Tag: Forex Strategy

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Beginners Forex Education Forex Basic Strategies

The Forex 10,000 Hour Rule

The 10,000 Hour Rule became popular after author Malcolm Gladwell dedicated a chapter to the concept in his book Outliers. The book can be summarized as a piece that examines the nature of trading success by evaluating different success stories and looking at separate case studies that back up some of those findings. In the […]

The 10,000 Hour Rule became popular after author Malcolm Gladwell dedicated a chapter to the concept in his book Outliers. The book can be summarized as a piece that examines the nature of trading success by evaluating different success stories and looking at separate case studies that back up some of those findings. In the […]

The 10,000 Hour Rule became popular after author Malcolm Gladwell dedicated a chapter to the concept in his book Outliers. The book can be summarized as a piece that examines the nature of trading success by evaluating different success stories and looking at separate case studies that back up some of those findings. In the chapter that focuses on the 10,000-hour rule, Gladwell claims that he has discovered “the magic numbers for greatness”: 20 hours of guided practice per week, 50 weeks per year, for 10 years, which equals 10,000 hours in total. According to the book, achieving this would put the person on the same level of greatness as a professional trader. 

Of course, any trader that sets out to meet this goal would have to be highly ambitious. This might not be possible for every forex trader, as many can only afford to trade part-time or might use a strategy like swing trading that doesn’t require as much attention as a more hands-on technique. One of the main benefits to forex trading involves the flexibility of hours since traders can decide when and how they want to trade. You would have to really work the 20 hours a week into your schedule if you wanted to meet the hours outlined by Gladwell’s plan. This would also only leave 2 weeks off per year, where some jobs provide their workers with 3 or 4 weeks. For traders that exclusively work from home, this is possible, but those with less flexible schedules just might not have the time. 

The plus to following the plan is that it would expose you to many different types of markets, thus building you into a more knowledgeable trader. For example, if you had started in 2010, you would have traded during both the U.S. and European financial crises, Japan’s nuclear meltdown, and during the plunge in oil prices. If you started on the plan today, you would likely see many other world events during the 10 years that are required to complete the plan. Learning to trade in different environments certainly could help one to learn how to deal with different markets and what does or doesn’t work with their strategy.

Our final opinion is that Gladwell’s 10,000-hour rule is better viewed as a rough estimate of the amount of time you should pour into trading. If you can only dedicate 15 hours a week and you’d like to take three or four weeks off each year instead of two, there’s no reason why this would stop you from becoming a professional trader. Even with less time put in, if you traded over the 10-year period, you would still be exposed to different events and would reap most of the benefits outlined in the plan. Keep in mind that there isn’t really a magic answer for the amount of time one needs to spend trading, but the 10,000-hour rule does provide a good guide of the time that is needed to master the skill of trading.

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Beginners Forex Education Forex Basic Strategies

Five Fundamentals of a Good Trading Strategy

One of the most important things that a trader needs in order to be successful is a good trading strategy. This is one of the first things you need to figure out as a forex trader because it is crucial to have a plan outlined so that you know how you want to trade and […]

One of the most important things that a trader needs in order to be successful is a good trading strategy. This is one of the first things you need to figure out as a forex trader because it is crucial to have a plan outlined so that you know how you want to trade and […]

One of the most important things that a trader needs in order to be successful is a good trading strategy. This is one of the first things you need to figure out as a forex trader because it is crucial to have a plan outlined so that you know how you want to trade and what your goals are. There are a lot of different strategies out there, some focus on day trading, while others pay more attention to risk-management, making smaller profits that add up, and so on. No matter which strategy you choose, there are 5 important elements that your chosen strategy needs to incorporate. 

Time Management

You need to invest some time into trading if you want to be successful. This doesn’t mean that you have to quit your job and devote all your time to trading, but you do need to make sure that you have enough extra time to take trading up. Once you’ve figured out how much time you have to trade, you’ll want to find a strategy that you can maintain. If a strategy requires multiple hours a day sitting in front of your computer but you can only trade in shorter intervals, then it won’t work for you. 

Risk-Management

You’ll need to decide how much you’re willing to risk on each trade before choosing a strategy. The truth is that most experts don’t recommend risking more than 1% of your account balance on any one trade. This can account for slower profits but will ensure that it does not break you if you make a bad move. Trust us, we’ve heard stories about big-league traders losing $25,000 or more on one trade thanks to a lack of these precautions. On the other hand, some traders prefer taking more risks with the chance of making a bigger profit. We’d recommend sticking with the expert’s recommendation if you’re a beginner or don’t have a lot of money invested just yet. Of course, what you’re willing to risk is up to you and you need a strategy that follows those guidelines. 

Making Money

Your trading strategy obviously needs to be profitable with the goal of making money (while minimizing your risk). Of course, your strategy needs to outline some type of plan to bring in the money. What does the strategy consider? Is it based on trends, making small profits through multiple trades, or something else? You should believe in the things that your strategy is based on. 

Easy to Follow

This doesn’t mean that your strategy needs to be simple, only that it needs to be easy to follow from your own perspective. If a strategy confuses you, then you’re going to have a hard time following it correctly. If you try your best to understand a more complex strategy but can’t figure out all the little details, you should try moving on to something else. Remember that a complicated strategy is not necessarily better than a simple one. 

Works with your Broker

Some strategies won’t work with your chosen broker or trading platform. For example, some brokers or platforms do not allow scalping, which means that scalpers can’t use their strategy on those platforms. If you already have a broker, you should check out their terms and conditions so that you know what is and isn’t allowed before choosing a strategy. 

 

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Forex Money Management

Losing Money at the Beginning of your Forex Trading Career? Read This…

If you’ve recently started trading forex and you’ve found yourself losing money, you’re probably feeling discouraged and you might even feel like quitting. After all, articles and information online make trading sound easy, which likely led you to develop expectations. Losing your initial investment can be a huge disappointment and it often leads traders to […]

If you’ve recently started trading forex and you’ve found yourself losing money, you’re probably feeling discouraged and you might even feel like quitting. After all, articles and information online make trading sound easy, which likely led you to develop expectations. Losing your initial investment can be a huge disappointment and it often leads traders to […]

If you’ve recently started trading forex and you’ve found yourself losing money, you’re probably feeling discouraged and you might even feel like quitting. After all, articles and information online make trading sound easy, which likely led you to develop expectations. Losing your initial investment can be a huge disappointment and it often leads traders to give up entirely. But it isn’t too late if you’re in this spot – we can help.

The first thing you need to do is to figure out if you spent enough time educating yourself about forex trading before you jumped into it. While trading, did you have issues navigating on the trading platform and performing simple tasks like placing orders? Did you ever find yourself confused by the terminology? Do you feel that you have a good understanding of concepts like risk-management and different types of trading strategies? If not, then your biggest problem likely stems from the fact that you simply need to spend more time online reading articles, watching videos, and taking advantage of other free resources that will teach you everything you need to know. You should also practice on a demo account to gauge your progress. If you feel confident that you know everything you need to know, then you’re ready to move on to the next step.

Instead of freaking out over your past mistakes, you have to learn from them as a trader. Yes, losing money hurts, but it is part of trading. What really matters is that you make more money than you lose. If successful traders gave up after their first couple of losses, then nobody would make it as a trader. One of the best things you can try is keeping a trading journal to log every trade you make, along with the reasons why you made the trade and how much you made or lost. Then, you can start to analyze this data to look for patterns or identify issues that are affecting your trades. Maybe you’ve been forgetting you opened a trade, getting distracted around a certain time of day, suffering from trading anxiety – logging all of this data is the best way to figure out what’s going wrong.

A lot of traders suffer once they resume trading after taking a large loss. Even if the trader is confident in their strategy, they may be afraid of making trades because they don’t want to suffer another loss. Anxiety is a good example in this situation, as the trader might feel overly anxious, which leads to a problem known as analysis paralysis. Traders suffering from analysis paralysis make delayed decisions or fail to enter trades altogether because they are too anxious about the outcome. Anxiety and fear often affect traders that have recently taken a loss, but it’s important to overcome these emotions so that you can make level-headed trading decisions. The first step is to realize whether this is a problem that is affecting you, and then you can find multiple resources online to help you deal with it.

To summarize, there are a few main problems that can cause problems with your trading, especially if you’ve lost money in the beginning:

  • Not having a proper trading education
  • Fearing failure
  • Fixation on mistakes rather than learning from them
  • Feeling anxious, fearful, or overwhelmed once you resume trading
  • Failing to keep a trading journal to log your progress
  • Feeling less confident in yourself

Successful traders understand that losing money is just part of trading and don’t spend time fixating on their losses. It may seem difficult to move on, especially if you don’t have a lot of money to invest. If you’ve had difficulty with trading thus far, you shouldn’t give up yet. Try to figure out which of the above problems is affecting you so that you can fix these issues without walking away from your trading career.

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Forex Basic Strategies

Differences Between Good and Bad Strategies

You have been told that you need to create a strategy, you cannot trade without it, however, once you have made your trading strategy, how do you know if it is any good? How do you measure whether it is a good strategy or not? Of course, you can look at whether it is profitable or not but there are plenty of other things that you can look at to work out whether the strategy is a good one or not, most of those reasons will be personal to you. So, let’s look at some of these factors that determine whether a strategy is good for you or not.

You have been told that you need to create a strategy, you cannot trade without it, however, once you have made your trading strategy, how do you know if it is any good? How do you measure whether it is a good strategy or not? Of course, you can look at whether it is profitable or not but there are plenty of other things that you can look at to work out whether the strategy is a good one or not, most of those reasons will be personal to you. So, let’s look at some of these factors that determine whether a strategy is good for you or not.

You have been told that you need to create a strategy, you cannot trade without it, however, once you have made your trading strategy, how do you know if it is any good? How do you measure whether it is a good strategy or not? Of course, you can look at whether it is profitable or not but there are plenty of other things that you can look at to work out whether the strategy is a good one or not, most of those reasons will be personal to you. So, let’s look at some of these factors that determine whether a strategy is good for you or not.

It should be personal: A good strategy needs to be personal to you, it needs to have been created in a way that suits you and the best way for that to happen is for you to create it yourself. This way you know the ins and outs and exactly how it works, if the markets suddenly decide to change, you need to have that understanding of the strategy in order to adapt. If you were to take a strategy from someone else, then you do not have a full understanding, as soon as the markets change you will be stuck, not knowing how to adapt it. So creating it from scratch is paramount and will help to really make that strategy your own.

It needs to be specific: The trading strategy that you need has to be quite specific, it should be focusing on specific things rather than being too broad. If a strategy focuses on just one or two currency pairs, this way the strategy will be able to more easily be adapted to the changing markets or if there is a dramatic event in the markets. If a strategy is trying to cover all bases and all currencies then it will struggle, each currency behaves in different ways and so there cannot be a group of settings that can cover them all, this will only result in there being issues when things go wrong or if the settings do not match the characteristics of one of the pairs.

Opening lots of trades: A good strategy will be able to pick its trades well, it will use very specific criteria before opening one up. What you do not want is a strategy that is opening tens of trades when only one is needed, some strategies do this to increase the volume being traded or the entry requirements are so loose that it allows for lots of trades. This is also sort of related to the precious points of being specific, if it is relevant to too many pairs then it may open too many at a time. When we look at trading, we are looking at quality and not quantity.

Risk management: A good strategy will have its risk management built into it. This will include things like the stop losses, the take profits, the percentage of the account to risk on each trade, and just simple methods of keeping your account safe. A bad strategy will unfortunately not include some of these things that can make them far riskier and dangerous, if a strategy does not have any risk management attached to it then we would suggest looking for a different one to use.

Can it cope with change? A good strategy will need to be able to adapt to the changing markets, they will always be changing, on a day to day basis and on a larger scale over the months and years. If your strategy is not able to handle any of those changes due to it being too rigid and requiring very specific requirements without the ability to alter them, then it would be considered a bad strategy. You need to be able to make adaptations or the strategy will only lead to eventual losses.

So that is a non-exhaustive list of things that could cause a strategy to be either good or bad, there are of course a lot of other things too, but these are some of them. Try to keep your strategy personal and specific, those are the main points to take home.

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Forex Basic Strategies

A Different Heikin Ashi Strategy – Trend Exit Guide

Most traders initially rely on what they hear, read, or otherwise find to be useful and informative, especially due to the enabling nature of this age of information exchange and media saturation. More often than not, these pieces of data prove to be half-truths, if not worse, and such a lack of skills and knowledge […]

Most traders initially rely on what they hear, read, or otherwise find to be useful and informative, especially due to the enabling nature of this age of information exchange and media saturation. More often than not, these pieces of data prove to be half-truths, if not worse, and such a lack of skills and knowledge […]

Most traders initially rely on what they hear, read, or otherwise find to be useful and informative, especially due to the enabling nature of this age of information exchange and media saturation. More often than not, these pieces of data prove to be half-truths, if not worse, and such a lack of skills and knowledge is then easily transferred across the global forex market. Due to the unrestricted access to partial, non-factual information, traders absorb too many fallacies, especially when these are related to indicators and strategies to earn a bigger profit. The same goes for the widely praised Bollinger Bands and Fibonacci, among others, which are some of the oldest and the most outdated tools that numerous sources still glorify despite their age and poor performance.

Some other tools and topics are simply copied from one source to another without much creativity and personal input. Nowadays we have heaps of materials with no innovative additions, which may not necessarily involve any new creation except for an original perspective. In this article, we will attempt to provide a fresh outlook on another popular topic from the world of forex trading – Heikin Ashi trading strategy. Also, this is just one example and opinion based on one group of professional technical swing traders, you can interpret the information the way you see fit.

Heikin Ashi is often perceived as one of the most basic indicators under the MT4 group, which another reason why some professional traders question its quality. In addition to being similar to another well-known indicator, Japanese Candlesticks, its name actually originates from Japanese and it translates as an average bar. Beginners mostly find it extremely useful because it makes finding the trade entry considerably easier. However, most available sources provide an insufficient amount of data as well as to abound in the lack of the right tips that can help traders earn a profit. It is common knowledge that, as with other similar indicators, Heikin Ashi offers two distinct candles, where the white candle suggests that a trader should go long, while the red one implies the opposite. Despite its simplicity, traders are not given an opportunity to make any settings adjustments, which additionally reduces the quality of this tool.

Furthermore, this indicator is so easy to see that everyone can see the same signals at any location on the planet, thus stripping you of the exclusivity that naturally comes with using a good indicator. Bearing all these facts in mind, any individual at any point in their forex trading carrier must be aware that simplicity and popularity do not necessarily equal supreme quality.

Regardless of this tool’s shortcomings, we should strive to be objective and provide a clear list of actions which traders should avoid if they decide to use Heikin Ashi. Firstly, traders should not use this indicator to enter trades because the number of losses is almost always higher than the number of gains. As we already said that Heikin Ashi is generally favored for its ease of use, beginners, as well as all other traders, should attempt to do a demo trade and see this for themselves. It is extremely easy to get excited while using this indicator early on, but using it to enter or even exit a trade will only make you feel more frustrated and incompetent at trading in this market. Moreover, Heikin Ashi’s candles function in an entirely different way from the regular forex candles we are used to seeing.

If you take a look at the image below, you will surely see a few prominent reversals in the chart (marked grey). These inviting points are precisely the places where you should remain focused just because most people fail to grasp the severity of entering a trade in between the grey areas (marked yellow). By measuring how trading, in this case, would turn out in advance, you could in fact understand that your price would probably never reach your take profit. What is more, before you could even see any profit from such a trade, you would probably need to go through more than a few losses, and no success afterward would be able to compensate for the degree of loss you previously experienced. Therefore, if you only allow yourself to see the surface and feel compelled to enter a trade only because of some superficial positives, you may lose all your confidence and severely endanger your financial stability as a result.

While we owe it to ourselves to call a spade a spade, this indicator can still offer some value, which other sources do not seem to be interested in. To be able to extract any such benefits from Heikin Ashi, you primarily need to be a trend trader using your own system. To manage a win, you will take half of your trade off after a certain number of pips and your move stop loss to the break-even. In case you have yet to discover an exit indicator you would prefer to use, Heikin Ashi can temporarily assist you with the rest of your trade. Simply put, if a trader is already going short, they will have to wait for the candle to become white to exit and vice versa. This indicator is not the best tool you could use to finalize a trade, but it certainly can be of great assistance if a trader has not decided on a specific exit indicator yet.

In comparison to not using an indicator to end a trade, Heikin Ashi can definitely render more pips and thus bring you more money than the other way would. However, if you already have an exit indicator you like or you are exploring your options, you can always use Heikin Ashi to compare the results it gives you to the ones your indicator of choice produces. It this comparison demonstrates any advantage of Heikin Ashi over the other indicator, you will know to continue looking for a better tool. This approach will save you much time and help you develop a safe and functional system you can rely on.

We know how important having a good algorithm is and Heikin Ashi can not only help you discover a good exit indicator, but it can also yield a great number of pips, even to beginners. Nevertheless, earning a few coins here should not stop you from looking further for an excellent tool that can bring even more success to your account. Keep searching for trend indicators and do not give in to passing compulsions that this indicator entails on the surface level. Avoid reversal trading and strive to see the entire chart as a whole measuring possible wins and losses and demo trading to compare. You can truly stand out from the crowd by learning how to differentiate between acting upon a feeling and making decisions based on some tangible data.

Do not be misguided by a vast number of sources promoting price levels, support/resistance lines, and other ineffective strategies that will not get you in or out of a trade on time or without losing a substantial amount of money. With a clear strategy, a trading mindset, and an effective exit indicator, you can get to wherever you want to be and Heikin Ashi can serve as a transitioning step on the way to reaching your goals. Finally, understand that all the time you invest in learning about Heikin Ashi and other indicators, testing, and making necessary comparisons will only help you grow as a trader for these are the skills you will always be able to call upon in the future.

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Forex Basic Strategies

Should You Trade Against the Trend?

Every now and then, you will see the markets consistently move in a single direction, this is known as a trend, much like sheep, most people will jump on the trend, trading in the same directions which can potentially add to its momentum. There is the argument that a trend cannot continue forever, and this […]

Every now and then, you will see the markets consistently move in a single direction, this is known as a trend, much like sheep, most people will jump on the trend, trading in the same directions which can potentially add to its momentum. There is the argument that a trend cannot continue forever, and this […]

Every now and then, you will see the markets consistently move in a single direction, this is known as a trend, much like sheep, most people will jump on the trend, trading in the same directions which can potentially add to its momentum.

There is the argument that a trend cannot continue forever, and this is true, so if you are the sort of person that likes to try and predict the tops and the bottom of trends, then going against the trend could be pretty beneficial. The issue with this is that it is not exactly an easy thing to predict.

More often than not, when all points on a chart are pointing in the same direction, the market sentiment will also support this movement, so it is easy to see why the majority of traders would not want to go against it. The one thing that we need to consider though, is the fact that the majority of traders have their trading bias and may not necessarily understand why the markets are moving up or down, just following the trend without understanding the reason for the move, can be just as dangerous as going against it. This sort of hive mentality is one of the common mistakes that a lot of new traders, in particular, seem to make.

It can be a pretty scary prospect, going up against the rest of the markets, and we can understand why there would be some hesitation, after all, most people would be going in that direction for a reason right? What would you know more than they do? What you need to remember is that a strong momentum does not mean that those currencies are actually strong, it could just as easily mean that there was a large influx of amateur traders joining the markets and blindly following the trend.

There is a forex trading strategy that is known as contrarian trading, this is all about going against the current market bias, as the shift in market sentiment is inevitable at one point or another. It would involve buying a currency when it is weak or selling it as it becomes stronger. This may sound counterproductive, but it certainly has its merits.

People who trade against the trend have a much better understanding of an overpriced or oversold asset, when something is hugely over or under, it can often result in a number of different pullbacks or even price reversals as there is only so long that an asset or currency pair is able to remain in that condition. When something is overbought, it means that its price is being inflated, there is no way that it will be able to sustain that price or continued rise in price for a long period of time.

This strategy obviously has its dangers, when a currency is really strong and pushing the prices up, there is a good chance that it can actually run straight through the potential reversal points, continuing higher and higher, this can blow out a trade that a reversal hunter may have put in. So it is not something you should just try at any time, you need to be able to see the stages of the trend slowing or the main money makers pulling out, this is far harder to do that to say and so this is actually an extremely risky strategy unless you understand what you are doing.

If you have done your research, understand your fundamentals and are willing to lose a few trades, then the idea of trading against the trend can actually be a very profitable one. It won’t be for everyone, it certainly won’t be for newer traders, but there certainly are some potential of profits in it.

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Beginners Forex Education Forex Basic Strategies

Signs That Your Trading Strategy Isn’t Working

There are thousands of strategies out there, and we mean thousands, all sorts of things are available, you will also get people claiming that their strategy is making them $11 to $500 per day, or they are making 10,000 pips per month, these are huge results and very tempting, but you also need to ask yourself does it sound legitimate? These people claim to have the ultimate strategy, well they can’t all have the ultimate strategy now, can they?

There are thousands of strategies out there, and we mean thousands, all sorts of things are available, you will also get people claiming that their strategy is making them $11 to $500 per day, or they are making 10,000 pips per month, these are huge results and very tempting, but you also need to ask yourself does it sound legitimate? These people claim to have the ultimate strategy, well they can’t all have the ultimate strategy now, can they?

There are thousands of strategies out there, and we mean thousands, all sorts of things are available, you will also get people claiming that their strategy is making them $11 to $500 per day, or they are making 10,000 pips per month, these are huge results and very tempting, but you also need to ask yourself does it sound legitimate? These people claim to have the ultimate strategy, well they can’t all have the ultimate strategy now, can they?

Instead of looking towards them or even using them as a comparison, it is important that you create a strategy that works for you, build it from the ground up in a way that suits your strengths and weaknesses, and also your style of trading. Having done all that, you will be good to go and will be profitable right? Well, not exactly, even with a strategy that you created yourself, there will be flaws in it, in fact, many people who have now found their preferred and most successful strategies would have been through another 10 before that which didn’t turn out quite so well.

So once you have gotten your strategy set up, what sort of things would make you give it up and start again? That is what we will be looking at now.

You’re Spending More than Your Earning

We will get this one out the way first, this is more for those that purchase signals or Expert Advisors (EAs), are they actually making you any money? If you rent an EA for $200 per month and it earns you $150 per month on your account, do you think it is worth it? You are making a net loss of $50, so why are you still suing it? Why would you purchase something that actually makes you a loss? Get rid of it and start looking at your own strategy, a hopefully profitable strategy.

It’s Not Profitable

Keeping along the same lines as the previous point, some strategies just aren’t profitable, you can have a successful strategy that doesn’t actually make you any money, strange I know, but possible. This is often down to bad take profit and stop loss levels and risk management, risking too much per trade can actually give you more wins than losses but the monetary value of the losses is higher than the wins. If this is the case, then it is time to evaluate the strategy to look for an entirely new one to build.

It’s Hard to Stick to the Rules

When setting up a new trading strategy, it should come with some rules, these are there for a reason and they are often the reason that the strategy works. They help to improve consistency and overall profitability. So if you have a strategy that seems to be working, but you are finding it hard to stick to the trading rules set by it, then, in the long run, there is a good chance that you could start to incur losses. It is actually impossible to wor out the profitability of a strategy if you are constantly making changes and breaking the rules, so if you are not able to, it would be a good idea to try and create one that you are able to follow.

The Strategy Takes too Much Effort

When you create a strategy, you also need to take you into account, these are things like the time you are free to trade, your sleeping patterns and so forth, if you like in Europe, there is no point in creating a strategy that requires you to be awake during the Asian markets, otherwise you will be up the entire night. Do you need to look at 108 different indicators in order to find the right signal, well that isn’t maintainable, you need to set up a system that you will be able to use without too much effort, and certainly without causing sleep deprivation.

All of the points above are reasons why you may need to give up your strategy, remember that trading forex should not be a chore, it should be a learning and enjoyable experience, if your strategy is turning that into work or causing frustration then it may be time to start looking for a new one.

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Beginners Forex Education Forex Basic Strategies

The Strangest Forex Trading Strategies

You often see the same strategies being mentioned over and over, there are a few different ones that a lot of people use, or at least different variations of very similar ones. However, every now and then you come across a strategy that people are using which do not actually make any sense, more often […]

You often see the same strategies being mentioned over and over, there are a few different ones that a lot of people use, or at least different variations of very similar ones. However, every now and then you come across a strategy that people are using which do not actually make any sense, more often […]

You often see the same strategies being mentioned over and over, there are a few different ones that a lot of people use, or at least different variations of very similar ones. However, every now and then you come across a strategy that people are using which do not actually make any sense, more often than not there is a form of gambling involved, but those people are convinced that their strategy works and so they continue working with it.

We are now taking a look at a number of different strange yet very real strategies that people have been using to trade on the markets.

Allowing your pet to trade: This is a weird one and certainly goes into the realms of gambling. You probably see during most major sporting events, they will put food in two bowls to predict the result, whichever the bowl that the pet eats out of is the predicted winner. Some people have taken this into the trading world and put two bowls down, one with a buy and one with a sell, then let your pet decide. Now unless your pet is actually psychic, this method of choosing trades is certainly not a realistically long term process. It is all a gamble and not something that we could recommend, it could work for a few trades, but certainly won’t in the long run.

Use sports to trade: Sports trading is big business, but we aren’t talking about that, we are talking about people who use sport to work out what they’re going to trade on the markets. This can be a single match or an overall tournament, normally people will look at the super bowl or the world cup final, whichever team wins or scores next will determine the direction of the trade. Not the most scientific approach and certainly not a reliable one, yet it is something that a lot of people do, mainly for fun I am sure, but there is a good chance that one could go the wrong way. I am sure that you can see that there really isn’t a correlation between sport and trading in this sense.

Trading based on the weather: What could be easier than getting up in the morning, looking outside, and knowing exactly what the markets are going to do. Well, that is exactly what some people are doing, they are simply opening the blinds and trading based on the weather. If it is sunny, it will probably go up, if it’s rainy, most likely down, seems logical right? Well apart from the fact that the weather does nothing to the markets. It may change your outlook or your mood, but it certainly does not change the markets.

Trading based on the seasons: Pretty similar to the weather, but slightly easier to work out what the direction of the trade should be. This isn’t necessarily about deciding whether you go long or short, it is more based around the idea that certain investments are better in the colder months and others in the warmer ones. Strategies surrounding this can involve things like trading riskier investments and currencies from November to March before then switching to slightly less risky investments for the rest of the year.

Coin flip: You need to love to gamble on this one, it is not really a strategy when you think about it, it is more of a 50/50 gamble, flip a coin, heads go up, tails go down, simple really.

Home run: The riskiest of all strategies, you are simply going for a home run with every trade, if it is pulled off then you pretty much double your account, couple home runs in a row and you are laughing to the bank. However, unlike baseball, it is one strike and you are out. You need to be able to massively over leverage the account as well as risk the entire thing on a single trade, putting in a trade size larger than usual. Not the best strategy at all, but if you have $10 you don’t mind gambling, it could be fun.

So those are a few of the weirder strategies that people have been known to use. They aren’t ones that are going to make you rich, heck they probably won’t get you many wins compared to losses, but for a bit of fun, they could be worth a shot, of course, maybe use them on a demo account instead of on your actual account.

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Forex Basic Strategies

Plan the Trade And Trade the Plan

This is something that you have probably heard a lot of times before, it is one of the most used phrases in Forex trading and it is also one of the most relevant. When you break it down, it is simply reminding you that each trade needs to be planned, analysis needs to take place […]

This is something that you have probably heard a lot of times before, it is one of the most used phrases in Forex trading and it is also one of the most relevant. When you break it down, it is simply reminding you that each trade needs to be planned, analysis needs to take place […]

This is something that you have probably heard a lot of times before, it is one of the most used phrases in Forex trading and it is also one of the most relevant. When you break it down, it is simply reminding you that each trade needs to be planned, analysis needs to take place and the right entry/exit points found, once this has been down, you should put in the trade and then stick to what you had planned before, do not start fiddling with it mid trade and changing the stop losses or take profits, you had them set for a reason, so let it do its work.

Some people may say that you need to deviate from the plan in order to make the most profit or to avoid losses, those are the people who have not created their trading plan properly and so need to micro-manage their trades, with a proper plan it will be able to get on with it itself and any losses will be negligible due to the risk management put in place for each trade (part of the plan). Yes, flexibility is important, but that flexibility needs to come in the planning stage, not the execution.

Use a trading journal:

You have probably heard this a thousand times, use a journal to record everything that you do, not only does this give you valuable information about the trade but it can also be used as a way to check that you are in fact sticking to your plan. Looking through your trades, can you see anything that deviates from it, any moves stop losses or early closures? These are the things that you will be looking for.

Discipline:

Discipline is key, but also sometimes hard to maintain. Sometimes you have to deviate from the plan and it goes well, it may happen a second time and so you will start to believe that making these changes with each trade could lead to more success, that is until it all goes wrong and you start to bring in some losses. You may notice a trade that you made changes to and it did well,m but it is important to stick to your plan, that is your plan for a reason, its reason is that it works, so why change something that works in the long run just for some quick gains. Stick to that plan, if you have noticed something that may work better, test the plan with the changes on a demo account, use the same changes with every trade and see whether it is more effective or not while doing this maintain the current plan on the live accounts until a full analysis of the changes has been performed.

Find the justified and unjustified wins and losses:

It is quite easy to work out which of your wins and losses are justified, you created the detailed plan for the trade, and you stuck to it, that is a justified trade. This means that an unjustified trade would be one that you deviate from the plan, it may be a large change or it could be a little change like changing the stop loss by a few pips, it doesn’t sound like much but it can really make a difference.

Maintaining discipline is vital when it comes to making justified trades, your trading journal can often make it obvious when trade was unjustified, there will be a random change that cannot be seen anywhere else, it is important to work out why that change happened and why you deviated from the plan, a lot of the time you will not be able to recall and most likely did not record it. You need to stay disciplined, your plan is there for a reason, each trade has been justified with analysis and reasoning, do not change that partway through because you have a feeling or someone told you something else.

Consistency:

You have probably heard this a thousand times, stay consistent with your trading, and this is certainly relevant. Your plan was created and most likely had each trade following a very similar path, so stick with it, consistence can be in regards to things like stop loss and take profit distances, lot sizes used. Do not just start adding to the trade size because the previous trade lost, your plan should have been created with losses in mind, so staying consistent to it will bring in far more regular results than potentially damaging your account with sudden changes.

So the moral of the story is to plan your trades, then trade that plan.

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Beginners Forex Education Forex Basic Strategies

Anatomy of a Forex Scalping Strategy

Scalping is a type of trading strategy that revolves around profiting from many small price changes. A scalper focuses on making as many small profits as possible, rather than trying to win a large amount from a trade. Like every other strategy, the scalping method isn’t perfect. One of the strategy’s biggest downsides is that […]

Scalping is a type of trading strategy that revolves around profiting from many small price changes. A scalper focuses on making as many small profits as possible, rather than trying to win a large amount from a trade. Like every other strategy, the scalping method isn’t perfect. One of the strategy’s biggest downsides is that […]

Scalping is a type of trading strategy that revolves around profiting from many small price changes. A scalper focuses on making as many small profits as possible, rather than trying to win a large amount from a trade. Like every other strategy, the scalping method isn’t perfect. One of the strategy’s biggest downsides is that one large loss can wipe out all the smaller winnings that one worked so hard to make. Successful scalping involves having a higher number of winning trades versus losing ones, with the profit ratio equal to or higher than the losses.

Less market exposure limits one’s risks and reduces the chances that you’ll run into an unbecoming market event. There’s also more of a chance that a stock will move a few cents than there is that it will move a dollar or so. There are more opportunities for smaller moves than there are for larger ones and a good scalper can jump on these changes. These considerations make scalping a worthwhile strategy that can pay off. Of course, scalping involves making hundreds of trades, possibly per day. If you only have a limited amount of time to put into trading, this may not be the best method for you. Consider becoming a day trader or full-time trader if you’re ready to become a dedicated scalper.

Traders that don’t want to specialize in scalping may still find golden opportunities to use this strategy, like when the market is choppy or when there are no trends in the longer timeframe. Switching to a shorter timeframe can help one to see trends, so scalping can be beneficial here. There are several other ways that traders incorporate scalping into other, more long-term trading plans.

There are three main types of scalping strategies:

“Market making” is where the scalper tries to take advantage of the spread by putting out a bid and making an offer for a certain stock at the same time. This works best with immobile stocks that trade big volumes without any real price changes. It can be difficult to master this strategy as one would need to compete with market makers and the profit is small.

A trader purchases many shares and sells them for a very small gain on a price movement. The trader would wait for a move that is usually in cents and this requires entering and exiting 3,000 or more shares.

The more traditional strategy involves entering several shares and closing the position as soon as the first exit signal is generated. This would be around a 1:1 risk/reward ratio.

So, you may be asking yourself about the risks involved with scalping. One of the most crucial components of success involves having a strict exit strategy. If you don’t, then you’ll likely be one of those traders that loses all the money you worked hard to gain with one bad move. As we mentioned above, the “market-making” strategy can be difficult to pull off successfully, so it may be worth avoiding at first. Remember that scalping takes a lot of time and effort, as you’ll be glued to your computer screen making multiple small trades. You’ll need to be able to think and act quickly to master scalping successfully.

Tips

-Work with a direct-access broker for automatic instant order execution.

-Scalpers profit from the spread, so it is important to find a brokerage offering a tighter spread.

-Find a broker with competitive commission costs. Scalpers need to make many trades, potentially hundreds per day. Commission costs will add up quickly, especially unfavorable ones.

-Ensure your broker allows scalping and doesn’t impose restrictions that will hinder your strategy. Every broker isn’t scalper-friendly, but many are.

-It is important for scalpers to understand trading with the trend. Being able to identify a trend and momentum is important for successful scalping.

-You should be familiar with technical analysis, which involves looking at statistical data and charts.

-Most successful scalpers close out their trades at the end of the trading day and never carry them over to the next day.

Conclusion

Scalping can be a profitable trading strategy when it is used correctly, either as a primary or supplementary strategy. It does take a lot of time and dedication, along with a good understanding of trends, momentum, and technical analysis. If you’re a complete beginner, you’ll want to spend some time researching so that you understand these principals. It could also be a good idea for beginners to avoid the “market-making” strategy and to stick with the two more traditional scalping strategies. Scalping will likely continue to grow in popularity as many traders prefer the small profits in exchange for taking larger risks. This strategy isn’t for everyone, but it very well may be the key to success for those that understand how to do it effectively.

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Beginners Forex Education Forex Basic Strategies

What is the Forex 10,000-Hour Rule?

The 10,000-hour rule is a theory that was developed by Malcolm Gladwell in a book called Outliers. In this book he stated that practicing daily, weekly and monthly over the course of 10 years will equate to around 10,000 hours of practice, this is the magic number needed to be able to perform a task […]

The 10,000-hour rule is a theory that was developed by Malcolm Gladwell in a book called Outliers. In this book he stated that practicing daily, weekly and monthly over the course of 10 years will equate to around 10,000 hours of practice, this is the magic number needed to be able to perform a task […]

The 10,000-hour rule is a theory that was developed by Malcolm Gladwell in a book called Outliers. In this book he stated that practicing daily, weekly and monthly over the course of 10 years will equate to around 10,000 hours of practice, this is the magic number needed to be able to perform a task to the standard of a professional, Malcolm was not being specific to a particular skill, instead, he suggested that anything can be taught in this manner, so how does this apply to Forex trading?

We all know that practice is important, you cant get good at anything without it, but when it comes to Forex, is this based on time? If we take the example literally and suggest that you have now been trading daily for the past 10 years, you would have experienced some of the major ups and downs that have occurred from 2010, these include things like the US financial crisis, the European debt crisis as well as the most recent drop of oil prices into the negatives. The experience of going through and experiencing those major moments in financial history can give you a much better understanding of major events and thus can enable you to plan your trades and strategies better.

Those are just the major events, trading in more standard trading conditions can also give you a better-developed understanding of how the markets actually behave and how they like to move in trends and patterns, the timeframes, trading session differences, and which currency pairs you prefer. It will also help you to understand a little about yourself, what your risk tolerance is, and how your personality dictates some of your trading decisions. We would also hope that the 10 years of trading experience would help you to develop some of the better trading habits and to have worked out some of the more damaging ones.

So does the 10,000-hour rule actually work? It is impossible to say and it will also vary for everyone, how much and how quickly you pick up and retain information and habits. A quick learner or more technical-minded person may get to the performance and have the knowledge of a professional in 1,000 hours or less, someone that takes longer to learn may take 20,000 hours to learn what is needed. The 10,000-hour rule should be taken as guidance rather than as a rule, once you hit that 10,000-hour mark it does not magically make you an expert.

Within the world of Forex, there are far more important things to learn than just putting in the hours, just trading for 10,000 hours will not teach you a thing if you just contact output in trades with no reasoning behind them or no learning from your mistakes. Using your time wisely to develop a working strategy, to help remove those bad habits and learn new good habits to replace them is just as important as the time you are putting in.

While we cannot deny that becoming a professional or even profitable trader, in the long run, does take time, a lot of time, we can’t really put a figure on how much, that will come down to you, your dedication and your willingness to learn.

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Beginners Forex Education Forex Basic Strategies

The Importance Of Strategy Testing

Creating a successful, consistent and profitable trading system is the aim of any forex trader, however, it can take years of experience and practice to actually come up with one, not to mention the fact that even a strategy that was once successful, won’t always be. If you have traded for a while, you know […]

Creating a successful, consistent and profitable trading system is the aim of any forex trader, however, it can take years of experience and practice to actually come up with one, not to mention the fact that even a strategy that was once successful, won’t always be. If you have traded for a while, you know […]

Creating a successful, consistent and profitable trading system is the aim of any forex trader, however, it can take years of experience and practice to actually come up with one, not to mention the fact that even a strategy that was once successful, won’t always be.

If you have traded for a while, you know what making consistent winning trades means that you can’t just look at each trade completely fresh, you need to have a set of boundaries and rules that you have put in place, not only to find the best trades but to also act as protection for your account, otherwise known as risk management.

So let’s say you have come up with a new strategy, on paper, everything looks good. It takes into account pretty much everything you can think of and you can see no reason as to why it won’t work, you just jump straight into the live markets with it right? No! You need to test it, and there are a number of different ways that you can do this.

Before you do any sort of live testing you need to ensure that your strategy would survive something called a backtest. This is a way of looking at the historical data from the markets, looking at how they moved and applying your strategy to what has happened in the past, if your strategy holds up well then it shows that it offers a bit of resilience, however, if the backtesting shows times where the strategy would have blown or had a large number of losses in a row, then it may need a little tweaking to sort that out.

If the backtesting all passes, then there is one very important aspect of testing that is required, demo it. Using a strategy on a demo account lets you test it out in real-time on market conditions that are very similar to the live markets. The key to using a demo account is that there is no risk, you are able to test it out, it if brings a few losses, you can adapt it to fix whatever aspect caused the loss and then continue to test, this should be done for an extended period of time, months for proper safety and through multiple different market conditions such as trends.

When testing the strategy there are a few other aspects that need to be tested, no strategy is 100% bulletproof, so looking for the signs in the market where your strategy won’t work is just as important as getting it to work. Maybe the strategy won’t work during major economic news, maybe it only works in an up or downtrend, these are the things that testing lets you work out and then once going live will allow you to avoid such events when using your actual capital, this acts as another form of protection for your account.

The main downside to testing is that it lacks some of the things that you get on a live account, things like slippage and commissions. These can really impact your profitability especially if your strategy looks at taking lots of small profits. So keep this in mind when testing, be sure to subtract an amount form the figures given in order to account for these.

The more testing you do, the better your strategy will be. We know that it can be a little boring going over the same thing over and over again, you also want to get that strategy trading live, we understand that and always feel the same way. However, diligent testing is the only way you can be sure it will be profitable and is a vital part of creating a new strategy. If you want a strategy to be profitable, it needs to be tested thoroughly.

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Beginners Forex Education Forex Basic Strategies

The Stop Loss / Trailing Stop Combo

If you have been trading for 10 years or only just started last week, one thing that you would have heard about is stop losses, they are there to protect you and to protect your account, but have you heard of a trailing stop loss? They are very similar in functionality but very different in […]

If you have been trading for 10 years or only just started last week, one thing that you would have heard about is stop losses, they are there to protect you and to protect your account, but have you heard of a trailing stop loss? They are very similar in functionality but very different in […]

If you have been trading for 10 years or only just started last week, one thing that you would have heard about is stop losses, they are there to protect you and to protect your account, but have you heard of a trailing stop loss? They are very similar in functionality but very different in their executions.

So what exactly is a trailing stop?

The trailing stop works in very much the same way that a stop loss does when the price reaches that of the stop loss, it will close out the trade, where it deviates from its name. It is a trailing stop which basically means that it will follow the price up to and won in order to close the trade on a retracement. People often use trailing stops once a trade has already gone into profit, thus creating a risk-free trade that can continue in the right direction and will be closed once it decides to retrace a few pips, this can both increase or decrease the profits received based on how long it takes for the retrace to occur.

How does it work?

So let’s take a look at exactly how it works, before looking at a trailing stop loss, let’s look at what a normal stop loss does, so let’s take this example.

EURUSD:

Opening Price: 1.10
Stop loss: 1.09
Trailing Stop pips: 2 pips

So we bought into the currency pair at 1.10, the price drops down to 1.09, the stop-loss triggers and the trade closes at a loss. Pretty straight forward and something that everyone should be using to help protect their account. The way that the trailing stop loss works is that it does not come into effect until the price goes into profit.

As soon as the price rises to 1.10100 the trailing stop will trigger, it will then be placed 2 pips below the current price, so at 1.10080, as soon as the markets move up to 1.10120, the stop loss will move up to 1.10100, remaining two pips behind. Should the price move back 1 pip back to 1.101100, the trailing stop loss will remain at 1.10100, just one pip behind, so it will not move down only up. If the price continues, then it will continue to follow the price until it retraces those two pips. It is up to you whether you sit to have a solid take profit, but when using the trailing stop, most people will leave just the trailing stop to work, but a solid take profit can also be used.

To some you may wonder why you would use a normal stop loss at all, can you not just stick the trailing stop loss and let it run like that? You could, but the problem doing it that way is that the trailing stop only generally comes into effect if you are in profit, if the trade fails to come into profit and continues to drop, you will not have a stop loss in place as the trailing stop is not there, this is the importance of having your solid stop loss in place too.

So the best way to think about it, is that the solid stop loss is to limit the risk of your account, however, the trailing stop loss is for stopping profits from dropping. Having both of them available on your account can be a powerful tool to have.

There are of course a few downsides to using the trailing stop over a take profit when you create your trading plan, there was most likely a stage where you worked out your risk and reward ratio, this is how much of your account you are willing to risk with each of your trades and also how much you will potentially make from it. As soon as you are using a trailing stop, the reward part of that ratio is now fluid, this can potentially have a huge impact on your overall strategy as it is no longer fixed. Each loss could now potentially wipe off the profits of one trade or even more due to the trailing stop loss triggering and exiting the trade at a lower level.

If you are going to be using trailing stop losses then you need to ensure that you have them planned from the start. However, if you do, the combination can be fantastic, get it right and the trailing stop can allow a trend to move a lot of pips, whereas your take profit level may normally have been at 20 pips, with the trailing stop, if the trend moves 100 pips before moving back, then you can catch the majority of those 100 pips, giving you a much larger profit for that trade.

So ultimately, there are risks involved with using it, but combining it with the usual stop loss to protect the risk on your account, the trailing stop loss can be a very powerful tool, especially if you are trading longer-term trends.

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Beginners Forex Education Forex Basics

Eight Things That Can Prevent You From Trading Successfully

There are a lot of things that can be potentially holding you back from being successful, these can be both physical or mental things, there are always ways to overcome them, some easier than others, but there is always a way to overcome them. When you look at your trading career so far, you can […]

There are a lot of things that can be potentially holding you back from being successful, these can be both physical or mental things, there are always ways to overcome them, some easier than others, but there is always a way to overcome them. When you look at your trading career so far, you can […]

There are a lot of things that can be potentially holding you back from being successful, these can be both physical or mental things, there are always ways to overcome them, some easier than others, but there is always a way to overcome them. When you look at your trading career so far, you can probably think of a few points where things went wrong, or where you made a mistake, these all add up and can prevent success in the long run.

So we are going to be looking at some of the things that can cause trading to be a little harder than it should be, or things that you are doing that are making it harder than it has to be.

Not Enough Money

Starting with the most obvious one, if you are trying to trade with a balance of $100, there is next to no chance that you will be able to be successful, the more trading capital that you have, the more potential that you have to be successful, this is often through the ability to use much better and more realistic risk management tactics with your trading. When you have a small balance, even small movements in the markets can cause your account to blow and each trade will be risking quite a large proportion of your account balance. So having larger trading capital is vital to being a successful trader. Having said that, there have been successful traders starting with small amounts, but it is far harder and far less likely that you will succeed.

Live Trading too Early

When we start trading, we just want to get right into it to try and make some money, unfortunately, trading takes a bit longer than that, in fact, it should be taking you a few months before you jump into a live account at all. A mistake that a lot of new traders make is to try a live account straight away or after a week of using a demo account, this leads to some pretty quick losses which can then put someone off trading for quite a while, this is a reason why so many quit at the start of their trading careers. It is important that you only start on a live account when you are ready, when your plan is complete and you have tested it for a while, do not just jump straight into a live account, it will only end in losses.

Not Using a Demo Account

Similarly to the point above, you need to be using a demo account, and you need to be using it for quite a while before you even think about making any money. The demo account is there for you to test out your strategies and to ensure that you have got them working properly before actually risking any of your actual capital. It is vital that you use these accounts properly and use them to ensure that you are ready for live trading.

You Haven’t Created a Trading Plan

When you start off trading, one of the first things that you will be told is that you need to create a trading plan and a strategy. This strategy is full of information that is about the way that you will be trading and the strategy that you will be using. Without this trading plan, there is nothing keeping you in line and giving you certain rules to follow which are what you need to keep in order to ensure that your trades are good trades. Trading without a plan is called a bad trade, regardless of profit or loss, as a bad trade is more about luck rather than analysis. Ensure that you have a plan that has your trading strategy, risk management, and anything else that is involved in your trading.

Bad Risk Management

Risk management is one of the most vital parts of trading, it is what allows you to survive a number of losses in a row if you are trading without one, then even a single trade could potentially cause your account to blow. The risk management plan will include things such as the amount of your balance that you are able to risk with each trade, it also details how far your stop losses and profit levels should be. Without one of these, you are simply trading on borrowed time. Ensure that you put a lot of work and time into getting your risk management plan up to scratch and into a position where it can comfortably keep your account alive after a number of consecutive losses.

Letting Emotions Get the Better of You

There are a lot of emotions that come with trading, they can be relatively little things like being annoyed at a loss or a missed trading opportunity, but there are also some emotions that can cause you to make silly mistakes. Things like greed, overconfidence or simply wanting to win back lost money can cause a lot of issues. It is vital that you are able to control them, they often lead to making trades that either does not follow the trading plan that you are using, or they throw risk management out of the window, placing larger trades or more trades than you should be placing. If you allow these emotions to continue, they will ultimately cause you to risk too much candy can very easily make you blow your account. Keep emotions in check, if you feel like one is getting a bit too strong, then step away for a bit, take a break, clear your mind, and then come back.

Trading Too Much / Not Taking Breaks

Trading can take a long time, in fact, it can take up pretty much all of your time. There is an almost unlimited amount of information available and different ways to trade, so it is expected that you do not learn it all, but learning takes time, people seem to trade for hours on end, this can work for some, but for the majority, this will only cause stress. You need to be able to take regular breaks away from trading, do some sport, cooking, anything, as long as it clears your mind from the stresses and frustrations of trading. This is a vital part of keeping your mind fresh and healthy, your body will thank you for it at a later date.

Focus, Do Not Diversify too Much

We mentioned that there are incredible amounts of information on trading so you will not be able to learn it all, you need to be able to focus on the parts that are relevant for you. If your strategy is about a certain price movement, learn that first, do not look at other things, as soon as you do it will begin to confuse you and you may even start to get things mixed up that can lead to eros in your trading. Ensure that you focus on what you need to learn first, do not try to do too much at once or it will all be far too confusing and stressful.

So those are a few of the things that people often do or scenarios that can potentially prevent you from trading successfully, some can even throw you off track instantly. Ensure that you take things slowly, ensure that you have everything in the palace and your trading experience will be a lot more enjoyable, and a lot more successful.

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Beginners Forex Education Forex Basics

The Seven Worst Ways To Trade Forex

There are good strategies and there are bad strategies, there are smart ways to trade and there is, unfortunately, the not so smart way to trade. When you started out on your trading journey, you were probably told of a few things to avoid, this doesn’t, however, stop everyone, in fact, it is quite commonplace […]

There are good strategies and there are bad strategies, there are smart ways to trade and there is, unfortunately, the not so smart way to trade. When you started out on your trading journey, you were probably told of a few things to avoid, this doesn’t, however, stop everyone, in fact, it is quite commonplace […]

There are good strategies and there are bad strategies, there are smart ways to trade and there is, unfortunately, the not so smart way to trade. When you started out on your trading journey, you were probably told of a few things to avoid, this doesn’t, however, stop everyone, in fact, it is quite commonplace to see people doing things that any experienced trader or anyone with any sort of understanding of risk knows that you should not do.

So we are going to be looking at some of the more silly and certainly more risky ways of trading, they aren’t necessarily attached to a specific strategy, more of a mindset. So let’s look at some of the things that you should definitely try and avoid doing.

Trying to Pick the Tops and Bottoms

If it was possible to warm out where the top of a climb is or the bottom of a dip, then we would all be millionaires, then again, there wouldn’t be as many tops or bottoms around. It is never a good idea to wait until what you think is the top and bottom, the majority of the time you won’t be close. Instead, you need to get into the markets when your strategy tells you to. As soon as you try to guess the tops and bottoms, you will miss your entry, and the trade will no longer be a good one.

If you genuinely feel that it is the top or bottom, it can cause you to put on trades larger than your risk management plan details, this can put your account in danger and this form of overconfidence is never beneficial to an account. So stick to your strategy and don’t try to predict the tops and bottoms of the markets.

Trading Without a Plan

Something that a lot of newer traders do, or those that are simply too lazy to learn or develop their own trading strategies. This is one of the cardinal sins of trading, you need to have a plan, as soon as you trade without one you are on a slippery slope to gambling and ultimately lost accounts. Always have a plan, its best to have your own plan, but if you really can’t make one, at least take one from someone else, while you may not fully understand it and may not be able to adapt it to the changing markets, it will at least give you something to work on and not everything that you do will be complete guesswork.

Adding to Losing Trades

Have you been in a situation where you are in a trade, unfortunately, it has started to go the wrong way? If you have ever traded then you would have, but what is important is what you decided to do next. Did you:

A: Leave it.
B: Close it:
C: Add another position in the hope it turns around.

If you chose C then you made the mistake that we are looking at. If the trade started going the wrong way, it should be closing at your stop loss, adding to the position will just potentially increase your drawdown further, many people who add to positions will continue to add to it, as soon as you start doing that, it will continue to grow at an exponential rate and will eventually blow your account if there is an extended trend (which is more common than you may think.

This is such a dangerous way of trading and is known as either a martingale or grid strategy, it is something that you should be warned off very early into your trading career if you are thinking of doing this, don’t. Reevaluate your plan and work out where you are going wrong instead of just adding more trades to a losing position and hoping for the turnaround that may never actually come.

Guessing or Gambling

A lot of people like a good gamble, but you should stick to sports or the casino, forex, and trading really is not the place that you should be making those bets. If you are only interested in throwing your money at a certain outcome without any regard for anything else going on, then it would be better to avoid trading altogether. Trading is all about working out the probabilities and then seeing which side has the most and so which way the markets are more likely to move. Just randomly choosing a direction without knowing them is the same randomly betting on a football team while not knowing the players. The moral of the story is to simply not gamble, do not trade in this way, it will only lead to losing your account,

Blindly Following Others

If a random person walked up to you on the street and told you that the EURUSD market will move up, are you going to hear that and then suddenly trade it? Probably not, so why would you listen to some random person on the internet? If you blindly follow the suggestion from someone else, then you will literally have no idea why they are telling you to trade that way. What if things go wrong? What are you going to do? You do not know what the decisions behind entering this trade were, so you have no way of knowing how you should adjust it should the markets begin to change.

The other thing you need to think about is the fact that you do not know what the credentials are of the person making the trade. Have they been trading for a long time or is this literally their first week of reading? You have no idea, so it is a really risky thing to follow others without knowing anything about them or the trades that they are making.

Sending Money for Others to Trade

This is such a bad way to trade that it isn’t even classed as actual trading, however, it is something that a lot of people do. You have seen adverts all over the web, people asking for you to invest so they can trade your money, the only advice that there is would be to avoid giving any money to anyone, the moment you do it is lost, are they even real? Do they actually trade? You do not know so do not give your money to the, instead learn to trade yourself and you will at least know what your money is doing and what the strategy behind the trades are.

Increasing Lot Sizes

There are a few different strategies that actually revolve around this such as the martingale strategy, you have most likely heard about it before and have also probably been warned off of it too, and for good reason. As soon as you start to add additional lots sizes and trade sizes to each trade, you are increasing the danger to the account, each trade puts the account in danger and can potentially make you lose it all. Basic risk management will dictate that your trade sizes should not be increasing with every trade, instead, it will keep things steady, if that is good risk management then clearly constantly increasing the lot sizes is not good risk management, so it would be best to avoid this at all costs.

So those are some of the ways that you really should not be trading, if you find yourself doing them, reevaluate what it is that you are doing, step back and start again, you need to work via a strategy and not just trading whatever it is and however you feel, that will only lead to disaster.

Categories
Beginners Forex Education Forex Chart Basics

The Importance of Not Mixing Up Your Time Frames

Having the ability to look at multiple different timeframes at the same time is a blessing, but it can unfortunately also be a curse. Have you ever been analyzing the markets and found the perfect trade setup but then after the 30 minutes to an hour that you have just spent, you look up and […]

Having the ability to look at multiple different timeframes at the same time is a blessing, but it can unfortunately also be a curse. Have you ever been analyzing the markets and found the perfect trade setup but then after the 30 minutes to an hour that you have just spent, you look up and […]

Having the ability to look at multiple different timeframes at the same time is a blessing, but it can unfortunately also be a curse. Have you ever been analyzing the markets and found the perfect trade setup but then after the 30 minutes to an hour that you have just spent, you look up and notice that you are on the 4-hour timeframe rather than the 15-minute chart, all that work you have just done is wasted.

The majority of the time, when a strategy is created, it has been created to work with a specific timeframe, as soon as you turn onto a higher or lower timeframe, the strategy no longer functions in its optimum form. Accidently changing to a different time frame is an incredibly easy thing to do, in fact, when you open up a new chart it is often loaded on the 1-hour timeframe, so unless you remember to change it, it will remain on that while you perform the analysis for your strategy.

Different timeframes can also have an effect on your mentality and your confidence in the markets, now that may sound strange but it is true. You have a great trade setup, all the indicators on your current timeframe indicate that the markets will go up, but now you have seen people online stating how their analysis shows that the markets will go down, but they are on a higher timeframe to you, this can hit your confidence and make you second guess your own strategy and analysis, but it shouldn’t.

You need to remember that they are using a different time frame which has nothing to do with your strategy, yes the 4-hour chart may ultimately go down, but the 15-minute chart that you are using for a shorter-term trade may well still go up, you need to ignore the indications on the other charts (unless it is part of your strategy to look at them also) and concentrate on the one that you know and understand.

If we were to break down trading into just two different categories, short term trading, and long term trading. The short term traders do not have the time to analyze hundreds of factors, they use the smaller 1 minute, 5 minute or 15-minute timeframes, they look for very specific things and put in trades with the expectation to get out quickly. Long term traders use the larger timeframes, from an hour up, they have the time to analyze the markets at a much deeper level and take their time with each trade. Using a timeframe above or below what your strategy demands will cause issues and increase the chance of losses.

It is even worse for those that are kind of in the middle if you use the 30-minute timeframe, for example, the 15 minute and 1-hour time frames could counter your 30-minute analysis, but concentrating on what you know and not taking that into account can be beneficial, having a look at multiple different ones that don’t relate to our strategy can cast doubt into your mind and knock your confidence on both that trade and your overall strategy.

Let’s imagine that you have a trade on the 1-hour timeframe, it is an uptrend which is what you want, the markets look like they could be turning on the 1-hour chart, but when you look at the 4-hour chart, it makes it clear that it should continue. Bearing in mind that your strategy and trade was based on the 1-hour chart, should you get out of the trade or hold it for the 4 hours? You need to close it, your analysis was for the 1-hour chart, no matter what the 4-hour chat states, you should not take it into account as you did not when first analyzing the trade.

There are a few ways to help avoid using the wrong time frame by accident, we would suggest having a tick chart for each of your trades, at the very top you can out to check that you are on the timeframe, you would be surprised how many times we have started to analyze for 10 or 20 minutes before realizing we are on the wrong time frame. In order to avoid having others cloud your judgment, try not to look online or ask others for input while analyzing and putting on trades, this helps you to concentrate on your trading and it does not let others influence you or damage your confidence.

Having said all that, looking at multiple timeframes can help your trading, it can give you a lot more confirmations for the trade, however, it needs to be based on your strategy, stick to the way it works, if you use one or two, stick to those ones, don’t venture out onto timeframes which are not relevant to your current trading strategy.

Categories
Beginners Forex Education Forex Basics

Why Am I Not Reaching My Trading Goals? Here’s Why…

The first thing that I want to ask you is whether or not you actually have any trading aims? You would be surprised at how many people have not actually made any when we start out trading, there is often an overall target that we want to achieve. For some, it will be to be […]

The first thing that I want to ask you is whether or not you actually have any trading aims? You would be surprised at how many people have not actually made any when we start out trading, there is often an overall target that we want to achieve. For some, it will be to be […]

The first thing that I want to ask you is whether or not you actually have any trading aims? You would be surprised at how many people have not actually made any when we start out trading, there is often an overall target that we want to achieve. For some, it will be to be able to quit their job. For others, it may be to make $1,000,000 overnight, some will be far more modest than others, just to make an extra $100 a month as spending money. Some will be far more realistic than others, but what is important is that you have one and that you have defined them.

It is important to ensure that you have defined your aims and goals properly, these should be set out in a way that makes them easy to understand and that they are achievable. There is no point putting down that you want to be a millionaire when you are starting from $100. It could be your overall aim, but you need to have stages along the way, make your first $100, the first $10,000, become risk-free (remove initial money) and so forth, these are what you will be doing at different milestones and these are what you will be aiming for rather than the overall millionaire status.

So this leads us to the first reason why you may not be achieving your aim, they are simply too big and too ambitious. As we mentioned above, there is no point setting your only aim as $10,000,000 profit, it may happen one day but that won’t be for a long time, if you set things too high they will not be achievable in a sensible timeframe. Set your aims lower, at least the initial ones, they need to be achievable, even if it may seem pretty low and potentially easy compared to your overall aim.

The next thing that you need to consider is whether or not you have a trading plan that goes along with the aims that you want to achieve. There is no point in having a goal to create a trading plan if you are just going to copy other people’s trades. Whatever your aim is, you need to be able to set out a plan which will detail how you are going to achieve it, this should contain the steps that you need to take and by what time you are wanting to achieve them. Ensure that the plan and the aims within it are achievable, have a timed deadline and that they are relevant to what you want to achieve.

Leading on from the previous point, you need to be able to show some dedication and commitment to the trading plan and the aims that you have created. Sometimes it can be pretty hard to keep doing something especially if it is not going the way that you want it to. Q lot of traders will quit after a number of losses in a row, or completely change their trading plan and style. It is important that you are able to stick with it, through both the good and the bad times, and there will be bad times. Being able to remain on track and following your plan will allow you to get through those hard times and your results will be much more in line with the expected results that you detailed when creating the plan in the first place. Sticking to the plan will make your aims and targets much more achievable and much more realistic to reach them.

How about distractions, are you easily distracted? We are not thinking about the TV or the person sitting next to you, they can of course put you off your trading game, but we are talking about distractions from your trading aims. You have them set, but you are on your way to achieving one and suddenly you think of something else, you want to alter those goals to something else,l but everything has been set up to achieve this, so do not let these new thoughts get in the way of your trading and to get in the way of the achieving those aims. Once you have made your goals, set your sights on them, and do not let anything make you doubt or change them. You set them for a reason, remember that reason and remember those goals, do not change them partway through as it can completely throw your trading game out of sync.

It is important to take breaks when trading, to move away from the markets in order to clear your mind, but what it is not ok to do is to take breaks from your aims and your trading plan. Every trade that you make should be with your trading plan in mind, you should be making each one in order to get a little closer to achieving that target. Do not take a break from this and make trades that are nothing to do with then, based on a gamble, a thought, or simply for fun. This will only take you further from achieving your target and will put your account in additional risk. Stick to your plan, stick to your aims, and keep your trades focused on them.

Something else that can really make you lose track of your targets and certainly make them harder to achieve is if you are not tracking them. Tracking your aims and your progress towards them can give you a lot of motivation. In fact, it can help push you to follow them and push yourself to achieve them. Where the issue comes from is when you are not tracking them, how will you know how close you are to the target if you are not marking down each result or where you are in relation to it? This can cause you to lose focus and also a lot of motivation for it. Regularly revisiting your results and your progress towards your aims are paramount to actually achieving them.

The last thing that we wanted to look into is the fact that some people look at their target as a quick thing, where in reality, your targets should be a marathon and not a sprint. Take your time to achieve your targets, as soon as you begin to try and rush them, mistakes will be made which will only take you further and further away from achieving the goals. Be sure that you take your time, one step at a time and you’ll be in a much better position and mindset for achieving your targets.

So those are a few of the things that could be causing you to miss out on this target, remember to set them in a way that they can actually be achieved and that they are measurable. Stay focused on them, do not get distracted and you will be in a fantastic position to achieve them or at least to be on the right track to achieve them down the line.

Categories
Beginners Forex Education Forex Basics

Losing Trades: What They Have to Teach You

You have probably heard it before, a losing trade is the best teacher, but what does this actually mean and who does it apply to? Well, it applies to everyone and it is actually true, a losing trade can tell you a lot about what went wrong, and using that information can help you to […]

You have probably heard it before, a losing trade is the best teacher, but what does this actually mean and who does it apply to? Well, it applies to everyone and it is actually true, a losing trade can tell you a lot about what went wrong, and using that information can help you to […]

You have probably heard it before, a losing trade is the best teacher, but what does this actually mean and who does it apply to? Well, it applies to everyone and it is actually true, a losing trade can tell you a lot about what went wrong, and using that information can help you to adapt your strategy and can even be a lesson to stick to it.

It should be pointed out that this will only work if you are keeping a trading journal, this journal will detail different aspects of why you entered the trade, what the conditions were like, what the entry criteria were, stop losses, take profits, what happened in the markets and many more aspects, using this information we can look at exactly what went wrong, so be sure to record each aspect of what you are doing, you won’t regret it.

Having a bad trade does not necessarily mean that you lost a lot of money, in fact, some winning trades could be considered bad, especially if they go against the strategy that you are meant to be using.

When a trade goes the wrong way and hits your stop loss (because you are obviously using stop losses), we need to know why that happened, was your entry criteria not fully met? Was there some economic news that you did not know was coming? We need to ask questions like that and with the aid of your trading journal, it will make it far easier to pinpoint the exact place where the trade went wrong. We won’t always win, and the markets won’t always react in a predictable manner to some news, so understanding what you have done is paramount for your own learning.

Sometimes a trade may go well and you make a profit, however, if you did not stick to your strategy, it was mainly just luck that it didn’t go the wrong way. Have a look at the reasons why you deviated from the strategy, were you distracted? Were you bored? Any of these reasons is not a good reason to get into the trade, use this as a reminder, you got lucky, but you need to stick to your plan.

We have all been in that situation where we did something and we either automatically regrets it straight after putting in the trade, or a day later wonder why we did it. Askingthr4se questions and consulting your trading journals will help you answer these questions adn hopefully allow you to avoid making the same bad trades in the future.

Categories
Forex Basic Strategies

Learning To Trade The Forex Market Using ‘Pure Die-Out’ Strategy

Introduction

Introduction

Introduction

Everyone wants to be the hero in the market and claim that they have picked the top or bottom of a currency pair. However, apart from boasting, there is no gain from repetitive selling at every new ‘high’ in hopes that this one would be the final ‘high.’ One of the biggest dangers encountered by novice traders is picking a top or bottom with no logic. The pure die-out is an intraday strategy that picks a top or bottom based upon a strong recovery after an extended move.

Time Frame

As it is an intraday strategy, the highly suitable time frames are 1 hour and 15 minutes.

Indicators

In this strategy, we will be using two indicators. The two indicators are RSI and Bollinger Bands.

Currency Pairs

This strategy works best on major currency pairs only. Among these, the preferred ones are EUR/USD, USD/JPY, GBP/USD, GBP/JPY, and USD/CAD.

Strategy Concept

The strategy looks for intraday fake-outs using three sets of Bollinger bands and the relative strength index (RSI) on the hourly and 15-minute charts. The trade setup is formed when RSI hits either an overbought or oversold level. The market is considered to be overbought when RSI moves above 70, while the market is considered oversold when RSI goes below 30.

This signals a possible reversal in the market and that we can start looking for a trade in the opposite direction. However, rather than just immediately buying or selling in hopes for a trend reversal based solely upon RSI, we add in three sets of Bollinger Bands, to help us identify the point of over-extension. We use three sets of Bollinger Bands because it helps us assess the extremity of the move along with the extent of possible U-turn.

The conventional theory of Bollinger bands suggests buying or selling when prices hit the two bands. In our strategy, we will totally be using three Bollinger bands, and when prices hit the third band on any side, we say that the move is within the 5% small group, which characterizes the move as extreme.

When prices move away from the third standard deviation Bollinger band and move into the zone of first and second Bollinger band, we are confident that the currency pair has hit its extreme point and is moving into a reversal phase.

Finally, we look for one last thing before making an entry: a candle to close fully between the second and first Bollinger Bands. This last step helps us screen out false moves and assures that the previous move was really exhaustion. This is a low-risk and low-return strategy that is suitable for traders who like to scalp the market.

Trade Setup  

To illustrate the strategy, we have considered the USD/JPY currency pair, where we will be applying the 1-hour chart strategy. Here are the steps to execute the strategy.

Step 1

Firstly, open the 1 hour or 15 minutes chart of the desired currency pair. Then plot the Bollinger band and RSI indicator on the chart. We need to plot 3 Bollinger bands with the same ‘period’ but different standard deviations. The first Bollinger band (BB) should have a standard deviation (SD) of 1, the second BB will have SD of 2, and finally, the third BB will have SD of 3. RSI will carry the default settings.

The below image shows the Bollinger band indicator plotted on the USD/JPY currency pair and the RSI on it.

Step 2

If we are looking for an overextended move on the downside, wait for the price to cross below the lower band of the 3SD BB or if we are looking for an overextended move on the upside, wait for the price cross above the upper band of the 3SD BB. Along with this, we need to see that the RSI goes below the 30 ‘mark’ in a down move and moves above the 70 mark in an up move. Both conditions need to be satisfied simultaneously.

In the example since we are looking for a ‘buy’ trade, we have to wait for the price to cross below the lower band of the 3SD BB along with the RSI reading of below 30. The below image shows that the conditions mentioned above are fulfilled.

Step 3

In this step, we wait for a candle to open and close between the 2SD BB and 1SD BB zone. It is important to check that the entire body of the candle is within this zone, and it closes near the lower band of the 1SD BB. This was for a ‘long’ setup. In the case of a ‘short’ trade, the only difference is that the candle should close between the upper band of the 2SD BB and 1SD BB.

In the below image, we can notice a bullish candle that closes well within the required zone, which is a sign of reversal.

Step 4

In this step, we determine the ‘stop-loss’ and ‘take-profit‘ for the strategy. Stop-loss is placed below or above the ‘low’ or ‘high,’ respectively, from where the reversal began. As we are trading against the trend, the ‘take-profit’ is set at 1:1 risk to reward. We will also lock-in some profits when the market starts moving in our favour, to ensure that we don’t lose money if it turns midway.

Strategy Roundup

In this strategy, we combine two technical indicators to identify the market’s top and bottom, without making wild guesses. This means we are determining overextended moves logically and technically. After practising well on the 1-hour chart, we can spot trade setups on the 15 minutes time frame. Since these are counter-trend trades, the probability of success will be less. This strategy is very simple to understand if we have basic knowledge of indicators.

Categories
Beginners Forex Education Forex Basics

Trading Outside Your Comfort Zone

Humans are things of habit, they will create their safe space, a place where they feel comfortable, they are happy with what they have, and stepping out of can cause extra work and stress, so why would we want to get out of it? This applies to the forex trading world too, once you have […]

Humans are things of habit, they will create their safe space, a place where they feel comfortable, they are happy with what they have, and stepping out of can cause extra work and stress, so why would we want to get out of it? This applies to the forex trading world too, once you have […]

Humans are things of habit, they will create their safe space, a place where they feel comfortable, they are happy with what they have, and stepping out of can cause extra work and stress, so why would we want to get out of it?

This applies to the forex trading world too, once you have created that strategy that works, you want to stick by it, and that is good advice, but if you never make changes, never step away from the strategy you will be stuck with it for life, and you cannot guarantee that it will always work when the market conditions change.

When you talk about getting out of your comfort zone, a lot of people will be thinking of jumping out with both feet, you don’t need to double up your lot sizes or jump into an entirely new strategy, instead, it is best to ease your way, one toe at a time out of your comfort zone and into something new, not only will it allow you to expand your arsenal, but it will also help to increase your knowledge of different strategies and the markets as a whole.

Stepping out of that zone though, no matter how small will cause you to stress, it will bring you into contact with things that you do not know how to deal with, this is perfectly normal, but there are aways to help prepare yourself and to get out of that zone in a more steady and less stressful way.

One way to lower the stress levels is the old true and tested demo account, using the demo account will allow you to try out that new strategy, or change to your current strategy without having any actual risk, this takes out the stress part of the change, this isn’t revolutionary as I am sure you have been told plenty of times that you should be using a demo account to test things out, and that is for a good reason, it allows you to look at the changes without any added emotion giving you a much clearer view of what has gone wrong, but also what has gone right.

Take a slow step out of that comfort zone rather than jumping, we know that some people do not want to wait for change, you are excited about trying something new and the possibilities that it could bring but don’t jump out with both feet. Take a small step, increase that lot size by a small amount instead of doubling it, change just one aspect at a time to ensure it still works rather than changing the strategy entirely, this enables you to keep risks low, but also to learn about how each individual change actually affects your trading.

If your change isn’t successful, do not let this put you off, a loss is often the best lesson you can have, use the experience of loosing as a way to learn about why it didn’t win, why your trades lost and what you could do differently to help adapt it to win. Part of stepping out of your comfort zone is losing, its not the best part, but it is the best way to work out exactly what you need to do to expand that safe bubble you have.

So do not be afraid to get out of that comfort zone, those that are hugely successful have done it hundreds of time, if you don’t you will begin to stagnate and your trading won’t go anywhere else, so taker that first step and start learning more about your own trading and the forex trading world around you.

Categories
Forex Risk Management

Trade At Your Own Risk, Not Others

One of the main lessons that any new trader gets is how to set out their risk management plans, there are a lot of different ones out there and you would most likely have been told a number of different things yourself by different people. There are people that go by what seems to be […]

One of the main lessons that any new trader gets is how to set out their risk management plans, there are a lot of different ones out there and you would most likely have been told a number of different things yourself by different people. There are people that go by what seems to be […]

One of the main lessons that any new trader gets is how to set out their risk management plans, there are a lot of different ones out there and you would most likely have been told a number of different things yourself by different people. There are people that go by what seems to be a new industry standard of 1% to 2% of your account per trade, however, you still often see people a little more aggressive, going up to 5% or even 10% per trade.

The thing is, that all of these styles and risk management plans are perfectly valid, it can be confusing to see so many variations and you can often wonder if they are all safe. The fact of the matters that you will never know which one is right for someone else, as you would need to be able to access their mind, to be able to work out what their risk tolerance levels are and also what sort of money they are using, expendable money (the stuff you should only be trading with) often comes with a much lower risk threshold, people are willing to risk it more than hey ould with money that they may actually need. It all comes down to personal preference and this is what you should be looking at when working out your own risk management plan.

It is important that we get a basic understanding of what risk tolerance is, we need to be able to know what it is for you and that is what is important. Think back to times where someone may have offered you a gamble, would you take it at 50/50 or would you only take it when it reaches 75/25? Knowing what stage you would take the gamble and how much of your trading account you are willing to risk will help you to create your own risk management plan that suits you and one that you will be comfortable with.

A lot of things in the real work you are often advised to seek financial advice, from an accountant, a lawyer or simply your bank, this is often the sensible thing to do as they know what is best, but the difference between them and reading is that they work in a world where the same advice is relevant for everyone, the same rules apply to everyone. When we are trading, this is not the case. Something that works for one person could be a nightmare for someone else, so this is why we always need to look at things at a personal level when walking about risk management and that is why we say that you should be trading to your own risks and not to what others are risking.

When you started trading you would have created your trading plan and as part of that plan, you should have created your risk management plan. People often look online for help when creating these things, especially when not sure. So let’s assume that you got stuck and went online to see what risk management other people use, you see someone doing quite well risking 5% of their account with each trade, they are doing well so it must work, the problem is that you do not know what their strategy is, it may be completely different to your own, so implementing their risk plan into your strategy could lead to disaster as your strategy is not based around it. The same can go for your own sanity and stress levels, if you are quite a risk-averse person, risking a larger percentage of your account will mean that you will be in a constant state of stress and dread, if you aren’t comfortable with the risk, then you should not be using it.

The experiences that people have had often influence the risks that they are willing to take, those that have a lot of experience within the financial markets or just with finance as a whole are often willing to take larger risks as they have a better understanding of how to manage it, those coming in new are often more reserved, wanting to ensure that they are safe. Of course, there are exceptions to this, some professionals risk very little and some newer people come in with the wrong expectation of being rich and so risk too much, but that us a lesson that they will need to learn by themselves, no amount to telling will stop them from making that mistake as the draw of money is just too strong for them.

A reason why it is so important that you only risk what you are comfortable with is that you will experience losses if every loss makes you lose 10% of your account, it is going to destroy your motivation swing profits wiped out with every single trade, this is why many people go for smaller amounts such as 1% or 2%, a loss will still hurt, but it will not take away a large portion of your account. What is important, is that the risk management is built into your own plan and what it is based on your strategy and your risk tolerance, do not go out there looking for what other people are doing, this will not suit you and will not suit your strategy.

An important aspect of risk management is working out what works for you, this can be done through trial and error or by a lot of planning and demo trading. What you do not want to do is to be suckered into those that are stating that they have made tons of money by risking certain amounts, they are often exaggerated or sometimes completely fabricated. It is great to use others for inspiration or to use their knowledge to help create your trading strategies, but one aspect that you should avoid is the risk plans that they have. This is something you need to create yourself, by yourself, of course, you can use a baseline of 1% or 2% that is often suggested, but only take that information, work out the rest yourself.

One good way to help work out your tolerance levels is to use a demo account, of course, a lot of the emotion won’t be there as you are not risking your own money, but it is a way of working out what sort of risk suits your strategy. If you are consistently profitable with a risk of 2% but not at 1% then your strategy may require the higher risk. Set stop losses, if you find yourself closing off trades manually before it reaches the stop loss, then you may be risking more than you are comfortable with, use the demo account to help alter things, fiddle with things until you come to something that works for both you and your strategy. It can often take quite a long time to find the perfect spot, in fact, a lot of traders never do, but you can always get close. Keep practising, keep adjusting and you will get there in the end.

I know we have mentioned it a number of times, but do not go out there and copy others, it is paramount that you do what is right for you, not what is working for others. They have different circumstances to you and so their plan works for them, but it may be a terrible idea for you. It will take time to work out exactly what you are comfortable with, and that is fine, everyone will have different tolerance levels, you may start too high or too low, you can adjust things as you go to ensure that you eventually come up with the strategy that works perfectly for you.

Categories
Beginners Forex Education Forex Basics

Why Do Some Forex Traders Cut Their Profits?

There is a brief moment of panic for many traders, especially when they are new, surrounding when they should take their profits. They can see that a trade is currently blue, it is giving them a bit of profit but it is fluctuating, do we take the profit or do we let it run in […]

There is a brief moment of panic for many traders, especially when they are new, surrounding when they should take their profits. They can see that a trade is currently blue, it is giving them a bit of profit but it is fluctuating, do we take the profit or do we let it run in […]

There is a brief moment of panic for many traders, especially when they are new, surrounding when they should take their profits. They can see that a trade is currently blue, it is giving them a bit of profit but it is fluctuating, do we take the profit or do we let it run in accordance to our trading plan. Those that are new to trading may well cut the trade and take the profits, regardless of the market sentiment and general direction.

I am sure that within your trading career you have had a situation where you have asked yourself whether you should take the profits in their current position. At times taking it early could be beneficial, other times it may not have been, it depends on the way the markets move afterward, but the one thing that is clear is that you have broken your trading plan.

So why exactly do people cut their trades early in order to take profits, it could be to do with their trading plans or their mentality towards risk and rewards. Let’s take a small look at some of the reasons that it could be.

Their plan has no profit targets: Part of creating a trading plan is to also create a risk management plan, while many will think that this is only to do with stop losses, it also incorporates the take profit levels as this is what indicates what the risk and reward ratio of your strategy is. These take profit levels are set for a reason, without them,, you have no idea where you should be getting out of the trade and so you take a guess and close the trade. Always have a clear take profit level set, then let the trade run.

They heard someone say something different: You have a trade on EURUSD, it has gone into a little bit of profit but still has quite a way to go before it hits your take profit levels. So while you wait you head out onto the internet, you notice in a forum that a couple of people are talking about it reversing and going the other way. What do you do? Do you trust your system or do you listen to them? Some people will ignore them, but those, not 100% confident in their own trading system may well listen to them and come out of the trade, just to see it continue in the right direction. Do not let others influence your decisions, your plan is there for a reason, stick with it, and do not be influenced by others.

They do not like risk: There are a lot of people out there that absolutely love risk, then there are others that hate it. If someone is trading who really doesn’t like risk, then there’s a chance that they will close out trades early in order to guarantee profits. If a take profit level is set for $50, but the trade gets to $20, someone who really does not like risk may take that $20 as they do not want to risk potentially losing it on the way to $50. You need to remember that these take profit levels were set for a reason, let the trade do its thing, taking a trade early only messes up the results of your strategy and could result in overall losses.

No confidence in the trading plan: If someone has created a trading plan but does not actually have any confidence in it, this can cause them to double guess the choices that have been made and the levels that have been set, this can cause them to cut their profits just to get out of a trade. You should not be trading on a plan that you are not confident in, if you are not confident then work on it, work out why you are not and then fix that issue before reading on a live account. Only trade a system that you know you are confident and that you can leave alone to do its thing.

It can actually be a good feeling to lock in those profits, to be able to say that you made some money on that trade. There is however something known as unrealised profits, these are the profits that you would have made should you have stuck with the original trade ideas and the original take profit levels.

When you created your plan, you set a very specific risk to reward ratio that was based on the strategy being used. As soon as you take a trade early, even if it was ultimately going to lose, you have destroyed the integrity of the trading system, it was built this way for a reason, you need to let it work the way it was designed to do. It is also a horrible feeling to take those profits and then watch the trade go on to hit your take profit levels, this is why we always allow the markets and the set trade to work its magic.

It can be hard, we know that, but when trading, a plan is always set before a trades execution, let it work the way it was designed to and you will get a lot of satisfaction out of the overall results knowing that it was your original plan that succeeded.

Categories
Forex Basics

Reasons Why Your Forex Losses Might Actually Be A Blessing

Out in the real world, telling someone that your losses are a blessing might get you a few funny looks. However, in many walks to life, a loss can be one of your greatest tools, it can teach you far more about yourself and the performance than a win ever could. Some of the worlds […]

Out in the real world, telling someone that your losses are a blessing might get you a few funny looks. However, in many walks to life, a loss can be one of your greatest tools, it can teach you far more about yourself and the performance than a win ever could. Some of the worlds […]

Out in the real world, telling someone that your losses are a blessing might get you a few funny looks. However, in many walks to life, a loss can be one of your greatest tools, it can teach you far more about yourself and the performance than a win ever could.

Some of the worlds most famous investors, Warren Buffet, George Soros and many more have made some pretty huge losses, but that didn’t discourage them, instead, it taught them, after those losses they became a lot more successful at what they do and in the long run, they are thankful for those mistakes that they made.

When you make a loss in Forex, it is important to treat that loss with respect, this means not just shrugging it off as a loss, this will not benefit you at all. Instead, it needs to be treated as a blessing, it is a chance for you to fully understand why it went wrong, why the trade lost and what you did wrong, then again, you may not have done anything wrong, it may be something in the markets, but the only way to know that is by looking at and analysis why that trade lost.

It is important to remember not to get too high or low over a losing trade, keeping your emotions in check and stable will allow you to properly develop your strategy and style in line with the loss.

Many traders will pick a strategy that they like, they will trade with it for a while and it’s great, it is making some decent profits, then the first loss comes, then another, now the strategy is trading negatively so the trade gets rid of it and picks up a new one which is profitable for a while, then it starts to make losing trades, the trader will drop it and pick up another one. You can see the cycle, and it is a never-ending cycle.

Most strategies are created with the current market conditions in mind, they will work while the markets remain consistent to the strategy, but as soon as thing start to change, and they always will, the strategy starts to make losing trades, instead of getting rid of the strategy and getting a new one that works now, we need to start looking at what has changed and why the strategy has stopped working. We know the strategy works, so why get rid of it, instead we need to start adopting it.

You should be keeping a journal of your trading, this is a fantastic source of information and we should be able to analyze it and work out exactly why the trades are now going wrong. Using this, you can adapt the strategy to the changing markets, change certain parameters, entry points, exit points and so forth, it is a much more economical way of doing it and it will increase your knowledge of the markets far more than just starting over with a different strategy that you hardly know.

Forex will always be changing, that is a given, it is important that you understand that you need to be moving with it, this means learning and adapting from your losses, it is the best way to learn and those losses truly are a blessing in the long run.

Categories
Forex Basics

Comparing Popular Forex, Crypto and Penny Stocks Trading Methods

From podcasts to blog posts, we are constantly exposed to countless pieces of information. Everyone is nowadays sharing their opinions on the best investment strategies that should get you from zero to professional in no time. As we can at times rely a little too much on other people’s thoughts and ideas. You should know […]

From podcasts to blog posts, we are constantly exposed to countless pieces of information. Everyone is nowadays sharing their opinions on the best investment strategies that should get you from zero to professional in no time. As we can at times rely a little too much on other people’s thoughts and ideas. You should know […]

From podcasts to blog posts, we are constantly exposed to countless pieces of information. Everyone is nowadays sharing their opinions on the best investment strategies that should get you from zero to professional in no time. As we can at times rely a little too much on other people’s thoughts and ideas. You should know that there is a particular indicator which grants success regardless of what one decides to trade – profit. The final outcome and goal of every trade anyone ever does is one thing – money.

So, if you happened to be wondering if your investment strategy is the right one, just ask yourself the question of what is more important – being right or being profitable. While this is often easier said than done, we should first put effort into understanding which skills can help you begin or jump-start your career as a cryptocurrency trader. If you are a successful crypto trader or a forex trader attempting to trade cryptocurrencies, you will find that specific knowledge unique for the world of forex may be the one thing you have not given a try yet.

Firstly, we must acknowledge the fact that, to be able to understand how any form of trading functions, we really give ourselves the opportunity to compare and contrast as many different types of trading as possible. Not only will such an approach generate more knowledge, and therefore more insight, expansion across several markets will also lessen the chances to severely endanger your financial stability. While sources we turn to in order to learn more about trading often point to one of the popular markets, such as stocks, metal, etc., exploring the options to cover more than one market can give you an advantageous position as the truth is always somewhere in between.

By focusing on a single market and references which only praise that particular type of trade without acknowledging the power of a more comprehensive standpoint, you both deprive yourself of the opportunities to increase your profit and reduce your prospects of becoming a truly prosperous trader. Moreover, if you have already faced some challenges and experienced some losses trading in one or more markets, you are that much more apt to decide for yourself what your next step should be. Although they say we should learn from other people’s mistakes, even if you have made the mistakes we are going to discuss here, you probably know that almost every professional trader undergoes some level of disappointment in the process of gaining invaluable experience, which in itself is a reason strong enough for you to diversify your array of trading knowledge and skills.

Quite interestingly, the experiences of penny stock traders appear to be quite comparable to the ones of crypto traders. Both are often pushed to respond to quite pressing invitations to invest, further entailing an idea that one should not miss such rare opportunities to earn a profit. What is more, the common sites traders use to track trends and exchange ideas on lucrative investments are frequently the very places where the most enthusiastic supporters share inconsequential conclusions and thus mislead others into making unwise investment decisions. With such elevated emotions and stories which are blown out of proportions more often than not, penny stock traders become susceptible to hidden psychological manipulation. Because they are so closely involved with the group, these traders start trusting far-fetched ideas which their peers keep reinforcing one after the other.

As the underlying reasons for such miscalculations are mainly related to hope, shared by all participants jointly highlighting their wish to succeed, an individual can slowly start distrusting their own analytical skills. Placing one’s trust in the wrong hands can even lead to overlooking some real investment opportunities just because of the lack of hype surrounding these monumental events. In assessing various pieces of information traders come by, many times traders mistake interest for value, failing to recognize that some of the news receiving the least attention can actually indicate some very real lucrative investment opportunities. As a result of being so caught up believing whatever information available, these traders’ sense of what is right and wrong becomes heavily impaired. At this point, such traders are so oblivious to the accompanying risks that they in fact resemble poker players who invest $100 to earn 20 times more only to lose everything by the time the night ends.

This parallel between penny stock and cryptocurrency traders’ experiences should only serve as an example of how you can protect yourself from harming your financial stability and repetitively falling for the same trap. Therefore, to safeguard future investments, every trader should strive to implement some essential skills, which successful forex traders appear to display more prominently than those in other markets. With so many individuals having become deeply immersed in the cult-like crypto community, you may want to begin to assess how much your decision-making depends on groupthink.

While drawing constructive conclusions does entail a substantial degree of research, relying on a single-perspective source both deprives you of valuable insight and limits objectivity to a great extent. Moreover, although investing does imply a certain level of risk, deciding to go all-in actually goes against some basic trading principles. Besides, to be able to secure some stable, sustainable profit, you should start thinking about a strategy before you set out to reach your goals, as this will prevent some very probable misfortunes. As a crypto trader, you may have already missed some steps discussed here, but if you perceive your failures as invaluable lessons, you will help yourself to adopt a powerful mindset that allows the experience to transform into success.

You can always extend your cryptocurrency portfolio and turn to some other markets as well since you know now how experience in one market can affect your chances of amassing a fortune in some other ones. As we could see from the examples above, so many crypto and penny investors had to learn the hard way which key skills they require to avoid common trading mistakes. Nonetheless, due to the extensive array of experiences, lessons, and trading examples, you may now begin to grasp the importance of sensibly and logically analyzing one’s strategies, devising a strategic and well-thought-out plan, and intelligently growing an independent investor mindset, which are all considered essential forex trading skills.

Categories
Forex Risk Management

Preparing Yourself For Trading Losses

Preparing for losses, it sounds a little counter-intuitive doesn’t it? Yet it is a vital part of trading, losses will happen, being prepared for them can mean that they have a far smaller effect on both your account as well as your psychological state. When you take a big loss or multiple losses in a […]

Preparing for losses, it sounds a little counter-intuitive doesn’t it? Yet it is a vital part of trading, losses will happen, being prepared for them can mean that they have a far smaller effect on both your account as well as your psychological state. When you take a big loss or multiple losses in a […]

Preparing for losses, it sounds a little counter-intuitive doesn’t it? Yet it is a vital part of trading, losses will happen, being prepared for them can mean that they have a far smaller effect on both your account as well as your psychological state.

When you take a big loss or multiple losses in a row it can put a real strain on your emotional and psychological wellbeing when it comes to trading, you will often feel down, annoyed and lose a lot of your motivation to trade, it could depending on your mentality cause you to make some slightly more reckless trading choices. Sometimes it is even the trades that you had the most confidence in that go against you which can hit you even harder than was “the” trade but it still went wrong.

There is something called emotional trama, this can sometimes happen when there has been a threat to our perceived safety and security, taking a large loss can have this effect on someone as the safety of their account and their own abilities are being called into question. So we know what it is, how do we go about protecting ourselves from it? It sounds a lot simpler than it is, but we need to be able to prepare ourselves for a loss.

The first and primary way to do this is something that you should be doing anyway, having a risk management plan in place, this won’t prevent you from making losses, but it will help to prevent you from making large losses that could have an effect on your confidence. With a risk management plan, with each trade, you know exactly how much you could potentially lose. So when those losses do come, and they will come, it won’t have too much of an effect on you because they have been reduced by the risk management plan that you have put in place.

Take a little look at any successful trading strategy, can you find one that doesn’t have any losses? No, you cannot, because they do not exist, losses are a part of trading, you need to be able to understand that if you are going to have a chance at success if every loss makes you feel bad then you are probably in the wrong business.

So preparing for losses is very negative sounding, do not get it mixed up with aiming for losses, of course, you shoulds till be aiming to win every single trade, but that is just not realistic, that is why the risk management is so important, a loss is when a trade goes wrong, so reducing the effect when it does go wrong is paramount.

Losses are a part of trading, being able to recognize that will help you to prepare for the losses, of course, we should be aiming for wins, no one likes a loss, even the most veteran traders would prefer not to have them, but they are a form to teaching and the way that you bounce back from one is testament to your own psychological well being and the strategy that you have put in place.

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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 […]

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 […]

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.

Categories
Forex Assets

Trading the EUR/USD Pair the Prop Traders Way

Prop traders are the elite in the trading game on Forex. They do this for a living and their gains are consistently way better than with any treasury note, saving account interest, and even mutual funds investment. If you are not new to Forex you have probably heard about the 99% of traders that breakeven […]

Prop traders are the elite in the trading game on Forex. They do this for a living and their gains are consistently way better than with any treasury note, saving account interest, and even mutual funds investment. If you are not new to Forex you have probably heard about the 99% of traders that breakeven […]

Prop traders are the elite in the trading game on Forex. They do this for a living and their gains are consistently way better than with any treasury note, saving account interest, and even mutual funds investment. If you are not new to Forex you have probably heard about the 99% of traders that breakeven or lose their accounts on Forex. The 1% that consistently win know what they are doing and proprietary traders are the top 10% of that group. When you are starting, it is almost certain you are trading on the EUR/USD currency pair. You are not aware of what is underneath the EUR/USD nice clothes. Here is what a prop trader by the name of VP from the Maverick FX prop company team has to say about this.

This is the most traded currency pair on Forex. Prop companies at its core are a team of elite traders that collaborate and excel at capturing the profits out of this market. They discuss what is going on, what is the best course of action and they release the report or a signal. The signal serves to other traders as to what is estimated to happen with a specific forex asset in a specified timeframe. More often than not, these signals are correct. As per their words, the EUR/USD pair is mostly avoided in their signals.

The 99% group we have mentioned above is trading the EUR/USD, the one that loses or breakeven at best in the long term. EUR/USD is also the most popular pair to start with. According to prop traders, trading with this pair is like having an affair with a celebrity. You will get burnt at the end. Before we move on with reasons, let’s understand what made prop traders to this position. It starts with a concept, a trading theory, strategy, indicator, tool, or method. All this is tested in different ways, mostly through practical backtesting and forward testing on various assets and timeframes.

Based on this data a consensus among top traders is made and can be adopted as a viable option trader can use to make consistent results. This has been done for thousands of indicators and theories, they know what works best to date. It turns out they are doing the opposite of what the 99% are doing, and it makes sense. What is even more interesting is the internet is full of popular “tips” majority of traders listen and become the 99% group. As you may presume, prop traders do not follow these tips.

Top 5 most traded pairs are the EUR/USD, USD/JPY, GBP/USD, AUD/USD, and USD/CAD. The EUR/USD cap is almost one quarter on the Forex. By looking at these pairs, you can notice they all have one in common, the US Dollar. Is this an issue? Prop traders say yes. But why the EUR/USD is the pair of choice for new traders?

This currency pair is often “offered” to them first, so they start trading exclusively on it. Also, all the rest of the popular tools are promoted to them as something that works. At a few busted accounts they either give up or, if they are open-minded and willing, continue to search out new ways of trading.

Beginner traders think they can get good at one before trying another. It is a common misconception that currency pairs all have a special way of price action. Apart from measured volatility specifics, price movements on every pair do not have any character! GBP/USD can have very calm periods, choppy and calm, volatile and uniform, sideways movement, spikes and it happens in cycles. The EUR/USD is no exception to this. Just when you think you have adapted your tools to it, it will start to behave differently, then again. It is the cyclic way economy manifests and it is also the way on forex. The order moves into chaos, chaos into order. Some strategies work better in one environment. For example, scalping strategies would benefit less volatile periods, while higher timeframe trend following strategies needs momentum and volume which causes volatility.

You will certainly notice the trading session spikes around the same time of course, but if we go back 50 days back or 50 days into the future, your trading results will be completely different. The EUR/USD in 2020 is different than the EUR/USD in 2019. Sticking to just one asset is not only unnecessary and a self-limitation, but it will also affect your account(s). The way to go is finding the pair that is adequate for your system at that time, ignore the others. The bigger the pool of pairs to choose from, the more opportunities where your system works best. This does not mean you should trade every currency pair there is, like extremely volatile/illiquid exotics.

The EUR/USD is the most liquid so that is why new traders focus on it. The EUR/USD is the most traded pair but that also makes it the most popular. Being popular puts you in that 99% group. Here is why this is a problem from different angles. Liquidity does not mean your trades will be more profitable nor it means the asset will have more “reasonable” price action. Retail traders do not have enough capital to move the markets, the liquidity pool is simply too big, at least within the major 8 currencies. Also, prop traders say the price spikes are less often on less popular currency pairs! So the notion of liquidity is better applies only if a pair is very exotic, like TRY/PLN.

Another problem with the EUR/USD having that 99% group is this is a world where big banks and institutions like to mess with them. If you do not know already what the big banks are doing, their manipulation is mostly done where the majority of traders are trading (popular) where they can extract the most money out of. This money goes back into the pool again and the cycle continues. In our Big Banks article, we mentioned that they know where traders’ positions are and move the price against their trades. News events are especially good for this since a lot of trades are focused on certain price levels in short periods.

Talking about the USD, it is a dominant currency and it is also packed with news events and the most manipulated. This brings us to the point where every currency pair with the USD is likely to be affected by this. Luckily, many pairs are not targets for big bank manipulation since they do not have a lot of traders, the 1% group which escape their hands from time to time. So to sum it up, here are some practical tips from prop traders you can apply and compare the results on your accounts:

Trade the EUR/USD only if you know what you are doing, expose less on this market, and do not limit your trading only on one asset. There is no specialization, no currency pair has a special way of price action, only volatility is different, If you are trading on lower timeframes than daily, you will notice volume spikes on certain trading sessions, but then again, every currency has its trading session.

Taking a wrong when you are just starting forex trading can be a danger to your effort. You may become accustomed to a certain asset, strategy, or tools that are not effective, or there are better alternatives you do not know about. This path is unfortunately easy to start walking since there are so many sources available the right paths are not easy to find. Keeping your mind open for other things to try will evolve your trading and your system for the better, it makes sense. Being adaptive will reflect on your system, it will too be adaptive as much as you are. This path is not the easy one, you will need to climb to that 1% group. Forex will filter out the ones who are not persistent, open-minded, emotionally in control, and the ones that gamble.

Source: No-Nonsense Forex channel

Categories
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 […]

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 […]

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?

Categories
Forex Market

The Phenomenon of President Trump’s Tweets

“If they actually did this the markets would crash. Do you think it was luck that got us to the best Stock Market and Economy in our history? It wasn’t!” Do you guys use Twitter? “We are doing very well in our negotiations with China. While I am sure they would love to be dealing […]

“If they actually did this the markets would crash. Do you think it was luck that got us to the best Stock Market and Economy in our history? It wasn’t!” Do you guys use Twitter? “We are doing very well in our negotiations with China. While I am sure they would love to be dealing […]

“If they actually did this the markets would crash. Do you think it was luck that got us to the best Stock Market and Economy in our history? It wasn’t!” Do you guys use Twitter? “We are doing very well in our negotiations with China. While I am sure they would love to be dealing with a new administration so they could continue their practice of ‘rip-off USA'($600 B/year), 16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot….” Does this ring a bell?

Maybe this? “As usual, the Fed did NOTHING! It is incredible that they can ‘speak’ without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work ‘brilliantly’ with both, and the U.S. will do great…” It is extremely unique how and in what ways we have seen tweets from President Donald Trump affect the market almost immediately after he posts them and what that does to our trades. This is the type of phenomenon that we have never had to deal with before, it is something completely new for traders.

There’s been a lot of complaining all over social media about something that we cannot see coming and we substantially have absolutely no control over. Something that has the ability to pop up and ruin our wonderfully perfect technical trade almost instantly. We will try to focus on this from the politically agnostic stand of point because our number one goal should be finding ways to make money from the forex market. But this whole thing with President Trump’s tweets is pretty eccentric to anything we had to deal with before because it is constant and it is highly unpredictable. We never know when it is going to happen but we can surely anticipate that markets are going to freak out. So why this is happening? How could smart investors with all that big money be so foolish and react to something like this? Especially when most of the words from tweets end up never really materializing. It is perfectly normal to wonder about that. There are a couple of factors in play here.

Firstly, if we give the opportunity to big banks to manipulate prices a lot in a hurry, they are going to take advantage of that opportunity every single time. They don’t need to explain to anybody why they did what they did. This whole interesting moment with the huge central banks we can see only happening some of the time when we see big moves after a Trump tweet. Secondly, we have institutions. For example, hedge funds play a significant part in this because they have a lot of money and when they move, they move all at the same time. Proprietary trading firms are an example of institutional trading but to a much lesser degree. Typically they don’t have the amount of money at these hedge funds have, and their traders don’t all move in lockstep.

There has been a rumor among traders that some of these hedge funds have algorithms that are able to comb through Twitter mainly when Trump tweets something and they are targeting for certain words or a certain combination of words that will automatically trigger their algorithms to go long or to go short on whatever instrument they’re trading. It is the ultimate front-running tactic. The financial game is more about survival than anything else and these funds and firms are finding ways the keep their heads above the water. We can’t be mad at them, it is pretty innovative and it’s working. So the two main types of entities that can have a big impact on the forex market all on their own are the big banks and larger institutions, they play instant reaction games and they are both involved in this little amusement with Donald Trump’s tweets.

The question remains, what we the small retail traders can do about it? Is there any recourse for us? To be honest, there is nothing we can do to counter this phenomenon. We are just going to have to deal with this new normal. We are not going to be able to change the way we trade at all to adjust to something like this. It might be better not to worry about it. On one hand, this could make the price of a currency pair go up or down, so it is going to make a mess sometimes because we are going to be emotionally invested in those times where this external factor out of nowhere came and messed up our trade. On the other hand, there is a 50% chance that it could propel our trade even further. We have been seen some people who are complaining and the ones that benefited from these tweets.

There will always be the factors that we can’t control and they might negatively affect us but we mustn’t allow things like this to get us down. You guys don’t worry about the things that you can’t control. In forex trading, It’s always going to be something, either the markets are too crazy, it’s too dead, we have now this Trump tweets, it is always going to be something that prevents us from getting the results we think we deserve. We simply need to find a way to be immune to all the financial earthquakes. In the end, our best approach should be just to trade our system and let it organically do what it does regardless of the circumstances. These external factors are not actual factors, they should have nothing to do with our constant improvement. We don’ have any impact on them and we can’t do much about that. So traders focus on the things that actually matter without complaining. The best thing we can do is to leave politics as it is and try to make our trade better every single day.

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Forex Basic Strategies

Trading The Rapid Fire Strategy – A Reliable Scalping Technique

Introduction

Introduction

Introduction

In recent times, the scalping style of trading has gained a lot of attraction from all types of traders. These strategies are characterized by high-volume trading, which is designed to enter the market frequently to make just a few pips.

Most scalping strategies are built using indicators that can make it extremely tough for beginners who are new to the markets. This is one of the reasons why scalping is not recommended for new traders. Whichever scalping strategy we use, we need to make sure that the broker’s platform allows us to employ the strategy on the lowest time frames.

The two scalping techniques we will be discussing are – Rapid-fire and Piranha. These strategies are developed on the 1 minute and 5 minutes time frame charts, respectively. These two time-frames provide ample opportunities to enter in and out of the market several times a day.

Although scalping can be exciting, it can lead to fatigue and loss of concentration due to constant monitoring of the markets. Therefore, besides just knowing about the strategy, one should meditate and learn to be away from the markets when not required. Overtrading does not profit all the time.

The rapid-fire strategy has two basic requirements:

Highly liquid currency pair | Lower timeframe

This criterion led to the development of the strategy on the 1-minute time frame chart using the EUR/USD currency pair. With this strategy, one can find around 30 to 40 trading opportunities every day.

Time Frame

The rapid-fire strategy works well with the 1 minute and even 2 minutes time frame charts, where each candlestick represents one minute of price movement.

Indicators

We use two indicators for the rapid-fire strategy with the following settings.

  1. Parabolic SAR – Step size 0.02 | Maximum 0.2
  2. A simple moving average (SMA) with period 50 and apply to close.

Currency Pairs

The strategy is designed specifically for most liquid currency pairs as EUR/USD, GBP/USD, USD/JPY, and a few others. However, the EUR/USD pair is the most preferred pair for the strategy.

Strategy Concept

The rapid-fire is basically a trend trading strategy. So, we will be applying the strategy on the pullback of a major trend. The strategy combines two trend indicators, SMA 60 and Parabolic SAR, with the appropriate setting. The SMA is used to identify the major trend of the market. This means we look to buy the currency pair when the price is above the SMA, and similarly, we look to short the pair when the below the SMA.

The Parabolic SAR is used to give the exact entry signal after identifying the market direction and pattern. Once we identify the direction, when the price moves above or below the parabolic SAR, we take a trade based on the current position of the price. Let us understand this in detail.

Trade Setup

In order to explain the step by step procedure of the strategy, we have considered the EUR/USD currency pair where we will be applying the strategy on the 1-minute time frame chart. It is advised not to switch to a time frame any lower than 1 minute as it is very hectic.

Step 1

Since it is a trend trading strategy, the first step is to identify the major trend of the market and wait for a retracement. If the retracement comes close to the SMA, it is the ideal case of a pullback. The longer the price remains above or below the SMA, the stronger is the trend.

In our example, we see the market is in an uptrend, as shown in the below image, where the price is well above the SMA for a long time.

Step 2

We can see that there are two dotted lines of the parabolic SAR, an upper one, and another is the lower. The next and most crucial step of the strategy is looking for the entry signal. In case of an uptrend, when the price retracement comes in from the highest point, the price is below the parabolic SAR, which means the price is still in its retracement frame. When the price goes above the upper dotted line of the parabolic SAR, it signals a continuation of the trend, and we enter right at the close of the candle above the SAR.

In the below image, we can see how the price crosses the parabolic SAR and signals an upward price movement.

Step 3

This is the final step of the strategy, where we determine our take-profit and stop-loss levels for the strategy. The stop loss is placed below the previous ‘low,’ or in some cases below the second previous low if the previous low is too close. In case of a downtrend, it is above the previous ‘high.’ As the stop loss is not too big, the risk to reward ratio is more than 1 for this strategy. The take-profit is set at 15-20 pips above or below the entry price, depending on ‘long’ or ‘short’ position.

In our case, the risk to reward of the trade was 1.5, where the market moves further above the take-profit point. Since we are trading with the trend, the trade has the potential to move much further, and thus, one can use trailing stop loss to maximize the gains.

Strategy Roundup

The rapid-fire strategy could also give another entry signal during the course of current trade. It is common to encounter consecutive trade signals one after the other, simply because of the low time frame being used. However, it requires a lot of practice before one can spot them. One should know how to manage the trades, especially when the setups come in fast and furious. The rapid-fire strategy works best in trading markets, which requires quick thinking and swift reactions.

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Forex Basic Strategies

Forex Trading Strategy – Trading The 123 Continuation Pattern

Introduction

Introduction

Introduction

In the previous article, we discussed the 123 patterns as a confirmation sign for the end of a trend. However, while the 123 top and bottom are a great entry method for taking reversal trades, it is observed that most of the time market moves in a trend that requires us to get into the trend in the middle of it. We have heard that ‘the trend is your friend,’ so now we will learn a method to get into a trend using the 123 trend continuation pattern.

The safest trades are the ones that we take in the direction of the major trend. In simple words, if the trend is up, we should be ‘long’ in the market, and if the trend is down, we should be ‘short.’ In fact, it is advised for new traders to always be with the trend and not go for trend reversal trades.

Sometimes, one might miss out on the start of a new trend, for which we need a method to enter the confirmed trend during its progress. In today’s strategy, we will discuss one such method of entering a trending market using the 123 patterns for trend continuation, also called internal 123.

Time Frame

An interesting feature of this strategy is that it can be used on all time frames. One needs to comprehend the strategy very well before trying out this on extremely small time frames, such as 5 minutes or 1 minute.

Indicators

No indicators shall be used in this strategy. However, the Simple Moving Average (SMA) can be used to identify the major market trend.

Currency Pairs

Since the strategy is based on the same 123 reversal pattern that we discussed earlier, the strategy’s parameters will remain the same here as well. Hence, the strategy is suitable for trading in all currency pairs, including major, minor, and few exotic pairs. However, it is advised to trade in the major and minor currency pairs only.

Strategy Concept

The strategy’s basic concept is the continuous identification of 123 points in the direction of the new trend. The initial 123 points are identified in the same way as was identified in the previous section, and subsequently, the same pattern is identified as the trend advances. In this strategy, we will be attempting to catch the trend at the second or third appearance of the pattern. Since we are joining the trend after the move has started and it is in the middle, we cannot expect a large risk to reward ratio. This means the risk to reward of trades using this strategy varies anywhere between 1 to 1.5.

One should be careful while using this strategy for trend trading since most traders end up taking late entries that result in a loss. The strategy cannot be applied when the trend is very much evident on the chart and has reached the end of it. The trader can gauge this through experience and practice. Let us understand the step by step procedure of the strategy with the help of an example.

Trade Setup

In order to explain the strategy, we have considered the GBP/CAD currency pair where will be analyzing the chart on the 4-hour time frame. In this example, we will be looking for ‘short’ trades by identifying a suitable 123 pattern in the currency pair, with the downtrend being our major trend.

Step 1

The first step of this strategy is only a recap of the previous strategy. It involves identifying the reversal of a trend by marking the 3 points and confirming the reversal of the trend. As we can see in the below image, we have marked all the points on the chart and identified the formation of the 123 patterns at the end of an uptrend.

Step 2

This is the crucial step of the strategy, where we only need to repeat the steps that were followed earlier to plot points 1, 2, and 3. The previous lower high or higher low becomes our point 1, the new support or resistance level from where the market reacts becomes 2nd point, and finally, the price that is between new point 2 and 3 from where the market starts moving in the direction of the new trend is the 3rd point.

If we carefully observe, point 3 of the previous step is our new point 1, labeled as 1′ in the below image. The new point 2 is labeled as 2′, and 3′ is our 3rd new point. In the example, we will be entering for a ‘short’ somewhere in the middle of the downtrend and not too late or too early.

Step 3

In this step, we enter the market with appropriate position size and risk evaluation. The entry is the simplest part of the strategy, where we enter the market right at the break of the support or resistance level. This level is nothing but our 2nd point.

Step 4

In this, we determine our take-profit and stop-loss levels for the strategy. As mentioned in the earlier section of the article, the risk to reward ratio will be lower as we are entering the middle of a trend. The stop loss is placed at the 3rd (3′) point, and the take-profit should be at the recent support or demand area that is a hurdle for the down move.

Strategy Roundup

This strategy is only an extension of the previous strategy, where we apply the same rules and steps once again. The difference is that the risk to reward ratio is lower, but we make sure that we are trading with the trend, which puts us in a safer position. Do not apply the strategy again on the same trend.

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Forex Basic Strategies

Trading The New York Breakout Forex Strategy

Introduction

Introduction

Introduction

Forex is a 24 hours market, and it is open five days a week. So there are a hell lot of opportunities this market offers to the traders across the world. However, to make more profits and be successful in this market, we don’t have to trade 24 hours on all the days it is open. On any given day, the Forex market shuts down in some continents and opens in some other continents. This leads to the opening and closing of different Forex sessions.

The two most essential sessions are the New York session and the London session. Most of the traders across the globe prefer trading the New York session because, in this session, instruments often have less spread. Also, the markets are quite volatile during this session, and prominent players prefer making most of the significant trades in this session only. In this article, let’s understand different trading techniques to catch the more notable moves that occur during the opening of the New York Session.

We will also be trading the Forex market when the New York session overlaps with the London session. At this point, the volatility will increase furthermore as it is an overlap of the two biggest Forex sessions. The idea is to trade in the direction of the larger players. For each country, the New York session opens at different times. For instance, if you are trading the Forex market from England, the US Session opens for you at around 13:00 GMT. Likewise, if you are trading the market from India, the US session begins at 18:30 IST.

If you are not sure of the exact time of the opening and closing of different trading sessions, you can follow the below link to accurately identify the opening and closing of the New York session according to your local time.

|Forex Time Zone Converter|

Breakout Trading Strategy

During the New York session, all the major, minor, & exotic currency pairs move very fast. Some traders believe that we must trade the currency pairs according to the corresponding session. For example, in the Asian session, we must trade only AUD, NZD, and JPY. In the London and Frankfurt session, we must only trade GBP, EUR, & CHF. Finally, in the New York session, go for USD and CAD currency pairs.

There might be a valid reason behind this, but this shouldn’t be taken seriously. Currency pairs do not move according to the session. Instead, they move according to market circumstances. So in the New York session, we can choose any pair, but we must follow the below rules in order to trade this session profitably.

  1. Before the opening of the New York session, find a currency pair that is in a strong uptrend.
  2. Price action must be held at the major resistance area.
  3. Wait for the breakout to happen in the New York Session.
  4. Let the price action hold above the breakout.
  5. Go long.
  6. Stop-loss below the breakout line.
  7. Take-profit must be at the next major resistance area.

The same is vice-versa for a currency pair if the market is in a strong downtrend.

Buy Example

In the below image, we can clearly see that the EUR/AUD Forex pair is in a strong uptrend.

We can see the price breaking out at the opening of the US session. This indicates that the big players are ready to take over the market. The price action then holds above the breakout line, and this suggests that the breakout is real. Hence we can anticipate buy trades in this Forex pair.

Entry, Stop-loss & Take-profit

We have gone long in this pair as soon as the prices started to hold above the breakout line. The stop-loss is placed just below the support line. We can go for smaller stops when the price action respects the breakout line as it essentially indicates the opposite party giving up. Overall, it was swing trade, and we book the whole profit at the higher timeframe’s resistance area. This entire trade resulted in 150+ pip profit.

Most of the traders believe if they activate the trade in the New York session, they must close the trade in the New York session only no matter what. That’s just another myth. It is always advisable to milk the markets when there’s an opportunity to do so.

Breakout Trading Using Bollinger Bands

In this strategy, we are going to use the Bollinger Bands to trade the New York session. Bollinger Bands, as most of us know, is a quite popular indicator created by John Bollinger. This indicator consists of three lines, which are named as middle, upper, and lower band. These bands expand and contract according to market volatility. Most importantly, this indicator works very well in all types of market conditions.

The below image represents the NZD/CAD Forex pair, which was in an overall uptrend. The price action breaks the major resistance level at the opening of the New York session on the 11th of February 2020. After the breakout, prices started to hold above the breakout line, which tells that the breakout is real, and any long trade anticipated from here will lead to a fruitful result.

Entry, Stop-loss & Take-profit

In the below image, you can see that we have taken a buy entry in the 2nd half of the New York session. Sometimes, the price action breaks the major S&R level in the morning, and it goes sideways for a while before blasting out in the evening. As professional technical traders, we must trust our analysis and be patient enough even when the market is not going in the anticipated direction. We must always let the price action to tell us what is going to happen next and act accordingly.

So right after the breakout, the momentum of sellers is very weak (can be seen in the above chart). So the stop-loss can be placed just below the breakout line. The take-profit was at the higher timeframe resistance area. At first, prices failed to break the resistance line, and during the second try, prices again failed to go higher. The failed second attempt is a clear indicator to close our winning position. Overall it was a good trade, which gave us nearly 90+ pips in just a couple of hours.

Conclusion

Both of the strategies mentioned above are simple and straightforward. Did you observe that in both of our examples, we didn’t choose USD pairs? Instead, we went for minor pairs, and both of the pairs performed really well in the New York session. This proves that it is not about the currency pair of that particular session. It is about what is happening in that pair. It is critical to follow all the rules first and then make a trading decision. It is always advisable to try these strategies on a Demo account and then use it in the live markets. Happy Trading.

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Forex Basic Strategies

Making Consistent Profits with ’10 Pips A Day’ Forex Strategy

Introduction

Introduction

Introduction

There is a lot of buzz in the Forex industry about the ten-pip a day strategy. We have seen both experienced and novice traders getting excited about this strategy. So we decided to talk in detail about this topic in today’s article. Some expert traders believe that it’s not possible to make ten-pip consistently in the market, while many others say it is possible.

In reality, it entirely depends on the person’s trading skills, mindset, and experience. Traders need to adapt themselves to the market situations to be successful. Making ten-pip a day is a great way to accumulate wealth in the Forex market, and it is easily possible. All we need is to master our skills to the point where we exactly know when to take a trade and when not to.

Statistics say that it’s not easy to make consistent money in the Forex market, and the losses are a part of the game. This is true to an extent, but if we practice this strategy enough on a simulator, we can easily make ten pips a day no matter what. In this article, let’s understand how to make ten pips per day in the Forex market by using five different buy and sell examples of five trading days in a week.

Trading Strategy For Making 10 Pips A Day

’10 Pips A Day’ – The idea behind this term is to stop trading for the day right after making ten pips that day. Also, it is up to you to follow this idea or not. You can stop trading after making ten pips, or you can ignore that and go for 20, 30, or even 100 pips a day according to the market situation.

But only go ahead if you are 100% confident about the markets. In case of any tiny bit of uncertainty, make sure to exit right after you make ten pips. One critical aspect of this strategy is selecting the currency pairs. One must be professional enough to understand the market situations and pick the pairs where there is a minimum potential of making ten pip profits.

Pairing The Bollinger Bands With The Stochastic Indicator

Rules For Going Long
  1. The market must be in a strong uptrend.
  2. Wait for the price action to slowdown at the lower Bollinger Band.
  3. Let the Stochastic Indicator reverse at the oversold area.
  4. Only go long if the above two rules are satisfied. Also, consider the momentum of the price.
  5. Place the stop-loss just below the lower Bollinger Bands.

Now, to understand how this works, we have taken five different trades for five trading days in the last week of Feb 2020 and have generated 10, 20, and 30 pips in the market successfully. According to this strategy, conservative traders must stop trading after making ten pips for that trading day. But, if you are an aggressive trader, go ahead for bigger targets. Let’s get into the examples.

Monday Trade

The below chart represents a buy trade in EUR/CAD Forex pair. When all the rules mentioned above are met, we took a long position in the New York Session on 24th Feb 2020. Our stop-loss is placed right below the lower Bollinger Band.

We have gone for three different targets according to the market situations and predominant S&R levels. As mentioned, exit the trade as soon as you make ten pips if you are a conservative trader.

Tuesday Trade

For the second day, we have picked the EUR/AUD Forex pair as we identified some potential market moves. We have gone long on this pair in the New York session on 25TH Feb 2020. We can clearly see both the indicators indicating a clear buy signal.

Here, we have gone for the third target and exited the trade as soon as we made 30 pips.

Wednesday Trade

Our third trade was in the EUR/CAD Forex currency pair in the Asian session on 26th Feb 2020. When prices hit the lower Bollinger bands, and the Stochastic indicated the oversold market conditions, we went long on this currency pair.

We would have exited the trade at ten pips, but the market started printing continuous bullish candles, which made us wait for the prices to hit the third target.

Thursday Trade

On the 4th day (27th Feb 2020), we took a long position in the AUD/NZD Forex pair. The entry was at the point where the prices touched the lower Bollinger Band, and the stop-loss is placed just below the recent low.

Since the higher highs were getting continuously printed, we went for the third target and exited the trade as soon as we made 30 pips.

Friday Trade

For the Friday trade, we chose the AUD/NZD Forex pair. We went long in the Asian session on 28th Feb 2020. When both the indicators lined up in one direction, it is a clear indication that the sellers have given up, and now it’s time for buyers to lead the market.

We had exited at the third target even when the market was moving up north.

 Rules For Going Short
  1. The market must be in a strong downtrend.
  2. Wait for the price action to slowdown at the upper Bollinger Band.
  3. Let the Stochastic Indicator reverse at the overbought area.
  4. Only go short if the above two rules are satisfied. Also, consider the momentum of the price.
  5. Place the stop-loss just above the upper Bollinger Band.

Monday Trade

The below chart represents the first sell trade we took in the NZD/JPY Forex pair on the 24th Feb 2020. We went short when the price action hit the upper Bollinger band, and the Stochastic indicated the overbought conditions.

The stop-loss is placed just above the upper Bollinger Band. We have gone for the third target, and the market printed a brand new lower low.

Tuesday Trade

The below image represents the USD/CHF Forex pair. This pair was in an overall downtrend, and on 25th Feb 2020, we have activated the sell trade right after our sell criteria is met.

We can see the market reaching all of our targets in just a couple of hours.

Wednesday Trade

For the third day, we have chosen the USD/CHF Forex pair to identify the sell opportunities on 26th Feb 2020. The entry was at the point where the price action touched the upper Bollinger band, and the stop-loss was just above the upper band.

The reason we place the stop-loss there is because of the bands of the indicator act as a dynamic support resistance level to the price action.

Thursday Trade

The 4th trade belongs to the CAD/JPY Forex pair, and we have activated our sell trades on 27th Feb 2020. We took sell when both of the indicators lined up in one direction, and we booked profit at the third target.

Friday Trade

For the last sell trade, we chose CAD/JPY currency pair. Sell trade was activated on Friday, 28th Feb, in the Asian session. When the Stochastic reached the overbought area and gave a sharp reversal, we saw the price action hitting the upper Bollinger band. This essentially means that the market is ready to go down.

Bottom Line

In almost all of the cases, we have gone for the third target only and make 30 pips profits. The reason behind this is to show you how reliable is the Bollinger Band and Stochastic combination. We are saying this time, and again, please stop trading after making ten pips per day if you are a conservative novice trader. But if you are experienced enough to predict the market, milk as much as you can depending on the market conditions. All the best.

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Forex Basic Strategies

Pairing The Shooting Star With Stochastic & Awesome Oscillators

Introduction

Introduction

Introduction

The Shooting Star is one of the most popular bearish candlestick patterns in the industry. This pattern appears in an uptrend most of the time, and it indicates bearish reversals in the price action of any underlying currency. So basically, when this pattern appears on the charts, it implies that the buyers are exhausted, and its sellers turn to lead the market. Once we have identified the Shooting Star pattern in an uptrend and confirm the trend reversal with any other credible indicator, we should look to open a short position.

This pattern has a unique structure as it consists of a small body and a high upper wick, as shown in the image below. This image accurately represents the trend reversal because we can clearly see the buyers losing momentum and sellers taking over the market.

Trading strategies with the Shooting Star pattern

Shooting Star + Stochastic Indicator

In this strategy, we have paired the Shooting Star pattern with the Stochastic Indicator to identify the trading opportunities. Just like RSI and MACD, the Stochastic Indicator also belongs to the oscillator group. It is developed in the 1950s, and it is still widely used by the traders. The Stochastic indicator oscillates between 0 & 100 levels. When the indicator goes below 20, it means that the currency pair is oversold. Similarly, when the indicator goes above the 100 level, it indicates that the currency pair is overbought.

STEP 1 – First of all, find the Shooting Star pattern in an uptrend.

STEP 2 – Check the Stochastic indicator

Once you find the Shooting Star pattern, the next step is to check the Stochastic Indicator. If the indicator is giving a reversal at the oversold area, it indicates the overbought market conditions.

The image below represents the EUR/USD weekly Forex chart. In this pair, price action was held at a significant resistance area, and it prints the Shooting Star pattern. Also, the Stochastic indicates the overbought conditions. These three clues clearly say that this pair is all set to change its direction. The Stochastic pattern on a higher timeframe has very higher chances to perform. So whenever you find this pattern, and if it supports the rules of this strategy, always trade big.

Step 3 – Stop-loss and Take Profit

A stop loss is specially designed to limit the loss of the trader. So before activating your trade, it is essential to decide where you are going to place the stop loss. In the example above, we put the stop loss just above the Shooting Star candle.

Shooting Star pattern indicates the reversal in price action. This means that we are catching the top of the trend. As the end goal of every trader is to maximize their profits and minimize losses, always try to hold the positions for more extended targets.

In the example, we have closed our position at a higher timeframe support area. We can use the higher timeframe support or look for the Stochastic Indicator to reach the oversold area. Another way to close the position is when the market reaches the major support area while the Stochastic is in the oversold area.

As we can see in the image below, we closed our full position at a significant support area. You can use the Stochastic or any other trading tool to exit your position, but we always suggest to use the considerable support/resistance area to book profits.

Shooting Star Pattern + Awesome Oscillator

In this strategy, we have paired the Shooting Star pattern with the Awesome Oscillator to identify the trading opportunities. The Awesome Oscillator is a boundless indicator. When the Awesome Oscillator reverses below the zero-level, it indicates the buying pressure. When it reverses above the zero-level, it means sellers are ready to lead the market. Furthermore, some traders use this indicator to confirm the strength of the trend. When the indicator goes above zero-level, it means the buying trend is quite strong, and when it goes below the zero-level, it shows the sellers dominating the market.

Step 1 – First of all, find the Shooting Star pattern in an uptrend.

Step 2 – Look for the Awesome oscillator reversal

Once we find the Shooting Star pattern, the next step is to take a sell-entry when the Awesome Oscillator reverses at overbought market conditions.

The image below is the EURUSD 240 chart. On this pair, at first, the buyers were quite weak, and they started holding at the resistance area. Furthermore, in that small range, price action turned sideways, and it printed the Shooting Star pattern. The Awesome Oscillator even reversed at the overbought conditions. Both of the trading tools are indicating the exhaustion of the buyers. And sellers are ready to take over the market.

Step 3 – Take Profit and Stop loss

Every trader has different expectations from the market, some like to trade short term trends, and some like to trade longer-term moves. If you are an intraday trader, then we suggest you close your position when the Awesome Oscillator reverses at the oversold area. But, if you are a swing trader or investor, wait for the opposite pattern (Hammer Pattern) to appear to close all of your positions. We can even use the higher timeframe support/resistance area to close our positions.

We advise you to place the stop-loss order above the Shooting Star pattern. As you can see in the image below, we booked full profits at the major support area. After that, the price action dropped a bit more but reversed immediately to follow the buy direction. It is important not to ignore the higher timeframe support/resistance areas.

The psychology behind the Shooting Star Pattern

At first, we see the buyers enjoying the uptrend as the price of the currency keeps printing brand new higher high. As this euphoric moment begins to set in, the sellers start to sell their positions at higher prices. Now the buyers get panicked, and even they start to sell their positions. Now that the buyers and sellers are both selling their positions, panic is created in the market, which leads to a sharp reversal in price action. Thus a long wicked small body candle appears on the trading charts.

Keep in mind that the Shooting Star pattern is more reliable when it is formed after the three consecutive bullish candles. It creates strong bullish pressure on the price chart, and in such cases, the upper wick of Shooting Star is even longer. It indicates that the price is about to reverse with even more strength.

Bottom line

The Shooting Star is a single candle pattern, and it is the most popular trend reversal pattern in the industry. There is a strong psychological pattern that exists beyond the Shooting Star pattern. When the market is in an uptrend, and when buyers gain exponential strength, most of the traders book the profit, and as a result, the bullish trend loses its strength. This results in sellers sending the price down. Most of the time, the Shooting Star pattern provides the 3:1 risk-reward ratio trades.

We hope you find this article informative. Please let us know if you have any questions regarding the same in the comments below. Cheers!

Categories
Forex Basic Strategies Forex Trading Strategies

How To Trade The Engulfing Candlestick Pattern Using Support/Resistance

Introduction

Introduction

Introduction

Engulfing is one of those candlestick patterns in the forex market that provides a useful way for traders to anticipate a possible reversal in the trend. There are two types of engulfing patterns – Bullish Engulfing and Bearish Engulfing. The engulfing candle’s bearish or bullishness is wholly based on its position in relation to the existing trend of an underlying asset.

Understanding The Types

A bullish engulfing pattern can appear anywhere in the trend. But it holds more significance if it appears in a downtrend. This pattern indicates the surge in buying pressure as it shows that more buyers are entering the market, driving the price action further up. This pattern consists of a bearish red candle and the second bullish candle completely engulfs the body of the previous red candle.

Interpretation – Always look for the bullish engulfing pattern in a clear downtrend. For entering a trade, traders must combine this pattern with support resistance levels or with any reliable technical indicator for additional confirmation of the trend reversal.

Bearish engulfing pattern is just the opposite of the bullish engulfing pattern. Instead of appearing at the bottom of the trend, this pattern appears at the top of the trend. We can say that more accurate and reliable signals can be generated when this pattern appears at the top of an uptrend. The bearish engulfing pattern consists of two candles. The first one being the green candle. This one is, next, engulfed by the subsequent red candle. The pattern triggers a reversal in an existing trend. It indicates the buyers are no longer able to push the price higher, and the bears took control of the market.

Interpretation – Always look for the bearish engulfing pattern in a clear uptrend. The second red candle must engulf the green candle ultimately, showing that bears are piling into the market aggressively. For entering a trade, traders must look for additional confirmation, such as support resistance levels or by using any reliable technical indicator.

Pairing the Engulfing pattern with Support/Resistance

Every trader has a unique way of trading the market. Some traders like to go with the trend while some traders only trade counter-trend moves. In this strategy, we have paired the engulfing pattern with support & resistance to show you how to trade the reversals correctly.

Confirm the downtrend first on your trading timeframe 

The first step of this trading strategy is to confirm the trend of any underlying asset. Let’s trade the bullish engulfing pattern. So as discussed, we should be finding the downtrend on the price chart. As you can see in the below NZD/USD currency pair was in an overall downtrend.

Find out the Bullish Engulfing pattern on your trading timeframe

The key to successful trading is to follow all the rules of the trading strategy. The engulfing pattern can be seen all over the price chart, but obviously, we can’t trade all of these patterns. We should be trading only those engulfing patterns that appear in the major support area.

In the below image, the NZD/USD was in an overall downtrend, and price action respects the major support area. Market prints the engulfing pattern at the support zone, which indicates that the buyers are more likely to lead the price.

Entry, Take Profit & Stop loss

Enter the trade right after you see the bullish engulfing pattern at the S&R area. Take-profit targets depend on your trading style. If you are a swing trader or full-time trader, hold your positions for more extended targets. If you are an intraday trader, close your position at the nearest resistance area.

You can also book partial profits at a significant resistance area and close your full position when the market prints the bearish engulfing pattern. In this strategy, we took the buy at a significant support zone, so it’s a healthy practice to put stop loss just below the support area.

Look at the below image; you can see that price action goes above the significant resistance area. But we made sure to close our positions at the resistance area as we don’t want our money to be blocked in a single trade for a long time. Overall it was good 4R trade.

Bottom Line

There are so many different ways to take trades to use the engulfing pattern. Statistically, the engulfing pattern works better when traded at the bottom or top of the trend. So make sure to check their location before placing the trades. One other possible way to trade am Engulfing Pattern is when it is combined with Moving Averages. But even that way, make sure to trade the engulfing pattern at the significant support and resistance areas. Some traders use reliable indicators like MACD to confirm the trend reversals by using the overbought and oversold levels. That’s about the Engulfing pattern strategy. Make sure to find these patterns and trade them in your upcoming trading activities. Let us know if you have any questions in the comments below. Cheers!

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

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

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 Basic Strategies

The Most Simple Scalping Strategy To Trade The Forex Market!

What is Scalping?
Scalping is one of the trading styles in the forex market, which is gaining popularity with the emergence of artificial intelligence and automated trading systems. Nowadays, there

What is Scalping?
Scalping is one of the trading styles in the forex market, which is gaining popularity with the emergence of artificial intelligence and automated trading systems. Nowadays, there

What is Scalping?

Scalping is one of the trading styles in the forex market, which is gaining popularity with the emergence of artificial intelligence and automated trading systems. Nowadays, there are a set of traders who enjoy scalping than day trading, swing trading, or position trading.

The main difference between scalping and other styles of trading is that in scalping, the trading time frame is very short and face-paced. The holding period does not last more than a few minutes, whereas ‘positional’ traders hold their trades from 1-Hour to few weeks. Scalpers find trading opportunities on very short timeframes such as the 1-Minute and 3-Minutes.

Impulsive traders are the ones who are most attracted to scalping, as they don’t want to wait for a trade to set up on the higher time frame. Sadly, new traders fall into this trap and start scalping the market, totally unaware of the risk it carries.

To scalp, a trader needs to be experienced. We recommend first being consistently profitable on the higher time frame or swing trading and then move on to scalping. Because this form of trading is extremely difficult as it requires a trader to make decisions in mere seconds or minutes.

5-Minute Scalping Strategy

In this section, we’ll cover a simple yet very effective scalping strategy on the 5-minute timeframe. The most suitable time to implement this strategy is during volatile market conditions. This means the best results are obtained during the New York-London session overlap (8:00 AM to 12:00 PM EST). During this time, trading costs are also relatively low, and liquidity is high, which is essential for the scalpers to take a trade.

We will be using two exponential moving averages in this strategy. Below are the indicators that one needs to apply to their charts.

  • 50-Period exponential moving average
  • 200-Period exponential moving average
  • Stochastic indicator

The Strategy

Let us look at the detailed steps involved in the 5-minute scalping strategy.

Step 1️⃣ – Identify the current trend

The two EMAs are used to indicate the trend in the 5-minute chart. To identify the larger trend, a trader will have to change the time frame to 15-minutes. Identifying the bigger trend is crucial to understand the overall direction of the market. The 50-period EMA is much faster than the 200-period EMA, which means it reacts to price changes more quickly.

If a faster (50-period) EMA crosses above the slower EMA (200-period), it means the prices are starting to rise, and the uptrend is more likely to be established. Similarly, a cross of faster EMA below the slower EMA indicates a drop in the price, and that also means a downtrend is about to form. Always make sure to take trades in the direction of the major trend.

Step 2️⃣ – Look for a pullback

Once we determine the current trend on the 5-minute chart based on EMA’s, it is time to wait for a pullback and stabilization of the price. This is one of the most important steps in this strategy as prices tend to make false moves after strong ups or downs. By waiting for the pullbacks, we can prevent ourselves from entering long or short positions too early.

Step 3️⃣ – Confirmation with the Stochastic Indicator

Finally, the Stochastic indicator gives the confirmation signal and helps us to take only highly-profitable trades. A reading above 80 indicates that the recent up move was strong, and a down move can be expected at any time. This is referred to as the overbought market condition. Whereas, a reading below 20 indicates that the recent down move was strong, and an up move is about to come. This market condition is referred to as the oversold market condition. After a pullback to the EMA’s, the Stochastic Indicator’s final confirmation gives us the perfect trade entry.

Let us understand this strategy better with the help of an example.

Chart-1

The above figure is a 5-minute chart of a currency pair, and the 200-period EMA is represented by the orange line while the 50-period EMA is represented by the pink line. The cross of the pink line above the orange line signals that the currency pair is entering into an uptrend on the 5-minute chart. As long as the faster EMA remains above the slower EMA, we’ll only look for buying opportunities. This step is to identify the direction and crossing of the two EMAs.

Chart-2

A trader shouldn’t be going ‘long’ as soon as they see the lines crossing. They should always wait for the pullback and only then take an entry. In ‘chart-2’, when we move further, we were getting the kind of pullback that we exactly need.

The next question is, at which point to buy?

Chart-3

The Stochastic plotted in the above chart helps in giving us the perfect entry points by getting into the oversold area. One can take a risk-free entry after all the indicators support the direction of the market.

Chart-4
Finally, the trade would look something like this (chart-4). The risk to reward ratio (RRR) of this trade is 2:5, which is very good. Also, make sure to place precise stop-loss and take profit orders, as shown above.

Final words

Scalping is a faced-paced way of trading that is preferred by a lot of traders these days. The main difference between scalping and other styles of trading is the timeframes involved in analyzing the market. This type of trading carries certain risks that are unavoidable, such as high trading costs and market noise, which can impact your profits. We hope you find this article informative. Let us know if you have any questions below. Cheers!

Categories
Forex Basic Strategies

Learning The Art Of Fading In Trading

What is Fading?
Fading involves placing trades against the trend to profit from a reversal. Using the concept of fading, a trader will short sell, expecting the momentum to fade

What is Fading?
Fading involves placing trades against the trend to profit from a reversal. Using the concept of fading, a trader will short sell, expecting the momentum to fade

What is Fading?

Fading involves placing trades against the trend to profit from a reversal. Using the concept of fading, a trader will short sell, expecting the momentum to fade when the market is in an uptrend. Likewise, he/she will buy a currency pair with the expectation that the move will fade away and reverse when the market is in a downtrend.

The fading strategy involves three assumptions:

  • The price is either at the overbought or oversold condition.
  • Early buyers or sellers are getting ready to take profits.
  • Current position holders might be at risk.

Overbought and oversold conditions can be identified using technical indicators such as the Relative Strength Index (RSI). Momentum shows the signs of shifting of forces from bulls to bears or vice-versa. And as these signs develop, current holders of the asset start to rethink their positions.

These conditions get exaggerated after an earnings announcement or news release. This may lead to a knee-jerk reaction on the part of other traders to sell the currency pair. As a result, this reaction gets overextended, and a mean-reversion takes place.

Now let us see how does the strategy work and what are the necessary steps you need to take to profit from the strategy:

The Fading strategy

Step 1 – Identify market extremes from the daily time frame 

The first step is identifying overbought and oversold zones using technical indicators or chart patterns.

The popular indicators used for identifying the zones include:

The overbought and oversold conditions are indicated by reading above or below a certain level. For example, the market is said to be in an overbought condition if the RSI is above 70, and it is said to be in oversold condition if the RSI is below 30. This can help traders in identifying fading opportunities.

In the above chart, we can see how the RSI indicator was crossing the normal range when the market gets into the overbought zone. One can find trading opportunities just using the RSI indicator stand-alone. But to trade like how professionals trade, we need to use a lot more tools.

Traders may also use familiar chart patterns or analysis based on price action and watching the price continuously.

Step 2 – Look for signs of capitulation

The second step in the strategy is to look for early signs of capitulation or change in the short-term trend using momentum. This can be mostly done by using candlestick patterns or price action with a volume indicator. We suggest looking for price action signals.

Some other signs to watch for include:

  • When technical indicators start to fade or move away from their extreme overbought or oversold levels.
  • The volume of the significant trend starts decreasing, or the volume of the opposite trend starts increasing.
  • Bearish candlestick patterns appear (in case of an uptrend), or critical support and resistance are broken.

It’s essential to identify these signs early to maximize profit and avoid mistakes.

The signs mentioned above can be explained better with the help of some figures.

Image 1

In the above image, we clearly see that the market is in an uptrend and has been trending from a few days (as it is a daily chart). The volume of the significant trend is also high with the decreasing volume of the sellers, which is a good sign for bulls. But in the end, the volume starts to decrease. The RSI declines sharply after entering the overbought zone for a while.

Image 2

Immediately we see an increase in the volume of sellers with a drastic drop in the RSI indicator (Image 2). The signs are getting stronger for a reversal, and this trend can continue. All the traders who are holding the currency pair start exiting the market. This could be one of the most reliable signs for us to take appropriate action. 

Image 3

Finally, we see a break in the ‘support’ by the bears with high volume. Now we have combined all the tools, and each of them is indicating a reversal. Hence, we should take a position in the opposite direction. This is precisely the kind of setup that you need to be looking for every time.

Image 4

In order to find the exact entry, we need to magnify the chart. For this, you need to go on a lower time frame to analyze and set your stop-loss or target based on that time frame. This is mandatory for getting precise entries. The above figure is the lower time frame chart of the explained example.

Note: Images 1, 2 & 3 belong to the daily timeframe, whereas Image 4 belongs to the 4H timeframe.

Step 3 – Enter the trade with a stop-loss and take-profit

The last step is to enter the market with a compulsory stop-loss and take profit to ensure risk management is in place. In this strategy, a stop-loss order can be placed above the price where the RSI enters the overbought/oversold zone. Avoid putting small stop-loss as you can prematurely get stopped out from the trade.

Profit can be booked when the volume of your trend starts to decrease. Now, the stop-loss and target would be placed, as shown in the above chart. This trade would result in a risk-to-reward ratio of a minimum of 1:5. Traders can also use a moving average or any other indicator to set a profit-taking price level. Limit orders are almost used by all traders to avoid any slippage or other issues, particularly in less liquid assets.

Bottom line

Fading strategies can be considered as risky as you are going against the trend. It is always a good idea to take a trade if the risk to reward ratio is favorable. These strategies are commonly used by short to medium term traders to capitalize on short term reversals. Even though it seems risky, it can be extremely profitable if appropriately used. This is because the market has reached a saturation state, and there has to be some balancing force. This is why fading strategies are also known as contrarian strategies. Because they work on the assumption that prices deviating far from the trend, tend to reverse and revert back. That’s about Art Of Fading. If you have any queries, let us know in the comments below. Cheers.

Categories
Forex Basic Strategies

Understanding The Volatility Breakout Strategy

Introduction
Breakout trading is one of the most common and popular strategies among traders across the world. In this article, we have added a powerful concept to this strategy, which

Introduction
Breakout trading is one of the most common and popular strategies among traders across the world. In this article, we have added a powerful concept to this strategy, which

Introduction

Breakout trading is one of the most common and popular strategies among traders across the world. In this article, we have added a powerful concept to this strategy, which is volatility. In a volatility breakout, we determine the movement of prices just before the breakout and also their reaction at important support and resistance levels. After analyzing the market, we will decide which breakout is safe to trade and which is not.

Volatility cycles

We have built the volatility breakout strategy in a very simple way. The principle of this strategy is that, when the market moves from one level to another (support to resistance or resistance to support) with strong momentum, the momentum is said to continue further. The other characteristic of the price is that it moves from periods of sideways movement (consolidation) and vertical movement (trend).

Price breaking out of a consolidation prompts us to believe that price will continue in that direction, which might last for one day, one week, or one month. The market after trending downwards gets choppy and reduces directional movement. Traders can use technical indicators like Bollinger Bands, which helps them to determine the strength of the breakout. Breakouts that happen with low volatility are ‘real’ breakouts; on the contrary, breakouts with high volatility can result in a false breakout. We shall look at each case in detail in the next sections of the article.

 

High volatility breakout

When we are talking about volatility, we mean the choppiness of the price, i.e., the back and forth movement of price. There are traders who like this kind of volatility, as they feel price moves very fast from one point to another. But this isn’t necessarily true in case of a breakout. If you don’t have the required strength in a breakout, you could be trouble.

In the above chart, we see that the price has been in a range for a long time. This means a breakout could happen anytime. Much later, the price tried to break above resistance and stayed there for quite a long time. The price is just chopping around without moving in any particular direction eminently. All these are indications that the breakout, if it happens, will not sustain. Hence, one needs to be extra cautious before going ‘long’ after the breakout.

There are many traders who are willing to take the risk and want to try their luck in such conditions. In that case, after you buy the forex pair, always keep a tight stop loss. The reason why we are suggesting a tight stop loss is that there are high chances for the trade will not work in your favor, and you should avoid making a big loss in that trade. The setup would look like something below.

If the trade works, it can give a decent profit with risk to reward of more than 1.5, which is really good. Again this strategy is only for aggressive traders.

Low volatility breakout    

When a breakout happens with a lot more strength, it is said to be a low volatility breakout. The price here does not face much of hurdle and crosses the barrier with ease.

As you can see in the above chart, the price does not halt at resistance, and the breaks out smoothly, which is exactly how a breakout should be. After that, you can see that the breakout happens successfully, and the price continues to move higher. When such type of volatility comes into notice, we will see a higher number of traders being a part of this rally because they are relatively risk-free trades. This strategy is recommended by us to all types of traders, irrespective of their risk appetite. The next question is where to take profit and put a protective stop.

Stop-loss can be placed below the higher low, which will be formed near the resistance, and profit should be booked at a price which will result in a risk to reward ratio of 1:2. Some money management rules should also be applied while booking profits. The setup would look something like this.

Measuring volatility

Since this strategy is mostly based on volatility, it is important to know how to measure volatility.

  • Bollinger bands are excellent volatility and trend indicators, but like all indicators, they are not perfect.
  • Average true range (ATR) measures the true range of the specified number of price bars, typically 14. ATR is a volatility measuring indicator and does not necessarily indicate a trend. We see a rise in ATR as the price moves from consolidation to a strong trend and a fall in ATR as market transitions from strong trend to choppiness.
  • ADX is also a prominent indicator that measures the strength of a trend based on highs and lows of the trend over a specified number of candles, again typically 14. When ADX rises, it indicates that the volatility has returned to the market, and you might want to use a strategy that fits that market condition.

Bottom line

The market does not always be in trending and consolidation phases, and we also have to learn to deal with different types of volatility. This is where most of the strategies can be used at their best, and using volatility indicators can help you trade more effectively. A breakout, when accompanied by the right amount of volatility, can be highly rewarding. Hence this is an important factor in any breakout trading system. Cheers!

Categories
Forex Basic Strategies

Heard Of The Amazing ’20 Pips Per Day’ Strategy?

Introduction
Forex is the most liquid and volatile market in the world. The average pip movement in the major currency pairs is around 100 pips. However, as a retail trader

Introduction
Forex is the most liquid and volatile market in the world. The average pip movement in the major currency pairs is around 100 pips. However, as a retail trader

Introduction

Forex is the most liquid and volatile market in the world. The average pip movement in the major currency pairs is around 100 pips. However, as a retail trader, it is not impractical to grab 100 pips every single day. Though there are some strategies out there, it is very challenging to make 100 pips per day every day. But, there is 20 pips strategy, 30 pips strategy as well as 50 pips strategy, which is much reliable than the 100 pips strategy. So, in this lesson, we shall be discussing the 20 pips strategy.

The 20 Pips Strategy

The strategy is very simple and straightforward. According to this strategy, when the price breaks above a range in a logical area, you must go long, and when it breaks below a range in a logical area, you must go short. So, this strategy is basically a breakout strategy. However, it’s not as straightforward as it sounds. There are some criteria one must consider before trading this strategy.

❁ Considerations

✓ Currency Pair

You can trade this strategy on any currency pair. However, it is recommended to focus mainly on major and minor currency pairs.

✓ Session

Though the market is open 24 hours, it does not mean you can apply this strategy any time during the day. To keep it safe, it is advised to trade only during the times when there is high liquidity. That is, the London – New York overlap would be the best time to apply this strategy. Else, the London session or the New York session will work perfectly fine as well. And it is great if you do not trade it during the Asian session, as markets don’t usually break out during this period.

✓ Timeframe

Timeframe plays an important role when it comes to trading a strategy of this type. To make 20 pips a day, it is ideal to stay between the 1hour timeframe and the 15-minute timeframe.

✓ Indicators

This strategy does not require any technical indicators.

❁ How to trade the 20 pips strategy

Below is a step by step process to trade this strategy.

  1. Open the candlestick chart of any currency pair, preferably, a major or minor currency pair.
  2. Firstly, go to the 1-hour timeframe in the chart and see if the market is in a logical area to buy or sell (Ex: Support and resistance).
  3. If yes, then wait for the price to break above or below the consolidation area.
  4. Check the strength of the breakout on the lower timeframe (15 minutes). Based on the strength, prepare to hit the buy or sell.

❁ Trading the 20 pips strategy on the live charts

• Buy example

Below is the chart of AUDUSD on the 1-hour timeframe. We can see that the market has been bouncing off from the purple line. So, this becomes a logical area to buy. At present, the market is holding at the purple support line. And it was in a tiny range for like ten candles. Now, to apply the strategy, we need the market to break above this range.

In the below image, we can see that the market breaks above the range with a big green candle. But, before hitting the buy, we must switch to the lower timeframe and see if the momentum of the candle that broke the range was strong or not.

In the below 15 min chart, we can clearly see that the broke above the range in just two green candles. This is an indication that the buyers have come up strong. Hence, now we can prepare to go long.

Coming to the take profit and stop loss, the take profit would, of course, be 20 pips, and the stop loss can be kept a few pips below the support area. Alternatively, you can even go for a 1:1 RR by keeping a stop loss of pips.

 

• Sell example

Note that this strategy can be applied when the market is in a trending state as well. Below is the chart of EUR/USD on the 1-hour timeframe, and we can see that the market is in a downtrend. The market keeps making lower lows and lower highs. At present, it can be seen that the market is pulling back, and a green candle has appeared. Now, all we need is the price to break below the pullback to give us a heads up that the downtrend is still active.

In the below chart, we can see that, in the very next candle, the market broke below the pullback area. Hence, we can prepare to go short after getting confirmation of the strength from the lower timeframe.

In the below 15-minute timeframe chart, we can see that the momentum of the candle was sufficiently robust during the breakout. Hence, we can consider shorting in now.

As far as the take profit and stop loss are concerned, it remains the same as the previous example. That is, 20 pips take profit with 20 pips stop loss.

Bottom line

A great feature to consider about this strategy is that it can be used in any state of the market. However, all the criteria mentioned above must be met for the strategy to work. If you’re a beginner in trading, then this could be an ideal strategy to get started with. And if you have experience in trading, you can try enhancing the strategy by applying some indicators and patterns.

Note that this strategy, just like other strategies, does not provide 100% accuracy. There are times when this strategy fails, as well. Hence, it is recommended to use this strategy in conjunction with other strategies to have a better winning probability. Happy Trading!