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Beginners Forex Education Forex Basics

Questions in Forex Trading: The Good and the Bad

People often wonder how successful traders get such good results doing forex and what they discover is often not quite satisfactory. Browsing through available sources on this topic, a great number of individuals expect straightforward answers which would guarantee immediate success. However, this may not always be possible. Many amazing forex traders out there earned their success through trial and error, attempting and failing over and over again. Do not let yourself underestimate the power of learning from making mistakes in the search for a better approach to do this type of business. Theory and practice ought to go hand in hand, completing each other to provide you with the best possible set of skills you could use in practice.

Sometimes, you will not have the opportunity to find resources you may need, which only implies that you will need to come up with a solution yourself. It often happens that we are forced to become creative in our careers, which can eventually set you apart from the competition. What is more, if you are truly seeking to become an expert earning profit from forex trading, you cannot expect to always look for second opinions. Building your integrity and independence is simply essential if you are after professional and financial stability. Nonetheless, if you are new to this and you still feel shy to experiment, do not feel anxious – just keep exploring your options, take in as much information as you can, and most importantly stay focused.

If you feel that you have consumed a great portion of available material concerning forex and you still have a few unresolved questions lingering on your mind, then this is the place where we discuss what constitutes a good question and which ones belong the opposite group. However, let us first define what good and bad means in this respect, as these could be pretty vague categories in general. Since we are talking about business mindset and trading, a question considered to be good is naturally the one that could help you prosper in this market. Also, such questions are positive because they result from constructive thinking based on either the materials read or the real need to gain a different perspective on a specific issue.

Bad questions, on the other hand, are those which can hardly get you anywhere. In most cases, these typically consist of uninventive and unimaginative questions, which have probably already been discussed extensively in various media. Of course, the good-bad ratio is not black and white as we can all sometimes overlook some piece of information or simply happen to lack relevant experience, but the general advice is to always strive to immerse yourself in all types of learning as opposed to leaving an impression of a superficial, uninterested, or unprofessional individual. So, before you let yourself ponder any longer, make sure you set your ideas, impressions, and inquiries straight and align them with your ultimate objective – the goal of being a great trader and earning a profit as a result.

If you still, however, find it difficult to distinguish the good from the bad, consider the sample of commonly-asked questions and related explanations provided below. Note the questions asked are by amateur traders and are answered by a group of professional prop traders.

Bad Questions

Is hedging as a good strategy in forex?

In the world of investment, hedging is a term that denotes the practices money managers and investors apply to lessen and control potential risks. From the practical point of view, hedging could signify going long on a particular currency while also taking up the short position on the very same currency. Although this may sound like a contradictory approach, it actually grants some secure activity to forex investors doing very long trades during sluggish periods. However, despite its practical use, hedging naturally does not apply to all individuals involved with forex due to the fact that they are traders. Furthermore, these practices are not permitted in all places of the planet, and if you do not do your research properly, you may face significant problems in the United States, for example, where hedging is officially banned. What this further implies is that not only is this approach illegal in certain areas, but there are professional traders whose achievement never depended on hedging.

The rationale behind this example is that seeking answers should be backed up by very specific research. Besides, if you ever face a term which you have to do research on, start asking questions why that is so, rather than how to utilize it. Quite naturally, people across the world can have varying experiences as they rely on different methods at times; yet, why would you want to pursue an approach which thousands of forex traders do not really need? As portrayed by this sample question, putting effort into understanding some phenomenon, deriving genuine conclusions, and recognizing the fact that some questions may simply answer themselves can be crucial – both in some situations involving risk and as skills you may wish to develop and utilize in the future.

How do you approach the topics of supply and demand in forex trading?

While supply and demand are important terms in business in general, they hold little relevance in trading currencies, which is what forex is essentially about. The prices around which trading revolves are mostly determined by the direction of the majority and the reaction of the big banks. Therefore, trading has inherently very little to do with the notion of supply and demand in terms of meaning and importance they may have in other fields, which is truly a focal point for study, especially for all traders beginning their forex careers. Why this is deemed bad lies in the fact that there is a faulty belief constituting the question. To be able to grow in the world of forex is to delve into this topic, considering its true essence and all key factors regardless of some common business terms which occasionally have little to do with the notion of trading currencies.

Is TradingView as a charting platform useful for forex trading?

Traders can get very creative while exploring viable options for improving their trading careers, yet they sometimes rush to extend their selection of useful techniques and resources without having previously studied the available advice and stories on what has already rendered success in practice. In terms of charting platforms used in forex trading, MetaTrader 4 (MT4) and MetaTrader (MT5) are often praised for having the greatest number of indicators. Of course, searching for additional tools that could help you with trading is not bad itself, but why would you limit your options to a platform offering fewer indicators? As TradingView is frequently mentioned in the comments’ section in blogs and under videos discussing forex, a few other important ideas naturally arise.

While listening on what works best for growing your finances with forex is crucial, so is your ability to analytically assess whatever you browse through. Even when something is repeatedly mentioned or suggested in various ways, you need to take an objective standpoint to analyze whether something could be useful or not. In the case of TradingView, consider how many people try forex every year and, even if only a small percentage of them inquired about this particular platform, imagine how many comments there would be after a few years. Therefore, the quality of a charting platform is not determined by popularity, or design for that matter, but by its ability to give the highest number of indicators, which would naturally give you an immediate advantage.

How can I calculate the pip value on the ATR?

The question above concerns some of the most extensively discussed topics in the world of forex trading. You only need type pip value on the ATR in your browser to get an immediate response, in addition to numerous blogs, videos, and posts elaborating on this at length. While the search for the answer to this question does pinpoint to a degree of carelessness on the behalf of the inquirer, there may be some other reasons behind failing to understand something so widely discussed across various media channels. For example, a portion of traders may find the difference between yen and non-yen pairs quite challenging to figure out, but thankfully, there is always a way to get around this issue. As with trading with real money, demo trading can also give you some invaluable insights, especially when you fear that your lack of knowledge could hinder your growth.

After doing some very simple math, which you could first look up online, you can actually understand what an ATR value is indicating and use this knowledge to make a real profit. Consequently, traders have different ways to gather information at their disposal nowadays, and owing to practical tools, both those with and those without experience can now see whether the previously acquired information applies in reality. What we should never do, however, is expect to make a profit without at least putting some effort into research, which this question clearly signals.

How can I find a volume indicator?

Even though we may come across various questions which can vary in many ways, some questions are not really aimed at looking for answers the way we think. Some traders can get extremely anxious hoping to become successful in trading that they fail to acknowledge the importance of a learning process. Some other traders may, however, have ulterior motives, where they are not, in all honesty, asking for assistance to learn, but trying to win specific information which would save them time and effort. Although this is not illegal or forbidden, it does raise a few questions regarding integrity. Not only are there already numerous information pointing to obvious conclusions, asking someone to do your part of the job is not a way for anyone to start their own success story. This entire paragraph can boil down to this one key advice – learning is a process that undoubtedly takes time and energy, but it also pays off in time. The materials on forex trading which you may come across are not meant to prolong this period, but save you from having to learn the hard way. If you are truly intent on pursuing a forex trading career, be ready to patiently devote a section of your life without looking for shortcuts.

Good Questions

Can you recommend a broker?

Asking for a recommendation is always a good option because you can get some honest and clear response to your inquiry. Different video makers and blog/post writers sometimes comment on other people’s work, but what traders need to bear in mind when looking these up is that such recommendations can be affected by several factors. Depending on the degree of professionalism and knowledge, the recommendation you are receiving can be heavily reliant on personal opinions and potential deals between the involved parties, among others. Moreover, the recommendation may not involve actual money, which only proves how testing someone’s knowledge or skills did not take place before giving them a recommendation.

The traders’ task, as always, is to test whatever they see, comparing and contrasting the information they are presented with, so as to limit the damage as much as possible. As your knowledge and experience build-up, you will learn to spot the weak points and identify what is valuable in whatever source you turn to. That is why expansion to other markets outside the local one could be extremely beneficial – the more information and practical knowledge you possess, the faster you can profit from trading, especially if you start dealing with other assets, such as metals for example.

Would you recommend the use of divergence in trading?

If your prices are heading the other direction from the indicator, which is called divergence, you could gain some very useful information on the current trends. Divergence can be either positive or negative depending on the way a price is oscillating and, although it does signal some unusual activity, not all professional traders rely on this tool to determine how the prices will move. While thinking about trends and the interest foci is relevant, you can simply run a test trade with your demo trading account and see whether divergence could be of help to you in assessing a price’s momentum.
Would you consider automation or expert advisor (EA) based on a specific trading style?

With automation and EA available in the world of forex trading, the thought of having such a product custom made according to a successful system would definitely have its advantages – from simplifying trading to alleviating the difficulty of the challenges which traders face daily, to list a few. Nonetheless, automated trading can have its drawbacks unless properly designed; for example, news avoidance is said to be crucial because of its potential impact on the outcome of a specific trade. Although the existence of an automated product designed specifically for forex trading is not a matter of question or speculation, every trader at the beginning of their career should learn as much as possible before placing all their faith in a program without having learned how to be independent first.

If a received a signal to go short on GBP/CAD currency pair and another signal to long on the AUD/CAD one, should I opt for the first one?

If we compare the two currency pairs, we could see how the Canadian dollar is the one neutral currency among the three. The person who proposed this question probably assumed that the British pound is going to be weak because they received a signal to go short on the GBP/CAD. In addition, they could conclude that the Australian dollar is going to be strong since they received the long signal on the AUD/CAD. Based on these pieces of information offered by the system, they may be wondering if the best option would be to trade the strongest currency against the weakest one, going short on the GBP/CAD. While this may be inviting, the best advice here would be to do the two trades signaled by the system, without any alterations or deviations. What is more, going long on the AUD/CAD and going short on the GBP/CAD is in fact similar to going short on the GBP/CAD, which resembles a hedge to your advantage. Therefore, following the system’s indicators without overexposing to one currency is a secure way to enjoy trading currencies.

With such a great number of RSIs, should I test them all?

Despite the number of RSIs (the relative strength index), any professional trader would advise you to test all existing variations. Testing allows traders to learn how a tool or an approach works in real life, and many of the indicators discussed and used nowadays are in fact derivatives of the previous versions. Do not get uncomfortable testing an older RSI variation which has not been used for a while because any experience with a particular indicator could provide you with information you could use some time soon. Such versions may not serve the market of today, but with some adaptations, they can serve even present-day needs despite the fact that they were designed a few decades ago.

In the choice of good and bad questions, the focus was always placed upon a few important areas of concern. Browsing through materials discussing forex trading from the perspective of useful tools and strategies used in practice before is the one step every trader should do. This approach is supposed to prevent you from walking in the dark and needing to learn from your own failures. However, do not judge the age or the popularity of the materials, methods, or tools you come across, but run a demo trade and test how these work in reality. Furthermore, if you compare the good and the bad questions provided above, you will see that one of the main differences in the level of knowledge the inquirer possesses. If you are determined to make forex your career, then you cannot allow yourself to lack basic information.

Nevertheless, cramming theory is counterproductive, causing equal damage to the person who did not take time to assess various pieces of information they have gathered on this topic. Any development includes the necessary analysis stage, so by offering you the examples above, the text aimed to point out the differences between the questions which result from deep thinking about the acquired knowledge and the ones stemming from the lack of facts or original thoughts and insights. If you are a diligent and hard-working person, you will surely push against all limitations coming your way and, truth be told, this systematic approach is the only one that will help you succeed.

Sometimes you may feel that a particular question is blocking your progress, while it may not be the case in reality. Surely, the more self-reliant and independent you become, the faster you can prosper, and the best gift you can give yourself is honoring this process. Looking for information, searching for answers, reading, and watching everything and anything you can find on this topic, as well as applying analytical skills will allow you to get there faster than traders were able to a few years back. If you do want to become more involved in community discussions, as an avid reader and a conscious thinker, you are at a much better position of getting the questions right, thus gaining the opportunity to make a real difference while trading.

While blogs and video makers are eager to answer each of their follower’s questions, show respect by avoiding asking boldly for clues which should be your responsibility only. Such attempts at finding shortcuts reveal a mindset very different from the one prerequisite to forex trading, which naturally requires patience and focus. If you continually get proof that forex is not the best choice for earning money for you, there are plenty of other options you could choose, such as stock market trade. Whatever you do, hence, should involve clear thinking and asking the right questions. There’s no such thing as a stupid question, but consider what your choice of question is saying about you as a forex trader.

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Forex Basics

Avoiding the Price Action Prediction Trap

Price action is a vital part of trading forex. It can be an extremely powerful ally or a devastating enemy depending on how you have approached it. Unfortunately, a trap that a lot of traders fall into is the thought that they are able to predict the price action within the markets, you may have been trading for the past few months to a year, on occasion you have stated that it will move one way and it has, this can give you confirmation biases towards your own abilities to predict the movement.

If you have ever watched a football (soccer) match on TV and predicted a goal, or a penalty, or anything like that and you are right. The next game you watch you predict it again and it is right again. The third game comes along and once again, your prediction is right. So you decide on the 4th match to put down some money, you are confident because every other prediction you had was right, well not this time, it goes against you and you lose.

This is exactly the same mentality that a lot of traders get when it comes to predicting price action within the markets. It is possible to gauge and see small price movements, we won’t deny that, but the overall trend and changes in that trend require far more analysis and knowledge than just looking at previous and current charts can give you.

Predicting without analysis is gambling, that is the simplest way to put it. When you analyze something you are looking at the various probabilities that are available, stacking them on one side, eventually you have enough probabilities to work out exactly which way the markets will move. Making that choice gives you an advantage over the other side, however, this does not mean that it will always go your way.

Many newer traders actually need this experience, a boost in their confidence and then a loss based on their precision, it is a humbling experience that can help to cement the idea that further analysis is actually needed and that predicting price action is not easy, ultimately bringing them back down to earth and allowing them to start learning how to analyze rather than predict.

There is the catchphrase saying of, “Say what you see”, so in Forex, it is important to trade what you see, and not what you think. Getting that I know better mentality out of the way is vital if you wish to become a successful trader. Remember that it is the markets that are in charge and not you, so it doesn’t matter where you think it will go. That may seem harsh, but it is a lesson that a lot of newer traders need to learn.

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Beginners Forex Education Forex Basics

Reasons Why FX Trading Requires Dedication

When you started out with trading or when you had the idea of trading, how did you picture it? Did you think that you would start out with an hour here and there, or did you listen to those stating that you can work a couple of hours a week and make it big? If you had any sort of thoughts sling those lines then you would be greatly mistaken. Much like anything in life, if you want to be good at something it is going to take a lot of work and a lot of dedication. If you do not put in the work, you will not get the rewards.

The way that the forex industry is going, things are getting easier and easier to get into and to gain access to various things that in the past would have been pretty hard to come by. In order to get into trading now, all you need is an internet connection and a bank account. You can simply go online, find the broker you want, sign up, deposit, and start trading.

Things being easy to access does not however make them any easier to do. In fact, the number of people who start trading is increasing, but so is the percentage of those traders that lose money or blow their accounts. This shows that while it is easy to get into trading, it is not easy to do it successfully.

From the outside, it is always quite difficult to judge exactly how you will be able to deal with certain situations or to cope with prolonged exposure to something that can potentially cause stress or loss. People from all walks of life and from all sorts of professions take up forex trading in the hope of being successful, coming from different backgrounds and having different base levels of discipline and dedication cannot really prepare anyone for how much dedication is actually required to be successful.

So despite the ease of access and the heaps of educational and learning material out there, it should be easy to get to grips, but sadly this is not the case, you will need to work hard and you will need to put in the work.

The majority of traders come away from trading as a loser, they have lost either all or at least some of their deposits. This does not necessarily make them a bad trader. In fact, everyone that has even traded, even the most successful ones, have had losses, lots of losses. Part of becoming a successful trader is being able to encourage and force yourself to continue to work once you have those losses. It is very easy to just give up and think that this is not for you, however having the discipline and dedication to stick with it, even though those losses is what will ultimately make you a successful trader.

If you take a professional sports player, it takes years of practice to be at a level where they can actually make money, it is exactly the same for someone wand trading. You will have plenty of losses at the start. In fact, it will probably take you a year to be a break-even trader, but if you keep pushing and learning, just like a professional sports player, you will improve and you will begin to win some of your matches, or in this case trades.

There needs to be an understanding when you first go into trading that there will be a lot of losses and it will be a very long process. If you expect to be profitable when you first start out then you will be disappointed and quit, however, if you come in knowing that it will be a hard journey, it will be far easier for you to push through these initial losses and to continue learning until you are profitable.

Trading is an endurance event, not a sprint, you need that mentality and you need to be able to stick with it, if you want quick results, you will need to look elsewhere, however, if you understand that trading will take years of practice before you are truly successful, then it could be a good path for you to go down.

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Forex Basics

Women in the World of Forex

In this article, everything is based on an opinion, experience, conversation, and basic research by people that work professionally as traders on forex. It does not have any psychologists involved so it is not regarded as a scientific fact, theory, or consideration. As an observation by professional prop traders, it can easily be concluded that women should be dominating the forex market, they just do not realize this market or profession has all the elements women can utilize better than men.

Predispositions are strongly aligned yet they are the minority in this business. The reason for this could be that they do not understand how and why forex trading is a perfect setup for them. When all summed up, this is a psychological approach to trading that is simply out of scope for many and it is not present in the media, books, or the internet. After all, the media will produce what masses what to hear, want is trending, and appealing, not necessarily what could help them.

Never forget, trading has a definitive list of important elements every trader needs to have to consider successful trading. They are ranked in this order:
Psychology.

1. a) Money Management
3. Technical and fundamental trading methods

Note that the order sets the Money Management and Psychology element as equally and most important. Yet, most of the traders are interested more in the third element. Trading methods are more interesting but ultimately worthless without deeply devoting to develop the most important ones. Most of the time you will see about trading tools, methods, strategies, indicators, robots than about the core of every trading or investment, Money Management, and Trader Psychology. That is why many will fail immediately. Still, trying again is an important step, meaning you may have the right mindset to start developing as a trader.

If you are reading this article, you are probably a woman even though this content is beneficial to men too. Women just do better in forex but there are no numbers to back this up. It is only an observation that will still help see another view on forex. Hopefully, the article should not spark a debate about gender or inequality. Now, since the source does not come from a Ph.D. Psychologist but trader experience and observations, it may even be more credible. It is most likely better to listen to what traders have to say about trading and psychological approach to trading than anyone detached from forex.

According to some ratios in brokerage companies, between 5 and 10% of traders are women. Forex is a very different kind of profession and one of the best peculiarities of forex is there are no barriers. Forex is a blank canvas turned to you. Paint whatever you want out of it. It does not matter who you are by any classification or category. There are no obstacles, ceilings you need to break through, no special treatments, greasing, environment, culture, or connection benefits. Everyone has the same chance to succeed, your race, age, location, orientation, and even how much money you have now are completely irrelevant.

If you have influence and power you can use this to your advantage in many ways, except in forex. Skip on any of the above-mentioned core elements, and the forex market will filter you out. In the classic working environment, you work from 9 am till 5 pm, most likely you are in a vertical and horizontal management structure and so on. There are so many things you can blame when you cannot realize your ideas or ambitions. Forex does not have anyone to blame except yourself. Excuses you may have been unjustified.

Forex will look at you, Waren Buffet, Bill Gates, a child with the same eyes. You may think that someone with more money has an advantage, but all they got is more to lose. Trading consistently well can be your career, even when you do not have enough capital you may turn to proprietary trading, for example. All that matters are the three pillars mentioned above.

Women will have an instant advantage with anyone who wants to invest in a good trading system just because many scams with forex are more likely to be done by men. One who decides to make this his career and beat the game will overcome all the challenges of this path. After all, it does not matter who you are, just if you want and decide to walk it.

Now, when we are speaking about successful trading, it comes down to systematic good decision making. Both men and women have some obstacles before creating that decision-making mindset and a system.

Let’s start with men trading traits, just observations without going too deep. These will change as we present a different view in the article:

Men are mostly born risk-takers. This is a positive thing but just for one step.

Men have a killer instinct. This is also a positive side although it is a double-edged sword.

Desire to be great. Motivation is an excellent base for launching a forex trading career. Competition is one part of it, how men compete among themselves, and how to get to the top, prestige, wealth. These goals are achievable with forex, and that is why men will not lack motivation. However, men have one fatal flaw according to traders’ opinions.

Men have a hard time with their emotions control.

More on this later, but let’s move on to women:

Women are Risk Averse. Many do not want to get involved with trading just because it does not seem something they would like to do. Taking risks with hard-earned money is a male thing to do, women do not want to take that risk.

Not competitive in the same way as the men are. Men will compete and have that additional motivation to win, be better. Women are not aligned like that, so they might lack the additional motivation to succeed.

A great trait for women is they are process-driven. Just from the conversations with female traders and how they approach forex trading is very process-driven. They like the process of creating the system, making the rules, and train the mindset. Men just want to get to the top as fast as possible. Of course, they will fail a lot more along the way until they start building the skill step by step.

Less emotional than men. Wins and losses do not affect women to the same effect and way the men. This is just an observation by reports from female traders. Whatsmore, emotional build-up has a destructive effect on how men continue to trade. The emotional control element of trading is a much bigger problem for men to master. Most of the psychology content is about keeping the emotions out of the decision making or trading.

One of the main arguments for the above comparison can come from the historic overview. A long time ago we all had our roles as men and women, we still have. Overall, the men were the hunters. Men had to take risks, sometimes extreme risks depending on the game. When an opportunity shows, men have to act, if they pass it could pose a survival risk for the whole community. Men had to be aggressive and had to take chances. You will probably see some forex analogies that trading is like hunting. On the other hand, women had other roles. They were gatherers and took less risk overall.

Whatsmore, women had to think about the food rations, how to preserve the food, especially if men do not come back with a game. This process created a heritage of how we think and approach problems, and today, forex. Competition in men also has a historical reference. Hunters that were the ablest, skilled and athletic were the ones who picked the female partners first. Those men who did not have that prestige were motivated to improve. In today’s world, all this is similar, just in another form. So we have all these traits given, now we need o use them to our advantage and mitigate the ones that do not benefit us in trading.

Now let’s go back to the comparison. When it comes to practical trading, all of the above mentioned positive traits may as well be men’s negatives. They could get men into the forex but what comes next is torture. Women might have an issue with forex and not stepping in, therefore not moving on where their advantages take effect. Men as Risk-Takers make a lot of stupid mistakes, and it tends to roll into bigger mistakes as men turn to all-or-nothing mode. Now note that great traders take risks, but at the same time they minimize it. They minimize risk by avoiding mistakes and keeping the emotions out of the system.

Most of the bad decisions you made in your life were emotional. A for men this seems to be the biggest problem when it comes to trading. Most of the men readers will think about time women were emotional, but without perception, women might not be that emotional as their expression suggests. Of course, there is plenty of times emotions are strong, just not all of the time. Some may argue with this notion that women might play this emotional card with men to take advantage of the emotional vulnerability men have. Again, note this is just an opinion and observation.

But here are some arguments:

Love songs are for the most part written by men. Regardless of who is singing them. This is not about creativity, both genders are creative but men are quicker to express the emotions down to paper.

Divorces. Women seem to recover from the consequences faster than men it seems. Men tend to take a hit, dwell, and even decide not to seek out new partners at all. There are a lot of stories men express about their condition after a divorce while women do not follow equally according to some observations. Expressed in forex language, men are more volatile with emotions, they can go to 100 quickly, crash down to 0 and decide not to go this road ever again.

Crime. White-collar crime also means gaining an advantage at the expense of others, a very male trait. Men try to get to that top level, have the desire to be great and this makes them astray into various and violent actions. This desire to be great and emotions are a deadly combination.

Violence in men arises from emotional decisions. For example, a thief wants something others have, so they decide to steal. But if things do not go their way, they may become violent and cause harm. This is all a gap in emotional control. It is rarely a good move but men may think this is all they could, and then comes regret.

When we look at all the marketing content, we can see marketeers target the masses. Most of the promotional material has an emotional stimulus and show successful good looking men, with lots of wealth and attractive women. They present what the masses want at their core, they do not target the intelligent people, intelligent people are harder to manipulate and there are not many of them. It targets men’s impulsive, envious side, and it works. Men might get a good motivation out of this but they will have a hard time controlling that urge to get to the top fast, and they slip. Men focus on the wrong things because of this, skipping the long and boring elements such as psychology and Money Management. If we replace this article title with “the best uses of the RSI indicator” it is going to attract so many people looking for a quick fix.

All this means women have a much easier way to get to the top of the forex trading. Let’s take another look at the women’s disadvantages above. Forex is not a competition, this is not a poker game. It is just traders versus the market. Men could, of course, make a competition who is going to have the best P/L result but this is not forex per se. So we can take out that not competitive women trait as it is not relevant to forex. The only negative trait for women when it comes to forex is the risk aversion. However, once women step into trading, that risk becomes irrelevant, you have made that step if you are reading this article already. There are just beneficial traits left now. Comparing how difficult a female forex trader path with men’s, the advantages become very clear.

Based on some experience while working with beginner women traders, it can be concluded that women have far less hit and runs, are more meticulous, they study deeply, they like reading, and the process of building a system. No one watched a video about the MACD indicator and made a fortune trading on forex. Men might try but women know better. Interestingly, women even like psychology and Money Management content more than men, while men focus on trade tools and other trading elements. After all, this article is as useful for men as it is for women.

Women can also astray even with all given predispositions. You should not get too involved and devoted to the process. At one point you will need to invest, forex is a money game. According to certain prop traders, women should lose their fears by creating a premise all the funds on the account are going to be lost. They should plan on losing even that is unlikely not going to happen. This way the fear of losing someones else or their money is not going to affect them much. After all trading elements are well tested and built, women can expect the best.

To conclude, women already know what to do and how once they step in and decide to walk the forex path. Men need a lot of training to control the emotional part most. This is a process that does not happen overnight, the process women will like more than the fruits at the end. Men have only one option here, do whatever it takes to get in control, just do not depend on motivational speeches or similar every time you regret a bad decision.

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Forex Basics

Five Unfortunate Truths About Forex Trading

Trading and forex from the outside can seem like a fantastic way to make money. In fact, those without a lot of money often see it as a way that they will be able to make a little bit extra on the side, or for some, the dream to become rich. Unfortunately, things aren’t quite as rosy once you get in and there are some hidden truths that you only really discover once you have a better understanding of what Forex trading actually is.

So let’s take a little look at some of the unfortunate truths about trading and what they actually mean.

There is No Single Best Strategy

When you look at the markets from the outside, they either go up or down, easy to predict right? Well no, there are thousands of factors that affect them, some far more obvious than others. This is why there are so many strategies out there. With there being so many, it makes it clear that there isn’t a single strategy that works for everyone or for every market condition, due to this there is so much that is needed to be learned. If you try to stick with a single strategy, it may work for a while, but eventually, the markets will go against you and you will suffer some losses.

You should note though, that just because there is not a single strategy that always works, it does not mean that you cannot be profitable, instead, you need to manage your risk and to learn elements of various other strategies, this way you can adapt and also protect your account from market changes.

You Need Money to Make Money

Many come into trading with a small amount, while it is possible to be profitable with a small amount, it will be a very slow process and there is a far greater risk that you could blow your account and lose your initial deposit. Like many things in life, you need money in order to make more money. The more that you have the more likely and also the easier it will be for you to make money. With a larger amount, you can use far better risk management techniques, and also each trade will ultimately bring in more profits.

You should also note that by having smaller amounts, it can cause other issues such as greed or may cause you to make additional mistakes in the pursuit of growing the small account as far as possible, this is more likely when focusing on the profit and loss on the account. You certainly can be successful off a small amount, but if you are depositing $10 and expecting to become rich, you may be disappointed.

You Will be Wrong at Times

We mentioned that there won’t be a single strategy that will work all the time, even the most successful ones. Due to this, it should be clear that you won’t actually be right all the time. In fact, there is a good chance, especially when starting out that you may be wrong far more than you are right. The good news is that you do not need to be if you are using proper risk management, then depending on your strategy, you can still be profitable with a win rate under 50% and even under 40% with many strategies. Due to this, it is important that you do not focus on winning, you need to focus on learning the markets and also making sure that you stick to your trading plan, this is the only way to be profitable in the long run.

You also need to be able to identify changes in the markets, when something changes, you also need to adjust your own strategy and plan in order to adapt to the changes, this is the only way that you will be profitable, but remember, you do not need to chase wins, stick to the plan and even with more losses than wins, you can still be profitable.

You Will Miss Out on Opportunities

The markets are a 24-hour opportunity, unfortunately, you are not. There will be a lot of times when there are some big movements in the markets that are perfect for your strategy, the only problem is that you are at work or asleep. It is important to understand that you won’t be able to get on every opportunity, it is important that you do not look at the things that you missed, they have already gone, you need to continue to focus on what is coming up. If you have just missed something, do not jump in anyway, the opportunity has gone so let it go, there will be plenty more for you to trade. If you are up and trading during the busier London or New York sessions then you will be able to sharpen your skills a lot quicker as the markets are often moving at a much faster pace.

It May Not be Suitable for You

Trading just is not for everyone, in fact, the majority of people will end up hating it, you need to be able to take in a lot of information, you also need a lot of time and dedication which can make it a lonely job to do. If you are not able to put in the time, effort, or have the patience to learn, then you will be on route to a loss. Many people just do not have the mindset for trading, which is absolutely fine, there are other things that would much better suit your style.

So those are a few of the things that people on the outside don’t necessarily see about the Forex and trading market, if Forex is for you then you will do great, but remember, it takes a lot of time, effort and patience, as well as money to become successful in the markets.

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Beginners Forex Education Forex Basics

Is it Dangerous to Have Goals and Projections in Forex Trading?

How many times we heard: “These are the results I’ve got trading forex in the past year so I can logically expect to get at least the same results this year”? Sentences like, “I pulled 10% out of a dead market in 2019 therefore, I should reasonably be able to get 15% this year”, or “I just got a 75% yearly return in my back-testing, then I should probably get 75% when I forward-test too which it seems logical, right?” If we had a good day or good week trading forex and we think that we can replicate that, what an awesome lifestyle that would be?

Well, it would, if we can somehow make accurate predictions and if nothing ever changes. What some people had a chance to experience may seem to them like a constant path of winnings. It is not going to be the same every single week, not to account for the weeks where we are actually going to lose money. When euphoria kicks in, we all easily become overly-optimistic and then reality tends to hit us in the face. We all know trading forex is a highly inconsistent business.

The word we are going to focus on for a second and that might be beneficial for us is the word ‘Build’. A lot of traders have already built a great trading system that they are using right now with pretty good results. The thing is that we need to constantly build this. We should never-ever stop improving our system and developing our account. We mustn’t get comfortable around these things even if we are using great indicators. If we found some of the indicators that we liked and think that we don’t have to go and find something else which works better, that might be deceptive for us.

Traders should keep improving, keep testing, and never stop. We trade with indicators, we have algorithms, we can try to cut and paste certain algorithm to other markets and then just adjust it as we need to. We might try to make those adjustments in indices and the metals and two lesser degrees in crypto. We should always build up around what we have and slowly make pieces in place so we can start filling those pieces in. After all, everybody should have at least two or three ideas at the end of the day. All smart traders must constantly have extra safety layers underneath if their trading system completely goes south. So this is one of the many things that we can do to make our account less fragile, rather than project what kind of lifestyle we are going to have which we are all naturally predisposed to do. That slowly gets us back to our topic. Sometimes is better to just let the chips fall where they fall.

We need to be very careful about projecting how much money we are going to make in the next three or four years because we might pay dearly based on those foolish projections. No matter what we do, we are going to have losing weeks or losing months. Maybe there are out there some experienced traders who can set a goal to shoot for, but most of us don’t have an experience that they have. Simply, It can be safer not to set goals. Here we want to point out how relaxing it could be if we don’t set goals and not make projections. Just build. Improvement, discipline, and patience are what we need to put together and just watch how the results come organically.

It’s a hard thing to do, we all want to project. Projections are what we tend to do when our emotions start to get in a way, projections are not logical because we know that every year is going to be different than the one before. How can we make any projections for it while wild inconsistency is all around? What we can do? If we take proper steps and if we build the right way, we could be naturally immune to downswings and maybe be able to take full advantage of the upswings.

So when the year is over with we might still look back and say: “That was a successful year”. What we are trying to improve here is our trading psychology. That is why we need to build, we need to build now. It is not a quick process, It is not always an enjoyable process but it is a necessary process if we no longer want to be like 99% of people who are super frustrated with their jobs and don’t have a way out. This is something we should always keep on our minds and work relentlessly on our trading skills.

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Forex Basics

Forex Trade Journaling Do’s and Don’ts

When we try to get better, we learn. Learning is a process where we consume relevant information and use it for our goal. Forex is no different, and journaling is one element in this process. Now, what happens when we have too much information or when we have bad ones? Well, it is worse than not knowing anything about a topic, we will also need an open mind to accept what we know might not be true. Objectivity is common to scientists, but this mindset is extremely helpful to forex traders too. When we have an open mind to accept what is producing better results, only success awaits us on the forex. Journaling is the keeper of what we are doing, what works, what not, what is better. It is not a debate if you should have one if you plan to become top among the 1% who make it in this game.

According to many professional prop traders, and other professionals, most of the information is redundant when you start learning. You will need to synthesize what is good and what is bad. This is not easy to do when you do not have experience. To pick up good things for you is even harder with so many forex trading indicators, strategies, tools, and robots. Even if they are good in practice, they might not work for your personality, needs, setup, etc. The right way to journal your activity when trading is also obscured with too much redundant information out there. This is the point where this article tries to help, there are so many sources about journaling that do not give you the good stuff, at least not right away. You will have to dig it, and know where to dig.

Professional traders keep it simple, not just about trading, but journaling too. If you have spent some time reading about forex, maybe you have stumbled upon the phrase “Keep It Simple Stupid” – KISS. Keep that one in your mind, it also applies to journaling. Now, when we take a look at one of the “best” places where to learn forex, babypips.com, and regarding their Journaling 5 most important things article, you will notice a lot of theories before you get 5 bullets what you should have. So all that information above is just to fill up the webpage. According to prop traders, you do not even need the first four.

The point is all about getting the mistakes out. Mistakes are easy to find out, the biggest losses are the result of those mistake trades. The nature of the mistake could be technical, your indicators are not suitable for that timeframe, for example. It may be psychological, moving Stop Loss levels. It also could be inadequate Risk Management, but you should first define an optimal plan about this before any trading. For every mistake you have ironed out, know that you have added (approx.) 1% to your account. It has the same effect as finding that “perfect” confirmation indicator you have spent months searching.

Of course, some traders do not journal, some do. If you would have to pick one to invest in if they are equal in all other points, who would you choose? Not a hard choice, by some statistics, the ones that have a journal are way better performers. Is it because of the mindset or is it the mistakes ironed out from journaling? It is both, one implies the other. Here is how to put it together, the easy way.

For starters, you need a spreadsheet. You can use Google Sheets or Microsoft Excel, it is the same. Once you become advanced you may use specialized products for journaling but for now, you do not need them. You need only 5 columns. You should already have your Risk Plan set up, it should be constant in percentage terms per position for multiple assets> so you do not need to enter the position sizing, it is always 1% of your account, for example. Then, if you go to the daily timeframe – the best timeframe that is suggested by some trend-following prop traders, you can also scratch that column out too. To make it even simpler, you do not need to enter your entry times! More about this later. So by making it simpler, it takes a second to fill it and not overwhelm with the information you do not need.

The first column you need is the currency pair. That GBP/JPY might be running nicely for you but it is a matter of time when it will start to consolidate, but the column is just for reference. In the second column is the Short or Long trade direction. Also for reference. The third column is the number of pips you have gained or lost from a trade. Do not enter the dollar amount here. Note that if you have a complex scaling in and out position management then the result of the final pips needs to reflect it correctly. Depending on how complex it is, you may need some averaging and IF formulas.

The column four is a bit different than the usual journaling. It should contain a screenshot link of a trade. You can sign up with a service for this where you upload your images. You may need to draw a line when you have entered and exited. Note that the MT4 also has the drag and drop feature for this. Open a Journal tab and just drag and drop the position entry from the list onto a chart window, you will see a dashed line that represents the entry and closure of that trade. This way you can see if you have exited at the right time, where was your Stop Loss, was all this a good idea, etc. This is a much better alternative than to enter your entry and exit time stamps.

Column no 5 is your comments area. All normal trades like your Take Profit was hit, you exited, everything is fine, do not need a comment. There is no mistake here. If you have a losing trade but just because the trade did not go your way, it is still not for comment. Do not try to win every trade, try to trade as the system says. Now, have you made exceptions to your system and let a trade go farther? That was not the system, that was your emotions and gut feeling and these are catastrophic to your account. Also, you may see a resistance line coming up and took that trade off before the exit signal. If this is not a part of your system or plan, then this is a mistake. So write these mistakes down.

These mistakes are now nicely visible. Do they repeat? If the answer is yes, half of the problem is solved, you know what is bringing your account down. The other part is of course the solving process. Most of the mistakes made are not accidental mouse clicks, they are psychological. You are on the way to make your trading system work. Now, the power of the journal cannot iron these out but it will give you pointers of your weak spots. Eliminating weak spots can be done in various ways, depending on nature, as described in another article. Journaling may expose you in a way you will not like. It is something you do not like to see in front of a mirror, so most will be ignorant. It is a form of self-criticism and revealing what is not good about you when it comes to decision making but also in life.

In forex, journaling is a must for top traders. You may wonder why your system and Money Management does not give you results at one point, and the reason will be the lack of journaling. This is the element that separates the best from those who fail. The best put in the work. There is no quick way to getting to the top where you can consistently make money out of forex. This article has shown you a simple way to make one, cutting all the redundancy, and get the most important out of journaling – to find your mistakes. People who have put in the work do not have to wait for the effects to reflect on their account, it is instant! Do it right and, as it is usually said about forex, the sky is the limit.

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Forex Basics

Exploring the Differences Between Sports Betting and Forex Trading

With the rising number of testimonials discussing forex and the reasons behind individual success stories, correlations between sports betting and this form of trading found their place in many sources. Looking at the two terms, we can certainly think of quite a few similarities and differences, but can we answer the question of whether the background in sports betting can positively impact one’s experiences with Forex. Also, are there any logical connections or resemblance between a sports bettor and a forex trader? How likely will the success with one lead to success with the other? Should we expect equal success? And, are there any universalities or markers proven in practice that can determine how likely it is for an individual to profit from either of the two forms of making money?

While this article alone cannot grant you financial satisfaction and stability itself, it can offer you specific instructions as to what steps you may need to and want to take to have maximum opportunity to reach monetary gains either through Forex trading or sports betting. Learning about the most important and the most deciding factors which naturally divide the successful from the less successful forex traders and sports bettors – from character traits to key habits and routines – may be exactly what you long needed to apply in your approach.

What Type of Person Makes for a Good Trader? 

We first need to ask ourselves what kind of person is said to be good at these two types of ventures. Are they good analytical thinkers and natural masterminds behind difficult operations or are they gifted individuals, who were simply born this way, blessed by the stars? Now before we resort to checking our zodiac charts, we can rely on psychological facts stating that curiosity is one of the key determinants of success. Voracious minds have a hunger for learning, so if you are interested in sports or trading, you will find it easy to accumulate knowledge necessary to start any project of choice. A deep understanding of a particular topic gives you a real head start over others because your curious mind will always look for more information, searching for ways to define and describe everything you come across.

Another vitally important question which naturally arises after the previously mentioned point concerns the list of sources you are entrusting your time and money with. With a growing interest in ways to earn profit outside the traditional workplace and unrestricted access to various media, we cannot possibly discern how skillful or knowledgeable a writer or a video content creator is unless we have previously had some hands-on experience ourselves. Also, are you relying on numbers of follows and likes, or are you really allowing yourself to grow by expanding your horizons with some relevant and educational material?

The third key determinant is your environment. Are your surroundings conducive to developing relevant knowledge and skills? If you wish to have prosperity with either sports betting or forex trading, you may need to realistically and objectively assess whether the life you are living and the work you do support each other. Consider this real-life example – if you are doing a ten-hour quick-paced, no-time-to-rest type of job, it is highly unlikely that you will have any energy or desire to think about a strategy on how to put your betting or trading ideas and knowledge into practice.

Key Rules Governing Forex and Spread Betting

Next, how aware are you of the key rules governing both sports betting and forex trading. If you have had experience with sports betting, then you probably know some basic dos and don’ts which you may or may not have applied in the past. Just as with sports betting, understanding key principles of trading with forex is something that will essentially give you a value system based on which you will choose how to act. For example, understanding how a foreign exchange market works and what you as a trader can or must never do is the knowledge that will eventually decide for you, with or without your conscious involvement.

Of course, learning per se will not get you far on its own. Reading and watching can also be quite limiting without allowing yourself to practically apply the theoretical knowledge you have acquired. Playing safe, without allowing yourself to learn more about betting and trading, is also going to be insufficient if you desire to multiply your gains. Let’s say that you have done some sports betting in the past, so now may be the time to diversify. Learn about different sports and see how the system you have relied upon stands in comparison. The same applies to forex – consider different currencies and markets you can explore to widen your list of experience and achievement. Diversification will not prevent you from making mistakes, but it will allow you to grow your skillset and widen your perspective.

Now, we have reached the turning point which differentiates the intelligent type of person destined to experience success and the other one which could probably face more challenges than achievements attempting to earn a profit. If you think of school and formal education, you will find that what we are discussing here has little to do with that form of IQ. So, if we reflect on the prototypical conceptions about the word betting, we would most probably immediately think of a casino, which will serve a perfect example. We archetypally find two types of players with one always keeping playing until they lose everything, unlike the other. In the world of betting, we have quite a few examples of people who do not know when to stop. However, this quality of acknowledging your limits it essential if you wish to make a career out of either sports betting or forex trading.

Which Makes for a Better Career Option?

Although few individuals can claim that they are earning their living from sports betting, forex is an ideal opportunity to make a career and be successful in doing it. And, those who belong to that group of individuals understand one of the vital principles which shield them from failure – money (i.e. success) comes first. If you are looking for thrilling experiences, always running after an adrenaline boost, you are most likely doomed in this competitive market. Even when we think of the words trade and market, our minds would somehow be directed at an image of a successful business individual, which probably differs significantly for the image we get when we think of the word betting. You can blame it on ideology, bias, or poor judgment, but you should be honest and ask yourself the question of whether you have a betting mentality or an investment mentality? Learning to set your priorities ahead and follow your plan through will keep you on track, safeguarding you from falling for the thrill trap.

If you have a plan, but it keeps failing at bringing you sustainable profit, you may need to remove all obstacles. How can you do that? Well, you should primarily see what brings money into your pockets. Sometimes making decisions to stop certain activities is not that easy, but sacrificing fun for long-term financial stability seems like a decision worth making. You might consider options other than relying on trend lines and stochastics, grasping the insignificance of instant gratification. If the initial need to gather information involved expansion, long-term success now calls for singling out your golden eggs, focusing your vision like a hawk. However, be mindful of the difference between tunnel vision, which is characteristic of individuals who typically read one article and still naturally can’t see the forest from the trees, and this all-round, comprehensive vision with a specific focus, which distinguishes successful business people from the rest.

Being rational and objective with these endeavors should also be a necessary part of your approach. We have all heard about a John who bet on 15 teams in one go and won as well as Jane who turned $500 into a sum with a few more zeroes; however, this is not an allegory for nurturing hope, but a lesson for you not to chase a dream. You should always strive to set realistic goals and luck naturally falls under the big no-no sign on the road to success, and you do not want to run after a statistic which is as close to zero as it can get, hoping that your next lucky streak is around the corner.

The Role of Money Management

Despite their numerous wins and undeniable success, we have all witnessed very public bankruptcies of a great number of famous sports players after their careers ended. Aside from some unfortunate life circumstances, what this essentially implies is that there is a lack of an important skill which was responsible for their downfall – money management. What this term further means is that all people are required to foster and develop a profound understanding of how to handle and invest finances. We should all be asking ourselves what we ought to be doing to be receiving a constant flow of money as well as what would happen if I couldn’t keep doing what I do any longer. You can be extremely good at sports betting, for example, scoring wins as often as 50% of the times or more, but due to lacking proper management skills, your winnings may eventually go to waste without adopting a sustainable mindset.

In their essence, both sports betting and forex trading rely on a portion of external factors, sharing the common challenge for all people involved – superior bodies holding key information such as bookmakers for the former and banks for the letter. While banks are doing whatever they can to protect themselves, relying on your long-term strategy and applying steps suggested in this article will undoubtedly help you prioritize and focus. Sports betting, on the other hand, is very similar to any other form of betting, which is naturally even more dependent on other factors. This is the reason why our grandma could be shouting it’s the devil’s work down our ears, but it is also an alert for those who are still on the lookout for safer options.

Last but not least, in whichever situation you are now, whether you are considering moving from sports betting to forex trading or if you are thinking of immersing yourself into either of the two, bear in mind that your greatest ally is your ability to eliminate everything and anything which does not serve your purpose and that the most important skill is being disciplined with money. As the saying goes – you are the master of your own destiny, so consider your reward-to-risk ratio, carefully analyze all factors, and explore sustainable strategies for reaching financial satisfaction and success.

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Beginners Forex Education Forex Basics

The Best Place to Learn Forex Trading

Last May I visited New York just for fun but out of nowhere, I met a guy who is a professional Forex trader. The guy has slightly over ten years of a carrier in trading and we had a very enthusiastic conversation, together with his friend trader, about how to chose the right path to educate yourself about this type of trading. So, the question is, what is the best source to learn Forex trading?

There is no typical answer about where we can start mainly because there is so much stuff around us when it comes to Forex trading. People are usually agile to reach for a profit, with a basic gambling impulse that is whispering in their ears: ‘You just jump from the cliff and you’ll see that you have a pair of wings’, therefore they don’t tend to educate themself properly because that’s a process and it takes time to do that. Although there’s always the easier way to do certain things, Forex trading is of course much more complex. The fact is that most of the people are losing money off of it. So I said to the guys that I’m super interested in Forex and that I want to learn to trade but there are a lot of places to do that and do they have a one to recommend.

The first thing they said to me was that it is completely unnecessary to invest in any kind of online course to learn to trade or to pay somebody to learn how to trade Forex. You people don’t need any of that, save your money. Maybe one of the best options where we can start with Forex fundamentals is a website called babypips.com. It is important to mention that a significant portion of knowledge about Forex is going to lead you down the wrong path, you guys are going to lose a lot of money before you ever learn how to get it right. The only way to make a benefit is to understand which fragments of Forex education are actually worth something and which ones are going to take you in the opposite direction where we don’t want to end up. Website babypips.com has a section ‘The school’ where everything is organized to take you through a kindergarten level up to college.

Like in a real-life order your knowledge is raising, so it is vital that one not skip their classes or levels in this particular case. Maybe some more experienced traders in trading stock would think that they already know some things and feel like a jump forward and skip certain things. We don’t recommend that kind of approach simply because every lesson kinda builds on itself. Go in order, follow the procedure, and take notes. After you finish with this course, review your notes, and then you can open up your demo account and get used to the trading platform. At this point, you will be more appointed than 80% of people out there that learned how to trade. Later on, traders explained to me that they were losing a lot of money until they learned to trade the right way and that people are still trying to trade the same way they trade stocks, which is completely wrong. Eventually, most of them start giving up, and because they couldn’t do it, they think you can’t do it either. But hey, don’t despair, you are going to do it right, and it starts at that school.

In the conclusion, traders told me: ‘Most of the things you are going to learn in ‘BabyPips School’ is absolute garbage, especially when it comes to technical analysis part and tools they are going to show you how to use. Be careful with that, it might ruin your trading account.’ Well, that was a twist! Why is it important for us to try to learn all the things anyway? The main goal for us is to be literate when it comes to Forex. There are going to be little nuggets, hidden gems, things that specifically apply to Forex that you don’t want to miss, things that are going to be applicable at some point. 99.9% of traders don’t get where they want to get to, so it is crucial to be dedicated, embrace knowledge, and try to develop your style of trading. Plus, it’s fun and cool to learn new things. Pay real close attention and do your research.

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Forex Basics

Which Assets to Trade During a Recession

When speaking about a recession, investing might not be the first activity that comes to mind, however, during these testing times, investors and traders can still source out industries that with or without a recession have to keep the wheel rolling. Being able to sift through the thousands of options available, the key essential service providers are what you should be looking at during these dire times we are experiencing now.

Another great way to seek out those investment opportunities during a recession is to look back at the most recent recession and find out which industries managed to stay afloat, or even strive during that period. Below are the top five industries that managed to plow on during the tough times.

Healthcare

Although the financial situation of civilians may be negatively impacted by a recession, there are certain products and services that we really cannot do without, the first on that list is healthcare. During this COVID-19 pandemic, populations all around the world are investing in healthcare products as well as medical equipment to help prepare the people and their respective healthcare systems to combat this new virus.

This is not to say that all health care companies will make it out successfully as there are companies with large debts and less cash flow that will, unfortunately, suffer too during this time. It would also be best to stay away from new and upcoming biotech startups which are still in their early phases which makes them riskier. Therefore, it would be best to source out companies that have a low debt-to-equity ratio as these are the ones more likely to perform better.

Food

Like healthcare, food is a basic necessity that cannot be spared. Looking at the recession that took the world by storm back in 2008, it seems like although populations tend to take a step back from dining out and purchasing expensive food to cut down on their monthly cost, they shift their purchasing to cheaper, pre-packaged food options. Again, looking back to 2008, we can see that popular brands such as Walmart, McDonald’s and other large food chains did relatively well during that tough period.

Freight and Logistics

The COVID-19 pandemic brought a halt to most air and sea transportation for people, however, goods are still being shipped and flown across the globe. Freight companies or companies that help to move freight from one country to the other are quite safe options when looking for trading opportunities during recessions such as the one we are currently experiencing.

Do it Yourself

By looking back at 2008, one can notice that although people are unlikely to go out looking to purchase new cars, furniture or properties, during tough times people tend to focus their time and effort on fixing/DIY projects around their household. Taking into consideration that this pandemic has put millions of people on lockdown inside their homes, home projects are definitely on the rise. Any large home and garden improvement centers, as well as auto retailers that focus on parts, might do better during these times

Discount Shops

The high unemployment rates currently plaguing countries all over the world, similar to 2008, people are shifting to more affordable and cheap essential items. When a person’s income is drastically decreased, they have 2 options, either to stop purchasing or to purchase cheaper options. When it comes to essential items, stopping purchasing is not an option, so discount stores such as Dollar General or Walmart are a safe option to invest in. Back in 2008, Dollar general rose by a whopping 60% in that year alone.

Needless to say, it is not only the above-mentioned industries that will most probably come out of this recession without too many scratches, however, but this list can also put you in the right frame of mind of what to look out for. Keep in mind, even from your own experience during recessions, what goods and services do you still require, what services are deemed as non-essential during these times and what would you prioritize if your income suddenly decreased?

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Beginners Forex Education Forex Basics

What Equipment Do I Need to Trade Forex?

So, you want to start trading on Forex, but don’t know what equipment you need? Scared that you might start something and then realize you are missing a part? What do we need before we start trading on Forex? Firstly, we need to know what or how “long” are we going to trade on Forex, meaning, we might be trading 15 minutes a day, or are we going to be a day trader.

Perception of stock trading, as you see in the movies, rows of monitors attached to a supercooled computer, is really not necessary – unless you are a day trader, who are forced to have that hardware because they need to monitor a lot of market and a lot of trades. And that’s a harsh way to make a living, as they are always stressed with large amounts of data. That stress transfers to their lifestyle, family, and it is mentally unbearable. But for a novice, that perception has that wow factor, makes you imagine yourself like a captain of a starship.

Imagine rows of monitors with currency pairs and news on CNBC and Bloomberg to stay informed…everything beeping and humming, but not all that shines is gold. For the amount of money needed to buy such hardware, you would probably have to be in some other kind of business first. Once you get on trading you will see it’s not necessary, and all that money spent on all that equipment you could not get back for at least 3 years of initial trading. What we would even recommend is buying used computers, because on the hardware side, luckily, we don’t need much. It’s a workhorse, it doesn’t need to be flashy. One laptop, or even a tablet, and a good internet connection is all that we need to trade on Forex.

The minimum requirements for the MetaTrader 4 or 5 platform are what most average grade old computers can easily handle. Note that once you become open for many other markets and indicators, the load on opened charts could become quite evident, so you might need to wait 30 seconds to a minute for all 28 currency pair charts. Of course, this is not necessary and depends on how you use the platform.

The network connection stability is a priority here. If you have an unstable connection you will experience a lag in order executions, feedback, and some EAs will not be able to work optimally. If you try scalping strategy EAs know they will not give you positive results in this environment even if they might be performing well otherwise.

Smartphones are a potential solution too, but given that their screens are small(ish) and are power reduced devices, using them may be awkward and uncomfortable. For example, you can have MT4 on your phone but can’t use custom indicators. Phones have yet to be developed to support this, or MetaQuotes might find some solution for their platform. The advantage of having MT4 or MT5 on your phone is of course mobility so you can manage positions on the go, but know that advanced technical analysis with indicators not included in the platform is not possible. So the best way to use it for alerts, emergency adjustments, and monitoring. Some traders even say that having forex in your pocket is not always a good idea especially if you become too attached to trading.

So, what we need to know is that you are not trying to impress anyone with your setup, you don’t need high power, flashy desktops with a bunch of charts on the wall made of monitors. People of less developed countries can have a go on Forex trading too, they just have to have a laptop. The beauty of Forex is that it is not bound to one place, you just need a laptop, you can be anywhere in the world and it will work. How many professions can be attributed to that? Freedom from desk, monitors, and keyboards, office cubical… To summarize, most of you are already equipped enough.

Categories
Forex Basics

Should You Participate in Forex Trading Contests?

Forex trading contests are the type of competitions where we use our demo accounts. Usually, there is no entry fee, it is just required to follow basic regulations of the competition. This is not something new for most traders and this type of trade is mainly created for people who are new in forex trading. For some traders, it might be a good way to get a name out there, opportunity to improve your skills, get a prestigious title, or win a significant amount of money.

Previously, it was not super easy to find these contests but today we can find numerous trading contests on the internet if we look hard enough. Sometimes it takes signing up for a broker that we don’t want to sign up for, so that’s not always very appealing to people but a lot of contests do payout, they might pay cash, they payout credits towards that broker. There are a lot of things that we can potentially get by competing or winning at these contests.

Are those competitions represent a true test of skills when it comes to the real thing? What might be unfortunate about them is that almost all of the time people who actually win them or even place in the top ten for that matter are not really good forex traders. What might be certain is that this concept of competing is not rewarding traders who play the long game, the long term trading with consistent returns, and optimal risk management.

In a span of one, maybe two months, the person who finishes first can often achieve an ROI of anywhere from up to like 2500%. For some people, this might not sound crazy but for those traders who are fully entrenched in the right way of trading, this might be completely ridiculous. Successful traders tend to say that proper money management in these trading contests is not only not rewarded, but it is completely frowned upon. Taking the wild chances and hitting them might be the name of the game, therefore it does not mimic real-life forex trading at all.

Most of these competitions tend to look alike a huge poker tournament with people who are not playing a real-life poker. Instead, let’s say that this tournament is going to be only thirty minutes long and whoever has the most chips on the table at the end of thirty minutes wins the entire tournament. Can you imagine what that would look like? Probably every person at the table would be going all-in every single hand because they would have no choice. Everybody would have to play haphazardly and whoever got the luckiest at the end of the tournament would win and be rewarded for that. That is why most high-profile traders avoid this format of competition or any similar way of competing.

People win these tournaments by achieving exorbitant crazy figures, but there is actually a very tiny bit of skills involved in there. It might seem that there is nothing there that we can observe like a rational forex trading. So for someone who wants a little bit of fun participating in some of these contests, you guys go right ahead, you are absolutely allowed to do that. But even if we do tremendous, we mustn’t allow the things we did to place well in some tournaments affect our actual trading. Reckless style of trading every once in a while is not what we are going to recommend here.

Although this might be the quickest way to distinguish ourselves from everybody else and make temporary results, we believe it is much better to consider long-term trading and make people good money. We don’t want to build up our reputation by being a mediocre long-term trader that just happens to know how to win a contest. We want to become extremely good at this, that’s the key.

Forex trading contests are not for long game players. We need to put the time in because it’s very part of the definition of playing the long game. If we put ourselves too early on the marketplace with an unfinished product and not really designed for proper forex trading, we might be doomed. Traders should stop to look for a fast lane because it is not a way to go, they need to be patient and allow the system to develop. Eventually, they would have come out with much better product years down the road. So stay on the course traders, it’s worth in the end, do it right.

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Beginners Forex Education Forex Basics

Forex Supply and Demand Comparative

If you had to make a choice between stock, commodities, forex, and crypto markets, which ones would you say are affected by supply and demand more often than not? Contrary to common belief, forex is actually the only one that does not yield to the impact of the relationship between supply and demand among all four markets. Although the two terms are tightly connected to the subject of price, forex is exempt from such rules regardless of perceived relatedness.

Naturally, one may wonder why we should still learn about supply and demand despite the fact that forex is not susceptible to this type of market push-and-pull motion of prices. Also, can the skills we obtain through doing trading in the forex market be further utilized in trading in the other three markets and vice versa? We are going to discuss here how such inter-market support and information exchange can prove to be quite profitable down the road, what some substantial points of divergence between different markets are, and how the law of supply and demand affects money-making.

Building a Foundation of Financial Literacy

First of all, to be able to take part in the forex market, each trader must build on financial literacy. To trade money, one needs to comprehend the language of money, which implies the understanding of basic terms, trends, and laws of finance. While people who do not possess this knowledge may exist, such an approach should not be your goal or rule to live and work by. We can admit that we do not know a particular field or that committing to behaving in a specific way is not one’s forte, but the lack of feeling the urge to develop one’s skills and pool of information probably reflects the person’s mindset, rather than being an individual trait. Therefore, as financial literacy certainly isn’t an imperative, if you desire to become a professional forex trader, wouldn’t you want to do everything in your power to secure this future affluence?

Once you become really good at trading forex, you have naturally absorbed the knowledge and skills which can help you grow further and, if you feel the need, you have the chance to expand to other markets as well. Trading currencies can teach you the universal language of trading and thus help you apply this system to any other market of choice. The very necessary analysis and risk management skills used in forex can protect you and allow you to multiply your profit through expansion. If you have a stable foundation, you can allow yourself to think big and start acquiring other necessary pieces of information that such a transition could require. As expected, although general principles of trading are vital for shifting from trading in one market to trading in another, copy-paste mentality will not work. Regardless of one’s trading expertise, every individual should invest in growing context- and market-specific knowledge in order to be able to generate capital and make a profit.

The ability to trade in several markets, spreading your know-how from forex into other markets, puts you in a desirable position. At this stage, people will not only look up to you as a successful forex trader, but they will also be interested in trading any other commodity (such as grains, oil, etc.) or stocks. The possibilities are countless in this scenario because you are perceived as marketable. Nonetheless, if you are not eager to make this move, do not push yourself into undergoing this transition. Despite a degree of accompanying convenience, incentives, and benefits, spreading out should be a conscious choice, not a decision made just because.

The Importance of Diversification

Another important side of trading includes diversification – we do not only need to focus on shifting to other markets here. Diversification should be a constant approach in your trading, which pushes you to make career decisions that would support you in your search for additional sources of profit. Not only is this a good decision from the financial point of view, but it is also very smart to adopt as much knowledge about other markets as possible (e.g. cryptocurrency) due to the nature of trade. One day, hypothetically speaking, currencies as we know could disappear and knowledge of other currencies, for example, could not only alleviate the incurred challenges but help you prosper as well. We may not be able to control global events, yet we can adopt such a mindset to both prevent any possible losses and build a sustainable money flow.

Having an array of strategies to earn money at your disposal secures financial gains regardless of external factors. If you are successful at forex trading alone, you are already safe despite market trends, sudden highs and lows, or even recession. Nonetheless, no matter how dexterous a trader you may be, a time may come when a local change in laws and regulations affects this market or forex loses its significance globally, so you should consider different ways to fortify your foothold.

Devising such a clever plan always implies exploring several options and building on knowledge, as we discussed above. Even history has shown how a number of stock traders who turned to forex initially failed precisely because they resorted to the same strategies they had previously used to trade stocks. These early-on attempts to incorporate supply and demand, some old indicators, the highs and lows of the market, etc. only made them quit, thinking that forex is unsafe, unpredictable market with no future whatsoever. Even if you wanted to apply forex strategies in the stock market, for example, you would not be able to succeed without making certain adjustments. Therefore, we need to truly invest in understanding the differences and why our long-term plan could suffer unless we alter a particular approach which bore fruits in some other setting before.


In the context of supply and demand, we always have a similar situation whether we are talking from the perspective of a manufacturer, instructor, or consumer. Let’s assume that an individual possesses all of the aluminum there is on the planet, so they could always tap into this supply and trade it for whatever price they desired. As we know that aluminum can be used in a number of industries (e.g. automobile, construction, etc.), this individual would always enjoy considerable demand because everyone needing this commodity would turn to them regardless of the price.

However, if another person happened to discover a fresh supply of aluminum, the first individual would not be able to dictate the price as they used to. While the demand for aluminum did not change in this scenario, the supply did. Hence, the other person could set a lower price and therefore take over a significant portion of demand. As time goes by, someone could discover a substitute for this element, which could be used in the automotive industry instead and thus substantially influence the demand. Although this was an invented story, this rule of supply and demand always determines the price in the real world all around the globe.

Remember, Availability Always Drives Price

If we only have a limited number of items for one product, this product will always be in high demand because everyone wants or needs to have it. Moreover, its price will always be high because every manufacturer would want to use this opportunity to earn a profit. Therefore, low supply and high demand always imply high prices. Conversely, with high supply and regular demand, manufacturers cannot charge a high price for such products. In the context of the markets we trade, this phenomenon is closely related to the notion of intrinsic value. If we take all factors surrounding the stock or commodity we want to trade into considerations, everything boils down to what we believe their value is.

Quite interestingly, although markets heavily operate based on this notion, we do not need to know the intrinsic value of a product to be able to effectively trade it. The forex market, therefore, does not depend on this value especially because fiat currencies stopped being tied to the value of gold. The fact that currencies do not have intrinsic value does not imply that they have no value at all, quite the contrary, but they are not connected to anything that has real worth.

Where do supply and demand come into play when we are talking about the stock, commodities, forex, and crypto markets? When we think of the stock market, we naturally think about the worth of assets, people, information, and technology, among others, which naturally fluctuates. With the commodities market, we know that the supply is limited, while the demand can oscillate both up and down. Although involving the notion of currency, the crypto market heavily relies on supply and demand as well. As we stated before, unlike these three markets, supply and demand have no power in the world of forex trading. While there is a great number of people who propose otherwise, turning to disreputable, untrustworthy, and ill-advising sources on one hand or replicating actions and methods used in the stock market on the other can have severe consequences.

Of course, thinking about the supply, we can discuss the impact of quantitative easing and the cases when the government prints more money; however, in reality, we cannot truly predict how this affects the price. Many times we may assume that the price would go down when, in fact, it goes the opposite direction. We can, however, acknowledge the relevance of demand to forex trading. This market often witnesses a unique phenomenon where, if there is too much focus on one currency, big banks enter the picture to push the price down. Nonetheless, the relationship between supply and demand is nonexistent, which is why it does not apply in this market.

Learning from the Past

If a trader does not learn how to see past the differences between markets, they will never achieve the rewards which such knowledge bears. The understanding that the forex market is completely different from other markets must come first, and the awareness concerning supply and demand also belongs here. Likewise, the phenomenon of overbought and oversold, which is directly connected to supply and demand, simply does not apply to spot forex. Unlike other markets, currency pairs act differently to any other commodity or stock, and big banks may move prices in any direction they want.

The only other outside factor which can affect currencies is the government stepping in when a currency is officially too low or too high. However, such interventions are not predictable or regular for that matter. What is more, we cannot create a strategy based on their impact because predicting the change they are going to bring about in advance, or the market’s reaction to them is simply not possible. This entire setting with all of the key factors and players is what undeniably separates forex from any other trading market. These are in fact such essential pieces of information that are inextricably related to one’s likelihood of succeeding in forex trading.

Turning to the markets of intrinsic value, we must apply the same rule put forward for the forex market – we cannot use the same approach. The tools and values used in forex trading cannot be blindly transferred to other markets without previously making any adjustments to those markets’ needs and structures. Of course, we can always acknowledge the existence of some similarities, but to be able to draw any significant conclusions, we must address the basic discrepancies between the stock, commodities, forex, and crypto markets. Nevertheless, this should not stop you from putting some extra effort into becoming an expert trader across several markets. While this expansion might take some more time, diversifying could open up a world of new and exciting opportunities.

Of course, the topic of supply and demand, as well as the notion of intrinsic value, is vital for any long-term success in markets we trade. Most importantly, these markets’ core values and differences are so abundantly clear and straightforward that the knowledge you gather should directly help you go beyond the forex market and secure a substantial profit as a result.

Categories
Forex Basics

Some Spikes are Not to Be Ignored

Forex traders often struggle with spikes on their trading charts. The Line chart does not show spikes, but Candlestick Chart does. Price action traders usually use candlestick charts as one of their weapons to trade effectively. Thus, they face this problem every now and then. There is no sure method confirming which spikes are to be ignored, and which are not to be ignored. We have to be sensible about that. In today’s lesson, we find out a kind of spikes that are not to be ignored. Let us get started.

The price heads towards the South with good bearish momentum. It finds its support and produces a bullish reversal candle. The last candle comes out as a bullish candle as well. The sellers are to wait for a bearish reversal candle to go short in this chart.

Here comes the bearish reversal candle that the sellers wait in such price action. We have not drawn any resistance line. If we closely observe, we find that the last two candles’ bodies suggest a line of resistance. Candles’ bodies play a significant role in determining the support/resistance line. Let us draw a line of resistance here.

Here it is. The combination of the last two candles and their bodies suggests that we may draw a line right above their bodies. In most cases, we are to do this. However, the last two spikes have something more to think about. If we closely look, we find that the last two spikes are lined up. They have had their rejection at the same level. This means that the line is significant, which must not be ignored. Thus, if we want to take entry here, we may count the line above as the level of resistance. Let us have a look at the chart below with more drawn lines.

Look at the Stop Loss level. To be safe, we may not ignore such levels, where the price gets rejected multiple times. The candles may end up having spikes, but these spikes shall be counted to determine our stop loss, take profit, and breakout level. Let us not proceed to find out how the entry goes.

The trade setup works well for the traders. The price heads towards the South with more bearish pressure. It gets 1R to the sellers in a hurry. Now many of us may say the price never goes back to the level. In 80% of cases, the price does not go back near to the resistance. In the rest of the 20% cases, it may go. That is when we are to take an unnecessary loss. As they say, it is better to be safe than sorry. Let us be safe with spikes like these.

Categories
Forex Basics Forex Price-Action Strategies

A Story of a False Bullish Breakout

In today’s lesson, we are going to demonstrate an example of a short entry that is derived from a false breakout. It contains two lessons. Let us get started.

The price heads towards the North and makes an upside breakout. The buyers are to keep their eyes on the pair to go long upon consolidation and bullish reversal candle at the breakout level. Let us find out what happens next.

Wow! This is a copybook corrective candle, which closes right at the breakout level. A bullish reversal candle followed by a breakout at the highest high would get the buyers engaged in buying the pair.

The buyers might not have even thought about it. They are to let the sellers dominate in the pair, while sellers should wait for the breakout confirmation and a bearish reversal candle to go short on the pair. However, they have to calculate that the last swing low is not too far.

The price keeps going towards the South without having apposite consolidation. It consolidates just before the support. The price has been bearish but has not offered any short entry on this chart. Meanwhile, it has made another bearish breakout. The sellers shall be hopeful again. Look at the chart below.

This is an explicit breakout, and the next candle confirms it. The consolidation and the price breakout at the lowest low would be a signal to go short. Let see what the price does this time.

Price action traders have been waiting for this. The price consolidates and makes another breakout. By setting Stop Loss above the resistance, an entry may be triggered right after the last candle closes.

This is how it goes. The price produces consecutive four bearish candles. The very last candle comes out as an Inside Bar. Most traders may come out with their profit; some may still hold their trade by locking some profit.

 Lessons

We learned two lessons from here

  1. False breakout usually drives the price towards the opposite direction.
  2. Risk-reward is always a factor. It does not offer an entry within the first support since risk-reward is not lucrative. It offers an entry on the second breakout, where there is not support nearby.

The Bottom Line

In the beginning, it may sound too many things to remember in price action trading. It is right to some extent. However, if we practice hard, study with the recent price behavior on the chart with as many pairs as we can, surely it will get easy for us.

Categories
Forex Basics Forex Daily Topic

A Breakout Brings More Momentum than any Other Trading Factor

A Breakout Brings More Momentum than any Other Trading Factor

A bearish engulfing candle at a Double Top or consolidation resistance is an excellent signal to go short. However, if a bearish engulfing candle closes right within the support level, it sometimes may create an upside momentum on the minor charts. In today’s article, we are going to demonstrate an example of that.

The price heads towards the North with strong bullish momentum. Ideally, traders are to look for opportunities to go long here upon consolidation, followed by upside breakout. The last candle comes out as a bearish candle. It may consolidate and make an upside breakout as things look. Let us go to the next chart to find out what happens next.

The pair produces a bearish engulfing candle. Several rejections and a bearish engulfing candle suggest that traders may want to go short on the pair. If they’re going to go short from here, they are to flip over to the H1 chart since it is an H4 chart. For a reason, I am not showing the H1 chart since the H4 chart itself tells the story that I want to share. Let us look at the H4 chart with another equation.

The candle closes right at a level where the price has bounced earlier. This is an explicit support level, which may play an essential part in the minor charts. Soon we find out how the pair reacts from here.

Look at the last candle. The candle comes out as a bearish engulfing candle. However, look at the upper shadow. It goes up to the consolidation resistance. With some brokers, because of the high spread factor, some traders’ Stop Loss may be swept away. The last candle, after having a strong rejection at around the resistance level, closes below the support. The sellers are to flip over to the H1 chart, wait for consolidation and bearish breakout to go short on the pair.

Again, I am presenting the H4 chart to show the next price movement.

The price does not look back this time. It heads towards the South with strong bearish momentum. The H1 chart may have offered some entries, as well. What lesson do we get from these examples?

  1. In an H4-H1 combination, after an H4 reversal candle, traders are to flip over to the H1 chart to take an entry.
  2. The last swing high or swing low on the H4 chart is to be counted.
  3. If the reversal candle closes right within the last swing high or swing low, it may push the price towards another direction, produce spike and sweep away our Stop Losses.
Categories
Forex Basics Forex Daily Topic

A Winner is Not Always a Good Trade

Price action traders use chart combinations such as Weekly-Daily, Daily-H4, H4-H1, and H1-15M, etc. Intraday minor charts’ traders such as the H1, 15M, 5M do not have an undeviating relation with the daily chart. However, it is often seen that if the daily price action is choppy, it gets tough to find out a good entry for the intraday traders. Notably, on a choppy daily chat, it gets extremely tough for the H4 traders to find an entry with good risk-reward. Thus, even a trade that gets us profit may not always be a good one. Let us demonstrate an example of that.

This is a daily chart, which shows that the price action has been choppy. It gets caught within a bullish rectangle. The daily traders are to wait for a breakout. However, the H4 traders know the range. Thus, they are to wait for a daily bearish reversal at the resistance zone and bullish reversal at the support zone. Let us see where it produces the next reversal.

The chart produces an Inverted Hammer right at the resistance. The H4 traders are to flip over the chart; wait for consolidation and bearish breakout to take a short entry. The risk-reward looks good here.

The H4 chart shows the last candle comes out as a bearish candle. If the price consolidates with the support of the candle’s lowest low, a bearish breakout will be the signal to go short.

The next candle comes out as another bearish candle. The candle has a bounce at H4 support, as well. If the price consolidates and makes a bearish breakout, the sellers may take a short entry. There is still space for the price to travel towards the downside.

The price consolidates and makes a breakout at the support. The breakout candle looks good. By setting Stop Loss at the consolidation resistance, a short entry may be triggered right after the last candle closes. Take Profit shall be placed at the red-marked level. Let us find out whether it hits Take Profit.

It does. It gets us profit. The question is whether it is a good trade or not. As far as risk-reward is concerned, it is not a good entry. It gets us less reward than the risk. Thus, traders shall skip taking that entry in the first place.

The Bottom Line

Price action traders may find many trade setups that match with all the norms for taking an entry. However, they must consider risk-reward on every single trade. If it offers less than 1:1 risk-reward, they shall avoid taking that entry. In most cases, an entry offering less than 1:1 risk-reward has less chance to be a winning trade as well. In this example, it is a winner. However, considering entire facts, it is not a good entry.

Categories
Forex Basics Forex Daily Topic

Attributes of the Signal Candle Not to be Ignored

After choosing a pair to trade, traders wait for the signal candle at the desired zone/level to take an entry. The attributes of the signal candle are important. Ideally, a signal candle is to be a Marubozu candle, barely having an upper or lower shadow, and longer than other candles around. In today’s lesson, we are going to show an example of how attributes of a signal candle affect the market. Let us proceed.

The price after being bearish finds its support. A long consolidation suggests that a breakout towards either side makes the chart lively again. An upside breakout and the confirmation offer good risk-reward considering the last swing high. A downside breakout seems even more rewarding. Let us find out which way the breakout takes place.

It is an upside breakout. The breakout candle looks fantastic. Buyers are to wait for consolidation and breakout at the highest high to go long on the pair. However, buyers shall calculate that the last swing high is not too far away now.

The price continues its bullish journey towards the last swing high, and it consolidates. Flipped support is to be adjusted here considering the Inside bar. However, an upper shadow at the previous swing high holds the price as well up to the Inside bar. The last candle comes out from the zone, though. Look at its attributes

  • It is a bullish engulfing candle
  • It breaches the resistance zone
  • It is a Bullish Marubozu candle

Many of us may trigger an entry here by setting Stop Loss below the lowest low of the candle. Let us find out what happens next.

The price comes down again. It may have swept away many Stop Losses. Thus, the last entry gets the buyers loss. What do you think about the last candle?

  • It is a bullish engulfing candle
  • It breaches the resistance zone
  • It is a Bullish Marubozu candle and
  • It breaches the last swing high

 

Traders may want to trigger an entry here. Let us go to the next chart to see how it goes.

This time it works excellently well. A question may arise here: what the difference is between these two candles?. The only difference that can be observed is, “It breaches the last swing high.”

The Bottom Line

We have demonstrated an example today and learned a lesson. Traders are to be immaculate in making a decision, and they have to calculate every single aspect that is related to the trading decision.

 

Categories
Forex Basics Forex Daily Topic

Using Trailing Stop: An Art to Be Learned by Traders

Using a trailing stop is a way to lock a profit in trading, at least with some profit. A floating profit trade may not always hit its Take-Profit level. Thus, traders use Trailing Stop to lock-in some profits and let it run to hit the target. Otherwise, some trades may result in a loss instead.

In today’s lesson, we are going to demonstrate an example of that.

The price heads towards the North with good bullish momentum. The buyers are to wait for price correction and bullish reversal candle to go long on the pair. Let us proceed to the next chart to find more about the correction.

The correction looks very bearish. However, a flipped support level holds the price. Thus, it is going to be an interesting battle between the bull and the bear. Let us find out who wins. Does it make a downside breakout or a bullish reversal candle?

The chart produces a bullish reversal candle. We can see that this is an Inside Bar, which is the weakest reversal candle. A flipped support creates a bullish reversal candle but does not make any breakout. The buyers are to flip over to the trigger chart to get consolidation and breakout to go long on this. This is the daily chart. Let us flip over to the H4 chart.

The H4 chart looks suitable for the buyers. The level of support produces a bullish engulfing candle. It has started the price correction. An upside breakout from a good level of support is the signal to trigger a long entry.

The price goes upward and consolidates. Upon finding support, the last candle breaches the level of resistance. Setting Stop Loss below the level of support, an entry may be triggered right after the last candle closes. The Take Profit shall be placed at the highest high of the previous bearish wave.

The price continues to go towards the upside for a while. It has started having consolidation. The price has found its support. An upside breakout is to push the price towards the North further. On the other hand, a downside breakout may push the price towards the South and even change the whole equation. Thus, the buyers are to move their Stop Loss. Have a look at the chart below.

The buyers shall move their Stop Loss below the level of support and hope it makes another upside breakout to hit the Take Profit. Let us find out what happens next.

This is what Forex trading is all about. You never know what exactly happens next. The price comes down. It would hit the Stop-Loss, where it was set at the very outset. By using Trailing Stop, the buyers have made some profit. Otherwise, they would have to encounter some loss.

The Bottom Line

Using Trailing Stop is an art. It needs a lot of practice to be master at it. Without knowing how to use it properly, it may hurt a trader instead. Since it is an important trading feature to save us from encountering a loss with a profit trade, a trader must study/work hard on this.

Categories
Forex Basics Forex Daily Topic

The Simpler the Better

Financial traders follow many charts, patterns, and trading strategies. Each one has its own advantages and disadvantages. Nevertheless, there is a saying, ‘the simpler, the better.’ In the financial markets, especially in the Forex market, a trader cannot deny this truth.

Let us demonstrate an example of this.

The price heads down with strong bearish momentum. The sellers are to wait for an upside correction and a breakout at the support to make it more bearish. Let us proceed with what happens next.

The price has an upside correction, but it did not make a breakout at the support. It instead produces a huge bullish engulfing candle at Double Bottom support. Things are different now. Traders are to look for a long opportunity on the chart.

The price is bullish, but it gets caught within an ascending channel. A breakout at either side attracts traders to trade in this chart. The chart shows that the price makes an explicit breakout towards the upside. Ideally, the buyers shall flip over to their trigger chart to find a long entry. Let us find out whether they find any on the next candle.

The price does not make a breakout at the highest high of the breakout candle. Thus, the traders do not find an entry on the triggered chart. However, see the second candle (bullish candle). It makes a breakout (horizontally) at the highest high of those two candles. The buyers are to flip over the trigger chart again to find an entry. Do they see an entry this time? Let us find out.

 

Yes, they do. The price heads towards the North with good bullish momentum, and it does not come down to the support of the breakout candle. By flipping over to the trigger chart for an upside breakout to trigger an entry, a trader makes some green pips.

In this chart, the price makes a breakout at ascending channel’s resistance just a candle earlier. That breakout does not create bullish momentum. However, when it makes a breakout at the horizontal resistance, it creates the momentum that the buyers look for. I am not saying a breakout at ascending channel’s support/resistance does not offer entry at all. It does. A breakout at horizontal support/resistance offers more entries than the channel’s support/resistance breakout. It is because; it is simple and easy to be noticed by most of the traders.

The Bottom Line

Does that mean we stop looking entries on a channel or other pattern breakout? No, we shall eye on those breakouts; flip over to the trigger chart and trigger an entry if the trigger candle makes a new higher high or lower low. It is just the probability that a breakout at horizontal support/resistance offers more than any other chart pattern. After all, it is simple, and we know “the simpler, the better’.

Categories
Forex Basics

Importance of Timing in Trading

Timing is an essential factor in trading. Price action traders take entry on signal candle’s/bar’s attributes and support/resistance breakout. Many traders ignore the timing factor. However, it is an important factor when the signal candle is produced. In this article, we are going to demonstrate an example of the importance of timing in trading.

This is a daily chart. The price keeps going towards the South. Traders shall only look for selling opportunities in this chart on upward price correction/consolidation. Let us go to the next chart and find out what happens next.

The chart produces an engulfing bullish candle. It is a sign that the price may go towards the North. Intraday buyers such as 5M, 15M, H1 traders may look for long opportunities in this chart. The daily chart traders must wait for the correction/consolidation to get over upon a daily bearish reversal candle.

The price heads towards the North with good bullish momentum. The intraday buyers have made full use of the engulfing candle here. However, upper shadow and an Inside Bar suggest that a bearish reversal may come soon.

Here it is. A bearish engulfing candle suggests that it is time to look for short opportunities. It is a daily chart, so we shall flip over to the H4 chart to look for short opportunities.

The H4 chart shows that the price consolidates and makes a bearish move. However, support is still intact. The sellers must wait for a breakout at the support to go short on this chart. Let us draw the support line on the chart.

With an upward adjustment, the support lies at the black marked level. One of the H4 bearish candles is to breach the level for the sellers to get engaged in selling. Let us proceed to the next chart.

Concentrate on the chart. The chart has produced six candles since we have flipped over to the H4 chart. Six H4 candles mean a trading day is passed. Does it have any message to give us? We dig into the message later. Let us proceed to the next chart.

Wow! We have a breakout. Some traders may want to trigger an entry right after the candle closes. Let us find out what happens next.

The price starts heading towards the North. The price hits the Stop Loss. It even breaches the highest high of the wave. This is a different ball game now. If it were a technically right entry, we would not have talked about it. The thing is this one was a wrong entry, as the signal candle forms at the wrong time.

The signal candle does not form within the next trading day. It takes nine H4 candles to make the breakout. If the signal came within the first six candles, it would have been a valid trade. Since it comes at the ninth candle, it means the support has become daily support. Thus, an H4 breakout is not enough to drive the price towards the South. It goes towards the upside instead. The lesson we have learned here is, “A breakout is not a breakout if it does not take place at the right time.”

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Forex Basics Forex Daily Topic

Stop Loss: An Art to be Learned Well by Traders

Setting Take Profit and Stop loss in the right areas are essential factors in trading. A trader does not survive in the market by placing Stop Loss and Take Profit at the wrong places. In today’s lesson, we are going to demonstrate an example of an entry with the level of Stop Loss and Take Profit.

This is a daily chart. The price heads towards the North with good bullish momentum. The buyers are to look for long opportunities at the pullback. Let us wait for the price to make a pullback.

The price starts having a downside correction with an Inside Bar. It produces two more candles that are bearish. After that, it forms a Spinning Top right at a flipped support. This is a bullish reversal candle but not a strong one. A breakout at the top of the Spinning Top attracts the minor charts’ buyers to go long on the pair. However, major charts’ traders may want to wait for a stronger daily bullish reversal candle.

The next candle comes out as an Engulfing candle. This reversal candle attracts more traders to look for long opportunities here. Since it has not made an upside breakout, thus, to take an entry, traders shall flip over to the H4 chart.

This is the H4 chart. The price has a rejection at the red marked level on the daily chart. Thus, this is the level where the price may find its resistance on the H4 chart. This shall be the level to count in setting Take Profit. The H4 chart shows that the price starts having a pullback. Things are getting better for the buyers.

Let us draw the resistance. If the price consolidates and makes a breakout at the black marked level, a long entry may be triggered. However, the buyers must wait to get the level of support.

Here it comes. A bullish reversal candle forms at a flipped support followed by a breakout candle. A long entry shall be triggered right after the last candle closes. Stop Loss may be placed right below the support where the price forms the bullish reversal candle. Many traders set their stop loss right below the breakout candle. In my experience, this offers a better risk-reward, but it often brings more losing trades.

Have you noticed that the price came back and then headed towards the North? If we had set our Stop Loss right below the breakout candle, our Stop Loss would have been hit. Rather than making some profit, we would make a loss here.

The Bottom Line

Setting Take Profit is important, but setting Stop Loss is more important. In my opinion, it is an art. It needs a lot of practice to be well acquainted with the art of setting Stop Loss as immaculate as it can get.

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Forex Basics Forex Daily Topic

The Babe Ruth Syndrome

In his book More than you know, Michael J. Mauboussin tells the story of a portfolio manager working in an investment company of roughly twenty additional managers. After assessing the poor performance of the group, the company’s treasurer decided to evaluate each manager’s decision methods. So he measured how many of the assets under each manager outperformed the market, as he thought that a simple dart-throwing choice would produce 50% outperformers. This portfolio manager was in a shocking position because he was one of the best performers of the group while keeping the worst percent of outperforming stocks.

When asked why was such a discrepancy between his excellent results and his bad average of outperformers, he answered with a beautiful lesson in probability: The frequency of correctness does not matter; it is the magnitude of correctness that matters. 

Transposed to the trading profession, The frequency of the winners does not matter. What matters is the reward-to-risk ratio of the winners.

Expected-Value A bull Versus Bear Case.

Since a combination of both parameters will produce our results, how should we evaluate a trade situation?

Mauboussin recalls an anecdote taken from Nassim Taleb’s Fooled by Randomness, where Nassim was asked about his views of the markets. He said there was a 70% chance the market had a slight upward movement in the coming week. Someone noted that he was short on a significant position in S&P futures. That was the opposite of what he was telling was his view of the market. So, Taleb explained his position in the expected-value form:

Market events Probability Magnitude Expected Value
Market moves up 70% 1% 0.700%
Market moves down 30% -10% -3.000%
Total 100% -2.300%

  As we see, the most probable outcome is the market goes up, but the expected value of a long bet is negative, the reason being, their magnitude is asymmetric. 

Now, consider the change in perception about the market if we start trading using this kind of decision methodology. On the one hand, we would start looking at both sides of the market. The trader will use a more objective methodology, taking out most of the personal biases from the trading decision. On the other hand, trading will be more focused on the size of the reward than on the frequency of small ego satisfactions.

The use of a system based on the expected value of a move will have another useful side-effect. The system will be much less dependent on the frequency of success and more focused on the potential rewards for its risk.

We Assign to much value to the frequency of success

Consider the following equity graph:

 

Fig 1 – Game with 90% winners where the player pays 10 dollars on losers and gains 1 dollar on gainers

This is a simulation of a game with 90% winners but with a reward-to-risk ratio of 0.1. Which means a loss wipes the value of ten previous winners.

Then, consider the next equity graph:

Fig 1 – Game with 10% winners where the player pays 1 dollar on losers and gains 10 dollars on gainers

A couple of interesting conclusions from the above graphs. One is that being right is unimportant, and two, that we don’t need to predict to be profitable. What we need is a proper method to assess the odds, and most importantly, define the reward-to-risk situation of the trade, utilizing the Expected Value concept,

By focusing on rewards instead of frequency of gainers, our strategy is protected against a momentary drop in the percent of winners.

The profitability rule

P  > 1 / (1+ R)  [1]

The equation above that tells the minimum percent winners needed for a strategy to be profitable if its average reward-to-risk ratio is R.

Of course, using [1], we could solve the problem of the minimum reward-to-risk ratio R required for a system with percent winners P.

R > (1-P)/P    [2]

We can apply one of these formulas to a spreadsheet and get the following table, which shows the break-even points for reward-to-risk scenarios against the percent winners.

We can see that a high reward-to-risk factor is a terrific way to protect us against a losing streak. The higher the R, the better. Let’s suppose that R = 5xr where r is the risk. Under this scenario, we can be wrong four times for every winner and still be profitable.

Final words

It is tough to keep profitable a low reward-to-risk strategy because it is unlikely to maintain high rates of success over a long period.

If we can create strategies focused on reward-to-risk ratios beyond 2.5, forecasting is not an issue, as it only needs to be right more than 28.6% of the time.

We can build trading systems with Reward ratios as our main parameter, while the rest of them could just be considered improvements.

It is much more sound to build an analysis methodology that weighs both sides of the trade using the Expected value formula.

The real focus of a trader is to search and find low-risk opportunities, with low cost and high reward (showing positive Expected value).

 


Appendix: The Jupyter Notebook of the Game Simulator

%pylab inline
Populating the interactive namespace from numpy and matplotlib
%load_ext Cython
from scipy import stats
import warnings
warnings.filterwarnings("ignore")
The Cython extension is already loaded. To reload it, use:
  %reload_ext Cython
from scipy import stats, integrate
import matplotlib.pyplot as plt
import seaborn as sns
sns.set(color_codes=True)
import numpy as np
%%cython
import numpy as np
from matplotlib import pyplot as plt

# the computation of the account history. We use cython for faster results
# in the case of thousands of histories it matters.
# win: the amount gained per successful result , 
# Loss: the amount lost on failed results
# a game with reward to risk of 2 would result in win = 2, loss=1.
def pathplay(int nn, double win, double loss,double capital=100, double p=0.5):
    cdef double temp = capital
    a = np.random.binomial(1, p, nn)
    cdef int i=0
    rut=[]
    for n in a:
        if temp > capital/4: # definition of ruin as losing 75% of the initial capital.
            if n:
                temp = temp+win
            else:
                temp = temp-loss        
        rut.append(temp)
    return rut
# The main algorithm. 
arr= []
numpaths=1 # Nr of histories
mynn= 1000 # Number of trades/bets
capital = 1000 # Initial capital

# Creating the game path or paths in the case of several histories
for n in range(0,numpaths):
    pat =  pathplay(mynn, win= 1,loss =11, capital= cap, p = 90/100)
    arr.append(pat)

#Code to print the chart
with plt.style.context('seaborn-whitegrid'):
        fig, ax = plt.subplots(1, 1, figsize=(18, 10))
        plt.grid(b = True, which='major', color='0.6', linestyle='-')
        plt.xticks( color='k', size=30)
        plt.yticks( color='k', size=30)
        plt.ylabel('Account Balance ', fontsize=30)
        plt.xlabel('Trades', fontsize=30)
        line, = ax.plot([], [], lw=2)
        for pat in arr:
            plt.plot(range(0,mynn),pat)
        plt.show()

References:

More than you Know, Michael.J. Mauboussin

Fooled by randomness, Nassim. N. Taleb

 

 

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Forex Basics

Do not be Biased with Your Anticipation

Financial markets keep going up and down. Traders make money out of those moves. To take an entry, a trader is to do a lot of calculations, such as detecting a trend, waiting for the price to go to the right zone, market psychology, and signal candle, etc.

In trading, we often find ourselves in a situation in which we were waiting for a long entry from a support zone, all of a sudden the price makes a breakout at the support and heads towards the South instead. We feel deprived. However, this should not be like this. In trading, we are to get ready to sell and to buy since the market can go anywhere. We are to stick with the rules to take an entry.

Let us demonstrate an example.

The price heads towards the North with good buying pressure. It seems that the price finds its resistance as well. The buyers are to wait for a bullish reversal candle and a breakout at the resistance to go long again on the pair.

The price keeps being bearish. It seems that the price is going to have a long correction instead of consolidation. The price is at a flipped support. This is where a battle is going to take place between the bull and the bear. Traders are to wait for a downside breakout to sell the pair. On the other hand, a bullish reversal candle is going to attract them to keep an eye for an upside breakout and buy the pair.

The bull wins here. An engulfing bullish candle right at the flipped support means traders shall wait for an upside breakout to buy the pair. The momentum looks good. If the breakout takes place within the next candle, it will be an excellent buy signal. If it takes two candles to make the breakout, that will be a good buy signal as well. Let us proceed to find out what happens next.

The bull has lost the momentum. Traders are to wait for an upside breakout to go long. A good-looking bullish engulfing candle at the support area shall attract the buyers on the minor time frames to push the price towards the upside. That would eventually help the price make an upside breakout on this chart. Let us wait and find what happens next.

What do you see here? A bearish engulfing candle is right at the resistance level. This is a Double Top resistance level as well. If you have been waiting to go long, please change your mind. Get ready to look for short opportunities. This is how the market changes its complexion. You know what you have to do to deal with it. Yes, you must not be biased with your anticipation/calculation — Trade what you see, not what you think.

 

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Forex Basics

What leads a Breakout to be Nullified?

Price action traders consider the breakout as one of the most important factors. It is, once it is confirmed. However, momentum, overall psychology are essential aspects of breakout that less experienced traders often misapprehend. In this lesson, we are going to demonstrate an example of a breakout with less momentum. Let us get started.

The chart shows that the price is up trending with good buying pressure. The price makes a breakout at the last swing. This is an ideal chart for the buyers to look for buying opportunities. They are to buy the pair on the pullback. Let us proceed to the next scene.

The price starts having a correction and comes back up to the breakout level (the last swing high). It produces an engulfing candle, which is a strong sign that it may keep going towards the upside, makes a breakout, and offers a long entry.

The price does not find a strong buying momentum. It goes towards the upside and comes back again to the support. It seems the buyers may have to wait longer than they thought.

Things look a bit different now. Rather than making an upside breakout, it has a strong rejection at the resistance. The support is being tested again.

No downside breakout, but the support holds the price. The price gets caught within two horizontal levels. To be precise, the price gets caught within a rectangle. Ideally, both the sellers and the buyers love to keep this chart in their watch list; get a breakout at either side to take an entry.

Two consecutive bullish candles right at the support suggest that the buyers have the upper hand. The buying momentum looks good here. If it continues going towards the upside and makes a breakout, the buyers may dominate here. Let us see what happens next.

Oh no, the price heads towards the North with less buying pressure. The bullish move has much less speed than the last bearish move. This sort of price action usually makes the price have another bearish move and head towards the support. Let us find out what happens next.

An upside breakout this is! After the breakout, if the price consolidates and makes another bullish move from the breakout level, it would be a buying market again. However, the question is whether it makes the buyers interested in buying or not.

  1. The last bullish wave does not have the drive.
  2. The resistance level is strong

Let us find out what happens next.

It does not produce a bullish reversal after the breakout. Instead, it comes back in. The breakout is not valid anymore. What may have been a strong buying market has become a choppy market again.

The Bottom Line

The breakout may have offered us entry if it produces a bullish reversal candle at the breakout level. That does not happen. We cannot precisely tell why that happens here. However, the less momentum to begin the potential trend is one of the reasons among many. It represents that psychologically, the buyers are not confident about the breakout and continuation, which makes that a nullified breakout in the end.

Categories
Forex Basics

Even a Combination of Double Top and Engulfing Fails

Double Top/Double Bottom is one of the most robust patterns that price action traders wait to take entries. When the price is rejected twice at a resistance level, it forms a Double Top. As far as the candlestick pattern is concerned, an engulfing candle is the most reliable reversal candle that traders usually love to take an entry from a value area.

A combination of Double Top and a bearish engulfing candle attracts sellers to go short. Since it is an outstanding price action combination, it does not usually go wrong. However, in today’s lesson, we are going to demonstrate that even a great flourishing price action combination can go wrong, as well.

The price consolidates at the marked resistance and heads towards the downside. It then goes back towards the resistance. The sellers are to get ready to get a bearish reversal candle. The red-marked level is the resistance level, where we don’t consider the upper shadows. Since the price has several rejections at the marked level, and it is a valuable area for the sellers, the price most probably may respect the area and produce the bearish reversal candle.

The price does not respect the red-marked level, but it does not make an upside breakout either. Instead, it closes within the upper shadows. Traders are to adjust here. Let us see how it looks now.

The level where the last candle closes has some significance. One of the bullish candles closes within the marked level. This level may work as a resistance level and ends up producing a bearish reversal candle.

Here it comes. The Double Top’s resistance level produces a bearish engulfing candle. We have found the resistance level at last. So all the equations to go short from here seem to match as far as price action trading is concerned.

  1. The price produces a Double Top.
  2. The price produces a bearish engulfing candle right at the resistance of the Double Top.

The swing low is far enough, which offers good Risk-Reward as well. All seems to be okay to trigger a short entry.

After triggering the entry, the next candle comes out as a bearish Doji candle. Things still look good. The sellers are going to grab some green pips!

No! The next candle comes out as a bullish Marubozu candle, which breaches the resistance of the Double Top. It wipes off the Sellers Stop Loss. The buyers may take control once the breakout is confirmed.

The Lesson

It does not matter how good a trade setup looks: it may fail. Thus, there is no reason to be too optimistic about any entry. We must calculate our Risk-Reward and have immaculate risk management with every single entry that we take in the market.

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Forex Basics

Let Profit Trade Run

There is a saying in the financial market, “Cut your losses short and let your profit run.” Letting the profit trade run is not as easy as it sounds. Traders try to do it in many different ways, such as taking partial profit, using a trailing stop, etc. Both are very handy, but traders are to use them sensibly.

At the time of entering a trade, a trader has to determine the next level of support/resistance (take profit) at where the price may lose its momentum. If the price hits the level, he gets the reward. The length difference between the entry point and the support/resistance (stop loss) is the risk. The risk and reward ratio shall be at least 1:1. The more, the better it is.

Let us think of an example. A trader is about to take a long entry. He measures the next level of resistance offers enough space for the price to travel towards the upside. The price reacts at a level of support and is about to produce a bullish reversal candle. Let us assume the Risk-Reward ratio is 1:1, which he is happy with. He takes the entry, and the price heads towards the direction according to his anticipation. The trend looks strong, and he decides that he would let the trade run.

Traders can do it in many ways. Let us get acquainted with two popular ways to do it.

Trailing Stop Loss: Though his initial calculation offers him a 1:1 risk and reward ratio, he sets Take Profit far away. He makes sure that he sets Stop loss where he planned before initiating the trade. Once the price has gained some profit, he shifts the Stop Loss along with the price by having enough gap. This is how he gives himself a chance to grab some extra pips.

To do that accordingly, minor time frames may be used to spot out support level. Using trailing Stop Loss is not always that rewarding. However, if it works well, it may give you a huge return.

Taking partial profit: Taking partial profit is another way that he can let his profit run. Once the price is at the first resistance, he shall take half of the profit; let the rest of it run and shifts the Stop Loss at the breakeven point. This means he has free trade, which does not have anything to lose. He has already taken some profit (50%) out. Let us assume that the first resistance level gets broken and the price heads towards the second resistance level. What does he do?

Think for twenty seconds, what would you do?

He takes some part of the profit again, shifts his Stop Loss up, and lets the rest of it run. This is what he keeps doing with at least 10% of his original trade until the Stop Loss gets hits by the price.

If a trader can do it accordingly, he maximizes his chances to grab some extra pips. Both of them need a lot of practice. Backtesting, demo trading, or letting a very tiny part of the profit, such as a 5% run, can help us learn the art of taking partial profit.

 

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Forex Basics

Supply, Demand and Liquidity as Drivers of Prices

Markets are “places” where people and institutions exchange assets. It may be stock shares, commodities, grain, livestock, or currencies, but all markets behave similarly. Buyers and sellers look for the best possible price. A buyer seeks to buy at the cheapest possible price, while the seller wants to sell at the highest price.

How prices move

If we order buyers and sellers by the price they are willing to accept, we could see some buyers are bidding an amount very close to the price sellers are asking, and from there, the distance grows in a kind funnel-like shape.

For a sell to occur, one of them must cross the bridge and accept the other side’s price. Also, when a seller moves and takes the ask price for the first time, the “Last price” moves down a little. If another seller does the same, there might be other buyers willing to buy at the same level or not. If there are more buyers at that level, the next seller who takes the ask does not create an additional downward movement. If all buyers disappear from this level, the seller should accept a worse price, moving the asset down, or hold until a buyer takes his bid.

Conversely, if a buyer takes a bid price for the first time, the price of the asset moves up. If other buyers get in and deplete this level from sellers, they should buy at higher prices or wait till a seller takes his ask price.

Supply and Demand

Demand

The demand for an asset decreases as the price increases. The rate of that decline depends on the need for the asset and also on the perceived future value of the asset.

Supply

The supply increases as the price increases. The rate of increment depends mostly on the sellers’ belief about the future price growth of the security.

Equilibrium

Supply and demand are what drives prices up and down. If there are an equal number of buyers and sellers, the price stays at one level and is said to be in equilibrium.

When there are more buyers than sellers, the price moves up until a new equilibrium is reached. Conversely, if the number of sellers is higher, the price moves down until sellers and buyers get the new equilibrium.

Fair Price

The equilibrium is the result of a consensus about the fair price of the security, but fair price changes with the passage of time. The change in fair price may come from technical factors ( overbought-oversold levels, pivot points, breakouts), economic reports such as interest rates, GDP, manufacturing, nonfarm Payrolls, and inflation, or unexpected news events. The new price does not manifest itself in a single and swift price movement because that price is not known at the time. That’s the reason for the appearance of trends.

Liquidity

Liquidity is the term used to define the number of buyers and sellers present in the market.

In a very liquid market, the number of buyers and sellers is vast. Large-sized orders do not affect the price much. Also, bid and ask prices get closer to each other because buyers and sellers compete among themselves to offer their best bid and ask prices. That means spread tightens.

A market with low liquidity shows a scarcity of buyers and sellers. The size and number of operations are tiny, and one small order can produce significant price variations up or down. Also, usually, spreads widen because there is less competition among participants. Low liquidity may cause market manipulations since it is easy to drive prices up or down.

Liquidity does not depend only on the market in question. It changes with the time of the day. For instance, the EURUSD shows less liquidity during the Tokyo session. Then it grows when the European exchanged opens, and it maximizes at the open of the US session. Finally, it fades after Europe closes its markets and traded volume declines further after the US closes.

Final words

  • Supply and demand drive the prices up or down until an equilibrium is reached.
  • The equilibrium breaks by a change in the perception of value by the parties trading it.
  • High liquidity is the key factor for tightening spreads and making markets flow without price manipulation.
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Forex Basics

Forex And The Importance Of Education

The Importance of Forex Trading Education

This is a growing market with an average daily turnover of US$5.3 trillion! That’s around £4 trillion. So who is taking advantage of this incredibly liquid market; the biggest traded business on the planet? Large companies and institutions including banks, HNW individuals, fund managers, firms that have overseas business activities all need to hedge their currency exposure, sovereign funds and central banks, and everyday people in their bedrooms are now trading Forex, thanks to the proliferation of the internet!

However, it is well known that 95% of new Forex traders will lose their money within 6 months. In fact, according to Reuters the China Banking Regulatory Commission banned banks from offering retail Forex on margin to their clients back in 2008. The writing was on the wall!

In 2014, the French regulator conducted a survey which concluded that the average % of losing clients was 89%, with clients who squandered €11K, on average, between 2009 and 2012. Over that 4 year period, 13,224 clients lost €175M.  The estimated number of losing retail traders across Europe during this period was €1 million.

In 2015 the US National Futures Association announced a reduction on limits that US brokers could offer their retail clients to a maximum of 50:1 in 10 listed major foreign currencies, and 20:1 on some others. Similarly, The European Securities and Markets Authority (ESMA) recently confirmed stricter changes to the way brokers are able to offer retail Forex clients leveraged trading. I expect we shall see a lot more of this type of intervention in years to come.

Yet none of this really addresses the real issue, which is why people, especially new traders, lose money trading Forex? It simply comes down to education. I wouldn’t strip a car engine down without first going to mechanic classes, or operate on a human without going to medical school, or fly a plane without lessons. And yet thousands of individuals think they can open an FX account and consistently make money. Sure, they might get lucky initially and think they are on a roll, before over leveraging themselves and wiping out their accounts.

In my opinion, if governments want to intervene, they need to address education. Of course, reducing leverage and insisting on larger margin requirement will slow down the rot. But it won’t stop it, whereas insisting that traders are qualified would have a much more positive impact in the long run. Just like any profession, people need to be fully educated and a basic level of Forex trading education should be the first thing undertaken before newbies are let loose ‘trading’, a term I use loosely, under the circumstances, they are gamblers, and we all know what happens to most gamblers!

So to all you people who are thinking about becoming a currency trader, invest in a professionally put together A-Z education course and at least give yourself a chance in this volatile arena, which is fraught with danger and will think nothing of absorbing your hard earned cash into its coffers!

Here at Forex.Academy we recognise this issue and feel passionately about it. What’s more, we offer all the educational tools you will need to trade effectively!

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Forex Basics

Everything you should master to Detect Trends, and more!

Introduction

In chapter 1, we’ve set the foundations of market classification, what a trend is about, and the dissection of a trend in its several phases. Then we talked about its two dissimilar wave parts: an impulsive wave, followed by a corrective wave.  We dealt with support, resistance, and breakouts. Finally, we talked about channel contractions.

In this second chapter, we’ll learn the methods available in the early discovery of trends: Trendlines, moving averages, and Bollinger band channels.

Trendlines

A trendline is a line drawn touching two or more lows or highs of a bar or candlestick chart. The convention is to draw the line touching the lows if it’s an uptrend and the tops on a downtrend. Sometimes both are drawn to form a channel where the majority of prices fit.

As we see in Fig. 1 the trendline tends to draw resistance levels or supports where the price finds it difficult to cross, bouncing from there, although not always this happens. In Fig. 1 the first trendline has been crossed over by the price, and during the following bars, the slope of the downtrend diminished.  We saw, then, that the first trendline switched its role and now is acting as price support.

When the second trendline was crossed over by the price, a bottom has been created, and a new uptrend started. After a while trending up, we might note that we needed a second trend line to more accurately follow the new bottoms because the uptrend has sped up, and the first trendline is no longer able to track them.

Fig. 2 shows two channels made of trendlines, one descending and the other ascending. The trendline allows us to watch the volatility of the trend and the potential profit within the channel. The trend, as is depicted, has been drawn after it has been developing for a long lapse. Therefore, it’s drawn after the fact.  If we look at the descending channel, we observe that during the middle of the trend, the upper trendline doesn’t touch the price highs. So, this channel would look different at that stage of the chart.

I find more reliable the use of horizontal lines at support and resistance levels and breakouts/breakdowns at the end of a corrective wave. But, if we get a well-behaved trend, such as the second leg in fig 2, a channel might help us assess the channel profitability and assign better targets to our trades. If we use horizontal trendlines together with the trend channel (see Fig 2.b) it’s possible to better visualize profitable entry points and its targets, and, then, compute its reward to risk ratio.  The use of the Williams %R indicator (bottom graph) confirms entry and exit points.

Fig. 2b graph’s horizontal red lines show how resistance becomes the support in the next leg of a trend.

As a summary:

  • A trendline points at the direction of the trend and acts as a support or as a resistance, depending on the price trend direction.
  • If a second trendline is needed, we should pay attention if it shows acceleration or deceleration of the price movement.
  • If the price crosses over or crosses under the trendline, it may show a bottom or a top, and a trend change.
  • A trendline channel helps us assess the potential profitability and assign proper targets to our next trade.

Moving Averages (MA)

Note: At the end of this document, an Appendix discusses some basic statistical definitions, that may help with the formulas presented in this section, although reading it isn’t needed to understand this section.

Some centuries back, Karl Friedrich Gauss demonstrated that an average is the best estimator of random series.

Moving averages are used to smooth the price action. It acts as a low-pass filter, removing most of the fast changes in price, considered as noise. How smooth this pass filter behaves, is defined by its period. A moving average of 3 periods smoothens just three periods, while a 200-period moving average smoothens over the last 200 price values.

Usually, a Moving Average is calculated using the close of every bar, but there can be any other of the price points of a bar, or a weighted average of all price points.

Moving averages are computationally friendly. Thus, it’s easier to build a computerized algorithm using moving average crossovers than using trendlines.

Most Popular types of moving averages

Simple Moving Average(SMA):

The simple moving average is computed as the sum of all prices on the period and divided by the period.

The main issue with the SMA is its sudden change in value if a significant price movement is dropped off, especially if a short period has been chosen.

Average-modified method (AvgOff)

To avoid the drop-off problem of the SMA, the computation of an avgOff MA is made using and average-modified method:

Weighted moving average

The weighted moving average adds a different weight to every price point in the period of calculation before performing the summation. If all weights are 1, then we get the Simple Moving Average.

Since we divide by the sum of weights, they don’t need to add up to 1.

A usual form of weight distribution is such that recent prices receive more weight than former prices, so price importance is reduced as it becomes old.

w1 < w2 < w3… < wn

Weights may take any form, most popular being Triangular and exponential weighting.

To implement triangular weighting on a window of n periods, the weights increase linearly from 1 the central element (n/2), then decrease to the last element n.

Exponential weighting is an easy implementation:

EMAt = EMAt-1 + a x (pt Et-1)

Where a, the smoothing constant, is in the interval 0< a < 1

The smoothing property comes at a price:  MA’s lags price, the longer the period, the higher the lag of the average. The use of weighting factors helps reducing it. That’s the reason traders prefer exponential and weighted moving averages: Reducing the lag of the average is thought to improve the edge of entries and exits.

Fig 3 shows how the different flavors of a 30-period MA behave on a chart. We may observe that the front-weighted MA is the one with a slope very close to prices, Exponential MA is faster following price, but Triangular MA is the one with less fake price crosses, along with simple MA: The catch is: We need to test which fits better in our strategy. The experience tells that, sometimes, the simpler, the better.

Detecting the trend using a moving average is simple. We select the average period to be about half the period of the market cycle. Usually, a 30 day/bar MA is adequate for short-term swings.

One method to decide the trend direction is to consider it a bull leg if the bar close is above the moving average; and a bear leg if the close is below the average.

Another method is to watch the slope of the moving average as if it were a trendline. If it bends up, then it’s a bull trend, and if it turns down, it’s a bear trend.

A third method is to use two moving averages:   Fast-Slow (Fast -> smaller period).

In this case, there are two variations:

  1. Moving average crossovers
  2. All the averages are pointing in the same direction.

As with the case of a single MA, a price retracement that touches the slower average is an opportunity to add to the position.

For example, using a 30-10 MA crossover: If the fast MA crosses over the slow MA, we consider it bullish; if it crosses under, bearish.

Using the method of both MA’s pointing in the same direction, we avoid false signals when the fast MA crosses the slow one, but the slow MA keeps pointing up.

When using MA crossovers, we are forbidden to take short trades if the fast MA is above the slow MA, but we’re allowed to add to the position at price pullbacks. Likewise, we’re not allowed to trade on the buy side if the fast MA is below the slow MA.

Using smaller periods, for instance, 5-10 MA, it’s possible to enter and exit the impulsive legs of a trend.  Then, the 10-30MA crossovers are used to allow just one type of trade, depending on the trend direction, and the 5-10 MA crossover is actually used as signal entry and exit (if we don’t use targets). In bull trends, for example, we may enter with the 5MA crossing over the 10MA, and we exit when it crosses under.

Bollinger Band Channel

We already touched channels that were made of two trendlines. There is another computationally friendly channel type that allows early trend detection and trading.

One of my favorite channel types is using Bollinger Bands as a framework to guide me.

A Bollinger Band is a volatility channel and was developed by John Bollinger, which popularized the 20-period, 2 standard deviations (SD) band.

This standard Bollinger band has a centerline that is a simple moving average of the 20-period MA. Then an upper band is drawn that is 2 standard deviations from the mean and a lower band that’s 2 standard deviations below it.

I tend to use two or three 30-period Bollinger bands. The first band is one SD wide, and the second one is two SD apart from the mean. A third band using 3 standard deviations might be, also, useful.

Fig 6 shows a very contracted chart with 3 Bollinger bands to show how it looks and distinguishing periods of low volatility.

During bull trends, the price moves above the mean of the Bollinger band.  During bear markets, the price is below the average line of the bands.

On impulsive legs of a trend, the price goes above 1-SD (or below on downtrends), and it continues moving until it crosses the 2-SD line, sometimes it even crosses the third 3-SD line. Price beyond 2 SDs is a clear sign of overbought or oversold. On corrective legs, the price goes back to the mean. During those phases volatility contracts, and is an excellent place to enter at breakouts or breakdowns of the trading range.

Below Fig. 7 shows an amplified segment of Fig 6, with volatility contractions circled. We may observe, also, how price moves to the mean, after crossing the 2 and 3 std lines.

 

Grading your performance

According to Dr. Alexander Elder, the market is testing us every day. Only most traders don’t bother looking at their grades.

Channels help us grade the quality of our trades. To do it, you may use two trendlines or some other measure of the channel. If you don’t see one, expand the view of the chart.

When entering a trade, we should measure the height of the channel from the bottom to its top.  Let’s say it’s 100 pips.  Suppose you buy at ¾ of the upper bound and sell 10 pips later. If you take 10 pips out of 100 pips, your trade quality is 10/100 or 1/10. How does this qualify?

According to Elder’s classification, any trade that takes 30% or more of a channel is credited with an A. If you make between 20 and 30%, your grade will be B. Between 10 and 20% you’re given a C and a D if you make less than 10%.  So, in this case, your grade is C.

Good traders record their performance. Dr. Elder recommends adding a column for the height of the channel and another column for the percentage your trade took out of the channel.

Monitor your trades to see if your performance improves or deteriorated.  Check if it’s steady or erratic.  The information, together with the autopsy of your past trades, helps you spot where are your failures: Entries too late? Are you exiting too soon? Too much time on a losing or an underperforming trade?  A trade against the prevailing trend?

 

The next chapter will be dedicated to chart patterns.


 

Appendix: Statistics Overview

Statistics is a branch of mathematics that gives us information about a data set. Usually, the data set cannot be described by an analytical equation because they come from unpredictable or random events. As traders, we need basic knowledge, at least, of statistics for our job.

We can express statistical data numerically and graphically. Abraham de Moivre, back in the XVII century, observed that as the number of events (coin flips) increased, the shape of the binomial distribution approached a very smooth curve. De Moivre thought that if he could find the mathematical formula for this curve, he could solve problems such as the probability of 60 or more heads out of 100 coin flips. This he did, and the curve is called Normal distribution.

This distribution plays a significant role because of the fact that many natural events follow normal distribution shapes.  One of the first applications of this distribution was the error analysis of measurements made in astronomical observations, errors due to imperfect measuring instruments.

The same distribution was also discovered by Laplace in 1778 when he derived the central limit theorem. Laplace showed the central limit theorem holds even when the distribution is not normal and that the larger the sample, the closer its mean would be to the normal distribution.

It was Kark Friedrich Gauss, who derived the actual mathematical formula for the normal distribution. Therefore, now, Normal distribution is also named as Gaussian distribution.

Although prices don’t follow a normal distribution, it’s is used in finance to extract information from prices and trading statistics.

There are two main measures we use routinely: The center of our observations and the variability of the points in our data set from that mean.

There’s one main way to compute the center of a set: the mean. But it’s handy to know also the median if the distribution isn’t symmetrical.

Mean: It’s the average of a set of data. It’s computed adding all the elements of a set and divide by the number of elements:

Mean = Sum(p1-Pn)/n

Median: The median is the value located in the middle of a set after the set has been placed in ascending order. If the set has a symmetrical distribution, the median and the mean are the same or very close to it.

The variability of a data set may be calculated using different methods. Two main ways are used in financial markets:

Range: The easiest way to measure the variability. The range is the difference between the highest and lowest data of a set. On financial data, usually, a variant of the range is calculated: Average true range, which gives the average range over a time interval of the movement of prices.

Sample Variance(Var): Variance is a measure of the mean distance of the data points around its mean. It’s computed by first subtracting the average from all points: (xi-mean) and squaring this value. Then added together and dividing by n-1.

Var = 𝝈2 =∑ (x-mean)2 / (n-1),

whereis the symbol for the sum of all members of the set

By squaring (xi-mean), it takes out the negative sign from points smaller than the mean, so all errors add-up. The division by n-1 instead of n helps us not to be too much optimistic about the error. This measure increments the error measure on small samples, but as the samples increase, its result is closer and closer to a division by n.

If we take the square root of the variance, we obtain the standard deviation (𝝈 – sigma).

 Volatility: Volatility over a time period of a price series is computed by taking the annualized standard deviation of the logarithm of price returns multiplied by the square root of time expressed in days.

𝝈T = 𝝈annually √T

 


References:

New Systems and Methods 5th edition, Perry Kaufman

Trading with the Odds, Cynthia Kase

Come into my Trading Room, Alexander Elder

History of the Gaussian distribution http://onlinestatbook.com/2/normal_distribution/history_normal.html

https://en.wikipedia.org/wiki/Volatility_(finance)

Further readings:

Profitable Trading – Chapter 1: Market Anatomy

Profitable Trading Chapter III: Chart patterns

Profitable Trading – Computerised Studies I: DMI and ADX

Profitable Trading – Computerized Studies II: MACD

https://www.forex.academy/profitable-trading-computerized-studies-iii-psar/

Profitable Trading (VII) – Computerized Studies: Bands & Envelopes

Profitable Trading VIII – Computerized Studies V: Oscillators