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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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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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.

 

Opening Of Live  Forex Trading Account

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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.

 

 

Opening Of Live  Forex Trading Account

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