What is the Gartley Pattern?The Gartley pattern is a powerful and multi-rule based trade set-up that takes advantage of exhaustion in the market and provides great risk: reward ratios. The pattern is also known as the “Gartley 222” because the pattern originated from page 222 of H.M. Gartley’s book, Profits in the Stock Market that was published in 1935 and reportedly sold for $1,500 at the time.The Gartley pattern is based on major turning points or fractals in the market. This pattern plays on trend reversal exhaustion and can be applied to the time frame of your choosing. The other key that makes this pattern unique are the crucial Fibonacci retracements that come together to fulfill the plan.There is a bullish / long / buying pattern and an equally powerful bearish / short / selling pattern. Much like you would find with a head and shoulders pattern you buy or sell based on the fulfillment of the set up.Learn Forex: Buy & Sell Gartley Chart Pattern Here is a stripped down version of patterns so you can see what the look like without price and time on the chart.The buy pattern will always look like an "M" with an elongated front let. The sell pattern will always look like a "W" with an elongated front leg.Gartley Strategy ToolsThe three important tools to use on your chart when finding a Gartley are:Fractals - The important part about trading the Gartley pattern is that you will trace the pattern from turning points or swings in the market. One of the better indicators to trace swings is Fractals. Fractals show up as arrow above swings in price.Fibonacci Retracements – The Fibonacci retracements will make or break the patterns validity. Below are the specific retracements that make up the pattern. Fibonacci retracement lines are horizontal lines that display support or resistance in a move.Add Line Tool (Optional) – This tool will allow you to clearly draw connecting points like X to A, A to B, B to C, and C to D for easy measuring.Gartley Strategy Rules* Point B should retrace 0.618 from the XA move.* Point D should retrace 0.786 from the XA move and create the entry zone.* Point D should be a 1.27 or 1.618 extension of the BC move* Point C should retrace anywhere from 0.382 – 0.886 of the AB move.* Buy or Sell at point D depending on whether the pattern is bullish or bearish* Place stop either below the entry for the tightest or Risk: reward ratio or below Point X.* If the market trades through Point X, the Gartley pattern is invalid and you should exit or not take the trade.When these rules are met, you can find yourself on the cusp of a trade at the Entry Zone. Recognizing these points in the market is truly like riding a bike. Once you get the hang of it, the levels will pop out on the chart to you.The EURNZD set up an ideal Bearish Gartley Pattern leading into the Reserve Bank of New Zealand Interest Rate Announcement.Learn Forex: EURNZD chart where Bearish Gartley played out Another set up is forming on the EURJPY and has begun to play out. If you liked the set up, you could sell at Point D and place a stop above point X. Point X is the start of the pattern and is an extreme point on the chart.Learn Forex: EURJPY chart where Bearish Gartley is forming Closing Tips on Using This PatternWhen trading the Gartley pattern, the pattern is meant to be traded at D only. If you believe a pattern is unfolding but we’re only at point B, be patient and hold off until we get to D. The power of the pattern comes from converging Fibonacci levels of all points from X to D and using the completed pattern for well-defined risk.Lastly, this can be traded on any time frame you prefer. The reason this method has a stable track record is that it is based on unusual market positions where most traders are afraid to enter. Take advantage of the risk: reward set up available and trade with proper trade size.This pattern occurs rather frequently. When you get comfortable with using Fibonacci retracements for support and resistance you'll find yourself looking for the points to complete a Gartley pattern. It is very important to watch for the D point to be at 78.6% of the XA leg and to keep your stops rather tight in case the pattern is invalidated.Happy Trading!
The MQL5 Market is a service solely intended to sell and purchase various products like trading robots, scripts, indicators as well as other trading products. Readymade applications are offered by this particular service which is highly essential for financial market. Few detailed information The MQL5 Market is the trading service used for trading terminal MetaTrader 5. The Company MetaQuotes Software Corp. supplies the world’s leading trading platforms and specialises in the software development. No matter how demanding a customer is, this service provides a wide range of programs which includes the easiest and efficient solutions. Two kinds of products are available in this service. One kind is the products which are free and the other kind has to be obtained by paying a certain amount. The programs can be categorized on other parameters like fame, popularity, usage, quality etc. Every detailed description along with the screen shots is also provided. Operation norms The MQL5 Market runs on some basic strict principles and rules. Registering for the service is the primary and the imperative step to start with the whole procedure. The payment system is also marked by few rules and the customers need to abide by them for any kind of payment and money transactions, the information of which is then sent via a text message in the mobile. Few features included in this service are Strategy tester, visual testing, forward testing, optimization etc. All these features are there to enhance the user friendly nature of the service where the customers can obtain the demo version of certain program and also can examine the program meticulously according to his need. Security system There lies a trading terminal space for every individual customer and every application purchased and paid by them will instantly appear on this page. Proper contact information and identification must be provided by the customers before registering to the service. A unique installation code is provided too, which runs only on the particular customer’s personal computer. Core advantages The MQL5 Market has few basic advantages that are primarily thought to be the main source behind the fame of this service. The first and the foremost point is the wide variety of the software products and application that is supplied by this service. Secondly, the user friendly nature of this service makes the new customers feel at ease and thus use the service more effectively. Thirdly, a full description and knowledge about the product a customer plans to buy is given so that there is no regret or hesitation afterwards. By doing so the clarity of the service is maintained and makes it more appealing to the users. Lastly, the whole process from the very initial level is very simple as well as easily understood by any level of customers and users. Conclusion The MQL5 Market service is one of the recent upcoming application providers who have not only found a strong base for their activity but has also proved to be of excellent quality over the past few years.
Have you ever had to assemble or build something, but didn’t have the instructions to do so? If you’re building a bird house, or something simple like a cabinet, you may not need the instructions. If you are building a house, that is a different story. Building a house without a blueprint can be very dangerous and end as a complete disaster. Yet, many of us treat our forex trading in this way. As Forex traders we are attempting to build a “wealth house”, but some of us are not using a blueprint. It is dangerous and will almost always end up disastrous. A Forex trading system is the blueprint to your trading. Without planning ahead by establishing a Forex Trading System, you are planning to fail. A Forex Trading System incorporates goals, an entry strategy, trade management, risk management, account management, and a plan. I encourage you to consider whether or not you truly have a blueprint for your trading. If not, you can write one down today! Your GoalsGoals are what will help you persevere through the times of losses as a trader. A goal is what you are looking forward to accomplishing, by result of your trading. This is the reason that you are trading. This is the “why”. Wanting to make more money is a general goal, but as you write down your goals, be more specific. A few examples would be: ” I want to double my account in the next 2 years.”, or “I want to be able to pay off my daughters college tuition with the funds I earn trading Forex.” You can establish six-month goals, one-year goals, two-year goals, etc. These goals are personal and totally customizable. When you establish the “why”, “why am I trading”, you can stay faithful to the “what” (the rest of your Forex Trading System). Entry strategyThe entry strategy is what puts you in the position to potentially profit. The entry strategy decides what point you will enter the trade. Whether you use a moving average cross, a trend-line-break, a forex news announcement, a different indicator’s signal, or a different entry signal, establishing a head of time what signal you will enter on is critical. Your entry strategy determines when you are going to enter a trade to risk your money, so taking extra time to consider where and when your entry will occur is well worth it. Trade ManagementMany times we treat the entry strategy like it is the most important part of our trading system. That is arguably not true. No matter where you enter a trade, there is profit potential and a high probability that some time or another that trade will go into profit. It may take a few minutes, a few hours, days, or maybe even years but there is a good probability that sometime that trade will go into profit. Therefore, your discernment on where to exit that trade is very critical. There is a lot to be said about money management. Trade management incorporates everything between the opening of the trade and closing the trade. Having a plan for every possible scenario in that time period is crucial, if we want to be successful. Remember, if you fail to plan, you are planning to fail. These are some questions to ask ourselves before every trade (this list is not extensive): - Is there a hard profit target? - Is there a trailing stop? - Do you take partial profit? - How much profit do you take? - When do you take the partial profit? - How many times do you take partial profit? - Is there a point where you would add to the trade? - Should you ever pull the entire trade off before it hits a stop or target? - How do you handle the trade if news is coming out? Account ManagementAccount management is composed of how you will treat the funds in your account. Will you take funds out of your account every month? Will you keep adding funds into your account every month for two years straight? It’s good to have discipline in this. What are you able to reasonably do? Figure it out, write it down, and do it. Developing your Forex trading system is not something to do rashly, take your time. Research. If you want to take several months or longer to develop your system, before trading, go ahead and do that, don’t be caught up in some kind of get-rich-quick mindset. Risk ManagementRisk management is so vital to a successful trading system. It is glue that holds it together. You can have the best entry strategy, trade management, and account management, but without risk management, you can lose everything, very fast. Beginner traders can struggle with this a lot because it is tempting to risk more money when you see a potentially high profit trade. If you have an entry strategy that incorporates different levels of risk for different signals, that is fine. Just entering a trade with higher risk because it looks like a “better trade” is very unwise and is a sure way to hurt or wipe out your account in no time. Trading PlanYour trading plan encompasses all of these aspects. The plan is what brings everything together and provides order to how these five components operates in unity. Just as car has many parts, but only functions while they are together, so your trading plan needs to bring the goals, entry strategy, trade management, account management, and risk management together.
Trade Management, how to make adjustments as your trade moves in your favor, has become a hot topic in recent LIVE webinars.One of the methods that I personally employ when managing a trade is trailing the stop manually.The chart below will walk you through the process of manually trailing the stop on a trade as price advances in an uptrend on this EURUSD 4 hour chart… The trade begins when a trader takes a long position based on a Slow Stochastics crossover signaling a buy. When the trade is entered at that point, the stop is located at the level labeled “Initial Stop”.As the trade progresses to the upside, and as price action takes out each successive high, the stop is moved up to the next higher low.Looking at the chart for example, when price moves above the high labeled #1, the stop is moved from the Initial Stop level to Stop #1. As price takes out the next high at #2, the stop is trailed from Stop #1 to Stop #2. This procedure continues as long as price continues to advance and make higher highs and higher lows.We can see, however, that price retraces below Stop #4 thereby taking the trader out of the trade with a profit of about 325 pips.Even though the retracement took out the previous low at Stop #4, the uptrend on the pair is still intact.With that in mind, the trader can re-enter the trade when price takes out the previous high at #5. When price trades above that high, the stop would then be placed below the previous low at Stop #5.When price takes out the next high at #6, the entire process begins again.Trailing a stop in trading can be a very effective strategy to “lock in” profit as the trade progresses… in this case to the upside. It is important, however, not trail the stop too closely behind the current price at which the pair is trading. This method of manually trailing the stop based on the previous low in an uptrend provides the trader with a critical guideline. While it certainly will not prevent stop outs, it will permit the trade to have a bit more room in which to develop.In the case of a downtrend, the strategy would be reversed as the pair made lower highs and lower lows.
Implementing highly effective and successful money management techniques and using these in your trading decisions is a huge help in achieving success as a currency or forex trader. In general, there are 2 means of practicing successful money management. One of these is for you to execute frequent small stops and harvest profits from some of the best and the largest winning trades. The other one is to pick small and slow gains while taking infrequent yet large stops while aiming to let the small profits that you acquire to outweigh your huge losses. The first money management technique which aims to protect your investment in currency trading often generates minor situations of psychological pain. Still, it is beneficial because it offers more moments of victory. The second money management strategy associated with forex trading often produces plenty of minor instances of pleasure, but this is often experienced at the expense of encountering a few nasty psychological hits. It is necessary for you to pick between these strategies the one that perfectly suits your personality as a trader. You have to spend time discovering your trading style and the specific manner through which you manage each of your trades since this is useful in determining which among the money management strategies can really protect you against substantial losses. The good thing about the forex market is that it is capable of equally accommodating different trading styles without requiring a trader to invest additional costs. Because of the spread-based nature of the forex market, it is safe to assume that the cost per trading transaction is actually the same irrespective of the size of the position given by traders. If you are willing to do trades while also seriously contemplating about using an effective money management approach and properly allocating the right amount of capital in your account, then it is essential for you to consider a few stops. This is important in properly managing your money as a trader and in ensuring that you consistently receive profits. One of these stops is the equity stop which is considered to be the simplest among the many stops available for traders. This requires a trader to only risk a fixed amount on his account in one trade. One of the most commonly used metrics in equity stop is to risk only two percent of a trader’s account on any offered trade. This is beneficial because it satisfies your internal risk controls. You can also use the chart stop in proper money management. This actually involves using technical analysis in acquiring thousands of potential stops mainly driven by price actions of a given chart or by a variety of technical signals or indicators. Other stops that you can use to manage your forex money and protect your investment are margin stop and volatility stop.
When one wants to enter the trading world, there are two things which are of utmost importance – the trading platform and knowing the ways to trade. Basically it is easy to find a good trading platform by reading the reviews or asking friends about the trading platform they use. What is difficult is to make profits by trading. For a novice, the world of trading is full of surprises and so instead of making profits, the person may actually end up in huge losses. The best way is to overcome this problem is to use the concept of copy trading. This kind of trading allows a trader to copy the trades of other traders who are more experienced and so well acquainted with the rules of the trading world. Thus it has many advantages. These can be enlisted as - These signals allow even a new trader to be able to trade with the efficiency of an experienced trader. The new trader obviously has no knowledge of the technicalities of trading and so by copying the experienced trader’s moves, the new trader is able to trade in a similar manner. - Working with mirror trading is indeed very simple. Many of the trading platforms allow one to carry out this form of trading in just a few clicks. No special information or knowledge is required. One simply needs to have a trading account with their desired broker and then install the trading client. Then all one needs to do is to select a trader to be followed and the software will take care of the rest. - Also, there are options of following a trader for free for s certain period of time and only when one is satisfied with the results of account monitoring could one opt to pay for the trading signals. - Another advantage of using these trading signals for metatrader is that while one gets the profits equivalent to that of an experienced trader without having to gain nay knowledge, it is made sure that there is no risk of one’s account becoming zero or less due to the trader making trades beyond one’s price range. The trading volumes are determined by the amount of money one has in their account. The trades will mirror the selected trader’s account only proportionally. - The biggest advantage trading signals is that is shortens the time one requires to go from a novice to an experienced trader. By interacting with other traders, watching their trading pattern and duplicating their trades, one is able to understand the tips and tricks of trading. This is also called social trading. Thus the trading signals for metatrader come with a lot of advantages and it can help any novice trader to be able to trade like an experienced one and so make huge profits. Not only this, it helps one to learn how to trade in a short interval of time because learning by example is the best and the fastest method of learning to trade.
As market volatility dies down with the conclusion of the 2012 trading year, many traders begin to find more Forex pairs ranging. These periods can bring great trading opportunities for both traditional overbought and oversold traders (discussed in the October 8th edition of Chart of the Day), as well as for breakout traders. Below we can see the GBPNZD currency pair continuing to range and trading in a 482 pip range. The range is developed by identifying resistance at current highs near 1.9850 and support at a price level near 1.9368. With these areas defined we can then proceed with a trading plan to trade these pricing levels upon a breakout using OCO entry orders. When it comes to trading ranges, breakout traders will look for price to either violate a standing support or resistance level. If prices break to a higher high, traders will look to buy. Conversely preferences should be given to selling the underlying currency pair if prices break to lower lows. One of the easiest ways to place both of these orders is through the use of an OCO entry order. OCO (One Cancels the Other) ordersare designed to setup two entries to enter into the market with a long position on the break of resistance of a short position with a break of support. As the name suggests, the OCO is comprised of two orders and if one order is executed the other will be cancled and no longer remain pendingOnce entries outside of support and resistance levels are found, traders need to find exit points for their trade. Traders using OCO orders may choose to set their stop orders at the same price for both orders. As seen below the midpoint of the range is an excellent starting point for this value, which will be found below current resistance and above standing support. Once a stop value is decided, limits can be set using a 1:2 risk reward ratio. Using this setup traders will look for approximately the distance of the initial range in pips for setting their limit orders. My preference is to trade the GBPNZD using an OCO entry order to buy above 1.9860 and sell below 1.9358. Stops can be set in the middle of the range near .9620 risking 240 pips. Minimum take profit targets should look for 480 pips profit for a clear 1:2 Risk/Reward ratio.Alternatives include prices continuing to trade, offering further RSI market entries.
Trading news announcements like Non-Farm Payrolls can be dangerous, and to anyone going into a news release without fear of how badly an account can be ravaged by volatility should probably avoid doing so, and instead – wait for quieter markets.But to the trader that always protects their downside, adheres to strong money management, and protects their account by avoiding the number one mistake Forex Traders make – News announcements can offer compelling opportunities for a lot of movement in a very short period of time. Price Action, as discussed in The Forex Trader’s Guide to Price Action can assist greatly in the initiation of trades.This movement and volatility can bring a significant amount of pips to a trader’s account. It can deplete even more if not done correctly.What follows is one of the more common ways traders can look to trade the news – regardless of which way the announcement comes out; but before we get into that – let’s establish a couple of important points.1_ Nobody can tell the future (which is why risk management is so important in the first place).2_ We will likely never know what the news will be before the release (see #1 as to why)3_Even if we did know what the news announcement would be; we still don’t know exactly how the market will react to this news.To sum it up, trading news announcements adds additional volatility to the trader’s charts. By many accounts, trading news is very similar to trading in ‘panic’ situations. The more important the news announcement, the more potential volatility that may enter into the market and the more similar to a ‘panic’ situation that news release is. An announcement like NFP (Non-Farm Payrolls) can bring some significant movement as much of the world is watching this figure for signs of future direction.Step 1: Observe Price Leading into the AnnouncementAt 8AM Eastern Time, approximately 30 minutes before the NFP announcement the trader can plot support and resistance based on price action. This can be done by observing the past few hours immediately prior to the release, and drawing a rectangle around the high and the low that was hit during this period. This can be done on the 5, 15, or even 1 minute chart – the high and low of this time period will be the same.If looking for maximum movement, often one of the ‘major’ currency pairs (any currency with USD in it) will suit that need; if looking for a more conservative approach cross-pairs can certainly work as well (pairs without the US Dollar). Below is a chart of the most popular currency pair in the world, the EUR/USD for the 14 hours leading into last month’s Non-Farm Payrolls report: Step 2: Identify Support and ResistanceAs you can see, for 14 hours leading into Non-Farm Payrolls in April 2012 price respected a 25 pip range. The reasons for this can be numerous; key amongst them is the fact that liquidity providers and market makers that set the prices we can execute our trades against are cautious of NFP as well.They fully realize that a surprising number can spark a rally or a sell-off in a very short amount of time. And leading into the announcement, any significant positions taken on (by liquidity providers or retail investors executing trades) bear significant risk.Below is a chart of EURUSD ahead of the March Non-Farm Payrolls report. Notice, the same type of phenomenon takes place here, as the market stays range-bound leading into the announcement. Step 3: Set Entry OrdersNow that we’ve plotted support and resistance, based entirely around the price action taking place leading into an announcement – we can begin to set our game plan.The one thing we know, for certain, going into a news announcement is that there will probably be volatility. Predicting which direction that volatility may move is what makes trading news difficult. But, we don’t need to know the direction that volatility will push prices, as we can set entry orders on either side of support and resistance. The picture below will illustrate more fully: Step 4: Manage OrdersWhat if price comes down to open up our short position, and then moves directly back to prior resistance to trigger us in a long position?For traders in the United States, where FIFO (First in-First Out execution) is the standard, it may close out our short position at a loss. So going into the trade, you have to know how you would want this situation handled.If you would like the entry order to go long to be canceled as soon as the short position is entered (or vice versa), you can set an ‘OCO,’ or ‘One Cancels Other,’ order. That way, when the short position is entered into, the long entry gets canceled.Step 5: Add Stops/LimitsBecause we are anticipating volatility during a fast-moving environment, it behooves us to add proper risk management parameters in our trades.We have to keep in mind that The Number One Mistake that Forex Traders Make is risking too much to make too little. Despite lofty winning percentages, that type of inverse risk-reward ratio doesn’t allow for much long-term success. Directly from the Traits of Successful Traders series compiled by DailyFX, David Rodriguez states:“Traders are right more than 50% of the time, but lose more money on losing trades than they win on winning trades. Traders should use stops and limits to enforce a risk/reward ratio of 1:1 or higher.”Because we have identified support and resistance previously when setting up our entry orders, we can look to place our stop on the other side of the range.So for the short entry looking for breaks of support – stops can be placed slightly above resistance.For the long entry hoping for breaks of resistance – stops can be placed slightly below support.And profit targets or limits should be, at a minimum 100% of that amount. If you are risking 50 pips on the trade idea, look for a minimum of 50 to make sure that is worth your time. Many traders will look for far more than the number of pips risked, seeking a much higher risk-to-reward ratio such as 1-to-3 (50 pips risked, 150 pips sought) or 1-to-5 (50 pips risked, 250 pips sought).
The market sentiment seems to flip flop back and forth on a daily basis between a “Risk On” and a “Risk Off”. Reading Risk Sentiment is as simple as following the direction of the US Stock Market.Each day, it seems a new rumor is produced and the stock markets shifts accordingly. The seesaw action can take a toll on a trader’s emotions.One way to gauge an underlying trend in the market is through the risk appetite of investors. The benefit of understanding the mood of the market is it allows you to align your trades in the direction of the market sentiment.When you see the stock market increase significantly, that is an indication that risk is “on”. A risk “on” environment is a mood of the market where investors feel good about the future prospects of the economy. Therefore, they take their capital and speculate in the stock market and high yielding instruments. This generally increases the value of the stock market and high yielding currencies which lately are the Australian Dollars (AUD) and New Zealand Dollars (NZD).At the same time, low yielding instruments tend to gain less on a relative basis or possibly even lose value. Low yielding currencies tend to be sold to fund the purchase of a higher yielding currency. This selling of a low yielding currency while simultaneously buying a high yielding currency is called the Carry Trade. So an effect of a risk “on” sentiment is an increase in the stock market and demand for high yielding currencies. As a result the Carry Trade strategy tends to perform well. (See additional resources below for more information on the Carry Trade Strategy.) In the chart above, since the AUD has historically been a high yielding currency, when the risk sentiment was ‘ON’ (Green shaded areas) the AUD/USD exchange rate was likely to rise and the carry trade strategy worked well. When the risk sentiment turned ‘OFF’ (pink shaded areas) the AUD/USD exchange rate tended to fall and the carry trade strategy would not have performed inconsistently.When you see the stock market fall like we did earlier this week that is labeled as risk “off” in the media. That means investors and traders are averse to risk…they want to avoid risk and risky instruments. Therefore, the investors pull their money out of stocks by selling their shares and sell their risky instruments like high yielding currencies. In a risk “off” market mood, the carry trade does not work. Although a trader is gaining a daily dividend, the movement of the exchange rates is so adverse that is wipes out any interest gains.In a risk “off” environment, traders are better served buying safe haven currencies like the US Dollar (USD) or Japanese Yen (JPY). (Until August 2011, the Swiss Franc was also considered a safe haven currency, but the recent intervention by the Swiss National Bank is trying to curtail the buying of the Franc.)The risk assets like the US Stock market and high yielding currencies like the AUD are near resistance levels. This may mean a return to risk aversion and a selloff in the stock market and AUD/USD.
The most important consideration in trading is the direction of the overall trend. This is especially true in Foreign Exchange as trends tend to stay in place longer than in any other market. The reason is that FX reflects actual money moving from one economy to another. Whether the flow of money from one economy to the other is caused by trade between the two economies or investments (capital flows), once those natural forces are in place, they can stay in place for extended periods of time. It is sort of like a fully loaded supertanker in the open ocean at full speed, even if you cut the power, it will continue to drift in that same direction for an extended period of time.How do we determine the overall trend? The first step is to just look at the chart. The strongest trends should be visible from across the room. A currency pair’s position in relation to the 200 Day Simple Moving Average is also a popular method. Support and Resistance lines can help the trader look for entries in the direction of the overall trend. On the Chart above, we can see that the USD/CHF is in a clear downtrend. The trend is visible from across the room. Prices are well beneath the 200 Day Simple Moving Average. If we connect the highs, we can see short term and long term resistance lines that can help us when looking for specific entries.However, there are other tools that can give us insight into the relative strength of the overall trend. The ADX or Average Directional Index is another tool a trader can add to their arsenal. The ADX is unique in that it measures the strength of the trend alone. In other words, if one pair is in a strong uptrend and another pair is in a strong downtrend they will both have high ADX readings.To apply the ADX indicator, right click on any Marketscope chart and select add indicator. ADX is located under the Trend Strength section. I would suggest using the standard default setting of 14. Here is a general guideline of how to read the ADX indicator:0-25 = Absent or weak trend25-50 Strong Trend50-75 Very Strong Trend75-100 Extremely Strong Trend Once the ADX is applied, it gives us the ability to see a little deeper into the true nature of the trend. For example, on the USD/CHF chart above, we can see that during the last short term down move, ADX was well above 60. However, during the recent decline, ADX only managed to move to the 50 area. While these both are still considered very strong trends, we can see that the first circle down move was stronger than the second circle down move. This means that while the trend is strong, it could be weakening in relative terms.
Margin accounts enable investors to use a small amount of money to deal in larger volumes. Using a margin account means that a trader essentially borrows funds to further increase the possibility of a higher return on investment. Margin accounts are used by investors with the leverage provided by the borrowed money; this is to make larger trading positions possible. These margin accounts are also used by currency traders dealing in the Forex market. Simply put, trading on margin means an investor is trading using short-term borrowed capital. By using a margin account, investors can arrange deals, as well as trade large amounts by using a small amount of capital. For example, if he wants to invest in positions amounting to $10,000 or even $100,000, he can do so using funds as little as $50 or $100. Starting Margin Accounts If an investor is interested in trading using a margin account, then he must sign up first with a regular broker, or he can use an online Forex discount broker. After choosing the broker he’ll be dealing with, that’s when the margin account will be set up. Before the trading process, money should first be deposited into the margin account. The amount will depend on the percentage agreed upon by the broker and the investor. The percentage will usually be around 1 or 2% if the currency units are about 100,000 or more. If the investor deposits 1% for trading, then the remaining 99% will be provided by the broker. The investor will not be charged interest on his borrowed amount, but if he does not close the position before the agreed delivery date, then the amount will be rolled over, and that’s when interest will be charged, depending on his position. Margin Calls Brokers of margin accounts use $1000 as security. If the investor he’s dealing with starts to face losses that reach $1000, the broker may initiate margin calls. The broker would either ask the investor to put more money into his account, or just to close the position completely to limit further losses. Some brokers tend to liquidate positions once a margin call is reached. Risks = Forex Using margin accounts will help you deal in larger amounts that your capital usually cannot support. Be sure to check all the conditions that come along with margin accounts; seek additional advice if needed. Forex carries a high degree of risk; however, profit will not be made if you’re not ready to deal with that risk.
This article will teach traders to build positions through multiple entries as opposed to putting on the entire position right up front. Below we will offer a mannerism in which traders can look to increase their position size ONLY if the trade is moving in their favor.While at dinner recently with a group of analysts and traders, the topic of scaling in to positions came up, and a vigorous debate ensued. After 30 minutes of lively conversation, something became very clear: Even amongst professionals, scaling in to a trade is a hotly debated topic.Risk management is a huge part of trading; and since one of the few factors in a trader’s control is the size of the lot that they are trading, the topic of ‘scaling in’ positions certainly warrants attention.This article will explain what scaling in is, how to do it, and in which circumstances traders may want to look to ‘scale in’ to positions.What is scaling in?Scaling in is the process of entering a trade in pieces as opposed to putting the entire position on in one entry.A trader that is looking to scale into a trade might break their total position size in to quarters, halves, or any other division that they feel might let them take a more calculated approach to putting on a trade.Let’s say, for instance, that a trader was looking to take EURUSD up to 1.3300, but was afraid of a near-term movement against them. As opposed to putting on the entire trade right up front, the trader can look to ‘scale in’ to the position. The picture below will illustrate further:Scaling in every 100 pips If the trader wants their total position size to be 100k, they can choose to open 25k every 100 pips that EURUSD moves up. So, our trader can open 20k to start the position when price is at 1.2900, and once moving up to 1.3000 our trader can put on another 25k. This has the added benefit of allowing the gains in the first part of the position to assist in financing the second.After price moves up to 1.3200, the trader takes on another 25k, and again at 1.3200. Once price hits 1.3300, the trader can close the position at a strong profit.Why Scale In?In the above example, let’s assume our traders stop loss was at 1.2800 when they opened their initial EURUSD position at 1.2900. But instead of our trader scaling in, let’s assume they opened the full lot at the outset of the trade, and this time, unfortunately - the trade didn’t work for them as EURUSD ran directly to their stop at 1.2900. This means our trader takes a loss of $1,000 (100 pips X $10 per pip (100k lot)).If our trader instead looked to enter using a scale-in approach the trader would have a much more moderate loss of $250 (100 pips X $2.50 per pip (25k lot)).And the trader using a scale-in approach could have used trade management to assist in the risk management of the trade if the position moves in their favor.Let’s say that EURUSD moved up to 1.3000 shortly after our trader entered, but then reversed moving down to 1.2800. Once again, if our trader had opened the entire position up front they are faced with a $1,000 loss. But to the trader that had scaled in, adding a second part of the lot at 1.3000 - the loss would, once again, be much smaller.If the trader’s stop remained at 1.2900 while scaling in, the total loss on the position would be $600 ($200 for the first 20k scale, and $400 for the second (200 pip loss X $2 per pip)).But why would the trader be required to leave their stop at 1.2900 after the pair had moved in their favor 100 pips on the initial part of the lot? Many traders will use this type of movement as an opportunity to move their stop up to break-even, in an effort to remove their initial risk on the trade.So, as EURUSD moved up to 1.3000, the trader can open the second part of the lot, and also adjust the stop on the first part of the lot to 1.3000 from 1.2900. That way, if price reverses against the trader, they can get stopped out at break-even on the first part of the lot, taking a loss on only the second part of the position.This process can be continually instituted on all 4 parts of the scale-in approach, so that by the time the trader enters their final 25k of the position at 1.3200, stops have been moved to break-even on the previous 3 parts of the position, and the trader only carries, at maximum - $200 of risk on the position (assuming a 100 pip stop on any of the 4 legs of the position at 25k per leg).When to scale in?Traders often prefer to scale in when they are looking for a large move in a currency pair, but want to use a more risk-sensitive approach than putting on the entire lot right up front. The downside to scaling in is that you won’t get the entire move for the entire position.Whereas in our above example, the trader would be able to look for 500 pips at $10 per pip, a trader scaling in would only be looking for 500 pips on the first part of the position, with the second part seeking 400 pips, the 3rd looking for 300 pips, the 4th seeking 200 pips, and the fifth and final part of the lot looking for 100 pips. But keep in mind, scaling in also allowed the trader to take on far less risk during the trade than had the entire position been initiated right up front.
Finding and trading long term movements is the primary goal of Forex trend traders. However once a trend is found, it can be difficult to time an exact entry point for market orders. Below we can see an example of the EURGBP currency pair trending 413 pips higher over the past three months. How can traders plan their potential market entries? Today we will identify opportunities to trade the EURGBP trend using the Rate of Change indicator. The Rate of Change indicator (ROC) can be extremely useful in pinpointing entries in the Forex market. Used as an oscillator, the ROC displays the amount a currency has changed over a designated period of time in reference to a zero line. A reading above the zero line indicates that the market price of the currency is greater than the start of the ROC period. A reading below is the opposite and contends that price is trading lower compared to the first ROC period. It is important to note that ROC is an unbound oscillator similar to CCIand that the higher or lower a reading is, the greater the previous change in price.Taking the trend into consideration should always be primary when using ROC. Below we can see the EURGBP daily trend heading towards higher highs, meaning trend traders will look to buy the EURGBP. These new buy positions can be found using one of the most popular ROC signals, a zero line crossover. Traders in an uptrend will wait for the market to retrace, allowing the ROC oscillator to move below the zero line. As momentum returns with the trend buy signal may occur when ROC closes back above the zero line. Once a trade has been entered using ROC, risk can be managed by setting stops under a trendline or other area of support while setting up a positive risk/reward ratio. Using the ROC indicator, my preference is to buy the EURGBP on a new zero line crossover near .8030. Stops should be set under trendline support near .8000. First targets can look for a minimum 60 pips profit for a 1:2 Risk/Reward ratio.Alternatives scenarios include the EURGBP breaking support and moving to lower lows.
Student’s Question:In the Range Trading Webinar, a multiple lot strategy is mentioned where one lot can be closed to lock in profit while the other lot can be left open for the potential of a greater gain. Could you show how that would work with a chart?Appreciate it.Instructor’s Response:Good question……Take a look at the chart below…… In a range we want to buy at support. So at the green support zone, we would buy two (multiple) lots and set our stop at the level of the yellow line below the lowest wick that penetrated support.Then, at approximately half way through the range, we would close out (sell) one of the lots, thereby locking in that amount of profit and move the stop to breakeven on the remaining lot.We would then let the remaining second lot trade up to resistance (the top of the range) and close it out at that level or just before. That would be the ideal scenario. However, if the trade does not make to the top of the range and simply retraces all the way back down to support, we would be stopped out with a breakeven stop…in other words, no loss/no gain. But we would still have the profit from closing out the first position at the halfway point.This strategy allows a trader to lock in at least a moderate level of profit (assuming of course that the trade has moved in their favor to a certain degree) even if the trade does not make it all the way to the desired target level or limit.
Most traders find themselves analyzing a currency pair for trading purposes on a single time frame. While that is all well and good, a much more in depth analysis can be accomplished by consulting several time frames on the same pair. Think of it as trying to “size up” a person based on meeting them on one occasion versus meeting them several times. You will have more insight regarding both the person and the trade if you view them from more than one vantage point.Since a currency pair is moving through multiple time frames at the same time, it is beneficial for a trader to examine several of those time frames to determine where the pair is in it “trading cycle” on each time frame. Ideally a trader will want to postpone their entry until momentum in each time frame is aligned…all bullish for an uptrend or all bearish for a downtrend.The entire process regarding trading in general and Multiple Timeframe Analysis (MTFA) specifically begins by identifying the trend the direction in which the market has been moving the currency pair in question over time. For our purposes here, the trend can be identified on the Daily chart.On the Daily chart of the GBPUSD pair below, we can see that the pair has been in an uptrend since mid-January. The pair has been trading above the 200 SMA (green line) and pulling away from it. Price has also been building higher highs and higher lows, and, at the time of this chart the GBP is strong and USD is weak. Also, when we look at Slow Stochastics, we can see that the indicator is giving us a very bullish look in that the two moving averages which comprise Stochastics are at a strong upward angle and the separation between them is increasing meaning momentum is becoming stronger.All this adds up to bullish (upside) momentum. This means that we only want to buy the pair when each time frame is reflecting that same bullish momentum.So now that we know the direction that we want to trade the pair, let’s check out the lower time frame charts to see how they line up with the Daily so we can “fine tune” our entry.In looking at the 4 hour chart we see that the uptrend is present here as well after a mild retracement. Stochastics reflects the pullback that took place but is still poised to crossover to the upside should bullish momentum ensue. We can now check out our one hour chart for our entry signal… The one hour chart provides us with our optimum entry signal. Notice how Stochastics has retraced, moved below 20 and then crossed over to the upside and continued to move above the 20 line.That crossover in the red circle would be our entry signal since that is the point when bullish momentum kicks back in on the one hour chart. When that bullish crossover takes place, the one hour time frame is now aligned with both the four hour and the Daily chart. They are all moving in the same direction at the same time and our Multiple Time Frame Analysis objective is accomplished.While MTFA will not guarantee a winning trade, by employing it in our analysis we are putting another trading “edge” in our favor and increasing the likelihood that we will have a successful trade.Bottom Line: To implement Multiple Time Frame Analysis, after we establish the trend, we want to check a couple of lower time frame charts and not enter the trade until they are in agreement with the longer time frame chart that we used to establish the trend. Once they are all in agreement, we enter the trade. It is like aligning the tumblers in a lock. Once that is accomplished, the lock will open freely.
One of the main driving forces for Forex traders is to escape the confines of their daily monotonous grind. We all fantasize about breaking free of conventional jobs and experiencing freedom while making money from our computers. But, does that mean you can just sit on your couch and casually press buy and sell buttons while watching Game of Thrones? Probably not. The reality is, you’re leaving a world that you’ve been raised to survive in and jumping into one that nothing has prepared you for. In Forex, a different set of rules exist. As a trader, we know in the back of our minds how important risk management is – not only for our account’s health, but our mental health as well. Get it wrong and you will take a nose drive financially and emotionally – get it right and the returns will naturally flow in. The approach of the average trader makes it very difficult for them to ever earn profits or sustain real growth from Forex trading. I talk with a lot of traders everyday, and there seems to be a few common mistakes that keep reoccurring. Today, I wanted to talk about risk management, and highlight some of foundations you might be building your money management ‘mentality’ from, which could be harming your chances of getting where you want to be. Don’t Be Money Goal Orientated Some of the most common questions go a little something like this: Can I make 10% per month? How many signals per week can I expect? How long will it take to double my account with $1000? All these questions really have a strong focus point – the urgency of making money really fast. The big issue I have with these kind of ‘goal orientated’ questions, is that you really can’t definitively answer them the way the trader ideally wants them answered. The market is a dynamic environment. One month could be absolutely pumping, and be ‘easy pickings’ with very lucrative trade signals. The following month could be a complete dead zone, where price consolidates, churns in low volatility, and doesn’t allow you to make any money off price movements. Don’t try to force rigid monetary, or money management goals on a fluctuating environment. How are you going to meet your criteria if the market flattens out? Picture this, you’re on the last week of the month: What are you going to do if you’re no where near close to completing your ‘monthly quota’? How are you going to respond to the self-inflicted pressure you’ve placed on yourself to reach your monetary goal? With a sense of urgency, you may feel the need to be more aggressive and start forcing trades out of the market, trades that you wouldn’t normally pull the trigger on – but you feel like you need to take decisive action under this pressure. The best way to remedy this is to not set any goals at all, instead concentrate on becoming an excellent trader who is a ‘master chart reader’ and manages risk very well. Just learn to embrace what the market offers you. Only take action when the market offers your system’s trade signal, you know the ones that provide an edge with the probabilities in your favor. So limit yourself to them. No signal = No trade. We don’t like admitting that we can’t predict or control what’s going to happen every single time we look at the charts. Sometimes the markets are just noisy and very hostile to trade in, and it is that simple. They become a black hole, you keep throwing money at it, and it gets consumed in consolidation. Some months you will do well, others you may not see any gains, or even suffer a loss. The last thing you want to do is define your success with absolute numbers leading into self-inflicted emotional pressure, and a negative self-evaluation if they are not met. The Forex markets are not really designed to send your financials into the stratosphere at breaking speeds. If they were, there would be a lot more Ferrari’s on the road. If you try to make money fast, you will be taking on incredibly elevated risk – and most people find themselves on the wrong side of it. Checkpoint It is not logical to give yourself ‘time based monetary goals’ in a fluctuating environment like Forex. You don’t know if the month is going to offer really high quality trade signals with good price response, or offer a whole month of terrible churning. Learn to work with what the market gives you, don’t force trades just because of an arbitrary number you’ve set for yourself or a ‘deadline’ that you feel you must meet for your ‘end of month performance evaluation’. Measuring Success in Pips If you stop by any public forum you will see traders measuring their trade outcome with pips, or ‘how many pips they are up or down’ for the day. It’s become the social standard for Forex traders, we’re all used to talking with each other in this fashion, using pips as a reference point for performance. But, the truth is it isn’t really the correct way for a serious trader to assess how well a trade went, or to evaluate risk. Pips are just a measurement of distance on the price chart – catching the move is great, but what is more important is how the trade was setup in order to catch the move. You see, a pip to me will have a different meaning to you, and a different meaning again to another trader. Pips are relative measurements and have relative values. If you ‘make 150 pips’, but your stop loss was set with a distance of 500 pips – it’s a negatively geared risk/reward trade that doesn’t give you any bragging rights. Above the example trade is illustrated – It becomes clear how suicidal this type of negative geared trade setup is. You’re risking more pips, in order to make a few. So you might think someone did already because they ‘won 100 pips’, but if they told you they risked 500 pips to get it, you might hold back the applause. Also you have to keep in mind a 100 pip move will look very different on say the EUR/USD compared to the EUR/AUD, and different again on Gold. If you seen the EUR/USD move 100 pips, it wouldn’t be uncommon to see the EUR/AUD move 250 pips in the same day. Gold can easily move 2000 pips in one session, and when you compare all the charts side by side, they all look very similar despite the drastic differences in pip movement. Even though both candlestick charts look the same – they move a drastically different amount of pips for day. Gold moves 10x as much as the EURUSD, but you wouldn’t pick that just by looking at the candlesticks. 100 pips on the EURUSD is not the same as 100 pips on Gold. Again, pips are a relative measurement and aren’t really comparable to one another across different markets. To throw things out even further – Pips also contain a ‘pip value’ that is unique to each trade. A pip value is determined by the: - lot sizing of your trade - the quote currency of the instrument you’re trading - the currency your account is in If your trading account has USD in it – then any pair that has XXX/USD will have a pip value of $10 per lot. If you where using AUD in your account instead, and trading a XXX/USD pair, then the pip value will be determined by the AUD/USD exchange rate and the lot sizing of the pair you’re trading. Let’s say GBP/USD was opened with 5 standard lots, and the trading account contained USD – then each pip would be worth $50. The trade would increment or decrement $50 for every pip gained or lost. A 100 pip move ‘in the money’ would put you ahead $5000. Compare the same situation to another person who takes the exact same trade but uses Australian Dollars instead – the ‘pip value’ will be different, and you need to make up this difference by adjusting your lot sizing to compensate. I won’t get into the math here, that’s all covered in our Price Action Course. So, when someone tells you that they won 200 pips on their trade – it really doesn’t mean much. If it was the EURUSD, the move was pretty decent, probably a good trade – but if the trade was on Gold, it is much less of an achievement. Remember, the real measure of a trades success is how much return on investment you were able to get out of it. The bottom line for trading is money – we’re not trading with magic beans here, we’re looking to make $$$. So, the final outcome of a trade’s performance needs be counted as return on investment. If you had to risk $1000 to make $100 – then you’re flirting with an account meltdown. If however, you risk $100 and make $1000 you’ve done well, banking 1000% ROI. These sort of trades can happen, I got about 900% ROI on this trade. We all know to fit into the social crowd, you’ve got to fall back to the classic way of talking about pip moves here and there, but when it comes recording your own data, don’t be a pip counter when measuring your success. Checkpoint Don’t use pips as a measure for your trading success – pips are relative and not comparable in a 1:1 fashion across different markets. Always asses your risk and measure performance in terms of ROI. Trades should offer positive return on investment, not ‘pips’. Trades risk should be assessed in dollar value, not pips. Under Capitalization How many accounts have you severely compromised or totally wiped out, because you just were not happy with the profits you were making, and decided to amp up your risk to over compensate? A serious Forex trader knows trading should be treated like a business. New businesses in general have a high failure rate, not just Forex ventures. Even the online startups or the classic brick and mortar stores have a poor success rate. One of the most common failures for a small business is under capitalization – not having enough money. The ironic thing with Forex funding is that you can ‘start up’ and operate with small amounts of money. Technically you can trade with initial investments from as little as $100! Having said that – if you want Forex to generate you $500 a week from a $100 start up, then you’re very under capitalized! Under capitalization affects a trader deeply on the psychological level. Under capitalized traders want the high income they desire, but don’t have the account power to make it happen so they are likely to risk more and over expose themselves. This can lead to a quick wipe out and a frustrated, angry trader. It’s best to have realistic goals, and save up the money that you really need to be able to generate the kind of returns you want to see. If you aren’t satisfied with what you’re achieving – you’re most likely going to ‘turn up the dial’ to try move the needle more quickly. Don’t be the one who overexposes their account to massive risk under desperation to hit ‘the big win’. This is a gambling mentality that provides the wrong frame work for a trader to develop their mindset. It’s better to start up with investment capital that you don’t have to worry about living off of, then you can just concentrate on growing it with good risk management. Once it reaches a certain threshold you’re happy with, you might make the decision to start pulling out money from time to time. Once you’ve gotten used to the occasional withdrawal and you’re still able to maintain account growth – then you can consider jumping over to full-time trading. Checkpoint Under capitalization is not a money problem, it’s more of a psychological issue. If you don’t have enough money to generate the income you desire, you’re very like to increase your risk to dangerous levels to compensate for your small account by over-leveraging, etc. Start up with investment money that you can grow without withdrawing from, and build from there. Cutting Trades Off Too Early One of the quickest ways to shoot yourself in the foot is to become the ‘Forex micro manger‘ – the trader who sits there making many fine tuned adjustments to their open positions. Sometimes you may feel like you need to sit there and babysit your trades and nurture them into profit, or cut them loose if there are any signs of negativity. You think you’re the caring mother, but what you’re really like is the crazy doctor performing ‘open trade surgery’. Stop ‘hacking’ into your trade and scarring your account. When a trader makes adjustments to their stop loss or moves a stop loss to break even – or does anything that is outside of the original trade’s plan, it will generally result in an unfavorable outcome. Don’t sit there and watch your floating P/L, every tick will boil up more and more emotions – especially when the trade ticks against you. By doing this, you are more likely to close a trade based off emotions even when there are no clear exit signals. Think about all the times you’ve tampered with your open trades and all it has managed to do is deprive you of potential profits that you would have otherwise collected. Price won’t move in the straight line you want it to. Instead it moves in wave like motions, or a zig-zag kind of pattern. It’s only logical to expect a trade to phase in and out of profit as the market gradually moves where it wants to go. This is the basic principles of swing trading. Do yourself a favor, set your trade up in a logical manner that you’re confident in and then just walk away. Close your trading terminal down and don’t even look at it until the next day. This ‘set, forget & collect’ system will do wonders for you, financially, mentally and emotionally. One of the best ‘hands off’ approaches is to use ‘end of day signals‘, then set and forget them. A lot of traders use this approach to work their trading into a busy life schedule. A trader could check the markets at a key time, like at the end of day New York close, place their trades and continue with their normal daily routine – like a day job, study, look after the kids, etc. When you take this hands off approach, it really removes the risk of making those deadly ‘mid-trade’ decisions – and you can catch some really strong market moves with little effort as a result. I am a big fan of keeping Forex simple by putting less effort into trading, setting trades up, and letting the markets do the rest of the work for me. It’s a good feeling when you only take 15 minutes of your day to analyze the market, set up a trade, and it turns out to produce 600% ROI. If you would like to learn how to put less effort into the markets, but reap more rewards – you should have a look at the War Room Membership which contains our Price Action Course. I have 3x money management models inside the course. One specializes in removing risk from the market very quickly, so you can have open trades open with zero risk to your capital, another is a more aggressive pyramid strategy, which is for experienced traders seeking a profit multiplication strategy. We also have ‘set, forget and collect’ trade builds, as many of the war room traders also have busy lives they need to work around. Set, forget, and collect trading works very well, but if you like to be a bit more active then we do have London breakout setups and the chat room is always buzzing with intra-day trading discussion. I hope you enjoyed today’s article, please leave a comment below and let me know if you’ve caught yourself in some of the behaviors we’ve discussed today. Good luck on the charts this week, talk soon.
Forex trading has come of age, as its popularity has soared over the past decade, but that does mean that we can turn a blind eye to the possibility of fraud, especially if it disguised within a cloak of bad business practices. The Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) are the “policemen”, if you will, in this investment arena, providing regulatory oversight and administering a host of programs to protect and educate the average consumer/investor. Retail forex trading is now a safer environment, indeed, due to the tireless work of these two organizations, but, despite many arrests and convictions, there will always be a criminal element within our society that attempts to prey on the unwary. As any security professional will tell you, your first line of defense against these thieves is awareness. Once you understand how you could be possibly duped, then it is up to you to be skeptical and ever mindful of where danger may be lurking. Listen to your gut, then be prepared to walk the other way. A vast majority of the participants in the forex industry, however, are legitimate, but the Internet has lulled us into a false sense of security when dealing with the “unseen” business partner on the web, allowing our trust to be obtained rather easily. When you add greed to the equation, the fraudster can ply his various schemes with ease. Your primary focus will be on your broker, but you must also be wary of fund managers, software and signal providers, and just about anyone with a clever marketing pitch that promises high rewards with very little risk. Here are a few tips to guide your protective efforts: - Overseas Forex Brokers: There are plenty of them, and many got their start in London, the financial center of foreign exchange. Look for longevity, as a rule, and validate that they are in compliance with a good regulatory agency. Rules are not as strict as in the U.S., and a few brokers may cross the line occasionally. A safe broker will always segregate your deposits in a Tier-1 bank, far away from their operating offices. The favored fraud scheme is to promise large sign-up bonuses to get your initial deposit, but when it comes time to withdraw, you run may into a stonewall. Just remember that trying to exert your legal rights in a foreign jurisdiction is fraught with peril. - Domestic Forex Brokers: Be careful here, too. Check with the CFTC for registration credentials and that they maintain the proper level of net capital. Experience counts, but review testimonials to validate claims made. - High-Yield Investment Programs (HYIP): Beware any program that promises an easy path to riches or high returns with little risk. This tip applies to both brokers and all marketing types that wish for you to buy their management expertise, trading robot, system, or signal service. If it were so easy, why aren’t they off making millions instead of pressuring you for a few bucks? If it sounds too good to be true, it most definitely is in the forex world. - Re-quotes, Slippage, and Stop-Loss Hunting: Market makers, as opposed to ECN/STP brokers, can be tempted to manipulate the bid/ask spreads offered. Good brokers do not do this, but if you notice a high prevalence of questionable executions of your orders, then it may be time for a change. These are a few tips to help get you started, but the CTC website can help broaden your awareness, the key to fraud prevention.
Entering the world of forex trading is both easy and hard. It is easy in the way that anyone can become a forex trader. There are no college degrees needed, no extra special training required, and no licensing requirements. But it is also hard in that your purpose for trading is to earn profits but it is something that can be hard to achieve especially if you’re quite new to forex trading and still learning the ropes. More often than not the average new forex trader will incur losses during his first few months of trading. While losses are a recognized risk when trading, losing all of your investment is a painful experience and can discourage the most ardent of traders. One of the best ways to minimize losses when starting out in currency trading is to go into copy trading. In this type of trading, the new trader can get to copy the trades of other more experience traders. Copy trading has many advantages. Among them are: - It allows a new trader to trade with the same level of efficiency as a veteran trader. It takes a lot of time for a new trader to learn all of the intricacies and technicalities of trading. Copying the trades of an experience trader allows him to trade just like a veteran. - Copy trading or mirror trading is a simple process. In fact, many trading platforms have made it easy for the trader to do it by enabling this option in just a few steps. No complicated steps are needed to activate it. After the process has been setup, all one has to do is to select a trader that will be followed and the trading platform will do the rest. - There is no immediate cash out to try copy trading. There are options open that will allow for a trader to be followed for free on a trial basis. Only when the new trader has been satisfied with what he is seeing and in the results can he decide to shell out money and pay for the trading signals. - Aside from the previously mentioned advantage of being able to trade like a veteran trader and profiting at the same level as a veteran, the risk to the new trader remains relatively minimal. The reason for this is that the trading volumes are set based on the amount of money that is in the account of the trader. There is no chance that the new trader will get wiped out following the same volumes of the veteran trader. - Finally, using copy trading shortens the amount of time a trader goes from novice to experienced. The constant interaction with other traders, studying trading patterns and mirroring their moves and strategies allows the new trader to learn a lot about currency trading because he is learning from experience. Some people have quite accurately called it a form of social trading. Copy trading allows the new trader to learn by example, and this is probably the biggest advantage of this form of trading.
What is Slippage?Slippage is when an order is filled at a price that is different than the requested price.Most conversations I hear regarding slippage tend to speak about it in a negative light, when in reality, this normal market occurrence can be a good thing for traders. As the video above mentions, when orders are sent out to be filled by a liquidity provider or bank, they are filled at the best available price whether the fill price is above or below the price requested. To put this concept into a numerical example, let’s say we attempt to buy the EURUSD at the current market rate of 1.3650. When the order is filled, there are 3 potential outcomes.Outcome #1 (No Slippage)The order is submitted and the best available buy price being offered is 1.3650 (exactly what we requested), the order is then filled at 1.3650.Outcome #2 (Positive Slippage)The order is submitted and the best available buy price being offered suddenly changes to 1.3640 (10 pips below our requested price) while our order is executing, the order is then filled at this better price of 1.3640.Outcome #3 (Negative Slippage)The order is submitted and the best available buy price being offered suddenly changes to 1.3660 (10 pips above our requested price)while our order is executing, the order is then filled at this price of 1.3660.Anytime we are filled at a different price, it is called slippage.What Causes Slippage?So how does this happen? Why can’t our orders be filled at our requested price? It all goes back to the basics of what a true market consists of, buyers and sellers. For every buyer with a specific price and trade size, there must be an equal amount of sellers at the same price and trade size. If there is ever an imbalance of buyers or sellers, this is what causes prices to move up or down.So as traders, if we go in and attempt to buy 100k EURUSD at 1.3650, but there are not enough people (or no one at all) willing to sell their Euros for 1.3650 USD, our order will need to look at the next best available price(s) and buy those Euros at a higher price, giving us negative slippage. But of course sometimes the opposite could happen. If there were a flood of people wanting to sell their Euros at the time our order was submitted, we might be able to find a seller willing to sell them at a price lower than what we had initially requested, giving us positive slippage.Good trading!
One of the most widely used indicators is Stochastics. A question that is oftentimes asked in our live sessions is what is the difference between Slow and Fast Stochastics.Below is a Daily chart of the USDCHF with both a Slow and Fast Stochastic indicator on it…Slow Stochastics above and Fast Stochastics below. In principle, the trading rules are the same...a cross above 80 with a close below 80 indicates that momentum on the pair is bearish...to the downside. Conversely, a cross below 20 with a close above 20 indicates bullish momentum.We would advocate the use of the Slow Stochastics from the standpoint that it is more "readable" since it does not react as dramatically to each price action movement, be it major or minor, that the pair may have.As can be seen on the chart below, Fast Stochastics is much more sensitive to price action and, as such, is often used by shorter term traders.Keep in mind that oscillators such as Stochastics will not “predict” trends. Rather they indicate momentum based on price action.A trader will identify the trend on the Daily chart and then use an oscillator like Stochastics to time their entry in the direction of the trend on the Daily chart when momentum is shown as being in that direction.So if the daily trend on a pair is bearish as it is on this USDCHF pair, a trader using Stochastics to enter the trade, would enter a short position when Stochastics had been above 80 and then closed below 80.