Taking Control

          In my mind, control is an important issue that has a great deal to do with understanding the process of trading and doing it successfully. There many parts of the trading process where exercising control is relatively easy and other parts of the process where control is much more difficult. For example, the entry into a trade is a point where we are very much in control. We set the conditions and the market must meet our conditions or we will simply refuse to participate. This is clearly the point in the trading process where we can exercise maximum control.

I can recall attending some lectures many years ago by George Lane (of stochastic indicator fame) when he revealed to the audience a list of items that he wanted to see before he entered a trade. His pre-entry checklist had twenty-seven conditions on it. Being a skeptic of complex trading strategies I don't recall what any of these twenty seven items were except I'm sure at least one of them was the stochastic indicator. At the point of carefully reviewing his checklist George was very much in control of the situation and if the market didn't do exactly what he wanted he didn't trade.

As I often point out in my lectures, entries are the easy part of trading. This is because each of us has maximum control at this point. We can exercise as much or as little control as we like. George Lane can require every one of his twenty-seven criteria and I can require my usual two setups and a trigger condition. However the control situation changes drastically once we enter the trade. Our ability to control all the elements of the trade now becomes much more difficult and far from absolute. Once we enter a futures trade we know that we must exit that trade within a limited period of time or we are going to be in trouble because the contract will expire. Even stock traders who don't need to be concerned about expiring contracts must exit their positions correctly if they wish to maximize their profits. Exits are much more difficult than entries because we can not simply reverse the entry process and require that the market do thus and such. Once we are in the trade George Lane and I can both throw our lists out the window because we can no longer dictate our terms to the market. The market is now in control and we must be prepared to react to whatever the market does. The market can do anything it wants once we have entered our trade and we can be assured that the market doesn't care what conditions might be on our list or what our preferences might be. Once we enter the trade we are at the mercy of the market the market operates according to its own list and that list of possibilities is much larger than George Lane's meager list of twenty-seven items. The market's options are limitless. It can do anything it wants whenever it wants and somehow we must be prepared to deal with it. Where is our control now?
      As we hold our trade we must be prepared for big moves against us and big moves in our favor. (Surprisingly the big moves against us are much easier to deal with than the moves in our favor. We will talk more about this in just a minute.) Among the market's limitless possibilities are gaps, reversals, limit moves, whipsaws, and perhaps worst of all, boring sideways action that makes us wish we were trading something else. The market may present us with inside days, outside days, reversal days, key reversal days, high volume days, low volume days, expanding ranges, contracting ranges, acceleration, and deceleration. We can be faced with days that are so big that the chart looks like a propeller on the end of a stick or days that are so small they just look like dots.          

Because we have to be prepared for all this and more, it should be no wonder
that our exit strategies are often much more complex than our entry strategies. We need to have solutions ready for any problem the market might send our way. As I mentioned earlier, the losses are rarely the problem because we can control those by simply setting a loss point and closing out the trade if the loss point is hit. Here again we are facing an issue of control and it is comforting to know that we do have a great deal of control over our losses. If we want to design a system where the average loss is $487.50 it wouldn't be difficult. We can absolutely control the size of our losses and we must be certain that we do.

All of our exit strategies have to be carefully planned to be certain that we control what can be controlled. First we must recognize and understand what can be controlled and then we must make certain that we exercise whatever control we have. It may be comforting to know that we can strictly control losses but it is extremely discomforting to realize that we have very little control of our profits. If we have a $500 profit, how do we make it become a $1000 profit? Unfortunately holding on to the trade longer gives us no assurance that we will eventually have a $1,000 profit.

In this instance we have very little control but let's see what we can do with the control that we do have. Although the amount of profits can not be controlled in the sense of our somehow forcing them to be larger, they can be controlled in the sense that we don't have to let them become smaller or turn into losses. Those of you who have purchased any of our systems will appreciate that locking in open profits at various levels is important to the success of our trading strategies. You will notice that in the "25 X 25" Bond System (free on the web site) we use a very tight channel to help lock in profits after twenty-five days or after five Average True Ranges of profit. We can't control the market and force it to give us five ATRs of profit, but if it does we can make sure that we keep most of it. Protecting our open profits is definitely within our control.

When conceptualizing a new trading system and when going through the design
and testing routine, be alert to issues of control. Look for what you can control and make sure that you are controlling it to your benefit. Look at what you can not control and as a minimum have some plan that will minimize any possible damage. Thinking about control will make you a better trader and implementing control will make your systems trade better

Automated Forex Trading System – several tips to choose the best one

Currency trading enables many people around the world to earn good money working just several hours a day. Foreign currencies market is very profitable, but at the same time it is very risky. Every day we can hear the sad stories from the people, who lost their last money because they wasn`t enough careful working with foreign exchange rate market.

So the only way to succeed in foreign currency trading is to use the Automated forex trading robot. You should already know that the Automated Forex Trading System is the sophisticated software based on the complicated mathematical algorithms, optimized for analyzing the dynamics of the rate exchange trend.

Automatic Forex Trading is much more simple than manual trading. You just need to install and setup you trading system. After that it will handle the entire trading process by itself. This automation level is fascinating, but on the other hand you need to have really highly reliable software to let it trade with your real forex account (where you have you REAL money).

Automated Forex Trading SystemThere are several main rules you must follow to choose the right FX robot. For example let us check EA Sigma Automated Forex Trading System. Firstly we should pay attention at the Testing period. For EA Sigma it is about 10 YEARS!!! I guess you understand how important this parameter is. And what is still more important – the Profit Trades % through these 10 years is about 82%. If you compare this combination of 10 years and 82% with the other available Automated Forex Trading Systems, you will find out that EA Sigma has really awesome results.

On the example of EA Sigma you can also see the significance of complex auto adaptive algorithms, which are used by the system. You must understand that the foreign exchange rates dynamics is constantly altering and we can do nothing about that. But EA Sigma is able to adopt the changes and so you may be sure that in several years it will gain you the same profits as at the moment.

Why Use Multiple Exits?

A recent message from one of our members questioned our use of multiple exits and the fact that the exits in a particular system were very complex and would sometimes move closer to the prices and then suddenly move farther away. The member questioned whether the exits were working properly and wondered about the logic of having so many different exit strategies operating within one system. I sent the member a brief reply and promised to write a Bulletin that explained our philosophy and procedures about the use of multiple exits in more detail.

When we develop trading systems the entry is usually just a few lines of code but the exit strategies and coding are often very complex. We may have a system with only one very simple entry method and that system may have a dozen or more exit strategies. The reason for devoting so much effort and attention to achieving accurate exits is that over our many years of trading we have come to appreciate both the importance and the difficulty of accurate exits.

Entries are easy. Before we enter any trade we know exactly what has occurred up to that point and if those conditions and events are satisfactory according to the rules of our system we can generate a valid entry signal. Entries are easy because we are able to set all the conditions and the market must conform to our rules or nothing happens. However, once we have entered a trade anything can happen. Now that we are in the market the possible scenarios for what might happen to our open position are endless. It would be extremely naïve to expect to hope to efficiently deal with all possible trading events with only one or two simple exit strategies. However, that seems to be the common practice and, in fact, many popular trading systems simply reverse the entry rules to generate their exits.
      We believe that good exits require a great deal of planning and foresight and that simple exits will not be nearly as efficient as a series of well planned exits that allow for a multitude of possibilities. Our exit strategies need to accomplish a series of critical tasks. We want to protect our capital against any catastrophic losses so we need a dependable money management exit that limits the size of our loss without getting whipsawed. Then if the trade is working in our favor we would like to move the exit closer so that the risk to our capital is reduced or eliminated. As soon as possible we need to have a "breakeven" exit in place that prevents our profitable trade from turning into a loss.          


In most of our systems, our goal is to maximize the size of our profit on each trade so we do not simply take a small profit once we see it. This goal means that we need to implement an exit strategy that protects a portion of our small profit while allowing the trade to have the opportunity to become a much bigger profit. If the trade went in our favor every day the exits could be greatly simplified but unfortunately that is not the way markets typically trade. We have to allow room for some minor fluctuations on a day to day basis. In order to facilitate our objective of maximizing the profit of each trade, in some cases we may decide to move our exit point farther away to avoid getting stopped out prematurely. For example, lets look at our Yo Yo exit that is based on the theory that we never want to stay in a position after a severe one-day move against us. (See Bulletin number 14 for an explanation of the Yo Yo exit.)

This highly efficient exit is based on measuring the amount of price movement from the previous day's close. For example we may want to exit immediately if the adverse price movement reaches one and a half Average True Ranges from the previous close. This volatility-based exit will move away indefinitely as the result of a series of adverse closing prices caused by days where the price moved against us but our volatility trigger was never quite reached. Obviously an exit that can move away from prices indefinitely is no use at all in limiting the size of our losses so the Yo Yo exit must always be used in conjunction with other exit strategies that do not move away. Now that we have implemented the Yo Yo exit to protect our trade from a severe one-day reversal in direction, we have still not addressed the question of taking profits. So far, we have exits in place to protect from large losses, to lock in a break-even point and to get us out on a sudden trend reversal but we still have not addressed the important issue of taking some profits on the trade.

We like to shoot for big profits and the bigger the profits become the closer we like to protect them. This strategy calls for multiple profit-taking exits. If we have a $1,000 profit we might want to protect 50% of it and be willing to give back $500 of our open profit. We can place an exit at $500 above our entry price. This will allow us to hold the position in the hope that the profit will grow. However if we have a $10,000 open profit I'm sure we wouldn't want to give back 50% of that. Also, let's hope that our exit stop is not still sitting back there at $500 above our entry price. For best results our exits need to adjust at various levels of profitability.

Many traders have asked us about the robustness of a system that has a many exit rules. The general perception is that a system with fewer rules is likely to be more robust. However I would disagree with applying that common belief without careful thought. Look at the exits in these two over-simplified systems:

System A:
Use a $1500 money management stop. (Limits loss to $1500.)
When profit reaches $5,000, exit with a stop at entry plus $4500.


System B:
Use a $1500 money management stop. (Limits loss to $1500.00)
When profit reaches $1,000, exit with a stop at entry price.
When profit reaches $2,000, exit with a stop at entry plus $1,250.
When profit reaches $3,500, exit with a stop at entry plus $2,500.
When profit reaches $5,000, exit with a stop at entry plus $4500.
When profit is greater than $7,500 exit with a stop at the previous day's low.

Some system traders might argue that since system A has fewer rules it should be more robust (most likely to work in the future.) We would suggest that system B is much more likely to work in the future even though it has more rules. System A is not going to make any money at all if the open profit never reaches $5,000. Once the profit exceeds $5,000 the only exit is at the $4,500 level. System A is very limited in what it is prepared for. It either makes $4,500 or it loses $1500.

As you can see, system B is obviously prepared for many more possibilities. It is conceivable (but not likely) that system A may somehow produce better test results on a historical basis because of an accidental (or intentional) curve fit. However, we would much rather trade our real money with system B. Simpler is not always better when it comes to exit planning.

How Much Money Can You Make?

Foreign exchange currency trading or forex is advertised as one of the greatest ways to earn money on the internet, but how much money can you in reality create? Of course the answer is this it depends on many factors. These include your opening investment, your training, the time which you have free and your mind-set. But one of the most crucial factors is how you control the money itself.
Most traders, when they are starting out, spend a lot of time hunting around for the perfect system. Now of course it is true that you do need a system that has the potential to make profits, but there8945180246 are still systems that some people make profits with and others do not. You will realize this if you look at online reviews. Some will say that a system is great and they are making a lot of money with it. Others are losing. Why is this? Often, it is all in the way that they manage their money.
Take for example a system that, on average, makes 30 pips profit per winning trade and 15 pips loss per losing trade, with 50% winning trades. Clearly this system will make a profit over time. However, if you have ever played roulette or tossed coins you will know that a system with an average of 50% wins will quite often have runs of 5 or more losses, or runs that go something like 8 out of 10 losses.
So even though this is a profitable system, a trader who was risking 20% of his funds on each trade, would quickly be wiped out by it. Someone risking 10% per trade would survive longer, but would probably still fall victim to a bad run in time.
Someone risking just 1% per trade, on the other hand, would probably be able to make money indefinitely with this system. Profits would be small at first, but they would grow and grow. And at 2%, a trader would probably still be safe while making twice as much money as the 1% trader.
Clearly, then, in order to maximize your profits from foreign exchange currency trading it is important to know a few basic facts about your system. This means at least backtesting it over a long period, and preferably testing in real time through a demo account too.
If you are sure that your system is profitable, you can begin to trade at low risk. However, to go as high as you safely can, you need to know what is the worst case scenario that you can expect, that is, the maximum loss that you are likely to encounter before an upturn in the worst bad run, then double it, and make sure that you will be able to cover that.
As a rule of thumb, limiting your risk to 2% of your account balance is a good strategy for most traders. This can be hard for beginners and those with low startup funds because it does mean that you will not get rich overnight. This can be disappointing but it is a fact of life. As the old saying goes, anything that looks too good to be true, probably is.
It is vital to understand that many of the cases that you see where people double their money in a month, for example, rely on using maximum leverage and maximum risk which might result in doubling your money in the first month and then losing it all in the second. This is gambling, not investing.
Foreign exchange currency trading is a process that can be used to make a lot of money, but only if you allow your funds to grow gradually, along with your experience. Understand that a 5% to 10% return on your investment per month is a great result, and you have a good chance of making money consistently with foreign exchange trading

How to develop a profitable forex trading stratey

Before you plunge into one of the most liquid, unpredictable and profitable markets in the world, there are some things that you should know about before putting your money in the hands of a forex broker. When money is involved, there are a lot of things you should consider, and these are the key to developing the best Forex strategy, for you to start making a profit. For instance, there is a great deal of money management that must be put in place before you run off with a lot of hope in your pocket. Hope is not going to pay the bills. Your money is and you need to know when and how much of your money you are going to use.

Always set yourself some realistic targets and limits to ensure that you do not spend too much money. Also, do not fall prey to the gambling endemic that is afflicting many Forex traders - this means they simply cannot stop trading no matter how much they loose and they often make irrational decisions in order to 'win' back the money that they have lost. Set yourself some parameters and stick to them, you will regret the fact that you account has run dry and you start to owe the brokerage a sum of money. Also, always have some risk capital on hand so that when things do go wrong, you will be able to bail yourself out. The total sum of your investment and risk capital should be an amount that you are able to afford.

Nobody should go into trading with their life savings in tow. The capital you put into the commodities market should be capital you can spend and if you do lose, will not have an adverse affect on your life style. That said, Forex trading is all about watching market patterns and market psychology. Unlike normal and traditional commodities trading, many people would say that the Forex market falls into a pattern when it comes to either a crisis or an upheaval within currencies. Issues like inflation, political violence and economic decisions can adversely affect the performance of the currency pair you have chosen. But there is always a pattern and this pattern is the structure of many trading strategies of experienced investors. For example, you must learn that there are many 'safe' currencies in the market that investors flock to when there is wind of a calamity in global economies. This is just one aspect.

Market psychology is ruled by major decisions my collective moves in the market. Because of the fact that huge multicontinental banks are the biggest driving forces within the FX market, they have pre planned moves when situations come up. Your job as an investor is to read the signs and react accordingly. The good thing about Forex is that is a very liquid market, so you can pull out any time you want - or on the flip side can invest in a click of a mouse. With these in mind when investing, you will have the key to developing the best Forex trading strategy.

Painless Business Opportunity that can be happening in few Hours

Did you ever consider making money in Forex trading as a home based business? I did and I was let down embarking, however, after doing some home effort, I was absolutely certain with this brainstorm. I consider my initial losses in Fx trading nothing but a startup expense that's linked with any venture you can think of. Not here forever all my sorrows.

One affair that I like about the Fx trading business is that you can rehearsal at no cost for as long as you desire, and one more feature is that you can pull together as much information about as you can perhaps cope with before you leap into this venture. Understanding, practice and some slight startup funds is all you need. If you do not cover the last, or the necessary capital to set up an account then all you have to do is study to be gainful in demo account and convert a wealthy comrade of yours to go in mutual undertaking with you, many are doing this. You supervise the account for your rich associate who's wealth is gathering nothing but dust someplace even in the bank account your friend's savings would barely make him 4% a year. if you develop into a profitable Currency trading trader you can make your friend this type of yield every solo business day instead of an entire year after you capture yours. A Currency trading account administrator is at liberty to have more than 30 % of all returns on original invested capital. You can gain knowledge of Forex trading by visiting unbiased websites that endow with loads of information regarding Currency trading all for free, you can get the ready established approach or wait until you develop yours.

One such set trading methods that you can go ahead and take hold of it to diminish the time required to turn out to be a thriving currency trader is the Forexbody procedure. This approach is so unfussy that anyone without even the slightest clue about Forex can be taught, first by browsing the valuable neutral information and watching the free Metatrader screen recordings on the forexbody website. Particular lexis about the Forexbody metatrader screen recordings, these measures are not for babypips guys and girls, these videos demonstrate remarkably very hard-hitting forex trading that can only be done by those who have become very good at the game well. Picture an account made twice larger in 30 minutes, yes screen recordings on Forexbody site illustrate just precisely this breed of exertion, but on the other hand, as tyro you get careful guidance on the site and recommendations on trading the easy mode to achievement.

The website has Currency trading signal by sms that you can evaluate for free. the signal has a victory rate of over 93% and if you are to be fulfilled with just the eminent 10 pip yield limit per deal the success rate would exceed 98 %. Even trades that turn out to be losers revolve to winners when given enough time. There a abundance of information on how to be thriving using Forexbody two times a day signal and there are 10 rules you have to abide by and according to Forexbody source, you can twofold your account every 45 days with low risk trading habits. all you need is self discipline and a robust will to tug the trigger immediately upon getting trading signal.

To be able to meet with ceaseless earnings you need to instigate the low risk approach, with this strategy a small account can be on track and full-grown over the period of 4 to 6 months to a decent amount where it can engender as much as $3000 in unbroken take-home pay, another time without taking piercing risks, while parting room for further expansion for further and unlimited upsurge in income.

The Wrapping up, If you ever thought about having your own business and working from the soothe of your own residence, you got to give this a test, It will not cost you any money to test the whole lot on virtual accounts that you can get free from plenty of Fx trading brokers worldwide, but you have possibility to be your own boss in a short time and the attempt on achieving the American ambition, stop commuting and fling that dress rules away.

Techniques for Advanced Forex Trading

Forex is a potential platform for earning substantial profit. In fact it is one of the largest trading markets of the world. Featuring an average daily trade of US$ 2 trillion and above, this market is best known for its high scale trading volume and intense liquidity. Adding to this, today with the advancement of technology it can be done from anywhere of the world. Backed up by world-wide web, you can easily trade in the forex market at the comfort of your own home. However, it is important to understand that fx trading is based hugely on speculation. You must be smart enough to guess exactly when the rate of a certain currency pair will rise and go down, and then buy or sell based on that. Indeed it is said that if you learn to study the speculation of this market, you will have a better chance of getting profit.

Today, it is more advanced and turned into an active investment arena, where only a factual understanding of the intricacies and complexities can make your capital grow every day. Moreover, like any other business, it also involves some amount of risks. There is no shot fx trading technique for success in the currency trading market, but there are some well-known techniques that can assist you formulate a good advanced foreign exchange trading strategy. Here are few essential techniques that can help you cut your losses and increases profits:

Forex Scalping: It is a latest technique of trading where profits are taken after relatively small moves in the forex market. It is a technique where trading is done over small time frames, and smaller profits are taken more frequently. As the position exposed to the market is shorter, it automatically reduces the risk of adverse market events causing the price to go against the trade. It is a different approach to most other forex strategies, but still requires you to analyze the market to ensure that the set up for a trade is present. This type of trading greatly appeals to day traders and those who look to reduce the risk involved in trading currencies.

Forex Hedging: It is a technique that helps in reducing some of the risk involved in holding an open forex position. It decreases the risk by taking both sides of a trade at once. If your broker allows it, a simple way to hedge is just to initiate a long and a short position on the same pair. Advanced traders sometimes use two different pairs to make one hedge, but that can get very complicated.

It is important to understand that much of the risk involved in holding any forex position is market risk; i.e. if the market falls sharply, your losses may escalate dramatically. So if you have an open Forex position with fine projection but you think the currency pair may reverse against you, it is advised to hedge your position.

Forex Position Trading: Forex position trading approach is yet another trouble-free technique to boost your position size without increasing your risk. This trading tactic is very effective with mini lots. The major highlight with this technique is that - with forex position trading your exposure to the market is less and so therefore is no need to monitor the market continuously. Moreover, you may even earn profit with negligible loss that can further boost your trading confidence. For Example- you might make a short trade on EUR/USD at 1.40. If the pair is ultimately trending lower, but happens to retrace up, and you take another short at say 1.42, your average position would be 1.41. Once the EUR/USD drops back below 1.41, you will be back in overall profit.

Today forex trading is all about watching your options when you make a trade. Aside from using effective risk management and extreme vigilance, advanced trading can be an alternate way to make profits and control losses. Nevertheless, these above mentioned advanced trading techniques are more about using the market behavior to your advantage. Utilizing these advanced techniques can give you the edge from other average trader

Automated Forex Trading - What's in it for the Beginner

Why automated Forex trading? This is a logical question and it demands a logical, well-thought-out answer. After all, with so many hundreds of different varieties of investment vehicles around, why choose to trade foreign currencies? And more to the point, why try to automate the process?

To find a sensible answer, we'll need to look more closely at Forex investing and its various aspects. First, of course, the volume traded on the Forex market is huge relative to the other markets.

Second is its ready liquidity. With the market operating 24 hours a day, it's always open for business anywhere, anytime.

Third, since the market is so vast, one trader's buying or selling, even in very large volume, will cause no significant movement in market price.

Fourth, this market commands the largest number and variety of traders.

Trading locations are scattered all around the world, rather than being centered in just a few major cities of the USA or Europe.

Of course, as with any major market, many factors can influence foreign exchange rates, which may account for the powerful attraction for many Forex traders - the excitement. Average daily turnover in the foreign exchange market stands around 2 to 3 trillion dollars. That's DAILY turnover, and the figures come from none other than the Triennial Central Bank Survey of the BIS (Bank for International Settlements).

And the trend is upward. In other words, more money gets traded with each passing year, and may surpass $3 trillion within a very few years.

Perhaps most amazing, however, is the fact that anyone can enter this market and begin to trade foreign currencies. Entry requirements are low. This has been both a positive (because initial deposits are minimal) and a negative (a lack of experience can bring losses very quickly).

Now however, Forex trading can be partly automated by software that is sophisticated enough to offset much of a beginner's lack of knowledge. Even better, this software is not at all expensive - not when compared with the profits it may bring.

The concept of automation marks an important new trend in the foreign exchange trading market. The Interbank spot Forex market has also considered automating as well.

Automation actually brings a number of important benefits to Forex traders - especially those just entering the market.

With your computer handling much of the trading process for you, transactions can be done in real time. Although manual systems are well established, they have never offered the speed that an automated Forex trading system does. All trades are initiated and completed within milliseconds, which can be a huge plus because they virtually eliminate any lag time.

Problems that characterized manual trading methods can now be addressed and eliminated, or at least minimized. For example, if a trader were hit by a few losses in a row, he could be wiped out and unable to make new trades. This problem can easily be addressed using an automatic trading system.

Automated Forex trading also permits greater diversification. In the past, if you wanted to trade more currency pairs simultaneously, or a wider variety of them, you were limited by your memory and concentration. But thanks to automated trading, you can execute trades with other traders in Singapore or London or wherever, even it's midnight where you are. Thus you have the option of doing multiple exchanges.

You can also quickly evaluate various trading models from short-term data, projecting trends for as short as 15-minute or half-hour time slices.

As mentioned, extreme liquidity makes the Forex market unique. And greater automation will only increase this liquidity, with funds flowing faster than ever.

Risk becomes easier to manage with automation. International checks, now commonly used in Forex market purchases, are synchronized via automation technology. Since automated transactions are handled in real time, there is little chance of delayed payments, reducing the risk of non-payment by either party. And although issues still exist with the use of automated systems, they can easily be addressed and resolved through consistently updating the technology.

With the spread of automated Forex trading, the $3 trillion daily turnover may soon be far surpassed. And given the fast, efficient trades between any and every time zone, Forex trading is certain to remain one of the most profitable business models in today's changing world.

Trading Software At Its Best

The Forex MegaDroid has been developed by John Grace and Albert Perrie. Both are forex traders with 38 years 4x trading experience between them. As close friends, over time they firmed up their thoughts about developing their own 4x trading software robot.

Sadly the Forex MegaDroid has a horrid sales page like all the others do - which initially was a big turn off for me.

It's exactly the look and feel you'd expect from a used car salesman with sleazy tactics. It is so tacky that I expected to be reporting here that their 4x software product is a disgrace. But during my research of them, I was forced to reconsider my first impressions. The proven, ongoing live testing results confirm this.

In all of the live-account testing I have seen, there is no question that it performs exceptionally well. They claim better than a 95% successful trade rate - which I doubted very much - but it's true. I have seen the proof many times.

Visit Forex Robots Reviewed by clicking the link below to see links to live 4x trading accounts of this 4x software in action.

This guy bought his MegaDroid, installed it easily, and opened live forex trading accounts with 3 different brokers. In each account he put $3,000. From each account ID, he gave his MegaDroid the data feed from each broker. The robot can then execute trades on his accounts.

He set his limits of risk he was happy with per the training. And then he sat and watched. He is a novice trader. He has just started out. He did nothing more than install it, set it on the default risk levels. Then he just watched and let it do its thing.

At the time of writing that review (May 14, 2009) - his 3 different broker accounts (using the one copy of MegaDroid) had made 37 trades.

Of the 37 trades, 36 made a profit - only 1 trade lost money - $7.36. For the 24 days trading till just then (on fully automatic) - his net profit is $1,067.15.

I am impressed by that. As of May 14, 2009 that's 97.3% profitable trades.

Also it is important to note the $/trade profit versus the $/trade loss. The 36 profitable trades were for an average of $29.85 profit each trade. As said, the 1 losing trade was for $7.36.

So, that's 36:1 profit to lose ratio on the number of trades. And a 4:1 ratio on the size of profits compared to losses.

My view is that even if a trader was expert and smart enough to do what the MegaDroid has demonstrated here, no human could concentrate long enough and consistently enough to match the performance.

Still not impressed? Then look at other live 4x trading account on the website Forex Robots Reviewed (link below).

MegaDroid $10,000 opening balance January 1, 2009 LIVE

As of May 14, 2009 it has now got a balance of $78,138.70. 103 trades - 101 trades made a profit. Look at the profit graph - sorry you have to visit the web page to get the link to the live 4x trading account.

Through the years of Forex trading John and Albert did realize that most Forex robot systems were designed and developed with only a single forex market condition in mind.

While this maybe true, I don't really care - I just want it to make money reliably and safely.

Every Forex trader does know that the forex market changes all the time. It is clear from real proof that the MegaDroid Forex Trading Robot has a system built into it that embraces this change.

The vendors claim this system has been successfully created to perform at 95.82% accuracy. What I have witnessed from real traders doing real trading it performs better than that. The novice is seeing 97.3%, and the professional is seeing just slightly better than 98%.

But don't rush off an buy Megadroid just yet. There are some important facts you need to know - so visit Forex Robots Reviewed to find out all about it.

You'll see the link below. Click it now if you want to make some serious money

Most Fail Because They Cannot Accept This Key Point

I teach forex for a living and it never ceases to amaze me that people don't think the next key point is the key to forex trading success. If you don't accept this key point and mentally prepare for it, you will lose too.

When I look at the forex education online much of it makes me laugh. You have vendors selling products that promise extra ordinary profits for no effort, with hardly a loss at all but this is not the real world - it's the fantasy world of them selling simulated track records backwards knowing all the data.

Real life trading is a bit harder you don't know what will happen and losses have to be confronted and dealt with.

The Reality

The reality of forex trading is no matter how clever you are how good you're trading system you are going to suffer drawdown and losses and most traders cannot cope with them.

Even the best traders will lose for weeks on end sometimes, that's just the way forex trading is. This doesn't mean you can't win, you can - but you need to face these losing periods and keep these losses small until you hit a home run.

Sound easy?

Well if you trade already, you know it's hard but the way to do it and stick on course until you hit a home run is as follows:

Being Disciplined and Hitting Home Runs

First you need to accept as part of your essential forex education, that losing is part of winning.

Don't let them hurt your ego or get angry it's not personal! Then, you need to make sure you trade with discipline, you will only ever do this if, you know the forex trading systems logic and have confidence in it so if its not your own learn it.

The ability to keep losses small is the key. To do this always assume the worst, place your stop and leave it - never run a mental stop. In most cases if you run a mental stop, you are tempted to hang on to long and think the loss will turn around and this is a fatal mistake.

Like a good football team your success is built on defence - keep it tight at the back and don't concede too much and if you have a sound system, sooner or later, it will hit the big trades you can run to cover your losses.

So the moral is keep losses small, take them cheerfully and see them as your overhead, in the quest for success.

Always Remember

You can be clever you can have a good system but if you are not disciplined taking your losses and keeping them small, you will lose.

In terms of forex success you have to lose to win; this has always been so and always will be so don't fight accept it and your forex trading strategy with good money management and discipline, will lead you to the currency trading success you desire.

How Do You Know Who is Really an Expert?

Anyone can claim to be a Forex expert advisor but most are not. So what Forex expert advisors deliver and how do you spot them? Lets find out...

Most Forex Expert advisors have computer software they have programmed which they claim will make you money - but the vast majority of it is based on unsound logic which has no chance of working.

The problem is most of the systems are presented with a hypothetical back test as evidence of the systems money making power.

This though proves nothing, as the vendor knows all the prices - the exact tops and bottoms and can buy and sell, knowing these facts. It's no wonder some of the track records would put the best Forex fund managers in the world to shame. The problem of course is there not real.

Just because someone can make a simulation profitable means nothing. That's why the system has probably not been traded by the vendor. If it was as good as they say they would have one and in fact they wouldn't sell it for $100 - they wouldn't need to, they would be making to much money to bother.

So forget these get rich quick methods that don't work and seek out a forex expert advisor who has a real track record or something worthwhile to teach you so you can devise your own.

If you find a mechanical forex trading system with a real track over a few years, just check the logic, make sure you understand it and can trade it with discipline through losing periods.

Despite the fact that most novice traders go for an automatic system, it's a fact that most serious forex traders do not use pure mechanical trading methods, they have human input on - the trade set ups and risk exposure and this really is the way to trade in my view.

Forex expert advisors are out there, who have made real money or can teach you Forex trading strategies to get the odds on your side - but they are a minority.

Most vendors hope the novice Forex trader falls for his simulated track record and the trader gets wiped out - don't fall for them, shop around and find a real expert who is a trader and has traded real money.

Anyone Can Learn to Win But 95% of Traders Lose Why?

Forex trading is simple to understand and easy to learn yet, 95% of traders lose. There are two main reasons for this and we will look at both here...

First let's start with a fact to make you think:

30 years ago 95% of traders lost and 95% lose today despite the huge advances in communications, speed of data, quality of news and the power of computers and there testing power - the same ratio lose, so all the advances haven't helped.

You can't beat Forex with technology and the fact is simple systems work best and always have, as they have fewer elements to break than complicated ones.

So if you work hard or try and be clever it doesn't guarantee you success.

You may now well be asking...

If it only takes a simple system to win, anyone can do that and yes they can - but they must learn to apply it with discipline.

Discipline is the key!

Most traders can never trade in a disciplined fashion and the reasons they can't are they require that, not only do you need a good forex education but you are fighting your emotions when you trade and let them get the better of you and you will lose.

Normal behaviour we take for granted in society is fatal in forex markets. Let's look at some examples to illustrate this:

- You need to trade in isolation, away from the herd and this is hard, as we are like to be with the majority and not feel on our own.

- You cannot consult an expert, as trading success comes from within - your knowledge and the confidence you have in it and an expert can never give you that.

- There are no set rules in the market, you make your own, trust them and survive by them.

- We all hate losing, it wounds our ego but unless you learn to lose and keep your losses small you will never win.

Now all the above make trading a unique challenge.

Sure you can become disciplined - but don't let anyone tell you its easy - it isn't.

Of course, you wouldn't expect it to be, with the rewards on offer - but if you are disciplined and you have a sound logical method, applying it with discipline can bring you rewards which can change your financial future forever.

The choice is yours:

You can learn Forex trading the right way, or you can listen to the so called gurus and experts, who tell you it's a walk in the park and lose.

Make an effort - invest in a sound Forex education and you will have confidence and discipline and win - it's as simple as that. You can do it if you want to and the choice is yours.

Forex Strategy-Which Strategy is the Best?

Investing in any kind of business or industry entails not only knowledge and hard work but also the perfect and best strategy for a winning game. Forex trading business has been one of the most attractive moneymaking opportunities for lot of people these days. You read it in the papers; you watch it in the news. Everybody's is raving for a piece of winning from it.

Staying on top of a big and risky business, such as forex trading, needs the best forex strategy, wherein you can continuously use all throughout the trade and still not lose in the game or can upgrade and develop over time. Such strategies should keep maximizing your profits and giving you a big slice of the forex cake.

But did you know that to establish the best forex strategy, it is important for a trader to understand other strategies that the market has been dealing with for sometime? These strategies will be your basis in formulating your own workable forex strategy.

Normal Trading Day. This happens when the market is experiencing a normal trading day, wherein the currency price begins quite below or above 75ma. Next, it stretches a little, and then back to 75ma. This event refers to a certain currency being stable, showing the smallest sign that you should make some adjustment son your position.

Slow Trading Day. This happens when the market is witnessing a slow trading condition, wherein the currency price starts at 200ma, but stretches no over than 20pips,a and goes back to 200ma on that same trading day. When it happens, this paves the way to a normal trading day. After which, you make some adjustments on your strategy because it indicates stability of the value of currency.

Fast Trading Day. It happens when the market is having a fast trading day, wherein the currency price is quite below or above 21ema. It ascends and descends afterwards. Then, returns to 21ema. This signifies optimistic movements of the features that affect the mother country's currency, although such movements can be both for the good or bad.

Big Range Day. This pertain to the lows and highs of the range of the subject - that is 20pips apart. It signifies the currency's instability. It can also be good or bad. At this case, your strategy should be flexible enough for anything that might happen.

Any forex strategy have to be taken with flexibility, vigilance and utmost caution. Most traders have learned to establish their own strategy to ensure the success of their financial ventures. However, there is no perfect or absolute forex strategy or method over time. Strategies have to be updated and enhanced every now and then because the market conditions are dependent on a per day basis.

To learn the real art of forex trading is never that easy. It takes a lot of patience, observation, critical mindedness, awareness, motivation, wisdom, and understanding to really get into the business for the longest time.

Understanding the Forex Market

With a host of different market makers, rather than a few specific specialist, and no centralized market, there still exists both and identifiable structure and specific hierarchy within the Forex market.

At the top of the pyramid the InterBank market, made up primarily of the currencies of G8 countries representing around 65 percent of the global economy, has the highest volume of trading. Within this InterBank market the major banks trade among each other using lines of credit between individual member banks.

The banks use InterBank brokers and electronic trading systems to facilitate trading transactions among one another with all applicable rate information available in real-time to all parties.

While the major banks trade within the InterBank market many smaller players like corporations or smaller banks use commercial banks to facilitate their trading activities. Without established lines of credit between members as in the InterBank structure these smaller players typically use a single bank for all their transactions and usually trade at higher less competitive rates.

Until recently the domination of the major banks and the closed nature of the market members acted s a barrier to entry for those individuals wishing to trade foreign currency. However, the advent of internet-based information and trading systems coupled with less restrictive regulations have opened up this multi-billion dollar market to the average investor.

Changes in the nature of the Forex market itself have also opened up opportunities. Whereas foreign currency trading was once primarily considered an aspect of international trade activity to facilitate a country's import export activity, today's market sees a broader range of capital flowing between players such as mutual funds, insurance companies, institutions, and even private individual investors.

It is the massive market size and diversity of participants which give the Forex it's superior liquidity and transparency that make it an ideal opportunity for the active investor. Higher leverage, and online trading capabilities means just about anyone with a few thousand dollars to invest can get started.

New traders or people that are considering a move into the Forex market are often discouraged from hearing over and over that the Forex market is difficult to make money in. Quite simply it isn't. You just have to go into it with right attitude or mindset.

Experienced traders often refer to this as your trading psychology. Part of a healthy and successful trading psychology will definitely include the following three attitudes or concepts.

First, know when to get in and out of a trade. That means setting your goals in advance and not just winging it once you opened a position. Plan you trade and trade your plan.

Failing to plan will ensure that you are surprised by the market more often than not and will hesitate and watch helplessly as a positive trade becomes a loss.

Successful traders watch the basic and proven indicators to determines the viability of there trades. Of all the indicators used in Forex trading price is the most accurate and useful in the long run. Complexity can kill your trading success so always keep it simple.

Forex Market Hours

Many people ask about Forex market hours thinking that it's like the stock market, which opens and closes each business day. But, that's not how the foreign exchange market works.

The Forex market operates 24 hours a day and is the most liquid market in the world, enabling you to enter and exit your positions nearly at will. Yes, it's that open and flexible.

However, the Forex market is also very risky to trade. There are times during the day and night that offer you some very good movement and consequently some higher risk. In short, knowing the "peak and valley" hours of the foreign exchange is more important than knowing that it's open 24 hours a day.

Studying the various currency pairing and how they trade during various times of the day will help determine which pairing (or pairings) you should concentrate on and at which times offer you more opportunities based on your trading style.

It is advisable at first to concentrate on just one pairing. Trying to watch two, three or more pairings can lead you into making bad decisions. So, to begin, focus on one of the big six (major) pairings, which are:

1. Euro Dollar vs. the US Dollar (EUR/USD)
2. British Pound vs. the US Dollar (GBP/USD)
3. Australian Dollar vs. the US Dollar (AUD/USD)
4. US Dollar vs. the Japanese Yen (USD/JPY)
5. US Dollar vs. the Swiss Franc (USD/CHF)
6. US Dollar vs. the Canadian Dollar (USD/CAD)

Yes, there are opportunities at all times of the day and night to make trades with these pairings. However, the best opportunities you will find are when you have two major markets open at the same time.

That's a $100 tip. If you know these windows of opportunity you can decrease risks and increase your potential profits on the FX market.

Here are the major market times you should be aware of:

* New York -- 8am to 4pm EST
* London -- 2am to 12nn EST
* Great Britain -- 3am to 11am EST
* Tokyo -- 8pm to 4am EST
* Australia -- 7pm to 3am EST

You will notice that there are plenty of times to trade (24 hours a day!) But if you look at that list, you will see that from 8am EST to 12pm EST you have two of the largest financial markets open at the same time: New York and London! These are your golden hours to trade Forex online.

You will also notice that, if you are a night owl, you also have some prime hours from about 2am EST to 4am EST, with London and Tokyo both open.

The best way to see which times will work for you is to first open a demo account with a Forex broker. All reputable Forex brokers will have a free demo account available for you to use. Once you have the account set up, log into the demo account during various times of the day. Watch how the market reacts among the various currency pairings.

Given enough screen time, you will start to learn the various nuances of each currency pair and what times of the day will fit with your schedule and your trading strategy.

And when you are ready to trade a live account with real money on the line, you will be much better prepared to make that first trade in this great market.

The Money Management Exit

In 'Importance of Exits' we emphasized the importance of exits in general and pointed out that it is the exits and not the entries which actually determine the outcome of our trades. Now that we have established the importance of exits we will be more specific and write about various types of exits. Probably the simplest and most critical exit is the money management exit or the classic "stop loss". This is the exit that protects our trading capital and prevents ruin.

To trade futures and other leveraged investments without a money management stop is certain ruin. Well-known trader and author Victor Niederhoffer lost tens of millions of dollars of his client's money when he traded his fund down to zero and some twenty-million beyond. No surprise there. The inevitable outcome of an investment with this ill-fated trader was clearly determined years ago when Niederhoffer wrote:

"I have never used stops, even to bail myself out. Somehow, having a fixed rule to exit provides my adversaries too great an advantage. " - Victor Niederhoffer, from "The Education of a Speculator", page 376 Niederhoffer's demise was no surprise to industry professionals. The only speculation was on how long it would take for him to go bust. To his credit, he lasted longer than was generally expected. Niederhoffer's paranoia about money management stops is not uncommon among naive beginners but it is an attitude that is rarely seen among seasoned professionals. The first priority in trading must always be to preserve our trading capital from the risk of catastrophic ruin. Everything else becomes secondary to this objective.

Note carefully how we have stated this goal. We did not say that our goal was to eliminate or reduce the risk of loss. Reasonable losses are an integral part of the trading process. Good traders accept losses as a cost of doing business. In fact I have observed that good traders probably take more losses than bad traders do. The critical issue in this discussion is the size of the losses that are acceptable. Catastrophic losses must be avoided at all costs and these losses are easily avoided by always employing a simple money management stop.

Niederhoffer mistakenly assumed that he was such a good trader that he could violate the cardinal rule of trading and not use money management stops. The truth is that good traders actually need money management stops more than bad traders do. Bad traders are going to fail very quickly whether they use money management stops or not while good traders will survive and prosper indefinitely. The better and longer you trade the more likely that you will eventually encounter a potentially catastrophic event.

The money management stop commits a trader to a pre-defined loss point that a trader can accept and the stop will allow him to exit a losing trade unemotionally. The trader who uses a money management stop knows from the outset that he can only give the trade a limited amount of room to move against him, and after that, he will cut his losses by exiting the trade according to his plan. This is a tremendous psychological advantage. Having a fixed point to exit a trade with a loss removes a great deal of stress in dealing with any losing position. The trader with his stop in place always knows exactly when he has to exit and avoids the pain of having to watch the loss grow larger and larger day after day.

This psychological advantage of money management stops also helps the trader before he takes a trade. Suppose the system called for us to take a trade in a specific market tomorrow, and we had an unknown and unlimited potential for loss. No knowledgeable trader would be willing to take such a trade. However, if you have a money management stop and know exactly what the worst loss could be beforehand, it is psychologically much easier to pull the trigger and confidently enter that trade. We already know and are prepared for the worse case scenario and we have determined that the amount of risk is acceptable to us. Money management stops give the trader the benefit of a worst loss estimate on any trade. This knowledge gives us the confidence to enter the trade and the psychological preparation to accept the loss should it occur. Of course money management stops may not always predict the exact amount of the worst loss, since markets can sometimes gap against the position and cause a much larger loss than planned. However in most cases the money management stop is a reasonable indication of the worst loss likely in a trade.

Over the course of this series of articles about exits we will describe a few of the basic money management stops that all traders should be familiar with. We will describe the basic Dollar Stop in this Bulletin and describe other recommended Money Management stops in subsequent bulletins.

The Dollar Stop: The simplest money management stop is a stop that is positioned a fixed dollar amount away from the entry price of a trade. Dollar stops are easy to implement and most trading software allow for easy incorporation of dollar stops into any trading system. Simple as this may sound, there are incorrect and correct ways to use a dollar stop in your systems.

The incorrect way to use dollar stops is to figure the maximum amount you can afford to lose in the trade, and then set the dollar stop accordingly. Unfortunately, the market does not make adverse price movements based on how much money you can afford to lose.

The correct way to set dollar stops is to use market characteristics and system testing statistics to determine its placement. For instance, dollar stops should not be placed too close to the markets because random price movement will cause the trade to be stopped out prematurely. Neither should dollar stops be placed too far away from the market, since that means you are willing to take a much larger loss than is necessary. In our experience, dollar stops should be placed based on some volatility measure of the market. For instance, if the average daily range of a market is $1,000, it is recommended that the dollar stop on that market should be at least $1,000 if not more. This amount should keep the stop out of the random price movements while maintaining its function of capital preservation. Again, it must be stressed that adequate system testing and analysis must precede the implementation of any dollar stop to ensure proper performance.

It is important to understand the volatility characteristics of the market you are trading and not to blindly use a fixed dollar stop for all markets, nor even for a single market if that market has changing volatility characteristics. The challenge then is to develop money management stops that are adaptive to current market volatility conditions.

Fibonacci Trading Techniques

First, a few words about Fibonacci himself…

Leonardo Pisano (nickname Fibonacci) was a mathematician, born in 1170, in Pisa (now Italy). His father was Guilielmo, of the Bonacci family. His father was a diplomat, as a result Fibonacci was educated in North Africa, where he learned "accounting" and "mathematics".

Fibonacci also contributed to the science of numbers, and introduced the "Fibonacci sequence"

The Fibonacci sequence is the sequence 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, introduced in his work "Liber abaci" in a problem involving the growth of a population of rabbits.

Aside from this sequence of number where every next number is the sum of the proceeding two, 0, 1 (0+1), 2 (1+1), 3 (2+1), 5 (3+2), 8 (5+3), 13 (8+5), etc.

There are the "Fibonacci ratios".. By comparing the relationship between each number, and each alternate number, and even each number to the one four places to the right, we arrive at some fairly consistent ratios.. The important ones are .236, 50, .382, .618, .764, 1.382, 1.618, 2.618, 4.236, and for good measure we include 1.00 ..

It turns out that the ratios are mathematical principles prevalent in nature around us, and is also in man-made objects. There are many interesting, entertaining, and poetic observations about Fibonacci numbers and ratios in the universe (see the reference section below). Fibonacci numbers appear in ancient buildings, in plants, planets, molecules, the dimensions of human bodies, and of course snails… But of what use is all that to the lowly trader?

What really interests you, the application of Fibonacci techniques in the trading environment..

Traders usually study charts! Fibonacci ratios may be applied to the Price scale, and also to the time scale of charts. I study the price scale. My focus here will be on the price scale for now, perhaps in the future I'll add some time-scale studies.

Prices never move in a straight line. Look at any chart, you will see many wiggles, as price advances and retraces.. Stocks, Futures, Forex, all instruments which are liquid, will often retrace in Fibonacci proportions, and advance in Fibonacci proportions. Not always, and not precisely to the penny. But very often, and reasonably close! This happens often enough that profitable trades can result. I will show you some examples below.

I used Fibonacci ratios with a few simple indicators to help determine probable price turning points, optimum entry, exit and stop-loss levels. My complete techniques are available in on-line video seminars, in-person seminars, and via my real-time on-line chat facility. For more details, see the following web page: http://www.surefire-trading.com/fibmaster.html

The application of Fibonacci to trading can be very complex, and take much time and experience to perfect. Many traders enjoy making the process as difficult and as complex as they can tolerate.. I do the opposite, I try to simplify, try to bring clarity.

Fibonacci example - Microsoft Weekly chart.
This lesson demonstrates a very basic way to use Fibonacci levels. You just read about Fibonacci ratios. We will use just one of those ratios for now, the .382 Fibonacci ratio. In this chart MSFT made a high of (approximately) $59.97 in December of 1999. After that, it moved down to make a low of $30.19 in May of 2000.

The down move was $29.78 (59.97-30.19), quite a substantial amount.

Projecting from that low in May, and using a Fibonacci ratio, we can calculate 29.78*.382=$11.37 . So 38.2% of 29.78 is 11.37 . If MSFT were to rally 38.2% of the down-move it would reach $41.57 (11.37+30.20). I'm using rounded numbers in my calculations, the chart above calculates it to be $41.564, we don't need that degree of accuracy!

Several weeks later, MSFT rallied and resisted right near that .382 Fibonacci level !!

So we were able to predict a future probable turning point (after the low of May 2000), using the Fibonacci ratio of .382!! If only it were always so easy.

The steps involved are:

1. Calculate the total value of a significant price-move (high to low, or vice-versa).
2. Calculate a Fibonacci retracement (in this case .382) of the prior move.
3. Look for price to confirm, by resisting (or support in an up-move) near that predicted retracement area.

Fibonacci example - Microsoft Daily chart.
This chart shows how a different Fibonacci level (61.8%) predicted resistance and a market turn.

Notice how the market behaved at the .382 level (30.80 area). Initially the market spiked through, then fell back to that level (late October). We cannot expect a chart to retrace at every Fib level. We can expect some support/resistance as buyers/sellers enter the market at these levels, but we can't always predict whether the market will actually turn at any particular level. Fibonacci techniques are used to alert you to a possible trade, if that price level does cause support or resistance. These techniques are not used as a trigger for entry. Other indicators are used in conjunction with Fibonacci studies to provide higher-probability entries..

As mentioned before, there are several Fib levels, .236, 50, .382, .618, .764, 1.382, 1.618, 2.618, 4.236, and 1.00 .. So there are several places to look for a market turn. They can be calculated in advance, but trading blindly at a fib level can be dangerous, because you never know for certain (in advance) whether the market will turn at any particular Fib level. I use other indicators to help overcome that problem, click here to learn how to determine which Fib ratio is likely to be strong enough to turn the market.

Important notes from this lesson:

1. There are several Fib levels.
2. It takes some skill to determine which Fib level is likely to cause the market to turn.
3. There are some techniques to help you determine where a market is more likely to turn.
4. Do not blindly anticipate a market turn at a Fib level.

More Fibonacci examples.

QQQ Weekly chart with a deep retracement to .618 and a weak attempt to rally after that. However, consider the daily chart and intraday traders. they would have enjoyed the rally from $75 to $100, after going long from a support level that could have been predicted in March!

QQQ daily chart. Multiple Fib levels timing the market perfectly in 3 consecutive waves up!

Intraday chart, QQQ 30-minute. Notice the two market Fib retracements (there are others in this chart too).. The rally from 29.26 stopped at 31.10, then it supported **twice** at 30.39, for two good scalps. The next highlighted Fib support is at a retracement of .618 from the move up 30.47 to 32.49 .. Both of these support levels were predictable before the market supported there.. Hint:--- See how the rally continued after the shallow retracement to 30.39 ... See how the rally after the deeper retracement to .618 near 31.25 was a weaker rally.. This is common, a deeper retracement often foretells a weaker rally... See the next lesson in the table of contents for more on these advanced Fibonacci trading principles.

Another intraday chart, S&P 5-minute.. The first Fib retracement is on a bearish move, an opportunity to short. The second is bullish, with a long entry near 999.25 .. Note that popular charting software will calculate Fibonacci to rediculous precision, we don't need anything closer than one tick! Actually, you should allow some room don't expect precision every time. Allow the trade some room to develop, or you will be stopped out too often.

More Advanced - Microsoft Daily chart.
By now you're probably quite interested, perhaps applying all those Fibonacci ratios to many charts.. You should experiment with your own charts. As long as the instrument traded has a lot of liquidity (not a penny stock for example), you should start to see Fib support and resistance at work. You will start to notice that Fibonacci levels "work" sometimes and not others. Sometimes the trades are not profitable, or are less profitable than others. You need to develop the skills required to select better trades.
In this mini-lesson I want to show you how to evaluate price action based on which Fib levels it responds to, and how the market behaves immediately preceding the Fib support/resistance.

The chart below actually has many Fibonacci levels "performing well", providing support or resistance to the market. I want you to focus on the two that I have identified, for the purposes of this lesson.

The first up-move that I have identified topped out at $26.90, and then retraced 61.8% before supporting at that Fib level. There was a pause at the .382 level, but it was not sufficient to hold the market. Now look at the rally from the support level near .618, it rallied but did not exceed the prior high of 26.90 … As a general rule, a retracement to .618 or below indicates that the preceding up-move is losing steam. A shallow retracement which supports at .382 is more likely to rally beyond the prior high than one which has a deep retracement beyond .50 all the way to .618 ..

The impressive thrust from 22.55 up to 26.90 was negated by a quick move back to .618 at about 24.20, so a trader should not be too optimistic about a continuation of the initial up-thrust.

Similarly, the move up in June, from 23.50 to almost 26.50 would also not inspire much optimism for a huge rally above the high of 26.50 … In general a shallow support at .382 would indicate a probable rally beyond the prior high. However, if the up-move preceding the retracement was sluggish rather than thrusting, you also should temper your enthusiasm.

If the second rally which only retraced to .382 had the thrust of the first rally, it would be a more attractive trade!

These are not firm rules, instead they are used as a guide, to help you filter for better trades. Every Fib level is not equal, some are more attractive than others.

Important notes from this lesson:

1. Not all Fib levels are alike.
2. No technical study is perfect, you must develop the skills to filter out bad trades, and improve the odds of finding better trades.
3. Price action just before a Fib retracement can tell you something about the future.
4. Which Fib level causes the end of a retracement also can give a hint to future price action.
5. No technical study is perfect, you must develop the skills to filter out bad trades, and improve the odds of finding better trades.

You can learn more about Neal and his video course by clicking here.

Importance of Exits in Trading

The outcome of every trade is dependent on the exit. If we enter in a timely fashion and then exit poorly, the trade is likely to be a loss. If our entry happens to be poor but our exit is good we might still salvage a profit. The exits, not the entries, determine the outcome of our trades. This lesson about exits is easily demonstrated. Take any entry strategy and begin combining it with different exit strategies. You will quickly see that we can change the results dramatically by making only minor adjustments to the exits. In fact it becomes nearly impossible to tell if an entry is any good because the results are so exit dependent. Bad exits can make a good entry look bad and good exits can make a bad entry look good. When testing the validity of an entry method it is best to begin by simply exiting the trades after a number of bars. If you do anything more creative than this simple exit you will find that you are really testing your exits, not your entries. If you change the exits while attempting to test an entry strategy the results will vary so much depending on the exits selected that you will find that you can not make any valid assumptions about the reliability of the entry. When combined with the right exit the entry strategy looks great. When combined with the wrong exit the same entry looks terrible.

The purpose of an entry is to get the trade started in the right direction. To test the effectiveness of an entry we simply measure what percentage of the time it gets our trade started in the right direction. For example if we have entry "A" that has 60% winning trades after five days it is better than an entry "B" that has only 45% winners after five days.

You will notice that we made no comparison of risk or profitability in picking the best entry. What if entry "A" lost money and entry "B" made money? Is entry "A" still better? The answer is "Yes" because the purpose of an entry is merely to get the trade started in the right direction. After that everything else is dependent on the exits. Entry "B" just happened to make more money because of the particular exit we selected for the test. We can easily adjust our exits and we will find that entry "A" will consistently make more money than entry "B" because it gets the trades started in the right direction more often. To maximize our profit we need to combine the right entry with the right exit. In our book, Computer Analysis of the Futures Market, we tell an amusing anecdote about a trader who seemed a bit loony because he used a Coke bottle with a broken radio antennae sticking out of it to receive trading advice from other planets. This advice, like most trading advice, was only related to the entries. When the voice from the Coke bottle told him to enter a trade he would come back to my desk and want to put the trade on right away saying something like: "They are buying soy beans on Mars, buy some beans for me".

The other traders sitting around the board room would overhear these frantic orders and became quite interested in this strange trading advice. Naturally they were quick to make fun of the trader when he was losing but they didn't have much to say when he was winning. The trader with the Coke bottle eventually learned that to avoid ridicule he had to take his losses quickly and hold on to his winners as long as possible. His trading steadily improved and he wound up being a surprisingly good trader. Obviously, his reliance on trading advice from other planets had nothing to do with his success. His entries were no better or worse than random but he had learned to be very good at his exits.

We should do the same.

Note: If you haven't read it recently, now would be a good time to review Article- 'Take Control' which deals with the issue of "control". Controlling exits is much more difficult than entries.

Taking Control in Trade Exchange

In my mind, control is an important issue that has a great deal to do with understanding the process of trading and doing it successfully. There many parts of the trading process where exercising control is relatively easy and other parts of the process where control is much more difficult. For example, the entry into a trade is a point where we are very much in control. We set the conditions and the market must meet our conditions or we will simply refuse to participate. This is clearly the point in the trading process where we can exercise maximum control.

I can recall attending some lectures many years ago by George Lane (of stochastic indicator fame) when he revealed to the audience a list of items that he wanted to see before he entered a trade. His pre-entry checklist had twenty-seven conditions on it. Being a skeptic of complex trading strategies I don't recall what any of these twenty seven items were except I'm sure at least one of them was the stochastic indicator. At the point of carefully reviewing his checklist George was very much in control of the situation and if the market didn't do exactly what he wanted he didn't trade.

As I often point out in my lectures, entries are the easy part of trading. This is because each of us has maximum control at this point. We can exercise as much or as little control as we like. George Lane can require every one of his twenty-seven criteria and I can require my usual two setups and a trigger condition. However the control situation changes drastically once we enter the trade. Our ability to control all the elements of the trade now becomes much more difficult and far from absolute. Once we enter a futures trade we know that we must exit that trade within a limited period of time or we are going to be in trouble because the contract will expire. Even stock traders who don't need to be concerned about expiring contracts must exit their positions correctly if they wish to maximize their profits. Exits are much more difficult than entries because we can not simply reverse the entry process and require that the market do thus and such. Once we are in the trade George Lane and I can both throw our lists out the window because we can no longer dictate our terms to the market. The market is now in control and we must be prepared to react to whatever the market does. The market can do anything it wants once we have entered our trade and we can be assured that the market doesn't care what conditions might be on our list or what our preferences might be. Once we enter the trade we are at the mercy of the market the market operates according to its own list and that list of possibilities is much larger than George Lane's meager list of twenty-seven items. The market's options are limitless. It can do anything it wants whenever it wants and somehow we must be prepared to deal with it. Where is our control now? As we hold our trade we must be prepared for big moves against us and big moves in our favor. (Surprisingly the big moves against us are much easier to deal with than the moves in our favor. We will talk more about this in just a minute.) Among the market's limitless possibilities are gaps, reversals, limit moves, whipsaws, and perhaps worst of all, boring sideways action that makes us wish we were trading something else. The market may present us with inside days, outside days, reversal days, key reversal days, high volume days, low volume days, expanding ranges, contracting ranges, acceleration, and deceleration. We can be faced with days that are so big that the chart looks like a propeller on the end of a stick or days that are so small they just look like dots.

Because we have to be prepared for all this and more, it should be no wonder
that our exit strategies are often much more complex than our entry strategies. We need to have solutions ready for any problem the market might send our way. As I mentioned earlier, the losses are rarely the problem because we can control those by simply setting a loss point and closing out the trade if the loss point is hit. Here again we are facing an issue of control and it is comforting to know that we do have a great deal of control over our losses. If we want to design a system where the average loss is $487.50 it wouldn't be difficult. We can absolutely control the size of our losses and we must be certain that we do.

All of our exit strategies have to be carefully planned to be certain that we control what can be controlled. First we must recognize and understand what can be controlled and then we must make certain that we exercise whatever control we have. It may be comforting to know that we can strictly control losses but it is extremely discomforting to realize that we have very little control of our profits. If we have a $500 profit, how do we make it become a $1000 profit? Unfortunately holding on to the trade longer gives us no assurance that we will eventually have a $1,000 profit.

In this instance we have very little control but let's see what we can do with the control that we do have. Although the amount of profits can not be controlled in the sense of our somehow forcing them to be larger, they can be controlled in the sense that we don't have to let them become smaller or turn into losses. Those of you who have purchased any of our systems will appreciate that locking in open profits at various levels is important to the success of our trading strategies. You will notice that in the "25 X 25" Bond System (free on the web site) we use a very tight channel to help lock in profits after twenty-five days or after five Average True Ranges of profit. We can't control the market and force it to give us five ATRs of profit, but if it does we can make sure that we keep most of it. Protecting our open profits is definitely within our control.

When conceptualizing a new trading system and when going through the design
and testing routine, be alert to issues of control. Look for what you can control and make sure that you are controlling it to your benefit. Look at what you can not control and as a minimum have some plan that will minimize any possible damage. Thinking about control will make you a better trader and implementing control will make your systems trade better.

Why We Use Multiple Exits

A recent message from one of our members questioned our use of multiple exits and the fact that the exits in a particular system were very complex and would sometimes move closer to the prices and then suddenly move farther away. The member questioned whether the exits were working properly and wondered about the logic of having so many different exit strategies operating within one system. I sent the member a brief reply and promised to write a Bulletin that explained our philosophy and procedures about the use of multiple exits in more detail.

When we develop trading systems the entry is usually just a few lines of code but the exit strategies and coding are often very complex. We may have a system with only one very simple entry method and that system may have a dozen or more exit strategies. The reason for devoting so much effort and attention to achieving accurate exits is that over our many years of trading we have come to appreciate both the importance and the difficulty of accurate exits.

Entries are easy. Before we enter any trade we know exactly what has occurred up to that point and if those conditions and events are satisfactory according to the rules of our system we can generate a valid entry signal. Entries are easy because we are able to set all the conditions and the market must conform to our rules or nothing happens. However, once we have entered a trade anything can happen. Now that we are in the market the possible scenarios for what might happen to our open position are endless. It would be extremely naïve to expect to hope to efficiently deal with all possible trading events with only one or two simple exit strategies. However, that seems to be the common practice and, in fact, many popular trading systems simply reverse the entry rules to generate their exits.

We believe that good exits require a great deal of planning and foresight and that simple exits will not be nearly as efficient as a series of well planned exits that allow for a multitude of possibilities. Our exit strategies need to accomplish a series of critical tasks. We want to protect our capital against any catastrophic losses so we need a dependable money management exit that limits the size of our loss without getting whipsawed. Then if the trade is working in our favor we would like to move the exit closer so that the risk to our capital is reduced or eliminated. As soon as possible we need to have a "breakeven" exit in place that prevents our profitable trade from turning into a loss.

In most of our systems, our goal is to maximize the size of our profit on each trade so we do not simply take a small profit once we see it. This goal means that we need to implement an exit strategy that protects a portion of our small profit while allowing the trade to have the opportunity to become a much bigger profit. If the trade went in our favor every day the exits could be greatly simplified but unfortunately that is not the way markets typically trade. We have to allow room for some minor fluctuations on a day to day basis. In order to facilitate our objective of maximizing the profit of each trade, in some cases we may decide to move our exit point farther away to avoid getting stopped out prematurely. For example, lets look at our Yo Yo exit that is based on the theory that we never want to stay in a position after a severe one-day move against us. (See Bulletin number 14 for an explanation of the Yo Yo exit.)

This highly efficient exit is based on measuring the amount of price movement from the previous day's close. For example we may want to exit immediately if the adverse price movement reaches one and a half Average True Ranges from the previous close. This volatility-based exit will move away indefinitely as the result of a series of adverse closing prices caused by days where the price moved against us but our volatility trigger was never quite reached. Obviously an exit that can move away from prices indefinitely is no use at all in limiting the size of our losses so the Yo Yo exit must always be used in conjunction with other exit strategies that do not move away. Now that we have implemented the Yo Yo exit to protect our trade from a severe one-day reversal in direction, we have still not addressed the question of taking profits. So far, we have exits in place to protect from large losses, to lock in a break-even point and to get us out on a sudden trend reversal but we still have not addressed the important issue of taking some profits on the trade.

We like to shoot for big profits and the bigger the profits become the closer we like to protect them. This strategy calls for multiple profit-taking exits. If we have a $1,000 profit we might want to protect 50% of it and be willing to give back $500 of our open profit. We can place an exit at $500 above our entry price. This will allow us to hold the position in the hope that the profit will grow. However if we have a $10,000 open profit I'm sure we wouldn't want to give back 50% of that. Also, let's hope that our exit stop is not still sitting back there at $500 above our entry price. For best results our exits need to adjust at various levels of profitability.

Many traders have asked us about the robustness of a system that has a many exit rules. The general perception is that a system with fewer rules is likely to be more robust. However I would disagree with applying that common belief without careful thought. Look at the exits in these two over-simplified systems:

System A:
Use a $1500 money management stop. (Limits loss to $1500.)
When profit reaches $5,000, exit with a stop at entry plus $4500.


System B:
Use a $1500 money management stop. (Limits loss to $1500.00)
When profit reaches $1,000, exit with a stop at entry price.
When profit reaches $2,000, exit with a stop at entry plus $1,250.
When profit reaches $3,500, exit with a stop at entry plus $2,500.
When profit reaches $5,000, exit with a stop at entry plus $4500.
When profit is greater than $7,500 exit with a stop at the previous day's low.

Some system traders might argue that since system A has fewer rules it should be more robust (most likely to work in the future.) We would suggest that system B is much more likely to work in the future even though it has more rules. System A is not going to make any money at all if the open profit never reaches $5,000. Once the profit exceeds $5,000 the only exit is at the $4,500 level. System A is very limited in what it is prepared for. It either makes $4,500 or it loses $1500.

As you can see, system B is obviously prepared for many more possibilities. It is conceivable (but not likely) that system A may somehow produce better test results on a historical basis because of an accidental (or intentional) curve fit. However, we would much rather trade our real money with system B. Simpler is not always better when it comes to exit planning