Risk Off - Attention Opn Equities

Well the G20 summit came and went, various members of the public were arrested for public nuisance and little else came out of it. There is now a distinct disconnect between the two camps, there are those in continental Europe who firmly believe that the way forward is to remove stimulus and cut deficits (they really have little choice given the ballooning public debt numbers), while in the United States of Obama, the man himself is advocating a spend your way out of trouble policy… Based on what is hard to know, however, if you simply pump more money into the economy you'll soon be in the same position as the rest of Europe… And of course the Chinese requested that no official mention was made at the conclusion of the summit regarding their currency manipulation.

So where to from here? Well risk is off the menu for the time being and it seems that the market is solely focused on where equities are going and this is driving the currencies also.

As I've said in previous comments things are indeed quieting down for the summer break and I truly can't see myself into clear trades at the moment.

As far as levels on the day are concerned I think the Cable is well and truly overbought and worthy of a sell here but have a hard time getting in front of the freight train that is the British Pound.

I look for a retracement within the week to all the way lower into 1.4600 so keep an eye on it.

In the EURUSD I know of good offers residing above 1.2390 and 1.2410 with small stops just above there. I am seller of strength in this cross and think that on the day we look at a 1.2300/1.2390 kind of range.

The USDJPY continues to grind lower and spec long JPY positions have increased over the course of the last week, adding credence to my long JPY positioning going into summer.

I'm not particularly inspired today and look for more action in the coming days to perhaps breathe a bit more life into not only me but also this market.

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U.S. May Consumer Spending Rises 0.2%

Personal consumer expenditure (PCE) in May rose an expected 0.2% in the month following unchanged spending in April. This nominal increase was held back by price declines in the month because the volume of consumer spending increased by a stronger than expected 0.3%. The gain in consumer spending was helped by a 0.4% rise in personal income following a 0.5% rise in April (and expectations of a May gain of 0.5%). With incomes rising stronger than spending during the last two months, the savings rate has managed to climb to 4.0% in May from 3.8% in April and 3.3% in March.

The overall 0.2% increase in nominal PCE was led by strong gains in durables (0.8%) and services (0.5%). This gain was tempered by a 0.9% drop in spending on non-durables. A lion's share of the weakness in the latter component reflected price declines for gasoline because the volume of spending on non-durables fell a more modest 0.2%. This decline was offset by volume increases in the durables (1.1%) and services (0.3%) components.

On the inflation front, the 0.2% rise in the core PCE deflator, on a chain-weighted basis, was slightly stronger than the 0.1% increase expected going into the report; however, this still left the annual increase moderate at 1.3% although this is up from the 1.2% recorded in April. The overall PCE price measure was unchanged in the month and up 1.9% in the year.

The 0.3% rise in PCE on a volumes basis in May is encouraging and provides further confirmation that consumer spending continued to grow in the second quarter of 2010. In fact, today's report suggest a second-quarter annualized gain in consumer spending of 3.0% matching the increase recorded in the first quarter of the year. This gain is expected to help support overall GDP in the quarter. With some increased strength in government spending and residential investment, second-quarter GDP growth is projected to come in slightly above 3% relative to the 2.7% recorded in first quarter. Sustained positive growth points to the economy continuing to pull out of the recent recession; nevertheless, the pace of growth remains muted such as to provide only modest downward pressure on a still-high unemployment rate. This slack in labour markets along with the attendant downward pressure on inflation provides scope for the Fed to keep monetary conditions highly accommodative. Our forecast does not assume any hikes to Fed funds until the very end of 2010.

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Fundamental Analysis: Interest Rates

In this article we will look at one of the single most important indicators used in fundamental analysis by Forex Traders: Interest Rates. Interest rates set by the eight major central banks of the world are the single biggest influence on currency rates on the Forex markets. These changes in interest rates are an indirect response to other factor changes in the economy and carry the potential to have significant impacts on the market immediately and with powerful force.

Surprise changes in interest rates is often what causes the biggest change in the market, which is why traders spend much of their time trying to predict what rates the central banks will set in the future. That is what we will look at in this article: How to predict changes in interest rates and what effect they have on the Forex market.

Interest rates are important to forex traders for the simple reason that the higher the interest rates of a nation, the higher the return on an investment in that currency and the higher the profit. Of course there is always a substantial risk with this strategy which is currency fluctuation. A profit made from interest rate payments could be offset by a reverse change in currency rates. So buying a currency with high interest payments by financing it with a currency with low interest rates is not as simple as that. If this was all it took to make arbitrage, there would be millionaires made every second! This isn’t the same as saying that interest rates are to confusing to be properly understood and taken advantage of by the average trader, but it does imply that you spend time educating yourself on the basics of interest rates.

Interest rates are set by central banks all over the world by a board of directors that control the monetary policy of their country or for several countries in the case of the European Union. The basic strategy for the central banks are to raise rates to limit inflation and to lower them to encourage economic growth by lending. This dogma and the trade off between inflation and economic growth has long been considered a balance act where both are not possible to achieve at the same time.

To predict the actions of the central banks and thereby the movements in the forex market it is necessary to look from the viewpoint of the bankers themselves. The central banks will usually examine the most important economic indicators such as:

• CPI (Consumer Price Index)
• Consumer Spending
• Employment Levels
• Housing Market

With this data the the trader can make an informed decision as to the direction of the interest rates. If the economy is doing well and is growing rates will either stay the same or be raised. On the other hand if the economy is slumping and declining, the central banks may encourage borrowing to stimulate the economy by cutting interest rates.
Outside of doing this analysis yourself the forex trader can watch major economic announcements and listen to economic forecasts from major players in the field.

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Forex Fundamental Analysis – Economic Growth

The forex market is an investors heaven and hell at the same time. The same thing that make forex trading so exiting and profitable are the same that can break a trader faster than anywhere else. The one thing that sets the forex market apart from other financial markets is the significant volatility of the market. Currency is used everyday and everywhere, where people do businesses and there are so many players with conflicting interest that no one holds any true edge over others.

Central Banks around the world are of course the major institutions in the market trough their huge influence by setting interest rates. Central Banks don’t act on feelings or sentiments though, their objective is to stabilize the growth of their nations through monetary policy. So if you can actually predict a countries economic growth there is a good chance you can predict the interest rate changes from the central banks. Let us take a look at why economic growth is important to predicting interest rates.

Economic Growth.

To predict he movements of a nations currency we already know that it is useful to have some idea of the movements in interest rates. So how does the growth or lack thereof of an economy influence interest rates? Central banks have two somewhat opposed goals: To stimulate the economic growth of an economy by making sure there is credit available for investment and to balance inflation levels as to not undermine the currency. These two goals are rarely achieved simultaneously, which is why it makes all the difference to predict where the central banks are focusing their efforts at any given time. Let us look at the first scenario: Stimulating growth to cut in interest rates.

If the economy is under performing compared to what ever benchmark the central banks are using, then they may consider slashing interest rates in order to stimulate investment by making more credit available to borrowers. This means that more of the nations currency is being made available to the market which means that according to the laws of supply and demand results in a drop in price. Of course there may not be that big of an impact at any interest rate cut, specially if the market had already anticipated the move to some extent.

On the other hand, if a nations economy is growing and doing well there is always the inherent risk of inflation particularly from pressure on wages due to low unemployment. When this happens, traditional economic theory tells us that there is a risk the inflation can curb further growth. In this scenario the central banks will want to combat this by limiting the availability of money, they raise interest rates to encourage savings. This means two things: A reduction in currency from domestic savings and a reduction in available currency from international investors who crave that currency to take advantage of higher interest rates. The result is a rise in the price of that currency.

Understanding the basics of economic growth goes a long way towards understanding forex fundamental analysis.

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Forex Fundamental Analysis: Using Commodities As Indicators

Predicting the next moves in the market is what the art of trading is all about. Of course this isn’t easy and putting this basic concept into action requires a lot of skill and experience. This is especially true in the forex market. Investors and traders have long known that the forex market is influenced by far more than just forex. The truth is, currency is influenced by many factors, political, economic, interest rates, economic growth and much more, and all are interlinked to some extent making it that much harder to isolate one moving factor.

Specifically some currencies are strongly linked to other factors, such as for example commodities. In this article we will show some examples on how you can trade currency based on movements in the commodity market and how you analyze those numbers.

Lets go back to the year 2005, where oil and gold unlike now where at all time record highs. Those two commodities were the big movers in the markets that year. The dollar had very different reactions to other currencies based on those commodity movements and how the foreign currency related to oil and gold. The way a trader can take advantage of this is to figure out how a currency will react when the oil price rices or falls. In the next example we will look at the CAD (Canadian Dollar) and its reaction to the oil price.

In 2005 the Canadian Dollar was very strong. This was a direct result of the high oil prices, rising more than 60% over the year. Because Canada is a net exporter of oil, the extra revenue of oil income greatly improved the CAD as the overall Canadian economy benefited.

On the other hand the other example here is Japan.
Japan is a an oil importing country, importing close to 99% of its oil, virtually all. Because Japan also lacks other natural resources to compensate for this energy problem, the Japanese economy is particularly vulnerable to the oil price. In fact the Japanese imports more than 79% of its total energy need. So stable and low oil prices are of utmost importance for the Japanese economy. So when the oil prices rise it hurts the Japanese Yen.

When we know these two things, how can we capitalize on this knowledge?

We can now accept these to currencies or rather their currency pair CAD/JPY as a prime indicator on oil prices. So, we can trade this currency pair for profits on nothing else but oil information. Or the CAD/JPY can give us additional information on the market sentiment on oil.

Gold is another currency that tends to be linked to especially the dollar. When the dollar weakens, and thus the markets belief in the monetary system, gold rises in value. While gold is no longer the reserve value of the world, it is still a leading storage of value and will likely continue to be so.

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STRANDED BUT PROFITABLE

If you were lost and alone on a desert island, with only a satellite connection to monitor price action and place your trades, you would probably trade more profitably. What about the feel of the markets provided by the media? What about friends to show off to when you win? In the end, most people would be better off if they were alone on a desert island. Why? As much as humans are social beings, other people usually get in the way. When we are trying to trade "in the zone" with a calm and focused mindset, social issues often distract us: listening to the opinion of others, comparing ourselves to others. If you could trade on your own terms and at your own pace, you would trade at the top of your game.

Social processes are more powerful than we care to admit. If you ever traded in a room full of traders, you know what I mean. If a young trader is on a good run, making a bunch of winning trades, and you are in a slump, you feel as if you should be doing better. You start thinking, "This is a little embarrassing. I better step up my efforts, and try to make more winning trades." Suddenly, you may start trading impulsively. You may start putting a little pressure on yourself so you won't be so far behind. Social pressure can be strong at times, and force you to trade impulsively. Think about what is happening. You are taking unnecessary risks, and for what? To make a few winning trades, and when you do, temporarily think you are "just as good" as the guy on the roll? Is it worth it? It isn't. You may end up losing money and feeling worse. If you looked at matters logically, you would think, "Who cares what anyone else is doing but me. I'm going to go my own way. I'm going to methodically and carefully follow my method, the method that I know earns profits."

Most people look for direction from the crowd when they trade. They mindlessly try to look for confirmation, and feel safe when they follow what everyone else is doing. They try to make it easy, but you can't make many profits by trying to trade the easy way. You have to do a little more thinking. Rather than follow the crowd, it's necessary to trade like an individualist.

It's essential to go your own way when you trade. Don't look toward others for advice. Don’t worry what other people think. Don't try to impress others. If you acknowledge the power of these issues and prepare for how they might impact you, you can beat them. Get ready to put up a defense. Repeat over and over, "I'm not going to care what anyone else is doing or worry about what anyone thinks. I am going to think independently and do things my way, no matter what." You might pretend you are alone on a desert island. Imagine you are by yourself, alone, and loving it. If you can devote all your psychological resources to your immediate experience, you will enter the zone. Don't be distracted by other people. Just do things your own way, and in the long run, you'll trade like a master.

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WHO MANAGES RISK ANYMORE?

Nobel Prize - winning economists and "genius'" Myron Scholes and Robert C. Merton were founders of Long Term Capital Management, which in 1998 lost $4 billion. That helped foster a global financial crisis and triggered both a Wall Street-led bailout and congressional hearings on the dangers of hedge funds, the freewheeling pools for wealthy investors and institutions that often trade heavily and rely on borrowed money to achieve jacked up returns. LTCM had leveraged a notional amount of $2.5B into excess of $100B of investment. NOW THAT'S GENIUS!

Over the past year there have been countless stories of banks, funds and traders, who are supposed to be brilliant, that have wiped out funds or lost significant sums of investor money, while the institutions and managers retained the nice fee's on the assets past held. In many cases there are bailout contingencies using tax payer funds while the managers still get into their nice car and drive to their nice home.

When a fund manager or a trader establishes a risk profile for their fund, portfolio or account, it is important to consider that the market can and will do anything. By they way, I'm an institutional fund manager. In fact, at some point and time, be it sooner or later, the market will take on a movement that even the most "genius" of analysts had not anticipated. Even if a genius had anticipated the unexpected movement, what the genius does not know, nor does anybody, is the manner in which the market will move in the said, or "predicted" direction, thus challenge ones ability to manage positions around the movement. That is the great thing about trading! Genius or not, it requires the ability of a market participant to mesh their understanding of the market to that of the market environment and attempt to extract money while retaining respect for the market. The first order of business is to focus on how much you can lose. So if the first order of business is to focus on how much you can lose, then establishing a concrete risk profile for your fund is foremost and critical.

Developing well defined and reasonable risk profile for your trading typically does not require genius. Sure, the more diversified the portfolio, the more complex risk control can become, but one must always ask themselves one simple question; "What are the consequences if every position we are holding moves against us for a sustained period?"

Many managers are wondering why they did not ask themselves this question the past few months. I warned traders of the risks of trading during the month of August and suggested some directional risks they should avoid.

The reason i write this has been inspired by yet another genius fund that has failed. That of the $2.8 billion Ospraie Fund that lost 27% in August and is down over 38% for the year, with no guarantee investors will receive another 20% of the funds remaining. They claim the drop in metals and energy has contributed to the losses. I'm sure there's more to the story, but perhaps excessive leverage (borrowing) was a contributor?
*
http://www.globeinvestor.com/servlet/story/RTGAM.20080903.wospraie0903/GIStory/

So traders, if you are using excessive gearing or mismanaging risk in your account/portfolio, then look at the positive... You are trading just like some of the biggest names in the business. Seriously, I would like to see geniuses put more of their study into controlling risk, rather than working tirelessly on developing new models to pull money out of the market, because sooner or later, the market will take on a direction or behavior that the risk managers had not anticipated or taken into consideration in their risk control forumula. In fact, part of the problem in larger institutions and funds, is that the developers of the models to take profit do not understand the risk management side and vice versa. Its simple, if you overlook or mismanage risk, you will eventually lose all or too much of your account.

I could write a book on this subject that would go into considerable detail on risk management, but i'll leave this with you, for now.

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The Magic of Filtration

Introduction

Most of the developers of automated trading systems (ATS), one way or another, use some form of signals filtering. Although it isn't the only way to improve the system characteristics, it is considered most effective. Beginner "grail-builders" often fall to the magic of the filters. It's very simple to take some trading strategy, hang a dozen of filters on it, and here it is, - a profitable Expert Advisor.

However, there are opponents of the use of filters. Filters significantly (sometimes 2-3 times) reduce the number of deals, and there is no guarantee that in the future they will be as effective as in the past. Certainly, there are also some other compelling reasons.

So let us take a further look and consider all of this one step at a time.

The hypothesis of the meaninglessness of filtering

If the Expert Advisor is unprofitable ("drainer"), it is unlikely that some type of filtration will help,- the magic of filtering is powerless here.

Therefore, in this article, these Expert Advisors will not be considered. Although, we must know that there are studies of quantum-frequency filters, capable of turning virtually any "drainer" into a pseudo-Grail.

Hypothesis of the dangers of filtering

If the Expert Advisor in its characteristics is approaching an ideal Automated Trading System, then filtering will only worsen it.

We should clarify what is meant by an ideal automated trading system. By this is meant such a trading strategy, which generates only profitable transaction, ie does not bring any losses. In such a system, the number of unprofitable trades = 0.

What is a filter?

In its simplest form, a trading signal filter is a logical restriction such as: if A is not less than B (A> = B), then the signal is skipped, and if it is smaller (A

An example.There may be a correlation between the results of ATS trading and atmospheric pressure in the village of Kukushkino, ie You can create an appropriate filter and improve the profitability of the Expert Advisor, which will take into account the weather in this small Russian town. However, it is unlikely that someone would appreciate such an innovative approach to filtering, in spite of the fact that it could raise the profitablity of the system.

Classification of filters

Although there is a great variety of filters used in ATS, they can still be divided into two main classes:

• bandpass filter (P-filter) - transmits a band of signals;
  
• discrete filter (D-filter) - selective transmission of signals by the mask (template).

Where to start?

Let's consider the filtering mechanism by looking at an example. let's use the DC2008_revers Expert Advisor (see attached file), which was specially developed for this article, and explore its features (without using any filters). Here is the report obtained during testing.

Report

Symbol		EURUSD (Euro vs US Dollar)
Period		1 Minute (M1) 2009.09.07 00:00 - 2010.01.26 23:59 (2009.09.07 - 2010.01.27)
Model		All ticks (the most accurate method based on all of the least available timeframes)
Parameters		Lots = 0.1; Symb.magic = 9001; nORD.Buy = 5; nORD.Sell = 5;
Bars in the history	133967	Modeled ticks	900848	Quality of Modeling	25.00%
Mismatched traffic errors	0
Initial deposit	10000.00
Net profit	4408.91	Gross profit	32827.16	Gross loss	-28418.25
Profitability	1.16	Expected payoff	1.34
Absolute drawdown	273.17	Maximum drawdown	3001.74 (20.36%)	Relative drawdown	20.36% (3001.74)
Total transactions	3284	Short positions (won%)	1699 (64.98%)	Long positions (won%)	1585 (65.68%)
		Profitable trades (% of total)	2145 (65.32%)	Losing trades (% of total)	1139 (34.68%)
Largest		profitable trade	82.00	losing trade	-211.00
Average		profitable trade	15.30	losing trade	-24.95
Maximum Number		consecutive wins (profit)	29 (679.00)	consecutive losses (loss)	16 (-290.34)
Maximum		consecutive profit (count of wins)	679.00 (29)	consecutive loss (count of losses)	-1011.00 (10)
Average		consecutive win	5	consecutive loss

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Forex Trading - How Anyone Can Trade Forex Like A Pro

Over the last few years, there has been a great deal of interest in Forex trading. This interest has been fueled by the fact that people are now starting to look for greener pastures, especially after the housing bubble burst in various countries and the slow down in the economy. Amidst all these issues, it is unavoidable that most of us feel the urge to learn to trade forex and keep abreast of investment opportunities that are made available by this exciting market.

Want to learn more about Forex Trading? Download our free Forex Trading Blueprint Report at http://www.forextradingsystems.com.au

However, before anyone can just jump in and start trading, there is quite a bit of education, or learning that must take place if you want to become successful at it. At the very least, a basic understanding of the Forex market will help pave the way for more detailed studies.

The Forex market unlike the New York Stock Exchange (NYSE) is an Over the Counter (OTC) market. This means it is a decentralized market where trading is done through a system or communication network rather than on an actual physical trading floor.

Because of this, the Forex market actually spans across several time zones around the globe. As such, it is a 24 hour market where trading occurs continuously for around five and a half days a week.

Forex is a platform where traders can exchange different countries currencies at a rate determined by the market. There are two reasons why currencies are traded. One reason is for the payment of goods and services by international companies. The other reason is because traders speculate on the movement of the exchange rates and seek to gain profits from such fluctuations. The exchange rates fluctuate because the demand for a currency is always changing and this change is reflected in the differing rates. This explanation is actually an oversimplification of the Forex market, but its a good place to start.

Unlike share prices which are determined by the performance of the companies, currencies prices are affected by a myriad of factors. Hence, trying to forecast the rate of a currency is an extremely complex process.

It is a good idea to educate yourself well and seek the advice of a broker or licenced advisor or trainer as their advanced knowledge and experience of the market will be able to give your some direction in improving your own knowledge base. To gain a feel of what the Forex market is like, you can also always try out a “practice account” available through most forex brokers, where you will trade virtual money based on the actual exchange rates. You will note that it is an extremely dynamic market and can be quite exciting to observe.

Nevertheless, learning how to trade Forex properly requires patience and some investment to learn about the intricacies of the market. Thus, it would be a good idea for anyone who wants to learn how to trade Forex to enroll themselves in some Forex education courses to further understand how this market really works.

There are also many sources of information about Forex available on the internet. These information can be for free or require some payment to acquire. Free information is usually very basic and if you wish to learn more advanced concepts, you would most likely be required to pay for it. You should do as much research as possible and read as many reviews as possible before you join any Forex training program. This way, you will avoid any disappointments by knowing upfront what to expect.

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How Sales and Earnings Growth can affects a Stock's Performance

Now let's look at a stock which has been exhibiting strong Sales and Earnings Growth over the past year or so. As you can see below Taser (TASR) has seen accelerating Sales and Earnings Growth over the past two quarters which has been reflected in its stock price. TASR formed a "Cup and Handle" pattern before breaking out in September of 2003 and rose nearly 800% from September of 2003 through mid February of 2004.

If you go back through the history of the stock market there is a recurring theme among those stocks which have had some of the strongest price appreciation and it's related to their Sales and Earnings Growth. Let's look at two companies over the past few years and compare their Sales and Earnings Growth. First let's look at Microsoft (MSFT) which has hard meager Sales and Earnings Growth in 2002 and 2003. Since the market made a bottom in October of 2002 MSFT has seen very little price appreciation since then. Back in early October of 2002 MSFT was trading around $22 a share and in late March of 2004 MSFT was trading near $24 a share.

Thus while the major averages saw significant gains from October of 2002 into the early part of 2004 MSFT was only up 9%.

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Trading the Plan

Step by step

There is a lot of advice out there about planning and trading. I'm going to try and make this simple by giving you a template and example that you can implement and follow without much work.

First off, the old saying: Plan the trade and then trade the plan.

This is not bad advice but you need to put this into a structure that is easy to implement, easy to use and easy to measure.

Whatever stage of trading you are at I suggest that you take just one of the strategies that you trade (or want to trade) and use that in this planning exercise - let's keep it simple, easy and fast to implement. If we do that then all of you with and without ADD (attention deficit disorder) will be able to do this, even without Ritalin. (Later on you can come back and add other strategies to the plan.)

There are 4 steps, 2 before you enter your first trade, 1 while trading, and 1 after trading on the weekends.

My example:
Name: MA XOver
Description: Buy when 20 SMA crosses above 50 SMA and sell if cross is other direction.

Step 2 - Setup measurement and record keeping tool

(I assume day trading here but this can be used for any type of trading)

Here is a spreadsheet that was used in another article that will do very well as a template in this exercise: Trade Records Template

Adjust the spreadsheet by deleting and adding columns to suit the data that you want to collect. You will want to use the reason column for the short name of the strategy that you are planning. My example: MAXO.You may want to add a column called Taken. Put a true or false in this column to indicate if you took the setup or not.

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Books about Advanced Forex Trading

Here you will find the Forex e-books that contain more advanced information than the average popular book about financial trading. In some cases, understanding these books is impossible without a lot of experience in Forex and sometimes the extended knowledge of mathematics.

Almost all Forex e-books are in .pdf format. You'll need Adobe Acrobat Reader to open these e-books. Some of the e-books (those that are in parts) are zipped.

If you are the copyright owner of any of these e-books and don't want me to share them, please, contact me and I will gladly remove them.

A New Interpretation of Information Rate — by J. L. Kelly Jr.

CCI Manual — by James L. O'Connell.

Nicktrader and Jeff Explaining Reverse and Regular Divers — from Woodies CCI Club Discussion From January 15,16 2004.

NickTrader on No Price CCI Divergence Trading — by Nicktrader.

Are Supply and Demand Driving Stock Prices? — by Carl Hopman.

The Sharpe Ratio — by William F. Sharpe.

The Interaction Between the Frequency of Market Quotes, Spread and Volatility in Forex — by Antonis A. Demos and Charles A. E. Goodhart, a scientific article from the Applied Economics.

Trend Determination — by John Hayden, a quick, accurate and effective methodology for trend determination on the financial markets.

Trend vs. No Trend — by Brian Dolan an article from TRADERS' Magazine July 2005 issue, which deals with the trend/no trend paradox encountered by many traders who think that "the trend is your friend".

A Six-Part Study Guide to Market Profile — by CBOT professionals — it describes the concept of the market profile in the smallest details.

How George Soros Knows What He Knows — by Flavia Cymbalista — the study of George Soros' market reflexivity.

Core Point and Figure Chart Patterns — by BlueChipOptions.com — a set of point-and-figure chart patterns and explanations of their application.

Coder's Guru Full Course — by Coder's Guru — a full course on MQL development (programming for MetaTrader 4) that will help you develop your own custom indicators, trading scripts and automated expert advisors.

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Forex Pivot Points: Mapping Your Time Frame

It is useful to have a map and be able to see where the price is relative to previous market action. This way we can see how is the sentiment of traders and investors at any given moment, it also gives us a general idea of where the market is heading during the day. This information can help us decide which way to trade.

Pivot points, a technique developed by floor traders, help us see where the price is relative to previous market action.

As a definition, a pivot point is a turning point or condition. The same applies to the Forex market, the pivot point is a level in which the sentiment of the market changes from “bull” to “bear” or vice versa. If the market breaks this level up, then the sentiment is said to be a bull market and it is likely to continue its way up, on the other hand, if the market breaks this level down, then the sentiment is bear, and it is expected to continue its way down. Also at this level, the market is expected to have some kind of support/resistance, and if price can’t break the pivot point, a possible bounce from it is plausible.

Pivot points work best on highly liquid markets, like the spot currency market, but they can also be used in other markets as well.

Forex Pivot Points

In a few words, pivot point is a level in which the sentiment of traders and investors changes from bull to bear or vice versa.

Why PP work?

They work simply because many individual traders and investors use and trust them, as well as bank and institutional traders. It is known to every trader that the pivot point is an important measure of strength and weakness of any market.

Calculating pivot points

There are several ways to arrive to the Pivot point. The method we found to have the most accurate results is calculated by taking the average of the high, low and close of a previous period (or session).

Pivot point (PP) = (High + Low + Close) / 3

Take for instance the following EUR/USD information from the previous session:

Open: 1.2386
High: 1.2474
Low: 1.2376
Close: 1.2458

The PP would be,
PP = (1.2474 + 1.2376 + 1.2458) / 3 = 1.2439

What does this number tell us?

It simply tells us that if the market is trading above 1.2439, Bulls are winning the battle pushing the prices higher. And if the market is trading below this 1.2439 the bears are winning the battle pulling prices lower. On both cases this condition is likely to sustain until the next session.

Since the Forex market is a 24hr market (no close or open from day to day) there is a eternal battle on deciding at white time we should take the open, close, high and low from each session. From our point of view, the times that produce more accurate predictions is taking the open at 00:00 GMT and the close at 23:59 GMT.

Besides the calculation of the PP, there are other support and resistance levels that are calculated taking the PP as a reference.

Support 1 (S1) = (PP * 2) – H
Resistance 1 (R1) = (PP * 2) - L
Support 2 (S2) = PP – (R1 – S1)
Resistance 2 (R2) = PP + (R1 – S1)

Where , H is the High of the previous period and L is the low of the previous period

Continuing with the example above, PP = 1.2439

S1 = (1.2439 * 2) - 1.2474 = 1.2404
R1 = (1.2439 * 2) – 1.2376 = 1.2502
R2 = 1.2439 + (1.2636 – 1.2537) = 1.2537
S2 = 1.2439 – (1.2636 – 1.2537) = 1.2537

These levels are supposed to mark support and resistance levels for the current session.

On the example above, the PP was calculated using information of the previous session (previous day.) This way we could see possible intraday resistance and support levels. But it can also be calculated using the previous weekly or monthly data to determine such levels. By doing so we are able to see the sentiment over longer periods of time. Also we can see possible levels that might offer support and resistance throughout the week or month. Calculating the Pivot point in a weekly or monthly basis is mostly used by long term traders, but it can also be used by short time traders, it gives us a good idea about the longer term trend.

S1, S2, R1 AND R2...? An Objective Alternative

As already stated, the pivot point zone is a well-known technique and it works simply because many traders and investors use and trust it. But what about the other support and resistance zones (S1, S2, R1 and R2,) to forecast a support or resistance level with some mathematical formula is somehow subjective. It is hard to rely on them blindly just because the formula popped out that level. For this reason, we have created an alternative way to map our time frame, simpler but more objective and effective.

We calculate the pivot point as showed before. But our support and resistance levels are drawn in a different way. We take the previous session high and low, and draw those levels on today’s chart. The same is done with the session before the previous session. So, we will have our PP and four more important levels drawn in our chart.

LOPS1, low of the previous session.
HOPS1, high of the previous session.
LOPS2, low of the session before the previous session.
HOPS2, high of the session before the previous session.
PP, pivot point.

These levels will tell us the strength of the market at any given moment. If the market is trading above the PP, then the market is considered in a possible uptrend. If the market is trading above HOPS1 or HOPS2, then the market is in an uptrend, and we only take long positions. If the market is trading below the PP then the market is considered in a possible downtrend. If the market is trading below LOPS1 or LOPS2, then the market is in a downtrend, and we should only consider short trades.

The psychology behind this approach is simple. We know that for some reason the market stopped there from going higher/lower the previous session, or the session before that. We don’t know the reason, and we don’t need to know it. We only know the fact: the market reversed at that level. We also know that traders and investors have memories, they do remember that the price stopped there before, and the odds are that the market reverses from there again (maybe because the same reason, and maybe not) or at least find some support or resistance at these levels.

What is important about his approach is that support and resistance levels are measured objectively; they aren’t just a level derived from a mathematical formula, the price reversed there before so these levels have a higher probability of being effective.

Our mapping method works on both market conditions, when trending and on sideways conditions. In a trending market, it helps us determine the strength of the trend and trade off important levels. On sideways markets it shows us possible reversal levels.

How we use our mapping method?

We use the mapping method in three different ways: as a trend identification (measure of the strength of the trend), a trading system using important levels with price behavior as a trading signal and to set the risk reward ratio of any given trade based on where the is the market relative to the previous session.

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How to Select Good Forex Trading Programs:

One of the things I have found fascinating is that of forex trading programs. This is one of those items that you hear about that are constantly changing as people continue to add their knowledge to the equation. It’s certainly something that many people are interested in because of all the buzz you hear about it. But what are some of the points you need to know about researching forex trading programs?

Forex trading programs are something that is truly needed today because so many individuals are getting interested in it and it solves many investment problems. If you have ever tried to invest in the forex market, then you know the pain of what it’s like to try and get past the forex learning curve. You try everything you can to fix the problem by trying to correct it yourself. When that doesn’t work, you begin to ask family for their advise, but many times, they don’t have the solution either. Even if they try to help, it usually doesn’t really fix the problem on a consistent basis. The next step for some folks is to go to the Library for help, and this usually proves helpful, as long as the intel you read is current and up to date.

The best way to get useful info is to go to the internet for help. Even though everything on the net may not be perfect, most of the information is up to date and useful. This is especially true if you are looking for info on forex trading programs. You will find reviews of available tools to help with the situation and provide useful info. You can also read what others are saying about their experience with forex trading programs on blogs and forums, and see what has been effective for them. All of this info will help in your quest for successful forex trading programs.

How to Select Good Forex Trading Programs

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Simple Forex Trading Strategies

The moment you are learning something new, you are excited, ready to take on the world, the learning curve is steep and you are ready for action! Then you start hitting a few bumps in the road and your energy level decreases as you go. You know you have to fight through these tough times of adjusting, incorporating new knowledge and defeating fear and doubt, but sometimes it feels too much, too overwhelming. That is when you should apply simple Forex trading strategies to keep you afloat until this ’storm’ passes.

As long as you keep your target in mind, you will be able to fight through all of the fear and doubt and come out at the other end, experienced, tough and ready to trade in the currency exchange market successfully.

How not to lose sight of your target:

• be around like-minded people

• always be in contact with a Forex Successful Trader

• have a Profit Protection System in place

The easiest way to be around like-minded people and be in contact with a Forex Successful Trader is to enroll in a currency class, a workshop or a seminar. Any of these will open up the gates to a new world for you where Forex traders of all levels, from FxNewborn to FxMastery, are there to share their knowledge and experience.

If you are not part of a FxST Community yet, you need to sign up for one and be in contact with the members of this community as they will keep you focused, because their target is the same as yours and as always two heads are better than one and three better than two…

A Forex Successful Trader will be able to look at your trades, if you keep your Profit Protection System updated, and tell you how you can improve your trading. It is always easier to know where you are heading if you can visualize the end of your journey and with a Forex Successful Trader present in your daily trading life will most definitely keep that vision alive and thriving.

At the beginning you should trade simple strategies that you learn in your currency class. Follow a couple of indicators and try not to open more than one position at a time. You need to learn how to walk before you can run!

The most basic and important thing that you will learn in Forex trading is to identify the entry and the exit points. Once you master those you are a rock star! But even if it sounds easy, it takes a little bit of time, practice and professional guidance for you to reach that point.

A currency course will most likely give you access to a Live Trading Room where you can witness a Forex Successful Trader execute trades on a daily basis. He will walk you through the steps of how he reaches a decision based on when he opens or closes a position. After watching that for a while, you will start to see a pattern and the most important rules of trading will be embedded in your brain so deep that they will come to your mind automatically.

After that all you need to do is exercise in your demo account until you know you have the rules and discipline down and you are ready to go. Your trainer will let you know if you are ready for a live account. So, trust yourself and start trading at that point!

Remember to set your stop-loss levels and never ever brake them! Do not learn this the hard way because it is not worth your time, money and effort. Trust the advice that your trainer gives you and follow it closely.

Plan your trade and trade your plan! Always!

Mandy Martinez, the Founder and Chief Master Trader of Forex Successful Traders, has actively traded for over 12 years. He has coached hundreds of Forex Newbies and Advanced Traders, most of whom, in turn, have become part of the Forex Successful Traders Community.

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Forex Signal Generated By Technical Analysis

In this article we are going to cover how to generate forex signals using forex technical analysis principles based on another price pattern called the triangle.In forex technical analysis, various triangle formations including wedges have different names and definitions.According to technical analysis the price behaves differently after completing certain technical formations and will generate a forex signal.

There is a significant amount of false breaks to be considered while trading triangle formations.Due to this fact it is hard to predict where the price will move after bridging the edge of a triangle.Having said that,trading signals based on triangle formations is a safe and easy way to generate profit.The technical approach to generating signals from these patterns should be rather simple. The main point is to be able to recognize such formations in the early stage.As soon as a triangle is drawn on your chart you will be able to recognize the possible signal and benefit from it at least a few times.

To draw a triangle on the chart following technical analysis principles,look for two highs and two lows and draw a line through them.Connecting at least two lows with one line,and two highs with another line you will have a nice triangle formation ready to give you some possible trading signal opportunities.You could trade triangles within the middle section of it,placing trades away from the border and trading short from the resistance and long from the support.You could liquidate your trading signal positions when the opposite edge of the formation is reached and reverse it-targeting the opposite edge again.

If there is a signal that indicates a possible break out,you might want to construct your trade based on this break of the border.Such a trade would be more likely to happen when the border of the triangle has not been broken for more than three touches.Please use more fundamental analysis to back up your decision.You can also use trading indicators to confirm that a break is about to happen.

In case of a false break follow the technical analysis principle which states that a false break is nothing other than a confirmation of trend continuation and the next big move is likely to be in the opposite direction.An important tip while trading signals based on the break of the border is the fact that you should have a false break already in place.If you did not trade it,it is good for you but if you did and made a little loss,in most cases the next break on the opposite side of the triangle might be a proper one. Obviously it is only higher possibility to happen.

Place your stop losses outside of the triangle.Keep them tight and in the case of a false break,following technical analysis rules there can be a bigger possible price swing which should cover all small losses you made and could possibly generate substantial profits within the next trading signal.

Trading signals based on triangle technical analysis seems to be very popular and allows trades to generate significant profits trading these formations with a rather small risk of losses.

About the Author
If you really want to Trade Forex Signal go to forexmoneysignal.com and explore great Forex Signals

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1. Trade Forex Signal Based On Trading Channels Formations
2. Who Really Need Forex Signal Providers?
3. Forex Trading Signals
4. Forex News and Technical Analysis by factoryclick.com 28 September 2009
5. Forexbody Forex System And Signal.

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Why Use Forex Price Action Analysis ?

Why Trade Forex with Price Action?

The forex market is a highly liquid and sometimes fast moving market that lends itself wonderfully to the trading method of price action analysis. Price action analysis is the identification and implementation of specific price action signals or setups in the market you are trading. Forex is a great market to use price action analysis on because it is open 24 hours a day 6 days a week and this means there are more price action signals for you to take advantage of. All you need to know is what to look for and you can best learn this from a professional price action trader.

I have tried about every way to trade the market you can imagine and after all the frustration, time, and money wasted I ended up realizing that the best way to trade any market is just by analyzing a naked price chart. My unique way of trading using price action setups is a result of many hours of screen time spent analyzing price movement and price action patterns. Trading is a process of trying different methods and tweaking them and eventually ending up with your own unique trading method.

Price action analysis works very well in the forex market because it is such a dynamic and active market. The beauty about price action analysis is that it is an inherently flexible approach to trading that gives you a perspective on the market that allows you to make sense out of what is happening at any given time. I have been profitable by concentrating on just 2-3 good price action setups that have proved profitable again and again for me. If you learn how to read what the chart is telling you and focus on 1 to 3 setups that you like, eventually you will make money. Where people go wrong is using indicators and other overly complicated methods and then constantly jumping from one technique to the next. You have to find a truly consistent edge in the market and then just concentrate on that until you get it down, then you can maybe add more tools to your arsenal.

Trading is difficult enough without having an overly complicated method that tells you to look at multiple lagging indicators when you could just be looking at a simple price chart. Probably the best reason to trade forex using price action is that any indicator you use on your chart to analyze market movement is derived from price and is just showing you in a less vivid format the same thing price is showing you. Some people like indicators because they give you buy and sell signals when lines cross or whatever. The thing is, if you know what price action signals to look for you can get the same entry signals but at a much better price which gives you a better chance at profiting.

Just because your charts come with a hundred different indicators doesn’t mean its going to help your trading or make you money in the markets. We are trading financial markets here, so the core of what we are doing is trying to profit off of price movements. Why people would not naturally make their trading decisions off of pure price movement is beyond me. I promise you that if you simplify your trading method and concentrate on using price action you will wonder how you ever traded any other way.

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Trading the Inside Bar Strategy in Forex

Inside Bar Forex Trading Entry

This article will discuss the Inside bar trading strategy , a trading method I have used successfully for most of my trading career. My trading involves all methods pertaining to price action, they are not used in conjunction with indicators or other systems. I use a plain vanilla price charts tp look for the inside bar and other patterns as they form naturally on 240 minute and daily price charts.
What is an inside bar ?
An inside bar is a bar or series of bars which is/are completely within the range of the preceding bar, or , i.e. it has a higher low and lower high than the bar immediately before it (some traders use a more lenient definition of inside bars to include equal bars). On a smaller time frame it will look like a triangle.
What Does it mean?
An inside bar indicates a time of indecision or consolidation. Inside bars often occur at tops and bottoms, in continuation flags, and at key decision points like major support/resistance levels and consolidation breakouts. They often provide a low-risk place to enter a trade or a logical exit point.
When to use the signal
The most logical time to use an inside bar is when a strong trend is in progress or the market has clearly been moving in one direction and then decides to pause for a short time. If we play the break out, our stop loss can be defined by placing it below the half way point of the outside bar or mother candle, or for the more conservative trader, below the outside bar itself. This would mean that the market muse break a 3 bar low to take us out of the trade.
These inside bars are very good when trading a trend on the 240 minute charts and the daily charts.
Special Notes
More advanced traders may also identify market turning points when trading against the trend, but this wil take plenty of screen time to learn, so its not suggested for novice traders.
The Inside bar forex strategy is a flashing light, a major signal to the trader that reversal or continuation is about to occur.
See the example below for a classic inside bar break out, and a classic inside bar stall pattern.

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Your Forex Trading Journey Starts Here . . .

So you’ve been trading or researching the forex market for a while now, you wake up each day and the first thing you think about is how bad you want to be a trader. You’ve thrown a few grand (Few thousand $$) into your trading account that you convinced yourself was disposable income and have had varying degrees of success thus far. You haven’t exactly made any serious money yet because your account is still hovering around breakeven; you did have a few killer trades but quickly gave all of your profits back to the market. Your strong passion for trading and to become a professional trader is beginning to preoccupy your thoughts throughout the day and is beginning to cause your friends and family to question your sanity (I can hear you laughing!). You have now randomly ended up on my site (lucky you!) likely out of curiosity and ongoing google searches about how to successfully trade the forex market using price action, or possibly, your here out of desperation from enduring so many losses and can’t take it any more, you want answers!.

Maybe you have made some decent money trading the forex market but are not feeling confident with your method. Maybe you are looking for a more refined and logical way to trade that doesn’t require you to put so many lagging indicators on your charts that they look like modern abstract art. Or maybe you are frustrated with all the “magical” trading software and mechanical forex robots that make big claims but produce little results. The bottom line is that you can at least take solace in the fact that you have arrived on my website, one of the most comprehensive sources you will ever find for learning how to successfully trade the forex market with simple, effective, and relevant strategies. I have created this site for you; it is the culmination of years of real trading experience, trial and error, and finally arriving at the concept of simplicity. I was in your shoes once upon a time, always remember that we all have walked the same path at some point in our trading careers, and I am no better than you, and you no better than I, we are all searching and heading in the same direction with one common goal.

Do yourself a huge a favor and thoroughly examine this website, I have spent years building it for you and others like you.. adding and updating content, making instructional videos and developing a comprehensive trading course. You will notice my site is different from most other forex educational websites, specifically in the quantity and quality of free material that I provide to the general public. I feel that by offering this Free Content, I build you trust and gain your respect, and remove any doubt in your mind, that I am indeed an expert with my topic of Price Action trading. My main motivation for developing this site was out of the desire to give something back to struggling forex traders across the world and also to personally train them in the proper ways to trade forex. After all, there’s only so much you can do with your life when you don’t have a job and are liquid enough to do anything you want, the freedom and lack of routine catches up with you eventually, this site gives me purpose, routine and friendship, and it keeps me in touch with an immense volume of forex traders around the world, . it’s my grounding, but also my passion.

Let’s talk about real life trading for a minute here, I mean lets really step back and take an objective look at what you are doing in the market and what you can do to begin to change the way you think about trading. You have already made the first step by finding my website, if you thoroughly examine the pages and videos of this site you will begin to see the path towards trading success, but it will not happen overnight, I am not promising instant gratification here, I am different from most other trading educators, I tell it to you straight with no sugar coating. If I had to give you one simple thing that you can do right now, to help get you on the track to successful trading, it would be to move back to a demo account. Simply put, if you are not making money consistently, quarter after quarter, than you are not a pro. yet; and as such, you are just gambling, you should take the time to learn from me or somebody like me, and practice for months and master that style of trading before stsarting to trade that previous capital of yours

I know what the end goal is because I have achieved it, it seems like something you are very close to obtaining, but right before you grab it slips just a little further away from you. I know what it’s like to be stuck in a rut of losing trades and to feel like the only way out is to trade more or risk more. The purpose of this site is to help you avoid getting stuck in this rut, or to help pull you out of it if you are currently in it. The end goal of any trader, for any market, is to develop or find a consistently accurate method. You have probably driven yourself crazy trying to find the “holy grail” method or by trying to analyze every single economic indicator known to man. I was the exact same way when I first started trading, I didn’t know what worked and what didn’t, so I basically tried everything, and the one thing that kept jumping out at me was that all of the indicators and complicated software I was using was not making me any consistent money, enough was enough, and I removed all my indicators and started “trading naked” with a raw price chart.

Let’s explore some steps on how you can use my website to expand your trading perspective and open your eyes to the beauty and power of simple price action setups. There is no doubt a vast array of free forex educational information on this website. The best way to go about digesting it all is in increments. Don’t think by watching one or two of my videos or reading a few articles you are going to be able to master price action trading. Instead, take a couple hours after you get home from work each night and read a few articles under the Forex Articles section and maybe watch a Forex Training Video or two. Then on the weekend, or whatever days you have off from work, really sit down and spend some quality time watching my videos and reading the rest of the instructional articles.

The next step to take is to work on developing good trading habits and phasing out your old bad habits that have thus far caused you overall trading failure, inconsistent profits at best and numerous blown out trading accounts at worst. You need to cleanse your mind from your past trading history; the best way to do this is to stop trading real money. You do not think objectively when you have real money on the line, and if you have not already figured out how to make consistent profits in the market than you are obviously not in the right mindset and so have no business trading with real money. Once you have stopped trading with real money and thoroughly went over all the free material on my website than you should begin demo trading again until you prove to yourself that you can behave in a disciplined manner while trading. The price action strategies that I teach are very simple, effective and accurate, but they still need to combined with a healthy dose of self discipline in order to be consistently profitable.

I’ve been there guys, all you struggling traders out there, you see I am no different from you except for the fact that I persevered long enough to figure out the intricacies of trading and what works and what doesn’t. I’ve done all the trial and error, lost thousands along the way, but I’ve come out the other end a better overall person and a professional trader. Trading can be brutal if you do not approach it from the right perspective and totally believe that you can make money using a very simple method like price action.

I have dedicated my life since becoming a full time trader to helping other people succeed, simply because I know the frustration and I know the passion, I know how it all feels. My belief is that people who are really enthused about trading contain certain personality traits that the general public just does not have. Anyone that I have met that is really passionate about trading the markets is always the type of person that is looking for more out of life than the usual 9 to 5 rat race where you work your life away making your boss rich while you just maintain a meager existence. This common desire for freedom and to fully experience life is what has brought us together and is why you have read this article. I encourage you to read on, explore this website, you are now on the right path, the path to learning something real, and being in the presence of a mentor with no salesman “big claims” of overnight success or hocus pocus trading robots (how ridiculous are those forex robots seriously lol?). If you feel like you want to take it to the next level after digesting some of my free material than consider My Pro Forex Course, Forum and Trade Setups Comentary, upon purchase of the course you get me as your trading mentor and a ton of other great perks well worth the money I charge. You should know, that unlike so many Education Vendors, I am Always one email away and will respond to your questions and messages promptly. In between trading and living my mobile lifestyle, I have a great deal of Free Time, and this website allows me to fill that time up with something productive and rewarding, I hope to speak with you soon.

Remember to Check out The Following Very Informative Areas Of the Website …

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Traders Tax - Trading Through a C-Corp

Depending on your individual circumstances, a C-corporation may be a great choice if you’re doing business as a trader. Since a corporation is a legal entity, with the right to sue and be sued, and the right to enter into contractual agreements, it, like any other “individual,” pays its own taxes. Even better, a C-corporation gives you and other shareholders personal asset protection.

A C-corporation brings you many other benefits as well, such as the ability to amortize pre-existing and start-up expenses, depreciate business assets, and maximize allowable write-offs.

In fact, corporate deductions are so wide reaching that frankly, if your expense is ordinary and necessary, it’s deductible.

For those who think starting a corporation means starting a company like Microsoft, you’ll be pleased to learn that your corporation can be any size. In fact, you need only one person, yourself, to fill the roles of officer, director and shareholder. You can be your own corporation! Your family members may participate in the corporation as well, as you’ll see in other articles.

Of course, corporations have their downside too, the major one being double taxation. If you form a corporation, its profit is taxed on the corporate level. And if you pay those once-taxed profits out by way of shareholder dividends, the recipient shareholders, i.e. you, must report the payment as dividend income, creating two taxes on the same profit. However, you can easily avoid double taxation if you’re a sole owner corporation. Simply use extra funds to invest in another LLC trading vehicle rather than paying out dividends.

Another downside to a corporation is that if the corporation has net trading losses, those losses do not flow through to the owners (you). Since the corporation is a stand-alone taxpayer, those losses stay with the corporation.

This is unpleasant since you, as an owner/shareholder, would like to get the benefit of that trading loss to offset other income you might have, at least to some extent. If the corporation has a net operating loss (NOL), the corporation can carryback and carryforward that NOL, subject to certain specific rules, where the loss can then offset income. So the corporation gets a tax benefit from the loss, but you as an owner will not.

Who Should Use the C-Corporation for Their Trading Business?

The C-corporation, by itself, works well if you’re looking to grow your wealth by long-term investing rather than using profits for the short-term. One of the main advantages is that the C-corporation has its own tax brackets. For example, instead of your trading gains being taxed at your personal tax rates, the first $50,000 of profits in your C-corporation are taxed at just 15%. In addition, the C-corporation is unique in that it gives you the ability to write-off 100% of all medical expenses by means of a self-insured medical reimbursement plan, including long-term care and other related expenditures. If you’re in this situation, the C-corporation may be right for you.

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The Ultimate Trade Setup using Bollinger Bands

Markets move between low volatility trading range moves to high Volatility trend moves. One of the best ways to see this taking place is with the Bollinger Bands. When a market makes a extremely narrow range move. The Bollinger Bands will noticably narrow together.

When the bands narrow down it shows an extremely low volatiltiy market. A low volatility market forecasts - a high volatility trend move Is more than likely - just around the corner.

This is a big trading setup and a money making opportunity is at hand.

The Bands narrowing together does not forecast the direction that the breakout will be but often times it is fairly clear from classic technical analysis which way the odds favor the breakout to be.

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WHEAT - A NARROW RANGE BASE
At the beginning of this chart from 3/20/03 to 5/06/03
Wheat made a narrow range base pattern
The Bollinger Bands narrowed down
There was no doubt that a low volatility move was happening
This put us on alert that this was a Million Dollar trade setup
A possible trading opportunity was at hand
Wheat exploded to the upside from there

THE ENTRY SIGNAL
The parabolic stop indicator
Is a great way to make sure you are on board for the big move
And a good indicator to use as a stop
Sometimes it takes a couple of trys to get aboard the big move
The parabolic is a stop and reverse trading system
The parabolic will work excellent as an entry signal
Then use the parabolic stop and reverse signal
To change positions in the market if need be

So you use the parabolic to:
#1 - Enter the market
#2 - As a stop if wrong on the entry signal
#3 - As a new entry point to go with the market the other direction if need be

The parabolic indicator is just one idea for an entry signal
You can use whatever entry signal works for you
When you see a low volatility market

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The reason it may take a couple trys
To get in the market on the right side of the big trend move
Is because the market may make a false breakout
For example the market may make a base and be ready to make a strong rally
But first may make a strong move below the base
This is called a false breakout or head fake
Then the real move may begin and the market will rally from there

The false breakout can be in either direction
And sometimes there may be a couple of false moves

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FROM JOHN BOLLINGER - ON BOLLINGER BANDS
www.bollingerbands.com

Years ago the late Bruce Babcock of Commodity Traders Consumers Review interviewed me for that publication. After the interview we chatted for a while--the interviewing gradually reversed--and it came out that his favorite commodity trading approach was the volatility breakout. I could hardly believe my ears. Here is the fellow who had examined more trading systems--and done so rigorously--than anyone with the possible exception of John Hill of Futures Truth and he was saying that his approach of choice to trading was the volatility-breakout system? The very approach that I thought best for trading after a lot of investigation?

Perhaps the most elegant direct application of Bollinger Bands is a volatility breakout system. These systems have been around a long time and exist in many varieties and forms. The earliest breakout systems used simple averages of the highs and lows, often shifted up or down a bit. As time went on average true range was frequently a factor.

There is no real way of knowing when volatility, as we use it now, was incorporated as a factor, but one would surmise that one day someone noticed that breakout signals worked better when the averages, bands, envelopes, etc., were closer together and the volatility breakout system was born. (Certainly the risk-reward parameters are better aligned when the bands are narrow, a major factor in any system.)

Our version of the venerable volatility breakout system utilizes BandWidth to set the precondition and then takes a position when a breakout occurs. There are two choices for a stop/exit for this approach. First, Welles Wilder's Parabolic3, a simple, but elegant, concept. In the case of a stop for a buy signal, the initial stop is set just below the range of the breakout formation and then incremented upward each day the trade is open. Just the opposite is true for a sell. For those willing to pursue larger profits than those afforded by the relatively conservative Parabolic approach, a tag of the opposite band is an excellent exit signal. This allows for corrections along the way and results in longer trades. So, in a buy use a tag of the lower band as an exit and in a sell use a tag of the upper band as an exit.

The major problem with successfully implementing Method I is something called a head fake--discussed in the prior chapter. The term came from hockey, but it is familiar in many other arenas as well. The idea is a player with the puck skates up the ice toward an opponent. As he skates he turns his head in preparation to pass the defender; as soon as the defenseman commits, he turns his body the other way and safely snaps his shot. Coming out of a Squeeze, stocks often do the same; they'll first feint in the wrong direction and then make the real move. Typically what you'll see is a Squeeze, followed by a band tag, followed in turn by the real move. Most often this will occur within the bands and you won't get a breakout signal until after the real move is under way. However, if the parameters for the bands have been tightened, as so many who use this approach do, you may find yourself with the occasional small whipsaw before the real trade appears.

Some stocks, indices, etc are more prone to head fakes than others. Take a look at past Squeezes for the item you are considering and see if they involved head fakes. Once a faker.

For those who are willing to take a non-mechanical approach trading head fakes, the easiest strategy is to wait until a Squeeze occurs--the precondition is set--then look for the first move away from the trading range. Trade half a position the first strong day in the opposite direction of the head fake, adding to the position when the breakout occurs and using a parabolic or opposite band tag stop to keep from being hurt.

Where head fakes aren't a problem, or the band parameters aren't set tight enough for those that do occur to be a problem, you can trade Method I straight up. Just wait for a Squeeze and go with the first breakout.

Volume indicators can really add value. In the phase before the head fake look for a volume indicator such as Intraday Intensity or Accumulation Distribution to give a hint regarding the ultimate resolution. MFI is another indicator that can be useful to improve success and confidence. These are all volume indicators and are taken up in Part IV.

The parameters for a volatility breakout system based on The Squeeze can be the standard parameters: 20-day average and +/- two standard deviation bands. This is true because in this phase of activity the bands are quite close together and thus the triggers are very close by. However, some short-term traders may want to shorten the average a bit, say to 15 periods and tighten the bands a bit, say to 1.5 standard deviations.

There is one other parameter that can be set, the look-back period for the Squeeze. The longer you set the look-back period--recall that the default is six months--the greater the compression you'll achieve and the more explosive the set ups will be. However, there will be fewer of them. There is always a price to pay it seems.

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Forex explaining Risk Reward Ratio

It is well known to all traders that risk is the inevitable part of trading but if it can be resolved by risk-reward ratio. It’s a good way to get out of the giant of trade risk smartly.

The risk reward ratio is one of the ratios that manage the risk involved in Forex trade. These ratios are used to determine the versatility of the trading systems that are implemented while trading at the trading platform.

More specifically, this ratio helps to analyze the intensity of risk involved in any trade that signifies how much money a trader can loose in one particular trade. It also compares the loss involved in the trade and the potential of profit in any trade.

For instance, risk reward ratio of 10:20 ticks implies that a trade was putting 10 ticks into risk to earn 20 ticks. This ratio could be prearranged as 1:2 or as 50% and it is calculated as ((10/20)*100) = 50), that means risk is around 50% of the possible profit.

The lower risk reward ratio means that the trailing trade will loose less capital as compared to the amount that can be earned by the winning trade.

This let the winning Forex trades to surmount the losses that are acquired by the lost trades. For understanding let’s take an example of a risk reward ratio of 25% means that one winning trade can surmount four loosening trades.

In contrary to this, a risk reward ratio of 75% means that one winning trade can surmount the losing trade.
The risk reward ratio when used in combination with other risk management strategies to get more diversified and better results of the Forex trade.

Like the win-loss risk ratio, that compares the number of losing and winning trades and the break-even percentage that gives the number of winning trade points that are required to break the even trade point.

The article gives a tool to manage the trade risk and calculate the potential profits from the possible Forex trades.

About the Author
I am Avelin and have keen interest in financial investments and matters related to Forex trade. I am working in Forex trading and financial investments for Finexo.com.

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Trade Forex Signal Based On Trading Channels Formations

Following the other rules of technical analysis used mainly to generate forex signal trade we find another very popular price pattern to construct trade signals. The formation is called the channel.

To draw a channel on your trading chart look for two parralel trend lines. There are there types of channels.
Ascending, Descending, Horizontal.

To trade signals on such a formation is a pretty easy task. The channel gives a clear view of the size of the potential forex trade signal. It gives also quite a clear estimate of potential loss on every trade signal. Another very positive aspect when constructing forex trade signal based on channels is that it would give you an opportunity to trade the signal at least a few times within the same formation.

A channel normally would stay valid for a significant period of time.A trading cycle usually would start from the lower edge of the descending channel, giving us an opportunity to trade the signal, which would be a long position.For ascending channels trade signals starting from the top border, placing short trade signal. Place your stops behind the channel border and keep them tight.

A target for all trade signals based on channel trading would be an opposite border on such a formation. Your position could be realized and another trade signal could be traded in the opposite direction again.
You could construct your trade signals based on a break of the channel border. Please back up you decision with other technical indicators or use more a fundamental approach to support your trade.

A break of the top border of the ascending channel or the bottom border of descending one would not be a valid trade signal.Only a break towards top border of the ascending and bottom edge of the descending channel would be valid a forex trade signal.

The above rules make no sense when trade signal is placed on a horizontal channel. It such cases both trade signals could be placed based on the break of the channels border in either direction.Usually first break of a channel would be the false trade signal and the price would come back into the channel again.

Trading channels appear usually within strong price trend and tend to stay valid for a long time on higher time frames. Some trades would place trade signal on the beginning of the channel formation and top up positions by every price drop.

Trading channels are very much visible on the eurusd on four hour and daily charts over the second half of 2009 where this pair would follow strong trends for a long time giving nice a field to place many trade signals based on the channel formation.

Another important thing when placing trade signals based on channels is the fact, that descending or ascending channels normally would cross important resistance and support levels. When the price is gaining or dropping its value within the channel it will reach new highs or lows many times. It is crucial to take these levels to consideration. We will cover how to trade signals based on support and resistance in different material.

About the Author
If you really want to Trade Forex Signal go to forexmoneysignal.com and explore great Forex Signals

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