late and early 2020 rallies for example). As the moves can be quite extreme, you need the protection that money management brings.

→ Solution: While you need to be active to catch the big moves, do not forget that you will lose everything without proper money management. Algorithms are optional.

⑥ Scaling out

If you want to earn smart money, you will apply the scaling out strategy. You never want to go all in.

→ Solution: Take a portion of your money off and close positions. Overleveraging can lead to terrible losses in a market that moves as much as this one.

⑦ Holding & Holding

You want to play both offense and defense. Choose your long-term and short-term investment plans to fully use what the crypto market has to offer. Remember that the possibilities are infinite with proper money and risk management.

We noticed how some stocks that generally do not do so well can go up substantially when the S&P 500 does. Similarly, altcoins are known to go up when bitcoin does, and this usually happens at a much higher rate. That is why it’s wise to allocate a small portion of your money (less than 1/5) and invest in these other coins.

→ Solution: Set 30% of your finances for short-term (more aggressive) investments and use the remaining 70% for your long-term strategy.

⑧ Spread out

Like in other markets, you will benefit from branching out. What this means is that you do not need to trade only one cryptocurrency. Rather spread out to ensure a higher return.

For example, you can have the majority of investment in stablecoins as a protection in case everything else falls apart. Your second layer of protection could be bitcoin or XRP or, preferably, both. Then, 5-20% could go into different altcoins. As there are different ideas on which are the best, you can just take your favorites and invest a little of your money there as well. Your final layer should be your longshots or the coins you use for your long-term strategy.

You can always use interesting investing research portals such as stransberryinvestor.com. There is solid research done on crypto and stocks and a very good benchmarking tool that grades crypto assets. These are based on core evaluations on each coin, useful to gauge the market in-depth, underneath the charts. The picture below is a snapshot of the benchmark table. These are free resources but you will have to register your account. Note that you should understand the project behind the coin.

→ Solution: Trade different coins to ensure maximum growth, profitability, and protection.

⑨ Entry

There is no one ideal piece of advice on where you should enter the market. As with forex and stocks, we can rely on different tools to find entry signals. For trading cryptocurrencies, you can always use “Trailing Buy” and even accommodate it depending on how the price moves.

In the image above, the price went low and there is a chance of it going even lower, so we want to move the red line further down.

If the price moves up, we are not going to make any changes in terms of the position of the red line.

→ Solution: To get the signal to enter the trade, move the trailing line down only if the price goes lower than it is right now (i.e. if it breaks down upon the candle close). When the price finally hits the trailing stop, that is your sign to buy.

⑩ Exit

You need to have a defined exit strategy for any outcome- whether a trade has gone well or bad.

Like in any other market, you need to align your exit point with your overall strategy and be consistent with what you do. We cannot make any changes in the middle of a trade.

Your exit strategy may vary depending on the type of trade. As cryptocurrencies are great for holding, your exit will then largely depend on your idea of how long that trade should last.

→ Solution: Always have a projection of how far you want to go and where you want to take your money off. Be disciplined to ensure you know that your approach is working out for you.

⑪ Psychology

Since many are affected by the craze over cryptocurrencies, you may experience the fear of mission our (FOMO). The rules regarding trading psychology are all the same, regardless of whether you are trading stocks or currencies. This means that any strategy you want to use cannot be perfected until you have control of what you are doing.

→ Solution: Complete a personality test and see how your traits might interfere with your plans for growth in this market.

⑫ Similarities and Differences

Fiat may as well one day be completely replaced by crypto. Still, until that time comes, we must know that crypto largely depends on supply and demand – like stocks and unlike forex.

That is why any strategy we wish to take from these two markets requires testing to see if it is going to help or hinder trading cryptocurrencies.

→ Solution: Although forex/stock strategies can generally work with crypto, we need to be careful with our choices.

Tags Crypto Strategies, Forex Strategies, Trading Strategies

Forex Basic Strategies

Trend Trading When There Are No Trends

Post author By Forex Academy
Post date 19 January, 2021
No Comments on Trend Trading When There Are No Trends

During a larger part of 2019 traders have witnessed probably the least volatile forex market in history. These periods are often followed by steady bullish equities markets when most of the capital goes on this side of trading. Forex traders that use trend following methods have two options in these situations. Trade as they are still in trending markets and give back what they have earned during the previous year or use this environment to their advantage. The situation from 2019 is perfect grounds to learn, test, and separate consistent traders from the rest.

To some degree, trading forex does not put you in a position where you feel out of control, like in the stock market with reports or crypto with so many unannounced events, etc. In forex, even when trades do not go your way, you still have some control. There are a few ways to recognize dead markets, some are quite obvious but beginner traders may need more clarification. Taking advantage of dead markets does not come from trading, it is by adjusting our trading systems to avoid them. Experiencing dead markets in real-time is a great opportunity to secure our future results. So traders will need a plan, and we will put in place one as an example of what you should do when you enter flat waters.

First, a tool is needed to measure how volatile the forex market is. Volatility can also be substituted with volume, what we want to measure is the activity on the market. One such example tool used by prop traders is the Euro FX VIX ($EVZ), Index created by CBOE. Pay attention to our Volume articles about incorporating filter indicators into your system. This tool is just another filtering method that can be applied to your plan outside the usual MT4/5 indicator combo. Now, the $EVZ Index is published by a few charting sources, one can be Yahoo Finance, barchart.com, TradingView or you can even go to the CBOE site. If you notice the “Euro” in the Index name, do not think it applies to the EUR currency only, it is a good indicator for the overall forex market volatility.

$EVZ presented as a histogram on Yahoo!Finance:

In the picture above we can notice a sharp jump in the activity once the world was hit with the COVID-19 pandemic. Just a few weeks before, the $EVZ was bottoming below the 5 mark for quite some time. The whole of 2019 was one of the quietest long periods in forex history. The Index can also be represented as a bar chart but you should not pay attention to the highs and lows, just focus on the close value. The 2019 anomaly created a stir as trend traders found their systems losing more than usual and just after the dead period traders experienced the pandemic shock. To adapt, a completely different instruction has to be used for your trading plan. Another interesting correlation to dead markets is the movement of the equities market. What some traders have found is that when S&P 500, for example, is trending but slowly, in constant small increments each day, forex markets start to die out.

In the picture above we can see whenever a gradual S&P 500 (red line) increase is present, the $EVZ (blue line) Index is slowly waning out. Immediately after a disruption in the equities market, the forex is full of currency flows. Downward equity moves are especially sensitive as people move the money out of equities and move into forex or other markets where investing is more lucrative. The negative correlation is evident, since 2017 the S&P 500 is slowly moving up and forex is not what it has been before 2014 where trend traders’ standard gain was around 200 to 300 pips a day.

If we take a look at the ATR indicator, calm periods can also be spotted which can drive trend followers impatient. They will not get signals, the signals are not resulting in long trends or more likely they are fake moves. Trend following strategies have only one weak moment and that is until the Take Profit target is hit. After that, prop traders secure their wins by scaling out and moving Stop Loss orders to breakeven. Signals that end with a reversal before the TP is most likely a loss and are more common in dead markets.

Trader’s psychology is at the test here. When you are in a dead market and you are losing, this is a good thing! It is time to take advantage of this. Understand these conditions happen and will happen again. The next time it happens your trading plan will be ready. Chaos theory applies, the order goes into chaos, and chaos back to order. In case you are a beginner and just testing your system for the first time in 2019, know your system will be adjusted to this dead market and may even be not as successful as you would want. On the other hand, since you are a beginner, you should be trading on a demo without any real capital to lose. To some traders, if you are trading in dead markets and still on breakeven, your system is on a good track to endure dead markets and reap consistent gains when it is not. When you are testing your volume indicators or tools, dead markets are extremely good for forwarding tests. Once you have picked your favorite volume indicator it should filter most of the flat mini periods in a dead market by keeping you from taking any trades and even give you small winners sometimes from rare trends worth taking. This element is crucial but some may find it is the hardest to find.

If you are still struggling to find a good volume indicator then just go and use the $EVZ we have presented. Create a set of risk management rules for your trading and apply them to your trading system. As an example some prop traders use, whenever $EVZ value is below 8, reduce your positions to 50% of what you normally take. If it goes below 7, use only 25%, stop trading below 6. This measure alone will benefit your end line and filter 90% of bad signals when combined with your volatility indicator. When you realize you are losing consistently at some game or market, avoidance is one great and simple measure that will help. Avoidance or filtering your signals in an environment where you lose is the same principle, just formulated into a strict trading plan. Even though it is fun to be in action, your ability to avoid it is what will separate you from others.

Another interesting conclusion prop traders made during the dead markets is that the USD pairs are just not good even for small trend signals. So their suggestion is just to avoid all signals from these markets once you measure a dead market. Sticking to cross pairs is also going to be tricky but you can make one adjustment to increase your odds. Scaling out principles explained in one of our articles where you leave out a part of a position to continue riding the trend may not be a good idea in dead markets.

Since trends are not going to last for very long, it is just better to take a whole position at your first take profit target. So whenever $EVZ is below 8, for example, make this adjustment to your system. Those 200+ pip trends are not going to happen, so all of your high percentage setups may just lack that extra mile that makes all the difference on your account. Just avoid aiming for big and cut everything at your first price target. If you are following our ATR based money management, your risk to reward ratio will be 1:1 in these conditions. This is not good money management for normal conditions and will not provide you with a positive account, it is just temporary. The risk of a reversal is increasing as you keep your position longer, so based on testing it is just better to end sooner.

Once the market is active again know that your volume indicator and system are still calculating historic movements and the signal is not there yet. More often than not, the first trend after the calm phase will be missed since your indicators are lagging. As mentioned in the Volume articles, these indicators need data and would be useless if too sensitive. Be ready to accept missing out on first movements after the dead market. Do not attempt to make indicators more sensitive just to grab the first trend, it will make your system susceptible to fake breakouts frequent in calm markets and you will face new losing streaks. Experts even say the first strong moves are likely to be corrected after a day or two, and that means 1 or 2 candles if you are trading on a daily chart. Relax and know your account endured the storm (calm market) of fake moves where other traders not accounting for the volume (which is quite often) lost their morale and most of their accounts. Robust trading plans with these elements are only a result of your hard work majority of traders just lack.

Lastly, there is one more adjustment you can make when you are close to being out of the game. It is an extreme indication something went wrong with your plan, money management, or psychology part, but if you are on the line for some reason try changing your target timeframe. Daily charts may lack conviction but smaller time frames are certainly better. Here, your daily chart trading system (for example) will be performing in an environment it is not designed to so expect less impressive results. However, the system you have designed should be universal, if you are following the structure we have provided before. Smaller time frames have a lot of other factors you need to pay attention to. This also means you need more time, more nerves, and less sleep. News event moves here are bigger and more unpredictable, then we have trading sessions and more factors. The smaller time frames we go to, the more nuances can get our trends to reverse.

However, here is also where you will find your volume if you desperately need to trade. Such needs may come if you are expected to trade by your client or a prop firm and you are in a dead market. Sometimes it may happen because you need income. If you need income by trading forex with money you cannot afford to lose, know you will fail in the long term. Other reasons to change your timeframe such as impatience will also lead to failure. Simply know forex does not forgive, it can only serve those who put in the work in the system and train their mindset.

Tags Forex Strategies, Price Trends, Trend Trading

Forex Basic Strategies

Undeniable Proof That You Need A Trading Strategy

Post author By Forex Academy
Post date 13 January, 2021
No Comments on Undeniable Proof That You Need A Trading Strategy

If you are new to trading or are simply thinking about joining and have spoken to another trader, they most likely would have asked you what strategy you are using. While for many it is quite a straightforward question to answer, for others it is not quite so simple. There are thousands of different strategies out there, and some traders even trade a hybrid of more than one strategy at the same time. What is important though, is that you have a strategy, no matter what it is, it is imperative that you have one, and we are going to be looking at why it is so important to have a strategy, no matter what it is.

Gambling Is A Loser’s Game

If we are to trade without a strategy, we are effectively just gambling. There is no other way to describe it. You are taking a wild guess at what the markets will do or you are using a hunch, but that hunch is based on no real facts or figures. Due to this, you are simply placing your bet and hoping that the markets go the right way. The problem with this is that the markets like to move how they want to move and they do not always move in one direction for long enough for a gamble to be effective. What’s worse is that if your first trade losses, you will simply place another trade with no real reason behind that one either. You need to lose a strategy, the strategy gives you rules to follow and ensure that your trades have the best opportunity to profit, rather than simply placing trades and hoping that it is a loser’s game through and through.

Strategies Give You Rules

One of the things that a strategy will give you are rules, house rules are there to ensure that your trades are consistent and that the trades that you are putting on have the best opportunity to be profitable. When we have a strategy in place when we place a trade that is not in line with the rules that we have set out we consider it a bad trade. We are trading outside our strategy and so the profitability factor or risk and reward ratio of that strategy is no longer accurate making it far harder for us to keep track of how well the strategy is doing or how well we are doing as traders as a whole. Once you have set rules, stick with them, this is the best thing that you can do in order to ensure that you remain profitable.

Strategies Give You Stability

The rules that we set out above are there to give us stability. Those are the main reasons behind them, and due to that, using a strategy gives us a lot of stability when it comes to our trading. It makes us consistent in the trades that we are making. It ensures that we are always placing good trades and ultimately it can make our profits and overall capital a lot more stable.

Strategies Protect Us

A major part of any strategy is the risk management that comes with it. The risk management part of strategies are there to help protect your account, they include things like your risk to reward ratio, stop loss locations, and other elements like that. All designed to limit the amount that you can lose with each trade and to ensure that you do not blow your account too quickly. We need to trade with risk management within our strategies, if we don’t, no matter how good a strategy actually is, a single trade can actually cause you to completely blow your account.

Strategies Help You to Focus

One fantastic thing that strategies help us to do is to focus, they help us to avoid distractions and they help us to concentrate on what it is that we need to be doing, rather than looking elsewhere. We know what we are looking for in the markets, and exactly what we need to do. This really helps us to focus on what we are doing which in turn can make us a lot more efficient in our trading.

They Can Save You Time

When you use a trading strategy you will know what you have to do. This will help to save you time from analysing or looking at things in the arts that you certainly don’t need to. Much like when we mentioned keeping focus above, using a strategy can help you to save time as you are focused on what you are doing. It also helps you to avoid some distractions. There have been plenty of times then we have wasted a lot of our time by looking at things that are completely irrelevant to our actual trading, the strategy helps you to avoid doing this. At least not all day like we have been guilty of before, ending up with no trades for the entire day.

They Help You Learn

Many people think that strategies are only there to help us to trade, but they also help us to learn. They help us to better understand why the markets may be moving the way that they are and they help us to better understand the way that we trade. The more strategies that you learn and understand, the more of an understanding of the overall markets you will have. Multiple strategies also give you more of an opportunity to trade in different trading conditions, allowing you to be far more profitable throughout the year than you would using just one or even no strategy at all.

Those are just some of the reasons why you should be using a trading strategy, they can be relay helpful in your trading, your results and overall they are what make us traders, as long as you are using one you should be on a positive step towards being profitable, just try to avoid trading without one, that is simply gqambling and will only lead to losses in the long run.

Tags Forex Strategy, Strategy Basics, trading strategy

Forex Basic Strategies

Three Trade Duration-Based Forex Strategies

Post author By Forex Academy
Post date 12 January, 2021
No Comments on Three Trade Duration-Based Forex Strategies

In this article, we will analyze the types of existing automated systems according to the duration of the trade. I’ll show you some interesting ideas and teach you how to apply a variety of duration-based Forex strategies. Scalping Perhaps the most famous method is the so-called scalping, which many of you have already tried. These […]

Scalping

Perhaps the most famous method is the so-called scalping, which many of you have already tried. These are really short-term operations. Then the second group is called swing trading, mainly using higher time frames. This is my favorite approach and trading style, I use swing strategies, automated trading systems that make transactions in longer time frames. And the third group, which I also enjoyed working with very much recently, consists of long-term strategies, mainly in daily time frames. We will also consider this group because it has its own advantages that we must not forget.

Scalping is a type of specialized trade taking profits on small price changes, usually shortly after a transaction has been entered and has become profitable. Automated scalping strategies can do dozens of operations during a day and most such trades last only a few minutes. These are very short trades and, therefore, that trading style has its own advantages and disadvantages. Let’s talk about them.

Scalping is a type of trade specializing in taking profits on small price changes, usually shortly after a transaction has been entered and has become profitable As a general rule, scalping strategies are marketed in short time frames using 1-minute candles. So the main advantage is the opportunity to make big profits in a very short time. These automated strategies can be very profitable, but at the same time very risky. Where there is great profit potential, there is also high-risk potential. And, as we said before, scalping has some huge disadvantages.

In general, automated scalping systems are potentially very risky and very sensitive to market conditions. This is because it is almost impossible to perform transactions in a one-minute time frame to simulate with historical accuracy. Then, it is not possible to elaborate an exact subsequent test. We can only backtest a strategy, how it should work in ideal conditions. However, there are situations in the market, when there may be a publication of some important macroeconomic news, for example, that the unemployment rate increased. As a result, the market makes a very strong price movement in a very short time and we may suffer a large slide, something that has not been taken into account in subsequent tests, and that will definitely worsen the results of our strategy.

Where there is great profit potential, there is also high-risk potential. So, in the world of scalping strategies, only one of those unfavorable circumstances can mean that one loss takes ten of our earnings, and this is what we can’t see in our subsequent tests. Therefore, it is very difficult to develop robust scalping strategies, and I personally do not even use them. In the past, I’ve worked with scalping strategies and gotten really good results, but at times, these were due to luck and being in the market at the right time.

The potential benefits can be really huge. However, scalping is so risky and so sensitive that it makes no sense to use it at all. I would not care too much about the complexity of developing such strategies if they are so risky. Here we see big risks that can’t be determined in advance, so if you’re just starting to operate, I don’t recommend scalping.

Swing Strategies

I recommend directing your attention to swing strategies. This is my favorite type of strategy, which is usually marketed in the H1 time frame. In 90% of cases, they will be within one hour, in exceptional cases in M15. If we want to talk about whether to use a time frame of one hour or fifteen minutes, we need to consider the type of strategy. In 90% of cases we will use a time frame of one hour, which has its own advantages, but of course some disadvantages as well.

Therefore, I have chosen it. The main advantage is that it allows you to perform longer operations. Usually, an average trade lasts about 24 hours, it can also take several days, but usually around 24 hours, and it is also one of the factors with which I am satisfied. Such trades are not as sensitive. The number of trades in a month is a maximum of 10, so such a trading style is not as expensive.

Usually, an average trade lasts about 24 hours, it may also take several days. When someone is scalping, they pay a lot of money just for commissions or for spreads. This is not the case with swing strategies, with which you only need to pay commissions for approximately 10 transactions per month. Such a fee is less important and does not have a significant impact on your account.

Of course, swing strategies are not as profitable due to the smaller number of operations that are performed in longer time frames. Therefore, a trader earns less, but with more stability. Because these strategies are not so sensitive, they are not so influenced by the unexpected news of strong market movements. For example, when publishing macroeconomic news, such as the decision of a central bank on rates, unemployment rate, GDP growth, etc. In those moments, we only risk an operation and we are not so afraid of a negative result because it is not a big problem for us. It will not result in a great loss.

Swing strategies help us deal with some difficult situations in the market, and we can also perform backtesting with more accuracy and reliability. This is the main advantage of swing strategies compared to scalping: it is easier to simulate real market conditions for backtests. These strategies, in my opinion, are the perfect combination of the number of trades and stability, and if you’re a beginner, the one-hour window is definitely a good choice.

Position Trading

The third type of strategy is position trading. In general, these are strategies for long-term positions which, in some cases, can be maintained even for a few years. Basically, they are negotiated in daily or even higher time frames. I personally operate all position strategies in the daily time frame, and sometimes very interesting situations and transactions can occur.

The main advantage is that these positioning strategies are very stable, as they are usually used to take long-term trends. To take one example, in the past, we witnessed a crash in the oil market with a price that fell steadily for more than a year, so we could be in this position for a long time.

So position trading can be very stable because we are working with strong trends. I am satisfied with the positioning strategies in the daily time frames. Another advantage is that they can be tested very accurately because economic news has an absolutely minimal impact on their overall results. In many cases, it is only in the short term impact, and from the perspective of the daily time frame, this impact is not something we should fear.

Therefore, we can perform subsequent tests with a very high level of accuracy; however, these positioning strategies generally have lower yields. This third type of strategy has the lowest gains of all these types of strategies. It is necessary to note that position trading gives gains of ten to twenty percent. However, this can be achieved with great stability and can be re-tested with precision.

In addition, these positioning strategies generally work in a wide range of markets, so they can be used to trade indices, commodities, different currency pairs, as well as some exotic currencies such as the Polish Zloty, the Swedish Krona, or the South African Rand. We can do this because it operates on long-term trends, and you can even afford to operate in exotic markets.

This would not be possible when operating in lower time frames and with a greater number of operations; however, positioning strategies are connected with a low frequency of operations and therefore the costs are lower and Therefore, even the high entry costs in trades (usually very high spreads) are secondary due to the duration of our trades.

Tags Forex Strategies, Position Trading, Scalping, Swing Trading

Forex Basic Strategies Forex Indicators Forex Service Review Forex Services Reviews-2

Market Profile Singles Indicator Review

Post author By Fran S.
Post date 9 January, 2021
No Comments on Market Profile Singles Indicator Review

Today we will examine the Market Profile Singles Indicator (we could also call it a single print indicator or gap indicator), which is available on the mql5.com market in metatrader4 and metatrader5 versions.

The developer of this indicator is Tomas Papp, who is located in Slovakia, and currently has 7 products available on the MQL5 market.

It is fair to point out that four of his products are completely FREE and are in a full-working version. These are: Close partially, Close partially MT5, Display Spread meter, Display Spread meter MT5. So it’s definitely worth a try.

Overview of the Market Profile Singles

This indicator is based on market profile theory. It was designed to show “singles areas.” But, what exactly is a singles area?

Theory of the Market Profile Singles

Singles, or single prints, or gaps of the profile are placed inside a profile structure, not at the upper or lower edge. They are represented with single TPOs printed on the Market profile. Singles draw our attention to places where the price moved very fast (impulse movements). They leave low-volume nodes with liquidity gaps and, therefore, the market imbalance. Thus, Singles show us an area of imbalance. Singles are usually created when the market reacts to unexpected news. These reports can generate extreme imbalances and prepare the spawn for the extreme emotional reactions of buyers and sellers.

The market will usually revisit this area to examine as these price levels are attractive for forex traders, as support or resistance zones. Why should these traders be there? Because the market literally flew through the area, and only a small number of traders got a chance to trade there. For this reason, these areas are likely to be filled in the future.

The author also adds: “These inefficient moves tend to get filled, and we can seek trading opportunities once they get filled, or we can also enter before they get filled and use these single prints as targets.”

The author points out: Used as support/resistance zones, but be careful not always. Usually, it works very well on trendy days. See market profile days: trend day (Strategy 1 – BUY – third picture) and trend day with double distribution (Strategy 1 – SELL- third picture).

Practical use of the Market Profile Singles Indicator

So let’s imagine the strategies that the author himself recommends. Of course, it’s up to you whether you use these strategies or whether you trade other strategies for the singles area. Here we will review the following ones:

Strategy 1: The trend is your friend
Strategy 2: Test the nearest level
Strategy3: Close singles and continuing the trend

The author comments that these three strategies are common and repeated in the market, so it is profitable to trade them all.

The recommended time frame is M30, especially when using Strategy 2.

It is good to start the trend day and increase the profit, but be aware that trendy days happen only 15 – 20% of the time. Therefore, the author recommends mainly strategy 2, which is precise 75-80% of the time.

Strategy 1 – BUY :

A bullish trend has begun.
The singles area has been created.
The prize moves sideways and stays above the singles area.
We buy above the singles area and place the stop loss under the singles area.
We place the profit target either according to the nearest market profile POC or resistance or under the nearest singles area. We try to keep this trade as long as possible because there is a high probability that the trend will continue for more days.

Strategy 1 – SELL :

The bear trend has begun.
The singles area has been created.
The prize goes to the side and stays under the singles area.
We sell below the singles area and place the stop loss above the singles area.
We will place the target profit either according to the nearest market profile POC or support or above the nearest singles area. We try to keep this trade as long as possible because there is a high probability that the trend will continue for more days.

Before we start with Strategy 2, let’s explain the Initial Balance(IB) concept. IB is the price range of (usually) of the first two 30-minute bars of the session of the Market Profile. Therefore, Initial Balance may help define the context for the trading day.

The IBH (Initial Balance High) is also seen as an area of resistance, and the IBL (Initial Balance Low) as an area of support until it is broken.

Strategy 2 – one day – BUY:

This strategy will take place on a given day.

There is a singles area near IB. (a singles area was created on a given day)
The price goes sideways or creates a V-shape
We expect to return to the singles area or IB. We buy low and place the stop loss below the daily low (preferably a little lower) and place the target profit below the IBL (preferably a little lower).

Strategy 2 – one day – SELL:

This strategy will take place on a given day.

There is a singles area near IB. (a singles area was created on a given day)
The price goes sideways or creates a reversed font V
We expect to return to the singles area or IB. We sell high and place the stop loss above the daily high (preferably a little higher) and place the target profit above the IBH (preferably a little higher).

Strategy 2- more days- BUY:

This strategy takes more than one day to complete (Singles were created one or more days ago)

After the trend, the price goes sideways and does not create a new low (or only minimal but with big problems)
Nearby is a singles area (Since the price cannot go to one side, there is a high probability that these singles will close).
We buy at a low, placing a stop-loss order a bit lower. We will place the target profile under the singles area.

Strategy 2- more days- SELL:

This strategy takes longer than one day (Singles were created one or more days ago)

After the trend, the price goes to the side and does not create a new high (or only minimal but with big problems)
Nearby is a singles area ( Since the price cannot go to one side, there is a high probability that these singles will close ).
We sell at a high, and we place a stop-loss a bit higher. We will place the target profile above the singles area.

Strategy 3 – BUY:

The current candle closes singles.
Add a pending order above the singles area and place the stop-loss under the singles area or the candle’s low. (whichever is lower)
Another candle must occur above the singles area. (If this does not happen, we will delete the pending order) .
We will place the profit-target either according to the nearest market profile POC or resistance or under the nearest singles area.

Strategy 3 – SELL:

The current candle closes singles.
Add a pending order under the singles area and place the stop-loss above the singles area or candle’s high (whichever is higher).
Another candle must occur under the singles area. (If this does not happen, we will delete the pending order) .
We will place the profit-target either according to the nearest market profile POC or support or above the nearest singles area.

Discussion

These strategies look really interesting. As the author himself says:

It’s not just a strategy. There is more to it in profitable trading. For me personally, they are most important when trading: Probability of profit, patience, quality signals with a good risk reward ratio (minimum 3: 1) and my head. I think this is the most important.

In this, we must agree with the author.

Service Cost

The current cost of this indicator is $50. You are also able to rent the indicator. For a one-month rental, it is $30 per month. There is also a demo version available it is always worth testing out the demos before purchasing. Though.

After purchasing the indicator, the author sends two more indicators to his customers as a gift: Market Profile Indicator and Support and Resistance Indicator.

Conclusion: There are only 2 reviews for the indicator so far, but they have 5 stars and are very positive.

For us, this indicator is interesting, and it is a big plus that the author shares his strategies. The price is also acceptable since the indicator costs 50 USD = 5 copies (10-USD / 1 piece), and since the author sends another 2 indicators as a gift, this price is really worthwhile.

The author added:

By studying the market profile and monitoring the market, I came up with an indicator and strategies we would like to present to you. Here you can try it for free :

MT4: https://www.mql5.com/en/market/product/52715

MT5: https://www.mql5.com/en/market/product/53385

And here you can watch the video:

Also, a complete description of the strategies and all the pictures can be seen HERE :

Other completely free of charge tools:

https://www.mql5.com/en/users/tomo007/seller#products

Tags Forex, forex review, forex services, Forex Trading, Support and Resistance, Technical Analysis, trading

Forex Basic Strategies

Optimization Vs. Over Optimization

Post author By Forex Academy
Post date 8 January, 2021
No Comments on Optimization Vs. Over Optimization

Today we discover the dangers of optimization: over-optimization. That’s the secret to making our system robust, consistent, and quite durable over time, or a quick way to lose your capital. It’s a fine line we shouldn’t cross. Let us then see what requirements we must take into account and what precautions we must take during […]

When we are creating our trading robot, the first thing we do is determine how it starts making market entries, when it will come out with its corresponding motives (crossover, RSI, MACD, different timeframes, etc). Once this is done, we start with optimization.

Right now we are going to adjust the robot to each market, as it is quite difficult for them to behave in similar ways. Therefore, if hypothetically our robot enters by moving averages when we are optimizing, the program will tell us that moving averages have gone better and which ones have gone worse. It’s just in that instant that we’ll have to be very careful, because it is when the joys of seeing a system that has multiplied our capital by 4 in 6 months come, forgetting the rest of optimizations. Error.

What do we have to look at in optimization?

In the graph of the evolution of our capital. Capital should not have any operation that excelled from the rest notably. Trading is a work of constancy; we must never seek the ball, the trade of your life… if it comes, it will come. Imagine that our profit after a year (500 operations) amounts to 1,800€, but we see that with a trade or two we have made 2,000€. We are in front of a system that will rarely get super trades, but that for the rest of the time, will be a negative or near-zero profit system.

Another point that can help us identify whether or not we are over-optimizing will be to look at the values of nearby means and see what results there are. If the results are very uneven, be careful, it is very possible that we have over-optimized. It may be that the means 10 and 20 go very well and that the means 12 and 25, fail miserably. A good system has to keep these values quite similar, the more subsystems (system configurations), the better the overall result.

It is necessary to be careful that when we decide to optimize a variable, it must be directly related to the market, that is, that it is something measurable, some numerical value.

As an example of this point, we could optimize our trading system by the hour. The market does not know what time it is, nor is it sleepy, the market is there. We must draw a pattern of behavior from indicators, or whatever, that depends directly on the market. Not because it’s 9:00 in the morning the market is going to move or the other way around; not because it’s 10:00 at night, the market is going to be flat. There are trends day and night, although it is true that there are more during the day. If we decide to optimize by eliminating certain hours of the day, the days that for some unknown reason there is no trend, our system, if it is tendential, will probably suffer.

Time for backtesting and subsequent optimization. If our strategy is long-term, we must have at least 200 trades, at least. With less, it is impossible to get reliability from that system. It is estimated that the robot continues to operate for a period of approximately 1/3 to 1/8 of the total simulation. If we do a test of 8 months, at least the system should work from one month to almost 3.

If after optimizing the system does not work, nothing happens. I know, it’s nice to see how your system in the past could have made a killing, but now it’s no good. It was a combination of trades that might happen again, but maybe 20 years from now. Are you going to be losing money for that long?

The last thing, I was looking for images to illustrate the post and I remembered the most over-optimized systems that exist, the trading robots that are sold online. 95% are scams. With phrases like this: “I doubled the capital, in 6 months” and a guy smiling with money, people go crazy. The final part of the advertisement says: “For only 29,95€”… If the programmer had a system that doubled the capital in 6 months, it would be cheaper for him to go and ask for money in the bank or wherever. I put the photo here, so you can see the graphic they show on their websites. Good and functioning robots make money in the long run, but they are not exponential and perfect trend lines, without any failed trade.

Tags Forex Optimization, Forex Strategy, Forex Trading

Forex Basic Strategies

How to Measure Your Trading Strategy with “R Square”

Post author By Forex Academy
Post date 7 January, 2021
No Comments on How to Measure Your Trading Strategy with “R Square”

Chances are if this is the first time you’ve heard that square R, you have no idea what exactly I mean or where the thing is going. It is normal, there is much written about supports, resistances, chartist figures. but not so much about more objective indicators. The subject is a bit technical, based on mathematics and statistics, but I’m going to (try) explain it in a practical and straightforward way. In the end, everything is easier than it looks.

What is the R Square?

First, let’s start by defining and understanding the concept of R Square. R Square is a coefficient of statistical determination, also represented as R2, which allows us to predict some results or test a hypothesis. In other words, when we analyze a statistical model, the square coefficient R determines the efficacy of the model (which is so good) and also expresses the percentage or proportion of variation results that are explained by this model.

With this definition clear, in order to use this coefficient R square in practice, it is necessary to understand two important concepts:

Linear Regression: In statistics, a linear regression, also known as linear dependency, is a mathematical model used to approximate the dependency relationship between a dependent variable (for example Y), independent variables (X1,X2,X3,ǐ.Xn) and a random term ɛ (associated with any process whose outcome is only foreseeable in the intervention of chance).

Pearson correlation coefficient: Speaking of statistics, the Pearson correlation coefficient is a linear measure of the degree of relationship between two quantitative random variables, that is, two variables that can be measured or observed and also represented by numerical quantities.

Now, defined these concepts, you may be wondering: How to use this to evaluate my trading system? Step by step.

Each trading strategy or system needs an objective assessment of its effectiveness. In order to achieve this goal, we could get to use an extensive range of ratios, some more complex than others, both in their calculation process and in their interpretation. Despite all this variety, there are very few quality metrics to evaluate something very important: the regularity of the system’s balance line or trading strategy.

To do this, let’s manage the coefficient of determination, R square, to calculate the quantitative estimate of that ascending straight line that all traders want to see in our results.

Characteristics of an Assessment Criterion for Trading Systems

Each criterion or ratio used to evaluate the effectiveness or robustness of a trading system has its limitations in application. There are no ideal or pre-established criteria that allow us to determine with absolute certainty the robustness of a trading system. However, some properties or characteristics may be formulated that must have:

Independence in relation to the duration of the probationary period: Many parameters of the trading strategy or system depend on the duration of the trial period, for example: the longer the trial period for a profitable strategy, the greater your net profit. Independence from the time period is necessary and essential to compare the effectiveness of different strategies in different trial periods.

Independence of the end point of the test: For example, if the strategy «plays» with which simply exceeds the losses, the end point of the test can considerably change the final balance. The criterion or indicator should be immune to such machinations and provide a clear picture of the trading system’s work.

Simplicity of interpretation: All indicators of a trading system must be quantitative, that is, they must be represented by a certain number. It is important that this number is intuitively understandable. The simpler the interpretation of the value obtained, the easier the parameter to understand. It is also desirable that the value of the indicator is within a set range or a defined range, as it is more difficult to understand the meaning of extremely large numbers.

Representative results with few transactions: This is probably the most complicated requirement to meet in the list of features for a good metric because all statistical methods depend on the number of measurements. The higher the measurements, the more stable the statistics obtained. It is virtually impossible to fully solve this problem in a small sample, but you can soften the effects that arise due to a lack of data.

Linear Regression Application

To calculate the coefficient of determination R square, we must calculate or determine the linear regression. As explained above, there may be several independent variables, however, for a better understanding we will use the simplest case: A single independent variable.

In the case of an independent variable, the linear regression or dependence of a dependent variable (Y) on an independent variable (X) can be expressed by the formula Y=aX+b. This formula graphically represents a line in the XY plane, hence the name linear regression.

Now we will choose on our trading platform a chart of a currency pair, of our preference, with a clear upward trend in a given period of time. We download and save this data, then build a chart in Excel with closing prices. On the Y-axis we will have the closing prices and on the X-axis the dates that we will replace by order numbers (for convenience: 1, 2, 3, A). In doing so, we’re going to get a chart with a clearly bullish trend, but we’re interested in a quantitative interpretation of that trend.

The easiest way to reach the target is draw a line that will be more precisely adjusted to the trend obtained in the chart. This line is linear regression. If the graphic is fairly uniform one or more straight lines can be drawn that fit or describe our bullish graphic. Then a question arises: which of these lines is correct? The correct line shall be that straight line where the sum of the distance of the existing points to the line is the minimum distance.

It is also important to note that the regression line must always pass through the center of gravity of all the data that make up the point cloud. The coordinate of this point of gravity would be on the x-axis, the mean of the x-variable, and on the y-axis, the mean of the y-variable. Knowing a point of the line we can use the slope point equation to determine the line equation. By getting the correct line we can calculate the coefficients of the linear regression.

Pearson Correlation Coefficient

Once the linear regression is calculated, we have to calculate the correlation between the line obtained above and the data on which the line was calculated. Let us remember that correlation is the statistical relationship between two random variables. The correlation can take values ranging from -1 to +1. A value close to zero means that there is no relation between the measured values, a value of +1 (or very close to it) means a direct relation of the variables and a value of -1 (or very close to it) means an inverse relation of the variables.

The Pearson correlation coefficient could be calculated by means of the following formula:

Where: XY – is the covariance of (X, Y)

X: is the standard deviation of the variable X

Y: is the standard deviation of the variable Y

Covariance is a value that indicates the degree of joint variation of two random variables with respect to their means. In other words, it is the common variance between the variables and the standard deviation is the square root of the variance.

The Pearson correlation coefficient shows how far the line describes the data. If the data points are at a large distance from the line, the dispersion is high and the correlation is low and conversely, if the data points are at a small distance from the line, the dispersion is low and the correlation is high. A value of zero says there is no relationship between linear regression and data.

Importantly, in Metatrader there is a metric called LR Correlation and shows the correlation between the balance line and the linear regression found for that line. However, in the statistics, they do not usually directly compare the data and the regression that describes them.

Calculation of the Coefficient R Square

In the case of linear regression, to calculate the coefficient of determination R squared is sufficient by squaring the Pearson correlation coefficient that we calculated in the previous step.

This coefficient can take values ranging from 0 to +1, being a result equal to zero or very close to zero pure random unpredictable and a result equal to or very close to one a market in which all quotes are placed on the line. R square shows us what percentage of the price movement follows a definite trend, while the rest of the percentage will be due to random movements.

Limitations On Use

Each statistical metric has its advantages and disadvantages and the coefficient of determination is no exception. Some disadvantages are:

They depend on the number of trades. Exaggerate indices with few trades.
For calculation, complex mathematical computations are required.
It is applicable exclusively for the estimation of linear processes, or systems trading with a fixed lot.

Application in Trading Systems

In trading systems you can see this ratio represented in percentage, which the closer to 100% the better (in theory) is the quality of our system. In my experience, a system with a score above 65 usually has a fairly stable performance over time. It’s one of my favorite filters.

Conclusions

After analyzing and studying the process of calculation of the coefficient of determination R square I can tell you that this coefficient is one of the few measures that calculate the regularity of the curve both of the line of the balance sheet, and of the unrecorded benefit of the strategy (among others).

R² is easy to use because its range of values is fixed and is within the limits of -1 to +1. Values close to -1 alert us or warn us of the negative trend of the balance of the strategy. A value close to zero warns us of the lack of trend in the balance sheet of the strategy. Values close to +1 warn a positive trend.

As I have told you, the square R, like any other ratio, has its limitations that you must take into account. In my case I use it as a top 3 ratios to measure if I have a valid trading strategy or if instead it goes to the trash.

Tags Forex Strategy, R Squared, Strategy Measurement

Forex Basic Strategies

What Is the Best Strategy for Forex Trading in 2021?

Post author By Forex Academy
Post date 30 December, 2020
No Comments on What Is the Best Strategy for Forex Trading in 2021?

2020 is over and we must prepare our best Forex strategy to start the year 2021 in the best possible way. Undoubtedly, to define the future of our Forex operation we must take into account the most relevant events and news that we will encounter. Let’s define below some of those we think will most […]

What should we pay attention to? Highly effective news about Covid vaccines can lead to a decrease in the extreme levels of market volatility we saw in 2020 and a return to normality faster than expected. Investors should also consider the need for fiscal stimulus to save the economy before the global availability of vaccines, the increase in cybercrime, the relationship between the United States and China, and the risks to market leadership. Many investors may want to diversify to find high-return assets that can provide a stable source of income. There is broad consensus that the infrastructure sector will be one of the main beneficiaries after potential economic stimuli.

Then, looking at the market outlook for 2021, following the pandemic and the global crisis, next year will present both opportunities and risks for investors, as markets and sectors will rebound unevenly. This has been an unprecedented crisis, with winners and losers, that has entrenched current market trends, accelerating Internet disruption, and worsening the disinflation of the service industry. Therefore, it will be advisable for investors to diversify into different assets to search for their income.

In the year 2020, we have experienced a deep recession and the consequent bearish market, but it has not affected all sectors in the same way. Many companies are at their worst, and others have never really been better. This situation has led to an incredible dispersion in equity yields and credit spreads. In addition, the rebounds of different assets should remind us all that their valuations have as much to do with the discount rate as with the benefits.

The Current Economic Recovery Will Continue

In 2021 we see that the economic recovery will continue, as the latest sanitary innovations allow the normalization of private sector activity. However, with negative real interest rates in all advanced economies and likely to remain so for 2021 and several more years, investors will have to do more to find attractive returns.

The attractiveness of opportunities in alternative assets could increase in this low-return environment for longer. And as we have already mentioned, the infrastructure sector will be one of the main beneficiaries of the global economic stimulus packages and, within the universe of the instruments listed, the low level of return on a fixed income in developed markets will mean that investors will have to have a more global view. For example, dollar-denominated emerging market debt, including Chinese government bonds, can be particularly attractive.

What to Look for In 2021

The COVID-19 pandemic shocked us all during this year 2020, so investors need to consider what surprises the year 2021 could bring and what this will mean for their investment decisions.

1- The rise of cybercrime: the virus and the associated economic shutdowns have led to significant adjustments in telecommuting, which can make some sectors or businesses more vulnerable to the negative effects of a cyber attack.

2- 2021 will be the year of vaccines: highly effective and rapidly distributed vaccines would allow a return to normality sooner than expected. This, coupled with monetary stimuli, can trigger a strong rally in the markets.

3- Fiscal paralysis: Despite low interest rates and economic needs, paralysis in Washington, D.C., and reduced fiscal appetite in Europe mean a bridge to the vaccine is missing in the coming months. This could lead to a double-dip in the economy and markets.

4- Threat to monopoly: A possible change in the tax code and stricter regulation for large technology companies can bring about a major shift in market leadership towards small caps.

5- Improving US-China relations: the new US leadership lays the groundwork for a new engagement with China, including a reduction in tariffs and a reduction in restrictions on technology exports. Reducing uncertainty and improving the business landscape catalyse a significant shift in the flow of assets from developed to emerging markets.

Best Strategy for 2021?

The search for the “best strategy” in Forex is eternal. Most new “traders”, even some of the most experienced spend their whole lives looking, unsuccessfully, either in forums, books, and seminars, for the superior strategy to all the others.

We think what you should know about “the best” strategy is this:

It doesn’t exist!

Not only is there a way to do that, but there are many ways. This applies to successful strategies or methods of trading currencies as well. The different negotiating styles used by professionals specializing in making money consistently in the market are countless; just as each individual has his own type of DNA. That makes a lot of sense, as trade numbers and indicators, oscillators, and concepts are infinite as well as how these can be combined. Therefore, long searches for perfection in the buying and selling of currency sooner or later lead to disappointment.

Have you ever heard the saying “the best attack is sometimes a good defense”? This is a great truth that applies not only in the legal field but also in the currency market. Even an excellent entry strategy (what would be the offense) becomes weak if it does not have a good exit plan (what would be the defense). All traders employing strategies such as Martingale (a strategy that continues to increase losing transactions, thereby anticipating a setback) or other flawed exit methodology that keeps large open losses waiting for the market to return, are doomed to failure.

The best strategy can quickly become the worst if traders’ minds are not attuned to success. You will have heard experts say over and over again: “Trading is mostly mental”, this is a universal truth based on the law of attraction (which has become a buzzword because of the movie “The Secret”).

In Conclusion…

The search for “the best” strategy to trade on Forex is useless. Instead, the trader should focus on the above three points to maximize their success in buying and selling currency. The best Forex strategy is a personal decision for each trader, but we must always understand it perfectly and we must identify with it. It should be consistent with our resources, and, speaking of resources, it should be cost-effective. And most importantly, we should feel comfortable with the strategy.

It becomes obvious because it is important to practice on a demo account, the possibilities are many and the more options, the greater the indecision. When testing on demo accounts, it’s time for the truth, and that’s where we can find our best Forex strategy. In a demo account, we have total freedom to experiment and test with many different strategies. Then, we can circumvent any limiting aspect and make attempts with everything we desire. It is now that we can make mistakes, refine small details, polish what is needed, and learn as much as possible.

Tags Forex 2021, Forex Strategies, Investing 2021

Forex Basic Strategies

Social Trading: What are the Advantages and Disadvantages?

Post author By Forex Academy
Post date 22 December, 2020
No Comments on Social Trading: What are the Advantages and Disadvantages?

Social trade is a fairly new concept in Forex retail and its popularity has been growing considerably in recent years. Let’s see the pros and cons of this trading modality that is very similar to social networks. The concept that drives social trading, especially in Forex, is that the process offers online traders the opportunity […]

The concept that drives social trading, especially in Forex, is that the process offers online traders the opportunity to obtain information about operations and strategies of other traders and thus use the knowledge and experience of other professionals in combination with their own experience.

Social trading works very much like the most popular social networks, such as Facebook and Twitter, where individuals communicate directly with each other continuously from wherever they are. And, as with other social networks, there are advantages and disadvantages in their use.

Advantages of Social Trading

One of the reasons for the success of social commerce is that it is easy. By monitoring the activity of other traders, novice or intermediate-level operators can base their movements on the professional decisions of more experienced traders; there is no need to conduct its own fundamental or technical analysis. It’s like when you have the answers to a test before the date and even taking a look at the test questions!

With social trading, Forex traders can have an immediate association with many other traders in an environment where it is possible to interact with each other, discuss points of view and then copy the most successful trades. At the same time, the beginner and the more experienced traders can learn how elite operators get to the decisions they make, what strategies they use, and which ones work better than others in their efforts to make profits, while at the same time limiting the risks to your entire portfolio.

Another important advantage of Social Forex Trading is that, when trading as a member of a community rather than as an individual, it is often easier to avoid personal biases that often result in loss of positions. As part of the package, it becomes much easier to observe the change in market activity from a more impartial perspective. For example, a transaction that starts showing losses can trigger emotional reactions in a trader that can often lead to wrong decisions. When operators work together as a unit, it is easier to discuss and analyze market activity as it develops and make more wise decisions.

Finally, the opening to the public of transactions through social trading has made Forex trading no longer an instrument that is normally restricted to the best brokers and multinational banks. And, since all transactions placed on a social trading platform are copied directly, no one can intervene in such transactions, generating more transparency.

Disadvantages of Social Trading

Social trading provides an exchange of information for individual and retail investors. And although this seems an advantage, it can also become a disadvantage. This is because there is only a small number of successful traders in this market, by using social trading networks an operator can follow the wrong trader and end up losing instead of increasing their profits.

Copy Trading represents a greater threat, as even novice traders, without the prior knowledge of Forex, are allowed to replicate the commercial behavior of successful traders. Therefore, they basically become helpless in case the “leader” fails.

The execution of trades, based on collective wisdom, remains an impressive proposition – in the beginning. However, some initial successes might even deny the danger that you will become totally dependent on others. You may be able to generate huge benefits by integrating other ideas into your own game plan. However, there is no guarantee that these strategies will work infallibly in the long term.

Choosing the Right Platform

One of the main disadvantages of social trading is that it is still relatively difficult for an operator to select the right social platform. Etoro, Zulutrade, and Signaltrader, (to name a few) are the main Social trading platforms of Forex. There is no shortage of social platforms and this makes it difficult to choose. And, even though social trading operations are not a scam, there are scam platforms that do not comply with the rules and there are some social trading scammers willing to cheat and an unsuspecting trader can be easily surprised. Some of them even end up claiming that they offer the best signals for you. Therefore, it is very important for you to choose your platform carefully. Choosing the right trading platform is key, but it is complicated, and you need to be informed and alert enough to tell the good from the bad.

We can’t just fall into the hands of dishonest racers. Traders should also be careful when choosing the individuals they want to follow, as there are people with little confidence. Defining several indispensable criteria before opening a trading account helps traders select the best operators to follow from a list that may include hundreds of them.

There are several social trading networks that offer different features, many of which are not fully understood by a novice Forex trader. Some networks reward their operators not only for the benefits they get but also for their low-risk management approach. This makes traders in these types of companies more aware of the risk than operators in other networks that reward only for profit and may encourage risk-taking in the process. This approach might not be a good start for novice operators.

In addition, traders who have just started trading may not fully understand the ramifications of various social trading networks. To take an example, there are social trade networks that place a limit on the amount that a trader can assign to 20 or 30%, which is certainly an advantage as this forces the trader to spread his risk. On the other hand, an operator can be allowed to run a risk of up to 100% in a single operation, and can technically lose everything in a single move.

Future of the Market

Last but not least, the presence of too many traders without prior knowledge is not advisable for the market itself. As in that case, (the market) runs the serious risk of running out of “leaders” in the long run. Only a continuous recycling of ideas will help to prevent a “substantive” future.

In Conclusion

There are advantages and disadvantages in all types of investment and this also applies to social trading. The key to success in any enterprise is knowledge; the more the trader knows about how a particular financial instrument works, the lower the risk you run and your chances of winning will increase substantially.

Tags Social Media Trading, Social trading, Trading Strategies

Forex Basic Strategies

What Happens When an Asset Tests a Level of Support?

Post author By Forex Academy
Post date 22 December, 2020
No Comments on What Happens When an Asset Tests a Level of Support?

He who lives by the crystal ball will eat shattered glass, said Ray Dalio. The ways to analyze the market are increasing by the day, all for the purpose of giving traders the foundation for trading. The more knowledge one has, the less likely he/she is going to rely on sentiment or intuition. Support and […]

He who lives by the crystal ball will eat shattered glass, said Ray Dalio. The ways to analyze the market are increasing by the day, all for the purpose of giving traders the foundation for trading. The more knowledge one has, the less likely he/she is going to rely on sentiment or intuition.

Support and resistance have emerged as two of the most discussed aspects of technical analysis. The two terms refer to the price levels that traders use in the chart to determine certain patterns. These levels are important because they can stop an asset from getting pushed in a certain direction.

Support and Resistance Differences

Although support and resistance may come in many forms, they can be defined as follows:

Support is a price that has not come down for a while. Such a pause in price movement is triggered by a higher demand or buying interest. Support always occurs where we expect to see a downtrend and where buyers tend to enter the market.

Resistance is an indication that an uptrend may pause for a while owing to a concentration of supply. Resistance also signifies that certain asset experiences difficulty breaking through, which may result in a potential fall. The greater the number of times the index or stock has tried to break through the resistance, the stronger the resistance in question is.

Both support and resistance are confirmations of supply and demand levels that can be identified with the use of trendlines and moving averages.

Supply and Demand vs. Support and Resistance

All support and resistance levels result from supply and demand levels. When the price of an asset drops, demand rises, forming the support line as a result. Conversely, prices increase causing selling interest, which leads to the formation of resistance zones.

Price Movement

Whenever a price reaches support or resistance, it can either bounce back in the opposite direction or break through the price level until it reaches the next support/resistance level. These support and resistance zones can thus serve as potential entry or exit points.

Whether the price bounces off or breaks through the support or resistance lines, traders can always get an idea of the direction towards which the price is heading and have their theory confirmed or refuted promptly.

Should the price move in an unfavorable direction, traders can close the position at a small loss. However, if the price moves to the trader’s benefit, the entire trade can turn out to be quite rewarding. This idea gives birth to many reversal strategies.

Concerns

Now that we understand what happens when an asset tests the support line, we need to address possible problems in trades that use support and resistance as a tool to identify price action.

First of all, support and resistance levels are one of the key concepts used by technical analysts. As their popularity is undeniable, so is the fact that they can create hotspots in the chart. If your support line is easily created by most market participants, you will surely see the heightened concentration in that area of the chart. And, the more traders rely on the use of support and resistance, the greater the chance that the big banks will step in and manipulate the price.

Secondly, many traders like to use support (and resistance) lines for predicting where the price is going to go. Unfortunately, we cannot know if there will be any reversals or breakthroughs in advance. What we can quite often attract, however, is an uncontrollable and unexpected change in price triggered by an elevated concentration of traders in a specific price level.

Thirdly, there is a rise in the number of social media accounts that claim they know where the right support lines are in the chart. These posts and offers are used as fishing hooks intended to lure people to trade based on the information provided for which the authors receive payment. Do not trust all products you find online just because someone claims to know exactly what you want to hear.

Next, support and resistance do not function equally well in different trading markets. These terms may serve stock or crypto traders much better than currency traders for example. Some brokers’ websites contain information on where support and resistance lines can be found in the chart, but do not forget that these companies earn money when the price moves in the exact opposite direction from where you would want it.

Also, if you use support lines in combination with another similar tool, you may increase your susceptibility to external influence (i.e. large banking institutions). The more you rely on the tools the majority of traders prefer, the greater the chance of your trade being whipsawed.

And, if we see several support lines in the chart, which one are we supposed to use? How do I know that I have chosen the right one?

Last, if there are variations in the degree of my success, how can I know that support (and resistance) is a reliable tool for sure?

Conclusion

When you test how support and resistance works, make sure to take detailed notes of all of your trades, including the total wins and losses. Sometimes, we get a feeling that something is a great tool just because it once brought us some good results.

Traders need to feel certain that the tools they use in trading are going to give them consistent results – both in terms of wins and losses. If you get one good win and then take five consecutive losses, your account will suffer. You may have a problem even with fewer losses if they end up cutting your entire account in half. No win can compensate for such a loss percentage, and no tool should be trusted if it leaves room for such scenarios.

What is more, the trading community seems to love support and resistance lines, but the fact that there are very few critical observations of this tool should raise questions.

If you are a beginner, you should definitely pay attention to the testing phase and record every step diligently. You must know if your support and resistance lines are going to serve you or make your account suffer.

However, if you find your support (or resistance) lines to provide you with continuous success, there is no reason for you to question their worth any further. If you have good results, you need to keep that skill consistent. Having a hunch could be a skill if you can do it time after time, the lingering question remains: is that talent going to vanish as you change psychologically and physically?

Tags Forex Resistance, Forex Support, Support and Resistance

Forex Basic Strategies

The Absolute BEST Forex Trading Strategies for Beginners

Post author By Forex Academy
Post date 21 December, 2020
No Comments on The Absolute BEST Forex Trading Strategies for Beginners

It’s easy for beginner traders to become overwhelmed, which sadly leads many to give up on trading for good before ever really getting started. This can be avoided when beginners have access to simple, easy-to-follow strategies that aren’t overly technical or risky. Below, we will outline some of the best simple trading strategies for beginners: […]

Trailing Stop/Stop Loss Combo Strategy
Moving Average Crossover Strategy
Breakout Trading Strategy
A more detailed 50 Day Breakout Strategy

Trailing Stop/Stop Loss Combo Strategy

This strategy uses stop-loss orders and trailing stops, which ensure that the share will be sold at market price value if it dips to a certain level. Loss-limiting strategies are good for beginners because they can allow traders to get used to trading without risking a larger amount of capital. Trailing stops are also applied through this method to add to the efficiency of the stop loss.

Traders would combine trailing stop and stop loss together and set those limits based on their maximum risk tolerance. For example, you could set the stop loss at 2% below the current trade price and the trailing stop at 2.5% below the price. If the price increases, the trailing stop will surpass the fixed stop loss and render it obsolete. Note that it can be more difficult to use trailing stops with active trades, due to price fluctuations and volatility. You’ll need to study a stock for several days so that you can set a trailing stop value that will accommodate normal price fluctuations and only catch the true pullback of the price.

Moving Average Crossover Strategy

This strategy uses a simple moving average (SMA). SMA is a slower price indicator that looks at older data than what is used by most indicators. Usually, a longer SMA is combined with a shorter one. For example, a 25-day SMA might be combined with a 200-day SMA. Information can be compared on charts to indicate bullish or bearish trends and to provide buy or sell signals.

Moving averages are often used to indicate the overall trend and can be used in combination with a breakout strategy to help do away with signals that don’t match the trend indicated by the moving averages.

Breakout Trading Strategy

This strategy focuses strongly on trends in the market. Consolidation occurs when the market moves between bands of support and resistance. A breakout occurs when the market moves beyond the boundaries of the consolidation, either to new highs or new lows. A breakout must occur for a new trend to begin; therefore, breakouts are signals that a new trend has started.

Following this strategy is fairly straightforward, which is why we would recommend it to beginners. Of course, risk management is crucial for the strategy to work with limited losses. One of the Breakout strategy’s downsides is that not every breakout signals a new trend.

You’ll also need to get a feel for the type of trend you’re entering:

A breakout beyond the highest high or the lowest low for a longer period suggests a longer trend.
A breakout for a short period suggests a short-term trend.

Once you learn to identify trends more quickly, you’ll be able to react more quickly and ride the trend earlier in the curve, although this could lead traders to follow shorter-term trends.

The 50 Day Breakout Trading Strategy

This strategy evolves around momentum, meaning that when prices are moving strongly in one direction, it is likely that things will continue in this direction. Further movement in the direction of the trend is also considered to be far more likely than any movement against the trend.

When using the Breakout Strategy, traders should focus on the pairs EUR/USD and USD/JPY because these pairs have shown the best reliability through research. Traders will also want to use the Average True Range trading indicator. There are a few other key steps to accomplishment with this strategy:

Monitor the daily chart for the entry signal. A new 50-day high signal that a long trade should be entered, while a low indicates that one should enter a short trade. The trade should be entered immediately once the signal is received.
Traders should only risk a maximum of 0.25% of their account size per trade. Someone with $2,000 in their account would only risk $5 per trade, which makes this more beginner-friendly.
Tighter stop losses will help to ensure greater profitability.
Two days after the trade entry, move the stop loss to break even if the trade is still open. If the market price is worse than the stop loss, you should close the trade at market price.
Use an exit strategy that is either based on time or using a trailing stop. Exiting after 8 days has shown the best profitability through research.

While some beginners may struggle with the exit strategy, you should remember that a time-based exit of around 5-8 days is profitable. This helps to avoid frustration with making mental judgments as well.

Tags Basic Trading Strategies, Forex Strategies, FX Strategies

Forex Basic Strategies

What is the Best Trading Position? Part IV – How Much Can Traders Win?

Post author By Forex Academy
Post date 19 December, 2020
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We showed how to manage your risk in the last three articles of this series. Today, we are embarking on another journey, teaching you how to manage your money like a professional, wealthy trader. The problem with most traders is that everyone is anxious about how much money they can lose, never thinking about whether there is a win limit too. That is where we are heading in this article – learning about our maximums.

Is the More Always the Merrier?

First of all, where does your money come from? Is it from the pure quantity of items you own or what you get to do with them? You may have an abundance of assets with a remarkable track record of winning trades, but what are they worth if they sit there collecting the dust? Think what the wealthiest people do – they always find a way to liquidate their assets because, otherwise, there is no point in any of the efforts made.

When is Enough Actually Enough?

We have all seen quite a few examples of people who seem to lack boundaries. We witness this behavior in casinos when the initial investment gets multiplied several times, but the lucky individual eventually returns home with empty pockets. We get to see such an unbalanced approach in the world of trading as well, having traders stay in trades too long without taking necessary precautions. It usually happens with those impressive trades where you get to buy something for a price that rises well above what anyone could ever expect. The idea of earning in one trade what you get to earn in an entire year is very exciting, isn’t it? Still, it is also very unfortunate to know the statistics of people who fail to ride these winning trades with a sense of precaution too.

How should I manage my wins?

First and foremost, learn how to scale out – take a portion of your trade off the table, put it into your trading account, and keep the rest running accordingly. You can use the ATR indicator to know exactly when you should take the initial profit. For example, if you are a forex trader and the ATR of the currency pair you are trading is 90, you will need 90 pips before you get to take any additional action.

We will even go one step further and give you the exact formula you can use in trading to manage your trades:

Calculate your risk based on parts 2 &3 of this series.

Divide your risk (number of pips you are risking) into two halves (for MT4 TP partial closing limitation purposes).

Make two half trades with that new number.

Place the stop loss properly on both trades.

Set the ATR where you want to take the initial profit on one of the two trades.

After it closes automatically, move your stop loss to the break-even point (where you entered the trade).

Keep the second trade position running, trends may prolong for days.

How Does Scaling Work in Real Trading?

In the NZD/CHF daily chart below, you can see that the ATR equals 60. This information tells us that the stop loss is going to be 90 (please, read the second article of this series if you do not understand why) and that our take-profit point is going to be 90. After finalizing all risk-related calculations, we also know that the value per pip equals 11.11 for our 50,000 USD account. To scale out, we are going to need to cut this value in half, so we get 5.55. Now we should insert all of the necessary information. The only thing we mustn’t do is check up on the trades all the time because we do want to avoid emotional reactions, urges to make changes, or exit the trades prematurely.

The moment the price hits your take-profit level, we are going to move our stop loss (90) to the break-even point, knowing that the first half of the trade is a winner you can no longer lose. At this point, you can make use of some other tools, such as Heiken Ashi, exit indicators, and trailing stops, among others, to assist with your trade. These tools can be of great help with your second trade for as long as it runs, especially since knowing when to exit is one of the crucial elements of professional trading.

What is the Best Return I Can Get?

In the stock market, for example, a 10—11% return per year is considered to be a really good result because it mirrors the stock market average. If you can increase this percentage in time, you will become one of the few elite traders who are able to achieve such returns. If you are considering a specific benchmark to hit, this may as well be a great reference because these trading skills are always in high demand. Warren Buffett for example, one of the most prominent figures on the investment scene in America, makes a 20% return per year while some of the most affluent figures in the forex market willingly give exorbitant amounts of money to their advisors just to get a 13% yearly return.

As usual, we are leaving you with a task that you should complete based on the past few lessons you learned here:

How would you apply the scaling out strategy based on the EUR/USD monthly chart provided below?

What we really want you to know is that this approach helps you know that you are safe and that a portion of your investment is safe too. Many traders never scale out and years may go by before they face the consequences of their actions. You do not have to be the winner only; be a smart winner too. It really doesn’t matter what you trade (gold, corn, stocks, or forex, among others) because all smart traders share this one key skill that is so easy to apply. Accompanied by other trading skills, scaling in and out is the one way you can avoid the casino scenario and ensure the best trading position. Lastly, even if you encounter an unfavorable period or take a loss at some point in your trade, be patient and refrain from reacting impulsively because your stable and consistent approach to trading will even out any transient imbalance in the end.

Part V to be posted tomorrow. Stay tuned!

Tags Forex Scaling, Forex Trading, Trading Strategies

Forex Basic Strategies

Profitable Forex Strategies That Nobody Tells You About

Post author By Forex Academy
Post date 18 December, 2020
No Comments on Profitable Forex Strategies That Nobody Tells You About

There are a lot of factors that can make or break your chances of success in the forex market, from the amount of money you risk to your general knowledge of what moves the markets, and everything in between. One of the most crucial keys to success is to trade with a solid trading strategy […]

Forex traders typically base their strategies on two different types of data. Fundamental strategies consider economic data and data that is affected by businesses, while technical analysts use indicators and study historical price data. Trading strategies consider data based on their chosen method and then provide traders with techniques that tell them when to enter or exit the market in order to make a profit. Your trading strategy will guide you and ensure that your trading decisions are structured and based on as much fact as possible to increase your chances of making money.

If you search for trading strategies online, you’ll find a long list of options. The choices can honestly be overwhelming for beginners, as there are so many different factors to consider when choosing a strategy. There is no one-size-fits-all method, as every forex trader has different needs and thinks from a different perspective. So which strategy should you choose? Below, we will break down three of the best trading strategies out there so that you can decide for yourself based on your own personal preferences. Keep in mind that many veteran traders might not tell you about these choices, as many professionals prefer to keep beginners out of the loop when it comes to top-rated trading secrets for success. After all, it is a competitive industry.

Not Sure Which Trading Platform to Use? Try MetaTrader 5

MetaTrader 5, or MT5, is one of the most popular trading platforms out there, right alongside its predecessor MT4. MetaQuotes developed this platform to offer more financial instruments, trading tools, and resources. Here are a few of the highlights that influence our love for this timeless trading platform:

Provides access to a wide variety of forex, stocks, CFDs, and futures
Offers a navigable interface with 21 timeframes and 6 pending order types
Supports robotic and algorithmic trading
Allows hedging and netting
Supports 36 technical indicators, 44 analytical objects, and an unlimited number of charts
Built-in economic calendar for quick access to important news data
Can be accessed through a web browser, desktop version, or on mobile devices and tablets

When compared to other options out there, MT5 truly offers more services and resources to traders, making it a great tool for success if it is incorporated into your trading routine. If you do plan to use it, you can find many video tutorials on YouTube that will teach you how to use the platform efficiently. The best way to use the MT5 platform is to open an account through a broker that offers it so that you can trade on MT5 for free, as licensing fees can be expensive.

Using Trading Signals

A trading signal is a suggestion to enter a trade that is typically delivered to the trader through a phone or email alert. The suggestions come from expert traders that have personally analyzed the market based on their own ideal sets of data so that you don’t have to. This concept is especially helpful for beginners that may not completely understand the market or for traders that just don’t have the time to sit around analyzing charts and data all day long. Many traders consider signals to be a shortcut to success that takes away from the overall time spent trading, as long as a profitable signal provider has been chosen.

Experts that create trading signals do so to help other traders, but there is usually a cost of these services. Keep in mind that some signals are free, while most cost money, but you shouldn’t blindly trust every signal provider that’s out there because scammers are involved in the market. Before choosing a provider, you should read online reviews about their services and take a look at their overall reputation, especially if it is a paid provider.

One-on-One Training Sessions

Some traders overlook the benefits of personal one-on-one training sessions with professionals for a few different reasons. One of the most common reasons is that these sessions usually cost money, although some brokers will offer you free sessions if you make a large enough deposit with them. It’s true that there are many free resources available online, but you should stop to consider some of the benefits of one-on-one training:

You’ll be mentored by a veteran trader that knows the market inside and out.
You can ask personal questions and receive professional-grade advice.
Your coach will teach you basics, market fundamentals, and everything you need to know.
Your mentor can suggest profitable trading strategies you might not have heard about once they learn about your personal trading style.
You’ll learn to use technical indicators and how to effectively analyze the market for trends and directions.
This is one of the best ways to get hands-on practice in a live market environment.
You’ll receive tips that can help you to achieve profits on the same level as expert forex traders.

The Bottom Line

If you want to get the same results as a professional trader, you’ll need to trade like one. The three professional-grade strategies we’ve outlined above can help you get off to the right start in the financial markets, as long as you take the time to practice them effectively.

Tags Forex Strategies, Forex Strategy, Trading Strategies

Forex Basic Strategies

Price Action Forex Sniping Strategy: Review & Instructions

Post author By Forex Academy
Post date 17 December, 2020
No Comments on Price Action Forex Sniping Strategy: Review & Instructions

The Sniper’s trading strategy is recommended by dozens of bloggers and mentioned within informative resources. Even simple web pages (landing pages) are created for it. The strategy has at least five different versions. It represents a commercial system based on the analysis of the price of an asset without using indicators (Price Action) and the definition of local and global levels in different time intervals. The question is: Is it worth buying it and spending your time studying the system? The answer is found in this article.

Sniper Strategy: Everything New is Old?

Tell me, please, how do you evaluate the effectiveness of the indicators of technical analysis that almost at every step are criticized for delays, need for constant optimization, inability to react to force majeure, etc.? Even applying several oscillators on a chart, indicators are likely to give radically opposite signals. And if of the hundreds of existing indicators none are accurate, does it make sense to use them?

«. One of them is the commercial system of «Sniper», which is considered one of the most popular in the commercial sector of the years 2012-2018.

In this article you will learn:

What is Price Action technology and what are its strengths?
What does the commercial system of «Sniper» represent being one of the options of Price Action? Concept and rules of use.
The main tenets of the Sniper strategy, examples, and rules of placement of orders. Advantages and disadvantages of the strategy.
A brief analysis of the updated strategy of Sniper X.

Price Action is «price action». The founder of the analysis Charles Dow considered that price contains all the necessary information. Political, economic, and psychological factors are already considered in the action of the price (or movement of price). Everything is already included in the price, which means that you just have to analyze its “behavior”, and so here the technical indicators are impotent due to its lack of flexibility (rapid reaction to market changes).

Price Action’s theory of analysis considers the following moments:

-It is always said that the market is chaotic in the short term, therefore the method is effective in long-term trading in the daily interval.

-The theoretical basis is the formation of behavioral models that take into account the mood of the majority. Here more attention is paid to the psychology of traders who in most cases act in the same way.

-The system operates in the trend market where the trader is offered the possibility to follow the flow of the majority. No point in trading at long flat intervals including swaps

-Price Action instruments are patterns (shapes that are formed in a stable way), resistance, and support levels that have different construction variations (Fibonacci, round levels and etc.). Price Action’s comparative analysis and indicator analysis are described here:

Advantages of Price Action

It allows the combining analysis without indicators with any other commercial system. The patterns can serve as a confirmatory signal for the indicator strategy; through the levels, you can place pending orders. It also takes into account market psychology (collective group behaviour).

Advantages of trade with indicators:

-Gives a relatively precise signal to the opening of operations (the coincidence of several factors).

-Allows the forming of algorithmic commerce.

Disadvantages of Price Action:

-Subjective method of determining patterns and levels.

-It is almost impossible to automate trade, trade advisers are not operable.

Trade disadvantages with indicators:

-There are difficulties with defining the point of closure of operations

-There are problems with combining various commercial systems. For example, the application of several different indicators only increases the number of false signals.

A logical question arises: Will it be possible to apply this strategy to the Price Action system by using the pattern and level building indicators? Share your opinion in the comments.

Forex Sniper Strategy: Trade Principles, Their Advantages, and Disadvantages

Sniper’s trading system is based on the principle of Price Action technique. The idea of the strategy belongs to Pavel Dmitriev who proposed it almost 10 years ago. In the reviews, you can find the comments that it is just another elaborated version of such tactics as «Meat», «Meat-2, and «Alive System». Those interested in these systems can find more information about them and share them in the comments.

Curious fact.

When this strategy came to light, Pavel Dmitriev’s name was little known. But everything changed when dozens of groups were created on social networks, accounts on trading forums, where a massive discussion about tactics began. In the main phase, the cost of the strategy was $300-500. To attract beginners the runners-kitchens and «business coaches» proposed a course on strategy for free or with a big discount, which aroused more interest and caused disturbance. The course was really necessary. The classical trade of levels was so tangled that at first glance it was difficult to understand it. And, perhaps, the best question you can ask yourself would be, what is the reason you need a tactic where there are a multitude of differences in readings and you have to “kill” so long to learn the basics if there are a lot of much simpler technologies? The answer is simple: a well-organized marketing campaign.

Sniper’s tactic partially breaks Action Price’s thesis. It is designed for short intervals of 5 minutes intraday with a short range of earnings in a transaction, therefore to some extent, it can be scalped.

To cast a veil over the classical theory of technical analysis in this strategy, the author made the decision to elaborate his own terms:

-Banking level (BU) is the level at which the previous day’s daily sail is closed. The schedule is GMT (21.00 Moscow time).

-Levels obtained at the minimum and maximum price points of the previous trading day.

-Total impulse (TIU) levels are resistance and support levels that are formed at the upper intervals (М30 – Н4).

-Trends levels of rapid change (URST) are a candle with a long tail in the direction of the trend in a short interval (М5 – М15). In a word, a candle that evidences the breaking of key level and the beginning of reversion.

-Impulse levels (UI) are resistance and support levels that prevent flat in the М5 range.

-Insurance is the closing of a take-profit (profit taking) transaction of 50% equal to stop-loss.

Sniper principles with author terms:

-Trade takes place only in the course of the trend.

-The transaction opens only in short intervals. The main ones are M1 and M5.

-Entry points are searched at the closing ends of the previous trading day, therefore for analysis two graphs are used at once.

-To evaluate the entry points are used bank levels, levels of the end of the previous trading day, where large players perform the maximum amount of transactions.

-The Total Impulse Levels formed in the hour graph are used as a confirmation instrument.

A transaction is closed according to the «Insurance» rule (it is opened with two orders). After receiving winnings of a few points, 50% of the transaction is closed. The size of the winnings until partial closure is equal to stop-loss. If after the partial profit-taking the price turns and the transaction closes at the stop-loss, the trader will end up at the break-even point (breakeven). The target level of winnings is 30-50 points per day from 1-3 transactions.

Step 1. Classical technical analysis imposes a preliminary analysis of the high interval to define the direction of the trend and the area of a conglomeration of sellers /buyers. The author proposes to begin the determination of levels by taking as default the so-called Banking Level, which implies a shift of the schedule for 3 hours until the end of the day regarding 00.00 MSK (since the author is from Russia). According to him, the 21.00 level (MSK) is the critical point at which banking transactions are closed (in order to avoid swap). Since banks are the main market makers and liquidity providers, their transactions can mark a solid price level.

In the pages of an investment forum, I found the results of interesting research. According to her, commercial systems that operate in the intervals from Hi and above are not sensitive to GMT of brokers. In addition, the pattern of formation of the reversion pattern based on the closing price of the previous trading day had already been studied previously in the theory of technical analysis, so the author did not contribute anything new in the analysis:

The rationale of this step is questionable.

Step 2. The banking level is only a baseline while the main limiting levels serve as extremes of the previous trading day.

Here too we must add that there is another term of the strategy – Consolidation Zone. Before you close the trading day to a large part of transactions is closed to save on the swap, the Asian session begins which is characterized by relatively small transaction volumes. Because of the liquidity appears a night zone of consolidation that in reality is flat.

Step 3. Definition of UTI at the upper and UI intervals at the lower. With the impulse level, the author understands a certain range of the price range in a short interval, which is the horizontal movement zone of the price or an ordinary flat.

In the forums they are constantly discussing the definition of consolidation zones and UIs. Many simply do not see the difference between them, and you can understand them in some way. Please note that screenshots are just examples of how the author understands the strategy. The determination of all these zones is subjective!

With the trend level of fast price change, the author understands the classic pattern «pin bar» which represents a candle with a relatively long shadow with respect to other candles in the direction of the trend.

Principle of opening transactions. Sniper’s strategy proposes to take as a starting point the strong limiting levels of the previous trading day that are determined in the upper time intervals. After the extremes of the previous day projected for the next day have been determined on both sides, the consolidation and flat zones are defined in the short intervals, the local impulse levels within the daily extremes are determined.

Options for Opening Transactions

Trend opening. Each transaction is opened in the pin bar at the moment of breaking the impulse levels formed in the consolidation zones in the M1-M5 range in the direction of the daily channel boundaries. This example is in the screenshot above: as soon as the bar pin appears, a short-term transaction has to be opened.

Opening of counter-trend. The transactions are opened in setbacks from the banking or UTI levels, that is, in setbacks from the global daily limits or levels formed by the market makers.

As for the conditions of determining the actual break, there are plenty of options. According to one of the options, the actual break is a bar pin that exceeds the local range (UI) by 4 points. According to another option, a transaction can be opened if the recoil from the upper or lower limit has been more than 15 points (the flat range in the M1-M5 is usually less, therefore this recoil may show the break of the range).

Terms of the transaction closure. The transaction is closed with two orders. The first command closes in the take-profit, which is set from the opening point at the same distance as the stop-loss. In the case of the trend opening (when the local impulse levels of M1 are exceeded) the stop is placed at the level of the ends (shadows) of the range (10-20 points).

In the interval М1 a narrow range is formed (I do not take into account long intervals). The length of the stop (red line) is about 10 points. As soon as the lower limit of the range is broken, a short transaction is opened with two commands (yellow line). The take-profit is equal to the length of the stop (green line).

In the case of counter-trend opening of the transaction (if there is a setback from the UTIs in the long intervals). The exit from the market is similar, the only difference is that when establishing the take-profit it makes sense to orient in the potential flat formations in a short interval.

My observations are as follows:

-The strategy does not work during news publications, that is, at a time when the market is virtually unpredictable and chaotic.

-You must not open transactions within the impulse range.

-You should not trade multiple currency pairs at the same time. Focus on a currency pair.

It’s good to know the theory, but in practice, it’s not easy to monitor all these models without a trained eye. Therefore, I consider this strategy more useful for beginners than for professionals, who already operate successfully with patterns and levels.

It can be said that it is more a successful marketing product, wrapped in a «beautiful packaging» than a «grail». The creators of the system simply copied the classic concepts of technical analysis, combined them with the rules of risk management, and added new terms in the descriptive part (actually, it’s the alphabet of trading but with more complicated and intelligent terms). This gave beginners hope that a really good product would appear on the Fórex market. Then the digital distribution of the strategy with enthusiastic reviews was enough to turn it into a commercial success.

Advantages of Sniper Strategy

Sniper is an excellent simulator for demo accounts that will help you learn how to detect the emerging sailing figures, levels and etc., and follow the rules of risk management (ie, discipline).

This is where your advantages end.

I would not recommend targeting profit only by following the rules of this strategy. Rather, it makes sense to use some principles of the strategy and combine them with indicators.

Disadvantages of Sniper Strategy

This strategy is difficult to understand. The classical theory of trading with levels (it is more often applied as additional) here is so extremely confusing that, logically, it is very difficult to understand it even after having read it several times. Different online resources have their own interpretation of the strategy.

It is virtually impossible to automate the strategy. Manual trading is exceptionally accepted, and since no indicators are used in the strategy it is also not possible to test it in historical charts.

The effectiveness of the strategy grows only in the case of strict compliance with the rules of its operation. The initiative here is sanctioned. However, the same rules are so confusing that each is interpreted in its own way. Therefore, here much depends on the skills and intuition of the merchant.

During the analysis the determination of resistance and support levels, the flat area causes many discrepancies.

The commercial system of «Sniper» is the classic technical analysis with changed terms. They were repeatedly modified by the creators (there are at least 4 elaborated versions of the strategy), although they did not change them in a radical way since all those manipulations were meant to provoke the interest of beginners and maintain the marketing background created. One of these examples is Sniper X.

Sniper Х: Even the Best is Perfectible

It may seem that one can still «extract more» from classical technical analyses, which can also be interpreted in any way. But the creators are not yet ready to sleep on their laurels. In 2018 on the Internet appeared another version called “Sniper X”, which has the following differences:

Medium- and short-term trade tactics were added (the previous version of the trading system had only short-term opening of transactions).

A new algorithm was developed to work with correctional movement to determine the limits of correction zones.

There is possibility to increase the volume of open positions in a strong trend (in the terminology of the creators, it is the entry point of cascade).

Instead of the NI and NTI new term was implemented – the local and global level of imbalance, and the algorithm of its creation was also revised.

The creators assure that in the system is solved the problem of detection of local micro-trends (estimation of price direction in M1-M5). Guidelines for possible price behaviour were also developed when approaching resistance and support levels. Personally, I have not found out if they correspond to reality and if they are about to become the «Grail» or not. Those who have more patience to study them better, please leave comments on their results. I thank you in advance!

Conclusion

Do you propose to buy the Sniper strategy as a unique product? Don’t let them fool you! All of its versions can be found freely accessible and believe me, however well the Sniper system is camouflaged, it’s just one of the versions of the Price Action strategy, where no one can guarantee a successful outcome. Be aware and don’t be in a rush to buy what professional marketers are insistently and convincingly trying to sell you.

Tags Forex Sniper, Forex Sniping, Sniping Strategy

Forex Basic Strategies

Simple Yet Effective Position Trading Strategy

Post author By Forex Academy
Post date 17 December, 2020
No Comments on Simple Yet Effective Position Trading Strategy

If we look at it a little bit, in recent years, we have seen great trends that were noticed, first, in the JPY in the short term and later, in the recent long-term trend of the USD. Usually, when the market is in these conditions, many Forex traders begin to wonder why they are not getting the kind of trades where the winners last weeks or even months, gathering thousands of pips of profits in the process. This type of long-term trading is known as position trading or position trading.

Traders accustomed to short-term trading tend to find this style of trading as a major challenge they could hardly meet. It’s a shame that this happens because reality is usually the easiest and most profitable type of trading that retail Forex traders can find. Next in this article, I will describe a trading strategy with fairly simple and easy-to-follow rules, and that uses only a few indicators to try to catch and maintain the longer and stronger forex market trends.

Step 1. Choose the currencies to be traded.

To do this, you need to find out which currencies have been winning in recent months and which have been falling. A good time frame to use for this measurement is about 3 months and if it shows the same direction as the longer-term trend, as for example in the framework of 6 months, that would be a very good sign. A simple way to do this is to set a 12-period RSI and scan weekly charts of the 28 most important currency pairs each weekend. By noticing which currencies are above or below 50 in front of all or almost all of your currency pairs and crosses, you can have an approximation of which pairs should be traded during the following week. The idea, basically, is “buy what’s going up and sell what’s going down”. It’s against intuition, but it works in most cases.

Step 2. Decide that yes and no.

You should now have a maximum of 1-4 currency pairs to trade. You do not need to trade excess pairs.

Step 3. Configure the graphics with the time frames D1, H4, H1, M30, M15, M5, and M1. Set an RSI of 10 periods, the EMA of 5 periods, and the SMA of 10 periods.

You are looking to place operations in the direction of the trend when these indicators align in the same direction as the trend in ALL TIME FRAMES during active market hours. That means having the RSI above the level of 50 for long operations or below that level for short operations. As for moving socks, for most pairs, this would be 8 a.m. to 5 p.m., London time. If both coins are from North America, I could extend this to 5 pm, New York time. If both currencies are from Asia, you can also look for operations during the Tokyo session.

Step 4. Decide what percentage of your account you will risk in each transaction.

Usually, the best thing is, risk less than 1% for each operation. Calculate the amount of money you are going to risk and divide it by the Average True Range (ATR) of the last twenty days of the pair you are going to negotiate. This is the amount you should risk per pip. Keep it that way.

Step 5. Enter the transaction according to point 3) and place a stop loss in the ATR of 20 Days from your ticket price.

Now you should be patient, watch, and wait.

Step 6. If the trade moves quickly against you by about 40 pips and shows no signs of turning around, run the output manually.

If this does not happen, wait a couple of hours and check again at the end of the trading day. If the trade is not showing a positive candle pattern in the desired direction, then exit the trade manually.

Step 7. If the trade is in your favor at the end of the day, then watch and wait for you to go back to your point of entry.

If you don’t bounce back within a few hours of reaching your entry point, quit trading manually.

Step 8. This should continue until your operation reaches the profit level twice that of your stop loss.

At that point, move the stop to break even (also known as deadlock, balance, or break-even).

Step 9. As the trade moves more in your favor, move the stop up under the support or resistance, as appropriate for the direction of your operation.

It will eventually be stopped, but in a good trend, the operation should provide thousands or at least hundreds of pips.

You can be a Positions Trader if:

-You are an independent thinker.

-You are able to ignore popular opinion and make your own educated conclusions as to where the market is headed.

-You have a great understanding of the fundamentals and have good foresight on how they affect your currency pair in the long run.

-You have thick skin and can resist any recoil you face.

-You have the capital to be able to support several hundred pips if the market turns against you.

-You don’t mind waiting for your big reward. Long-term Forex trading can give you from several hundred to several thousand pips. If you are excited to move to 50 pips and already want to leave the trade, consider moving to a short-term trade style.

-You’re extremely patient and calm.

You may NOT be a Position Trader if:

-You will easily be influenced by popular opinions about the markets.

-You don’t have enough knowledge of how they can affect the fundamentals markets in the long run.

-Don’t wait. Even if you are somewhat patient, this may still not be the negotiating style for you. Don’t wait You have to be the ultimate zen master when it comes to this kind of patience!

-You don’t have enough seed money.

-You do not like it when the market goes against you.

-You like to see your results quickly. It may not bother you to wait a few days, but months or even years is too long for you to wait.

Obviously, you should customize this strategy a little according to your preferences. However, whatever you do and whatever you decide, assume you will have a large share of losing operations and spend long periods of time where there will be no operations – which is boring – or where each operation is a loser or ends in a stalemate. There will be moments of frustration and difficult periods. However, you will earn money in the long run, if you follow this type of trading strategy of the forex markets, as you will follow the eternal principles of solid and successful trading.

Finally, to close with a twist, if you really want to develop a trading strategy to make sure your trades are winning, when trading Forex, don’t forget the following:

– Cut soon your operations with losses

– Let your operations run with profit

– Never risk too much in a single operation.

– Set the size of the positions according to the volatility of the market where you are trading.

– Work with the trend.

– Do not worry about taking the first segment of a trend or its duration. What is sufficiently safe and profitable is the middle part.

Tags Positions Strategy, Positions Trading, Trading Positions

Forex Basic Strategies

The Swap: 20% Yearly Gain Forex Strategy

Post author By Forex Academy
Post date 16 December, 2020
No Comments on The Swap: 20% Yearly Gain Forex Strategy

Recently I came across a seemingly interesting trade strategy aimed at trading futures, but theoretically applicable to Forex trading. The author of this interesting strategy claims that, even with completely objective and direct rules, a “trend tracking” strategy simple and complete operated through a highly diversified group of liquid futures markets has produced an annual return of approximately 20% per year over the past two decades, significantly outperforming global exchanges and matching the type of returns produced by hedge funds of professionally managed futures following the trend.

As a professional in the world of Forex, I thoroughly researched that strategy to see what kind of margin it could have historically provided to Forex retail traders. The results are really encouraging because they show perfectly why it can be so complicated for individual traders to exploit margins that exist within markets.

For the sake of full disclosure I will show the rules of the entire strategy:

Risk: The 100-day ATR (Average True Range, or real average range) should be equal to 1 risk unit.

Entrance: long at the end of the day that closes above the highest closing of the last 50 days; bass player at the end of the day that closes below the lowest closing of the last 50 days.

Input Filter: long inputs only when the 50-day SMA (Simple Moving Average or Simple Moving Average) is above the 100-day SMA; short inputs only when the 50-day SMA is below the 100-day SMA.

Departure: You should use a 3-time 100-day ATR trailing stop from the highest price since the operation was opened (for lengths) or the lowest price opened since the operation was opened (for shorts). The final stop must be calculated consistently as a “chandelier stop” and should be a soft stop: an exit is only done when a daily lock is in or beyond the stop loss.

This strategy has been tested against the most liquid and popular Forex spot pair: EUR/USD, for a long and recent period of time (from September 2001 to the end of 2013), using publicly available EUR/USD cash data with daily opening and closing at midnight.

The results show that the strategy gives us a profit margin in EUR/USD during the trial period. More than 366 operations, a total return of 33.85 risk units achieved, giving an average positive hope per operation of 9.25%. This means that the average operation produced a return equal to the risky amount plus an extra 9.25% of that amount. Understanding that the strategy is quite mechanical and that it represents only one instrument within what is traditionally the worst-performing trend tracking asset class (currency pairs), this is not a bad result at all.

However, commissions and fees should be taken into account in determining the return that could have been truly enjoyed. Assuming that trading was carried out by a fund with EUR/USD futures contracts, and that:

-A quarter of the transactions were subject to “roll-over” before the expiry of the contract, causing an additional commission, and that a “round-trip” commission of $20 per transaction had to be paid, and that,

-An account of 10 million dollars was traded with each risk unit equivalent at 1% of the initial position size, then,

-The total return would be equal to $3,385 million, minus 366 operations multiplied by $25 each, representing commissions. This would mean a return reduction of only 0.1%, offering a total return of 33.75%. It could be assumed that if the “roll-over” strategies were very imperfect, there would be several additional losses.

Now imagine yourself in the place of a retail trader with a $10,000 account who wants to operate according to this strategy, using a retail currency broker. Fortunately for this trader, brokerage allows access to some sort of approach to a futures contract that can be negotiated with a very small batch size, as well as trading spot Forex with a very small lot, so there’s no problem with scalability.

The next step is to address some of the likely trading costs for the individual trader who is starting to implement this strategy in the same period in EUR/USD. The first thing we can see is the cost of using Forex in cash:

-Each operation involves a spread of 2.5 pips, and:

-Each position that remains open at the close of New York has an overnight swap cost that varies from one position to another, but roughly equivalent to three-quarters of a pipe for each night.

To simplify things we can do a rough calculation based on pips. The return calculation of 33.85% was based on a gain of 9088 pips. The spread is only 2.5 pips multiplied by the 338 operations, equivalent to 840 pips. The costs of overnight swaps must then be deducted. Our individual trader kept an open trade for 9879 nights, which means 7415 pips. So we are forced to deduct a total of 8277 pips from our total profit of 9068 pips, leaving a net profit of only 821 pips!

With this rough calculation, if we assume that the return is evenly distributed over each pip, this represents an enormously reduced net profit for our retail trader of only 3.09%, compared to the return of 33,85% reached by the $10 million fund we saw earlier.

Our individual trader could have an alternative, which would be to acquire futures contracts for mini synthetics that do not incur overnight swaps charges, but have wider spreads; something like 14 pips per transaction for EUR/USD. Reviewing the numbers and also assuming that a quarter of all trades must be roll-over, our retail trader would face 457 times a commission of 14 pips, equivalent to a deduction of 6422 pips. This would represent a net profit of 2678 pips. Assuming again that all returns are equally distributed on each pip, our retail trader ends up with a net total return of 9.87%. So using mini synthetic futures would have been much more profitable, but that would still mean an annualised total return in the trial period of less than 1% profit per year! On the other hand, this return would be less than a third of the amount enjoyed by the large fund.

Analysis of the Situation

Why are things complicated to our individual trader? There are different reasons and a thorough examination of each of them can help any aspiring retail trader to understand how certain margins can be incurred in the market by a poor choice of broker or execution methods.

Futures contracts are of very high amounts to be available to most individual traders and the size of the position cannot be adequately achieved with amounts of less than several million dollars in a diversified strategy of tracking trend. Mini futures are always a possible solution, but if they are not very liquid, then it is unlikely to present the same trend tracking margin as ordinary futures. Listed Funds (ETF s) are another partial solution, But still, the individual trader will have to pay a spread in order to access a suitable market well above the $20-dollar round-trip commission paid by a major Futures Exchange customer.

This brings us to the issue of spreads. Really, there is no reason why an individual trader should pay more than 1 pip for a round-trip transaction in an instrument like vanilla as in EUR/USD. Brokers who charge more than this really have no valid excuse. It has to be said that spreads in the retail sector have been falling in recent years. Even though this is good news, and if the individual trader we talked about had been assuming 1 pip and not 2.5 pips, this would have increased profitability by only an additional 1.5% and cannot be truly traced back to 2001 under any circumstances.

Derived from all this, we can finally recognize and expose the real culprit of the decrease in profitability: the overnight swap rate, which is widely misunderstood, and therefore worth a detailed examination of it.

Overnight Swap Charges

When you do a Forex trading operation, you are actually borrowing one currency in exchange for another. Therefore, you must logically pay interest on the currency you are borrowing, while receiving a return interest on the currency you have. The truth is that it is very common that there is an interest rate differential between the two currencies, this will mean that you could be either receiving or paying an extra fee for that currency each night, representing the spread, and, of course, the exchange rate is an element, because currencies are rarely at the parity level, that is 1 to 1. On the one occasion, you would not have to pay or receive anything would be if the exchange rates were exactly the same at the time of the rollover (the overnight carry-over or renewal of the overnight position), and there would be no interest rate differential.

This means that sometimes you pay the difference and sometimes you receive it, so in general, this swap is canceled. Unfortunately, it’s not as easy as that because of several variables such as the following:

-Currencies with higher interest rates tend to increase against currencies with lower interest rates, this is why over time they tend to find themselves in longer trades where you will be borrowing the currency at the highest interest rate, Which means he tends to pay more than he gets.

-Retail Foreign exchange brokers pay or charge different rates than foreign exchange brokers customers of a particular pair. Many brokers are very opaque in this and do not even display the applicable rates on their websites, even though the rates can be found within the brokerage feed of any Metatrader 4 platform. It is worth mentioning and stressing that, To be fair, there are different legitimate calculation systems of this charge. But, if you look at the compiled table in myfxbook, which shows a wide range of overnight rates (transaction fees that remain open overnight) charged by some Forex retail brokers, you will get an idea of the tremendous variety that we can find in the market.

In addition to collecting or paying the interest rate differential, some brokers also apply a “management” fee, which can mean that you will get nothing, ¡This happens even at times when the interest rate differential is favorable to you! Ironically, these are the same brokers who charge you for account inactivity, and that is that the fact that management is applicable when rarely operated in the real market is widely questionable. The most common is that the result is usually to stretch the commissions even more to the disadvantage of the customer.

Most traders are highly leveraged, which means they are borrowing most of the currency they are trading. Individual traders tend to forget that one consequence of leverage is that it increases commuting expenses, and this is because you have to pay interest on all money borrowed, not just for the margin they are putting into that particular transaction. Of course, this is an element that is legitimately charged.

The custom of charging an amount for each night to customer holds a position is not only open to abuse, but it can also be an effective way to drastically reduce the odds that a trader can try to move things in their favour by intelligent use of long-term trend trading, which is usually worth it over time if you run it correctly. It could be said that some retail brokers are using widespread ignorance about these charges as a way to add more profits to their balance sheets and that regulatory agencies should take action against these practices.

It could also be said that we cannot expect a market maker to create a market that is systematically damaged by the statistical behaviour of the market in the long term. It could be that many of the differential rates among brokers are reflected by the currencies from which their clients go long or short at any given time. It can be observed that one broker might be offering a better offer than another in one currency pair, but not in another, which seems significantly odd.

A systematic study of this topic would result in a very interesting reading. Meanwhile, a retail trader looking to systematically hold overnight positions (overnight open positions) should make sure that at least you have already thoroughly researched what they offer you when you are looking for a broker and keep in mind that the speed of a price movement in favor of the broker can have a great effect on the profitability of any trend or push strategy that he might be using.

Tags Forex Strategy, Forex Swap, Swap Strategy

Forex Basic Strategies

How to Trade Forex Using Ichimoku Kinko Hyo Starting Today!

Post author By Forex Academy
Post date 15 December, 2020
No Comments on How to Trade Forex Using Ichimoku Kinko Hyo Starting Today!

This indicator is an old veteran. Ichimoku Kinko Hyo was created in the 1930s in Japan. Spot forex came to life more than half a century later – in 1996. So why do people still use it? Today we will give you a clear but detailed description of this indicator and offer strategies you can apply immediately.

This indicator is an old veteran. Ichimoku Kinko Hyo was created in the 1930s in Japan. Spot forex came to life more than half a century later – in 1996. So why do people still use it? Today we will give you a clear but detailed description of this indicator and offer strategies you can apply immediately.

The structure of the indicator

There are five key terms to remember (bolded):

Moving average crossover

When moving averages (MAs) cross, your system is telling you to enter the trade.

Tenkan-sen (fast MA)

Kijun-sen (slow MA)

Do not be surprised if these MAs do not move as smoothly as other ones you are used to using.

Cloud (Kumo)

These two lines make the cloud:

Senkou span A

Senkou span B

The lines are not relevant on their own. The cloud they form is.

The purpose of the cloud is to say if we can trade at all.

Chikou span

Chikou span is a bit mystic, serves as an additional trade filter and few traders tend to use it.

How to Use the Cloud

If the price sits above the cloud (green circle), this is a signal to enter long trades; when the price is below (blue circle), however, you should only take short ones.

Ichimoku is great for beginners because it clearly shows the points where they should not enter the trade. Also, it will only suggest entry points for trades that are aligned with the overall trend.

When the price is in the cloud (yellow circle), this is a sign that we need more clarity and should probably wait a bit longer. However, if you are not a beginner, you can also take long/short trades at half risk.

In this example above, the price is quite below the cloud, so we can only take short trades. As the chart reveals a decisive downward trend, we must go along. If you ever get a long signal in these types of situations, do not take that trade.

Therefore, only enter the trades that move in accordance with the overall trend.

How to Use the MAs

First, color-code your lines.

The places where the two lines cross offer an opportunity to enter a trade. This means that not every cross is going to be good for us.

For example, the yellow circle highlights the point where the Tenkan (the baseline) crossed down, but the price was over the cloud. We should not take such trades.

Out of the many chances to enter new trades, the true signal came later (blue circle). Both the cross and the price are below the cloud.

The basic rules for entry state that you should go long when the price is over the cloud and the Tenkan crosses the Kijun upward. When the Tenkan moves over the Kijun downward and the price is below the cloud, you should go short.

The following example will show us when to exit the trade.

The blue circle shows the area in the chart where we would take a short trade. The white circle shows the point where we would exit.

We will stay in winning trades until the price crosses and closes the other way across the Tenkan line.

How to Use Chikou Span

The Chikou span starts 26 candles behind the current price.

As we wait for the new candle to form where the white circle is, we still aren’t sure whether the red line will cross the blue one. Chikou span can help us bring more security to the table.

Since the price and the two lines crossing are below the cloud, so should the Chikou span be. Otherwise, we cannot take this trade. Chikou span can be found in other areas of the chart (e.g. in the cloud or above it), so we would not take this trade either in that case.

So, if you want to take long trades, the Chikou span has to be above the cloud, whereas to go long, it would have to be below. Still, these are the basic rules and there are other ways in which you can use this indicator.

Advanced strategies

Cloud Predictor

The cloud will give two colors – the positive and the negative one, which tells us if the price is going to stay positive or negative for a while. If the cloud changes color, flipping from positive to negative or vice versa, this is a prediction that a price is likely to change direction.

The example above shows how the cloud flipped several times, but the degree of success varied.

The red circle highlights the area of the chart where the cloud turned positive, yet the price still kept going down. The white circle reveals how the cloud predicted well that the price would remain negative, but it still cannot compensate for the possible losses from earlier.

It appears that Ichimoku is not very good at predicting the future, especially since we are dealing with trends that depend on a number of different factors (e.g. big banks and news events).

Cloud Breakout

Traders wait for the lines to break out similar to the support and resistance strategy.

The candle closed below several times at the beginning of the chart (red circle) only to go back up, so traders need to understand the cloud breakout will fail at times. The white circle depicts a crisp cloud break.

Limitations

Apart from the previously mentioned challenges, Ichimoku can sometimes get in the way of taking really good trades. For example, in the chart below, we can see a really good trend that could have brought us amazing results, but we couldn’t take a short trade because the price was above the cloud (white circle).

Ichimoku & Other Indicators

Professional traders love to combine the Ichimoku indicator with other tools.

Ichimoku & RSI

This combination is believed to help traders take full advantage of the underlying trend and identify market reversals.

RSI divergence allows us to see the tops and the bottoms in the market and, with the Ichimoku cloud, we will discover potential entry points as well.

Traders will detect RSI divergence in the chart when the price action goes against the Ichimoku, which indicates that a reversal is about to take place.

Ichimoku Cloud & Moving Average (250)

This strategy is specifically designed for higher time frames, unlike the ones described before.

If the moving average line is above the price action, we are in a downtrend. Similarly, if the moving average line is below the price, the market is in an uptrend.

In this combination, should the MA be placed below the price, we should also wait for the Tenkan and Kijun lines to cross below the price to go long. Likewise, we are going to look for the Ichimoku lines to cross above the price if the MA is located above the price as well.

Conclusion

Ichimoku Kinko Hyo is an amazing tool for beginners, especially because it teaches them about discipline. Traders should really take the time to learn and set some ground rules they will never change in the middle of an ongoing trade.

Still, we must acknowledge the fact that everyone uses the Ichimoku indicator differently. While we did define the basic approach in the first half of this article, the applications can be quite diverse too.

It is also extremely important to include money management and define stop losses, risk, and take-profit points to prevent losses from killing your account.

Any divergence from the fundamental use of this indicator should stem from experience and careful analysis as well.

Finally, professional traders believe that Ichimoku Kinko Hyo has been surpassed by other indicators, suggesting to expand the toolbox through testing for a more professional approach.

Forex Basic Strategies

A Foolproof Strategy for Following Price Trends

Post author By Forex Academy
Post date 14 December, 2020
No Comments on A Foolproof Strategy for Following Price Trends

Easily one of the most effective forex trading strategies is to take advantage of prevailing trends in price movements – but how do you identify trends and why are they important? Keeping It Simple There are so many forces combining and intersecting to affect the price of a currency pair that it’s impossible to pick […]

Easily one of the most effective forex trading strategies is to take advantage of prevailing trends in price movements – but how do you identify trends and why are they important?

Keeping It Simple

There are so many forces combining and intersecting to affect the price of a currency pair that it’s impossible to pick out one, split it off from the rest of the flock, and reliably analyze it in any meaningful way. There are just too many factors working together. Global news events, national government policies, central banks, big private market players, and a multitude of other components and ingredients all act upon one another and are filtered through the minds of millions of traders and how they perceive what’s happening in the world. It’s better, overall, to think of the market as a giant blender that takes all of that information – all the known knowns, known unknowns, and unknown unknowns – and swirls them all together. The resulting blend is the price of a currency or security.

In a way, it doesn’t really matter what you know. The market simply doesn’t care. Even if you feel you have some golden piece of information about some upcoming news events or anything like that, the market doesn’t care. It doesn’t matter what you know as much as it matters what everyone trading that currency knows. Even then, there are too many other contributing factors – like what the big players know and what they think the little guys they prey on know. If you think too long about it, the way the markets work becomes so complex that it gets harder and harder to wrap your head around it.

So what do you do in a situation like that? How are you supposed to take the information you have available to you at the moment to make predictions about the price movements in the future? Even in the immediate future? It’s a question as old as the hills and it’s the crux of what every trader out there is trying to do in one way or another.

One answer is to simplify things for yourself. Yes, the market is driven by this myriad of interlocking, interacting forces that would take all of the world’s supercomputers, linked together and working in concert to work out… And even then they couldn’t do it. But, when all is said and done, the price of a currency is still, ultimately, just an expression of the balance between buyers and sellers. Some traders will say that, at the end of the day, a trader’s job isn’t to know what affects the market. In short, the argument goes that you don’t even have to care what the underlying fundamentals are because you’ll never outsmart the market.

If you’ve simplified it down to the point that you don’t know, can’t know, or shouldn’t even care what moves the market, all that’s left is to you is to play the market that’s there in front of you. No wishing or hoping what it might be, no trying to outwit the market, just taking what’s actually there and using it to your advantage.

Going with the Flow

Everyone out there who’s doing any kind of trading – whether they’re a pro trader or just dabbling to try to supplement their income – wants nothing more than to be a consistent trader. Achieving consistency is probably one of the most important goals you should have in terms of how you execute your trades. And there’s only one way to start heading towards that goal. In order to achieve consistency in your outcomes, you have to be consistent in how you conduct yourself.

Trend trading is arguably the best, most efficient, and most effective way to approach the levels of consistency you should be aspiring to. And if that sounds like a bold claim, you should know that there are proper scientists, academics, and statisticians out there at highly prestigious learning establishments who have put in time and money, and intelligence into assessing these things. There are actual peer-reviewed studies that support the claim that trading by following trends is the most effective way to trade.

Being on the right side of an already established trend is a simple and effective way to give your trading system an advantage it couldn’t otherwise have. And the simplicity – which folds into the keep it simple philosophy outlined above – is the most beautiful part of this approach. In a sense, there’s nothing much to it. Almost anyone can take a look at a chart where there is a trend emerging in the price movement and be able to say, “yup, that’s definitely heading upwards” or, “oh yeah, that’s going down”. Although it would be great if it really was literally that simple, there is a point in reducing it to just that level of analysis because, when comes down to it, identifying a trend is the critical part of this approach to trading. Now, of course, it isn’t actually as simple as pointing at a line on a chart that’s going up and saying, “duh, that’s an upward trend” but the underlying point remains – trend trading is as simple as identifying a trend and using it to make winning trades.

Sadly, when you actually open a chart and start putting money on the line in real-world trades, you are faced with a number of very scary problems. Sure the price of currency X vs. currency Y has been going up for the past five trading sessions but what if that’s it for the trend and it reverses tomorrow? What if I put my money in and it switches? What about pullbacks? Alternatively, how do you know that the price heading upwards isn’t just part of a longer ranging movement instead of the start of a trend? The fact is, you can never know what part of the trend you are at right now. But that’s where deploying the tools, indicators, and know-how you have built up as a technical trader comes into play. Technical analysis is what will set you apart from just any idiot pointing at a chart and saying, “looks like it’s going up”.

Identifying Trends

The most obvious way to identify a trend is to believe your own eyes. Looking at a chart and knowing the right signs is your first step towards properly appraising whether a price movement is an actual, tradeable trend. This means that you need to know some of the key identification characteristics. If this sounds basic, that’s because it is. But that doesn’t mean that you can ignore the basics and it’s always worth revisiting them for the sake of refreshing your knowledge and for those traders who are just starting out and still putting together their trading systems.

Obviously, a trend is when the price moves in one direction or the other – either upwards or downwards. But since nothing in the market is that consistent for very long, there will always be oscillations and it is important to understand that they may or may not be departures from the trend. Some pullbacks will actually be a signal that the trend has lost steam and that it is coming to an end. Other pullbacks will be simply that, a short-term movement of the price in the opposite direction before the trend continues on its way. These pullbacks will result in mini peaks and troughs in the price movement – often called swing highs and swing lows. In a trending market, you are looking for those swing highs and swing lows to follow a distinct pattern.

In the example of an uptrend, the swing highs should be coming in higher and higher each time and the swing lows should also be higher than preceding swing lows. That way, you get a structure where each swing high is coming in at a higher level than its predecessor, as is each swing low. The peaks outperform previous peaks and the troughs also outperform those that came before. This gives you your classic uptrend pattern. A downtrend is the same but in reverse, with the swing highs coming in lower and lower and the swing lows following suit.

If you are not seeing this pattern, you are not looking at a trending market. Alternatively, if you did have this pattern in place for a while but it starts to break down, this is a sign that the trend is likely to be running out of steam and could settle into a ranging market or could fall into a reversal.

This is all very well and good if you go into your charts and look at historical price movements. You will have no problem coming across past trends and saying to yourself, “yup, that was a nice little trend right there”. But if you want to apply this to your trading, you will come up against the classic problem of not being able to see the future. Sure you might be looking at something that looks to all intents and purposes like a trend unfolding before your eyes but, because you don’t have a magic crystal ball on your desk, you have no idea if the next pullback will be the one that sends the price rocketing in the opposite direction.

So, while eyeballing the charts is an important starting point, it doesn’t get you very far on its own. You will need to deploy a combination of other techniques to get confirmation that the trend you are looking at has legs on it and will continue long enough for you to enter a worthwhile trade.

One approach is to couple your Mark 1 Eyeball with a moving average. If you are looking at an uptrend, you might want to take a look at a moving average covering a significant period (20 days, say). Here you will ideally want to see the price consistently staying above the moving average the whole time. If the price doesn’t remain reliably above the moving average the signal that this is a strong trend is flaky at best and you are probably looking at a weak trend or even a choppy market. Also, if you are looking at an uptrend, all the swing highs and lows are falling into place and the price is staying above your moving average, an additional confirmation will come in the form of the moving average itself rising during the trend. Remember, this shows that the average price has been steadily increasing recently and is a good additional sign that this is a reliable trend.

A good tip is to also combine two moving averages that will give you a picture of two time periods – for example, a 20 day and a 50 day moving average. If both of your moving averages are rising, this is even more solid confirmation of the uptrend. The degree by which the moving averages are rising is also an indication of the strength of the trend – if they are starting to flatten out, the trend might be taking a break or even coming to an end.

Using moving averages is one way of getting additional confirmation that the pattern you are looking at is indeed a trend but it isn’t a reliable way of getting you into a trade because you will be sitting around waiting too long before they show you what you need to know. By that time the price could have moved significantly and you will already be late coming into the game. For that, you will need to pair up your visual appraisal of a trend and your moving averages with an additional indicator that will actually be able to lead you into a useful trade.

Finding a Trend Indicator

One really great thing about being a forex trader these days is the absolute plethora of various technical indicators available to you that are out there just waiting to be discovered. There are literally thousands of indicators out there and this is a huge potential advantage to you, the individual trader, looking to get an edge and develop a reliable trading system. On the other hand, the sheer number of indicators does also lead you into the paradox of choice. How do you know which ones are good and which ones suck? Well, one way is to just go out and thoroughly test every indicator you come across but who has the time for that? If you do, great. But most people will want some guidance on which indicators perform well and which ones don’t. You will still have to do some testing of indicators to double-check that they really do work, scan them for repainting or other bugs, and to make sure that they work the way your trading system needs them to. But even so, you will need a clear set of criteria that will guide your search for your trend indicator so that you know what you are looking for and also so that you can recognize what you need when you find it.

First of all, you will need a trend indicator that doesn’t lead you into a trade too early on in the game. Lots of indicators out there will throw out trade signals at the drop of a hat that you then have to work hard to filter out because, inevitably, most of those trades will not be winners. A trend indicator that’s too wild is not your friend because it’s likely to tell you there’s a trend emerging even when that’s not the case. The market isn’t always trending and so a wild indicator will get stopped out more often than not.

Conversely, you don’t want an indicator that gets you into a trade way too late. First of all, because you will end up waiting for weeks or even months before it signals a trade and in that time you could have missed a whole host of potentially profitable trades while your indicator was silent. Even more importantly than that is that a slow indicator might take you into a trade when most of the trend has already run its course. You’ll just be coming in at the end when the pickings will be at their slimmest or when you’ll take home nothing at all. Just because an indicator is choosy when it comes to signaling a trade, doesn’t necessarily mean that the trade it does take you into is going to be a good one.

Getting the right balance between these two extremes is where the art meets the graft. There is simply no way of taking a short-cut through the work you are going to have to do to pick out an indicator that works for you. Using the above guidelines only gets you so far. And that’s no small thing. Being able to eliminate indicators early on in your testing process will save you a ton of time but you will still have to put the work in to find those little nuggets of gold.

That said, you will also have to show an awareness of the pitfalls of trend indicators. One of these is that they lead you into trouble if the market is choppy. Take, for example, the Parabolic SAR – an indicator lots of traders use as a trend indicator. Now, this thing is absolutely great if the market really is trending but it will reliably lead you into losing trades if the market is choppy or if it’s going sideways in a tight range. The way to avoid that is to combine it with other trend identification rules (like those above) to make sure you are using it in the right way. This doesn’t just go for the SAR, lots of indicators will only work the way they are intended if you combine them with other technical analysis tools like price action, chart pattern identification, and even other indicators like the moving average as described above. The way you hone this down to a working system is to put the whole thing through a rigorous testing procedure that will include backtesting and running it through a demo account to test it in a real-world environment.

What to Avoid

If you want to focus on following trends, you will want to want to avoid a currency pair that is displaying a sideways trend. This means that, in addition to becoming a master at identifying uptrends and downtrends, you will also need to get good at determining that the market is heading sideways and that it is time to go and look at other currency pairs for the moment. That is not to say that a sideways market is untradeable – if it is ranging regularly there might be trades to be made in there – but if you are looking just at following trends, this is not your time to shine.

A sideways market will display the exact opposite of the tell-tale signs we covered earlier – the swing highs and lows will not be progressing in a given direction and consistently forming higher and higher (or lower and lower for a downtrend) peaks and troughs and the price will be crashing through your moving averages in both directions.

Roundup

The things to take away here are that trend trading is the most effective way to gain an edge in your trading. You don’t need to take anyone’s word for that, you can go and find some of the academic and scientific studies that confirm this through rigorous study of trading effectiveness. They are out there and if you are the kind of person that gets some comfort from their ideas and beliefs being underpinned by a measurable scientific approach to something, then you will definitely benefit from finding these studies and reading through them.

Trend identification is ultimately a simple concept and you don’t have to make it more complicated than it is by overthinking it. But identifying a trend in real-time, in real-world conditions, and in a way that leads you into a trade that will result in you hitting your targets, well, that’s an art. To hone that art you will have to put in the work testing combinations of analytical approaches and indicators until you have a system that works reliably and that suits your own trading style.

Finally, trend trading is trading at its purest. You are trading the market as you see it before you, free of any confusing noise. The market doesn’t care what you think or feel about future price movements and neither should you. To be a successful trend trader you will have to focus on developing a trading system that you can rely on time and time again to tell you what the market is doing. Once you have that, you can focus on what your system is telling you, allowing you to trade with confidence.

Tags Forex Price Trends, Price Trends, Trend Following Strategy

Forex Basic Strategies

Profit Today from These Tried & Tested Breakout Strategies

Post author By Forex Academy
Post date 12 December, 2020
No Comments on Profit Today from These Tried & Tested Breakout Strategies

Let’s talk about currency breakout strategies. Have you ever heard that most breakouts are fake or that you should avoid operating breakouts? In the results of the World Cup Futures Championship 2017, first place went to Stefano Serafini, with an impressive return of 217%. What was Stefano Serafini’s main strategy to achieve such an impressive performance? Intraday breaks. So it would be very positive for you to do the following, the next time you see a so-called guru saying “most breakups are fake” or “avoid breakups”. Share this article with them.

In this article, we will teach you two currency breakout strategies to help you increase your accuracy and profitability when operating them. Of course, we will additionally teach you how you can use this to avoid any fake breakout.

While there are many types of currency breakout strategies, they can be classified into two broad categories:

1 – Setup “Momentum breakout”

2 – Setup “Breakout pullback”

In the article we present today we will focus on the second breakout strategy (the “Breakout pullback”), as it is much easier for operators to learn and execute it because it requires less skill.

Setup “Breakout Pullback”

Before you can even operate the pullback setup, you will need to identify some of the pullback patterns by analyzing the price action. Once you learn this, you’ll be able to identify “A+” setups. That is, the best patterns. These will increase your accuracy and profitability by operating them. There are many activities that you can develop to identify “A+ ” pullback setups, but there are two things I will give you so that you can go working.

Breakout Pattern: Finding a Key Level of Support or Resistance

Why two touches, huh? While the market can reach a key level of support or resistance with just a touch in that area, what usually indicates a potential flow of institutional commands and players who want to maintain that level, are two touches. These indicate a higher probability and number of orders in that area. The more buyers or sellers have that level, the greater the likelihood that the transaction will succeed.

Why? One reason is that those same players, when they skip stop loss orders after the level of support or resistance is broken, are removed part of the flow of orders against that break. This makes it easier for the rupture to continue.

In addition to this, big players, with smart money, after being eliminated (and detecting a good breakout) will often switch sides after their stop orders are skipped, which will provide a greater boost to the breakout. Therefore, it is important to identify a level that has a minimum of two touches (the more, the better) to increase the likelihood that a breakout setup will form.

Breakout Pattern: Minor Reactions or Setbacks

Why does analyzing a recoil or reaction before a key level of support or resistance help break operations? Let’s say the market is on an uptrend and is finding a level of resistance where there are likely to be bearish positions at that level. If the bullies reach the resistance level, for the first time, and the market regresses, say 50 pips, if the second time the price reaches that resistance level, the market only regresses 25 pips, this will indicate a weaker reaction from the bearings.

A weaker reversal of the bearings equals a lower flow of orders and strength in their favor. As his side continues to weaken, this will give the bassists the signal that they are more likely to see a breakup and communicate that his side is losing the battle. These weaker reactions warned that the bearings were less able to bring down the price while the bullies kept their foot on the accelerator, producing an eventual leak. Therefore, be sure to look for weaker reactions each time you are before a key support or resistance level to identify a high-probability break. Be sure to look for weaker reactions each time you are before a key level of support or resistance.

Key: An additional pattern, which you can apply in the price action, is to look for breakout setups that are forming in trend vs countertrend. After I’ve taught you two underlying components of a breakout strategy, we can talk about how we can achieve a pullback breakout.

The “Breakout Pullback”

Assuming you have found a situation where both touches are given at the same key support or resistance level, along with weaker reactions before you get there, let’s talk about how you can enter a breakout pullback setup. Once the price has broken the support or resistance level, I will place a limit order on that specific support or resistance level to operate in the direction of the break.

NOTE: I don’t expect a price action confirmation sign to form at that level. If you have read the price action context correctly and found an interesting break, any signal confirming the price action will only give you a weaker ticket, and then your profitability will be reduced. If you could learn to read the price action, you won’t need any price action confirmation signal to enter the market, because the flow of orders from the big players will already be there.

When I operate a breakout pullback setup, once I identify the breakout, I open my operation, long or short, at the level where the pullback is performed. If the command flow at that level is interesting, there will be larger players willing to be long or short at that level without the need for any price action confirmation. When I operate a breakout pullback setup, once I identify the breakout, I open my operation, long or short, at the level where the pullback is performed.

When there are two taps on a support level, together you bounce weaker and weaker. Once the market broke the level, I put my order for short. After returning to my level, and narrowly entering the negative ground, the pair fell generating more than 100 pips of profit. If I had waited for any sign of confirmation, like a bar pin or something like that, I would have gotten a worse ticket and a lower profit potential.

You can see another example of a live trade using a pyramid trading strategy where I go into a pullback breakout in both trades, trading with the tendency to make additional profits.

Avoiding False Breakout

You can tell a lot about how to avoid false breakout when operating a pullback breakout setup. There are many breakup patterns that often fail.

To simplify, the best thing you can do is:

Learn to read the price action context
Operate with the trend as much as possible.

By learning to read the context of price action, you will have a better understanding of finding key levels of support and endurance where there is a large flow of orders around that level. You will also have the ability to know how to detect much better trend contexts, which are much more favorable for breakout trading setups. This is because there will be more flow of orders in your favor to support your operation.

In Sumary…

Trading breakout patterns in currencies can be a highly profitable trading strategy when you learn to identify “A+” breakout setups. There are two types of breakout, which are a) the breakout itself, and b) the breakout pullback.

There are also breakout patterns that you can detect in price action and help you find breakout operations of higher probability. Trading breakout patterns in currencies can be a highly profitable trading strategy when you learn to identify breakout setups.

At first, try operating pullback breakout setups as they require fewer skills and will help you have confidence in breakouts over time. Finally, when trading the pullback breakout make sure you don’t expect confirmation signals of the price action as they will give you a worse entry and reduce your profitability.

Tags breakout strategy, Forex Breakout, Forex Strategy

Beginners Forex Education Forex Basic Strategies

Always Test Your Forex Trading Strategies! Here’s Why…

Post author By Forex Academy
Post date 10 December, 2020
No Comments on Always Test Your Forex Trading Strategies! Here’s Why…

Coming up with a new trading plan can be exciting. It can make you want to jump straight into the markets and use it to make you some lovely money, but should you be jumping in now? Have you actually tested the strategy out and can you be sure that it actually works? The only […]

Testing the strategies that you come up with can actually be seen as far more important than actually coming up with it. This is mainly due to the fact that anyone, even someone with no knowledge of trading could actually come up with a strategy. This doesn’t mean that it will be a good one or one that will actually work, but they will be able to come up with one. This is where the testing comes in, this is where you can differentiate between the good strategies and the bad ones, but it also offers far more opportunities than that.

So why do we test? We test for the simple reason of wanting to make sure it works. We do not want to get into a live trading situation nowhere we put a strategy into practice just to find that it falls apart or doesn’t actually function as a strategy. The strategy needs to have entry criteria, and exit criteria, and some risk management built into it, if any of those parts fail, so will the entire strategy.

We can test them in a number of ways, the best and most prevalent way of doing it is via a demo account, this account will mimic the trading conditions as closely as they can to live ones. This allows you to try out your strategy on something that could almost be considered a live trading scenario. If your strategy is successful here, then there is a good chance that it could be on the live markets too. It should be noted, that being successful for one or two trades is not enough, it needs to be consistently tested for at least a few months to know the full extent of how good the strategy is.

Let’s say you are testing a strategy and everything is going perfectly, this does not mean it will on a live account. While the conditions are similar, there are some distinct differences such as commissions and slippage, these do not exist on a demo account. So if you are taking small profits to be sure to take this into consideration.

There are also backtesting facilities available these take your strategy and will apply them to the last years of trading to see how it would have performed in the conditions that had occurred in the past. This can give you a small indication of how successful it could be in the future. This is not a 100% accurate testing method but can be used as a viability indicator.

So you found an issue, that is the whole point of testing. This gives you the opportunity to resolve that issue and then test again. This cycle should continue until you are 100% happy with the strategy, only at that time should you troy and deploy it onto the live markets.

Even with a strategy that works perfectly on a demo account, you need to stay disciplined, expect some losses, and always analyse and adapt the strategy as it needs. No strategy is full proof, they always need adapting and changing so be sure to stay on top of it and continue testing as the years go by.

Tags Forex Strategies, Strategy Testing, Trading Strategies

Forex Basic Strategies

Is Buy Low/Sell High Truly the Most Effective Strategy in Forex?

Post author By Forex Academy
Post date 9 December, 2020
No Comments on Is Buy Low/Sell High Truly the Most Effective Strategy in Forex?

The concept of buying low and selling high is an interesting one for many reasons, it has been the essence of trade and making money since the beginning of man, back before money was even invented, the concept of buying low and selling high existed. Farmers trading livestock at the market, corn for pots, these trades were all based around the perceived values to those who have them in their possession, you will always want to trade what you have for something that you believe is of more value.

The Essence of Trade

This is exactly how the world works now, buying something for a certain price and then trying to sell it for a higher value. Of course, we already know that this is the essence of forex trading too, we are purchasing one currency with another hoping for the price to change when we can then sell it back to have a little more of the base currency than we started with. The concept of buying at a low price and selling at a higher one is certainly true when it comes to forex trading, the problem is that it is just a little bit more complicated than that and we are going to be looking at exactly why this is and why it can be profitable, but not something to solely rely on when trading.

Determining the Lowest Values

The first and most important thing that you need to consider when using this sort of strategy is where the low is, looking at the chart, you would think that this is the lowest point on the chart, form that timeframe this would be correct, but what about other time frames? Turn it up from the 5-minute chart up to the 1-week chart and the markets will look very different and the low that you were previously looking at could potentially be quite near the top of the weekly chart, this is why it is so hard to judge where the low actually is. In fact, it is almost impossible to judge it completely, there are some things we can do to help but to actually guess the exact low and turning point is pretty difficult to do.

Looking at the charts, we have seen the lowest point on our chart so we decide that this is low and where we should buy, we do so but then the markets move down a bit further, creating a new low. We buy again as this is the ow, but then it drops further, you can see the point that we are making. Just because the price is currently at the bottom of the current chart, it does not mean that this is the bottom and it does not mean that this is the right place to put in your buy order. The markets can continue to decrease without any reason creating new lows as it continues, so we need to use a number of different things to help us to work out exactly where the lows could be, of course, there are no guarantees that even if you use 100 indicators, it won’t still continue lower, but we can move the probabilities into our favor in order to get a better understanding of where the low in the market actually is.

If you are a short-term trader then you can use things like the support and resistance levels to work out where the markets may be moving and turning. These are for short term traders such as scalpers wh only need little movements in the markets, so the price jumping between the support and resistance levels gives the good opportunity to buy when the price is low at the support and levels and then to sell when the price is higher at the resistance levels. This is the very essence of buying low and selling high. There are of course no guarantees and the price will eventually break either up or down, but the support and resistance levels can give a good short-term idea of where the market may be hitting their lows and reversing, at least temporarily.

Determining the Highest Values

We speak about needing to know where the lows are, but we also need to know where the highs are too, this is where you will be taking your profits on a rising market. Part of trading is being able to maximise your profits, so this means knowing when to get out too. You do not want to get out too early and you will lose a lot of unrealised profits, you also do not want to get out too late as the markets could reverse causing you to lose off the profits that you would have otherwise taken. So when you are analysing the lows, ensure that you do the same for the highs, so you can then work out exactly how much you could be making on a trade before even putting it on, a great idea for your risk management.

Speaking of buying low and selling high, the great thing about using an appropriate broker is the fact that you are also able to sell high and buy low, the exact same concept is used, just you are ceiling instead of buying. Use the exact same analysis and the exact same concept, just the reverse, so you can also make a profit when the markets are moving down and not just on their way up.

So that is the concept of buying low and selling high, does it work for forex? Technically yes it does, it is pretty much how we make money, but you cannot rely on it as a single strategy. You should be buying low and selling high or selling high and then buying low depending on the direction that the markets are traveling, but you need to ensure that you have proper analysis behind that and not simply just guessing where the lows and highs are.

Remember, that buying low and selling high is not a strategy in itself, it is simply the concept of making money with forex and trading.

Tags Buy Low Sell High, Forex Guidance, Forex Strategy

Forex Basic Strategies

Master the Art Of Forex Backtesting With These Key Tips

Post author By Forex Academy
Post date 3 December, 2020
No Comments on Master the Art Of Forex Backtesting With These Key Tips

Let’s talk about the results of our trading strategies. And if we talk about results we’re going to have to talk about backtesting when we trade forex. Here we go! Backtesting is simply the bedrock of statistics or the behavior of our trading strategies in the past. It’s kind of like going back and watching […]

Let’s talk about the results of our trading strategies. And if we talk about results we’re going to have to talk about backtesting when we trade forex. Here we go!

Backtesting is simply the bedrock of statistics or the behavior of our trading strategies in the past. It’s kind of like going back and watching what would have happened. In it we can observe the yield curve and statistics associated with our operation as can be the number of winning trades, losers, how much you win when you win, and how much you lose when you lose, in short, is a scan of our trading strategy.

What Good is Backtesting?

Backtesting is not a guarantee of anything, but it is a sign that What you’re doing is either good or no good. You avoid wasting time with strategies that are clearly losers. I’m very surprised that there are people putting their money into something that they don’t even want to know with numbers whether it works or not. That what you do makes sense doesn’t make it profitable. You can only tell if it is if you have the results to contrast it.

How Does a Backtester Work?

A backtester is nothing other than a tool to check how good or bad a strategy is. There are many platforms to backtest our trading systems, the most popular is the Metatrader (I don’t say the best, I mean the most popular).

A backtester at the end what it does is that through the historical data of the asset in question where you want to trade and the entry and exit rules of the strategy it computes the results in each operation, the time of entry and exit. It’s kind of like taking a pen and paper and doing it manually, but much more precisely.

In fact, I do not recommend you to do a backtest by hand since you can cheat yourself or just make mistakes in the computation, something that is more complex to happen with a computer program.

Why is Backtesting So Important?

One thing is clear, past results do not guarantee future results. But if on top of the past results of the trading methodology we are applying it is a disaster. or worse, we don’t know if it’s a disaster or not and we carry it out because I’ve been told it works or I explain it to a person who knows a lot, you can hit it, but fine.

Trading without looking at a backtest is like driving without knowing if the brakes and accelerator work well in the car you’re going to ride. Operate manually or automatically do at least one test of what you’re doing or you’ll be rolling the dice.

How to Perform Forex Backtesting?

Carrying out a backtest on Forex is very simple. Yes, if we have our automated strategy. Otherwise, you’ll have no choice but to by hand as I said before, roll up and learn some programming or hire someone to automate it. It is not usually very expensive, you can get worse to apply it without knowing how it goes and lose money.

If you have an already automated strategy you have almost everything done. You simply need the data of the broker where you are going to execute it and execute it. Normally, it takes minutes or even seconds to get all the results.

Winning Strategies When Backtesting

There are many criteria you can obtain to evaluate if your trading strategy is really profitable. These criteria are statistics of our system to evaluate it and to know if it is valid or not. We go with the most common statistics or ratios:

Net Balance: The net profit of a trading system is the profit less the losses. The more net profit, the better for our trading system.

Return/Drawdown: It is the result of dividing the profitability obtained by its drawdown (it is the biggest consecutive loss streak suffered by the system).

Making the quotient of both turns us into a proportion that is quite interesting because if for example, the result of the division is 3, we can interpret this for a risk level of 1 we have a return of 3 (in this case in percentage).

System quality number (SQN): The SQN measures the relationship between mathematical hope and the standard deviation of a multiple distribution of R generated by a trading system. To be able to continue talking about SQN we must therefore define that it is a multiple of R: it is the relationship between the profit obtained and the risk assumed per operation. Thus, if in a transaction we obtain a profit of 500 € and we have risked 250 € (the loss we would have obtained for example if we had skipped the stop loss), our multiple of R would be 500/250 = 2.

The idea is fine, but we need some reference to be able to assess these figures and decide if a system is good or not. For this purpose the following scale is proposed:

1.6 – 1.9 Lower than normal, but can be operated
2.0 – 2.4 On average
2.5 – 2.9 Good
3.0 – 5.0 Excellent
5.1 – 6.9 Superb
> 7.0 Perfection

Win/Loss Ratio: It is simply based on dividing the number of winning trades among the losing trades. It doesn’t take into account how much you win when you win and how much you lose when you lose, so it leaves out a lot of important information.

Sharpe Ratio: This ratio is one of the best known in the financial world. To build it we will need the profitability obtained by the system and its risk. Being the risk with the standard deviation. Assesses the excess profit of a given investment above its risk. The higher the Sharpe ratio, the better the return on the risk taken on the investment.

Profit Factor: It’s another fairly used indicator. Their calculation is very simple: it is a matter of dividing the total earned in positive transactions by the total lost in loss transactions. If the system we are using is profitable it must obviously have a profit factor greater than 1, since the profit will be greater than the loss. The idea is to have a profit factor greater than 2, being 3 something very difficult to find. Similarly, a system with a profit factor of 1.6 can already be enough to say that we have a good strategy.

Profit: The latter criterion is based on taking into account the benefit only the gross benefit obtained by the system.

Balance Line Stability: It is a round number between 0 and 100. The higher the stability of the balance line, the better. A level equal to 100 means that the balance is a straight line (only possible if there are 0 or 1 trades) Anyway, any value above 90 is good.

R Squared: The coefficient of determination or R2 is used in the context of statistical models whose main objective is the prediction of future results based on other related information.

The R2 value is a number between 0 and 1 and describes how well a regression line fits a data set. When the value of R2 is close to 1, this indicates that the regression line fits the data very well, while a value of R2 close to 0 indicates that the regression line we see does not resemble in any way the data. The higher the value of R2, the better the capital curve of the trading system. A very high R2 value should result in a profitable trading system with little drawdown.

Stagnation: Stagnation is a long period of time with little or no growth in the capital curve of a trading system. We will try to keep the stagnation as low as possible. Basically, at a glance, you will be able to observe in the graph of results how your curve behaves.

The Best Software for Backtesting

The best software for backtesting can be Python, Tradestation, or Matlab. However, they are not usually simple if you are starting out and not part of a programming level and that is why they use platforms that are usually much simpler such as Metatrader. MetaTrader is not usually too accurate of course, but it is more than anything and it is not wrong if you take the data from your broker where you are going to apply it with real money.

Advantages of Backtesting

The advantages are obvious and we have already mentioned them throughout this article. But to sum up:

-Information about our trading strategy.

-Possibility to optimize the variables of your strategy.

-Configure broker conditions such as swaps and spreads to see how they affect.

-Avoid deploying losing systems.

-Psychological advantages of having information about the behavior of our systems such as trust and the elimination of doubts.

Disadvantages of Forex Backtesting

The main disadvantage when doing backtesting and specifically on Forex is that it is difficult to do it with a precision that comes close to reality. Having a realistic backtest is fundamental and with few tools, we can do so. Another disadvantage is that, like everything, you need the knowledge to carry it out. And so far all aspects related to backtesting of trading strategies. As you have seen, it is very worthwhile and should become a must for you from now on if it is not yet.

Tags Forex Backtesting, Forex Tips, Strategy Backtesting

Forex Basic Strategies

Momentum Trading

Introduction
There are two approaches to address the market, even when trading in favour of the primary trend.

The first one is buying weakness and the second one is

Introduction
There are two approaches to address the market, even when trading in favour of the primary trend.

The first one is buying weakness and the second one is

Introduction

There are two approaches to address the market, even when trading in favour of the primary trend.

The first one is buying weakness and the second one is trading strength on a bullish trend, and the opposite on a downward trend. This one is the buy low sell high philosophy. But there is a second way of doing business. The buy high and sell higher.

The first methodology is for smart guys. They see a piece of cheese, and they want to be the first mouse to catch it. But it may be just a trap, and they might become a victim of their audacity.

The second methodology means you are part of a crowd of mice that take the cheese after a bunch of pioneer rats took it, and was confirmed that it wasn’t a trap.

Here we are going to talk about this second way of doing business, called Momentum Trading.

Momentum

So what is Momentum and why is it different from other indicators?

Momentum is the change in price over an interval. This is a relation between the price change and the time it takes to achieve it. It measures the speed of change.

If we imagine a ball thrown out vertically, its speed declines as it goes up until it stops and starts falling down. If we measure the amount of altitude traveled every second we could observe that the value decreases until it stops in mid-air.

The formula for momentum is:

Momentum = Price (0) – Price(n)

Where n is the price n bars earlier. Therefore, Momentum is an indicator of the speed of the price movement.

Grasping Momentum

The most remarkable feature of Momentum is that it doesn’t show lag. A moving average turns down after the market peaks, Momentum turns instantly. Momentum just answers the question of how high or low the price moves compared to n periods ago

Momentum as a leading indicator

A technical indicator that is an average of the price has to show a lag, the longer the period, the larger the lag. On MACD we could reduce it by subtracting another moving average, but it still has some lag because one period is shorter than the other.

But Momentum is a subtraction of the price, so we get the speed, which leads the movement. That is, first comes speed before any movement is produced. Therefore, Momentum leads to price movement.

Momentum as an Overbought and Oversold indicator

The distribution of price follows a bell-shaped curve (see the figure). We observe that the volume is centred around the mean of this bell curve, and the extremes are overbought and oversold areas. Near these extremes, the price stops and bounces back towards the mean. The Momentum indicator shows this phenomenon pointing to a sharp change in speed.

Divergences

This indicator is especially indicated to divergences. When the price is making maximums and Momentum is slowing down, it is a sign that the trend is ending and a correction is due, although it can be a retracement or a simple sideways movement.

It is important to note that divergences are just warning flags we must pay attention to, not actual trading signals.

In the next article, we’ll analyze a simple Momentum system.

Tags Averages, Education, Forex, Forex Trading, MACD, momentum, trading

Forex Basic Strategies

Are You Switching Up Your Forex Trading Strategies?

Post author By Forex Academy
Post date 24 November, 2020
No Comments on Are You Switching Up Your Forex Trading Strategies?

Having multiple strategies can be a result of one failing in a certain market environment. Traders then try to fill up holes the original strategy had with another strategy adapted to new market conditions. According to some experts, having additional strategies is always beneficial, having more weapons in your arsenal is good. Another common argument […]

Another common argument is that markets always change in many ways, one strategy will sooner or later start to fail. The global economy itself is cyclic, not to count all the other things mixed in. However, what if we instead of changing strategies just move into the market where the conditions are right, suitable for the original strategy? Basically, it is the same thing – adapting to changes. This concept then sets another question, how to recognize the market is not suitable for our strategy, when is the moment we need to switch strategies, to find other markets, currency pair, or assets?

There is no simple answer to this question since every strategy is different to some extent, and there are more strategies than traders. Developing a strategy that works only in specific conditions is a specialized strategy, their drawback is not only a tight schedule but also a limitation to a few of the markets available for trading. If you are familiar with automated trading scripts, you will see they are mostly designed for one or a few other currency pairs. This is because they are tested back and forth only on a limited historical/future period and only adapted to that currency pair specifics. At the moment of their public release, these strategies or scripts will run well probably. If they are not updated their performance will drop.

We see a lot of content on the internet about having more strategies, adapting, experimenting with indicators, rules, and settings. Building your system should never stop. However, most of the traders fail not because they are not good at the technical or fundamental analysis, but money management and psychology. It is common to see traders overoptimize their systems to new conditions. Then change them again once they do not work as intended. If they are very thorough with their testing, as they should be, the operational time of their strategies is low compared to the optimization time. After all, some traders may question is it worth it to maintain and develop multiple strategies for new conditions perpetually?

Notice we have added trader’s mindset and money management into the mix that makes a strategy. According to some popular trading education resources, it is advised to be flexible. Being flexible also means not only using tools and indicators to decide but also your experience, your skill analyzing the price action. Additionally, absorb a hit or two trading with an inadequate strategy with sound money management. In other words, you have to trade and know how to trade in so many ways. Well, in our book this is just going to mess everything up. No trader is universal, traders will shape their trading ways as they see fit, and could be successful in many ways.

Technical traders will like indicator systems and have crisp money management based on them. They will have the edge as they do not have to deal with doubt, hesitation, overtrading, and other common mistakes. Price action traders with a minimalistic approach recognize historical patterns from experience and base their decisions on that. Fundamental traders take a long-term approach and people adept with coding could even indulge in making trading robots. Switching strategies and how a trader approaches trading is contradictory to their personalities and their trading cannon.

Optionally, traders could develop a universal system. This strategy may work only in specific conditions, limiting their performance, however, there is no limitation to other markets. For example, trend following strategies would need trends, volume, but they fail in ranging conditions. Now traders know what to avoid. If a ranging market or consolidation is imminent, stop all trades and find other currency pairs or assets. Specialized strategies cannot switch to other pairs without additional tweaks. Whatsmore, their effectiveness may be short-lived if the intended pair starts different price action. Traders will now have to consider whether developing such strategies is better for them than universal strategies.

Trying new things always carries more knowledge traders use to combine amazing indicators, strategies, and trading styles. Consider if your failures lie in your strategies or if your money management and psychology are out of place. According to many professionals, traders struggle with the latter. Be sure that if you have many strategies it is not a product of bad money management or many trading psychological issues one could have. There is no better strategy you can make without the two most important pillars.

Some proprietary company traders even go far enough to say good money management and a random decision strategy beats the best strategies without good risk or money management. Considering this, maybe a better headline question would be “Are you changing your mind often while trading your strategies?”

There are certain times you may be put under pressure to trade, for whatever reasons, hopefully not out of desperation. It is quite normal to switch timeframes and rules. For example, trend following strategies does not have great odds when the whole forex is not active. Professional traders create a rule for these periods, money management rules. They lower their positions and if forex is almost dead, they do not trade at all. Now, switching to other strategies that work in quiet environments are likely to be reversal strategies. Sometimes they might not be adaptable to a trader’s lifestyle, especially if they require more screening time. Curious and “out of the box” thinkers could go into other possibilities and find a good automated trading solution that works great in these conditions. Forex has a place for everyone and everything, but only rewards those persistent to find the solution.

A trader who has universal strategies that work with little adaptation to different markets like forex, precious metals, indexes, and crypto, using the same good risk management principles is a complete trader. Getting to this point is the hard work of testing, frustration, losing, and trying again. Mastering one strategy takes a long time, probably a few years. Sometimes it is normal to give up on that one if you do not have results, provided everything else is good. Those years are not wasted. More often than not, traders that have moved into other trading styles use some elements from previous work, sometimes even coming back to their old strategies that needed just a bit of knowledge and experience from another perspective. It is eureka for most of these traders, however, know such people are rare, and only they come to the top.

As a final piece of advice, search out for other strategy resources, and experienced people. You will find out each may bring up some ideas or tools that you could use in your current system. Strategies that are not into your style of trading are also useful as they may hide some rules or money management principles you could carry over. Creative traders will enjoy this process of discovery and implementation but never forget that playing with tools is fun, money management and psychology concepts are not, yet all professional traders spent a lot of time developing them. For more info about adaptable universal strategies, risk management, and psychology, check out our previous articles.

Tags Forex Strategies, FX Strategy, Trading Strategies

Forex Basic Strategies

Walk Forward: Optimise Your Trading System to Boost Your Earnings

Post author By Forex Academy
Post date 24 November, 2020
No Comments on Walk Forward: Optimise Your Trading System to Boost Your Earnings

Before you start talking about optimizing a trading system, it’s important to know what these systems are based on or why you should work with them. In this article, we’ll talk about one of the most popular trading tests that exist today. It is the walk-forward test. What Is the Optimization of a Trading System? […]

What Is the Optimization of a Trading System?

We have all asked ourselves the question of what optimisation is. The optimization of a trading system is based on the study of history of past premises or events. This is done in order to get a number of values to render our system cost-effective. In other words, it is based on carrying out a relevant study about the best results that have occurred in the past, this seeking to obtain a range of possible positive results for the market in which one is working.

Since optimization is based on finding possible numbers or values that approximate or resemble possible current values, it is necessary to take into account that you must have prior market information or valid premises. When you want to perform an optimization of a trading system, it is necessary to take into account the type of objective function you are working with. This is because, for each type of objective function, its values are different.

The objective function with which you are working can be framed in any of the ratios to evaluate systems. All these ratios are based on different ways of working, from here arises the difference between the values that can be given. For example, an objective function may be for the system to have the maximum net gain possible or the minimum possible loss. Depending on this, the parameters of our system can be different.

Ratios for Evaluating Systems

The ratios for evaluating systems are based on the ways you can look for a gain. These give you an assessment of the risk there may be, how profitable it may be, the duration and profitability of profits, among others. To optimize a trading system, you need to be clear about the ratio to maximize or the one you want to prioritize. Thus, when performing the optimization you will look for the results obtained in previous periods and guide you in the possible values to which you can decline.

There are several types of ratios to evaluate the system, I explain three in this article:

Net Profit Ratio

This is one of the most elementary proportions, you can understand it simply as the profitability of the system. This profit is calculated in relation to the initial investment. It’s one of the simplest ways to calculate. However, it is necessary to assess certain circumstances to see whether this system is profitable in the market being operated. In some cases, this system only works within a limited time. Later, you start to generate higher losses, which compared to profits can be disposable.

You should also evaluate the number of trades you can make a profit on, as there may also be a limited number of trades in which you will receive a profit (minimum 150 trades in my case but it varies depending on the type of system). After this, you can only generate losses from your capital.

Ratio through the Drawdown

Many people use Drawdown to opt-out of a trading system. Drawdown is based on the number of consecutive losses in your trading strategy. That is, it is evaluated from the highest point that could be obtained previously, to the lowest point obtained before generating another high point. It is important to note that optimization, in these cases, should have a good margin of error and not fall into over-optimization.

R Squared

The use of R2 or the coefficient of determination for statistical models whose main objective is the prediction of future results based on other related information. The R2 value is a number between 0 and 1 and describes how well a regression line fits a data set. When the value of R2 is close to 1, this indicates that the regression line fits the data very well, while a value of R2 close to 0 is an indication that the regression line is not adjustable in any way to the data. The higher the value of R2, the better the capital curve of the trading system. A very high R2 value should result in a profitable trading system with little drawdown.

The Backtest

This word is very important when performing the optimization of a trading system, since its result will depend on the study of optimization trading. Simply put, doing a backtest is performing and evaluating a history of operations. With this, you get a percentage of hits, the amount of drawdown or net profit, among others. These data are used as results to enter future parameters, seeking to obtain a benefit. The backtest needs to be done with certain variants. The more variants that emerge, the more backtest you’ll have to do until you hit a closed result, but be very careful with over-optimisation.

What is Over-Optimisation?

In the optimization of a trading system, we look for the possible values that can be generated in the future. This is done by evaluating an earlier historical and a number of previous variants. The over optimization is to play with the marked cards. It is to set the parameters for the best past results. When many backtests are performed, the result gets closer to a point of non-existent perfection. That is, a point where there are no faults or margins of error. When this happens, it is because of a saturation of the variants.

This saturation is called over-optimization. It is one of the factors to which one must be very careful when optimizing a trading system. Because when you over-optimize a system, the perfect result, it’s just a big value error. To prevent you from entering an over-optimized, it is advisable to do an optimization with few parameters to optimize. By entering many parameters, you can fall into over optimization. In my case, in fact, I try not to optimize anything.

What is Walk Forward Optimization?

This is one of the most robust optimization systems available today. This is because it performs a complete optimization, but a little late and complex. Thanks to its system being a bit complex, if you have a considerable historical, your results can become numerous. In other words, the more historical you have, the more results you can get.

What makes the Walk Forward so good, if it gives numerous results? The Walk Forward is considered to be one of the most robust optimizers as it optimizes through historical intervals. This amount of results can be reduced. However, be careful not to over-optimize. The optimization using the Walk forward system is performed by analyzing short intervals in the history of market operations. That is to say, when you have a history of 10 years, for example, you take the first three years (1, 2, and 3) of history, they are optimized and you get the backtest.

After this, it is taken from the last year of the first optimization, until the subsequent two years, including the first backtest. In other words, in the second optimization the years 3, 4, and 5 would be taken, together with the first backtest. This will be done with all the following years until the last backtest. Which will be the result of continuous optimization throughout the history. This constant and repetitive optimization is what is considered as the Walk Forward and, thanks to its level of complexity, is considered as one of the most robust. However, it usually gives very accurate results, within the margin of error.

For what purpose is optimization with walk forward used in trading systems? The function with which this type of optimization is performed is based on the verification of the system for the future. In the same way, you can implement it to obtain possible values that generate a profit. All this is done with a series of premises. That is, you must do it with a history of operations. By doing so, you can get an idea about the market in the future. In this way, you will be able to observe if it can be productive to apply the trading strategy that you are evaluating. In certain cases, you will check that the profitability of the system or ratio is only temporary.

A Correct Optimization

As you know, you should avoid over-optimization, as this does not generate more than losses. One of the points you should look at when performing an optimization of a trading system is to avoid single or isolated values. Imagine creating a strategy based on an average of 20 periods that works perfectly. But when you look at their results with an average of 19 or 21, it’s a complete disaster. Doesn’t sound very reliable, does it?

I don’t mean that your trading strategy works well with any parameter you use. But what we’re looking for are robust systems, and if any sensitive change causes results to be altered abruptly, what we have is not a robust system. Keep in mind that the market can make drastic and abrupt changes. Therefore, it is recommended that you make several optimizations at considerable intervals of time. This ensures that the values obtained the first time, remain constant. If not, the market may make a change, and you should engage with that change.

How to Use the Walk-Forward Test?

In my case, I don’t use it to optimize my trading systems. I use it as a test to evaluate its robustness since when we apply it we are seeing different periods outside the sample. In this way, we obtain more information on how it can behave in the future and on the consistency of the strategy. In the end, as you can see, it’s about having the possibilities in our favor with winning strategies, and this test is throwing information about our strategies. As I always say, don’t look for perfect strategies, look for real strategies.

My recommendation is that you study the test and if it is useful incorporate it into your methodology. For me, it is one of those tests that is worth it along with that of Monte Carlo.

Tags Forex Strategy, Trading Strategies, walk-forward

Forex Assets Forex Basic Strategies

Key Strategies the Pros Use For Profitable Gold Trading

Post author By Forex Academy
Post date 21 November, 2020
No Comments on Key Strategies the Pros Use For Profitable Gold Trading

Trading and investing in Gold is one of the top searches on the internet and a hot skill that could be the best thing to develop nowadays. As one of the four precious metals usually offered for trading by brokers, gold is the most popular, most traded and historically the most valuable asset one can have in an economic downturn. Forex traders are in a very good position to grasp the advantages of precious metals trading, the small differences are easily adopted, the principles are the same.

Trend following is still the best approach, yet metals also offer opportunities for other trading combinations such as reversals. Before we move onto the actual gold differences, beginner traders should be familiar with the system structure and trading we apply in the metals assets category, using what we have mastered in the forex. The article in front of you will firstly digest gold fundamentals, trading requires some fundamental basics about this metal even though we are using mostly technical analysis systems. There is uniqueness for each of the 4 metals we are going to analyze.

XAU is the symbol mostly found on the brokers’ asset list for gold, the X stands for index or spot market and AU is the symbol from the periodic table of elements. In the asset contract, it is expressed in troy ounces which is slightly different from standard ounces. One standard contract holds 100 Oz and the chart price is for one Oz.

Gold is not used in production very much when compared to other metals, only 10% of the total gold extracted is used for various jewelry and electronics. So the demand for gold from the industry is not the main driver for its price, even though electronic devices are making a breakthrough in everyday lifestyle. The main drivers come from safety, hedging, and investment needs. Countries also use it for the same purpose except the amounts are measured in tons, Russia, and China currently being the biggest hoarders of this metal. Rich people also have this habit to collect gold in various forms but a part of them do not use it primarily for investment.

The image above is the supply of gold including a few years of prediction at this rate. Now, according to a certain group of prop traders, this is contrary to their expectations. They think millennials had new know-how and technology to boost production in the coming years, including better technology to find new deposits. The chart accounts for this phenomenon although the decline is still evident. This information has a huge bullish prospect for gold. The chart implies humanity can bring whatever technology they can to extract gold but unless it is dramatically effective in a short time it is not going to cut the price in a few years or compensate for the fact most of the gold is already extracted.

The chart is not implying anything related to world economic cycles, pandemics, or crises, making it easy for youngsters and traders to realize gold is the ultimate protection and savings solution. To some theories, China and Russia’s gold accumulation can bring the power balance to shift very quickly towards them. They do not have to strategize with trade wars, politics, military actions, all they have to do is gather the power out of gold holdings and wait out the west fiat influence to slowly fade out. Cryptocurrencies are also into play with this theory some might call crazy, but the effect is very close to being clear in a few years.

Investment wise, the gold price cannot go down to zero for sure, we can only witness some short term falls unless a miracle economy recovery or a golden mountain is discovered. When we look at the supply, long-term investment is logical but the demand is increasing too. Aside from the governments across the globe hoarding gold, the population is also very interested in physical gold holding. If you are well informed about the economic cycles, we are well past the peak and into the downturn, however, if you look at the equities indexes, there is no evident downturn. This could mean the crash is going to get more dramatic and gold will be one of the first assets masses will flock to.

XAU/USD and the USD Index can both move up as safe-haven assets but explains gold is in charge of the move, not the USD in the XAU/USD pair. When the metal has a reason to move it does not matter how strong is the currency denominating it. Investors, funds, and other major players will stock up gold reserves early in this trend, you will probably see signs like higher gold premiums, price action volatility, VIX, and $EVZ pick up, and others that a crisis is around the corner. Simply when things go bad, gold is the only asset people see as valuable, it has been like this for centuries. Essentially this is what investors do, when the world burns they hold the gold, and once recovery is in sight, cash in the gold and buy risk-off assets cheaply. Once another cycle downturn emerges, repeat. It is true these individuals make riches in such times.

Now into the technical specs of XAU. Gold moves in smooth trends. Smooth trends trigger technical algorithms signals early in the trend and trades see a followthrough. On a daily timeframe (we like to use) this is especially true. In forex, it is common to have step-trends, the kind that triggers the signal to trade on one candle and then a period of flat price action and then another step candle. Choppy trends like this are hard to follow, and they are happening even on slower systems just with a few candles more as steps. Compare the XAU pairs with forex, the charts show smooth transitions most systems can pick up easily. Whatsmore, gold also exhibits smoother price action than other precious metals. All precious metals have this characteristic but gold is a special case. Because of this, our trading systems can have tighter Stop Loss levels relative to the initial position.

The trend will in most cases continue on its way up or down, it does not need some correction room as with forex where we have to leave some space so it does not trigger our Stop Loss too soon in an emerging trend. If we take our algorithm money management plan of 1.5 ATR Stop Loss from the entry price level, we can cut it to 1.35 ATR. The 2% risk profile is still on, just in metals trading we distribute the risk capital onto 1.35 ATR pip range. Metals do not leave traces of bank manipulation effect, there are still some but the effect is very small and the frequency is lower. Therefore, whipsaws do not happen often because of this, it is more likely the metal is changing course.

Interestingly, gold with its smooth, somewhat predictable moves is easy to trade and we can also apply riskier strategies, like reversals…until Trump became president. Unfortunately gold is not immune to Trump’s tweets, speeches, and announcements. Gold is the fear metal, a panic buy button. One day a tweet may be about a trade war with China and one day after a positive outlook about a good deal with China. Banks can use the news as they see fit for short term USD manipulation, the price of gold will rocket as fears creep in, and when everybody goes “whew” it goes back down. These events will trigger your Stop Loss even if you see everything going smoothly. There is no defense against Trump’s tweets as we have explained in our previous article about them. Of course, you can avoid this inherent risk by waiting out his mandate but trends are still much better with gold than with forex, especially the USD currency pairs.

Prop traders adjust to this by bringing the Stop Loss level further away, like in forex to 1.5 ATR, but ultimately it is up to you if you want to avoid or adjust the risk profile. Since the new US presidential election is coming soon, hopefully, new traders will not have to deal with this. China’s trade war may not be a focal news point as pandemic cut down countries GDP measured in two-digit percentages, but the west tries to slow down the China extreme takeover in the global economic dominance. As a trader, you can expect more risks coming from this issue regardless of who will be the new US president.

To wrap all up, know the asset you are trading, the fundamental drivers. Gold respects the supply and demand as all precious metals but the upcoming trends, statistics, and results show holding gold is almost a certain win. Contrary to forex, knowledge about the swissy background will not help you much for technical trading as gold can. Risk related to gold is reduced by its price action nature although know things masses react to, like the Trump tweets, can mess your trades. Gold is gathering the fears and as such you will need to know fundamental drivers. Adjust your risk accordingly and enjoy smooth gold trends.

Tags Forex Assets, Forex Gold, Trading Gold

Forex Assets Forex Basic Strategies

Silver Trading Doesn’t Have to Be Difficult – Check Out These Tips…

Post author By Forex Academy
Post date 21 November, 2020
No Comments on Silver Trading Doesn’t Have to Be Difficult – Check Out These Tips…

Dominant gold association with wealth and security is going to be even more hyped after the next economic downturn most economists expect to be more dramatic than what we have used to see in the last two decades. Also, cryptocurrency is another market type, Bitcoin also gets perceived characteristics of precious metals by people, even though they are very different in many ways. It comes down to what we perceive as valuable, but we will not go into theories just to pin down silver is more scarce than gold, contrary to what most people think.

Before we move on to XAG/USD trading, readers need to understand the basics of Supply and Demand forces, general characteristics of precious metals, and also know what we do with gold trading. All of these topics are already covered before. Similar to gold, silver carries the inherent value property, it was also exchangeable for silver dollar banknotes before the gold standard abandonment and is traded on the markets worldwide. If we go deeper into silver fundamentals, similarities stop. Traders that follow a procedure will explore forex trading the right way, the same applies to meals trading. This is why we start with the fundamentals even though currencies’ knowledge alone will not get you to the prop trader level.

Silver is a less popular trading asset than gold and therefore you will have a harder time finding a broker that offers XAG/EUR, XAG/JPY, or any other currency against silver except the USD. Although, like with spot gold trading, this will not be an issue. Liquidity is lower though it is good enough to retain trading conditions we like to have, with a few trading drawbacks in the technical area.

Bitcoin and Litecoin comparison can be like gold and silver if we compare their fundamental similarities. Obviously one is worth less than the other and they also move in tandem, in a positive price action correlation. Silver is considered to be a more risky asset than gold, however, opportunities or possible gains are higher than with gold. According to some professional traders’ opinion, the silver upside is larger in proportion to the risk. This opinion is based on technical and fundamental analysis and experience that puts silver in a special basket. Let’s first start with the fundamentals.

Silver has about 3.5 billion troy ounces available right now when we count all holders, total supply. Roughly estimated, it is about half an ounce per person. Now, the demand is certainly made more aggressive when you have some people having more than others, it creates scarcity which can be a primary driver for the bullish sentiment. Interestingly, silver is more scarce than gold which has 6 billion ounces in total supply, but gold is more expensive, trading around $1900 per Oz right before the 2020 US presidential elections. Amateur investors will probably just take gold anytime before silver, yet the scarcity of silver might get on top of the gold bullish sentiment according to plain fundamental numbers.

If you remember the article about increasing the odds in your favor, by accounting for the scarcity of silver and the fact it is a lot cheaper than gold, it is easy to understand silver is a better prospect for the average investor. On top of this supply scarcity, know silver is used in production a lot more than gold. To be more precise, 50% of it is used for various industrial needs, not just jewelry and silverware. The latter is not consumed, it still has the same weight while in production it is consumed and hard to recycle again. Silver is used in batteries, nuclear tech, medicine, solar panels, and electric cars all of which are getting exponentially popular nowadays. One more argument for the silver future value jump is the fact the supply is getting lower too.

Traders and investors still need to pay attention here, just because the scarcity and demand are increasing it does not mean it will necessarily increase the silver value in an economic downturn. A bearish argument comes from the fact a big part of the silver industry consumers will bust or cease production when a large scale crisis emerges. Central banks seem not to care about silver, according to statistics, their supply is getting lower sharply after the gold standard abandonment.

Governments do not want silver and do not have a long-term investment plan with it most likely because silver value concentration is not as high as gold. Contrary to this, silver holdings with individual investors are booming.

So people want silver as well in their portfolio and this is what matters for traders that come from forex. The chart above does not show the last 2019 result but it was pretty high after the India craze for silver. If the demand is going higher and the supply is the same or getting lower it is easy to conclude a bullish silver outlook. In our previous article, you could see the gold supply is starting to go down and expected to do so sharply in the next few years, even with the new technology around. That chart has a projection that it will go down but silver is already in a downtrend.

Now the world silver mine production chart above displays what they produce, the silver ore. The ore does not have the same quality as when the mine was new, it has a lower yield. This yield chart is very bullish for silver.

So the mines have peaked in production and the ore is getting diluted and now even the production is down trending. These fundamental charts are the unpopular backstage few traders want to see. It is good to know this if we want to invest long term, however, for daily traders, it may just mean a bit bigger positions on the long silver positions.

All points traders should apply to buy and hold strategies explained in our previous article, now when silver is booming and is not as expensive as gold, you can buy more of it. The potential upside is even more amplified compared to gold. Gold runup from the low to high pivot point for the last decade is about 768%. Silver for that exact period went 1147%. Last year, during the summer of 2019, silver run outperformed gold by two times. So to some basic upside/downside assessment, this might be a good point to hold silver instead. Throughout history, silver mostly outperformed gold when big correlated trends occur and it is likely silver will do it again for the coming downturn, which is going to be amplified because of the COVID-19 implications. Of course, an even better proposition is to diversify and hold both, precious metals are a hedge against everything, when all goes south you will get richer.

From a technical analysis standpoint, silver is different too when we get into the details. Firstly, the ATR is different, and it is logical since silver is much cheaper per ounce than the other precious metals (copper is a commodity metal). On a daily chart, silver is also more volatile, candle wicks are longer, and this is not what we want to see. Conditions like this need to be tamed with different risk management levels than for forex and gold – for which the daily chart is mostly smooth. Silver moves in tandem with gold, they do correlate to some extent although the application of this info is not a good trading proposition. Simply, correlation trades are hard to realize, this correlation between assets may serve as additional info but not a dominant decision-making point. You will always find a moment when they look correlated and then when they are not, but make similarly looking charts.

Positive gold – silver correlation can commonly produce signals from the same system on both assets. The daily chart we like to use is especially prone to have tandem signals. If silver is a bit riskier asset and you have a signal to trade but not quite yet on the gold, you might be asking if the wait for the gold signal tomorrow is a good choice. Not all brokers will provide the same price chart, they should be almost identical yet different liquidity providers and broker setups might cause some differences. This difference should not be an issue when we use the same system with different brokers. In some instances, you may have one set of winners and losers and different entry points with others, however, at the end of the day, the bottom line is the same. Some brokers also have 3 digits quotes after the comma so your ATR value is also one digit too long. Mostly it is like with the JPY pairs with two decimals. Silver charts have wicks and tails you may associate with stop loss hunting. Well, silver moves like this, it is not manipulation, just the nature of silver movements.

Back to the trading decision question. When you have signals on both gold and silver at the same time, platinum and palladium are unlikely to follow, and this is good, you can trade and have better diversification in the metals category. Trade both gold and silver in this situation, but split the risk you normally take. We trade 2% per position with a 50% scale-out at 1xATR range, but you can use whatever structure you like. If gold is the first to produce a signal yet silver is about to come second tomorrow, just go on full risk with the gold. You do not have crazy price action with gold and less likely to be stopped out by the wick. Lastly, when you have a silver signal while gold is probably triggering the entry signal tomorrow at the next candle, our prop trader group suggest to split the risk once again and wait for the gold and get in with the other half. This is the plan of how we manage silver movement risk, with a simple position size cut. According to the prop trader’s experience, when you get that first signal on silver, this metal’s volatility can trigger take profit even though both trends reversed, ending with one loss and one small win. All these suggestions are just a personal preference, so traders can use it as they see fit, make their own rule. Whatever plan you set up, do not keep changing things. You will not know it works or not if you keep changing, so stay consistent.

To close this article, know the future of this metal and that long-term holding it is a good idea as with gold. The stats presented here strongly confirm the opportunities are almost guaranteed. When we trade silver, adapt to its movements, volatility, and understand the correlation with gold. Lastly, you may use other indicators for metals than in forex but know what to do when you have tandem signals to enter and stick to the plan. A quick reminder, 4 precious metals trading is likely going to be at least as good as trading forex 28 major pairs and crosses, but with additional benefits of long term buy and hold strategies you can combine.

Tags Forex Silver, Silver Strategies, Silver Trading