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Combining Fibonacci Retracement With Trend Line Analysis

Hello and welcome to another edition of the bulls vs the bears. Last week we touched on How to Map Out Support and Resistance Areas With Fibonacci Indicator. Today we are combining Fibonacci Retracement with Trend Line Analysis. But  before we go on , if you are not sure about drawing trend lines  look up my post Drawing and Trading Trend lines. Failure do so could result in irreparable damage to your health.

Now that we’ve gotten that little alert out of the way, let’s move on with today’s lesson.

Whenever the bulls or the bears  are in control you make use of Fibonacci retracement levels to get in on the trend. So all you have to do is to look for Fibonacci levels that line up with the trend. Let’s take a look at the 1 hour chart of the AUD/JPY pair.

Rising trend line on 1-hour chart of AUD/JPY

As you can see the bulls  have been running amok on the  bullish trend line.  You  see this and you say yourself”Now will be the perfect time to make my trade once the pair touch the trend line.” But then  that little voice in your head counters with a whisper saying “How about you pull up your forex toolkit and get your Fibonacci toolkit so you can get an accurate entry price?”

Fibonacci retracement levels intersecting with rising trend line. Potential support?

As you can see the Swing Low has been plotted at 82.61 and the Swing High at 83.84. See how the 50% and 61.8% Fibonacci levels have been intersected by the rising  trend line. Hmmm…..Something tells me these two levels could be possible levels of support. Let’s find out. Shall we?

Trend line and support at 61.8% Fibonacci retracement level hold

Voila! We have a level of support at the 61.8 level. Price ricochets nicely before heading for the hills. Put in  some buy orders here and you make  the grandest  entry into the price action.

After touching the trend line, price bursts through the  nearest Swing High and heads for the hills. So it does pay to have the Fibonacci tool even if you plan on cracking the trend line a second time. When you see both a diagonal and a horizontal support/horizontal level just know that other traders are eyeing these levels like a hawk. They ‘re getting ready to pounce when the opportunity presents itself.

And, just like other drawing tools, trend line analysis can be subjective. No two traders see trend lines the same. Their binoculars see differently. But one thing is certain- You will see a trend. But once you see a trend take shape, start looking for ways to go long  to give yourself a chance to laugh all the way to the bank.

That’s a wrap for ” ”. Combining Fibonacci Retracements with Trend Line Analysis.”  Next week we’ll learn how to combine Fibonacci  Retracement with Trend Lines.

Til next time take care

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How to Map Out Support and Resistance Levels Using Fibonacci Indicator

Hello and welcome to another edition of the bulls vs the bears. Last time  we learnt that  the fibonacci was not full proof. And that it could do a 360 on you. This week we are going to learn how to map out  support and resistance levels using Fibonacci  indicator.

Like we said last time, the Fibonacci tool is quite useful. But it can’t be used in isolation. It should be used in unison with other tools to discover the sweet spotup trades that you’ve been  salivating about. So we ‘ll take what we ve learnt and go hunting for those spotups.

If your Fibonacci tool happens to spot  support and resistance levels, combined with other price areas, then chance of price  shooting high from these areas are quite good.

Let’s take a look at an example of such a scenario using a daily chart of USD/CHF

Daily chart of USD/CHF with Fibonacci retracement levels

As you can see the bulls have been running the show. All these green candles make it crystal crystal clear as to who is in charge. The question you should be asking yourself is “When do I make my entry?” Using the Fibonacci tool, you you see the low at  1.0132  as your Swing Low and the high at  the high at 1.0899  as your Swing High. So your chart looks all set with all these Fibonacci retracement levels.

Let’s see how resistance support pans out in the next scenario on the same chart

Resistance turned support at 50.0% Fib?

As you can see we’ve laid a solid foundation to increase our chances of finding a solid entry. But the next question we need to ask is “Where do we enter?

Well as you can see 1.0510 put up great resistance. And coincidenta;;y it just so happened to align with the 50% level Fibonacci retracement level. As you can see the resistance got breached. And once it turns into support, that will be the perfect time to put in your buy entry. Now let’s look at where to place your buy entry.

Resistance turned support at 50.0% Fib holds and price eventually makes a new high

If you put ion your buy order around the 50% Fib level, you should be in a good place.  However we see some hair raising moments when the support level takes absorbs a second bite at the cherry. Price tries to break through the support barrier but is unable to close the deal. Eventually the pair do break through the barrier and continue with their journey.

The same setup can be duplicated on a downtrend. Just look for price levels with similar action from previous price action.  Come to think of it  the probability of price taking a ricochet from these levels are quite high. I can hear someone saying “Why do you say that?”  well support/resistance areas are very popular zones to place buy orders. As such buyers will be keeping a close watch on these zones.

While it’s not etched in stone that price will shoot for the hills from these levels, you can be confident about your chances of your trade entry returning a healthy profit.  IT’s all a question of probabilities. If you stick with trades with a high probability of success, you will come out smelling like a rose.

That’s a wrap for ” ”. How to Map Out Support and Resistance Levels Using Fibonacci Indicator.” Next time we’ll learn how to combine Fibonacci with Trend Lines.

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Fibonacci Can Do A 360 On You…Watch Out

Hello and welcome to another edition of the bulls vs the bears.  Last time we kicked off  our series on the Fibonacci tool with an intro on Doing the Fibonacci. We basically learnt  that the Fibonacci tool was useful for placing trades at support and resistance levels. We event learnt how to to enter a trade using Fibonacci retracements.

However we are going to learn a very painful truth about the Fibonacci indicator. While it’s fun doing the Fibonacci, the Fibonacci indicator  can do a wicked 360 on. you.  In as much as it is able to predict whether support/resistance levels are going to break, they don’t always break. Some  of you are scratching your head saying”Wait a minute. I though you said Fibonacci could predict the future.” Well sure. But it’s not exactly bullet proof either.

Let’s look at a few examples starting with  a 4 hr chart of GBP/USD.

Resistance at the 50.0% Fibonacci retracement seems to be holding

Here the bears have been running things. So you seek the help of the Fibonacci indicator to get you a solid entry point. You pair a Swing  Swing High at 1.5383, with a swing low at 1.4799. As you can see the currency pair has been holding it down at the 50% level. And you’re like” Time to go short on this deal.”

Well News flash! If you so much as try to put in an order at this level you’ll do serious damage to your account.  The next graphic will explain why.

Fibonacci retracement levels failed to hold and price broke through for new highs

What didn’t realize wat that the Swing  Low had mounted a comeback. It managed to rally above the Swing High point.

What’s the moral of the story here?Yes Fibonacci retracement levels create a high probability of success. But they don’t always work. In such a situation you may not know if price will do  a U-Turn to the 38.2 level and restart the trend.

Then again price may hit the 50% or 61.8% levels before doing the turnaround.  Better yet, price may just override the Fibonacci and bulldoze its way past all the key levels like a freight train. You  need to understand that the bulls do not always resume their uptrend after discovering temporary support or resistance but instead zoom past the Swing Low.

Also you need to determine which Swing Low  you want to use. The Swing Lows are not  etched in stone, especially when the trend is very foggy. Not everybody sees charts the same way. Two people may have their biases concerning time frames and technical analysis. How do we clear that fog? By combining the fibonacci with other tools in your forex tool box such as moving averages. This should help give you a higher probability of success. For more information on moving averages look up  We Are Moving Averages Part I and II. 

 

That’s a wrap for ”Fibonacci Can Do A 360 On You…Watch Out  ”. Next time we’ll try and  solve   the support/resistance  quagmire by using the Fibonacci indicator in combination with other forms of support and resistance levels.

Till next time take care.

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Doing The Fibonacci

Hello and welcome to another edition of the bulls vs the bears.  Today we are going to be  do the Fibonacci.  Please if you’re thinking we’re going to learn the latest hip hop dance  you’re at the wrong address. We’re going to learn how to use a very famous  forex indicator called the Fibonacci.

Remember when I mentioned the Fibonacci tool in   my post “How To Calculate Risk Reward Ratio Without Blowing Your Forex Trading Account?” Well  we are going to do an in depth study on this indicator. Now I’m not a huge fan of indicators. They’re  really not part of my trading menu.  But I will make an exception  because it’s quite popular among But the Fibonacci comes highly recommended among traders because of its usefulness in analysis such us support / resistance, risk/ratio, stop losses,  retracement, e.t.c

So here is what we are going to do. I’ll give you the definition, give you the background to Fibonacci and then show you two instances by which you can use the fibonacci rule.

What exactly  is the Fibonacci Indicator?

Well Fibonacci the Fibonacci indicator  uses retracement  to define areas of support and resistance on the charts. You basically use the Fibonacci to draw static horizontal lines to determine where possible support and resistance levels will occur. Now the fibonacci tool was name after a famous Italian Mathematician called Leonardo Fibonacci. He basically had a flash bulb moment when he stumbled on a series of numbers describing the natural arrangement of things in our universe.

Now how did he derive these numbers? He started with 0 followed by 1 and then he added 0+1 to get the third number 1. Fibonacci added the third number(1+1) to get 2 and then the third number and so on. So   you have ratios  in the following sequence:0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144….  Don’t scratch your head about manually calculating these numbers. Your  MT4 software does all the leg work. The most important thing is understanding  the workings behind the the Fibonacci tool.

Speaking of which, the only ratios you need to know for the Fibonnaci are as follows:

Fibonacci Retracement Levels

0.236, 0.382, 0.500, 0.618, 0.764

Fibonacci Extension Levels

0, 0.382, 0.618, 1.000, 1.382, 1.618.

There is one little catch though. In order to apply the Fibonacci  indicator  you need to know how to  identify swing high and swing low points.  In case you’ve forgotten, a swing high is a candlestick with two lower highs on its left and right. While a swing low is a candlestick with two higher lows on its left and right.  For more information on swing points look up Do A Little Swing Trading.

I guess the burning question  on everybody’s mind is:

How Do We Use Fibonacci Retracement To Enter A Trade?

Before you consider kicking the the Fibonacci tool into  action, there is one thing you need to understand about the Fibonacci. And that is, the Fibonacci only works when there is a strong trend in the works. If the bulls are in action you go long(or buy) at the retracement level at a Fibonacci support level. But when the bears take over, you do the complete opposite. You go short(or sell) on a retracement at a Fibonacci resistance level.

Fibonacci retracement levels are quite useful to the trader. Their job is to attempt to predict where price will hit in the future. You could say they play a prophetic role. Some of you are probably wondering”What’s the theory behind the workings of the retracement levels?”  Well, the secret is whenever either the bulls or the bears start a new trend  price will retrace or pull pack to a previous level before continuing on their journey.

I guess the next question  we have to answer is

How Do we Find The Fibonacci Retracement Levels?

Like I alluded to earlier, you need to locate the latest swing highs and swing lows. If you see the bears in action click on the Swing High in your MT4 chart and drag your cursor to the most recent Swing Low. But if you happen to spot the bulls  click on the Swing Low and drag the cursor to the most recent Swing High. Let’s take a look a look at how to make those retracement levels work on the forex markets, starting with the uptrend

Daily chart of AUD/USD with Fibonacci retracement levels

Ladies and gentlemen, This is a daily chart for the AUD?USD pair in the uptrend. The horizontal and diagonal lines  represent  retracements levels of the Fibonacci indicator.  Look out for .6695 close to the .7000 line. As you can  see you plot Fibonacci retracement levels  by clicking on the Swing Low at .6995 on April 20  and then drag the cursor to the Swing High at .8264 on June 3. This creates a diagonal  line right across the chart.

Voila! your software then calculates  the retracement levels like clockwork.  You don’t need to pull your hair out doing any weird calculations. Oh! by the way the faded numbers next to the shaded areas on the shaded areas in the far right corner are the retracement levels.

Let me break this further down in simple English. IF the AUD/USD pair pulls back from a new high  one of the retracements levels will provide support as the pair look for a landing spot. Why? because  traders will be placing their buy orders at the retracement levels as price does its pullback.

Now let’s see what happens with the Swing High

Fibonacci Retracement: 38.2% Fib level held as support

Well we see that price retraced to the 23.6 level and continued with its slalom run  for the next few weeks.  See how it tried to breach the 38.2 level but failed to close the deal. See how price resumed its bullish run on July 14th and eventually breached the Swing High. It’s pretty obvious that putting in a buy at the 38.2 level would have been profitable long term.

Now let’s look at retracement levels in the downtrend using the 4 hr chart of the EUR/ USD pair.

4-hour chart of EUR/USD with Fibonacci retracement levels

Look at the Swing High at 1.4195 and the Swing Low at 1.3854.  The shaded areas in the far right corner are the retracement levels. What’s the expectation here? That  if price retraces from this Swing Low, it could run into resistance at one one of the resistance levels. This is because traders wanting to trade the downtrend may want to put their sell orders  at that level.

So what happens next?

Fibonacci Retracement: 50.0% Fib level held as resistance

Something interesting is happening here. First price mounts a daring rally, and then gets stopped  in its tracks below the 38.2 level, before trying to breach the 50% level. If you place your sell orders at the 38.2 or 50% level you stand the chance of making some ridiculous profits.

Now what did  we learn about price from these two examples? Price run into into brief support or resistance at Fibonnaci retracement levels. Now if most traders believe a retrace will occur at a Fibonacci level and are anticipating price to touch that level, then all those pending orders will have a major influence on price.

 

That’s a wrap for ” Doing The Fibonacci ”. Next week we’ll find out  what happens when retracement levels do a 360 on you.

Till next time take care.

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How To Profit From Finding The Best Trade Entry Points

 Hello and Welcome To another edition of the bulls vs the bears. Today we are going to learn how to profit from finding the best trade entry points.  Your trade entry should satisfy two requirements: reliable stop placement and humongous risk/reward potential.

I can hear someone saying”That’s easy for you to say.” Sure perfect entry points may be as rare as the eclipse of the moon.But it takes a little patience and a hunter’s mindset to spot them. So we’ll do two things. We’ll do two things we’ll look at three strategies fir for finding the best trade entry point.  

First off:

Two Strategies For Finding The Best Trading Entry Point

First things first, look out for obvious price signals. The price signals should be as clear as day that you’d be blind not to see them. The daily chart frame is a good place to start from. Why? because the signals and patterns are so crystal clear you can’t afford to miss them. Next you are looking for confluence of factors that back up the signal.. And by that I mean you look back at the previous trading periods to check whether the signal aligns with other key levels or has formed via a pullback.

For more information on confluence of factors look up Something Called Confluence

Basically make sure the signal lines up with as many supporting factors as possible to constitute the best trade entry point. If you are thinking of tweaking your trade entry, don’t even try it. you will receive severe burns to your trading position.

Now some of are asking:

Why The Wait For A Better Trade Entry?

1) First off, it  frees you to insert a tight stop loss which in turn makes you a profit on a substantial risk/reward. This means you can trade for a bigger position size.

2) You reduce the risk of being stopped out for a huge loss because you placed your stop loss out of harm’s way. by that I mean you placed your stop loss in a safer place.

3) You get to wait patiently while the trade forms. patience comes in handy especially if you are not totally sure that the trade is worth risking your precious cash on. While you wait patiently you place your stop loss. In so doing you save your self the heartache of a tsunami-sized stop out no to mention being wiped out by the market itself.

Now that we have gotten the reasons out of the way, let’s look at  a few examples of spotting the perfect trade entry

Image result for pin bar sell signal

Ladies and gentlemen, here is a clear bearish pin bar signal(circled in red) along the level of resistance via the GBP/USD pair. The tail of the pin bar is obviously sticking out like a sore among the neighbouring bars. This must tell you that  the bears are planning their reversal and that they are going to push price further down in the future.

Now let’s look at the factors supporting the sell signal using the AUS/USD pair

Using-Pin-Bar-Price-Action-Trade-Forex-Confluence

As you can see the evidence required to make a trade entry is  there for you to see.  We see  a downtrend that has been developing for a month with the signal developing after a pullback to the level of resistance. The signal so obvious that you don’t need a bolt of lightning to tell you that it’s time to make the trade. And of course the risk/reward potential is huge.

Since this is a long term trade you don’t need to stare at your screen like a bodyguard. Just get out of the house and head to the beach while your trade entry racks up the profits.

Now we’ll look to tweak our trade entry and improve our risk reward potential

Image result for how to improve on risk reward potential of forex trade

Here we try to make our entry at the 50% point of the pin bar. There is no way we can get it at exactly 50% as it’s literally impossible. Not even Einstein could have got that right. But you can make your grand entry at the point of retrace just under the the 50% point and with a stop loss just below the pin high.  Aside placing a stop loss you could improve your risk potential from RR1 to RR2 as indicated above. Some have been known to increase the risk/reward to RR3.

Now let’s look at another entry example using the daily time frame

Image result for forex pin bar in daily chart time frame

Ladies and gentlemen, here is a trade entry in the daily time frame via the EUR/USD pair. We have a bearish pin bar forming as a result of the bears doing a sharp reversal. And just like the previous example, the pin bar clearly sticks out like a peacock. You can’t miss it.

As you can see a pin bar formation is taking place at the level of resistance  on the weekly chart. It’s pretty much consistent with the pin bar formation in the downtrend of the daily chart frame.

Massive pin bar

Finally let’s take a look at  a long tailed pin bar setup in the daily chart

Clearly we see a long tailed bullish pin bar at the level of  support on the right side of the chart.  That of course kicks of the bullish charge.  With your knowledge of long tailed pin bars, nobody needs to tell you that’s a the perfect entry point to put in your trade. No to mention the huge risk/ reward benefits that you will accrue from this setup

That’s a wrap for “How To Profit From Finding The Best Trade Entry Points”.   What you  need to understand from this lesson is that the best trade entries form with the help of supporting factors.  Basically you are looking for the coming together of a signal and a level, or  a signal and  a trend, or even a level and a trend

The trend at the time should be painfully obvious with the signals formed at a key level. With a little patience, training and reliable instincts you should be able to make your entry with consummate ease.

Till next time take care.

 

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It’s not The Quantity of the Trades… It’s The Quality

Hello and welcome to to another edition of the bulls versus the bears. Today I have another simple message for you. It’s not  the quantity of your trades..It’s the quality. There is absolutely no need to enter trades day in day out as if your pants are on fire. If you’re afraid of missing the next big market wave? Don’t bother! If you miss what you believe is a juicy trade pattern, you’re sure to see it the next day. Keep your fears at ease!

Don’t act as if forex trades are “reduced to clear situations”.  The forex market is not up for sale that you have to trade as if every trade could be your last. Do you know what this kind of strategy is called? It’s called overtrading. I can hear somebody asking:

What Constitutes Overtrading?

First off, you are always in a trade. You feel you absolutely must be in every trade or else you are going to lose your sanity. You are so obsessed with the forex markets and your trades that you go to sleep with your trades and dreaming about the next trade. Even worse, you are involved in multiple trades which is forex suicide. But you can get away with multiple trades  only if you apply solid risk management.

IF you want quality trades just trade at least 6 times a month. Or  pick one or two high probability sets that are  solid enough to keep you outside of the house for long periods of time. Just set and forget and smell the roses.

Let me show you how overtrading affects your trading process and your trading account

You Trade Too Much You Blunt Your Edge

Yes! When you trade too much your trading edge  becomes blunt. Instead of focusing on quality trades which give you an advantage over other trades you settle for bread crumbs. By bread crumbs I mean low quality trades that fall outside the criteria for your trading edge. And when you  do that, your chances of prosperity become slim.

If you want your forex trades to  be high quality you need to know the difference between market noise and high probability price events(trades). Now market noise is a fancy term for sideway markets while high probability price events are, well. high probability trades. It’s absolutely crucial that you know the difference between these two trade categories or else you may end up taking trades that are nothing but loud speaker thumping noise and not real price signals. Even worse they end up blunting your precious trading edge.

For more information  on market noise and high probability trades look up Forex Market Goes Sideways and How To Spot High  Probability Trades.

Brokers Get Rich At Your Expense

The more you trade the more forex brokers get rich at your expense.  Of course I can hear somebody asking “But how do these brokers get rich at my expense?” They get rich through the spreads and commissions that they charge you. So that every time you trade they make money from your trades. So if you want to gain an edge over your broker,  TRADE LESS!

Too Much of A Good Thing  Is Bad

I’m sure most of you know the phrase “Too Much Of a Good Thing Is Bad.” You like something so much that it become an addiction to you. The same thing scenario applies when you trade too much. You become  fixated with the trading process that you feel like you have to jump into the market at every  opportunity. tlike gambling. You get this huge adrenaline surge  to blow all your money all at once. And when that happens all your money is gone.

So How do you cure your trading addiction? By laying out a trading plan where you identify your trading edge which will guide how you enter your trades on the market. Failure to develop a trading plan could be highly detrimental to your trading health Your trading addiction becomes progressively worse and you  will end up blowing up your  trading account. Two things could happen in the process. Either you learn your lesson and go back to trading the right way or you become so dehydrated from your addiction that you end up quitting as a trader all together.

I guess the appropriate question is:

How Do I Cure OverTrading?

First:

Trade Less

You need to trade less. In other words you don’t need to trade 70 times a month.  The ideal number is 5-7 times a month. Anything beyond that is a crazy addiction. While you are at it, put some strict rules withing your trading plan. At the same time add some flexibility to your trading plan to complement the rigidity. By that I mean where you place your stop loss, How you enter your trade, How much you can afford to risk, e.t.c.

Look For Trade  Setups Which Align With Your Trading Plan

You need to look for trade setups that align with your trading plan.  You must identify setups that satisfy the criteria in your trading plan, visavis your trading edge.  And while you are it, apply what is  known as a T.L.S. filter. Basically you create a set of criteria to ascertain whether the trade is worth risking your money on.  The filter must satisfy two  at least two of these criteria:Trend, Level, and Signal. These criteria are what you call multiple factors of confluence.  For more information on multiple factors of influence look up Something Called Influence

You need to adopt the mentality of a hunter waiting patiently for his prey to appear. It doesn’t  mean you go after every trade your eagle eye  spots on the chart. You only save your cash for trades that you know will take you to the Promised Land. Just like a hunter who only so many bullets to waste, you have only so much cash to risk. So be frugal with your money or your trading account will blow up like dynamite.

Set and Forget 

I’m quite sure you have heard this phrase”Set and Forget.” It’s a simple but effective approach. All you have to do is set your trade, forget about it and get on with life while the trade rakes in the moolah for you. Instead of jumping into the next available trade let your original entry play out for as long as possible to allow your your profits to accumulate.

You need to understand that solid trades take a while to play out . And if you want to catch the big waves on the market you need to adopt the hunter mentality that I alluded to earlier. Stay patient with your cash cocked, and when the opportunity presents itself, you pull the trigger. This also means that you stay away from your screen. Take a chill pill while your entry racks in the cash for you. In so doing you improve your chances of making substantial trades. You certainly do not need to trade loads of times to rake in those profits.

And Finally

Stick To One Market Direction

Please stick to one market direction.  If it’s the bullish trend you enjoy trading with do that. If it’s the reverse trend, by all means  do that also. But whatever you do, STAY AWAY FROM CHOPPY WATERS. Because you will crash and burn. The market is moving  sideways in this scenario. All you have here is a whole lot of noise, and the price signals aren’t that clear either.

And when you do get burned in choppy waters, you are tempted to jump into another trade again(Trade addiction anybody?) That’s highly dangerous and inflammable in that your trading account could end up in flames. So your best option would be to stick to markets that are strongly trending and moving in one clear direction.

For more information on sideways markets and trends look up Forex Market Goes Sideways and Trade Trends with Price Action Analysis

 That’s a wrap for “It’s not The Quantity of the Trades… It’s The Quality”.  Less is more where forex trading is concerned. Unlike what people may think here are not too may  trade setups to go around throughout a calendar year. So it does not make sense that you go kamikaze looking for trades like a chicken with his head cut off.  It only make sense to be less conspicuous on the market. The less you trade, the better your health will be.

Take a low frequency approach when trading. But that’s not to say that you don’t turn the other way on  the most obvious trade setups. Of course it takes considerable skill and education to identify the most obvious trade setups. I mean you don’t just accomplish these at the snap of your fingers. With the help of  price action techniques such as Set and Forget, you should be able to nail down obvious trading setups with ease.

Till next time take care.

 

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Put In Your Risk You Get Your Reward

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Hello and welcome to another episode of the bulls vs the bears. Today I have a simple trading message:Put in your risk you get your reward. We are going to a close look at the concept of risk/reward in forex trading. Let’s get one thing straight.  Trade setups is all about possibilities. If you can visualize these possibilities  in terms of risk/reward you  should have no problem achieving consistency in your trades.

Now how do we achieve consistency in  trading? Develop a sharp instinct for identifying clear and unadulterated trade setups. Of course  You need to be at the right place and at the right time to spot these setups.  It’s like  the watching the eclipse over and over again.  Risk to reward trade setups give you a significant opportunity to make consistent profits.  So if you are able to master the risk/reward process, you’re on your way to the promised land. So how do we master risk/reward? First:

Draw Risk/Reward Levels

You need to draw risk/reward levels or ratios. before deciding on how much you want to risk.   Basically all you are doing here is calculating how much money you are willing to risk to give the trading setup the opportunity to convert from probability to actuality. Please do not think of reward first before risk. OR you put a stop so tight that it could choke the life out of your trade. Do any of these , and you will burn a huge hole in your trading account.

Now why do I say calculate risk first before reward? Because you want to create a heightened sense of awareness of the risk involved in each trade setup. In so doing you don’t obsess  too much how huge a profit you are going to make with the setup. In so doing you are able to manage risk more effectively than merely entering a trade like a gambler. The best traders in the business are the best because they are great risk managers.

Now once you have identified the trade setup and labelled the risk level, you then label the reward levels as multiples of your risk. Now there are three levels you need to draw: 1* the risk, 2*the risk, and 3* the risk. Now let’s take a look at a few illustrations of drawing risk/reward levels breakout trap and reverse trade reward Right in front of you is a perfect illustration of risk levels drawn on a bearish breakout trap and reverse trade. As you can see the risk/reward levels are nicely  labeled from 1:1 through 1:3. The risk(labelled RISK) was entered as the bears broke out on the slope. However, the reward was achieved at the bullish reversal trend as price hit the 1:3 ratio. 

This is the classic case of price action and money management working hand in hand. Conventional wisdom says  a ratio of 1:3 is the optimal as far as getting a huge return on your investment. However, a note of caution: The higher the risk ratio, the harder it will be for you to get a return on your investment. That’s greed talking, not trading logic.

Let’s look at another illustration using the support/resistance route In this instance  we see the trade going long.  So naturally you let the trade run until you claim your profits at the resistance level. If you want to go short you claim your profits at the level of support. This technique only works during ranges or weak trends.

You don’t need to go for absolute highs in this scenario.Why? Because the market may not reach those levels and then do the reverse. Besides the market is in range mode which makes absolute highs/lows a pipe dream. So what’s the moral of the story? Since the market is in range mode, you don’t need t0 gung-ho with your risk/reward. Just take a conservative stance and exit  with your loot a few pips earlier.

Use of Trailing Stops

Now should you want a a trade setup run forever, you will want to employ the use of the trailing stop. Now in case you’ve forgotten, the trailing stop is a market order that is placed below the market price. Somebody is probably asking”How Do we do this?” First set your risk ratio levels. But this time let the trade run without  a set exit target. Once the market moves in your direction, you use your pre-set reward levels to trail your stop loss. In so doing you stand a chance of locking in some serious profits and lessening your risk at the same time. The best way to use the trailing stop on risk/reward levels is when the trade is one or two times your risk.

You can also bring your trailing stop 50% closer to the entry level trade once the trade has hit the the 1R level. Reason being that you want to give the trade some air or room to breathe.  So that if you are up 1 to2, you trail your stop up to lock on 1 times your risk. If the market moves at 1:3 you  you trail your stop to lock in 2 times your risk. This technique is quite reliable. Why? because you are locking inn on your profits while at the same time leaving open the possibility of the trade turning in your direction. Now let’s a look at an illustration of the trail stop  on a pin bar setup. download

This is a nice illustration of using a trailing stop to lock in your profits. The “R” represents the risk Entry level is at the engulfed level. You put your stop loss at the tip of the candlestick. Now as you can see the uptrend is running away and racking up profits at every turn. Why,?it’s because you have no set exit plan, paving the way for you to lock up more profits. For more information on trail stops look look up Forex Basics -Top To Bottom Part II.  I suggest you read up on Forex Basics Top To Bottom – Part I  so as to get the full trading pictujre

So How Do Achieve Consistency  In Risk Reward?

Very Simple! DON’T MEDDLE WITH YOUR TRADES! Stay out of them. You don’t want to enter a trade at a risk/reward ratio of 1:2. Later you enter a low probability trade and incurr a loss. When you do this you limit the power of risk/reward, not to mention your own potential to achieve as a forex trader.

Let me illustrate what I’m talking about. Let’s say you are losing 65% of your trades at a ratio of 1:2 and you risk $200 on each trade. This means you are losing  35 out of 100 trades. This means you’ve lost 65*200=$13,000.00 However, you  made 2 times the risk on your winning trades($200):65*400=$14,000). So after 100 trades you made a profit of $14,000 even though you lost 65 of them. See the power of risk/reward? So what’s the moral of the story? You can still make money from your trades even if you lose more trades than you win. Just stay out of the way and let the market do the heavy lifting for you

That’s a wrap for “Put In Your Risk You Get Your Reward.” It takes discipline combined with knowledge to master Risk/Reward concept. Plus, you can’t second guess yourself either.  With these two concepts you could be the Usain Bolt of forex trading.  Just allow the trades to play out and you’ll be laughing all the way to the bank with your profits- even if you lose more trades than you win. It’s a win win situation. Til next time  take care.

 

 

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A Closer Look At Price Action Event Zones And Support & Resistance Levels

Hello and welcome to another edition of the bulls vs the bears.  Today we are taking  a closer look at price action event zones and support &resistance levels. Now price action zones/support and resistance levels are two crucial components of price action analysis that every forex trader must know like the back of his hand. I’m sure most of you are familiar support and resistance levels. They are one of the basic technical tools and are fairly easy to comprehend. In fact I’d be shocked if you have no idea of this tool.

However, price action event zones(or event areas) have been around for quite a while. It’s just that it’s only recent years that they have been introduced to forex traders. So we’ll define individually what these two tools are. And then we’ll identify the differences between these two tools. But first  off:

Price Action Event Area

A price action event area is a critical horizontal area on a price chart where a price signal is born(formed)  or from which  a huge trend move(up or down) or a sideways range breakout is initiated. These event areas are considered “hotspots” on the price charts.  You should watch them like a hawk in case price retraces back to them in the not too distant future. Expect the major players in the market to consider their options if price pays these event zones another visit. Now let’s take a look at a price event area using, you guessed it, a pin bar signal

Event zone Ladies and gentlemen here is the price event area  through the eyes of the pin bar signal. The grey shaded areas represent the   both the support and resistance areas.  The small white arrows pointing downward  represent the price retracing after bouncing off the key areas. However, watch the first white arrow at the first key level. Here the bulls  break  out  thanks to the pin bar formation along the line of support.

Next,  watch the second white upwards pointing arrow at the line of resistance. the line of support converts into a line of resistance, the bulls break through this key level and head for the mountains on the back of another pin bar signal. And when such an event happens, Huge profits await. Understand one thing about price event areas. If you miss the first price signal,  don’t panic! Just wait for price to retrace in the same event area and then you jump in. If you want to learn more about price event areas look up Identifying Dynamic Support and Resistance Levels.

Next up is

Support and Resistance Levels

As you probably know by now,  support and resistance levels are static horizontal levels that are drawn across the the price chart minus the highs and lows. Check out my post on how to draw support and resistance levels on price action charts. Now let’s look at an illustration of support and resistance levels Image result for forex standard support and resistance levels This graphic illustrates drawing of support and resistance levels.  As you can see there are no obvious price signals nor spectacular breakout from a consolidation situation nor key levels. These are standard support and resistance levels drawn across highs and lows. However,  There are lots of examples whose lines are a lot more elaborate and longer in length  than this illustration. So don’t panic. Now Let’s look at support/resistance levels on a daily chart  time frame using the AUD/USD pair

Image result for forex standard support and resistance levels on daily chart time frame Here is another illustration of  support/resistance levels drawn in the daily chart time frame. Some of you may be wondering “Why do we see support/resistance drawings, but no event areas?” Well it’s true that support/resistance levels dominate the charts. Just remember event areas carry a higher premium than support/resistance levels. Why?Because the reflect a major price occurrence. Support/resistance levels, on the other hand are drawn across market areas that bear little significance. Not to say support/resistance levels don’t play an important  role. But it’s the way it is on the charts. Now to the most important exciting part of this post:

What Is The Difference Between Support/Resistance Levels and Price Event Zones

Hmmmm……..How Do I Put this as clearly as possible without sounding offensive? Every event zone is a support/resistance area, but not every support/resistance area is a price event area. Now some of are probably  asking:

How Do I Tell The Difference?

For an event zone look out for a price action signal leading to to a huge breakout from a consolidation area or key  level. Let’s take a look at such an illustration using the power of confluence. Image result for forex price action signal in event zone Here is the classic illustration of a price event area using the AUDUSD pair. We have several price action signals along the key levels as indicated by the black circled numbers and the the red arrows.  These price signals then touch off major breakouts at both support and resistance levels.  And yes, when such events occur, you have price action events in motion. For more information on multiple price singles look up Something Called Confluence Now let’s see why support/resistance levels are not price event zones using the CADJPY pair.

Image result for why support/resistance levels are not price event zones Here is why support/resistance levels cant be price event zones. If you look at the price charts you will see that unlike the price event areas there is no sustained consolidation before the breakout. Even worse there is no evidence of a  price signal triggering the breakouts in either of the key levels. So based on what we see on this graphic, there is no way support/resistance areas could be labelled as price event zones.

That’s a wrap for “A Closer Look At Price Action Event Zones And Support & Resistance Levels.” As you can see price action event zones and Support/resistant levels help you understand the  overall dynamics of the formation of a trade. This give and go between the price signal/entry and the market condidtions give rise to the high probability opportunities. Til next time  take care.

 

 

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How Do I Hone My Craft As a Forex Trader?

Hello and welcome to another edition of the bulls vs the bears. Today  we are going to ask a simple question. “How Do I Hone My Craft As A Forex Trader?” Yea I know it’s a loaded question that could take all day to answer. Not to worry! We’re going not going to take all day answering this question. Do you know why so many people fail to prosper  as forex traders. Very simple. They just do not have the patience and discipline to succeed as forex traders.

Even worse, they don’t have the mental fortitude to prosper as a forex trader. They  keep on blowing their trading accounts to smithereens on a regular basis . Then they  come up with all kinds of excuses ranging from being born in the wrong family to the global  credit crunch of 2009. I wont surprised if they add metal handicaps as well. So if you want to be the best forex trader that you can be, here is what you need to do.

First:

Don’t Be In A Hurry To Get Out Of Trades

Yes,Don’t  Be in A Hurry To Get Out Of Trades. Even better make sure the traders are high probability trades. They should be the type of trades that can run for weeks and months and get you substantial profits. Just set and forget them and smell the roses while the market executes on your behalf. By the time you check  your balance you’ll find a nice healthy balance staring you in the face.

Make full use of the time frames in the forex markets. Don’t be anxious to hit the exit button too soon. Let the trades ride for as long as possible so as to give you a chance to ride the big waves and net some huge profits in the process. That’s how the top traders  become prosperous.

Be Smart Placing Your Stop Losses and Don’t Be Greedy

If you want to be the best forex trader you want to be, then be smart placing your stop losses and don’t get greedy. Being smart with your stop losses could be the difference between prosperity and poverty. Ever heard pf the line “Greed is Good” in the popular movie “Wall Street”? Well greed can also detonate your trading account if you decide to gamble with your money. I strongly suggest you use a wide stop as part of your trading strategy.  Why? Because the last thing you want is to place a tight stop and then your trading suffers a nuclear-sized hit in the process, throwing your whole strategy out of joint. Your best option is to place your wide stop outside of price ranges and beyond key levels. This way you save your trading position from taking a major hit.

Keep Your Price Action Charts Clean

The main feature of price action trading is clean price action charts.  With that in mind you need to keep your price action charts clean and devoid of all those indicators. Why? because you want a clear and accurate view of the forex market. Even more important, focus on end of day data. The best way  to do this is to zone in on higher time frame charts.

That’s where most of the action takes place and you will have your best chances of success trading this time period. If you’re thinking of scalping, you will be digging your own grave. Not only will these short term frames  cause you to lose all your money, but they will also you enough stress to last you a life time. And they will also lower your chances of regular long term trading success.

Develop Clear Trading Strategies

If you want to prosper as a forex trader then you need clearly defined trading strategies. It’s like going to war, if you have a plan to win the war you will lose terribly. You need a set of trading setups and then you wait patiently for your trading edge to line up  for your trading signal to form.

You most certainly need a trading plan consisting of   the most effective trade setups that you hope to find on the price charts. So for instance if you are a pin bar enthusiast, you’d be on the look out for the pin bar and its different variations among other price action signals. It’s an absolute must that you have a checklist of some sorts before doing your analysis and then putting in your trade.

Understand How Risk/Reward Works

Ask the most successful forex  traders and they will tell you this:”Understand How Risk/Reward Works.”  And they are absolutely right. Because you need to understand the calculations behind risk reward and how to make it work by placing your stops and profit targets at the right places. For risk/reward to work for you, do ABSOLUTELY NOTHING. Yes!ABSOLUTELY NOTHING!  Because hitting the exit button when trouble looms will cause you to leave potential profits on the table. So to help contain your emotions and fears just apply the set and forget strategy and head for the beach. By the time you get back from smelling the roses, you should see profits in your forex trading account.

Look Out For Factors of Confluence

One of the biggest indicators you should look out for on the charts are factors of confluence. Now in case some of you have forgotten factors of confluence are coming together or intersection of two or more key levels. The intersection of these levels  creates a hot point or point of confluence in the forex market. Part of looking for factors of confluence is knowing what constitutes confluence. Examples of factors  confluence you  should be looking out for are : uptrend/downtrend, Exponential Moving Averages(Look up Moving Averages 1 and II), and static support and resistance levels. You need to find as much evidence as possible on the charts to support your trade. For more information on factors of confluence look  up  Something Called Confluence.

Your Thoughts and Your Actions Must Be On The Same Page On The Forex Market

Make sure your thoughts and your actions are on the same page on the forex market. If these two things are not in sync, your chances of  prospering on the forex market are very minimal. There is something crucial you need to understand. You cannot afford to trade like a gambler nor should you allow previous bad trades to affect you too much. Just be cool calm and collected,  even if  those voices in your head try to force you to jump into the market.

You need to get your thoughts and actions on the same page such that you develop a sixth sense about the intentions of the forex market. Once you are able to get your thoughts and actions to work in tandem, your ability to navigate the forex markets will be less problematic.

Treat Forex Trading Like A Business

You need to treat forex trading like a business. If you think about it, forex trading is a business. Just like any other business it has costs/expenses(losses). It also involves the use of external equipment such as internet connectivity, computers, e.t.c. And  you make revenues(winning trades). You make profit when your revenues outstrip your losses. So now that you have that in mind, here is what you need to do. Try not to risk too much on your trades or else you will cause your trading account to hemorrhage.  Even more important you need to know what you are doing. You cannot be winging it like a Las Vegas gambler.

That’s a wrap for “How Do I Hone My Craft As a Forex Trader?” You need to work on yourself before you can perfect trading on the forex markets. When you accomplish this feat then you your trading will improve. Some of  you are probably like “How Do I Work On Myself?” First learn as much as you can about forex trading. Keep an open mind and do not make failure part of your vocabulary. And remember, there is no “Silver Bullet” strategy to trading success. Just work on yourself, stick to your trading plan, and keep your eye on the prize. Til next time  take care.

 

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How To Draw Support and Resistance Levels On Price Action Charts

Hello and welcome to another edition of the bulls and the bears. A long while back we learnt How to Identify Support and Resistance Levels. What we failed to learn was how to draw support and resistance levels on the price action charts before trading on the forex market. This is something you should do at least the day before you trade on the forex market

.You want to identify potential trading zones among these key levels before placing your trades Before we start today’s lesson let  me sound a cautionary note to you all . Drawing support and resistance levels is not magic. It’s not a situation where price automatically hits a support or resistance level and then breaks out. Sometimes the levels that you draw may turn out to be the wrong ones as you trade live. The actual levels may be above or below the levels that you drew. And  that could cost you dearly in your trading account.

You may struggle with drawing these levels at the beginning but once you get the hang of it, drawing these levels will be second nature for you. So basically we are going to learn how to draw support and resistance levels properly before you trade. This is the surest way of avoiding tsunami -sized craters in your account.

First:

Look For the Next Significant Support and Resistance Levels

Your first task at hand is to look for the next significant support and resistance levels.  Let me sound another  cautionary note. Just because you are drawing support and resistance levels does not mean you draw all support and resistance levels that you set you eyes on. That  will cause you to pull your hair out. Even worse, you may miss out on some hot trades. Just draw a few lines  that clarify things as to what’s happening on the charts.

How Do We Do This?

Just draw one support level below the current price and one resistance level above the current price. Don’t worry too much about pinpoint accuracy. Just draw it at a place that makes sense to you. We’ll deal with accuracy later, Let’s look at an example using the EUR/USD pair S/R example 1 Ladies and gentlemen, here is an illustration of drawing a key support line and a key resistance line. Now the shaded price at the key support line represents the current price and the shaded price at the resistance level represents the current price at that level, Like I said don’t worry about accuracy. Just make sure it the logic behind your selection makes sense. I can hear you asking”Now How Do I Know It’s A Major Level?”

Check If There Is Enough Price Rotation Around That Level

Yes you need to examine whether there is enough price rotation around that key level. The best way to find out is to check how many times price has touched that level. You may have to tweak your key level slightly to accommodate as many  hit as possible from price both above and below the line. Now let’s take a look at the above graphic again S/R example 1 As you can see both lines are nicely drawn. Price  attacked these two lines several times and they rarely flinched. This means both lines are significant levels and they have serious backbone. Now price might hit your lines more than you are willing to accommodate. Occasionally price might break out just to take care of pending market orders.

However,  There is one breakout formation you need to keep an eye on. And the name is of this formation is simply called :

The Elbow

I can  hear someone  asking”Does it look like the human elbow?” Sorry! You got it wrong. Basically it’s a rotation point where a key level resists price’s onslaught such that price falls on its back. Now it will be ill-advised to trade elbows by themselves. But if  your drawn lines fall on these elbows, that’s your green light to put in your market order. Now let’s take a look at what the elbow looks like Elbow formations Here the elbows are shaded green. And they are located in two places. The first is in an uptrend and the second is in a range. And like I said, earlier they also act as support and resistance levels- assuming your lines falls on these levels. Let’s take a look at another elbow Elbow formations Here keep an eye on the full body and long skinny wicks  of the candlesticks. The lines seem to be  cutting through more wicks than full bodies. But I suggest you give more weight to the bodies than the wicks for purposes of peace of mind later on.  If you want to brush up on your candlesticks look up Fundamentals of Reading Candlestick Patterns. Next up is:

Examine Previous Price Action

You absolutely need to examine previous price action to see whether  those key levels make sense. Now when we say previous price action we are referring to historical price action in the past. Now I’m not saying scroll all the way back to price action of twenty years ago to do your analysis(That’ll take you the rest of your life). Just go back to price action  ranging from a week to a month previously. The price action data should be fresh enough for you decide whether the current key levels still  make sense. Let’s take another  look at the price action of the EUR/USD pair Historical data The data for from August to September seems pretty solid, Consequently it means the support and resistance lines pass the test. It also give you confidence to know that you’ve the right support/resistance lines at the right places. However, price  changes with time. Consequently your  historical data may be out of sync with your support and resistance levels. But with practice and a little practice you should be able to recognize the key levels like the back of your hand.

Use The Same Process To Find  the Next Set of Support and Resistance Levels

Now we’re going to use the same process  to find the next of support and resistance levels. They will definitely come in handy when you are looking for solid profit targets or stop loss levels. Now let’s look at the new levels in the EUR/USD  graphic. Second set of S/R levels This is what the next support/resistance levels look like. However, the next major levels are fairly close. There is not  room for maneuver. So you may have to sit tight and  wait for price to react on the outer lines rather than the inner lines before you put in your trade entry.

That’s a wrap for “How To Draw Support and Resistance Level On The Price Action Charts”. I assume everybody has gotten the hang of drawing support and resistance levels. The only way to perfect this is in live trading conditions. Practice till it becomes second nature to you . Then you can predict where price will hit at that level. Support and resistance levels can be  reliable places to enter trades and set awesome trade profits.

So long as you draw the key levels properly, you’ll accrue huge profits beyond your wildest dreams However drawing key levels is not an exact science. What you need to look for is your trading edge. Support and resistance levels help you give you that edge. If you want to watch price action run at the speed of light look up  Identifying Dynamic Support and Resistance Levels. Til next time  take care.

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Why Should I Learn Price Action Analysis At All?

Hello and welcome to another edition of the bulls vs the bears. So we started our price action trading journey by discovering What Price Action Trading Is. Then we Learnt How to Ace Price Action Trading. And finally we were told in no uncertain terms  Why Price Action Trading Still Rocks. After pouring my heart out about the virtues of  price action, guess what? I hear someone asking”Why Should I Learn Price Action Analysis At All?”

Well I have a simple response to your question: BECAUSE YOU HAVE TO! For the life of me I don’t understand why anybody would fall on a zillion indicators and a bunch  of websites to uncover the trading edge for that person. You make the whole price action process look like looking for needle in a haystack when  you fall back on those toys. Look, the trading edge is right in front you. You need to use price action analysis to fish out the trading edge. Now I may sound simplistic when I say Price action analysis is simple. It truly is. It’s just you and the raw data on your screen. Just uncover the trading edge and you will reap the benefits. Still  not convinced? Hopefully the following reasons will unfurl your doubts.

Price Action is Squeaky Clean

Yes Price action is squeaky clean. It was not made to be cluttered with a bunch of indicators to make life complicated for you. Look, you have enough issues with a litany of confusing systems and approaches enough to make you pull your hair out.  All you have to do  remove all that chaos and deal strictly with the raw data in front of you. The trick here is making the process is simple instead of making it look like rocket science. Let’s  look at a few analysis scenarios to illustrate price action’s squeaky cleanliness. Starting with:

Uptrend/Downtrend Now here is what the uptrend and downtrend look like. Now if you know the make of an uptrend it starts with a higher Low(HL) and expands to a higher high(HH) as price increases. You don’t need an indicator to tell you to put in your take profit when a bullish situation forms. A similar situation develops as the bears take over during the  downward(bearish)trend. The  bearish trend starts with a lower low(LL) due to a huge surplus of sellers and then picks up to lower high(LH) as more buyers lose interest because sellers are dominating the trend. Again you don’t need an indicator to tell you to put in your sell bid.

You see how clean the price action looks in these two scenarios? Indicators would have crowded out the price action to the point of taking over all the real estate on the screen. Even worse, they’d definitely drive your urge to pull your hair out right through the roof.Who will want to put   himself through all that? Next piece of analysis is

Drawing Support and Resistance Levels Now as you well know support  and resistance levels are key points on the charts where price has previously reacted to an event. Support and resistance levels also act as points of confluence points with so many price signals happening at the same time. As you can see, price has broken through the support levels labelled (S).

This means the profits will start rolling Whereas the resistance levels labelled (R) rejected price’s advances. Now how do we draw the support/resist levels? just look for the next support and resistance levels immediately below and above the current price. Next take a  look at previous price action and see of the levels makes sense or not. Repeat the process  for the next support and resistance levels. And if the process  makes sense you make your trade entry.

For more information on support and resistance levels look up Identify Support and Resistance levels with Price Action

Price Signals insidebar-breakout

Price signals are the currency of forex trading. they reflect the presence of a price action setup on the charts. As you can see the breakout of the bulls at the line of support is a classic example of a price signal. This tells you right away that a bullish pattern has been established so it’s time to put in a trade. However, not all price signals are positive. So the best thing to do is to wait for confirmation below the price of support before you put in your trade. Now that we’re done with the illustrations, let’s move on to the next reason for learning price action analysis which is:

Price Action Is The Lingua Franca of Forex Trading

Believe it or not, price action is the lingua franca of forex trading. By that I mean price action is the language common to all forex trading. And through price action trading  you get a peek into the trading mindset of forex traders. These trading mindsets are then played out on the price charts through the various candlestick patterns. When one person thinks now is the best time to buy, another trader believes it’s a good time to sell.

So when more people believe it’s time to sell, the price goes up. If more  traders believe it’s time to sell, the price goes down. T he  phrase “One man’s meat is another man’s poison” becomes very prominent here. Basically data representing the mindset of the trades is staring at you in the face on the price chart. You do not need an indicator to interpret it for you. Let’s look at a classic illustration of price action on a pin bar set up at the level of resistances pin bar The shaded area represents the bearish pin bar. This came about a result of the bears(sellers) pushing the price lower at the expense of the bulls(buyers). The bulls initially go on the attack resulting in the long-tailed wick. But the bears eventually get the upper hand. And when  you see such a  scenario you don’t need an indicator to tell you that that’s a signal to sell. And speaking of price signals

Price Action Lets You Identify Obvious Trading Signals and Persistent Trading Patterns

The neat thing about price action is that it allows you to identify clear trading signals and persistent candlestick patterns. By persistent candlestick patterns I mean trading patterns that are so prevalent over a specific time frame. These factors are so clear that with a solid trading plan, you should be able to identify  these two factors. Not to mention the fact that your trading edge will also help identify these two factors.

Let’s say you get an obvious pin bar signal at a key chart level within a clear trend. Lined up for on this level are the factors of confluence  – trend, level, confluence(Popularly known as T.L.S.). Assuming you have a risk management policy in place,  you should put your put your stop loss at the tip of the pin bar and surrounding key levels. Based on your stop loss placement you set your position size and  take profit targets. Now let’s take look at T.L.S. in action 03-Using-Pin-Bar-Price-Action-Trade-Forex-Confluence-1024x480 (1).png

This is  a classic example of T.L.S in action.(Trend Level Action) We see three buy signals along the line of support. You then place your stop loss partially at the tip of the bearish pin bar along the line of support.  And based on the stop loss you set your set take profit. As you may have noticed support all of a sudden turns into resistance. This is where the bulls run out of steam and the bears take over, creating a downtrend and  surge downhill. You then use the same strategy  you applied at the support level  -except this time you place your stop loss along the  resistance level.

If you want to know how to identify prevalent chart patterns, read up on Trading Chart Patterns I and II .

You see how straight forward price action analysis is? Once you get the hang of studying  price action charts, you’ll find that price patterns and price signals keep repeating themselves. Once you are able to identify these signals and are able to use your intuition,  these patterns will be calling you a lot often. It will feel like instant telepathy.- something indicators wont be able to give you. For more information on how to trade with indicators, look  How to Trade Price Action Without The Indicators I and II.

That’s a wrap for “Why Should I Learn Price Action Trading At All? ” You can study every indicator known to man and end up coming back to straight up price action trading. IT’s the only analysis that makes sense. The irritating part about these indicators they take up so much real estate  they end up  crowding out the price action. That’s enough to make you pull your hair out. Price action analysis is fairly straightforward and stress free. Why? because traders trading mentality is reflected in  the price movement on the charts.  You certainly don’t  indicators to do this analysis for you. Everything is right there in front of you on the charts. Til next  take care.

 

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How To Look Into The Crystal Ball Of Your Next Forex Trade

Hello and welcome to another edition of the bulls vs the bears. This week we are going to look into how to look into the crystal ball of your next forex trade. No, we’re not learning how to be soothsayers overnight. We are going to learn how to anticipate the next trade before it happens.   To paraphrase a famous saying it’s preparation meeting opportunity. If you want to be a successful forex trader, you need to have a plan. You can’t go in  with the attitude of “wing it and let the chips fall where they may”

Based on your trading plan you anticipate on how the next trade is going to shape up . This is where preparation meeting opportunity comes in. With your trading plan in place you should have a fair idea of what the next trade is going to look like. So basically  we are going to learn how to anticipate trades and then make our entry.

First:

Understand What The Forex Market is Doing

You need to understand what the forex market is doing. How do we do this? By identifying in advance variables such as where the key levels are, where the hottest trends are, price signals et.c. It will be in your best interest to turn this habit into a regular routine every week. Some of you may be going “But this is boring.” Well, boring is good, especially if you plan on being prosperous as a forex trader. Once you’re able to ascertain what’s happening on the market, you should  be able to make your entry without fear or favor. 

You can now focus on anticipating trades at key levels and other value areas. One you recognize a price signal forming at one of these areas, you can make your move without thinking twice about it. By price  signal we are referring to a price action signal, or even a retrace to a key level. So don’t just react to the happenings on the market. You should know way in advance of the next trade formation based on your identification of the key levels. Now let’s see an illustration of  key areas that have already been mapped out. Image result for forex mapping out key levels and identifying trends Ladies and gentlemen, here is an illustration of  an old resistance level now turned into support. The old resistance is marked pink at the far left corner. Whereas the support area is labelled blue. Notice the three support areas labelled blue. It’s pretty obvious that there is an ongoing struggle between the bulls and the bears. Price seems to be holding up quite well. And when that happens, it can only mean one thing – The bulls are about to break out and head for the hills.

With that in mind you gently place your buy signal close to the tip of the bullish candle right on the support level and watch the bulls start their procession to the hills. For more information on key levels look up Identifying Support and  Resistance levels with Price Action Analysis

Keep Your Eyes On Dynamic Zones

You need to keep an eye   on dynamic zones in the markets. By dynamic zones we are referring to areas where  price action is happening at the speed of light. You see the whole idea behind anticipating trades is having a plan as to how you will react when so and so happens. This approach is more professional than trading like a Las Vegas gambler. with no rhyme nor reason behind your trades. You need to trade like a sharp shooter instead of  a suicide bomber.

Now how  does one keep in tune with the dynamic zones?Well performing  weekly and daily market analysis is one way of getting  in tune with the dynamic zones. In fact it’s the only way to stay in tune with the dynamic zones and learn to anticipate high probability trading scenarios. Your marksmanship as a trader will come in real handy in this scenario.

When you sit behind your laptop, there is no need for you to hunt for trades. By time you  turn the power button on, you should have a pretty good idea of which markets are hot right now and where to look for signals. And the best place to search for trading signals  are in areas of confluence and key levels. based on previous analysis you’ve already done.

Let’s take a look at a classic example of such a scenario. confluence

Here you have a nice looking example of the confluence scenario I just explained. Keep a close watch on the three price signals.  The first signal is at the level of support via the engulfed candles. The second signal is at the level of support. And the third signal is at the breakout point where a bullish trend forms.

The neat  thing is all three signals are unfolding at the same time. They’re coming together simultaneously. Where three such scenarios form, your crystal ball should tell you that it’s time to cash in. For more information on trading confluence areas, look up Something Called Confluence.

That’s a wrap for ”Trading Less Will Bring You More Profits.” Instead of reacting to what the forex market is doing, how about anticipating what the forex market will be doing? You can only accomplish this task by identifying the key levels, hash out a trading plan and anticipate the trades. In plain English, exercise self-control instead of allowing the forex market to control you.

I’m going to be real honest with you. The market will not always appear on the high probability /confluence areas that you highlight on your price charts. But when it does appear you need to be ready like a marksman. This where your trading edge comes in real handy. If it’s not present on the price charts DON’T BOTHER TRADING. If you have no idea what a trading edge is look up You Need To Sharpen Your Trading Edge. Til next time take care.

 

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Trading Less Will Bring You More Profits

Hello and welcome to another edition of the bulls vs the bears. This week I want to throw another suggestion you:Trading less will bring you more profits. Some of you are looking at me like”This guy has lost his marbles.” News Flash! All my marbles are intact. Listen, it makes  absolutely no sense trading 40 times a month. You run the risk of slipping into an emotional roller coaster-not to mention blowing your account into smithereens. What am I trying to stay?  Less is more. If you show your face too many times on the charts, you’ll get breadcrumbs in return.

However, if you show up every once in a while, you will surely reap in huge dividends. Of course your trading edge has to be in full effect on the market for you to reap those dividends So what’re we going to do? We are going to take a look at three trade setups you could use starting this month. If you’re not sure which trade setups to look up, try these suggestions. You should see major improvements in your trading fortunes.

So first up:

Pin Bar Sell Signal Image result for pin bar sell signal at resistance level Now take a look at this juicy pin bar. sell signal along the trendline athe level of resistance. Now  this took a few weeks for this sell signal to materialize. It takes patience to to trade like this. And you need patience to make money as a trader. The last thing you want to do is to jump in and out of trades as if your pants are on fire.  When you do that you lose a lot of money.

And  your emotions end up scattered all over the laptop screen.Even worse, you lose your beauty sleep. you don’t want that. Do you? Just put in your sell bid below the the bearish pin bar as indicated by the red arrow. For more information on trading look up  Pin Bar Strategy –  How to Trade it

Bullish Tailed Reversal Bar Image result for bullish tailed reversal bar after pull back Now as you can see this is a bullish tailed reversal bar, popularly known as the engulfed candle. As you can see this formation occurred following a brief pullback. And if you’ve noticed,  the bulls have set up a nice looking trend. This should set you up for a hefty profit. To put in your trade entry just place it above the high end if the bullish candle as indicated by the red arrow. You don’t need to make an appearance on the market every day. So long as you  concentrate on high probability setups  such the one above, prosperity will be your portion forever.

In fact,you should be able to win more than half of your trades assuming you know what you’re doing. Jut make sure you don’t risk too much and stray from your trading plan. For more information on using candlestick patterns to identify potential market moves look up How To Read Candlestick Patterns to Identify Potential Market Moves

Finally

Inside Bar Breakout

Image result for Inside Bar Breakout  - higher low and higher high

Now here  is the Inside bar breakout nicely illustrated here using the GBP/USD pair.  The higher high is the the tall candle known as the mother candle  and the lower high(right in front of the higher high) known as the baby candle. Luckily for you  price breaks through resistance without  any resistance.So this should make for a cool bumper harvest. Sometimes it makes sense to head for the exits with your cash ahead of the appearance of the resistance level. In other words it’s better safe than sorry.

But you don’t to do that too often if there is an opportunity to make more money off the trade. If you miss out on that opportunity it will mean you having to compensate by winning more trades just to make money. For more information on how to trade inside the inside bar pattern Look up Trading The Inside Bar

That’s a wrap for ”Trading Less Will Bring You More Profits.”  I’m only going  to say this.  Start using just these three trades every month and your life will never be the same. Even more important, your trading results will improve, and your you will have developed a completely different trading mindset.You will no longer experience the urge to stress yourself out with 60 trades a month.  Who does that? Give your screen a break. Go to the beach if you have to. Til next time take care.

 

 

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Allow The Forex Market to Hit Your Targets

Hello and Welcome to another edition of the bulls vs the bears. Today I have an important nugget of trading wisdom.and it is “Allow The Forex Market Hit Your Targets.” Now I can hear somebody saying”What do you mean by that?” Well all I am saying is allow the market to hit your stop loss or your profit target without you compulsively closing the trade yourself.  Don’t exit your trades too soon before price hits your stop loss or take profit targets.

When you do that you hurt your chances of making huge profits. You are basically settling for breadcrumbs. And you end up racking up huge losses by taking up small losses So to get started I’m going to show you a little illustration. Then I’ll show you some examples of allowing the market to hit your targets as opposed to compulsive closing your trades. I will also show you an illustration when it actually makes sense to head for the exits.

I guess the question of the day is:

Why Should I Not Compulsively Close My Trade?

Because if you compulsively  close a trade that is turning against you, you end up taking a loss.You see forex trading is about making profits to offset your losing trades. Sure you are going to have losing trades.But you have don’t have to close them by force all the time. All these small losses eventually add up, and they may end up wiping out your  trading account. Now we don’t want that.Do we?

Now let’s look at a little example: Say you enter a trade on your demo account, and it goes sideways for a week. The following week it heads downwards, almost stopping you out for a loss. At this point you are staring at a huge loss. The following week, the trade makes a dramatic U-turn to shoot upwards like a space shuttle and hits your profit target. You ‘re so excited you end up screaming “BULLS EYE!” You’re probably saying to yourself”Well,what has that got to do with anything?” Well  A LOT.

You see with a demo account you are thinking logically by allowing the trade to sort itself out. You feel no reason to interfere with the trade. The last thing you want to  do is to compulsively exit a trade  that could turn out to be a humongous winner. Fortunately you allowed a losing trade to transform into a winning trade because you chose to do nothing. What’s the moral of the story? Let the trade find its level.

You need to give the trade oxygen to breathe. You’re probably saying”But I want to make money NOW!” sorry, but  you can’t control the market by remote control. Just hang tight for a few weeks while the trade tries to find its level. The question is can you stay calm this way on a live account? That’s something you will have to figure out if you want to prosper as a forex trader.

With that out of the way let’s take a look at examples of the forex market hitting your targets versus you compulsively closing your trades. Image result for forex market hit profit target Ladies and gentlemen here is a classic example of how to stay in the trade using the GBP/USD pair.  If you didn’t know already  this is range trading with pivot  points. The bluish circle indicates  S1(Support level) surviving a  major hit by price. By that you’d have put your stop loss just below S1.  That’s because S1 managed to hold back price.

Now a little further up you set your profit at 1.4537. And guess what, your profit target takes a positive hit. See what a little patience does for your soul?  you waited for the market to take you out of  your trade, and you ran all the way to the bank laughing and smiling. Had you bailed out of the trade  you would have left a lot of money on the table and ended up with breadcrumbs instead. Here is a price setup  of a counter trend pin bar signal. rewward to risk trading exit strategy Take a close look at the bearish pin bar at  the 48 pip target. Now just because a pin bar goes bearish doesn’t mean you should jump ship immediately. As you can see, the bear immediately changed to a bull, sparking a huge surge. Just because a countertrend appears does not mean you immediately jump ship. Just use key levels as indicators of whether to decide whether to make your exit. So what’s the moral of the story? Don’t play Russian Roulette with your trades and avoid compulsive exits.

Instead let the forex market hit your targets. If you need help with how to take profits and stop losses look up  A Few Rules on Taking Profits and How to Place Stop Losses the Right Way. I can hear somebody asking…..

Are there Exceptions to This Rule?

Sure there are exceptions to this rule. In fact there comes a time in a man/woman’s life when you do have to exit your trade for dear life hen the tide turns against you. However the following conditions have to exist for you to run for dear life

  • Counter Trend – The formation of a reversal trend should be your queue to head for the border- FAST!
  • Pay the attention to the data on the price chart. It tells its own story… How did you close on resistance/support level? Or  moving average.These are important clues to consider when planning your exit
  • When the price signal you entered is not on the same page with the market as the market does a 360 closes  above or below the price pattern.

Now let’s look at an illustration of a trade where it really makes sense to run for dear life An_Easy_Way_to_Exit_Trades_body_Picture_4.png, An Easy Way to Exit Trades

Ladies and gentlemen  I present you a high probability  trade setup using an upward channel using  the NZD/USD pair. As you can see Take Profit has been set at 300 pips at .8140 mark. whereas a stop loss has ben set at 150 pips at ,7990 mark. The key here is setting these values prior to making these entries on the market. In deciding where you are going to place your trades, you have no doubt in your mind what to do once price hits these targets. RUN FOR DEAR LIFE

This concept is fairly straight forward.Why?Because you decide on these values prior to entering the trade. Once  you decide where you in advance where you are going to place these values ,you should be in no doubt as to what to do when  price massages  your targets.

That’s a wrap for ”Allow The Forex Market to Hit Your Targets.” As you can see, it’s possible to prosper as a forex trader by doing ABSOLUTELY NOTHING! By that I mean cutting down on playing Russian Roulette with your trades and compulsively exiting from potentially profitable trades.When you cut down on these two negative habits, you give your account a massive chance to grow.

That’s not to say you’ll never experience losses. Because the losses will come. All I’m saying is STOP TAKING THOSE COMPULSIVE LOSSES FOR NO REASON!They will slowly kill your trading account softly. And before you know it, you will have nothing left to trade with.  

There are three key components you need to have in your trading makeup.They are: accurate stop loss placement, accurate reading of price data on the charts and keeping a check on those    raw emotions. Those raw emotions,in particular, could cause you crash horribly,if you don’t put a leash on them. Some of you may be asking” How do I avoid compulsive losing?” First cut down on your risk per trade so that your emotions are not torn to shreds  when the price takes a swipe at your  stop  loss position. If it means learning stop loss placement,  and how to trade with price action by all means do that. But whatever,you do, stop taking compulsive losses just because you’re scared price is moving against your position or the market skewed sideways.

Til next time take care.

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Do Not Exit Your Forex Trades Too Early

Hello and welcome to another edition of the bulls vs the bears. Today I have a little piece of advise for you:”Do not exit your trades too early.” Why?because exiting early could cost you a hefty pay day. So many traders exit the market for mere breadcrumbs only to watch with horror as their trades become huge bumper harvests. To be brutally honest I’ve fallen victim to this trap a few times. Why do people fall for this trap?  It’s usually out of fear They are scared  the market will do a sudden 360 and put a tsunami-sized hit on their trading position. So they settle for breadcrumb profits or small loss.

Later, they start pulling their hair in disgust as they watch profits slip through their fingers. It’s like leaving  too much money on the table.When you don’t trust your trading plan well enough, you hit the panic button every chance you get. Unfortunately we all know that hitting the panic button throws all logical thought out the window.

So we are going to look why panicky traders head for the exits  too soon. And of course we’ll look at how avoid  heading for the exits and allowing your trade room to work.

First off,  what causes traders to head for the exits too early?

Poor Trading Process and Poor Understanding of Forex Market

Some traders head for the exits too soon because of a poor trading process and poor understanding of the forex market. They are basically saying “We don’t know what the heck we’re doing.” They trade without much of a trading plan with regards to entries, exits and  what to do after they enter a trade. Even worse, they’re so attached to their trades that they do the watchman routine by staring at their laptop screens all day hunting  for trades. How about applying the set and forget strategy and get on with life?

Even worse, they risk too much money on the trade. And when you do that,  you tend to hit the panic button even quicker than Speedy Gonzalez. In so doing,you over-leverage on your trading account which makes you more nervous and jumpy every time your trading position goes positive or negative. Whenever  the forex market makes  a move you’re like “This is it for me.” Or you feel  every little profit you make you have to take the money and run before the market turns around and devours your cash. You’ve made the forex market to be this two-headed monster;which shouldn’t be the case at all.

Previous Trading Losses

Yep, previous trading losses  can impact your decision to exit your trades too early. Not only that, they reinforce  an unhealthy sense of fear you may have cultivated about the forex markets.(Remember the two headed monster?) So  two quick losses may lead you to think “Hmmm….I think I may have bitten more than I can chew with this forex trading adventure.” All of sudden you start losing faith in your trading edge. This is suicidal because your trading edge is the eyes and ears  for your trades. It tells you whether conditions are right for you to enter your trades.

It’s also important that you realize that your trading edge  covers a sample of trades. In other words, you have to give the trades room to operate until they run out of steam.  So letting your last trade loss affect your feelings about the forex market has no rhyme nor reason.

Terrible Trading Mindset

A terrible trading mindset will most certainly influence your habit of exiting your  trades too soon. A lot of traders come  into the trading game thinking “I’m going to  make a lot of money quick, And I’m going to quit my job in a few months.” Well news flash! Forex trading is not a get rich quick scheme. But if you want to be rich from forex trading, then you will need to change your mental approach towards forex trading.

Some of you are probably thinking ” How in the world do I do that?”  Well, psychologists say behavior  stems from mindset.Your mindset kickstarts your bad habits,and those habits you exhibit on the forex market could be the difference between prosperity and poverty. You also need to understand that forex trading is a marathon, not a sprint.You have to treat it like any other business.By that you have to start slowly and grow your  trading account. And you have to show consistency in your trades.

The whole idea is to be steady and solid in your trading performance. Once you accomplish that, then your mindset changes from positive to negative . Not to mention the fact that  your profits will start rolling and  you can laugh all the way to the bank.

Harboring Negative Thoughts

Harboring negative thoughts can also cause you to lose big on your trades. Those negative  thoughts can eat you up big time  especially when you lose two to three   trades in a row. Of course when you start losing trades, negative emotions start kicking in.Once the negative emotions kick in, then bad trading habits follow. And when the bad trading habits become permanent, you incur more trading losses.

Even, worse,those trading losses also cause you to exit your trades at the speed of light. Then all of a sudden you’re thinking like”There is no way I can make money trading forex.I t’s just not possible.” Well,  if you are think thinking this way, you can forget about turning your trades into mega profits. Because it’s just not going to happen with you thinking this way. Often times these negative thoughts are buried in your sub-conscious and they get in the way of you making substantial profits.

Just allow your trades room to breath,and you will be laughing all the way to the bank. Now that we’ve established  the causes of exit trades too soon, I guess our next question is

How Do We Prevent Exiting Trades Too Early?

First thing you need to is:

Create a Trading Plan

You absolutely have to create a trading plan if you want to avoid exiting your trades too soon. Your trading plan is your war plan. You lay out your exit strategy and then stick to it regardless of  how hard the demons in your head  try to get you to do otherwise. You could also apply the set and forget strategy. Instead of siting in front of your screen all day hunting for trades,you set your trades and  go and chill outside. The market does the heavy lifting for you. You don’t need to be in front of the screen all day staring at your trades.

Once you hit your profit target, the money is credited into your account. Everything is programmed for your profit success. Just go to the beach while your trades rack in the profits.

Avoid Common Early Trade Exit Situations 

here are certain trade exit situations you absolutely have to avoid.  So what we’re going to do is to look at specific  situations that may affect you the trader with respect to exiting the trades. These solutions are not exactly etched in stone. Bu they should go a long way to keep you on the straight and narrow.

Situation 1 You exit a trade because you are  scared the market will turn around and drop a tsunami-sized  ton on you.

What’s The Way Out?

You need first to get one thing straight about the forex trade.You are going to lose trades. You just need to decide on how much money you can afford to part company with. However don’t make it a habit of losing too many trades or your trading account will be in a world of hurt. Probably the important thing you need to understand about trading is that you can’t be in a constant state of fear. Fear causes people to do illogical things including exiting trades a the speed of light.If that’s your trading line of thought, you could end up losing out on huge profits.

I can hear some saying”So how do I protect my losing trade?”well  you place a wide stop loss. In so doing you give your trade oxygen to breathe. I can hear another person saying  How do I set up the wide stop loss?”Well first decide how much money you can afford to lose. Next you tweak your position size to protect your initial risk. This way when the trade goes against you (And we hope it doesn’t happen), you can then say”I’m fine with my loss. Next trade please!”

You can also exit at  breakeven to avoid a loss. But in  exiting so soon you risk leaving a  lot of money on the table. Which is why you need to leave your trade and your screen alone and let the market  do its work. forex trading comes with a risk. You just have to manage your risk properly.

Situation 2

You exit a trade for breadcrumbs well before your initial profit target hits.

What’s The Way Out?

Get this straight.You cannot get by on breadcrumbs.You have to hit huge home runs (profits)  if you want to be a successful trader- just because you see a 1 hr pin bar against  your trading position. You have to say to yourself”May I not fall into quick exit temptation for breadcrumbs.” If it’s a 4hr trading frame  you’re working with you should not be looking at a 1 hr trading frame. Keep your focus on.  Stand by  your trading plan religiously and  do not panic! When you panic you don’t give your trades room to grow. Just be patient and the huge profits will come rolling in.

For information on trading time frames look up Multiple Time Frame Analysis

I’m not saying breadcrumbs don’t always makes sense. There make come a time when breadcrumbs may be all you have, depending on the trade setup. But if you adopt breadcrumbs as your trading template, you end up dying a slow painful death.

Situation 3

Exiting  a trade for a partial loss without any reason at all.

What’s The Way Out?

You know you may say to yourself” Let me take a small loss now so I don’t suffer  a tsunami-sized loss later.” But what you don’t realize is that you are slowly   killing  your trading account by taking multiple small losses. The losses may look small,but they all add up later. You need to allow the market to show you through your initial stop loss whether your stop loss placement was wrong or right. Why? Because the market is very unpredictable.And the only thing you have going for you is your trading edge which is a reflection of your initial trade.

What the stop loss does is  prove that your initial trade was wrong.  What am I trying to say here? Don’t let your emotions  force you to head for the exit. Just stick to your trading plan.

Situation 4

You can’t add to winning positions fearing the market will do a 360 on you

Solution

Just take advantage of strong trends that just keep going and going with no pullbacks at all. That’s the best way to create wealth as a trader. I know you’re probably thinking”This  is too good to be true.” Well, these trends do happen. You just need to take full advantage of these phenomena,grow  your trading  account and give your head a break. Don’t overthink the process. and don’t be scared either. These two negatives could cause you to miss out on huge money-making moves on the charts

That’s a wrap for ”Do Not Exit Your Forex Trades Too Early”.  It’s very important that you know how to properly exit trades and also how to manage these trades. Even more important let the market do the talking for you rather over-analyzing trades and spraying your ego all over the place.

And please don’t even think about telling the market what to do. The forex market has a mind of its own and can pretty much decide to throw your trade into the Atlantic Ocean if it feels like doing so.

If you want to prosper as a forex trader, let go and let the forex market. The best way to employ this strategy is get out of the way and let your trading edge do the talking. Just set, forget and end enjoy life. This way you trade according to the dictates of the forex market instead of you trying to control the market.

Til next time take care.

 

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How to Ride the Big Waves In The Forex Market

 

Hello and welcome to another edition of the bulls and the bears. This week we want to learn how to ride the big waves in the forex market. I’m not referring to those monster waves surfers ride on in the Atlantic. Riding the big waves is my subtle way of referring to spotting the big moves that occur on the forex market. Those huge moves are the type every trader can profit from, assuming your instincts for spotting these gargantuan moves are as sharp as a butcher’ knife.

Profiting from these monstrous waves don’t happen like Black Jack. You must think big when looking for these big waves. If you think these big waves are get rich quick 5 minute scalps, sorry, you are on the wrong blog. I’m talking about long term waves that drag on for weeks(sometimes months) and help you make significant profits from your trades.You must develop the mindset that you are going to strike while it’s hot with these big waves. That you are not going to settle for breadcrumbs and make a quick exit out of fear that your trading position is about to take a massive hit. Instead you will sit back and allow your trade to play pick up the profits.. This mindset is not a remote control button you just hit it. you will have to develop it over time.

So! Are you ready to make massive profits from these huge waves and ditch the breadcrumbs? Here are a few tips on how to catch the waves

Develop The Mindset of Holding A Trade

If you want to ride these monster waves you have to develop the mindset of holding a trade for weeks and months. You have to tell yourself” I’m going to ride this trend for all its worth. I’m not chickening out.” The key here is summed up in one word:PATIENCE! You must be willing to wait for as long as the wave is scheduled to last until it runs out of steam. I’m talking about digging into reserves that you never realized you had. Not the 5 minute or 10 minute daily patience that we exhibit everyday.

Let’s go down memory lane to the days when you were demo trading. You use to hold trades for days, weeks, months without blinking an eyelid. In fact You were busy with your day job you weren’t worried about whether your trade was going to crash or not. And when you did check on your account you discovered your profits were piling up significantly. You were probably like “Wow! I hope I can make this type of money when I switch live.

Do you know why you didn’t care?Because you weren’t using real money on your demo account. Since demo accounts hold virtual cash you didn’t feel the pressure of a live trade. You could afford to make money and lose money. It was more like trial and error for you.

However, the tension level goes up a notch when you create a live account. Instead of getting less involved with your trades you are getting more involved with your trades.To the point where you are having second thoughts about entering trades.Even worse you are jumping in and out of trades like a cat burglar and making all kinds of trading mistakes Consequently, you ended up missing out on the big waves. Even worse you lose a truckload of money as well.

What I’m trying to illustrate here is that the psychology of holding a trade on a live account is completely different from that of a demo account. In fact, it’s downright tricky. If you want to prosper on a live trading account, then you have to replicate the same ‘do nothing’ behaviour you exhibited when you were trading on your demo account. Yea I know you’re thinking “Look man, this is live money. I can’t sit and do nothing.” But the truth of the matter is you are going to have to do absolutely nothing if you want to catch the big waves. Just go out and smell the roses while the profits pile up.

Now let’s take a look at an illustration of a huge wave

High-Probability-Trading-1024x462

Ladies and gentlemen, I present to you a huge wave via the GBP/USD pair. As you can see this baby has been stretching for months. First we have the bears pulling a humongous 4000 pip move. Next the bulls take over respond with a crazy 3300 pip wave of their own and son and so forth.

You can only profit from such huge waves if you hold your nerve and ride these waves. It’s no use settling for breadcrumbs out of fear that your trading position will take a huge hit.You have to go for the entire cake when you trade on the market. You don’t want to be jumping in and out of trades(Who does that?) Just settle for one huge trade that runs for months and which will fetch you a huge profit. All you have to do is to set and forget and go to the beach while the market does the heavy work. You don’t need to sweat it at all.

Do Absolutely Nothing

Yes do absolutely NOTHING! You need to understand that forex trading is a true test of patience and mental strength. Let’ consider two questions. First,if the market does a sudden U-TURN against your trading position How would you react? On the flip side if your trade is racking up a handsome profit but your position has suffered that dreaded tsunami hit, how’re you going to react? Again I know it’s hard for you to stomach my suggestion but DO ABSOLUTELY NOTHING!

Some of you are probably thing “What the heck is this guy talking about?” You see, you can’t afford to let fear take your mind and body hostage when you trade. Closing out a potentially profitable trade for a small loss before your stop loss absorbs a hit is a classic example of what I’m talking about. You’re not allowing your trade to play out , and in so doing , you end up taking a forced stop loss.

Now exiting a profitable trading too soon can be just as deadly to your own prosperity and your peace of mind. If you have already established when you are going to take profit and head for the exits, please stick to that strategy. You will not be doing yourself any favors by pulling the trigger too soon. Just apply some logic and objectivity by laying out your entry and exit strategy before you make your trade entry. It will profit you handsomely in the long run instead of you being under the influence of Russian roulette. To make matter worse, you put your hard earned cash in harm’s way/

Let’s take look at examples of doing absolutely nothing

Image result for pin bar sell signal

Ladies and gentlemen, here is another example of a long term bearish pin bar opportunity. via the GBP/USD pair. As you can see the long term trend is in one piece with the resistance levels holding the fort at
1.2950 and 1.3100. and the support keeping shape at
1.2820 and 1.2660.

Now the red circle suggests the bears are about launch a massive reversal. downhill. It means price is preparing to attack at 1.2820 and 1.2660. When such a scenario show up you either sell short at market price or wait until price gathers strength and then make your move. If this were live, you’d have made your move at 1.2820 and 1.2660. . Now see what patience and mental fortitude can do for your state of mind?Not to mention your trading balance?

Let’s look at another example of keeping your nerve while the opportunities reveal themselves.

Inside-Day-Example.

This is another example of a significant wave through the EUR/USD pair. Keep your eyes on the”Sell Here” signal on the red bearish inside bar signal just above the huge red triangle at 1.3320. The gren arrow suggests the bears successful breach of the support level at 1.3320. Do you see the two previous pinbar breakout attempts that didn’t work? Luckily the third inside bar breach attempt turned out to be the charm

See what the power of doing nothing can bring? Now had you jumped out of the trade you would have missed out of a rack of profits enough made your head spin. Whoever said patience is a virtue knew exactly what he was talking about. The same holds for riding huge waves waves in the forex market.

 

That’s a wrap for ”How to ride the huge Waves In The Forex Market”. The moral of the story is give your trades a chance to make you huge profits rather than you exiting early with breadcrumbs. You should decide ahead of time how much money you can afford to part company with before entering your trade. If you jump ship too soon before your stop loss get hit, you miss out on a lot of money.

Sure you can jump ship early to avoid full blooded stop loss- type losses. But when the opportunity to make a handsome profit presents itself, don’t jump too soon or else you’ll leave a lot of money on the table. For more information on catching the big waves, look up How to Spot High Probability Trades and Don’t Jet Out Of A Good Trade Too Soon.

Next time we’ll look at how to avoid exiting a trade early. I know I promised that today. This time I promise it’s coming on. Til next time take care.

 

Opening Of Live  Forex Trading Account

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After Entering A Forex Trade….What Next ?

 

Hi and A Happy New Year to you. Welcome to the New Year’s edition of the bulls versus the bears. The question we are going to ask this New Year is “After Entering A Forex Trade….What Next ??” This the most important forex trade management  question you are ever going to ask yourself.Why? Because failing to answer this question could be the difference between you being a prosperous forex trader and you hitting downright poverty.

When you master price action trading like the back of your hand, you need to learn how to manage your trades once they go live. You cannot afford to ignore this most important part of the trading process. Failure to follow this part of forex protocol could cause your account to blow up into smithereens. You may find what you believe is a price action setup made in heaven. But then that perfect setup could turn into  hell real quick  if you don’t manage it properly. So what we’re going to do is learn a few valuable tips on what precautions  to take  after entering a forex trade.

The first tip is:

Averaging In 

By Averaging in you are using your profit from your first trade to pay for the next trade. The neat thing about Averaging In  is that  it allows you to trade without fear. The danger here is you risk being stopped out  at breakeven point. Averaging In works perfectly in strong trends. But you ABSOLUTELY DO NOT want to push your luck averaging in during trading ranges or slow markets. You’ll end up shedding a lot of tears. Just sit back and wait for the price action setup to form at a key level once the market has pulled back. A classic example would  be your initial trading position moving in your direction and  then pulling back  50% back to your original entry . This pull back then results in a pin bar being formed at a key level. The pin bar formation would be the perfect  place to average in to add to your trading position.

Please DO NOT add to your trading  position just for the sake of it. You must have a price action reason for doing that. Let’s see the Average In technique in action.

Ladies and Gentlemen, This the Averaging In technique  action courtesy of the EUR/USD pair. As you can see the EUR/USD pair is being sold 1.4450with a mini lot. As you can see the trading position locks in on a 100 pip profit. But then the big players   turn around to form a fakey setup at  your initial trading  – position something rookie traders easily fall for. When that happens you add a second mini-lot armed with a 50 pip stop loss. You then slide your stop loss to the first stop to lock in a  50 pip profit. Now  if your second  trading position does a U-turn and smashes your 50 pip stop loss, your first position stops you out for a 50 pip profit and helps  you land at breakeven.

You’re probably saying to yourself”Hmmm.. This is a great way to add to a trading position that is moving in your favor.” But, you may end up at breakeven point, and still lose all your money. At the same you could make twice as much money as well. In others words Averaging  In  can be a  a double-edged sword if you allow it to.. Let me sound off with a warning though.You NEVER, I repeat, NEVER add to your second trading position without adjusting your stop loss on the first trading position. The whole idea behind Averaging in is that you move your average entry price close  to the market price. If you make your price double, and don’t put a trail on your stop loss, you will cause a tsunami-size hole in your forex trading account.

Speaking of Trailing Stops, how about

A Few Trailing Stop Techniques.

First is:

The 50% Trail Technique

One popular trailing   technique is the 50% trail technique .  Basically you are trailing your stop up to 50% of  the distance between your trade entry and the latest high/low as the trade moves in your direction. Of course as the market  moves in your favor the profits start rolling in. The 50%  trail technique gives your trading position more room to roll in the profits. But let me sound a little warning though! You could also lose all your money if your trade U-turns and slips below the 50% level and stops you out into the stratosphere. Let’s  look at an illustration of the 50% level trail stop technique

Take profit halfway

Ladies and gentlemen, here is the 50% trail technique in action. As you can see price has moved halfway in your direction. And when that happens you just  lock in your pro Like I hinted earlier, the price  can make a dramatic U-turn, go beyond the 50% mark and stop you out. So keep your eyes and ears on the alert for that possibility. And by the way, it pays to move your stop loss to break-even point once price hits your take profit.

You can also look out for support and resistance levels in the event that your take profit gets tapped by the price. At support and resistance don’t just concentrate on the 50% stop trail. Look out for a confluence of factors such as price confirmation signals and the 50% stop trail.

If you want to learn how to use trailing stops and other market orders look up Forex Trading Basics Top ToBottom -Part II. You’d be better served looking up .  Part I also.

Another   trailing stop technique you could use is:

Moving Averages

Another popular stop loss technique is through the use of moving averages.  I’m sure some  of you are like”Yeah we’ve heard of moving averages.” Well  for those who don’t know, , moving averages strike out previous prices within a specific time frame  and are nicely displayed in a straight line on your price chart. They are useful for identifying hot trends, and kicking out unnecessary noise on the charts.  I’m not going to get into detail on moving averages  for purposes of the subject  at hand. But if you want to know the workings of moving averages look up my two part series We’Re Moving Averages Part I and Part II.

So how do we use a trail stop with  moving averages?Well, basically you can do it three ways:

  • You can pick the trend you want to take a ride with
  • Use the appropriate moving average
  • Head for the exit when price moves beyond the trailing stop.

You can use the moving average three ways. You can go short term, long term, and mid -term. If you want to go short term, you can cruise with a 20 day  EMA(Exponential Moving Average).  If you want to go to medium term, take a ride with the 50 day EMA. But if you want to go long term and rack up the profits for months , jump on the 200 day EMA. let’s take a look at each of these three moving averages starting with the 20 day EMA

Ladies and gentlemen, here is what a trailing stop of the 20 EMA looks  like.20 EMA represents 20 days of price action within a particular month. And the red line represents ts the strong uptrend during those 20 days, As you can see, the 20 EMA captures the uptrend  very nicely in the way it aligns itself with the bulls(uptrend). Now once  price closes  below the 20 EMA just make your exit gracefully. Or else your account will  be feeling a tsunami that day. Now let’s take a look at the 50 EMA.

Ladies and gentleman here is the 50 EMA representation on the chart. the 50 EMA represents 50 days of trading on the charts. The nice line straddling along the charts represents the strong bullish trend.  You can place your trailing stop and make your graceful exit once the price goes beyond the 50 EMA barrier.

Finally let’s take a look at putting a trailing stop  using the 200 EMA

Ladies and gentlemen here is an illustration of a trailing stop in action via the 200 EMA using the EUR/USA. pair.   In case you’ve forgotten, 200 EMA represents 200 days of price action from November all the way up to September.  The red line reflects the price action from November all the way up to September  And the red circle represents the stop loss, As you can see the price has closed below the 200 EMA.  Now would be the perfect time to make your exit while the exit door is still open with your profits still in one piece.

The 200 EMA is perfect if you want to go long term. You could make  a lot of moolah (money) using this strategy. By the way,you don’t need to stare at your screen all 200 days. Same goes for the 20 EMA and 50 EMA. You’d go totally insane doing that. Just set and forget and let the market do the heavy lifting for you.

That’s a wrap for ”After Entering A Forex Trade….What Next ?”. This is the most important question you ‘re ever going to ask.And it could be the difference between prosperity and extreme poverty. Yo do not want to just enter a trade and just hope that some silver bullet racks up the profits.  Forex trading strategies  such those that  we’ve just discussed will almost certainly help you safeguard your trades. Next time we’ll discuss how not to exit trades too early.

So til  next time take care.

 

Opening Of Live  Forex Trading Account

If you’re looking to open a live trading account sign up with EasyMarkets.

 

How To Use Average True Range Indicator For Forex Profits

Hello and welcome to another edition of the bulls vs the bears. In my last post  Wide Stop Losses – Absolutely Crucial For High Probability Trade Success I mentioned in passing an indicator called the Average True Indicator(ATR for short). Today we are going to learn how to use the Average True Indicator to achieve  forex profits.

I guess the first question we should ask is

What Is the Average True Range?

Well the Average True Range  is a single line  indicator that measures the volatility of a currency pair or market. The Average True Range indicator was originally  invented by a gentleman by the name of  J. Welles Wilder to measure the volatility of commodities in the futures market. I guess folks in the forex market saw it fit to  apply this indicator to enhance their profits. If you think the ATR measures  price trends or price direction like Moving Averages Conversion Indicator(MACD), think again. The ATR measures when volatility is high and when volatility is low. If you wanna learn about Moving Averages, look up Moving Averages Part I and II

Let’s look at an illustration of the ATR using the USD/CHF pair.

Managing_Forex_Risk_with_ATR_body_Picture_1.png, Managing Forex Risk with ATR

Now this is the ATR for the USD/CHF pair.  The single line at the bottom of your trading window is the ATR.  This line measures the fluctuation of the forex market. The high peaks  suggests high market volatility.  The ATR measures this fluctuation within a specific time frame.  So as you can see, the ATR time measured the forex market volatility between April  4th to August 19th 2013. 68 ATR indicates high market volatility  whereas 24 ATR suggests low market volatility. We’ll explain that in detail

If you’re looking to use the ATR to determine your entry and exit points, you are absolutely on point. When volatility is high, markets move at the speed of light. n However.when market is  low, it suggests low volatility and that the market is in consolidation mode.

The ATR is also useful for traders who are addicted to getting a blow-by-blow gauge of the current level of market volatility. For those of you who like to anticipate potential price breakouts, the ATR is the perfect tool to use.  Please be aware that forex markets move from periods of high volatility to low volatility and back again regularly.  Thus it makes common sense to use the ATR to measure the ebb and flow within the forex market.

I guess the appropriate question  to ask is

How Do I calculate the Average True Range?

Well, to calculate the average true range a specific period you need to identify the True Range of the specific period on the price chart.

Now how do we find The True Range? Well,you need to do three calculations and  pick the one that gives the highest value:

  • (Current Period High) – (Current Period Low)
  • (Current Period High Absolute Value) – (Close of Previous Period)
  • (Current Period Low Absolute Value) – (Close of Previous Period)

The highest figure from these three formulas is your actual True Range. Once you get the True Range, just average the values for the period  on the chart

Now Some of you are probably thinking “Whew!This is complicated.”  Well I have a solution. Make sure your trading platform  offers the ATR as a tool such that the ATR calculates  these values automatically. This way you don’t have to worry about crunching these figures by yourself. So long as you understand how the ATR works, that’s  half the job done. The rest  is gravy.

The default Average True Range formula uses a 14 day period EMA indicator. However,  you can always  manually adjust the period to suit the time frame you’re looking at. So if you’re looking at a 10 day period, you simply change the period from 10 to 14. I’ll explain in depth later in the post.

ATR Useful For Setting Stop Loss and Take Profits

We’ve already established that ATR tells you when volatility is high and when volatility is low. Now you’re going to love what I’m about to say. You can also use the ATR to set your  wide stop loss  based on prevailing market conditions. Not only that, but the ATR helps you avoid strangling your trades with tight stops in high volatility periods and wide stops in low volatility periods.

If you are passionate about high probability trades, you should be able to make a killing with the help of the ATR. The ATR will most certainly help you set high probability take profit points. If the ATR records a fairly high reading you’ be crazy not to stat in the trade for a biger profit target.  Your expectation should be that the high market volatility will lead to a humongous price adjustment. Now let’s take a look at such a scenario using the EUR/USD  pair.

Average-True-Range-Indicator

Here is the price action chart for the EUR/USD pair for the  February 2016 – 2017. Now as you can see the ATR is etched  below the price chart  Now the red arrows pointing at the high peaks of the ATR indicate point to periods of high values associated with high volatility in the market. Now some of you are probably wondering “/what are those humongous candles in the price chart circled in red?” Well those candlesticks are formed at the corresponding times indicated on the ATR.

But remember this. when the ATR readings start stumbling, it means the market is taking a breather. By taking a breather it means the market is very quiet. In plain forex speak, the market is recording low values associated with low volatility.  The bulls and the candlesticks are usually smaller, and price action is as quiet as a cemetery. And when you have these two issues. , it means the market is in consolidation mode or moving sideways. In other words the bulls and the bears are taking a breather to plan their next move.This is where your tight stop losses come into play.  While they plan their next move, just set small realistic profit targets. After all, the players are taken a breather, which means  there will be little movement from price.

The ATR can  can also help you predict future events in the forex market. If your crystal ball spots  the ATR slowly climbing upwards you can be sure that market volatility will stay on the high side. However, be prepared for  a change in market behavior in case the market transitions from high to low or low to high.

ATR  On MT4 Platform

The ATR is nicely placed in your Metatrader 4 platform. Now some of you are wondering”How Do I activate The MT4 ATR Indicator?”  Well got to “Insert” and choose “Average True Range. You should see the default 14 day Exponential Moving Average.

I’m sure some of you are thinking”But what if I  want to change the 14 day period to something else?” Sure you can do that. Just select”ATR Moving Properties” and you will see the following popup window as shown below.

Parameters-of-ATR-in-Forex-Trading.

Now do you see the “Period” field under the “Parameters” tab? Just change the ’14’ value to the setting of your choice. Your new setting will reflect instantly. To learn how to trade on the MT4, look up Metatrader I and Metatrader II

Something You Need To Know About Average True Range

Yes, we all know that the Average True Range is used for measuring  market volatility. But there is something you need to know about  ATR. You can’t use The Average True Range in isolation. You should use  ATR together with your trading plan, your trade entry,  stop loss placement and profit target(or take profit entry). We’ll be discussing these three in detail

The ATR is also better served when it’s included with price action analysis and a  Trailing  Stop Loss Order based on an ATR value. If you are looking for entry signals price action patterns are the best place look. Looking for examples of price action patterns? How about candlestick patterns, trend lines, trend channels?e.t.c

Now onto our full length discussion starting with

Stop Loss Placement

Once you enter your trade, you place your trailing stop with the help of your ATR. The logic here is to ascertain the distance you want to trail the price. Once the price action moves in your favor, the stop loss will tag along with price according to the distance you’ve set for the current price.

But if the price kicks against your trade, the Trail Stop will stand in attention like a statue. It will not move an inch. In light of this, the Trailing Stop acts as a wide stop when the price moves in favor of your trade. This allows you to stay in the trade longer and  make maximum profit as the trend persists.

So basically the rule for using a Trailing Stop with respect to the ATR  goes like this. If the line representing the ATR Indicator is in the upper half of the area, you put a wide stop loss order in the market. But if the ATR indicator records a value in the lower half of the area, that’s when you employ a tight stop loss.Why, because market volatility is lower at that time. Meaning, the bulls and the bears have taken a break. Let’s look at an example

Image result for how to place stop loss with high atr

The blue ATR  upward lin suggests a high ATR. In . And when  that happens you place your Trailing Stop on the large dark blue candle as indicated by the top arrow. If the market volatility were lower, you’d have had to place  a tight stop  since the market is in consolidation mode. So the bigger the candlesticks, the higher the market volatility. And the smaller the candlesticks, the lower the market volatility.

Next Up Is

Setting Profit Target

If the ATR in the upper half of the indicator, multiply your pattern by two. This means your target will be twice the normal size of the pattern.  Once your trade hits the bigger target, you gently exit your trade. You’ll be doing your trading account a huge favor.

However, if the ATR line strays into the lower half of the indicator you   set your profit target at the minimum potential of the trend pattern. But if the line is still in the lower half of the indicator, the bulls are still moving upward, you can still double your profit target. So the same idea applies whether the line is trending up or down.

Let’s say the bulls help the price of the EUR/USD  break through a triangle pattern. You decide to buy this pair expecting that price will spike up. Now The triangle pattern trading rules require to stay in the trade for a minimum price move equal to the size of the trading pattern. However, if you happen to spot high ATR values you may want to stick around and watch the price increase to twice the size of the triangle pattern. Another option would be to exit half of your trading position on your original profit target, and then close the other half of the trade at the second profit target.

Now let’s look at an illustration using the GBP/USD pair

ATR-Trading-Strategy-with-Price-Action

Here, ladies and gentlemen is the H1 (1Hr)chart for the GBP pair for July 5-14 2016. As you can see a long trade opens up when the bulls break through   the upper level. Notice how the middle of the ATR indicator(green in color) has been marked to merge the upper and lower part of the indicator.

The blue horizontal lines on the price chart  represent the range of the GBP/USD pair. While the blue horizontal lines of the ATR area shows the ATR line in mid stream.

Now take a close look at the ATR line breach the middle level and set up shop in the upper section o the ATR indicator. Now see the price breach the range through the upper level and creating a long price signal in the process. At this time the ATR line is in the lower half of the ATR indicator. In that case,you put in a Buy Order(Green color) on the premise that you will pursue the minimum target of the pattern equal to the size of the range(As indicated in purple).

As we climb up, we see that the ATR line is also climbing(See below the price chart). Simultaneously we see this same line move into the upper section of the ATR indicator a few times. You don’t need to be a rocket scientist to conclude that the volatility for GBP/USD pair is on the increase. So you exercise the option to increase your profit target  at twice the size of the triangle pattern. You then adjust your Trailng Stop as illustrated on the price chart. Once you have adjusted  Your Trailing Stop you can now afford to hold your trade until price reaches twice the size of the range, as indicated by the two magenta lines at the upper level.

Let me explain a few happenings in the price action.The first red arrow shows the distance between  new Trailing Stop and the entry price. Once the 2x target is hit, GBU/USD takes a tumble.The second arrow at the end of the chart shows the moment the price hits the Trailing Stop when the trade has not been closed.

Let’s take a look at another illustration of the ATR Trailing Stop at work using the same EUR.USD pair.this time we’ll be working with a bearish channel

ATR-Trailing-Stop-Trade

Ladies and gentlemen, I present to you the H4(4hr) chart  for the EUR/USD pair from May-June 2015 using the ATR Trailing Stop.

As you can see, a bearish channel kicks off things on the price chart. Notice how price of the EUR/USD breaches the bearish channel through the upper level during low volatility. Remember when I said you could place a Buy  order during  low volatility even if the line is trending upwards? Well this scenario is a classic illustration. At this point place a Buy Order(labelled Green) and  place a Trailing Stop Loss on  the previous  bottom swing as indicated  on the chart.

Also see how price takes another crack at an already compromised upper channel. In this situation d you adjust the distance of the Trailing Stop to better absorb the market volatility. You can also measure the distance between the breakout point and the low of the previous channel which then becomes the new pip distance for your new Trailing Stop.  You’d be better off settling at 140 pips.

See how the bulls finally  hit  the Trailing Stop after a couple of strong sorties? After the first sortie, price nearly strikes the Trailing Stop after a slight adjustment (as indicated by the red arrows). But this time The Stop Loss stands ready to absorb whatever price throws at it. Had you not adjusted the distance of the Trailing Stop, your stop would have taken a massive hit, and you would have missed the next bullish sortie. Unfortunately, after the second bullish sortie, the Trailing Stop takes an uppercut from price once the bulls and bears go into consolidation mode. It’s obvious they’re tired from absorbing each other’s jabs. They need a break.

Triangle channel trades usually have no specific rules. As such, the Trailing Stop becomes your best friend in such complicated times. The Trailing Stop becomes even more useful when deciding to exit half of your profit target instead of the full target. Just be sure to widen and tighten your ATR Trailing  Stop  depending on values showing on the ATR indicator

That’s a wrap for ”How To Use Average True Range Indicator For Forex  Profits”.  As you can see the ATR is very helpful in placing your stop losses and profit targets. If anything it will save you a whole lot of headaches as far gauging the stability of the market.  You don’t  need to crunch calculations as how to ascertain your ATR. Your MT4 platform will take of that at the backend for you. But f you think you are smart enough to crunch these calculations by your self, you’re welcome to try.

Now if you wanna learn how to set stops, take profits, buy orders and other market orders, look up Forex Trading Basics Part I and Part II

So til  next time take care.

 

Opening Of Live  Forex Trading Account

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Wide Stop Losses -Absolutely Crucial For High Probability Trade Success

kk2

Hello and welcome to another episode  of the bulls versus the bears. Last time we learnt How To Place Stop losses The Right Way. This week we are going to learn how to place  wide stop losses. According to some people wide stop losses are absolutely crucial  for long trade or high probability trade  success. So if you’re allergic to tight stop losses on day trades, then wide stop losses on long trades could be it for you.

Stop loss placement has been the cause of considerable hair pulling for a lot of traders. They just don’t know how to utilize it. You see, you don’t just put your favorite trading strategy out there and hope for the best. Where you place your stop loss is just as important as where you place your trades on the price charts. The sad aspect of this confusion is that many traders resort to setting tight air sucking stop losses on their trades.  This is the result of lack of understanding on the whole stop loss process. And obviously their limited understanding of   trading issues such as position sizing and  risk reward ratios, proper stop loss placement and , you guessed it, wide stops.

So  here is what we are going to do. we are going to clear up all this confusion around placing stop losses.  I’m going to make a case for why Wide stops are beneficial for your forex trading success. Hopefully you would have learnt how to correctly place stop losses and not pull your hair in frustration this time around(if you have any hair left at all). Even more importantly, you would have understood how to leave your emotions out of the stop loss placement process and not place the stops too tight that your stops end up getting obliterated by the market.

I guess the main  question is

Why Should I Place Wider Stops?

Very simple. Give the market room to breathe.You should know by now that the forex market pretty much has a mind of its own. It can turn on you without a moment’s notice. Knowing this, you should factor this revelation in your decision making as far as deciding where you want to place your stop losses. You just can’t place your stop loss anywhere and hope for the best. You’re just wishing for the stars here and that is not good trading strategy. That is a recipe for disaster.

You need to give the market room to go through its routine everyday.  How do you do that? Pull up a tool on your meta 4 platform called Average True Range(ATR) for short).The ATR gives you a daily blow by blow update on the daily range movement over a period of time. The ATR basically measures the distance between previous highs and lows  within a specific time frame. You  get a graphic showing the forex market’s current state of volatility.  This crucial information should help you decide where to place your wide stops.

To activate the ATR on   the MT4 platform  go to <Insert> and then select Average True Range. Upon selecting the the Average True Range, default setting of 14 days will be attached to your chart. You are free to adjust the number of days if you so choose.

How do you adjust the number of days? Drag the cursor to the bottom of your price chart and then  select<ATR(14) properties. This brings up a popup window as shown below.

Parameters-of-ATR-in-Forex-Trading.

Then under <Parameters> tab you should see a field named “Tab” Just changed the”14″ setting to your preferred setting. The new settings will be applied automatically . If you want to know how to use the Metatrader platform check out Metatrader 4 Part 1 and Metatrader Part II

Now let’s take  a look at another  EUR/USD graphic with the ATR in action.

Image result for eurusd showing atr of above 100 and near 100

As you can see the graphic below the price action shows the ATR reading of  the market’s daily range . The daily reading here is 150 pips.Make sure your wide stop is near or bigger than the ATR reading, Anything less could cause a nuclear-sized  hole in your trading account.  Next image please.

how to use the

Here is the EUR/JPY volatility reading within the past 14 days.  As yo can see the 2.44 reading suggests the market’s high volatility and the .96 reading  reflects the market’s low volatility.. Now based on that information, the stop loss is placed at the 1.29  mark. Just  make sure our stop loss is at least half of the ATR’S volatility reading. In so doing, you don’t run the risk of incurring a humongous loss on your trading position.

Let’s say the EUR/USD moves 100 pips over a period of days. Why would you want to insert a 50 pip stop loss.For the life of me I don’t get this logic. But some traders, for reasons best known to themselves  contrive to commit this mistake. But then again you have to consider factors such as time frame and price action setup as well as the prevailing market structure.

Wide Stops Allow Long Trades Time To Play Out

The nice thing about employing wide stops is that they allow long trades time to play out. Big trades usually take days or weeks to unfold. If you think you can use 50 pip stop loss to catch a 300 pip surge, forget it. Let’s   look at illustrations of a tight stop loss and a wide stop loss,

Right before our eyes is a tight  stop loss at the support level at the 1.13300 mark. Like I intimated earlier, the problem   with such a tight stop loss option is that you don’t give your trading position enough room to find itself. And in  such a scenario, your tight stop loss is more than likely to be blown off the water together with your trading position.  And as you can see the stop loss has been totally stumped and the bulls are heading for the mountains.Now you see why you’re better going wide with your wide  stop loss?

Speaking of which, let’s take a look at  wide stop loss in its pomp.

Image result for wide stop loss

Now here is  a wide stop using the EUR/USD  in price action. Now as you can see the wide stop loss was placed a good 25 pips from the entry position at the 1.08500 mark. This is a very smart move.   Why? Because it keeps you   in the trade, giving you the opportunity to make a decent profit. Not to mention the fact that it gives your trade  more room to breathe.  Get your stop loss too close and you put a noose round your trade’s neck.

Wide Stop Losses Gives  You Trading Peace of Mind

If there is one thing traders value over everything is trading peace of mind. And wide losses gives you a whole  lot of peace of mind. They’re even more effective when trading higher time frames,  especially using the set and forget strategy. You don’t need to sit in front of your screen all day waiting for the market to approach your stops.

Instead you focus all your energies on finding the best trades available. And you can also identify trends and  common price action patterns – Things that really matter. So if you really want your trading peace of mind  to be at ease, here is a simple formula for you:Set your wide stops and tweak your position size to reflect your risk per trade;Nothing much to it.

That’s a wrap for ”Wide Stop Losses -Absolutely Crucial For High Probability Trade Success”. Too many forex traders lose their money to over-trading and tight stop losses so tight even a needle will  have a hard time getting through. They dont allow their trades room to maneuver.  And when you insert tight stop losses, your stop losses get stumped.

Unfortunately a lot of forex traders do not heed this advise. They rather tempt fate by placing a tiny stop loss on a trade that could play for weeks and bring in a huge profit in the process. Consequently their lack of understanding of position sizing, not to mention greed send them crashing to the ground.

So instead of placing a tiny tight stop on 20 traders, how about putting wide stops on two trades that last   go on and on for weeks ?And raking in profits in the process.

Til next time take care.

 

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How To Place Stop Losses The Right Way

Hello and welcome to another edition of the bulls versus the bears. Today we are going to talk about how to place  stop losses the right way. Now placing stop losses are not  very popular among traders but  we do need to talk about it.  Stop losses are the big elephant in the room no trader wants to talk about.Sure we do have to make profits. But you do need to watch your back when the market does a 360 on your trading position. It’s absolutely crucial that you master the art of placing stop losses. Because if you don’t your trading account could suffer nuclear-sized losses that will make your head spin.

Aside risk management, your prosperity as a forex trader hinges on you placing stop losses the right  way. If you are able to master the art of placing stop losses, life will be a whole easier for you.

First things first

One Thing You Need To Drum Into Your Skull About Placing Stop Losses The Right Way .

One important thing you need to drum into your skull about placing stop losses the right way is that you can’t be picking up random amount of pips like you’re buying candy from a candy store. Sure you might think putting 20 pip or 50 pip stop losses may be the right thing to do.  But Newsflash! It’s not!  Even worse, it’s not the professional thing to do as a trader either. You should base your stop loss on a level in the market. In other words, price will have to breach a certain barrier to make a fool out of your trade.  It’s almost like playing truth or dare. Basically you want price to prove to you that your initial trade was wrong. That proof can be found in what we call the most logical nearby level of support / resistance, assuming it has been breached.

Let me give you something  else to chew on while placing your stop losses. You  need to understand the market you are trading in and determine what key level price has to breach before rendering your initial trade completely useless. Let’s take a look at two examples.

First image please:

Image result for Is your stop loss too arbitrary?

Here is a classic example of a stop loss gone bad while trading the GBP/USD pair.. A stop loss is nicely placed at the 1.5150 mark which adds to 50 pips. Unfortunately for the poor trader, he missed out on a 100 pip payday, as indicated on the price chart. The moral of the story is you don’t just do a hail mary by placing a stop loss just for the sake of it. You  must find the nearest key level to place your stop loss, or else your trading position will be toast.

Now let’s  look at another image where the stop loss is placed at a key level the right way using the USD/CAD pair.

Image result for stop loss at pin bar

Now this is a pin bar pattern where the stop loss is placed at a key level of support the right. Unlike the first graphic the stop loss is placed at the most logical nearby key level,e pin bar. beyond the low of the pin bar. In this scenario, you save yourself from impending doom. Even more important you are given your trade more time to work its magic and give you more profits. At the same you are putting your stop loss at a place that will render your trade null and void in case price moves beyond it. In other words, decide how much you can afford to lose.

Beware Of Last 7 Days of Average Market Volatility

Ever heard of Beware of The Dog? The same sign  applies to the forex market’s market volatility. You absolutely have to beware of the last 7 days  of the forex market’s average volatility or Average True Range.  By volatility I refer to the periods when the market is on a high and when it’s on a low. Now why  all the fuss?  Because you  want to calculate your stop loss market’s true range. Failure to do so could result in your stop loss taking a severe hit.  Now some of you may be wondering ” may be wondering “What in the world is Average True Range?” Well the Average True Range measures  the forex market’s average volatility over a fixed period, in your case 10 days.

Now let’s see how the ATR  looks like on your price chart

Average-True-Range-Indicator

This is nice-looking  price action involving the EUR/USD pair. The zig-zag lines at the bottom of the price action represent the ATR. Now the red arrows pointing at the peaks reflect the periods when the values are quite high.This represents the  market volatility that I’ve been harping about.. And the corresponding  red circles encircling the volatile candlesticks  correspond to the periods of volatility.

Now how do you fill your ATR values on your MT4 account? Simply go to and then select the  indicator then sets it to  default 14 day period option.  But since we are dealing with 7 days, you go to the bottom of the screen with your  cursor and select <ATR14 Properties>.  You should see the  following popup window as shown below:

Parameters-of-ATR-in-Forex-Trading.

You then look out for the <Parameters> tab as shown in the top far left hand corner. Next, you look out for the field labelled Period and change the default 14 to 10;since 10 days is the period of volatility that you will be working with. Hopefully you wont be pulling your hair using this tool.

Stop Loss Placement Tips To Keep In Mind

When placing your stop loss you’d do well to consider the risk reward and profit potential of the trade before taking the trade. If you find your stop loss too wide for your trade to create enough leg to operate ,  and the risk reward doesn’t add, up, I suggest you keep your cash in your pocket. Or else you’ll be gnashing your precious teeth.

Yes, risk reward and position sizing are related to stop loss placement. They are almost like Siamese twins. But you need to remember that stop losses take precedence over profit targets. In fact stop losses are a prerequisite for your profit target and risk reward. And they also help weed out trades you should jump on like Speedy Gonzales and trades you should outright reject.

Even more important, you should always keep your stop losses constant.  And you can’t keep them so wide either. Keep your stops wide,  and the market will blow by you like Speedy Gonzalez and smash your trading position like a ton of bricks.  So you tighten your stop losses, and place them around the key levels. Even more important, make sure that your stop loss strategy is part of your trading plan. For your own trading sanity it will be in your best interests to make your stop loss strategy part of your trading plan. Or else, your trading account will suffer excruciating pain.

Stop loss placement is as crucial to risk management  as apples are to oranges.Once you identify your stop loss placement you can then establish your position size and then know in advance the costs and risks of your trade. Think of stop loss placement as a cost to doing business as a trader. Also think of stop loss placement as your cue to exit  a trade when the trade heads south.

The same way you exit a building at the speed of light when there is fire, you use that same  speed you to exit a trade. Sure, your emotions may persuade you stay in a trade even if it’s going to blow a hole in your trading account. But your peace of mind knowing that you are saving your account from imminent obliteration is just as important.

That’s a wrap for ”How To Place Stop Losses The Right Way”.  If you get your stop loss placement  right you are on your way to forex prosperity. Getting your stop loss placement right  gives you the freedom to calculate your profit targets on trades and position sizes.Even more importantly, you get to put your trading edge into action with your mind clear of clouds You also develop emotional control.. You’d be better off working out your stop loss first before anything else or else your trading account will be screaming “911.”

Til next time take care.

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Set Your Trade Forget About It And Get On With Life

Hello and welcome to another edition of the bulls versus the bears. If you want to keep your sanity as a forex trader, I have a simple piece of advice for you. Set your trade, forget about it and get on with life.  This is my own spin on a popular strategy simply called “Set and Forget.” Basically what you’re doing is you make your trade, go chill for a bit and let the market handle the rest for you

Set and Forget  has two humongous benefits. First, it helps you keep your emotions in check. You trade based on your trading plan and not like a casino gambler. Second,  it allows you to live a normal life. Instead of staring at  your PC screen all day over-analyzing the markets, to perfect your trading system, you can leave the house and   hang out at the beach while your trade makes you money. So that by the time you get back, your profits would be nicely tucked away in your trading account.

Now how do you set your trade and forget about it?

Make More By Trading Less

That’s right. To make more money you need to trade less.  There is one cold fact you need to accept. The forex market has a mind of its own. It pretty much does as it pleases. So if you think you can control the market then you’ve got something else coming. The forex market  doesn’t care whether you’re Bill Gates or Steve Jobs. If you try to use one of those called magic bullet trading systems to try to  swing the forex market  in your favor, you could end up blowing a huge hole in your trading account. Your job is to stick to your trading plan and see if your trading edge exits on the forex market. If your trading edge is present ,you set your trade  and walk away.If your trading edge is not present, you still walk away. Why?Because there will always be opportunities to trade. The forex market is never static. It’s always generating new trading setups.

So What’s The Logic Behind Set and Forget?

Do not go beyond executing your trading edge unless it’s absolutely necessary. Failure to do so could set you on an emotional roller coaster and do crazy things such as overtrading, bloating your position size, Stretching your stop loss further from your entry trade,or moving your profit target further upstream for no reason. These bad habits will almost certainly blow a nuclear hole in your trading  account. Why? Because you are gambling instead of trading. And you are trying to control the forex market-an absolute no no.

Let me show you a few illustrations about how not to get too caught up with trades.

Image result for Forex market retraces to near entry point

First we see a retracement  on the uptrend with the EUR/PY pair. Now most inexperienced traders would have exited the trade for just a small profit or near breakeven out of fear of losing their money. Instead of making a panicky exit, how about giving  your trading plan time to work?. exiting out of fear will cause you to leave huge profits on the table. That’s why you set your trade and let the market work for you.

Let’s look at another example

Image result for pin bar sell signal

This is a classic illustration of a pin bar sell signal  using the AUD/USD signal/ However, the market stalls as it get to the low of the sell signal and falls back in line with the bearish trend. Now if you can hold your nerve and not interfere with your trade,  you could go short and make a nice profit.  In so doing you take your profit and run based on logical trading, and not on greed and raw emotions.

That’s a wrap for ”Set Your Trade Forget About It And Get On With Life” Using Set and Forget creates positive vibes for  your prosperity as a forex trader. Instead of spending the rest of your natural life analyzing market data, Set your trade, leave the house and let the market do the work for you. That’s assuming your trading edge is present on the market.

If you spend too much time hunting for trades in front of your screen, you suffer the following headaches. First you resort to emotional trading which cause you to incur numerous losses. This of course causes you lost money and valuable time which is better spent smelling the roses. Letting the market do the work for you gives you valuable peace of mind that can’t be quantified. It’s almost like taking a nap while the market rakes in the cash for you. Not to mention the fact that it improves your risk management without you spending another cent. With proper risk management you  can keep all your brain cells one piece.

Til next time take care.

 

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Trading The Daily Chart Is The Only Way To Go

Hello and welcome to another edition of the bulls versus the bears.  Do you remember when we asked the question Should I use the One Hour and Four Hour Time Chart Time Frames To Confirm Daily Price Signals .Well we’re going to talk about trading the daily chart time frame.  In fact I dare say that trading the daily chart is the only  way to go.    And in fact, you should touch base with the daily charts before entering any trade.

Why should anybody trade the daily charts? because the daily chart has  a gold mine of information a trader cannot overlook. If anything the daily chart is where most of the trading action takes places,and of course that is where all the profit possibilities exists. Once you’re done reading this post, you and the daily chart will become bosom bodies.

I guess the first question  some of you will be :

How Do I Trade The Daily Chart?

Well,you should start by analyzing the last few months of price action trading on the daily time frame. The following questions should be occupying your brain cells while doing your analysis:

  • Is the market trending? And if so in what direction?
  • Is the market consolidating?And if so where is the high range and low range?
  • Where are the next resistance/support levels?
  • Do you see any patterns emerging on the charts?
  • Are we edging closer to a pivot number or round number
  • What is the relationship between the moving average and current price? Look up We’re Moving Averages Parts I and II

And while you’re glancing through your questions,make sure you mark key support/resistance levels that will help shape your market bias long or short term.  Based on this analysis, you should be more informed when entering your trades.   And you should be more comfortable making trades free of second guessing.

Now Why Do Traders Trade on Daily Charts?

Simple. Unlike the lower timeframesthe price action is less chaotic and more reliable. In fact the price action is described in some quarters as smooth. Not only that,but you do get a clear perception of which direction the market wants to go. Unfortunately you don’t get that kind of clarity on the lower time frames where you get nothing but deception.

Also you’ll be able to assess  your risk:reward in a higher probability setup than you’d normally do  in say a 15 minute time frame. The supply and demand swings that you see on a daily chart are more accurate than you’d normally see on a lower time frame. If you want to get ahead of other forex traders on the daily chart, get  a solid grasp of the potential profit vs risk concept.  Once you figure this concept out like the back of your  hand you should be laughing all the way to the bank.

Make More and Trade Less

If you want to profit from trading the daily chart,make more and trade less. How do you accomplish that? By switching to a higher time frame.  If you are the type trying to scalp on the 15 minute 30 minute,or 60 minute charts, I suggest you switch to the 240 minute(or 4 hr ) chart and end of day chart. Those lower time frames will certainly not help you.

Are There any advantages to Trading  The Daily Chart?

Sure. For starters the signals and patterns on the high time frames on the daily charts are  more reliable than those that you see on the lower time frames.  Often times what you might  like a chart pattern or candlestick pattern on a one hour time frame could be nothing but fake  market noise. However,watch a chart pattern progress over several weeks on the daily time frame,and you’d most certainly want to jump in on that deal .

Another advantage of trading the daily chart is the cost of trading advantage. Most brokers  spreads and commission are the same regardless of your profit target. Let’s say you enter a trade for the EUR/USD pair and it has a spread of two pips. You then wind up paying 10% of the profits on a 20 pip target as opposed  to 1% of the profits on a 200 pip target. Now if you ask me that’s a huge difference in cost. Now if you are a short term trader, you may want to seriously consider your short term future as this could have a monumental effect on your bottom line.

Don’t OverTrade

If you want to profit on the daily chart, I have a simple piece of advice for you – DON’T OVERTRADE.   You do not want to develop an addiction to the price action by feeling the urge to  sneak in and out of the market every chance  you get. You experience so much blood rushing to your brain that you can’t help yourself sometimes. This can only bring you nothing but grief and will only end up putting a nuclear-sized  black hole in your trading account.

When you overtrade, you feel you have to micromanage everything. You end up over-analyzing your charts, and  jumping in and out of trades. Even worse, you don’t trust the market enough to execute your trade when you enter your trade. You trade like a gambler rather than a logical thinker. You are thinking with your emotions instead of your brain cells. Even worse you  are only going with your gut feelings.

How Do I Get A Hold of  My Emotions?

Use what is popularly known as the “Set and Forget” Approach. Basically you set your Stop Loss and Take Profit target the moment you place your entry. Once you set your Set and Forget in motion, just get away from your screen and go to the beach while the market executes your trade for you. With a little practice you there will be no need for you stare at the screen all day scavenging for trades.

Look For Solid Trends

When trading the daily chart, look for what I call solid trends. Identify trends that have profit written all over them. You want to make sure you chart the least course of resistance. In other words, if a market is moving in  a particular direction, the odds of  price continuing in that direction are very high.

When searching for trends on a daily chart,make sure you’re looking at the right data. Here are a few techniques you may wan to employ when searching for emerging and established trends”

Swing Highs and Lows- Here the market makes high highs and higher lows during an uptrend. However it’s the reverse in a downtrend, where the market carves out lower high and lower lows.

50 and 200 SMA – The 50 and 200 periods are the most scrutinized as far as Simple Moving Averages goes.  Compare where price is relative to these averages, and look out for price crossing these levels. It could be a precursor to future price moves. Look up We are Moving Averages Parts 1 and 2

Trendlines – Trendlines come in very handy as far as identifying trends and potential reversal points goes. Be on the look out for possible breakouts outside the trendline as this could signal a possible reversal

Multiple Time Frame Approach

If you are an aspiring forex trader, I strongly suggest you the multiple time frame approach, or top down approach as it’s popularly known..  You start off by analyzing the longer time frames such as the monthly and weekly charts. Then you move down to the daily chart. Only then do you  analyze charts such as the 4 hr, 1 hr, or much lower.

A multiple time frame analysis helps in trade selection and filters out bad trades. You would definitely want to consider the daily chart as part of you r multiple time analysis.   If you’re looking for support and resistance levels to trade  off, the daily chart is the place to look. It will be in your best interest to follow what’s happening on the daily chart, regardless of  your time frame of choice. Whether you’re a  day trader or swing trader, you will want to ride on the momentum of the daily chart.

Now if you trade solely on one time frame, you could be trading straight into a hurricane. You could  be trading straight into a key support/resistance level, or the trend in your time frame could be nothing but a correction. Or even worse, you could be walking straight into a candle reversal situation. It definitely pays to expand your time frame horizons in order to catch profitable trades.

Combining Swing Trading With Daily Chart

Do you realize that you could make a killing combining swing trading and the daily chart? Sure you can. You can start by coming to the daily chart and the 4 hr chart to look for price signals and polish up your trade entry.

Now how can you use swing trading to combine both time frames and create a gold mine? First plot all major levels on the daily chart including support/resistance levels, and supply and demand levels. Then zoom down to the 4 hr level to monitor price interaction  at these levels. You now establish the 4 hr timeframe as your trade entry timeframe.

You then look for a strong price rejection such as  a reversal candlestick pattern or a strong breakout through these high time frame levels. This should serve to create high probability setups for you as a swing trader.

With your end of day  strategy, you can assess  your risk versus reward  in a higher  probability manner instead of   hourly or 15 minute manner  The supply and demand swings on the  daily chart are more reliable than on the lower timeframes. Having a solid grasp of the profit vs risk on a trade as projected on the chart  will put you streets ahead of other traders that ignore this type of analysis.

That’s a wrap for ”Trading The Daily Chart Is The Way To Go”   The importance of incorporating the daily chart time frame in your trading cannot be emphasized enough.  In fact trading in a higher time frame is the fastest way to increase your profitability as a trader.

Psychologically you will be a free man as well. You don’t need to spend the whole day in front of your screen scavenging for trades that may not even exist. Just activate “Set and Forget” and let the market execute your trade for you. You can head to the beach and come and check your profits sitting comfortably in your trading  account. Even more important learn to detach your emotions while you trade. Just leave things alone and your sanity intact.

Til next time take care.

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