Some currencies tend to move in the same direction, some — in opposite. This is a powerful knowledge for those who trade more than one currency pair. It helps to hedge, diversify or double profitable positions.
Statistically measured by performance, currency pairs are given so called "correlation coefficients" from +1 to -1. A correlation of +1 means two currency pairs will move in the same direction 100% of the time. A correlation of -1 means they will move in the opposite direction 100% of the time. A correlation of zero means no relation between currency pairs exists. Information about current correlation coefficients can be found here: Currency Correlations Table
The example of strong positive correlation between two currency pairs is: GBP/USD and EUR/USD. They have a correlation coefficient of over +0.90, which means that when EUR/USD goes up, GBP/USD also goes up.
A well known sample of two opposite moving currency pairs is EUR/USD and USD/CHF, they have very high coefficient of over -0.90, which means that they move inversely almost 100% of the time!
Examples of same direction moving currency pairs are:
EUR/USD and GBP/USD
EUR/USD and NZD/USD
USD/CHF and USD/JPY
AUD/USD and GBP/USD
AUD/USD and EUR/USD
Inversely moving pairs are:
EUR/USD and USD/CHF
GBP/USD and USD/JPY
GBP/USD and USD/CHF
AUD/USD and USD/CAD
AUD/USD and USD/JPY
How a trader can use this information?
1. A very simple use is avoiding trades that cancel each other. For instance, knowing that EUR/USD and USD/CHF move inversely near-perfectly, there would be no point to go short on both positions as they eventually cancel each other (loss + profit).
1.a. However, there is a strategy of hedging one currency pair with another. Lets' take the same pairs: EUR/USD and USD/CHF. For example, a trader has opened long positions on both currency pairs. Since they move in opposite directions, if EUR/USD is making some losses, the other pair will go in profit. Hence, the total loss will not be as bad as if it would be without the second "backup trade". On the other hand, profits here are not large either.
2. When confident, a trader may double position size by placing same orders on parallel (moving in the same direction) currency pairs.
3. Another option would be to diversify risks in trade. For instance, AUD/USD and EUR/USD pairs have the correlation coefficient of about +0.70 which means that pairs are moving mostly in the same direction but not as perfect (which is what we need here). If we decide that USD is going to weaken, for example, we will go long and place half of buy order on AUD/USD currency pair, and half on EUR/USD. Splitting the orders will preserve trader's positions from sudden losing rallies (sudden "jumps" in price); and as these currencies move not 100% identical a trader will have some time to react adequately. Different monetary policies of different countries' banks also create an impact: when one currency will be less affected than the other and therefore will move slower.
What to trade, when to trade...
During the 24 hours period currency pairs in Forex market experience several hours, when the volume of trades is the highest and so is the pip movement.
Below are Forex market sessions and examples of the most active currency pairs:
London/ New York sessions:
EUR/USD USD/CHF GBP/USD
Tokyo/Sydney sessions:
EUR/JPYAUD/USDUSD/JPY AUD/JPY
Sydney session:
AUD/USDEUR/USD
During the week the most active Forex trading days are: Tuesday, Wednesday and Thursday. Sundays (opening) and Mondays are days when traders are mostly watching and analyzing the market and predict further price moves. Fridays are traded approximately till noon, after that all actions slow down and almost freeze before the actual market closing at 5 pm EST.
Forex market hours. When to trade and when not to....
Forex market is open 24 hours a day.
It provides a great opportunity for traders to trade any time of the day or at night. However, although it seems to be not very important at the beginning, the right time to trade is one of the most crucial points to be successful in trading at the forex market.So, when should one consider trading and why?
The best time to trade is when the market is the most active and therefore has the biggest volume of trades. More active currency moves will create a good chance to catch the trade and make some profit. A calm, slow market is literally wasting of time — turn off your computer and don't even bother!
Forex trading hours, trading time:
New York opens 8:00 am to 5:00 pm EST
Tokyo opens 7:00 pm to 4:00 am EST
Sydney opens 5:00 pm to 2:00 am EST
London opens 3:00 am to 12:00 noon EST
Sydney opens 5:00 pm to 2:00 am EST
London opens 3:00 am to 12:00 noon EST
And so, there are hours when two sessions are overlapped:
New York and London — 8:00 am — 12:00 noon EST
Sydney / Tokyo — 7:00 pm — 2:00 am EST
London / Tokyo — 3:00 am — 4:00am EST
For example, trading EUR/USD, GBP/USD currency pairs would give good results between 8:00 am and 12:00 noon EST when two markets for those currencies are active.
At those overlapping trading hours you'll find the highest volume of trades and therefore more chances to win in the foreign currency exchange market.
At those overlapping trading hours you'll find the highest volume of trades and therefore more chances to win in the foreign currency exchange market.
How to use Pivot points in Forex trading
We calculate Pivot points on daily basis using daily charts and then use those Pivot levels on 15 minute charts — our main charts — where we will look for entries, stops and exits.We use 15 minute time frame because it allows catching the best entry and exit opportunities. With hourly charts, for example, when the signal is there it is quite often already too late to react / enter.
As you can see we use only 5 major Pivot point levels: R2, R1, PP, S1 and S2.
After Pivots are in place traders should start taking notes:
First, they should note where the market has opened today in relation to the Pivot Point (PP): above the Pivot Point or below it. The answer to this question provides the first clue about traders' biases for the day, e.g. if the market has opened above Pivot Point, traders will be bias towards taking long positions, on the contrary, opening below the Pivot Point would suggests shorting for the day.
Then traders should look at how far the price opened from the Pivot (PP), and make extra notes when it opened below S1 or above R1 level which is considered to be a quite distant open.
With the second — distant opening (below S1 or above R1) — we have very high expectations that the price will try to correct such "distant irregularity" and thus instead of progressing further away from Pivot Point it will try to move back towards the Pivot — the gold-middle point of the day. As a result, we will typically see a ranging market which does not produce much of the trading opportunities. The expectations are that the price will revolve around Pivot Point for the rest of the day — nothing to do for us, we stay out.
Let's look at the next picture:
We don't enter on the touch of the Pivot Point line. Why? Because we remember that the price do breaks through support / resistance levels, otherwise it would move constantly in one direction. So, instead of "jumping in fire", we wait.
As we know from the theory once a level of support is broken it becomes a level of resistance. Same for resistance, once broken — becomes support.
So, here come other Pivot levels such as S2 and R2. Let's take an uptrend. When the price starts to move up from the Pivot Point it aims at R1 level first. There the price usually meets a strong resistance which it needs to overcome before it can move any further. Once above R1, what is the next target? The next is R2. While aiming at R2, the price will have R1 level as its strong support now. It may or may not come back one more time to test R1 level before moving further up.
While holding a position, it is a common rule: if the price didn't "see" the first support / resistance, e.g. goes quickly through it without noticing / stopping, do not exit the trade, set your profit target at R2 because the market shows strength and is capable to push the price further to the next level. Typically, R2 becomes the highest point of the trading day.
However, R2 and S2 are not the ceiling for the price to stop at. During well trending market periods the price can move past those levels with no troubles at all.
If the market opens or trades at the extremes R2 or S2, the price will show a tendency to trade back toward the Pivot Point or even stop and go sideways. Try to avoid buying at R2 or selling at S2. A general rule for Pivot point trading can be set as:The further the price moves away from a daily Pivot Point the lesser should be attempts to enter the market. Try catching the market when it is close to the Pivot Point in the beginning of the day; and if came late, avoid entering for the current day.
That's basically the way how traders use Pivot points in Forex trading. Although it sounds quite simple it requires a lot of attention and patience as well as mastering the technique of Pivot point trading.
Would you like to find out what happened later on the chart where we waited for clarification last time?
We know we have to calculate Pivot points every single day, so that each morning we start with new fresh daily Pivot points, calculated from midnight to midnight EST.
Let's look at the current chart to see how Pivot points were found.
As you can see we use only 5 major Pivot point levels: R2, R1, PP, S1 and S2.
After Pivots are in place traders should start taking notes:
First, they should note where the market has opened today in relation to the Pivot Point (PP): above the Pivot Point or below it. The answer to this question provides the first clue about traders' biases for the day, e.g. if the market has opened above Pivot Point, traders will be bias towards taking long positions, on the contrary, opening below the Pivot Point would suggests shorting for the day.
Then traders should look at how far the price opened from the Pivot (PP), and make extra notes when it opened below S1 or above R1 level which is considered to be a quite distant open.
With some small distance away from the Pivot Point it is considered to be a good morning for trading. It is very much suggested to wait for a pull back towards the Pivot line before taking a position. 15 minute charts in this case help to catch the right moment for entry.
With the second — distant opening (below S1 or above R1) — we have very high expectations that the price will try to correct such "distant irregularity" and thus instead of progressing further away from Pivot Point it will try to move back towards the Pivot — the gold-middle point of the day. As a result, we will typically see a ranging market which does not produce much of the trading opportunities. The expectations are that the price will revolve around Pivot Point for the rest of the day — nothing to do for us, we stay out.
How do we pick entries?
Let's look at the next picture:
We have daily Pivots on 15 minutes chart. We wait for a pull back towards any of the closest Pivot levels, or, usually, towards the Pivot Point level. In this case Pivot Point level acts as a support.
We don't enter on the touch of the Pivot Point line. Why? Because we remember that the price do breaks through support / resistance levels, otherwise it would move constantly in one direction. So, instead of "jumping in fire", we wait.
Remember, before we actually see the price bouncing off the Pivot Point level, we can only expect it to do so. An expectation is not a good reason for entry. We need to see the price touching, stopping and then reversing. That's what we wait for. Another 15 minutes goes by and the situation clears: once we see a U-turn we enter!
Once the price has chosen a direction and we are in the trade, the first target is going to be the first level of support (downtrend) / resistance (in uptrend). What does that mean for us? It means that when opening a position around the Pivot Point the first profit target can be set to R1 or S1 level regarding the price direction. The guarantee that the market will reach that first level is very-very high. It does reach those first levels almost 95% of the time! You will be amazed how simple those quick profits are.
In general a trading area around R1, S1 and Pivot Point itself is the easiest and most predictable area to trade in.
As we know from the theory once a level of support is broken it becomes a level of resistance. Same for resistance, once broken — becomes support.
So, here come other Pivot levels such as S2 and R2. Let's take an uptrend. When the price starts to move up from the Pivot Point it aims at R1 level first. There the price usually meets a strong resistance which it needs to overcome before it can move any further. Once above R1, what is the next target? The next is R2. While aiming at R2, the price will have R1 level as its strong support now. It may or may not come back one more time to test R1 level before moving further up.
While holding a position, it is a common rule: if the price didn't "see" the first support / resistance, e.g. goes quickly through it without noticing / stopping, do not exit the trade, set your profit target at R2 because the market shows strength and is capable to push the price further to the next level. Typically, R2 becomes the highest point of the trading day.
However, R2 and S2 are not the ceiling for the price to stop at. During well trending market periods the price can move past those levels with no troubles at all.
If the market opens or trades at the extremes R2 or S2, the price will show a tendency to trade back toward the Pivot Point or even stop and go sideways. Try to avoid buying at R2 or selling at S2. A general rule for Pivot point trading can be set as:The further the price moves away from a daily Pivot Point the lesser should be attempts to enter the market. Try catching the market when it is close to the Pivot Point in the beginning of the day; and if came late, avoid entering for the current day.
That's basically the way how traders use Pivot points in Forex trading. Although it sounds quite simple it requires a lot of attention and patience as well as mastering the technique of Pivot point trading.
Would you like to find out what happened later on the chart where we waited for clarification last time?
That day was very good, we made some healthy profits. But, it is important to remember that although Pivots are so remarkably helpful, there is always risk involved and not all 100% of trades turn out profitable. Using stops to protect your capital is a very wise choice and taking losses when went wrong is an everyday trading routine. Being truly realistic about Forex trading is a huge step forward.
Learn to use Stop Loss effectively
1. Simple equity Stop
It's an important money management rule: not to risk more than 2-3% of the total account per one trade. According to this rule, a trader would place an order and based on a lot size would calculate amount of pips required to reach the limit of 2-3% of the total account balance (and a stop loss will be placed at that point).
For example: a trader has 1000 USD on account, he places a buy order of 4000 units on EUR/USD, which will give him 0.40 cents per 1 pip. Since 2% (out of 1000 USD) that he is willing to risk equals 20 USD, calculations will be next: 20 / 0.40 = 50 pips is the limit for this size of trade.
Learn more about risks and effective money management on our main page:
For example: a trader has 1000 USD on account, he places a buy order of 4000 units on EUR/USD, which will give him 0.40 cents per 1 pip. Since 2% (out of 1000 USD) that he is willing to risk equals 20 USD, calculations will be next: 20 / 0.40 = 50 pips is the limit for this size of trade.
Learn more about risks and effective money management on our main page:
2 Chart based Stop
Adopted by many traders, this stop relies on different chart patterns, indicators and signals received when using technical analysis of price moves at any given time. There are many styles, rules, techniques on how to and when to use a stop loss, associated with different technical indicators and different trading systems. There are many approaches to placing protective stops: stops based on swings high / low, stops using trend lines, fibonacci related stops, etc.
Let's take a look at some examples below:
Adopted by many traders, this stop relies on different chart patterns, indicators and signals received when using technical analysis of price moves at any given time. There are many styles, rules, techniques on how to and when to use a stop loss, associated with different technical indicators and different trading systems. There are many approaches to placing protective stops: stops based on swings high / low, stops using trend lines, fibonacci related stops, etc.
Let's take a look at some examples below:
Stop based on Fibonacci projection
Stop with a trend line
Chart based stops are widely used in combination with simple equity stops.
3. Margin Stop
It represents one quite interesting approach that would rather suite traders, who like placing all money at once on a particular trade. But at first, the trader should divide his account into several equal pieces to ensure that the whole capital will not be blown off in one shot. Supposing that a trader plans to spend 15 000 USD, it is suggested that the account opened with a broker "weights" between 1000 to 2000 USD.
It represents one quite interesting approach that would rather suite traders, who like placing all money at once on a particular trade. But at first, the trader should divide his account into several equal pieces to ensure that the whole capital will not be blown off in one shot. Supposing that a trader plans to spend 15 000 USD, it is suggested that the account opened with a broker "weights" between 1000 to 2000 USD.
Then a "play" with a margin starts. Depending on the leverage that is going to be used and carefully choosing a lot size, a trader can calculate the point where a margin call will occur.This point will work as a global stop loss, which if crossed will cause the account to be closed automatically.
A predetermined risk, no concerns about the manual stop loss, a maximum trading position size — all that creates the whole new approach to trading on Forex market.
4. Volatility related Stop
Price volatility can also be used to set a stop loss. During active hours with a high volatility market, a stop loss must be set further than usually to eliminate seldom noise of the price moves and react only on major changes. During low volatility market, a protective stop should be placed closer to be able to react in time when the price starts showing serious changes.
One of the good technical tools to measure price volatility is a Bollinger band.
Let's take a look at the following example:
5. Protective stops are extremely important during huge rallies
Simply because too many traders react on those "rally events", one can face a situation when it becomes impossible to get to the trading platform to close the order or place a protective stop. At such moments servers are overloaded and therefore traders' online platforms can work with huge delays or not respond at all. In such situation traders become helpless while money is draining away of their accounts. The only option here would be to call the broker and make voice orders. Again, there will be no guarantee that brokers aren't overloaded with calls at this moment as well, and so trader should wait... dreaming how simple things could be if a stop loss was there.
Simply because too many traders react on those "rally events", one can face a situation when it becomes impossible to get to the trading platform to close the order or place a protective stop. At such moments servers are overloaded and therefore traders' online platforms can work with huge delays or not respond at all. In such situation traders become helpless while money is draining away of their accounts. The only option here would be to call the broker and make voice orders. Again, there will be no guarantee that brokers aren't overloaded with calls at this moment as well, and so trader should wait... dreaming how simple things could be if a stop loss was there.
Forex Fundamental Analysis
What is fundamental analysis?
Fundamental analysis in Forex is a type of market analysis which involves studying of the economic situation of countries to trade currencies more effectively.
It gives information on how the big political and economical events influence currency market. Figures and statements given in speeches by important politicians and economists are known among the traders as economical announcements that have great impact on currency market moves. In particular, announcements related to United States economy and politics are the primary to keep an eye on.
What is economic calendar?
Economic calendar is created by economists where they predict different economics figures and values according to previous months. It contains next data: Date — Time — Currency — Data Released — Actual — Forecast — Previous
For example: If the forecast is better than the previous figure, then US dollar usually is going to strengthen against other currencies. But when news are due, traders have to check the actual data.
If to look at oil prices, a rising price will result in weakening of currencies for countries which depend on huge oil import, e.g. America, Japan.A good example of detailed economic calendar can be found here: Forex Economic Calendar
Whose speeches to keep an eye on?
Chairman of the Federal Reserve Bank of USA, Secretary of the Treasury, President of the Federal Reserve Bank of San Francisco and so on. Speeches of those prominent people are watched closely by traders.
What are the most powerful figures that move Forex market?
Interest rate
Traditionally, if a country raises its interest rates, its currency will strengthen because investors will shift their assets to that country to gain higher returns.
Employment situation
Decreases in the payroll employment are considered as signs of a weak economic activity that could eventually lead to lower interest rates, which has negative impact on the currency.
Trade balance, budget and treasury budget
A country that has a significant Trade Balance deficit will generally have a weak currency as there will be continuous commercial sellings of its currency.
Gross Domestic Product (GDP)
GDP is reported quarterly and is followed very closely as it is a primary indicator of the strength of economic activity. A high GDP figure is usually followed by expectations of higher interest rates, which is mostly positive for the currency.
Fundamental analysis in Forex is a type of market analysis which involves studying of the economic situation of countries to trade currencies more effectively.
It gives information on how the big political and economical events influence currency market. Figures and statements given in speeches by important politicians and economists are known among the traders as economical announcements that have great impact on currency market moves. In particular, announcements related to United States economy and politics are the primary to keep an eye on.
What is economic calendar?
Economic calendar is created by economists where they predict different economics figures and values according to previous months. It contains next data: Date — Time — Currency — Data Released — Actual — Forecast — Previous
For example: If the forecast is better than the previous figure, then US dollar usually is going to strengthen against other currencies. But when news are due, traders have to check the actual data.
If to look at oil prices, a rising price will result in weakening of currencies for countries which depend on huge oil import, e.g. America, Japan.A good example of detailed economic calendar can be found here: Forex Economic Calendar
Whose speeches to keep an eye on?
Chairman of the Federal Reserve Bank of USA, Secretary of the Treasury, President of the Federal Reserve Bank of San Francisco and so on. Speeches of those prominent people are watched closely by traders.
What are the most powerful figures that move Forex market?
Interest rate
Traditionally, if a country raises its interest rates, its currency will strengthen because investors will shift their assets to that country to gain higher returns.
Employment situation
Decreases in the payroll employment are considered as signs of a weak economic activity that could eventually lead to lower interest rates, which has negative impact on the currency.
Trade balance, budget and treasury budget
A country that has a significant Trade Balance deficit will generally have a weak currency as there will be continuous commercial sellings of its currency.
Gross Domestic Product (GDP)
GDP is reported quarterly and is followed very closely as it is a primary indicator of the strength of economic activity. A high GDP figure is usually followed by expectations of higher interest rates, which is mostly positive for the currency.
NEWS TRADING
Economic news releases often evoke strong moves in the currency market, creating a lot of short-term trading opportunities for breakout traders.
However, not all news reports are tradable. Some of them may not have significant effect on the market while others do. So, before deciding on trading the upcoming news traders may want to find out whether the news is worth trading or not. Traders can find about the significance of the news by looking at the economic calendar's special features, such as, for example, marking all important news in red.
There are two general approaches to trade news:
1 — By "guarding" the breakout channel
Traders simply set Buy and Sell limit orders on both sides of a price channel, so when the news comes out one of the orders will probably be hit. Although this method is very simple, it also carries real risks of potentially hitting two orders: Buy and Sell as the market is shaken by the news report. In such "double-hit" situation traders will face losses on one or sometimes even both trades.
2 — By actually analyzing the dataTraders can predict most probable outcome of the news by looking at such economic calendar fields as: "Forecast" and "Previous". Figures in those fields can give an idea about the current situation...
Then, traders would watch the news report and pay attention to the actual numbers released. If the numbers come as a surprise — means they are not close to what was expected / forecasted, then traders would consider opening trading position regarding to the situation. If the data carries positive surprise — they would open Long position, negative — Short. This news trading requires more attention from traders, but is also more effective as it carries lesser risks.
When are economic news released?
What you should know about trading the news in Forex
1. Even if you do not trade news it is important to know about the date and time the news are due, to be able to prepare to possible short-term extreme market conditions. Some traders, actually, prefer not to trade at all during economic news releases.
2. The fewer the price moves before news releases (when it may seem like everybody has abandoned trading), the greater is a potential for the market to burst out after the news report.
3. Breakouts following the economic news reports exist for very short period of time — from several minutes to several seconds — it is a first reaction of the world to the news.
4. Generally, if the news did not carry any "surprises" — unexpected data — there will often be no significant reaction in the Forex market.
However, not all news reports are tradable. Some of them may not have significant effect on the market while others do. So, before deciding on trading the upcoming news traders may want to find out whether the news is worth trading or not. Traders can find about the significance of the news by looking at the economic calendar's special features, such as, for example, marking all important news in red.
There are two general approaches to trade news:
1 — By "guarding" the breakout channel
Traders simply set Buy and Sell limit orders on both sides of a price channel, so when the news comes out one of the orders will probably be hit. Although this method is very simple, it also carries real risks of potentially hitting two orders: Buy and Sell as the market is shaken by the news report. In such "double-hit" situation traders will face losses on one or sometimes even both trades.
2 — By actually analyzing the dataTraders can predict most probable outcome of the news by looking at such economic calendar fields as: "Forecast" and "Previous". Figures in those fields can give an idea about the current situation...
Then, traders would watch the news report and pay attention to the actual numbers released. If the numbers come as a surprise — means they are not close to what was expected / forecasted, then traders would consider opening trading position regarding to the situation. If the data carries positive surprise — they would open Long position, negative — Short. This news trading requires more attention from traders, but is also more effective as it carries lesser risks.
When are economic news released?
What you should know about trading the news in Forex1. Even if you do not trade news it is important to know about the date and time the news are due, to be able to prepare to possible short-term extreme market conditions. Some traders, actually, prefer not to trade at all during economic news releases.
2. The fewer the price moves before news releases (when it may seem like everybody has abandoned trading), the greater is a potential for the market to burst out after the news report.
3. Breakouts following the economic news reports exist for very short period of time — from several minutes to several seconds — it is a first reaction of the world to the news.
4. Generally, if the news did not carry any "surprises" — unexpected data — there will often be no significant reaction in the Forex market.
ECONOMIC INDICATORS
What moves EUR/USD?
US economic indicators by Rank:
1. US Non Farm Payroll — measures new jobs created in States.
2. Interest rates — FOMC rate decisions.
3. US Trade Balance, European Trade Balance — a proportion between exports and imports in US economy.
4. U.S. Current Account
5. US Treasury Inflow Capital (TIC) Data — a measure of how much foreign buying of country's securities takes place.
6. US Gross domestic product (GDP) — a measurement of growth in economy.
7. Federal Open Market Committee (FOMC) Rate Decisions — data about changes in currency rates.
8. US Retail Sales — a measure of strength of consumer expenditure.
9. Consumer price index (CPI) — a measure of inflation in Europe.
Note, that because the US dollar is involved in over 80% of all currency trades, US economic data tends to be the most important in the Forex market.
What moves USD/JPY?
Besides US economic indicators, there are important data of Japan economy with its indicators:
Bank of Japan Monetary Policy Meeting — decides on measures to preserve strength of the currency.
Japanese Trade Balance — Japanese imports versus exports.
Gross domestic product (GDP) — growth in an economy.
Consumer price index (CPI) — a measure of inflation.
Industrial production index — a measure of activity in the Japanese manufacturing sector
Retail sales — a measure of strength of consumer expenditure.
Tankan report — assessment of Japanese business conditions: proportion of "optimistic" businesses to "pessimistic" ones.Unemployment rate
Fundamentals for GBP/USD
All US economic indicators should be watched plus:UK Housing Prices — number one indicator for Pound, UK Housing Prices are primary gauge of inflation in the UK. Bank of England Meeting — provides an outline of monetary policy and changes to currency interest rates.UK Unemployment rateUK Retail Sales
US economic indicators by Rank:
1. US Non Farm Payroll — measures new jobs created in States.
2. Interest rates — FOMC rate decisions.
3. US Trade Balance, European Trade Balance — a proportion between exports and imports in US economy.
4. U.S. Current Account
5. US Treasury Inflow Capital (TIC) Data — a measure of how much foreign buying of country's securities takes place.
6. US Gross domestic product (GDP) — a measurement of growth in economy.
7. Federal Open Market Committee (FOMC) Rate Decisions — data about changes in currency rates.
8. US Retail Sales — a measure of strength of consumer expenditure.
9. Consumer price index (CPI) — a measure of inflation in Europe.
Note, that because the US dollar is involved in over 80% of all currency trades, US economic data tends to be the most important in the Forex market.
What moves USD/JPY?
Besides US economic indicators, there are important data of Japan economy with its indicators:
Bank of Japan Monetary Policy Meeting — decides on measures to preserve strength of the currency.
Japanese Trade Balance — Japanese imports versus exports.
Gross domestic product (GDP) — growth in an economy.
Consumer price index (CPI) — a measure of inflation.
Industrial production index — a measure of activity in the Japanese manufacturing sector
Retail sales — a measure of strength of consumer expenditure.
Tankan report — assessment of Japanese business conditions: proportion of "optimistic" businesses to "pessimistic" ones.Unemployment rate
Fundamentals for GBP/USD
All US economic indicators should be watched plus:UK Housing Prices — number one indicator for Pound, UK Housing Prices are primary gauge of inflation in the UK. Bank of England Meeting — provides an outline of monetary policy and changes to currency interest rates.UK Unemployment rateUK Retail Sales
Forex Money Management. Trade safe building stable gains
Money management is a way traders control their money flow: in or out of pockets... Yes, it's simply the knowledge and skills on managing a personal Forex account.
4. Learn to use protective stops
About protective stops and their importance for good money management continue reading: Learn to use Stop Loss effectively
We have opened a trading account of 1000 dollars with a broker and got 20:1 leverage. So, now we have 20 000 dollars to trade with.
More "money" — more trading opportunities. Correct. But, more trading opportunities also means more risks, and when we talk about risks we talk about real account value which will shrink with each losing trade. So, when we say risking no more than 2-3% of total account value we mean real account value — which is 1000 dollars in our case.
Well, let's start trading and do the math.For our example, we have decided to always risk 2% of the account in each trade. 1000 x 2% = 20 dollars. So, when the price goes against us, we will be out of the trade once we are -20 dollars.
One note before we move on. To make our next calculations simple we will use simple values which can be different in the case with your broker.
Ok, time to trade and our trading potential measures 20 000 dollars (thanks to our leverage).
Let's try to trade them all at once: for one 20 000 dollar order our broker gives us a pip value of 2 dollars. This means that with each pip gained we will have +2 dollars in our pockets. Good. But this also means that with each pip lost our Real account will shrink by 2 dollars. Since we can afford to lose only 20 dollars in one trade, we will be out of this trade once the market makes against us... 10 pips! Yes, only ten pips, since 10 pips of 2 dollar value each = 20 dollars.
Now, let's try to trade a 10 000 dollar position. Pip value for this position size is going to be 1 dollar.Math: we can stay in trade until market makes 20 pips against us. Yes, this time we can sustain bigger changes in the market.
If we open position of 5000 dollars, our sustainability will raise to 40 pips. (Where pip value for 5000 dollar position is going to be 0.50 cents).And so on.
As you can see, money management is strictly bound to real account value. And even if leverage allows trading larger positions, wise control of risks is required to keep wheels turning and account protected.
There are several rules of good money management:
1. Risk only small percentage of total account
Why is it so important?The main idea of the whole trading process is to survive! Survival first, and only then making money on top.
One should clearly understand, that Big traders first of all are skillful survivors. In addition, they usually have deep pockets, which means that under unfavorable conditions they are financially able to sustain big losses and continue trading. For the ordinary traders, the majority of us, the skills of surviving become a vital "must know" platform to keep trading accounts alive and, of course, to make good stable profits.
Let's take a look at the example that shows a difference between risking a small percentage of capital and risking a bigger one. In the worst case scenario of ten losing trades in a row the balance of trader's account will suffer this much
Apparently, there is a big difference between risking 2% and 10% of the total account per trade. A trader who has made 10 trades risking only 2% of balance per trade, under the worst conditions would lose only 17% of the total account. The same trader who had been exposing 10% of balance per trade would end up with loss of over 60% of the total account balance. A simple money management rule — significant results.
Let's take a look at calculations where a trader has lost some part of his account. How much effort will it take to recover the original account balance?
Now, there is a challenge: try on your demo account to rise up 300% or at least 100% of your original account trading as it would be real money. Will that be easy? I don't think so. Can you prove me wrong?
3. Calculate risk / reward ratio before entering a trade When chances to win in a trade are smaller than potential losses, don't trade! Remember — staying aside is a position.
For example: 40 pips to lose versus 30 pips to win, 20 pips to lose versus 20 pips to win — all that is a clear sign of bad risk management.
For example: 40 pips to lose versus 30 pips to win, 20 pips to lose versus 20 pips to win — all that is a clear sign of bad risk management.
Before entering each trade, reassure that risk / reward ratio is at least 1:3, which means that chances to lose are tree times less than promises to win. For example: 30 pips of possible loss versus 100 pips of potential win is a good trade to consider entering.
Adopting this money management rule as a must, in the long run will dramatically increase trader's chances to succeed in making stable gains.
Adopting this money management rule as a must, in the long run will dramatically increase trader's chances to succeed in making stable gains.
Next chart shows the "risk / reward" rule in practice. Ten trades based on 1:3 risk / reward ratio were conducted. A trader was losing only $ 100 in each trade when he was wrong, but won $ 300 in each profitable trade.
As we can see, constantly using 1:3 risk / reward ratio and being successful only 50% of the time, trader will still make a profit. The higher the reward ratio (compared to risk ratio) the better are chances to end up in profit.
4. Learn to use protective stops
About protective stops and their importance for good money management continue reading: Learn to use Stop Loss effectively
5. And now let's study the example of applying money management rules:So, risking no more than 2-3% of the total account per trade... How does it work in practice?Let's use an example to understand this idea completely.
We have opened a trading account of 1000 dollars with a broker and got 20:1 leverage. So, now we have 20 000 dollars to trade with.
More "money" — more trading opportunities. Correct. But, more trading opportunities also means more risks, and when we talk about risks we talk about real account value which will shrink with each losing trade. So, when we say risking no more than 2-3% of total account value we mean real account value — which is 1000 dollars in our case.
Well, let's start trading and do the math.For our example, we have decided to always risk 2% of the account in each trade. 1000 x 2% = 20 dollars. So, when the price goes against us, we will be out of the trade once we are -20 dollars.
One note before we move on. To make our next calculations simple we will use simple values which can be different in the case with your broker.
Ok, time to trade and our trading potential measures 20 000 dollars (thanks to our leverage).
Let's try to trade them all at once: for one 20 000 dollar order our broker gives us a pip value of 2 dollars. This means that with each pip gained we will have +2 dollars in our pockets. Good. But this also means that with each pip lost our Real account will shrink by 2 dollars. Since we can afford to lose only 20 dollars in one trade, we will be out of this trade once the market makes against us... 10 pips! Yes, only ten pips, since 10 pips of 2 dollar value each = 20 dollars.
Now, let's try to trade a 10 000 dollar position. Pip value for this position size is going to be 1 dollar.Math: we can stay in trade until market makes 20 pips against us. Yes, this time we can sustain bigger changes in the market.
If we open position of 5000 dollars, our sustainability will raise to 40 pips. (Where pip value for 5000 dollar position is going to be 0.50 cents).And so on.
As you can see, money management is strictly bound to real account value. And even if leverage allows trading larger positions, wise control of risks is required to keep wheels turning and account protected.
Fibonacci Method in Forex Chart
Three most used Fibonacci retracement levels are 0.382 or 38.2%, 0.500 (50%) and 0.618 (61.8%).
Three most used Fibonacci extension levels are 0.618, 1.000 and 1.618. Also 1.382 extension can be applied as well.
In the example above we are in the uptrend.
Lowest swing — point A — is 120.75;
highest swing — point B — 121.44.
To calculate retracement levels and enter Long at some point C we do next:
Calculations for Uptrend and Buy order:
B — A = ?121.44 — 120.75 = 0.69
0.382 (38.2%) retracement = 121.44 — 0.69 x 0.382 = 121.180.500 (50.0%) retracement = 121.44 — 0.69 x 0.500 = 121.090.618 (61.8%) retracement = 121.44 — 0.69 x 0.618 = 121.01
Fibonacci retracement levels formula for an uptrend:
C = B — (B — A) x N%
Now we need to calculate extension levels:
0.618 (61.8% ) extension = 121.44 + 0.69 x 0.618 = 121.871.000 (100.0%) extension = 121.44 + 0.69 x 1.000 = 122.131.382 (138.2%) extension = 121.44 + 0.69 x 1.382 = 122.391.618 (161.8%) extension = 121.44 + 0.69 x 1.618 = 122.56
Fibonacci extension levels formula for an uptrend:
D = B + (B — A) x N%
Our next example is downtrend.
Three most used Fibonacci extension levels are 0.618, 1.000 and 1.618. Also 1.382 extension can be applied as well.
In the example above we are in the uptrend.
Lowest swing — point A — is 120.75;
highest swing — point B — 121.44.
To calculate retracement levels and enter Long at some point C we do next:
Calculations for Uptrend and Buy order:
B — A = ?121.44 — 120.75 = 0.69
0.382 (38.2%) retracement = 121.44 — 0.69 x 0.382 = 121.180.500 (50.0%) retracement = 121.44 — 0.69 x 0.500 = 121.090.618 (61.8%) retracement = 121.44 — 0.69 x 0.618 = 121.01
Fibonacci retracement levels formula for an uptrend:
C = B — (B — A) x N%
Now we need to calculate extension levels:
0.618 (61.8% ) extension = 121.44 + 0.69 x 0.618 = 121.871.000 (100.0%) extension = 121.44 + 0.69 x 1.000 = 122.131.382 (138.2%) extension = 121.44 + 0.69 x 1.382 = 122.391.618 (161.8%) extension = 121.44 + 0.69 x 1.618 = 122.56
Fibonacci extension levels formula for an uptrend:
D = B + (B — A) x N%
Our next example is downtrend.
Highest swing — point A — is 158.20; lowest swing — point B — is 156.44.
Calculations for downtrend and Sell order:
A — B = ?158.20 — 156.44 = 1.76
Because of the downtrend we need to add to the lowest point B to find retracement.
0.382 (38.2%) retracement = 156.44 + 1.76 x 0.382 = 157.530.500 (50.0%) retracement = 156.44 + 1.76 x 0.500 = 157.320.618 (61.8%) retracement = 156.44 + 1.76 x 0.618 = 157.11
Fibonacci retracement levels formula for downtrend:
C = B + (A — B) x N%
Now let's find Fibonacci extension levels (downtrend):
0.618 (61.8%) extension = 156.44 — 1.76 x 0.618 = 155.351.000 (100%) extension = 156.44 — 1.76 x 1.000 = 154.681.382 (138.2%) extension = 156.44 — 1.76 x 1.382 = 154.011.618 (161.8%) extension = 156.44 — 1.76 x 1.618 = 153.59
Fibonacci extension levels formula for downtrend:
D = B — (A — B) x N%
Extra Forex trading tips
Tip A. Trading strategies that work well in an up-market may not work in a down-market. Same as: systems that work well in a good trending market may not be applicable at all to a ranging market. The solution is either to have a system for each type of the market or make sure that one solid system will work well under all market conditions — extensive testing is the way to know the truth.
Tip B. Do not try to pick tops and bottoms of the price. It is a very wrong approach that unfortunately many traders have adopted. Searching for bargains is a good thing when you go shopping, but will put you in troubles if applied to Forex trading. Simply spot the trend and join it like other traders who are serious about trading do.
Tip C. Always remind yourself that the first and the last market bars/ticks are the most expensive. Delay entering the market on the first ticks and be out of the market early. On the open, never trade in the direction of a gap.
Tip D. Never worry about missing out on a trading opportunity. Do not provoke yourself to take a trade that does not meet all entry rules. Just because it seems to be too good to pass up is not an excuse for trading. You are never going to run out of trades, so be firm and stick to your rules.
Tip E. By using knowledge about currency correlation traders can easily avoid opening positions that cancel each other (e.g. +10 pips on one pair and -10 on another = 0). Find out which currency pairs move simultaneously and which — in opposite direction. Currency correlation information.
Tip F. Did we say: "Have your stop loss order in place"? Yes we did. Anyway, we will repeat it one more time. Even if your trading system needs no stops, still have it. Not that you are going to use it, but just for the safety of your capital. A sudden huge move in the market may cost you a big portion of your trading account especially if margin call is triggered.
We use insurance for many things in our life, why don't have one for your trading account? For trading systems without a stop loss orders — put one on a decent distance, for example 100+ pips. Also do not use too tight stop orders as they will most likely be hit more often then you need to.
Tip G. Spend less time trading Forex but make it quality time. Trade only when you can be 100% focused. Time spent in front of the monitor does not assume profitability, so don't fool yourself and do not trade half-ready.
Tip H. And finally, it is wrong to trade with the money that you cannot allow to lose. That is also why traders switching from Demo to real account often may find themselves losing a trade after trade with a system that used to be profitable. This is because with a real account they've got fear to lose money, while on Demo account their minds were free.
Do not trade if you cannot afford to lose your money. Moreover, do not trade if you must make X amount of money per month to pay your bills in order to avoid financial trouble. Trading scared is the best way to mess up all trading rules, discipline and get additional stress. Trading smart is what we wish you to achieve, and believe us, being focused and serious about the job you do will make you successful!
Tip B. Do not try to pick tops and bottoms of the price. It is a very wrong approach that unfortunately many traders have adopted. Searching for bargains is a good thing when you go shopping, but will put you in troubles if applied to Forex trading. Simply spot the trend and join it like other traders who are serious about trading do.
Tip C. Always remind yourself that the first and the last market bars/ticks are the most expensive. Delay entering the market on the first ticks and be out of the market early. On the open, never trade in the direction of a gap.
Tip D. Never worry about missing out on a trading opportunity. Do not provoke yourself to take a trade that does not meet all entry rules. Just because it seems to be too good to pass up is not an excuse for trading. You are never going to run out of trades, so be firm and stick to your rules.
Tip E. By using knowledge about currency correlation traders can easily avoid opening positions that cancel each other (e.g. +10 pips on one pair and -10 on another = 0). Find out which currency pairs move simultaneously and which — in opposite direction. Currency correlation information.
Tip F. Did we say: "Have your stop loss order in place"? Yes we did. Anyway, we will repeat it one more time. Even if your trading system needs no stops, still have it. Not that you are going to use it, but just for the safety of your capital. A sudden huge move in the market may cost you a big portion of your trading account especially if margin call is triggered.
We use insurance for many things in our life, why don't have one for your trading account? For trading systems without a stop loss orders — put one on a decent distance, for example 100+ pips. Also do not use too tight stop orders as they will most likely be hit more often then you need to.
Tip G. Spend less time trading Forex but make it quality time. Trade only when you can be 100% focused. Time spent in front of the monitor does not assume profitability, so don't fool yourself and do not trade half-ready.
Tip H. And finally, it is wrong to trade with the money that you cannot allow to lose. That is also why traders switching from Demo to real account often may find themselves losing a trade after trade with a system that used to be profitable. This is because with a real account they've got fear to lose money, while on Demo account their minds were free.
Do not trade if you cannot afford to lose your money. Moreover, do not trade if you must make X amount of money per month to pay your bills in order to avoid financial trouble. Trading scared is the best way to mess up all trading rules, discipline and get additional stress. Trading smart is what we wish you to achieve, and believe us, being focused and serious about the job you do will make you successful!
Forex Trading Tips
Tip 1. Gamblers go to casino. All unproved, spontaneous actions in Forex trading — are a part of pure gambling.Any attempt to trade without analysis and studying the market is equal to a game. Game is fun except when you are losing real money...
Tip 2. Never invest money into a real Forex account until you practice on a Forex Demo account! Allow at least 2 month for demo trading. Consider this: 90% of beginners fail to succeed in the real money market only because of lack of knowledge, practice and discipline. Those remaining 10% of successful traders had been sharpening and shaping their skills on demo accounts for years before entering the real market.A good demo account to start practicing with could be, for example, FXGame from Oanda.
Tip 3. Go with the trend! Trend is your friend. Trade with the trend to maximize your chances to succeed. Trading against the trend won't "kill" a trader, but will definitely require more attention, nerves and sharp skills to rich trading goals.
Tip 4. Always take a look at the time frame bigger than the one you've chosen to trade in. It gives the bigger picture of market price movements and so helps to clearly define the trend. For example, when trading in 15 minute time frame, take a look at 1 hour chart; trading hourly would require obtaining a picture of daily, weekly price movements.
If a trend is hard to spot — choose a bigger time frame. Up and down market patterns are always present. Always make sure you know the dominant trend, unless you are a scalper. Scalpers have no need to spend their time studying big trends, what's happening in the market here and now (during 5-10 minute time frame) should be of only importance to a Forex scalper.
Tip 5. Never risk more than 2-3% of the total trading account. One important difference between a successful and an unsuccessful trader is that the first is able to survive under unfavorable conditions on the market, while an unsuccessful trader will blow up his account after 5-10 unprofitable trades in the row.
Even with the same trading system 2 traders can get opposite results in the long run. The difference will be again in money management approach. To introduce you to money management, let's get one fact: losing 50% of total account requires making 100% return from the rest of money just to restore the original balance.
Tip 6. Put emotions down. Trade calm. Don't try to revenge after losing the trade. Don't be greedy by adding lots of positions when winning.Overreaction blocks clear thinking and as a result will cost you money. Overtrading can shake your money management and dramatically increase trading risks.
Tip 7. Choose the time frame that is right for you. Choosing wise means that you are comfortable and have time enough to analyze the market, place and close orders etc. Some people can't wait for hours for the price to make a move, they like action and therefore prefer smaller time frames. On the contrary, for others 10-15 minutes is a hustle to be able to make the right decision.
Tip 8. Not trading or standing aside is a position. When in doubt — stay out. If it is not clear where the market will move — don't trade. In this case saving present capital is and absolutely better choice than risking and losing money.
Tip 9. Learn to use protective stops. Respect them and don't move.Hoping that market will turn in your direction is a very delusive hope. By moving a stop loss further a trader increases his chances to end up with much bigger loss.
When holding to a losing trade too long, and even if funds permit, traders as a rule are very reluctant to accept big losses, thus often continue "hoping for best". In the mean time invested money is stuck in the open trade for unknown period of time (weeks and even months) and cannot be used for opening new positions. Not working money — dead money. Also this will result in constant interest payments for holding open positions.
Tip 10. "Keep it simple, stupid" — applies to indicators, signals and trading strategies.Too much information will create a controversial picture of where to trade and when not to. To avoid lots of confusion create a simple but working method of trading Forex.
Tip 11. Think about risk/reward ratio before entering each trade.How much money can you lose in this trade? How much can you gain? Now, make a decision if the trade is worth entering.Example: if trader is looking for possible 35 pips gain and possible 25 pips of loss, such conditions are not worth trading. Compare it with the situation when a trader has 100-120 pips of potential gain and only 10-20 pips of possible loss. This is the trade to open!
Tip 12. Never add positions to a losing trade. Do add positions when the trade has proven to be profitable.Don't allow a couple of losing trades in a row become a snowball of losing trades. When it is obviously not a good day, turn the monitor off. Often not trading for one day can help to break a chain of consecutive losses. Trying to get revenge can often make things worse.
Tip 13. Let your profits run.Let your position be open for as long as the market wishes to reward you. Of course, for this traders need a good exit strategy, otherwise they risk to give all profits back... Running two or more open trades gives an option to close some positions earlier and keep others running for higher profits.
Tip 14. Cut your losses short.It's better to finish unprofitable trade quickly than wait for the situation to get worse. Don't put a stop loss too far — it's your money you risk. Better calculate the best spot to enter when a potential loss would be minimized. Again: respect your stop and don't move it "cherishing hopes".
Tip 15. Trade currency pairs in respect to their active market hours. Learn about overlapping market hours: when two markets are open and highest volume of trades is conducted. For example, Australian and Japanese trading sessions are overlapped from 8pm to 1 am EST. At that time trader can successfully trade AUD/JPY currency pair.
Tip 16. Choose the right day to trade. This recomendation is often wrongly taken as an optional thing, because everyone knows that Forex market is open 24 hours a day 7 days a week. Yet, choosing the time to trade can make a difference between successful and hopeless trading.
It's proved and highly recommended not to trade on Mondays, when the market has recently awaken and is making first "probation steps" to form a new or confirm a current trend; and on Fridays afternoon, during the huge volume of closing trades. The best days to trade are Tuesdays, Wednesdays and Thursdays.
Tip 17. Learn about Fibonacci levels and how to use them for trading. Fibonacci can be very helpful in trading, even partially using the study, for example, to determine the best exit, can bring traders to a new edge of trading.
Tip 18. Always ensure that a signaling bar/candle on the chart is fully formed and closed before you enter a trade. A golden rule of trading: "Always trade what you see, not what you would like to see" is the best explanation here.
Tip 19. If you ask for someone else's advice as about how and when to tradein other words, choose to rely on live trading signals from other traders, make sure you do it for your benefit, not for disaster. If you use such signals to discover how other traders do analysis and study on the price — you are on the right track and soon you'll be able to do analysis yourself.But if you're just blindly following recommendations and your only task is to push the correct button... think again.
Tip 20. Using a highly leveraged account comes at a cost. It will, of course, give a trader more financial gear to trade, and also trader's broker will be happy as it will mean higher spread income for him. On the other side a trader signs up for additional risks that multiply with higher leverage in a "friendly tight" proportion.
Tip 21. Learn to measure trading success by the end of the day, week and then month and year. Do not judge about your trading success on a single trade. To be successful traders don't need to win every trade, they also don't become rich in one trade — they need to be profitable in a long run.
Tip 22. There is no such thing as a secret approach to understanding the market. Take the time to develop a solid trading system and find out that the secret to trading success lies in hard work and constant learning.
Tip 2. Never invest money into a real Forex account until you practice on a Forex Demo account! Allow at least 2 month for demo trading. Consider this: 90% of beginners fail to succeed in the real money market only because of lack of knowledge, practice and discipline. Those remaining 10% of successful traders had been sharpening and shaping their skills on demo accounts for years before entering the real market.A good demo account to start practicing with could be, for example, FXGame from Oanda.
Tip 3. Go with the trend! Trend is your friend. Trade with the trend to maximize your chances to succeed. Trading against the trend won't "kill" a trader, but will definitely require more attention, nerves and sharp skills to rich trading goals.
Tip 4. Always take a look at the time frame bigger than the one you've chosen to trade in. It gives the bigger picture of market price movements and so helps to clearly define the trend. For example, when trading in 15 minute time frame, take a look at 1 hour chart; trading hourly would require obtaining a picture of daily, weekly price movements.
If a trend is hard to spot — choose a bigger time frame. Up and down market patterns are always present. Always make sure you know the dominant trend, unless you are a scalper. Scalpers have no need to spend their time studying big trends, what's happening in the market here and now (during 5-10 minute time frame) should be of only importance to a Forex scalper.
Tip 5. Never risk more than 2-3% of the total trading account. One important difference between a successful and an unsuccessful trader is that the first is able to survive under unfavorable conditions on the market, while an unsuccessful trader will blow up his account after 5-10 unprofitable trades in the row.
Even with the same trading system 2 traders can get opposite results in the long run. The difference will be again in money management approach. To introduce you to money management, let's get one fact: losing 50% of total account requires making 100% return from the rest of money just to restore the original balance.
Tip 6. Put emotions down. Trade calm. Don't try to revenge after losing the trade. Don't be greedy by adding lots of positions when winning.Overreaction blocks clear thinking and as a result will cost you money. Overtrading can shake your money management and dramatically increase trading risks.
Tip 7. Choose the time frame that is right for you. Choosing wise means that you are comfortable and have time enough to analyze the market, place and close orders etc. Some people can't wait for hours for the price to make a move, they like action and therefore prefer smaller time frames. On the contrary, for others 10-15 minutes is a hustle to be able to make the right decision.
Tip 8. Not trading or standing aside is a position. When in doubt — stay out. If it is not clear where the market will move — don't trade. In this case saving present capital is and absolutely better choice than risking and losing money.
Tip 9. Learn to use protective stops. Respect them and don't move.Hoping that market will turn in your direction is a very delusive hope. By moving a stop loss further a trader increases his chances to end up with much bigger loss.
When holding to a losing trade too long, and even if funds permit, traders as a rule are very reluctant to accept big losses, thus often continue "hoping for best". In the mean time invested money is stuck in the open trade for unknown period of time (weeks and even months) and cannot be used for opening new positions. Not working money — dead money. Also this will result in constant interest payments for holding open positions.
Tip 10. "Keep it simple, stupid" — applies to indicators, signals and trading strategies.Too much information will create a controversial picture of where to trade and when not to. To avoid lots of confusion create a simple but working method of trading Forex.
Tip 11. Think about risk/reward ratio before entering each trade.How much money can you lose in this trade? How much can you gain? Now, make a decision if the trade is worth entering.Example: if trader is looking for possible 35 pips gain and possible 25 pips of loss, such conditions are not worth trading. Compare it with the situation when a trader has 100-120 pips of potential gain and only 10-20 pips of possible loss. This is the trade to open!
Tip 12. Never add positions to a losing trade. Do add positions when the trade has proven to be profitable.Don't allow a couple of losing trades in a row become a snowball of losing trades. When it is obviously not a good day, turn the monitor off. Often not trading for one day can help to break a chain of consecutive losses. Trying to get revenge can often make things worse.
Tip 13. Let your profits run.Let your position be open for as long as the market wishes to reward you. Of course, for this traders need a good exit strategy, otherwise they risk to give all profits back... Running two or more open trades gives an option to close some positions earlier and keep others running for higher profits.
Tip 14. Cut your losses short.It's better to finish unprofitable trade quickly than wait for the situation to get worse. Don't put a stop loss too far — it's your money you risk. Better calculate the best spot to enter when a potential loss would be minimized. Again: respect your stop and don't move it "cherishing hopes".
Tip 15. Trade currency pairs in respect to their active market hours. Learn about overlapping market hours: when two markets are open and highest volume of trades is conducted. For example, Australian and Japanese trading sessions are overlapped from 8pm to 1 am EST. At that time trader can successfully trade AUD/JPY currency pair.
Tip 16. Choose the right day to trade. This recomendation is often wrongly taken as an optional thing, because everyone knows that Forex market is open 24 hours a day 7 days a week. Yet, choosing the time to trade can make a difference between successful and hopeless trading.
It's proved and highly recommended not to trade on Mondays, when the market has recently awaken and is making first "probation steps" to form a new or confirm a current trend; and on Fridays afternoon, during the huge volume of closing trades. The best days to trade are Tuesdays, Wednesdays and Thursdays.
Tip 17. Learn about Fibonacci levels and how to use them for trading. Fibonacci can be very helpful in trading, even partially using the study, for example, to determine the best exit, can bring traders to a new edge of trading.
Tip 18. Always ensure that a signaling bar/candle on the chart is fully formed and closed before you enter a trade. A golden rule of trading: "Always trade what you see, not what you would like to see" is the best explanation here.
Tip 19. If you ask for someone else's advice as about how and when to tradein other words, choose to rely on live trading signals from other traders, make sure you do it for your benefit, not for disaster. If you use such signals to discover how other traders do analysis and study on the price — you are on the right track and soon you'll be able to do analysis yourself.But if you're just blindly following recommendations and your only task is to push the correct button... think again.
Tip 20. Using a highly leveraged account comes at a cost. It will, of course, give a trader more financial gear to trade, and also trader's broker will be happy as it will mean higher spread income for him. On the other side a trader signs up for additional risks that multiply with higher leverage in a "friendly tight" proportion.
Tip 21. Learn to measure trading success by the end of the day, week and then month and year. Do not judge about your trading success on a single trade. To be successful traders don't need to win every trade, they also don't become rich in one trade — they need to be profitable in a long run.
Tip 22. There is no such thing as a secret approach to understanding the market. Take the time to develop a solid trading system and find out that the secret to trading success lies in hard work and constant learning.
Focus on the Process, Not on the Profit
Many new traders always wonder how they can make more profit from their trading (assuming they're already making money). They attempt to set goals like trying to grab a specific numbers of pips per day or month.
I think it's better to focus on the process first, rather the outcome.
One of the downfalls of setting specific "pip goals" is that it causes you to get frustrated when you're not hitting them. You then tell yourself that you will try harder. You start to concentrate so much on achieving the "goal" that you lose sight of the actual step-by-step process you follow to hit your goal.
You follow every single rule in your trading plan and you still end up losing money.
Should this temporary setback stop you from sticking to your regular process?
No. Especially not over a short period of time.
At the end of each trading day, don't evaluate yourself by counting how much money you made. Instead, ask yourself:
"Did I follow all my rules?"
"Did I execute every trade that my system said I should execute?"
If you answered yes to both of these questions, pat yourself on the back. It doesn't matter that you ended up with a loss.
If you answered no to any of these questions, slap yourself in the face. I'm kidding. Kind of. If you don't follow your rules, you are setting yourself up for failure.
Define your process by writing down your trading plan. If it makes senses and fits your trading personality, you will eventually see the profits take care of themselves.
I think it's better to focus on the process first, rather the outcome.
One of the downfalls of setting specific "pip goals" is that it causes you to get frustrated when you're not hitting them. You then tell yourself that you will try harder. You start to concentrate so much on achieving the "goal" that you lose sight of the actual step-by-step process you follow to hit your goal.
You follow every single rule in your trading plan and you still end up losing money.
Should this temporary setback stop you from sticking to your regular process?
No. Especially not over a short period of time.
At the end of each trading day, don't evaluate yourself by counting how much money you made. Instead, ask yourself:
"Did I follow all my rules?"
"Did I execute every trade that my system said I should execute?"
If you answered yes to both of these questions, pat yourself on the back. It doesn't matter that you ended up with a loss.
If you answered no to any of these questions, slap yourself in the face. I'm kidding. Kind of. If you don't follow your rules, you are setting yourself up for failure.
Define your process by writing down your trading plan. If it makes senses and fits your trading personality, you will eventually see the profits take care of themselves.
4 Reasons Why Traders Lose
4 Reasons Why Traders Lose
Why do certain traders win consistently lose? Here are four reasons:
Not having a proven trading methodology
Those who consistently lose don’t know key numbers. They have no understanding of support and resistance. Chart patterns are foreign to them. Their definition of risk management is getting margin called. With no proven trading method or strategy, you are doomed to fail. You will end up quitting the game after a string of losses. But there is hope. With the right education, a workable method, psychological balance and persistence, it can be done.
Not understanding how the market works, key indicators, key numbers, and ideal times to trade.
When you place a trade, you literally go toe-to-toe against some of the biggest nerds in the world. Many professional traders are not only super smart and Ivy League educated, they’re also rich. That doesn’t mean that you, the small guy or gal, can’t win. It just means that you simply must educate yourself and be prepared to do battle. David can beat Goliath, but only if he’s prepared. Some people might think the cost of a trading education is too high. But the cost of ignorance is way more expensive.
Risking too much per trade.
The wannabe trader risks 10% or more of her trading account on a single trade. Real deal traders understand risk and manage it FIRST before thinking about profit. They don’t take trades if it forces them to risk too much. Pros keep their risk below 2% of their account balance. This gives them the staying power to survive multiple losing trades in a row without turning into a worry wart.
Not being mentally prepared.
Psychology is a huge part of trading and most people are not mentally prepared. When money is on the line, fear, greed, and other emotions make trading very hard. Make sure you understand the emotional aspects of trading and be prepared to deal with them before you put your money on the line.
Why do certain traders win consistently lose? Here are four reasons:
Not having a proven trading methodology
Those who consistently lose don’t know key numbers. They have no understanding of support and resistance. Chart patterns are foreign to them. Their definition of risk management is getting margin called. With no proven trading method or strategy, you are doomed to fail. You will end up quitting the game after a string of losses. But there is hope. With the right education, a workable method, psychological balance and persistence, it can be done.
Not understanding how the market works, key indicators, key numbers, and ideal times to trade.
When you place a trade, you literally go toe-to-toe against some of the biggest nerds in the world. Many professional traders are not only super smart and Ivy League educated, they’re also rich. That doesn’t mean that you, the small guy or gal, can’t win. It just means that you simply must educate yourself and be prepared to do battle. David can beat Goliath, but only if he’s prepared. Some people might think the cost of a trading education is too high. But the cost of ignorance is way more expensive.
Risking too much per trade.
The wannabe trader risks 10% or more of her trading account on a single trade. Real deal traders understand risk and manage it FIRST before thinking about profit. They don’t take trades if it forces them to risk too much. Pros keep their risk below 2% of their account balance. This gives them the staying power to survive multiple losing trades in a row without turning into a worry wart.
Not being mentally prepared.
Psychology is a huge part of trading and most people are not mentally prepared. When money is on the line, fear, greed, and other emotions make trading very hard. Make sure you understand the emotional aspects of trading and be prepared to deal with them before you put your money on the line.
Forex trading strategy (Basic balanced system)
Time frame: Any.Currency: Any.
Indicators: 5 EMA, 10 EMA,
Stochastic (14, 3, 3), RSI (14, 70, 30)
Entry rules: Buy when 5 EMA crosses above 10 EMA and Stochastic lines are heading north (up) and Stochastic is not in overbought position (above the 80.00 level) and RSI is above 50.Entry rules: Sell when 5 EMA crosses below 10 EMA and Stochastic lines are heading south (down) and Stochastic is not in overbought position (above the 80.00 level), and RSI is below 50.
Exit rules: when 5 EMA and 10 EMA cross in the opposite direction or if RSI crosses the 50 mark again.
Advantages: allows filtering entries and thus is more accurate.
Disadvantages: 5 and 10 EMAs can give very early exit signals.
Complex trading system (Trend trading with EMAs)
Time frame: 1 day, 1 hour or 30 min.Currency pair: any.
Indicators:80 EMA21 EMA13 EMA5 EMA3 EMARSI (21)
Trading rules:80 EMA suggests a major trend direction.When the price is traded above 80 EMA – uptrend, opposite for downtrend.
21 EMA and 13 EMA give a current trend direction.While 13 EMA stays above 21 EMA – uptrend, opposite for downtrend.
RSI (21) above 50 mark suggests an uptrend, below – downtrend.
Entries are made on a cross of 3 and 5 EMA in the direction of a trend:
Buy when 3 EMA crosses 5 EMA upward in an uptrend market AND both 3 and 5 EMA cross a channel of 13 and 21 EMA AND RSI is above 50.Entry with Sell order when 3 EMA crosses 5 EMA downward in a downtrend market AND both 3 and 5 EMA cross the 13 and 21 EMA AND RSI is below 50.
Note that additional entries are possible when 3 and 5 EMA cross back and then shortly after make a signalling cross again.
Note, that when we get the signal to enter we always wait for the current price bar to close and only then (if conditions nave not changed) - open a position.
Exit rules: when 13 EMA crosses 21 EMA back.Keep an eye on 80 EMA, also watch RSI 21 to cross 50 point mark again - both will suggest immediate exits.
Forex trading strategy (Stochastic lines crossover)
Currency pair: Any. Time frame: Any.Indicator: Stochastic (14, 3, 3)
Entry rules: Buy when the faster moving Stochastic line crosses above and up over slower moving stochastic line.
Exit rules: Sell when the opposite situation (next crossover) occurs and right after that open an opposite position. It is again recommended, once the first touch of Stochastic lines (possible future crossover) has been spotted, to wait until the following price bar on the chart has closed and only then take actions.
Forex trading strategy (Parabolic SAR + ADX)
Any currency pair and time frame can be used.Indicators: Parabolic SAR default settings (0.02, 0.2), ADX 50 (with +DI, -DI lines)
Entry rules: Sell When the +DI line is below the -DI line, and Parabolic SAR gives sell signal. When the +DI line is above the -DI line, all Parabolic sell signals must be ignored.Entry rules: buy when the +DI line is above the -DI line, and Parabolic SAR gives buy signal. When the +DI line is below the -DI line, all Parabolic buy signals must be ignored.
Exit rules: when +DI line and -DI lines have crossed again.
Also the higher the ADX rising - the stronger the current trend is. If ADX has reached 25, the strong trend is in place.
Entry rules: Sell When the +DI line is below the -DI line, and Parabolic SAR gives sell signal. When the +DI line is above the -DI line, all Parabolic sell signals must be ignored.Entry rules: buy when the +DI line is above the -DI line, and Parabolic SAR gives buy signal. When the +DI line is below the -DI line, all Parabolic buy signals must be ignored.
Exit rules: when +DI line and -DI lines have crossed again.
Also the higher the ADX rising - the stronger the current trend is. If ADX has reached 25, the strong trend is in place.
Advantages: allows filtering entries and predicts good exits.
Disadvantages: Both Parabolic SAR and ADX are follow-up indicators. Although they complement each other very effectively, the most “weak” in chain is ADX, because during trading it can give one signal, but later change to the opposite. Once given a signal from ADX, waiting for the current price bar to close to avoid such misleading is advised.
Forex trading strategy (RSI High-Low)
Currency pair: Any.
Time frame: Any.
Indicator: RSI (14, 70, 30)
Entry rules: Buy when RSI has crossed below 30, formed a bottom, and then crossed back up through 30.
Entry rules: Sell when RSI has crossed above 70, formed a peak, and then crossed back down through 70.
Exit rules: not set.
Advantages: RSI is a very good indicator to refer for confirmation for any entry in any simple or complex trading system. For current trading method it advices well on entries, but opportunities occur not that often.
Disadvantages: monitoring is needed, still false signals take place. Strategy is suggested to be used in combination with other ones.
Forex trading strategy (Simple MACD crossover)
We will need only MACD indicator with standard settings: 12, 26, 9.Any time frame as well as any currency pair can be used.
Entry rules: When the MACD lines’ crossover appears – enter (or wait for the price bar to close and then enter).
Entry rules: When the MACD lines’ crossover appears – enter (or wait for the price bar to close and then enter).
Exit rules: when MACD lines next crossover occurs.
Advantages: very simple approach and can give good profitable entries. Traders may want to change MACD default settings depending on the currency and chosen time frame. For example, traders may test next MACD set ups: USD/CHF MACD (04, 07, 16), EUR/USD MACD (02, 03, 20), GBP/USD MACD (02, 03, 04) for different time frames.
Disadvantages: you will need to sit and monitor it again and again. MACD has little use in sideways trading market. It is also never used alone, but rather in combination with other indicators.
Disadvantages: you will need to sit and monitor it again and again. MACD has little use in sideways trading market. It is also never used alone, but rather in combination with other indicators.
Forex trading strategy (EUR/USD simple system)
Currency pair: EUR/USD.
Time frame: 30 min.
Indicators: MACD (12, 26, 9), Parabolic SAR default settings (0.02, 0.2)
Entry rules: When Parabolic SAR gives buy signal and MACD lines crossed upwards – buy.When Parabolic SAR gives sell signal and MACD lines crossed downwards – sell.
Entry rules: When Parabolic SAR gives buy signal and MACD lines crossed upwards – buy.When Parabolic SAR gives sell signal and MACD lines crossed downwards – sell.
Exit rules: exit at the next MACD lines crossover or if the market starts trading sideways for some time.
Trading is like hunting!!
Trading is like going out hunting; you need to know the best times to hunt, you need to watch for sounds, look for footprints, notice of broken twig, factor in the wind direction, and so forth. You are always waiting for the best shot. Sometime you can come back with something, sometimes you don't.
If you don’t trade Forex, you work too hard!
Stay away from the people who belittle you. The truly great, will make you feel that you too, can become great.
Trading Rules
Trading Rules
- Initially set a goal 10 pips a day
- Specialize in one currency pair
- Keep a log
- Sit on your hand unless you 'SEE' something concrete to do.
- Don't buy too soon in a downtrend; don't sell too soon in an uptrend; currencies trend well.
- Forget trading retracements when you catch the main trend.
- Single versus multiple lots.
- Learn, paper trade, demo, live.
- If bias is to be short, think short - not long; if bias is to be long, think long; go one way or the other, but not both.
- Currencies trend WELL! In uptrend,don't look to go short; in downtrend, don't look to go long.
- Any one indocator like a hammer or spininng top may not be enough ammo to pull the trigger. Look around for more evidence of an impending shift in price direction.
Subscribe to:
Posts (Atom)
Posts
