Do you know 7 out of 10 traders keep losing money in Forex market; while the rest of the 30% work freely at home and earn millions annually?
Wonder what differs between the losing 70% and the winning 30%? Forex trading skills and the trading system! If you want to work less than 20 hours a day at home, if you want to make millions by trading freely at home, if you want to have financial freedom by trading Forex; you better LEARN Forex trading before you start trading Forex. Forex market is definitely not a game for newbie and you need to brush up your skills before getting your hands wet.
How currency exchange (FOREX) market works
I bet you are well aware of the existent of Forex trading nowadays. Forex market exists wherever one currency is traded for another. Forex, or Foreign Exchange Market, is generally works as an international currency exchange market. Investors and speculators are allowed to trade currencies from all around the world thru Forex trading.
Forex is a very unique type of trading where traders are buying and selling 'money' in the same time. The trades are done in pairs, such as Euro/JPY, USD/CHF, and CAD/USD. It is the world largest trading market where an average of $1.9 trillion trades is done on a daily basis. The turnover rates in FOREX are nearly 30 times larger than the total volume of equity trades in United States. Know more about major currencies traded in Forex market.
Despite its large volume of trades done daily, Forex is relative new to the publics nonetheless. It is only made available to publics in year 1998 where big sized inter-bank units are sliced into smaller pieces and offered to individual traders like you and me. Before that, Forex is a game only for banks, multi national cooperation, and big currency dealers. Only those with large business size and strong financial background were permitted to trade foreign currencies.
Facts about Forex market
As a matter of fact, large international banks are still the major traders in currency exchange market. Deutsche Bank is one of the top currency traders; along with other major banks like UBS, Citi Group, HSBC, Barclays, J. P. Morgan Chase, Coldman Sachs, ABN Amro, Morgan Stanley, and Merril Lynch; these banks are said to be responsible for more than 70% trades in currency market.
When you are trading Forex with currency dealer, the Forex quotes might look a bit different from our previous example. Often, a two-sided quote, consisting of 'bid' and 'ask' price, is listed when dealing with currency brokers. For example, EUR/USD 1.2385/1.2390: 1.2385 is known as the 'bid' price while 1.2390 is commonly known as the 'ask' or 'buy' price. The 'bid' is the price at which you can sell the base currency; while the 'ask' is the price at which you can buy the base currency. As you study the numbers, you might realize that the two-sided currency price is quoted against you. Traders are forced to buy the currency in a higher price than the selling one. This is done because FOREX trades are done without any commission chargers. Thru quoting currency 'bid & ask' price differently in this way, the currency brokers are manage to make profit without charging their client commission fees directly. Learn more on Forex quotes.
Fundamental analysis and Technical analysis in Forex
Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. As in Forex trading, government policies, bank policies, natural disasters, and speculators mood are some of the fundamentals considered to predict the currency market trends. Fundamental FOREX traders will review a country economy's situation base on these fundamental elements and respond accordingly. To gain max, fundamentalists often apply precise method to convert study's results into accurate entry/exit price indicator. Overview on Fundamental analysis in Forex market.
Instead of reviewing on the fundamental issues, traders from technical side define market movement according to data purely generated from the market. The term 'Technical' is applied in all trading fields, from commodity stocks exchange to option trading, from Forex to futures.
Generally, the purpose of technical analysis is to find potential price reversal or pivotal points. These points basically refer the change of market trends, which then indicates when to enter or exit from the market. It is important to know that as with any other techniques in your trading system, these technical analysis indicators could be used alone or with other indicators. Traders are always recommended to learn more different technical methods to analyze different market data because none of these techniques are 100% accurate and 100% foolproof. Taking example of the 'price' data and the 'time' data, which are widely used by FOREX trader. There are some techniques consider solely on the 'price' factor, while some solely rely on the 'time' factor. The fact is if you know both technical methods, you can take both price and time into consideration during estimating market future trends. This will of course then reduce the risks of losing money in Forex market. Also, it would be wise if traders combine both technical and fundamental techniques when trading Forex, as a country currency value depends a lot on fundamental variables such as war, change of national leaders, terrorism attacks, as well as natural disasters. Overview on Technical analysis in Forex market.
Conclusion
Without a doubt, Forex is gaining its popularity fast against other kind of trading. No limited market access, no liquidity issues-after market hours, zero commission fees, low capital requirements with high leverage rates, and no restrictions on short selling -- Forex can be very beneficial to a variety of people. Like any other trading business, if you are new to it, best advice you can get is to learn and practice more before you test your 'wings'. Seminars, eBooks, Internet, papers, video courses - all these are helpful to raise your confidence level before you trade with your real hard-earn dollars.
Forex Beginners 'Must-Do'
It is believe that more than 50% of Forex traders are losing money long term in the foreign currency exchange market. Yet, there are still a lot of Forex traders jump in to the market, trade blindly and lost their money. Trade after trade, its surprising to see that 'normally-losing' traders keep betting (not investing!) their money into Forex market without reviewing their trading strategy. No matter you are the experienced or the beginners, there are certain 'must-do' when trading Forex to manage the risk wisely and to increase your possibilities in making profits.
'Must-Do 1': Invest in your brain first
If you are serious about investing in Forex market, building up your trading skills and knowledge is the very first step that you must take. Seminars, workshops, video tutorials, online learning, or even books are handful to help us learn from the professional.
Learn to implement technical charting into your trades; learn using indicators to determine the right time to enter/exit the market; brush up your experience by trading with a demo account… all these are effective to ensure your smooth starts and it will definitely reduce your chances of losing money. (Recommended Forex trading course here.)
'Must-Do 2': Getting the right trading system
It is wise to research very well and consider all the various brokers' system available to you before making your choice. By applying certain level of computer automations (such like charting and doing auto trades), trading; a well-designed trading system will reduce your work dramatically. This in turns give you more time to focus on studying the market and plotting your strategy. Also, using auto-trading system will avoid you from doing emotional-trades. (Review recommended Forex trading tool DashBoard FX here.)
'Must-Do 3': Have a trading plan
As the old says: “Fail to plan is plan to fail”. Trading is like sailing boat middle in the sea; you will not be going anywhere without compass and navigator.
What is the detail objective of the trades? How much profit to expect from the trade? When to get into the market? How much to invest? What price to exit the market? If things do not work out, when do execute the stop loss order? How high is the affordable risk? A good trading plan should at least answers the above questions. Further more, if your trading plan fails, review and modify your trading plan. Find out your mistakes and learn from them.
'Must-Do 4': Money management
Money management is controlling your risk through the use of protective stops, while balancing your potential for profit against your potential for loss. For example, good money management means you know your profit objective and the odds of being right or wrong, and controlling your risk with protective stops. You are better off with a trade where you might lose $1000 if you are wrong and make $500 if you are right, that would work eight times out of ten, than to take a trade where you would make $1000 if you are right and lose only $500 if you are wrong, but works only one time out of three.
If you are investing using your savings, it's even more important that you manage your money in your trading and in your personal expenses. Chances are high that you miss a good investing chance because of you are lack of capital.
'Must-Do 5': Discipline trading
Trading Forex with discipline is important. Success in Forex trading could not be achieved by plotting out the best trading plan. It is also depends on implementing the trading plan. Be discipline, trade according to your plan and never trade with your emotion no matter you are losing money or winning. Greed will stop you from taking profit at predetermined level; while fear will stop you from making the nice kill in the market.
Forex VS Stocks Market
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Foreign currency exchange (Forex) market and stocks market work quite differently. Neither Forex market or stock market is greater than each other but the investing concept in them differs quite a lot. However, by comparing their differences, we wish to give you a clearer picture on these two markets thus help you to select the market type that suits you the best. Fact is you might want to get involved in both market to diversify your on hand capital.
Average investment duration
Most investors in Forex market aim for a short-term deal. Individual Forex traders are normally trading Forex in a day-trade basis. Forex day-traders normally take small daily profits (averaging 10~30 pips), entering and exiting the market in the same day. Professional Forex traders normally will implement their own trading system in order to partially automate their day-trade process.
While day-traders do exist in stock market, majority of the stock traders are more interested in doing long-term trade nevertheless. Trades in stock exchange might last for months or years where traders will get the profit in one lump sum.
Market trend factors
Due to various limitations in stock markets (for example, restrictions on short selling), stock market trading depends a lot on the market trends. There are few stock traders who manage to gain in down trend market.
On the other hand, Forex market offers equal earning potential regardless on the rise or fall of a country currency. There is no structural bias to the market and there are no restrictions on short selling in FX market. Trades in Forex are always done in pairs; rise or fall of a country currency will only affect its relative value compare to other currency and will not affect the chances of profit in the trades.
Leveraging your money
Forex brokers offer trade margin of 50, 100, 150, or even 200 to 1 of trade margin. Forex traders often find themselves controlling a huge sum of money with little cash outlay on the table. For example, a $1,000 in a 150:1 Forex account will gives you the purchase power of $150,000 in the currency market.
In contrasts, stockbrokers do not offer such kind of high leverage to their clients. The max you can get when trading in stocks might only be 2:1.
Trading on mini account in Forex
One of the advantages in Forex trading is that you can start small always. With FOREX, you can invest in foreign currencies for as little as a $300 deposit with mini contracts. The smaller trade size enables you to take smaller risks and this is especially handful for beginners who wish to gain their trade experience in FX market.
However, this benefit is not available with stock trading. Most stock brokerages do not allow you to invest in odd lots, but only in blocks of 100 shares at a time. With many stocks valued at between $20 and $500, which can mean an investment of $2,000 to $50,000 or more.
Fewer accounts to consider
There are thousands of stocks to choose from stocks exchange market but major traded currency in Forex is only seven. You work less by analyzing fewer accounts in Forex trading. Further more, countries are often more stable than companies and it's easier to predict their overall economic direction. These characteristics of Forex market reduce the hassle of selecting and filtering potential accounts.
Decentralized market structure
Forex market and stocks exchange market structure differs a lot. Stocks are traded in a centralized market. Forex market is an over-the-counter market where there is no centralized market place for Forex trading.
Stock trading requires buyer and seller to ‘meet’ at a centralized market to do the exchange (for example, NYSE). Meaning that, all stock exchanges all trader’s orders are put through same dealer and pass through a single clearing firm. Stock traders will u get same price on stock worldwide.
On the other hand, Forex trades can be done via different brokerage agents or dealers. Each agents/ dealer has the ability and the authority to execute trades independently of each other. This structure is inherently competitive as traders are faced with a choice between varieties of firms with an equal ability to execute their trades. Currency dealers are in competition with each other, thus currency market price remain transparent and the spreads are kept tight all the time. This will then give a better market for individual Forex traders to profit from.
Training your Currency Trading skill for better exposure
What is your confident level in forex trading? Have you weaponed yourself before register into the market? Here is a trading tips that you can follow. When you see the EUR/USD market trend move to a dip bottoms, check the trend history, place the order with stop & limit as ratio 1:4. If its losing, add a position to average the signals. This will be a good chance for you to maximize for your potential profit. However, What we want you to"consider" is the trading technique. Do you notice that there's something goes wrong with the tips above? Look again, what will be the correct way.
If you were fooled by our trick and did not notice the wrong strategy, you are not weaponed yourself and you need this training. Even if you noted the problem, you must have some reason for having this book in your hands. Perhaps you have had evidence in the past that you do not trade welll. It may be that your brokers have told you that your strategy does not help you make profit.
Read more about Forex Currency Secret
Forex Trading is booming!
Currency Trading has experienced phenomenal growth in recent years as many investors are looking for ways to profit from the lucrative 1.5 trillion currency trading marketplace. And author/professional trader Peter Bain is the ideal authority to help you understand and profit from this complex marketplace. His Forex Course teaches the same system used by banks, financial institutions and professional Forex traders alike to trade currencies on the foreign exchange. For the first time, Peter's making his "Commercial Forex Trading" system available to the public in the form of a video currency trading course. Peter Bain’s video course is a complete trading solution. Let Peter will show you the trading techniques used by the commercial institutions and banks.
To involve in FOREX trading, you must similarly prime your mind to get ideas flowing. The various ideas in your mind are stored in a hierarchical structure. Information is stored together in a group, depending on its meaning. It's hard to bring information about that topic into consciousness when you aren't thinking of a particular topic; it depends on their stagnant and hidden. When you put effort to think carefully about a specific topic, or a closely related topic, and start running througha bunch of possibilities, all kinds of new possibilities become transparent. Various concepts andideas, almost unconsciously are scan through your mind. This wealth of information combines will create a new. For example, suppose you get an indefinite trading idea about how a set of indicatorsmay forecast the price of a particular stock. Once you get the basic idea in your mind, you can prime your mind to get the creative juices flowing.For instant, scan a set of charts to back test and find support for your hypothesis. Once you look through the charts, you will prompt to other related information after seeing at the information. Yet the idea soon will leak out, and you'll make a new discovery as this is a basis for a new trading strategy.
The main point is that you must set your thinking processes to create a new idea. When you put on a trade, you have the attention to starts on focus, your senses are heightened, and your perspective will change until you see new ideas. The more ideas you will create new discoveries when the more your mind is active. It is helpful when knowing about the creative process and how to set it in motion gives you power. Unable to think creatively is the reason brings some people down.Actually they can, they just need to know how to do it. To think creatively, it's vital to be relaxed and free of anxiety. It is also essential to prime your mind in order to start the process.When it’s the time to think of a new trading idea, think creatively. Processing the creative in motion may help you come up with a big idea that will make you huge profits.
As a FOREX trader, you must be able to calculate risk and taking losses, if can’t accept, better don’t trade. Risk means reward, you do like to accept volatility and risk cheerfully. Drawdowns are a part of trading; FOREX trading fun and highly profitable because of the volatile markets. As you become the well-informed FOREX trader, a drawdown is not something to fear, but something to enjoy. Volatility makes a big opportunity!
What beginners need to know about Forex trading?
Being new to FOREX trading? Don’t worry, getting started in FOREX trading is easy and you can always test your skills first in a demo account before you go ‘live’ with real money.
To get started in FOREX trading, we have to get to know what FOREX is. FOREX trading involves buying and selling the different currencies of the world. Buying one currency and selling another at the same time make a FOREX deal. FOREX market is the largest trading market in the world. It yields an average turnover of $1.9 trillion daily and the figure is nearly 30 times larger than the total volume of equity trades in United States.
Starting in FOREX trading
To start trading on FOREX, one must first learn how to read FOREX quotes. Foreign exchange quotes are always listed in pairs (e.g. USD/JPY 109.2): the first listed currency is known as the base currency with a constant value of 1 unit; while the currency listed in the second is known as counter. In our given example, USD/JPY 109.2 means a dollar of United States Dollar is equal to 109.2 Japanese Yen. In other words, the quote shows the relative value of one currency compare to the other. It means the value USD had been increased when USD/JPY quote goes up
However, a two-sided quote (e.g. EUR/USD 1.2435/1.2440) consisting of a 'bid' and ‘ask’ is often seen. The ‘bid’ price is the price at which you can sell the base currency; while the ‘ask’ price is where you can buy the base currency. The different of ‘bid & ask’ price is commonly known as ‘spread’. In the example of EUR/USD 1.2435/1.2440, this means you can buy 1 Euro Dollar with 1.2440 USD or sell 1 Euro 1.2435. Currency brokers make their profit through these differences of ‘bid & ask’ price and this is how they manage to provide their services to individual investors without charging them commission fees.
If you are new to trading it makes sense to deal in the more popular currencies. There are two main reasons for this. Firstly you do not want to be left with a currency where there is little interest and you may have difficulty selling. Secondly the spread between the bid/ask prices is likely to be narrower, making it easier to make a profit.
Major currency traded in FOREX market
There are seven major currencies, the US dollar (USD), Euro (EUR), Japanese yen (JPY) British pound (GBP), Swiss Franc (CHF) Canadian dollar (CAD) and Australian dollar (AUD). The US dollar is the most traded currency followed by the Euro and the Yen. The Euro is the relatively new currency of the European Union although some member states, including the UK, have not changed their currency. Also, if you live in a country using one of the major currencies, when you first start trading it makes sense to begin with that currency. Not only are you familiar and comfortable with the currency, but you are in a better position to judge its strength. The internet has a wealth of information on the financial climate of a country, but if you live there you have access to all newspaper content, as well being in the unique position of experiencing first hand changes at the consumer level.
Major players in FOREX market
Although FOREX trading involves such a big volume of trades nowadays, it is not made available for the publics until year 1998. In the past, the FOREX market was not offered to small speculators or individual traders due to the large minimum business sizes and extremely strict financial requirements. At that time, only banks, big multi-national cooperation and major currency dealers were able to take advantage of the currency exchange market's extraordinary liquidity and strong trending nature of world's main currency exchange rates.
In late 90s, FOREX brokers are allowed to break huge sized inter-bank units into smaller units and offer these units to individual traders like you and me. As a fact in FOREX trading, FOREX is mainly traded in large international bank. According to Wall Street Journal Europe, 73% of the trade volume is covered by the major ten. Deutsche Bank, topping the table, had covered 17% of the total currency trades; followed by UBS in the second and Citi Group in third; taking 12.5% and 7.5% of the market. Other large financial cooperation in the list is HSBC, Barclays, Merril Lynch, J. P. Morgan Chase, Coldman Sachs, ABN Amro, and Morgan Stanley.
Why should I do FOREX business?
Main Question raised in your mind might be: Why should you trade FOREX? There are lots of reasons why you should involve in FOREX trading. FOREX market is truly a global market where it opens 24 hours a day through out the whole week (weekends excluded). With the ease of Internet access, transaction in FOREX can be done in anytime regardless on your location. This gives you the convenience to work on any time, anywhere – which in turns gives you the freedom you cannot have in investing other kind of trading.
More over, trading in FOREX gives you an equal prospective in rising and falling market. As trades are always done in pair of currency pairs, FOREX traders can always find chance to make money in anytime, regardless on the fall or rise period of one single country currency. Also, FOREX trading offers incredibly high leverage rates to the traders. By trading currency in margin up to 200 to 1, you can start off your FOREX trade with minimum capital and huge ROI.
Conclusion
With the flexibility you can get in foreign currency exchange market, FOREX trading suits perfectly into most people investment plans. Like with any new form of trading you need to know what you are doing, especially as there is margin involved. If you are new to FOREX, take all the time you need to learn this new trading skill well -- practice everything you learn with a demo account before you consider going 'live' with your own money. Investors should read books, attend seminars and paper trade until they are comfortable with there strategy
Choosing your Forex broker
Today's Forex trading is well known as a lucrative way to make money online. It became an essential part for investor's portfolio as you can simply gain thousands in minutes by trading currencies at home. For those who are new to the trade, Forex means Foreign Exchange Market where it involves buying and selling the different currencies of the world. Profits are made through the difference of selling and buying price - you earn when you buy-low sell-high while lose when buy-high sell-low.
Choosing a suitable Forex broker is the very first step when you are getting started in Forex trading. As in any trading market, individual trades in Forex market are mostly done via currency brokers. There are certain issues you must consider when choosing for suitable Forex broker, listed below are a few of the important ones.
1. Certification of the Forex brokerage firm
Forex trading involves a huge sum of money. As a trader, I am sure you want your money handle by reliable broker. This is why certification of the Forex brokerage firm is important. Traders are recommended to deal only with authorized currency traders. If you are trading in United States, make sure your Forex brokerage firm is registered with Futures Commission Merchant (FCM) and regulated by the Commodity Futures Trading Commission (CFTC). Also, most large brokerage firms are connected in some way to a bank or financial institution. Since the majority of Forex business is based on credit, the partnership with financial institution is crucial to offers their clients better in Forex investment.
2. Low spread trading
Currencies are normally traded in pairs of ask-bid price. The difference of the selling (bid) and the buying (ask) is known as spread. For example of EUR/USD 1.2435/1.2440, the Forex quote here means you can buy 1 Euro Dollar with 1.2440 USD or sell 1 Euro 1.2435, and the spread is (1.2440 - 1.2435) = 0.0005. As Forex brokers do not charge commissions on their client trades, they are making money off the spreads. If the spreads are low, this means they are offering a cheaper service and thus traders have better profit value. Thus, Forex brokerage that offers lower spread is more preferred.
3. Trading tools and tips
Different Forex brokers will offer different trading tips and tools. When selecting Forex broker, check what kind of trading tools and analysis data they are offering. Not all brokers offer the same set of tools and data thus careful consideration is necessary. A good Forex brokerage firm should offers real-time charts, technical analysis tools, real-time trade alerts, and website support. If you are new to Forex trading, you also look for broker that offers demo account before opening up a real account.
4. Avoid brokers with strict margin rules
Strict Margin Rules - When you are trading with borrowed money, your broker has a say in how much risk you take. As such, your broker can buy or sell at its discretion, which can be a bad thing for you. Let's say you have a margin account, and your position takes a dive before rebounding to all-time highs. Even if you have enough cash to cover, some brokers will liquidate your position on a margin call at that low. This action on their part can cost you very much. Unfortunately, you cannot verify this factor before starting up your account with the broker. The best way to avoid this kind of brokers is to ask more in Forex trading forums or other experienced Forex traders.
5. Leverage level
Some brokers offer 1:50 trade margins and some offer 1:200. The fact is leverage level might varies a lot for different brokerage firm. While higher trade margin does not guarantee your profit in Forex market, higher trade margin however will give you a better chance to win big when the opportunity comes. High leverage level is especially important when you have little capital outlay.
By filtering Forex brokers with the condition listed above, you actually raise your profit chances in Forex trading. Without a doubt, Forex is gaining its popularity fast against other kind of trading. No limited market access, no liquidity issues-after market hours, zero commission fees, low capital requirements with high leverage rates, and no restrictions on short selling -- Forex can be very beneficial to a variety of people.
Like any other trading business, if you are new to it, best advice you can get is to learn and practice more before you test your 'wings'. Seminars, eBooks, Internet, papers, video courses - all these are helpful to raise your confidence level before you trade with your real hard-earn dollars. Plan your investment wisely by investing first on yourself; you shall get your reward at the end of the road
Reading a Chart and Acting Effectively
It's a guide that tells you, in simple understandable language, how to choose the right charts, reading these charts correctly, and act effectively in the market from what you see on these charts. Probably most of you have taken a course or studied the use of charts in the past. This should add to your knowledge about choosing the right carts and reading these charts correctly. There are several good charting packages available free. I use and what I recommend you "Netdania".
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
Firstly, glance at hourly chart to see the big picture. Note significant support and resistance levels within 2of today's opening rate.
Secondly, 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
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.
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.
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.
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
- 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.
- 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.
- 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.
- 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.
- 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 exceeds the 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 sideways trading 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 the break 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. The move 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.
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