The Most Effective Way To Prosper As A Forex Trader

Hello and welcome to the New Year’s edition of  the bulls vs the bears. This week we are going to find out what’s the most effective way to prosper as a forex trader. If you don’t know by now forex trading is  about patience. You need to lie in wait like a crocodile and  allow the right trade to pop up on your screen.

This trading approach should be the cornerstone of your trading strategy. Come to think of it, it should be part and parcel of your trading edge. If you perfect it like the back of your hand, it should edge ever so closer to being a prosperous forex trader. I guess the burning question on everybody’s mind is:

What Is The Most Effective Way To Prosper As A Forex Trader?

Simple. Don’t jump head first  into the market. Instead lay low for a retrace, pullback or a complete break in the market. Now I can hear someone asking “How is laying low like a crocodile supposed to help me as a forex trader?” Well there are three ways laying low like a crocodile can help you as a forex trader.

1)Laying low like  a crocodile helps you get a tighter stop loss which then allows you breathing space to cash in on a trade by upping your risk reward. Not only that but allows you to increase and trade on a bigger position without risking much money.

2) Laying low also saves your stop loss from being blown to bits-Assuming your stop loss is put in a safer spot.  In so doing  You give your trade more oxygen to breath. So that instead of incurring a loss on a trade you are in a position to make a healthy profit on a trade. And you can afford to take significant risks based on your risk/ratio. It will most certainly do your trading account a whole lot of good.

3) Laying low also give you the option of holding out on trades you are not sure of and reluctant to take a chance on. In such a scenario, you can put in a stop loss. Better safe than sorry. Isn’t it? Even more important, you eliminate the  possibility of  a stop out(or your stop loss being smashed). That should afford you a good night sleep don’t you think?

Now let’s look at a few  pictorial examples.

pic.1

 

Ladies and gentlemen, here is a classic example for waiting for the  right trade using the EUR/USD pair. Here you are entering a trade you are absolutely sure about. As you can see waiting for the right trade  increases the risk reward on the trade. The 3:1 risk ratio at the  resistance level illustrates my point here. Notice the placement of the stop loss 50 pips below the entry price. This increases the likelihood of a huge risk reward.

 

Now on to the next graphic

03-Using-Pin-Bar-Price-Action-Trade-Forex-Confluence-1024x480 (1).png

This is a classic illustration of entering a trade on a hot trend.  Here you see pin bar signals forming after pullback at support and resistance levels. It’s what you call confluence of factors. After pullback then the uptrend continues. This will be the perfect opportunity to make your move,

 

That’s a wrap for The Most Effective Way To Prosper As A Forex Trader”.” Yes it’s possible to profit from breakouts and breakouts. The whole  idea behind being effective trading is to get a hot entry and to get safer stop losses. This helps you escape market uncertainty and gives your trades more  time to rack up the profits.

Even more important, your trades have to be part of your trading plan. It must be part of your trading armour. You can go to war devoid of weapons. Can you?

Til next time take care.

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Some Costly Mistakes You Should Avoid Like The Plague As A Forex Trader

Hello and welcome to another edition of the bulls vs the bears. Today we are going to look at some costly mistakes you should avoid like the plague as a forex trader. You know the forex market turns over 5 trillion dollars a day. Meaning there is a gold mine of cash out there on the forex market. Meaning there is enough money to go around a billion of times ove.

However, there is a catch. You have to be wise as a serpent if you want to get a slice of the 5 trillion dollar juggernaut called the forex market. So I’m going to help you  get a  huge slice of the 5 trillion dollars by pointing out huge mouse traps that you should watch out for  while you trade on the forex market. This way you will be better prepared to sidestep these traps.

Mistake No 1

Failing to Prepare

Ever heard ” If you fail to plan, plan to fail”?. Well, the same  phrase applies to the forex market.  I’m going to piggy bank from the above statement by stating”Fail to prepare, prepare to fail.” Look, forex trading is not a walk in the park. IT is downright  competitive out there. You need to sharpen  your trading edge  in the forex market in other to survive. Even the most accomplish traders struggle stay above the fray out there on the market.

You can’t just go out there and wing it like a Las Vegas gambler and expect to rack up the profits just like everybody else.It’s like a rookie basketball player going up against Lebron James without training in the offseason. And yet he expects to outplay him. That’s tantamount to suicide. It’s the same situation with forex trading. Treat it like Russian Roulette  and you will be laughing at the wrong side of your mouth.

You need to understand that you are not just competing against anybody. You’re competing against international banks, hedge funds, and other forex market professionals. They’re coming prepared to make some serious money. It only makes sense that you do same. The least you can do is have a trading plan as to how you are going to compete against them. You must develop a trading routine such that when your trading setup appears on your screen you are ready to execute without breaking a sweat.

Next up is

Neglecting to Use A Stop Loss

You’d be crazy not to use a  stop loss.You need to understand that aside being a trader you are also a risk manager. And risk management should be your primary concern as a forex trader.  And the best way to manage risk is putting a stop loss on all your trades. In fact  you might as well put in a hard stop while you are it.

I can hear someone asking “Well what is a hard stop? Well a hard stop is not your typical market order. Rather it’s a pre-conceived idea that  if a price level is touched it will activate an order to sell. The whole idea behind a hard stop is cut your losses on your open position. You do not want to inflict too may wounds on your open position. So the logical decision would be to cut and run as fast as you can.

At the same time you do not want to create an artificial stop in your head either. Now what do I mean by artificial stop? This is where you have decided from the top of your head where you will head for your exit. Or even worse you are so sure about your trading position making endless profits that you don’t see the need to out in a stop loss. Ladies and gentlemen, that is a recipe for suicide.

You are basically looking for an excuse to stay in a trade longer than necessary. If you have decided at which point of the trade to bail out of the trade, then there is no need to stay in the trade longer than necessary.  So it makes sense to put in the hard stop.

Poor Risk to Reward Strategy

There is fallacy making the rounds that the best trading systems are those with a 70%-90% winning rate. News flash! You are setting yourself for  extreme poverty if you start chasing castles . These strategies have low risk to reward ratios which make the probability of making significant profits next to non-existent.

Let’s take at two trade strategies –  a high win rate strategy and a moderate win rate strategy.

Strategy A wins 70% of the time and the average Win to Loss is .50 : 1, meaning that the amount per winning trade is half the amount per losing trade.

Strategy B wins 40% of the time and the average Win to Loss is 2 : 1, meaning that the amount per winning trade is 2 times the amount per losing trade.

As you can see, Strategy B wins  all the time. Some may be saying”Now wait a minute. Strategy B has a lower win rate. Strategy B cant be the winner.” Well Strategy B may have a lower win rate. But its’ higher average win makes it  more profitable. Let’s find out what makes Strategy B a profitable option.

The Trade Expectancy for Strategy A is calculated as follows: (assuming $ 500 Avg Win)
(Win % x Average Win Size) – (Loss % x Average Loss Size)

(.70 x 250) – (.30 x 500) = $ 25 per trade

The Trade Expectancy for Strategy B is calculated as follows (assuming $ 500 Avg Win)
(Win % x Average Win Size) – (Loss % x Average Loss Size)

(.40 x 500 ) – (.60 x 250) = $ 50 per trade.

You see you should not focus on the  ridiculous myth that strategies with higher win rates  make for better profits. Rather fix our gaze on the risk reward profile of each trade.

Overtrading

That’s just it!Stay calm and don’t overtrade. I know the allure of fast money and 24 hr action on the forex market is very tempting. But it’s only a trap that is going to drag you in and tear you to bits.

There is this nasty rumour making the rounds  that you need  to be in front of your screen the entire day trading.New flash! That’s absolute balderdash. You don’t need to be trading round the clock all the time. Instead of looking for scalping opportunities how about trading higher time frames such as the 1 hr and 4 hr time frames fro better prosperity and emotional stability?

Not only are these higher time frames but they’ll save you a ton of money as far as transaction costs with your broker goes. The less you trade the less money you give away to your broker. You need to understand that your broker survives by way of transaction costs on your trades. So if you want to avoid making broker get rich at your expense . Jus get the best trades. It makes no sense lumping a bunch of five minute trades an making your broker rich at your expense.

Next is

Poor Position Sizing

If you want to be prosperous  as  a trader you need to get your position sizing spot on. You need to set parameters to better your suit your position sizing strategy – be it a fixed fractional model, a fixed ratio model, e.t.c. The long and short is you need to develop a thorough strategy that states how many lots you you will use on a given trade.

Let’s say you allocate 2% of your trading account on your trade. This is what you call a fixed fractional account in that you’ve set this amount for every trade that you enter in. Now if you have a $50000 trading account and the maximum allowable risk is $1000. If you choose your stop level as $450 from the entry level, then you will be allowed two lots on that trade.

Let me make one thing absolutely. You can’t  be entering trades based based on your emotions and feelings about previous trades that went haywire. Sure, you want to make up for trades that you lost. But you need to get out of your own way in these situations. Instead of jumping back into the deep end, step back, take a chill pill, and go over your trading plan.If there are a few things that need tweaking do that. It’s better  tha  jumping back into the market and blowing up what;s left of your trading capital.

Losing Objectivity While You Trade

The worse thing you can do is lose your objectivity while you trade. The biggest danger about forex trading is that the moment you enter a trade  sometimes you become so attached to a trade that you lose all objectivity when you enter that trade- so much so that your mind starts playing tricks on you.

You start forcing to see things that don’t really exist on the charts.. Consequently you enter market orders to the detriment of your trading account, not to mention your trading sanity. I can hear somebody saying”It’s uncomfortable just sitting there and doing nothing.”But sometimes doing absolutely nothing is the best thing you could ever do. Constantly watching and tweaking  your trading position can be counterproductive. IF anything it leaves you prone to making serious mistakes;mistakes which could seriously affect your trading account in a big way.

I can hear somebody saying”So how do I stay objective while I trade?” Just employ a popular policy called Set and Forget. Basically you you do all your chart analysis in advance before you enter your trade. Based on your early analysis you determine your stop loss and your take profit the moment you enter you enter your trade And then the market goes to work. There is no need for you sit behind your screen watching over  your trade.  Just take a walk outside and smell the roses. By the time you get back you should see a handsome profit in your account.

That’s a wrap for Some Costly Mistakes You Should Avoid Like The Plague As A Forex Trader”.” Just make sure you you cut down to the bearest minimum the above mistakes that you make. There is no such thing as a perfect trader. You are learining all the time. The trick is no to keep making trhe same mistakes over and over again. Even more important, you ate constantly learning as a forex trader. Just look for ways to be a efficient as a forex trader.

It’s all about putting in the time to improve your trading. When you do that you will experience prosperity onn a daily basis. If you  fail to put in the time, you will be pulling your hair out every day because you feel you are losing money.

Til next time take care.

 

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

How To Trade Breakouts Via Rectangle Chart Patterns

Hello and welcome to another edition of the bulls vs the bears. Last time we touched on How to Trade Cash In On Wedge Chart Patterns.  This week we are going to touch on how to trade breakouts via rectangle chart patterns

. First we’ll define what a rectangle chart patter is. Then we get into the really exciting stuff. We’ll look at two types of rectangle chart patterns and how to trade them.

So First off:

What Is A Rectangle Chart Pattern?

Well, a rectangle chart pattern comes into play when price is bound by parallel support and resistance levels. A rectangle chart pattern takes shape after a period of consolidation between the bulls(buyers) and the bears(sellers). In case you’ve forgotten what consolidation is about, this is where buyers and sellers reach a stalemate after trading uppercuts with each other.

Price then takes a crack at(or tests)  support and resistance levels several in a desperate attempt to break out and head for the hills or the slope(depending on whether the bulls or the bears are in charge.. Fortunately price breaks out of prison and heads wherever direction the wind  decides to blow it. That of course depends on when whether the bulls or the bears are in charge.

Let’s look at an illustration of the price action on the rectangle chart

Rectangle with support and resistance

As you can see price is sandwiched by  support and resistance levels running parallel to each other.  Now all you have to do is hold your horses and wait for one of these levels to go on the break and tag along for the ride.

Now shall we look at the two types of rectangle chart patterns that I told you about.

Starting with:

Bearish Triangle

A bearish triangle  takes shape during the downtrend when price consolidates for a while. Of course during the consolidation period, the bulls and the bears trade uppercuts in an attempt to get the upper hand.

But of course  the fight ends in a stalemate. This causes the bears  to  take a breather and revise their notes before deciding where else to drive the price. Let’s take a look at the price action with the bears

Bearish rectangle after a downtrend

The bears break out at the bottom of the rectangle chart and go at full speed down the slope. If you are smart, you’d put in a sell order just below the level of support and rack up some sweet profits along the way.

Now let’s see how it pans out in the  price action breakout

Bearish rectangle pattern and breakdown

Now price, led by the bears surge beyond the level of support. The surge of the bears is the same size as the rectangle pattern,which is illustrated by the blue upward arrow. It is also where you set your take profit target.

Notice how the bears surge past the take profit target. That’s a queue for you to amass more profits along the way.

Last but not least is:

Bullish Rectangle Chart Pattern

The bullish rectangle chart pattern shows up in the uptrend. Now just like the bearish pattern, price goes into consolidation. And just like the bearish pattern, the bulls try to knock out the bears but to no avail. So the bulls take a breather to decide on where else to drive price.

I can hear someone saying”Which direction is price heading to?” Well, there is only one way to find out.

Bullish rectangle after an uptrend

And as you can see, price is heading in one direction -upwards according to the blue arrow.  Now let’s see by how much the bulls headed upwards

Forex bullish rectangle pattern and breakout

Well the bulls, accompanied by price have broken through the rectangle by a country mile  and are heading  for the hills. However the height of the bulls surge is similar to that of the rectangle chart pattern-  as the blue upward arrow  suggests.

So if you want to make some money just place your buy order(or long order) just above the level of resistance. It would be worth a lot of cash and your while at the same time.

 

That’s a wrap for “How To Trade Breakouts Via Rectangle Chart Patterns.”  We started by saying the rectangle chart pattern comes about when price is stuck between support and resistance levels.  And during that formation price goes into consolidation where the bulls(sellers) and the  bears(sellers) take turns throwing left hooks but neither side lands the knockout punch. They then take a breather to decide  where to drive price to next.

We also did say that there were two types of rectangular patterns. There first was a bearish rectangle pattern which occurs during the bearish trend  where price consolidates while the bears catch their breath. The same situation happens in the bullsih trend where price also consolidates with the bulls also catching their breath and deciding what to do next.

Next time  we will look at how to trade bearish and bullish pennants

Til next time take care

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How to Trade and Cash in on Wedge Chart Patterns

Hello and welcome to another edition of the bulls vs the bears. Last time we touched on How To Ring In The Profits Trading The Head And Shoulders Pattern.This week we continue our series on trading chart patterns by looking at how to trade and cash in on wedge chart patterns. Now wedge patterns are continuous or reversal patterns where traders are contemplating their next move at the end of a trend. When you see this this information, it means traders are thinking about where to drive the currency pair to next.

So  when you see a wedge chart pattern it means forex traders are contemplating on where next to drive  price. Wedge chart patterns could be either continuous or reversal patterns.

What  are we going to do?  Of course we’ll look at a few  wedge patterns. And then w are going to learn how to trade them.

First  off:

Rising Wedge

A rising wedge takes shape when price takes a breather between  support’s upward slope and resistance lines. In plain  English, price goes into consolidation between these two lines.  You will find that the support slope is steeper than the support lines. In this setup you have lows forming faster than highs. This leads to the wedge-like formation that we’re talking about.

When price consolidates be ready for a spectacular breakout. This breakout  could end up at either the top or the bottom. if the rising wedge forms after the bulls shift ends(or end of  uptrend), it means the bears shift is about to start. In other words a reversal pattern is about to commence. However, if a rising trend forms during the downtrend, it means  a continuation of the move. In other words the bears are still running the show. Regardless’, the formation of this pattern can only mean one thing –  Get your orders ready.

Let’s take a look at the price action in a rising wedge pattern

Rising Wedge Chart Pattern

Ladies and gentlemen, here is a rising wedge formed at a end of an uptrend. Notice  how price action is forming new highs, but at a slower pace compared to the lows.

Now let’s watch price breaking to the downside in the next graphic

Trading Chart Pattern: Rising Wedge After

Ladies and gentlemen,  the bears have have broken to the downside. When this happens, it means it’s time to go short. In other words, put in your sell order. The bears have broken through the trend line, meaning get ready for the beginning of a down trend,

Like we discusses in the last lesson, the price movement after the breakout is the same size as the height of the wedge pattern,

Now let’s look at the rising wege pattern in the bearish continuation signal

Rising Wedge Chart Pattern Bearish Example

Price descends from the downtrend.And then it goes into consolidation, resulting into higher highs and even higher lows(Would you believe?)  Now let’s see price break down to the downside

Rising Wedge Continuation Chart Pattern

Now price has broken at the downside. But the bears are like”Who cares? We’re still moving down the slope. That’s why it’s called the a continuation signal. And the bearish move is  the same size as that  of the height of the formation. Anh when that shapes up, it’s time to sell.

Last but not the least is:

Falling Wedge

Just like the rising wedge, the falling wedge acts as a reversal or continuation signal. The reversal signal is formed at the end of the bears shift(downtrend), suggesting that the bulls are about to start their shift. In other words un uptrend is about to commence.

The continuation signal is formed at the uptrend. This means the bulls continue their upward surge. Mind you, unlike the rising wedge, the falling wedge is a bullish pattern, Let’s take a look at the price action in the falling wedge pattern

Falling Wedge Chart Pattern

Here the falling wedge is in reverse mode. Notice the creation of lower highs and lower lows as a consequence of this reverse signal. This comes about at the end of the bears shift(downtrend).

Also, see how the highs’ trendline is steeper than the lows, trendline. Now let’s see the  highly anticipated breakout by the bulls.

Falling Wedge Breakout Forex Chart Pattern

The bulls launch a humongous surge for the hills after breaking breaking above the top of the wedge.The surge is equal to the height of the formation -as indicated by the vertical line. The surge upwards is the same size as that of the height of the formation.

 

Now let’s look at  where the falling wedge acts as a continuation signal

Falling Wedge Consolidation Forex Chart Pattern

Here price pauses briefly(or consolidates) after a strong push. This simply means that traders are recouping to consider their next move.  It also looks like price is raring for one last surge? Which direction will it go?Let’s find out in the next graphic\

Falling Wedge Continuation Forex Chart Pattern

See price break to the top side and head for the mountain. If you are smart. you can place a buy order above the falling trend line connecting the highs. You should be able to  grab some much needed cash along the way. You can take your profits at the height of the formation, as indicated by the blue line.

If you want more profits, just lock down a portion of your profits at the height of the formation. You close down part of your trading position and let the rest of your trading position ride with the trend.

For more information on  highs and lows look up Trade Trends With Price Action Analysis as Your Weapon of Choice

IF you want to know more about trend lines, look up look up How to Cash In Drawing and Trading Trend Lines

 

That’s a wrap for “How to Trade and Cash in on Wedge Chart Patterns.”  Wedges signal a  time out in the current trend. The forex traders are basically deciding which direction to take the currency pair. Wedge patterns could  be either continuation or reversal patterns.

Next time  we will look at how to us e rectangle patterns to trade breakouts

Til next time take care

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How To Ring In The Profits Trading The Head and Shoulders Pattern

Hello and welome to another edition of the bulls vs the bears. Last time we kicked of our series on trading patterns by touching on How To Make the Most Out of Double Tops and Double Bottom Chart Patterns.  Today we are going to learn how to ring in the cash trading the head and shoulders pattern. The head and shoulders  pattern is a reversal occurrence that is spotted in the uptrend. – i.e when the bulls are in full steam.

Now I can imagine somebody asking”Why the Head and Shoulders Pattern?”Well, the pattern resembles a head and a pair of shoulders. The pattern kicks off with a high(Shoulder) on the chart. Price then creates a 2nd high(Head), even higher than the the first high. The bulls are definitely on a high. And it sure ain’t  cocaine-induced. Guess what happens next? A third high(Shoulder) pops up on the chart. But this is a little lower than the second high, and it  is on the same level as the first high.

So the long and short of this pattern is this. You have a peak(shoulder) followed by a higher peak(head) and then by a lower peak(shoulder). This adds up two one head and two shoulders

You then draw a neckline connecting the lowest points for the two troughs. Fortunately the slope of this neckline  can be up or down. When the slope is down, a strong price signal is created.  let’s see an illustration of the price action on the head and shoulders pattern

Head and Shoulders Pattern

Ladies and gentlemen, here is the head and shoulders pattern in its majesty. The head is the second peak and highest point in the chart pattern.  Notice how the two shoulders form peaks, but not exceeding the height of the head.

Now I can hear someone  saying”Where do I place my  sell order”? First place your sell order below the neckline. You then measure your profit target by measuring the highest point of the head to the neckline. This distance covers how far the bears will head down the slope. Let’s take a look at the price action

Head and Shoulders Pattern Breakdown

As you can see   the the  bears  launch a huge spectacular breakout  below  neckline  at slalom speed. The size of their breakout is similar to that of the distance between the head and the neckline. Now some of you may be saying “Hmmm…I wish this breakout lasts for ever.” Well, if only wishes were horses. Just don’t be greedy. Take your profits and run for dear life.

Now let’s look at the flip side.

Inverse Head and Shoulders

Inverse head and shoulders  is another head and shoulders pattern. Except that this pattern is upside down. This formation takes shape after a long period of bearish domination. In other words the bulls take over after the bears run out of steam.

Here you have a valley(shoulder) followed by a lower valley(head), and then a higher valley. In other words, you have a higher trough, a lower trough and another higher trough.

Let’s take a look at how the price action plays out.

Inverse Head and Shoulders Pattern

As you can see, this is just like the traditional head and shoulders. Except that it’s flipped upside down. With that in mind, you place your order to buy above the neckline.

And just like the head and shoulders pattern you calculate  the profit target by measuring the high point of the head to the neckline. You’re measuring the the extent of the bears’ breakout after it cracks the neckline.

Let’s take a look at the bulls breaking through the neckline.

Inverse Head and Shoulders Pattern Breakout

There you have it! Price, represented by the bulls , has blasted through the neckline and is heading towards your profit targets. So once the bullish convoy hits your take profit target, take your profits and run for dear life

However, you can use trade management techniques to lock in some profits and still keep  your trading position open in case price continues in your trading direction.

For more information on  trade management look up Expand Your Winning Position

That’s a wrap for “How To Ring In The Profits Trading The Head and Shoulders Pattern.”  You can catch the head and shoulders pattern in the uptrend after the  bears have been  dominating for long periods. Once the bears run out of steam, then the bulls take over.

On the flip side you  have the  inverse head and shoulders which you can catch in the downtrend after a period of domination by the bulls. Once the bulls run out of steam, the bears take over.

Next time  we will look at how to trade wedge chart patterns.

Til next time take care

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