Using MACD Divergence In Your Forex Trading

We’ve all heard lots about watching for MACD divergence as a tool for considering a trade possibility in a particular currency pair. But there are some important observations that you should make before committing your money, so let’s take a look at this concept in greater detail.

First of all, let’s be clear about what constitutes MACD divergence. In the case of negative divergence, we simply look for a nice run up in price, and where we have new wave highs being made in price, we observe that the corresponding highs in MACD are waving lower. The opposite is true for positive divergence. The chart below is an illustration of MACD negative divergence:



Now here’s an important point. After hundreds of personal coaching sessions with clients, I have noticed that sometimes a trader will say that there is MACD divergence happening before the MACD line has actually crossed above the trigger line. This is a wrong assessment! You don’t know you have negative divergence until the MACD line crosses below the trigger line. So just be aware of that pitfall.

Important Additional Considerations with MACD Divergence

If you simply look for MACD divergence without any other considerations, in my opinion you are not aligning yourself with the best odds, so I’d like to pass on my observations about MACD divergence that I think really increase the odds of making a successful trade.

First of all, a good, strong run in price preceding the MACD divergence will usually produce a stronger move following the MACD divergence. Where you have MACD divergence in a choppy, ranging type of market, I’ve found the reliability to be more suspect. Also, MACD divergence tends to yield more sizeable moves following a strong run in price.

Another way to greatly increase the odds of a winning trade is to observe the higher time frames before committing to a trade based on the lower time frame MACD divergence. For example in the case of negative divergence on a 15 minute chart, if you observe that the hourly, and/or 4 hour and/or daily chart has met a major resistance area, or is perhaps showing negative candlestick action, then the probability of a successful trade based on MACD negative divergence on a lower time frame at this point increases.

And finally, when looking to trade MACD divergence, it is very important that you enter the trade correctly, so that you have a good risk/reward ratio, ie, you want to take a trade that has more profit potential than what you’re risking. If you understand how to enter properly, you can measure your risk/reward before you enter a trade. That way, you can only choose to take trades that offer a favorable ratio.

When used correctly, MACD can offer huge profit potential. As you know, Peter mentions in his course that if this was the only way you ever decided to trade, that this alone would offer a very sound trading campaign!

Using MACD In Determining Trend Direction

MACD is a technical indicator that is widely available on most charting services, and it stands for Moving Average Convergence/Divergence. Although it is a lagging indicator that plots a comparison of a short term and a long term moving average, it does represent a momentum oscillator that, when used properly, can be very effective in helping determine trend movements, including reversals.

One of the most common problems that traders is getting the direction right, and I’d like to show you an example of how traders frequently misinterpret price action because of a flawed use of MACD.

I use MACD in one of two ways—to indicate a price trend continuation, or to signal a possible trend reversal.

Today, I’m going to focus on trend continuation, and how false signals can be generated by making the common mistake of only focusing on the lower time frames.

One of the problems that many traders run in to with MACD and other technical indicators is that they fail to make multiple time frame assessments. Of particular importance is that the higher time frames are much more important than the lower time frames in terms of reliability. The following charts will illustrate how this plays out.

The chart below is a 15 minute time period on the USD/JPY currency pair. Notice how MACD had just crossed below its signal line at the point indicated on the chart.



Many people believe that this is a selling opportunity. This is a very limited way to look at this situation. You should NEVER look at charts in isolation! In other words, check all of the other time frames before making a trading decision.

Now take a look at the chart below and see what MACD was doing on the hourly chart on this currency pair at the same time.



What a difference! Not only was this NOT a good place to sell (as the 15 min MACD would have you believe), but it was in fact a very good, high odds set up to buy! All you had to do was consult the higher time frame, in this case, the hourly chart, and together with some other tools, which will be the subject of other topics, you could easily have entered this as a buy. And just so you know, the ensuing move was worth over 40 pips!

So, always keep an eye on the higher time frames—you’ll be glad you did!

How To Approach The Trading Day Like A Pro

One of the most critical jobs that you have to do, as a trader, is to figure out the best direction to trade, based on the time frame that you’re trading in.

If you are a day trader, you will have a very short trading life if you can’t consistently get yourself aligned with the current trend of the market. So, how do we know which way the market is likely to move?

When you first sit down at your computer, there are some critical tasks for you to look after. First of all, you need to know what fundamental news announcements are going to be released during the time you’ll be looking for trades.

Are they significant numbers?
How much volatility is normally associated with these numbers?
Are you comfortable trading in that environment?
Do you have a risk control plan in place that addresses the issue of higher
expected volatility?

Keep in mind that any announcement can cause big excitement (volatility) if there is a large deviation from the consensus expectation. In fact, large moves can occur even if the announced number is in line with expectations! But that’s another story for another day. The point is, as the Boy Scouts say, always be prepared.

If you don’t know the answer to any or all of the questions above, you’re going to be the recipient of some nasty surprises from time to time that don’t have to happen if you’ve planned things properly, notwithstanding the fact that sometimes, despite our best efforts at planning things out, the market just simply doesn’t go in the direction we anticipated — that’s just part of trading.

Assuming you’ve handled the issue of economic releases, your next task is absolutely critical, and that is, the ability to perform a proper top down analysis. What does this mean? Quite simply, find out what the bigger picture is doing and align your trading in that direction.

If you are using a 5 or 15 minute chart for your entry, it is not enough to just confine your analysis to those charts. I have talked to people that hardly even look at a chart beyond the 5 minute! As you can imagine, that will simply result in having your account chewed up very quickly by the markets.

I will give you what I consider to be a very good piece of advice. Spend less time on your lower time frame charts, and spend more time on the higher time frames (hourly, 4 hour and daily charts etc if you’re day trading). You will start to see things in a new way. You will notice support and resistance areas that you never noticed before. For example, have you ever bought and then almost immediately seen price make an instant and substantial move against you, stopping you out? You were obviously at some kind of a major resistance area and didn’t even know it! Maybe the 5 or 15 minute chart looked just fine, but consider this: The 5 minute and 15 minute charts are subordinate to the hourly, 4 hour and higher charts! The higher time frames have the strength, so you need to figure out what the higher time frames are doing and then look for a trade based on that information.

In part two of this article, I will show an example of how we want to look at price action top down in order to give ourselves the best chance possible to structure a winning trade.

Remember, keep your risk under control at all times, and watch the higher time frames for clues!
Here is a statement that I always emphasize to people who take a personal coaching session with me: “Always align your trading with the higher time frames!” Whatever time frame you’re trading 5 minute, 15 minute, daily, etc, figure out what’s happening in the bigger picture, and then use the smaller time frames to structure a good, low risk, high reward trade!

So let’s take a look at how we might use this information to find a trade.

Earlier this week, on December 18th, 2006, the USD/CHF had rallied off of a yearly low and as it came up, you should be asking yourself where it would be logical to expect price to stop going up. Where is there going to be resistance in the big picture?

Well, actually there was a convergence of several different tools on the daily chart that told us that we could expect a top just over 12200. Obviously I can’t go into great detail in this article on all of the different tools. But I want you to realize how powerful it is, and how important it is, just to know that there was a coincidence of no less than 4 independent tools that we like to use. All these tools converging at one price, indicating that we could expect price to stop going up at that point! Folks, that is good stuff to know.

The next step in the analysis is to then examine the lower time frames to see if they are offering any further clues that we might be at a top.

Well, last week I talked about the power of MACD divergence to price, and how divergence on higher time frames can offer great trading opportunities on the lower time frames. Now, when price had reached the major resistance that we had expected on the daily chart, take a look below at what MACD was doing on the hourly chart:



This is a thing of beauty! Once you see MACD negative divergence on the hourly chart, you are now getting positive confirmation that a top is likely at hand. The next step is to simply go short using whatever entry method that you like to use - Fibonacci, stochastics, trend line breaks etc.

At this point I want you to realize that entry becomes a personal choice, but what’s important here is that by doing a proper top down analysis, you got the direction right!!

Thanks traders, best of luck in your trading, keep your risk under control at all times, and make sure to do a thorough top down analysis

Are you Consistently Inconsistent?

As many of you know I’ve been running the Personal Coaching service at ForexMentor since the beginning of 2006, and since that time I’ve listened to hundreds of people tell me their own personal accounts of the difficulties they’ve had with their trading. As I’ve said so many times, the problems that struggling traders have are very common, but also, the habits of successful traders are very common. Over the next few days, I’d like to share with you some of the more glaring pitfalls that show up time and time again in the unsuccessful group.

One of the “real biggies” is a serious lack of consistency in ones trading plan. By that, I mean that so many people lack consistency in the way they approach, execute, and manage their trading. So today let’s take a look at the first component, trading approach.

When you sit down at your computer to trade, what is your trading approach? Do you have something very specific that you look for over and over again—consistently (there’s that word again)? If you don’t, how do you ever expect to become a consistently profitable trader? You will be chasing the markets forever, looking for the Holy Grail, the latest greatest indicator etc. And that, in my 25 years of trading experience, will not work.

Consider the following analogy: In a sport, say golf for example, have you ever noticed that the same people rise to the top of the game year after year? Why do you think that is? It’s totally about consistency in the way they approach the game. They do the same things over and over and over that result in high performance and success. Tiger Woods does not step up to the tee box with a different golf swing every time he plays! And he doesn’t change his putting routine every time he putts! And we all know about his focus! So why do you think you can change your trading approach every time you sit down at your computer and still expect consistently positive results??!! Hey, are you a scalper one day, and a day trader the next, but you really always wanted to be a position trader? You’ve got to get these things resolved!

So one of the most important jobs you have as an aspiring trader is to figure out how best to approach the trading day for you, not for someone else. There is a plethora of trading methods, technical indicators, fundamental considerations etc that you have to condense into a usable plan for you.

I personally believe that most people need a very simple approach that gives them a specific situation to look for day after day. If the market is not set up for the kind of trade you’re looking for—DON’T TRADE! One of the most successful traders I have ever worked with only looks for 1 type of situation, and he only gets 4 – 6 trades per month! He knows exactly what his approach is and he doesn’t deviate from it. If he doesn’t see the set up he wants, he doesn’t trade! But when he does trade, he almost always has a successful outcome. Let me ask you this, If he only trades 4 – 6 times a month and is very successful, and you’re trading 20, 30, 50 times a month or more and you’re losing money, who has more stress??

We are starting a brand new year of trading—2007. Take this opportunity to examine your own situation. If you have a sound trading methodology but you haven’t been consistent in using it, this would be a great time to re-focus.

In the coming days I’ll take a look at consistency in trade execution and risk management—2 other components of consistency that are absolutely critical.

Until then, keep your risk under control at all times, and…be consistent!

Consistent Execution Of Your Trading Plan

In the last article I talked about one of the biggest problems that I see time and time again with traders—inconsistency! And again, the most prominent areas of inconsistency are in trading approach, trade execution, and trading management.

Today I’d like to share some insights with you on trade execution. During my trading experience I’ve noticed a great tendency for traders to be very random about the execution of a particular set up that they are (supposedly) watching for. Sometimes, they are extremely aggressive and will take anything that even smells like a trade (and usually with little regard to risk controls, but that’s another issue), and other traders are just the opposite—they are the “deer in the headlights”, just frozen at the controls. Let’s look at the first group, the aggressive traders.

Aggressive traders often will have more of a “gun slinging” approach to their trading, where they just simply want action. They are the epitome of the expression, “ready, fire, aim”! This means that at times they will take trades that really aren’t set up properly according to what they were originally supposed to be looking for, and they will distort the facts to feed their own emotions. Impatience (and the need for action) intervenes, and they end up clicking into a trade that they usually regret later. Or worse yet, they get lucky a couple of times, so they get the feeling of invincibility, which is a killer.

The other group of traders are the scared “Bambi” traders, and this group will often be very good at seeing good trade set ups, but somehow just can’t pull the trigger. The market will inevitably do exactly what they thought it would do, but unfortunately, they are left on the outside looking in at what they missed. These people have been unable to overcome the fear factor, and in trading, if you don’t overcome this problem, you’re going to have a short trading career.

So what’s the answer? You! Ironically, people think that they have to learn more about the markets, other trading systems, new technical indicators etc, and this is simply not what’s going to change things for them. The consistency needed is internal, it’s in you! Successful traders trade without fear. That means they execute their trades without fear or hesitation, yet they also have a healthy respect for restraint. They are not characterized by the recklessness of the “gun slingers” that we talked about previously, nor do they get all excited and euphoric when they have a nice string of winning trades. They remain very even-keeled—and consistent.

And successful traders are also totally prepared for losses, they expect losses, and they are comfortable and accepting of losses. It’s never a problem, because they have impeccable risk controls in place at all times.

If you are having difficulties with consistent trade execution (and maybe you recognize yourself in one of the groups above), then I would highly, highly suggest that you resolve several key issues. First, make sure you have a good, sound trading approach, something that you see easily and you have confidence in. In conjunction with that, you need to have excellent risk management skills. And last, but definitely not least, you need to be psychologically totally prepared to trade. That means being able to trade without fear, and having extreme focus and discipline. You want to be able to detach yourself both mentally and financially from the outcome of any trade.

You can go to your job and have an “off” day and still get paid. But in trading, if you’re not ready for the day, it will usually cost you. Again, I would strongly suggest working on the mental part of your game. It’s what all the top athletes in the world have done, and it’s what all the top traders have done!

In the next article, we’ll talk about the third area of common inconsistency, and that is in risk control. Have you noticed that at the end of my articles I always say “keep your risk under control”? There’s a reason for it!

So until next time…keep your risk under control! And oh yes, be consistent!

Consistency in Risk Control

Over the past week or so we’ve discussed the importance of applying consistency to your trading, and we’ve identified 3 key areas that really require your attention. First, we talked about how important it is to be consistent in how you approach the markets, and that it’s important not to be oscillating between trading systems and technical indicators, forever in search of the Holy Grail.

Next, we focused on the importance of consistent execution of your trading plan, without hesitation, when a viable opportunity does present itself. This means being patient and waiting for truly good set ups and not just trading because of a need for action—yet being fully prepared to enter a trade with confidence and conviction when there is a good trade set up. And we noted that it’s extremely important to be even-keeled emotionally, meaning that we don’t have a big hysterical reaction win or lose.

Today we’re going to examine the area of risk control. Most traders I’ve worked with tend to gloss over the area of risk control. I’ll tell you an interesting story that I found quite sobering when I heard it. I was a futures broker for many years for one of the largest futures trading companies in the world, and while I was there I had that unique opportunity to see how people handled their accounts. We had many forex clients as well, and in talking with the head of our forex department one day, he gave me some facts that really floored me. He told me that in ALL of the company, the average opening account size for a forex client was about $5000 USD, but, and here’s the shocker, the average life of that account was…about 3 months! Sound familiar? Well if it does, you’re among a majority. I’ll tell you one thing right now. If you only risked a VERY small percentage of your account on any one trade, and you consistently risked the same percentage of your account every time you could not possibly lose the $5000. Not possible. How would you feel about having most of that money back?

So what happens to these people? Well they don’t actually have a business plan at all. What they have is a get rich quick mentality, and obviously we know where that ends up. Typically what would happen is someone would sustain a pretty substantial drop in their account, but instead of trying to figure out the problem, it was not uncommon to see the client “double up” the next time to make it back. Well, one of the fundamental truths of trading is that the market is always right—always. You will NEVER “teach the market a damned good lesson”—it’s the other way around.

But here’s the irony; by keeping your risk very small, you can still realize exponential returns on your capital! And by controlling your risk properly, you will be able to handle a string of consecutive losses and not have it devastate your account. And you will have a string of losses, you can count on it. The question is, will you be able to handle it, both financially and emotionally?

When I do a coaching session with clients, I always make them a 100% guarantee. If you ignore the fundamentals of good risk management, you will, for sure, lose your account. You may get lucky for a while, but it won’t last. That’s a 100% guarantee. Hey, everybody likes a guarantee, right? How do you like that one?

The other glaring problem that people have is in their stop management, including initial stop placement and stop movement. There are all sorts of goof-ups that happen in this area. Some traders have their stops too tight and others way to far away. And so they try a different stop placement almost every time they trade! How random! Or maybe they have a bad habit of jamming their stop up to break even far too quickly for fear of losing any money, only to get stopped out for no gain, and then to see price take off just the way they knew it would—without them! Ouch.

And of course there’s the other group that cannot stand the thought of being wrong (again), so they start moving their stop further away as price gets close to it, to give the market “a little more room”. Double ouch.

So here’s the challenge to you. Commit to managing your money in a consistent and professional manner. Why would you not? Prepare yourself so that when you go into a trade, nothing bad can happen. It’s a mind set that is so very powerful, because by having that extreme confidence that no matter what happens, you will be fine, then you can go into a trade without worry or fear. You can approach trading with a financial and emotional detachment from the outcome of the trade. And that is a very powerful place to be trading from.

Thanks traders. I truly hope that in these last 3 articles I’ve been able to effectively articulate the vital importance of consistency in your approach, execution, and trade management.

Until next time, keep your risk under control at all times, and…be consistent!!

Advice On Learning Forex Trading

Business these days is a very tough task and it pays to know exactly what your doing. This is especially to true when dealing with the forex market. It is indispensable that learning forex trading and all that is associated with it to best of your ability in order to succeed. The various stakes and players. When you choose to learn forex trading you need to know exactly what your dealing with such as

* The value of the currency
* The various factors that will affect the value of the currency
* The trading strategies
* All the different market trends.

Knowing these will greatly help your cause. The fundamentals to forex trading is solid research. As it's such a tough market then getting your hands on a good course to help in your knowledge of learning forex trading will help.

Why Should You Look For A Good Forex Trading Course?

Forex trading courses will help in teaching you the ways in which to predict or chart the continuous movement in the market as well as when the perfect time to buy or sell a commodity is. It will help you in getting familiar with various forex trading terminologies and the process of trading.

Because forex trading is done in real time and decisions are done on the spot, a trader should be emotionally equipped and prepared to handle the demands, challenges and the stress of the market. And these, one can learn in a forex trading education.

What To Look For in Forex Trading Courses

The Basics. A good forex trading education should include in its program the basics on margins, types of orders and leveraging as these are essential in the forex market transactions. It should teach the basic terminologies, the types of analyses being used, the software and tools and other such important things as charting and leverage. These are essential as the trader learns when to cut back and minimize his losses as well as gain profit.

Analysis. It should also teach you how to analyze common mistakes and at the same time, the ways to avoid such mistakes. Basic to a forex trading course is a detailed discussion on doing technical and fundamental analysis and tools.

Values. More than the theories and the basics involved, a good forex trading education should teach you proper money management and the development of a proper trading disposition and psychology. As the stakes are upped, a trader may become too emotionally involved. It is important that a forex trading course develops the appropriate values needed in money trading, such as discipline, patience and commitment.

Experience. A good forex trading course should provide real life experience through apprenticeship. There is no better teacher than experience, they say, and as forex trading is as real as it can get, forex courses should offer avenues where the student can practice trading. Some courses have live conference rooms or boards where the trader can learn to trade in real time or, in some cases, in a simulated environment. These experiences should also have a one-on-one feedback and forums for discussion and exchange of information and lessons.

For those who'd like to get a good grasp of the market and the rules of the game, there are online sites offering courses and workshops on forex trading. These sites offer courses on risk and money management, trading strategies, technical analysis, market trends and networking. There are also tutorials on the latest softwares and tools being used. There are also online sites that offer lifetime membership and support. Some online schools allow their students to retake the course for updates on the newest trends and strategies. You can try www.trainingacademy.com, www.realtimeforex.com, www.go-forex.net, www.forexmentor.com and www.fxcm.com.

Innovations

With the advent of the Internet, there's already online forex trading, a system that allows corporations and players in the game to do business virtually. With online forex trading, one can check and monitor the value of the currencies, and even trade directly on the internet. It offers trading of almost 15 currencies, and with the growing number of online traders, it spells more possibilities and more earnings.

Of course, nothing beats the real thing. And a successful forex trader's skill and knowledge is developed with continued experience. A forex trading education may or may benefit you, but it sure can spell a difference. With the forex market's volatile environment and fast-paced transactions, one must be fully-equipped with the appropriate tools, knowledge, skill and disposition. The key here is to know the market. Of course, don't forget to read up on the market, learn how to compare the currency values and generally become a better money manager.

Effective Forex Trading Tips To Help Beginners Succeed In The Foreign Exchange Trading Market

Are you one of those who have heard about Forex trading but not sure what it really is? Or you would like to find forex trading tips on how it works and if you can make money out of it, but not sure whom to ask? Well, I can tell you are not alone in this situation. Many people think that they are familiar with Forex trading, but in reality, most of them think that forex trading has something to do with stocks or bonds.

Forex trading is different from stocks or bonds. It is a type of trading that involves trading of currency pairs. The currencies that are usually chosen for trading are considered above the rest because they are stable and have a greater value than other foreign currencies.

For all the newcomers to the forex market, the first piece of tips is to protect themselves from frauds. If you're new in forex trading, it doesn't hurt to take some advice from the ones who are already engaged in forex trading. In fact, you can make use of their tips for your own good, and even to your advantage.

People across the globe participate in forex trading and that's why it is not surprising to see the kind of frauds that are able to infiltrate the financial market. To shield the legitimate traders from these frauds, they must be made aware of these growing facts, so that they can take suitable actions to protect their trading career.

The opportunities that forex trading provides for different individuals, firms, and organizations is growing rapidly every year. And accompanying this growth is the widespread growth of different scams related with forex trading. But you should not worry because there are a lot of legitimate companies or firms that can help you in forex trading.

The best thing to do is to find these legitimate companies to stay away from fraudulent ones. However, most new traders fall prey to these scammers because of their savory offers.

Don't get fooled by the companies that advertise high profits for minimal risks. The fact is that, if you want to earn high profits, then you are likely subjected to high risks as well. Higher rate of profit means higher risk.

So, always stay on the safer side. If you're looking for a forex trading broker, and since each broker is part of a certain company, make sure that you select a government registered company. In signing any contract with them, double check if they are registered or certified brokers. This is one basic precaution that will prevent any misfortune that you might encounter in the future.

The job of reducing the risk is entirely yours, not that of the broker; so if the company offers or promises little risks, guaranteed profits, and the like, that is a sure sign that they are there to make a fool out of you.

Even if you are not a professional trader, a little use of the common sense can help in long run.

Before actually participating in any forex trade, make sure you have done your homework. Do the research and jot down all the necessary details about the trading transaction that you wish to perform. Ever heard of inter-bank market? Stay away from companies which lure you into trading in the inter-bank market because the currency transactions are negotiated in a wobbly network of large companies and financial institutions.

Also, make sure to check the background or history of the trading company. If a certain company does not disclose information about their background, that should serve as a red flag. It means that you should continue doing transactions with them. Nor is it advisable to transfer/send cash through the mail or the internet. Practice caution in everything you do, and you'll be more than sure that you are always safe.

Fraudulent companies often solicit services and advertise soaring pressure tactics to attract you in participating or joining their services. An offshore company which guarantees no risk and return of profit is a big NO. Always be skeptical and don’t give in to any instant offer that comes your way.

Short-Term Forex Trading - Is It Profitable?

Forex traders use a variety of different strategies and time frames to trade the markets, and one of the most popular tactics is to adopt a short-term forex trading strategy. However, with so much volatility every day, can you really make consistent profits this way?

Well I've traded the markets for many years and in my opinion, although you can make profits short-term trading, it's a very difficult (and stressful) way of making a living.

So why is it so difficult?

Well it's generally the case that financial markets, and currencies in particular, move in trends. However while this is true of medium and long-term charts, ie 30 minute up to weekly and monthly charts, when you get down to 1 and 5 minute charts, you're basically just looking at noise.

Prices will whipsaw all over the place and it's very difficult to trade with any confidence. While you will sometimes get breakouts that can result in a fair few pips profit, you will also get a lot of false breakouts and will be constantly stopped out of positions when your stop loss gets triggered.

Basically it's a very difficult way of trading and a very difficult skill to master. Yet so many people new to forex trading are seduced into short-term trading excited by the fact that they can grab say 20-50 points in a matter of minutes.

However, you can also lose a lot of points very quickly and instantly be whipsawed out of a position, especially if you are trading through news announcements. The end result of this is that a lot of short-term traders eventually find out how difficult it is to consistently make money this way and will often give up forex trading altogether.

So should you forget about short-term trading or scalping altogether?

Well not necessarily. There are definitely people who make consistent profits this way, and there are times when you may have a larger longer term position and you see an intraday opportunity to get in and grab a few points.

For instance, you may be 100 points in profit thanks to a long-term long position, but confident of a continued move upwards, you think the price has gone too high in the short-term, and you decide to go short to catch a short-term retracement. This is one example of where short-term trading may be appropriate.

Another instance may be where you notice that a currency is strongly trending upwards on the 30 minute and 4 hour charts, yet is oversold on the 5 minute chart after a brief retracement. In these instances it can be very profitable to use the shorter term charts to look for opportunities to take a value position in the same direction as the longer term trend.

So you can use short-term charts to look for positions, but it's always important that you look at the longer term picture before doing so. My own personal opinion is that just trading 1 and 5 minute charts without looking at say the 15 or 30 minute charts, at least, is suicidal.

So much of the price movements on a minute-by-minute basis is just noise, and will move all over the place, which is why it is so difficult.

To sum up, I would say that people should always look to take longer-term positions as they are a lot less stressful and are more prone to follow trends, therefore making them potentially a lot more profitable. Plus you can potentially grab movements of 1000+ pips rather than sitting at your computer all day looking for 5-20 point movements.

5EMAs Forex System Review

5EMAs Forex System is a user-friendly step by step guide in the forex market, a 160+ pages long e-book available trough Clickbank. It has just recently been released as an actual product for the general public, up until recently the formula has been used by a fund manager and forex trader. The system can produce monthly returns of between 30% and 55% depending on the exit strategy selected.

The formula is remarkably flexible, rather one is involved with Scalping, Swing-trading or Day-trading. The formula has the flexibility to produce profitable results no matter what you use it for.

The system can also be set to provide long term signals, this is a very profitable feature for the one who does not have the time to constantly monitor the market, it allows you to profit from the forex market while keeping your day job.

This system is teaching very fresh and interesting methods of predicting market movements, in form of a step by step guide the manual teaches how to identify accurate trades with the potential of generating enormous returns from the market, with money management tactics that primarily is developed for 5EMAs Forex System.

This system's methods of predicting the market movements gives you the understanding of how to potentially turn $1.000 into riches in the period of 24 months.

For a fraction of the price of most other trading systems, this system is a clever investment in my opinion because the value of the knowledge the system offers has the potential to be invaluable if its put to good use.

A clear advantage of other system is that, this system accurately catch moves in the beginning while most other systems trigger trades when the moves are almost over.

This is an easy system that even a complete beginner to forex trading can start using quickly after reading the book, it is easy to set up, it is easy to apply and it combines clear trading signals with the follow up of the trade.

The formula is uniquely flexible allowing you to profit no matter if you are Scalping, Swing-trading or Day-trading, and it teaches incredible methods of predicting movements on the market.

Trading with an Auto Forex System for Faster Profits

Auto forex system trading is the perfect strategy for investors or brokers who either do not have time to watch the market closely or trying to diversify the portfolio. It is like having a professional to trade your account for you, taking care of your profits.

Automated systems replace the need for manually buying or selling the currencies. With auto forex system trading, you can continue to focus on your own trading strategies and can take benefits of other strategies as well.

Forex system trading can be of different types. The systems are based on software and algorithms to generate trading signals. Different automated trading platforms use varied software to generate the trading signals. You can run the system from your own desktop or can leave the trading completely to professionals through your managed accounts.

The system is configured to automatically open and close positions at specified parameters. As the forex markets in different countries operate in different time zones, the trading practically continues round the clock. With a managed account in your auto forex system trading, whenever a trade signal is generated, your order will be placed into your account while you are away working or sleeping.

Automated forex system trading is free of the traders' emotion. As the operations are strictly software driven, you need to concentrate on the strategic decisions, which will be executed automatically. As the automated trading platforms have proper risk management features, your trades will be secured and safe.

Many online brokers offer trading platforms for free. You can download the system in your desktop. For a subscription or with the spread, the online broker can manage your investment.

If you purchase an automated forex trading system, the vendor may offer you free trading alert services when you can receive signals whenever a trade is identified. In many trading platforms, your order can be placed automatically, whenever a signal is generated and, therefore, you never miss a trading opportunity and save your time as well.

To take the maximum advantage of the system, you need planning and self-preparation. Always determine beforehand how much of your trading capital you will risk. Work on a demo account for few months before choosing the platform.

You must also monitor how your accounts are doing on a regular basis. A successful auto forex trading system should be based on low leverage and multiple entry. Always ask for the history and record of past performance of the platform. The trading platform should be simple enough for you to operate.

Tips On Getting One for Profit

There are numerous currency trading systems for sale online but 95% of them are junk. There are some good ones out there and they can make you great profits, so follow the tips below and find the best currency systems.

1. Real Track Records

The first point to make is that you should if possible get a system that has a real track record that means real dollars, real trading and audited. This may not ensure future profitability but shows the logic is probably soundly based and that the vendor has had the confidence to trade it.

2. Simulated Hypothetical Track Records

Most currency trading systems don't come with a real track record but with a simulated or hypothetical one and you need to take these for what they are: Designed in hindsight knowing the closing prices - there is nothing wrong with back testing but you must ensure the testing was done correctly.

This is the subject of the next point:

3. Beware OF Curve Fitting

Of course it's easy to make profits if you know the forex price data already and many vendors simply make track records up and bend the system to fit the data. When you see a track record with huge gains and low drawdown the likelihood is the vendor has bent the system rules

It is therefore a good idea to see the system rules - do not try and trade any system you do not know the logic of. A good currency trading will have simple rules and simple logic. If they do and the test is realistic then they can work in real time - if their curve fitted they won't work.

Clues to curve fitted systems are:

Lots of rules, unique rules for various trading conditions and different rules, for different currencies. Curve fitting is the major reason most forex trading systems lose.

Many traders bend the system to fit the data - without realizing but many vendors do it on purpose. This is done to show track records which are simply too good to be true to appeal to the greed of buyers - these people are not traders their normally marketing organizations.

Keep in mind if you see a track record which looks to good to be true it probably is.

THE KEY TO FOREX SUCCESS...

They key to making money with a trading system is to follow it with discipline. This means you MUST understand the logic it is based on to have confidence to trade it through inevitable losing periods, so you need to understand and agree with the logic.

If you don't have the discipline to follow your currency trading system, you don't have a system. You will never follow a mechanical trading system unless you have confidence so make learning it part of your forex education.

If you follow the above tips and have realistic expectations from your currency trading system, you check the logic and you're happy with the performance and draw down then you can trade it for real and enjoy currency trading success for very little effort.

A Great Forex Trading Indicator

Forex trading can be tough if you do not know what you are doing. That is why I have provided the following simple yet helpful forex trading strategy. The Simple Moving Average (SMA) is an extension of the trend line concept. The SMA is plotted on a graph by the charting program of the forex market data. The SMA takes the average of the close price of a given number of the last few periods. Any number of periods can be selected. You can have a SMA 5 or an SMA 20. An SMA 5 will take an average of the previous 5 close prices on the chart and will plot it on the chart along side the other price data. Each bar will use the previous 5 bars worth of data to calculate a point and plot it on the graph.

If the SMA is generated using a large number of periods (like an SMA 50 or SMA 75), you could interpret it similarly to the trend line. But if you select "faster" SMA's (like SMA5 or SMA20), you need to use a different strategy.

I am about to give you a strategy using the SMA. It is called the SMA Crossover Method. The SMA is one of the most commonly used indicators and can be found on almost any charting package. When you plot the SMA, you will be able to slect a line color to plot it. Make sure to use a different color than the actual prices on the chart.

Step 1: Plot an EMA5 using blue (or any color you like).

Step 2: Plot an EMA20 using red (or any color that is different than step one's color).

You now have two SMAs plotted on the chart. You also have two signals.

Buy Signal: When the SMA5 Crosses the SMA20 moving upward.

Sell Signal: When the SMA5 Crosses the SMA20 moving downward.

The beauty of this method is that the price of the currency pair cannot go up significantly without triggering the buy signal.

This was a very simple and practical indicator that should really improve your trading results as you implement the strategy outlined above. If you are looking for a really good set of forex trading strategies click on the link below. Good luck trading.

Are you the only one losing in Forex?

Have you ever felt like you are the only one losing in the forex market? Everywhere I see, people giving out free forex signals, free forex strategies, and people replying how incredible the strategy/signal was and how many pips it made them. But when I start following the strategy/signal, it goes on a losing streak. Simply frustrating!

For a long while I thought there must be someone up the forex hierarchy watching my trading moves and making sure I lose my trades. Nothing seems to be going my way. Even when do I make a win, I'll be thrilled for about half a day, and then I have to lose it right back, and more.

Was the whole world conspiring against me? Why can't I be one of those that get to thank someone online for that wonderful strategy that has been constantly giving my pips day in and day out? Was there some kind of secret society I wasn't a part of?

It was affecting my self esteem. It felt like a personal attack, a personal failure. I know the expert advise is to not let your trades affect you emotionally, but it's hard to do so when you feel you're ALWAYS getting on the wrong side of the trade.

That was a rough patch I had to go through. I'd like to think I've survived it now. I've managed to keep my account afloat after 6 months of live trading, after coming very, very close to the bottom of my account.

When your mind starts being positive, positive things start happening. That's why I believe new traders should have small achievable targets. When you have many small wins and some small losses, rather than some big wins and many large losses, you tend to be more confident with yourself, and your trading. That realization alone, is the biggest factor, for how I've rescued my account from margin-call, from just a few dollars left.

A Guide to Forex Trading & Investing

Market knowledge and ability to understand analysis will only get you so far in Forex trading, but without the nerve to actively compete risking your own money in the process you can never become a successful trader.

Wagering huge volumes of money in a market as susceptible to change is liable to cause a whole range of opposing emotions; fear, excitement and anxiety just to name a few. Battling against your emotions in order to complete a successful deal is one of the major hurdles, which must be overcome if you are to become a trader able to close huge deals and earn vast sums of money. If you can overcome or even use these emotions to make trades on the Forex then a successful career may be beckoning, but failure to do so will almost certainly cost you a substantial amount of money and end any lingering desires to progress in the busy world of exchange rate trading.

Initiating and closing a trade at the right times are the backbone of becoming a successful Forex trader. If a person cannot execute these deals at the right times, the psychological and financial damage can be crippling. Missing a huge trend or sitting too long on a good price, can be a demoralising experience, but one that many will encounter during a career in Forex trading.

Entering at the right time is just one thing that must be done correctly, but if you are unable to leave at the right time or hold your nerve during the course of the trade, the implications are potentially severe. For example accepting a small loss just before the market rises can lead to a horrendous huge profit/loss ratio margin. Similarly sitting on a currency price that is plummeting for too long could be financially crippling. Understanding the Forex market and having faith in your ability to judge a trend will pay dividends if you hold your nerve, backing out at the wrong time can prove to be a catastrophic misnomer.

The fear generated by investing your own personal money is the main thing that must be overcome. It is the culprit in so many failure stories, people who just couldn't overcome their anxiety investing unwisely, pulling out at the wrong time, missing a rise completely, all result in failure and are caused by fear. Accepting this fear, and using it to your potential will make you a stronger trader, able to trade freely and enjoy the thrill of the exchange. Fighting it will get you nowhere, understanding and overcoming it are the best remedies to this baseless emotion.

Trading strategies will help you ride out the rough times and capitalize on the good ones. Sometimes just taking a step back and accepting a few losses will give you the energy and the knowledge to attack the Forex with renewed vigour, and make some serious profits. Accepting that sometimes you will lose out, you need to be able to take the hits and roll with a punch, there are no guarantees in the trading market, so being able to move on and start again is a skill that is paramount to generating success.

Analysis and charts can only get you so far. You must first master these things, and be able to correctly interpret the figures that are represented in order to spot the trends and make your move. But this all means nothing if you don't have the courage of your convictions. If you are too afraid to buy and not sure when to sell then a glittering career in market trading is likely to elude you. 'The trend is your friend' but it means nothing if you firstly can't spot it and secondly don't have the courage to back it. Knowledge, strategies and overcoming fear may well be the 3 best ways to become to unlock the door to becoming a successful trader. Without all 3 you will more often than not become unstuck, so prepare, practice and evaluate everything before taking the plunge in the complicated world of Forex trading.

Trailing Stops

Now that we have taken the necessary precautions to avoid catastrophic losses by using disciplined money management stops, it is appropriate to concentrate on strategies that are designed to accumulate and retain profits in the market. When properly implemented these strategies are intended to accomplish two important goals in trade management: they should allow profits to run, while at the same time they should protect open trade profits.

While their application is extremely wide, we do not believe that trailing stops are appropriate in all trading circumstances. Most of the trailing exits we will describe are specifically designed to allow profits to run indefinitely. Therefore they are best used with trend following type systems. In counter-trend trading, more aggressive exits are more suitable. The “when you’ve got a profit, take it” philosophy works best when you are trading counter-trend, since the anticipated amount of profits is limited. However, to take quick profits in a trend is usually an exercise in frustration: we exit the market with a small profit only to watch the huge trend continue to move in our direction for days or months after our untimely exit. We therefore recommend using different exit strategies based on the underlying market condition. We will discuss the more aggressive exits later; for now we will concentrate on exits designed to accumulate large profits over time.

A thorough understanding of trailing stops is critical for trend-following traders. This is because trend following is typically associated with a lower percentage of profitable trades; which makes it particularly important to capture as much profit as possible when those large but infrequent trends occur. Typical trend followers make most of their profits by capturing only a few infrequent but very large trends, while managing to cut losses effectively during the more frequent sideways markets.

The rationale behind the use of the trailing stop is based on the anticipation of occasional extremely large trends and the possibilities of capturing substantial profits during these major trends. If the entry is timely and the market continues to trend in the direction of the trade, trailing stops are an excellent exit strategy that can enable us to capture a significant portion of that trend.

The trailing stops we will describe in this and following articles have similar characteristics that are important to understand as we use them to design our trading systems. Effective trailing stops can significantly increase the net profits gained in a trend-following system by allowing us to maximize and capture large profitable trades. The ratio of the average winning trade to the average losing trade is usually improved substantially by the use of trailing stops. However there are some negative characteristics of these stops. The number of profitable trades is sometimes reduced since these stops may allow modestly profitable trades to turn into losers. Also, occasional large retracements in open trade profits can make the use of these stops quite difficult psychologically. No trader enjoys seeing large profits reduced to small profits or watching profitable trades become unprofitable.

The Channel Exit

The simplest process for following a trend is to establish a stop that continuously moves in the direction of the trend using recent highest high or lowest low prices. For example, to follow prices in an uptrend, a stopmay be placed at the lowest low of the last few bars; for a downtrend, the stop is placed at the highest high of the last few bars. The number of bars used to calculate the highest high or lowest low price depends onthe room we wish to give the trade. The more bars back we use to set the stop, the more room we give the trade and consequently the larger the retracement of profits before the stop is triggered. Using a veryrecent high or low point enables us to take a quick exit on the trade.

This type of trailing stop is commonly referred to as a “Channel Exit”. The “channel” name comes from the appearance of a channel formed from using the highest high of X bars and the lowest low of X bars for shortand long exits respectively. The name also derives from the popular entry strategy that uses these same points to enter trades on breakouts. Since we are focusing on exits and will be using only one boundary ofthe channel, the term “channel” may be a slight misnomer, but we will continue to refer to these trailing exits by their commonly used name.

For most of our examples we will assume that we are working with daily bars but we could be working with bars of any magnitude depending on the type of system we are designing. A channel exit is extremelyversatile and can work equally well with weekly bars or five-minute bars. Also keep in mind that any examples referring to long trades can be equally applicable to short trades.

The implementation of a channel exit is very simple. Suppose we have decided to use a 20-day channel exit for a long trade. For each day in the trade, we would determine the lowest low price of the last 20 daysand place our exit stop at that point. Many traders may place their stops a few points nearer or further than the actual low price depending on their preferences. As the prices move in the direction of the trade, thelowest price of the last twenty days continually moves up, thus “trailing” under the trade and serving to protect some of the profits accumulated. It is important to note that the channel stop moves only in thedirection of the trade but never reverses direction. When prices fall back through the lowest low price of the last twenty days, the trade is exited using a sell stop order.

The first and obvious question to answer about channel exits is how many bars to use to pick the exit point. For example, should we set our stop at the lowest low of 5 days or the lowest low of 20 days, or someother number of days? The answer depends on the objectives of our system. A clearly stated set of objectives for the system is always very helpful at these important decision points. Do we want a long-termsystem with slow exits or do we want a short-term system with quicker exits? A longer channel length will usually allow more profits to accumulate over a long run if there are big trends. A shorter channel willusually capture more profits if there are smaller trends. In our research, we have found that long-term systems generally work well with a trailing exit at the lowest low or the highest high of the last 20 days or more.For intermediate term systems, use the lowest or highest price of between 5 to 20 days. For short-term systems, the lowest or highest price of between 1 to 5 days is usually optimal.

Trailing stops with a long-term channel accumulate the largest open profits if there is a sustained trend. However this method will also give back the largest amount of open profits when the stop is eventuallytriggered. Using a shorter channel can create a closer stop in order to preserve more open trade profits. As can be expected, the closer stop often does not allow profits to accumulate as nicely as the longerchannel, and often causes us to be prematurely stopped out of a large trend. However, we have noticed that a very short channel length of between 1 to 3 bars is still highly effective in trailing a profitable trade in arunaway trend. The best type of channel exit to use in a runaway trend is a very short channel, for example 3 bars in length. We have observed that this exit in a strong trend often keeps us in a trade until we areclose to the end of the trend.

It appears that there is a conflict of exit objectives here. A longer channel length will capture more profit but give back a large proportion of that profit; a shorter channel length will capture less profit, but protect moreof what it has captured. How can we resolve this issue and create an exit that can both accumulate large profits, as well as protect these profits closely? A very effective exit technique calls for a long-term channelto be implemented at the beginning of the trade with the length of the channel gradually shortened as larger profits are accumulated. Once the trade is significantly profitable, or in a strongly trending move, the goalis to have a very short channel that gives back very little of the large open profit.

Here is an example of how this method might be implemented. At the beginning of a long trade, after setting our previously described money management stop to avoid any catastrophic losses, we will trail a stopat the lowest low of the last 20 days. This 20-day channel stop is usually far enough from the trade to avoid needless whipsaws and keep us in the trade long enough to begin accumulating some worthwhile profits.At some pre-determined level of profitability, which can be based on a multiple of the average true-range or some specific dollar amount of open profit, the channel length can be shortened to take us out of the tradeat the lowest low of 10 days. If we are fortunate enough to reach another higher level of profitability, like 5 average true ranges of profit or some other large dollar amount, we can shorten the channel further so thatwe will exit at the lowest low of 5 days. At the highest level of profitability, perhaps a very rare occurrence, we might even be able to place our exit stop at the previous day’s low to protect the great profit we have accumulated. As you can see, this strategy allows plenty of room for profits to accumulate at the beginning of a trade and then tightens up the stops as profits are accumulated. The larger the profits, the tighter ourexit stop. The more we have, the less we want to give back.

There is another way of improving the channel exit that is worthwhile to discuss: this is to contract (or expand) the traditional channels using the height of the channel, or some multiple of the average true range. How this might work is as follows: Supposing you are working with a 20-day channel exit. First you calculate the height of the channel, as measured by the distance between the highest 20-day high and the lowest 20-day low. Then you contract the channel by increasing the lowest low value and decreasing the highest high value previously obtained to determine the exit points. For instance, in a long trade, you could increase the lowest low price by 5% of the channel height or 5% of the average true range, and use that adjusted price as your exit stop. This creates a slightly tighter stop than the conventional channel. More importantly, it allows you to execute your trade before the multitude of stops that are already placed in the market at the 20-day low.

The last point can be considered an important disadvantage of the channel exit. The channel breakout methods are popular enough to cause a large number of entry and exit stops to be placed at previous lowest low and highest high prices. This can cause a significant amount of slippage when attempting to implement these techniques in your own trading. The method of adjusting the actual lowest low or highest high price by a percentage of the overall channel height or the average true range is one possible way to move your stops away from the stops placed by the general public and thereby achieve better executions on your exits.

How to Read a Chart & Act Effectively

Introduction

This is a guide that tells you, in simple understandable language, how to choose the right charts, read them correctly, and act effectively in the market from what you see on them. Probably most of you have taken a course or studied the use of charts in the past. This should add to that knowledge.

Recommendation

There are several good charting packages available free. Netdania is what I use.

Using charts effectively

The default number of periods on these charts is 300. This is a good starting point;

Hourly chart that's about 12 days of data.
15 minute chart its 3 days of data.
5-minute chart it's slightly more than 24 hours of data.

You can create multiple "tabs" or "layouts" so that it’s easy to quickly switch between charts or sets of charts.

What to look at first

1. Glance at hourly chart to see the big picture. Note significant support and resistance levels within 2% of today’s opening rate.

2. Study the 15 minute chart in great detail noting the following:

• Prevailing trend
  
• Current price in relation to the 60 period simple moving average.
  
• High and low since GMT 00:00
  
• Tops and bottoms during full 3 day time period.

How to use the information gathered so far

1. Determine the big picture (for intraday trading).

Glancing at the hourly chart will give you the big picture – up or down. If it’s not clear immediately then you’re in a trading range. Lets assume the trend is down.

2. Determine if the 15 minute chart confirms the downtrend indicated by big picture:

Current price on 15-minute chart should be below 60 period moving average and the moving average line should be sloping down. If this is so then you have established the direction of the prevailing trend to be
down.

There are always two trends – a prevailing (major) trend and a minor trend. The minor trend is a reversal of the main trend, which lasts for a short period of time. Minor trends are clearly spotted on 5-minute charts.

3. Determine the current trend (major or minor) from the 5 minute chart:

Current price on 5-minute chart is below 60 period moving average and the moving average line is sloping downward – major trend.

Current price on 5-minute chart is above 60 period moving average and the moving average line is sloping upward – minor trend.

How to trade the information gathered so far

At this point you know the following:

• Direction of the prevailing trend.
  
• Whether we are currently trading in the direction of the prevailing (major) trend or experiencing a minor trend (reaction to major trend).

Possible trade scenarios:

1) Lets assume prevailing (major) trend is down and we are in a minor up-trend. Strategy would be to sell when the current price on 5-minute chart falls below the 60 period moving average and the 60 period moving average line is sloping downward. Why? Because the prevailing trend is reasserting itself and the next move is likely to be down. Is there more we can do? Yes. Look for further confirmation. For example, if the minor trend had stalled for a while and the lows of the past half hour or hour are very close to the 5 minute moving average then selling just below the lows of the past half hour is a better place to enter the market then just below the moving average line.

2) Lets assume prevailing (major) trend is down and 5-minute chart confirms downtrend. Strategy would be to wait for a minor (up trend) trend to appear and reverse before entering the market. The reason for this is that the move is too “mature” at this point and a correction is likely. Since you trade with tight stops you will be stopped out on a reaction. Exception: If market trades through today’s low and/ or low of past three days (these levels will be apparent on the 15 minute chart) further quick downward price action is likely and a short position would be correct.

3) A better strategy assuming prevailing trend down, 5-minute chart down, and just above days lows is to BUY with a tight stop below the day’s low. Your risk is limited and defined and the technical condition (overdone?) is in your favor. Confirmation would be if today’s low was a bit higher than yesterday’s low and the price action indicated a very short-term trading range (1 minute chart) just above today’s low. The thinking here is that buyers are not waiting for a break of today’s or yesterday’s low to buy cheaper; they are concerned they may not see the level.

4) Generally speaking, the safest place to buy is after a sustained significant decline when the bottoms are getting higher. Preferably these bottoms will be hours apart. By the third or forth higher bottom it is clear a bottom is in place and an up-move is coming. As in the example above your risk is limited and defined – a low lower than the last low.

5) The reverse is true in major up-trends.

Other chart ideas

There are always two trends to consider – a major trend and a minor trend. The minor trend is a reversal of the major trend, which generally lasts for a short period of time. Buying above old tops and selling below old bottoms can be excellent entry levels; assuming the move is not overly mature and a nearby reaction unlikely. When a strong up move is occurring the market should make both higher tops and higher bottoms. The reverse is true for down moves- lower bottoms and lower tops. Reactions (minor reversals) are smaller when a strong move is occurring. As the reactions begin to increase that is a clear warning signal that the move is losing momentum. When the last reaction exceedsthe prior reaction you can assume the trend has changed, at least temporarily. Higher bottoms always indicate strength, and an up move usually starts from the third or fourth higher bottom. Reverse this rule in a rising market; lower tops… You will always make the most money by following the major trend although to say you will never trade against the trend means that you will miss a lot of opportunities to make big profits. The rule is: When you are trading against the trend wait until you have a definite indication of a selling or buying point near the top or bottom, where you can place a close stop loss order (risk small amount of capital). The profit target can be a short-term gain to nearby resistance or more.

Consider the normal or average daily range, average price change from open to high and average price change from open to low, in determining your intra-day price targets. Do not overlook the fact that it requires time for a market to get ready at the bottom before it advances and for selling pressure to work it’s way through at top before a decline. Smaller loses and sidewaystrading are a sign the trend may be waning in a downtrend. Smaller gains and sideways trading in an up trend. Fourth time at bottom or top is crucial; next phase of move will soon become clear… be ready.Oftentimes, when an important support or resistance level is broken a quick move occurs followed by a reaction back to or slightly above support or below resistance. This is a great opportunity to play thebreak on the “rebound”. Your stop can be super tight. For example, EURUSD important resistance 1.0840 is broken and a quick move to 1.0860, followed by a decline to 1.0835. Buy with a 1.0820 stop. Themove back down is natural and takes nothing away from the importance of the breakout. However, EURUSD should not decline significantly below the breakout (breakout 1.0840; EURUSD should not go below 1.0825.

After a prolonged up move when a top has been made there is usually a trading range, followed by a sharp decline. After that, a secondary reaction back near the old highs often occurs. This is because the market gets ahead of itself and a short squeeze occurs. Selling near the old top with a stop above the old top is the safest place to sell. The third lower top is also a great place to sell. The same is true in reverse for down moves. Be careful not to buy near top or sell near bottom within trading ranges. Wait for breakaway (huge profit potential) or play the range. Whether the market is very active or in a trading range, all indications are more accurate and trustworthier when the market is actively trading.

Limitations of charts

Scheduled economic announcements that are complete surprises render nearby short-term support and resistance levels meaningless because the basis (all available information) has changed significantly, requiring a price adjustment to reflect the new information. Other support and resistance levels within the normal daily trading range remain valid. For example, on Friday the unemployment number missed the mark by roughly 120,000 jobs. That’s a huge disparity and rendered all nearby resistance levels in the EURUSD meaningless. However, resistance level 200 points or more from the day’s opening were still meaningful because they represented resistance to a big up move on a given day.

Unscheduled or unexpected statements by government officials may render all charts points on a short-term chart meaningless, depending upon the severity of what was said or implied. For example, when Treasury Secretary John Snow hinted that the U.S. had abandoned its strong U.S. dollar policy.

7 Step Sucess Forex Trading

THE TRADE DECISION

1. Never add to a losing position.

2. Always determine a stop and a profit objective before entering a trade. Place stops based on market information, not your account balance. If a "proper" stop is too expensive, don't do the trade.

3. Remember the "power of a position." Never make a market judgment when you have a position.

4. Your decision to exit a trade means you perceive changing circumstances. Don't suddenly think you can pick a price, exit at the market.

THE MARKET HAS CHARACTER

5. In a Bull market, never sell a dull market, in Bear market, never buy a dull market.

6. There are times, because of lack of liquidity, or excessive volatility, when you should not trade.

7. Trading systems that work in an up market may not work in a down market.

8. There are at least three types of markets: up trending, range bound, and down. Have different trading strategies for each.

9. Up market and down market patterns are ALWAYS present, merely one is more dominant. In an up market, for example, it is very easy to take sell signal after sell signal, only to be stopped out time and again. Select trades with the trend.

10. A buy signal that fails is a sell signal. A sell signal that fails is a buy signal.

11. It's always easier to enter a losing trade.

12. In the "blowout" stage of the market, up or down, risk managers are issuing margin call position liquidation orders. They don't check the screen for overbought or oversold, they just keep issuing liquidation orders. Don't stand in front of a runaway freight train.

13. You are superstitious; don't trade if something bothers you.

NEWS

14. Buy the rumor, sell the news.

15. News is only important when the market doesn't react in the direction of the news.

16. Read today's paper tomorrow. When you read yesterday's paper each day with the knowledge of what the market already did, you will affirm that this mornings paper with yesterday's news has nothing to do
with today's market.

A TIME TO TRADE

17. On the open, never enter a new trade in the direction of a gap. Never let the market make you make a trade. (Closing an existing position is obviously ok.)

18. The first and last tick are the most expensive. Get in late and out early.

19. When everyone is in, it's time to get out.

20. Never trade when you are sick.

TRACKING YOUR TRADES

21. Size kills. Only change your unit of trading under a plan of attained goals. Also, have a plan for reducing size when your trading is cold or market volume is down.

22. Confidence kills. Remember, you really don't know anything. Respect the market every second of every day. Expect the unexpected. Always know your position and exit your trade immediately whenever you feel uneasy.

23. Measure yourself by profitable "days in a row," not by individual trades.

24. The best way to break a streak of "losing days in a row" is to not trade for a day.

25. Don't stop trading when your on a winning streak. "When your hot, your hot."

26. Three strikes and your out! Don't turn three losing trades in a row into six in a row. When you’re off, turn off the screen, do something else. "When you’re not, you’re not."

27. Scalpers reduce the number of variables effecting market risk by being in a position only for seconds. Day traders reduce market risk by being in trades for a matter of minutes.

28. If you convert a scalp or day trade into a position trade, by definition you did not consider the risks of the trade.

29. Don't ever fret about a missed opportunity. There is always another one just around the corner. Besides, several just happened that you didn't even know about.

MARKET OPINIONS

30. If you look for market secrets you will only find things that no one cares about. Use the conventional tools.

31. Never ask for someone else's opinion, they probably did not do as much homework as you.

32. When the market is going up, say "the market is going up." When the market is going down, say "the market is going down." Say it without qualifications, no "buts" attached. This is a reality check, you'll be amazed at how hard it is to say what is literally going on in front of you when your mind is full of preconceived opinions.

33. THE DAILY MARKET COMMENTARY: I've never had an opinion I didn't like, however, successful day trading requires flexibility. Do your homework not to develop a market opinion, but rather to understand the potential for both sides of the market. This will allow you to make your trades based on what the market is doing at the time of the trade.

34. Here is a quote to remember: "When you wake up, your instincts are wrong."

SOME FINAL THOUGHTS

35. When you make a mistake of discipline, whine like a fool to anyone that will listen. Errors in discipline are mistakes you will keep on making for many years. Wearing ashes and sack cloth may help extend the time before you do it again.

36. If you squirmed and moaned while you read this list, then you share two obvious characteristics with many of us:

A. You have traded long enough to recognize that you (not the market) make mistakes, and you try to overcome them.

B. Now this is ugly, you have become part of the market and you can never leave.

No matter where life takes you, you will always check the market and always want to continue being a part of it. It's like that first true love, it will always be there no matter what the distance, no matter whether they are alive or dead.

Be Careful, Someone Wants Your Money

The United States Commodity Futures Trading Commission (“CFTC”) warns consumers to take special care to protect themselves from the many types of commodities fraud being perpetrated in today’s financial markets. The CFTC is the federal agency that regulates commodity futures and options markets in the United States. We have seen a great increase in the number of scams that falsely promise high profits with low risks. Many of these scams are targeted at ethnic communities in their language, from New York to South Florida and from the Southwest to California, among other areas.

The public should be wary of any firm that offers to sell commodities or commodity futures or options. They might be selling precious metals, such as silver or gold, or on foreign currency, such as Euros, Yen or Deutschmarks. They might be selling futures or options on precious metals or foreign currency, or on other commodities such as crude oil, heating oil, unleaded gas, or agricultural products such as corn, soybeans, or cattle. The firm might be offering to manage your money for you to trade in commodity futures or options, or to pool your money with other customers. If a firm offers any of these investments, and promises high profits and low risks, or claims that they have made profits for all of their customers, you should not believe them without proof. The commodities and futures markets are very risky, and you can lose your entire investment very quickly. Anyone who claims otherwise might be breaking the law.

Foreign currency trading scams often attract customers through advertisements in local newspapers, radio promotions or attractive Internet sites. These advertisements may tout high-return, low-risk investment opportunities in foreign currency trading, or even highly-paid currency-trading employment opportunities. The CFTC urges you to be skeptical when promoters of foreign currency trading claim that their services or account management will earn high profits with minimal risks, or that employment as a currency trader will make you wealthy quickly. Precious metals scams often work the same way.

Commodity pool operators often solicit investments from friends, neighbors, co-workers and fellow religious or social group members by using their reputations in the community or their personal relationships. In many cases, however, the investment schemes turn out to be fraudulent, and investors lose their entire investment, in many cases as a result of outright theft. Individuals and firms that fraudulently solicit funds from investors for commodity futures and options trading are usually not registered with the CFTC. They may operate “Ponzi” schemes in which little or none of the money sent in by investors is ever invested as promised – in the commodity markets. Instead, the operator of the scam steals the funds, and creates the illusion of a successful business by using some of the money put in by later investors to pay phony “profits" to
earlier investors. This tactic makes it appear to investors that the investment is actually making money, which in turn attracts additional investors. Be wary of such payouts if you do not fully understand the source of any purported profits.

Introducing Brokers often use advertisements on radio and television, as well as infomercials – program-length television commercials – to promote commodity futures and options. These advertisements may claim that seasonal trends in the demand for certain commodities or well-known current events create an opportunity to make big money by trading in commodity futures and options. The advertisements and infomercials promise quick riches – such as turning $5,000 into $20,000 in just a few months – with predetermined risk. The CFTC has brought actions against wrongdoers who lured customers by claims that one could earn large profits with little risk based on predictable seasonal demands, published reports, or well-known current events.

Warning Signs of Fraud

1. Stay Away From Opportunities That Sound Too Good to Be True

Get-rich-quick schemes, including those involving foreign currency trading, tend to be frauds.

Always remember that there is no such thing as a "free lunch." Be especially cautious if you have acquired a large sum of cash recently and are looking for a safe investment vehicle. In particular, retirees with access to their retirement funds may be attractive targets for fraudulent operators. Getting your money back once it is gone can be difficult or impossible.

2. Avoid Any Company that Predicts or Guarantees Large Profits

Be extremely wary of companies that guarantee profits, or that tout extremely high performance. In many cases, those claims are false.

Be sure you get all the information about the company and its track record and verify the data. If you can, before you invest with any company, check the company's materials with someone whose financial advice you trust

3. Stay Away From Companies That Promise Little or No Financial Risk

Be suspicious of companies that downplay risks or state that written risk disclosure statements are routine formalities imposed by the government.

If in doubt, don't invest. If you can't get solid information about the company and the investment, you may not want to risk your money

4. Question Firms That Claim To Trade in the "Interbank Market"

Be wary of firms that claim that you can or should trade foreign currency in the "interbank market," or that they will do so on your behalf. Firms that trade currencies in the interbank market, however, are most likely to be banks, investment banks and large corporations, since the term "interbank market" refers simply to a loose network of currency transactions negotiated between financial institutions and other large companies.

5. Be Wary of High-Pressure Efforts to Convince You to Send or Transfer Cash Immediately to the Firm, via Overnight Shipping Companies, the Internet, by Mail, or Otherwise

6. Be Skeptical about Unsolicited Phone Calls about Investments, Especially Those from Out-of-State Salespersons or Companies with Which You Are Unfamiliar