Trading education » Trading Strategy

Price Action Trading – Waiting For Confirmation

admin — Mon, 14 Jun 2010 17:19:34 +0000

Many aspiring Forex traders jump into the market before their entry signal has fully completed or fail to even develop a defined trading plan. It is crucial to a trader’s long-term success that they wait until all their pre-defined parameters are met before jumping into the market. In order to define a trading strategy you must define its entry and exit method. A highly effective and highly adaptable method is absolutely necessary to enable definition of entry and exit and allow for vivid confirmation of signals.

Once traders start jumping in and entering trades before the completion of their specific setup they are essentially negating their entire trading plan. The main point of developing a written out trading strategy is that it is done when you are in an objective state of mind set and are not reacting emotionally to the market. When a trader enters a trade that doesn’t fully meet his or her pre-defined criteria they are acting on emotion, these types of behaviors are what get most traders started down the slippery slope of emotional trading.

Employing an easily definable and effective trading method such as price action analysis will allow you to stay calm and wait patiently as your price setup forms and then strike with cat-like precision when the setup is complete.

The problem with many methods that traders use to trade Forex is that they have large gray areas, or entry and exit parameters that may change depending on what time frame you are looking at. The beauty of price action setups is that they show you exactly what price is doing and give you a unique perspective to analyze the Forex market on any time frame while still remaining relevant. For example, if a price action trader sees a possible pin/reversal bar form on a daily chart the signal will be noticeable on all lower time frames as well. It may be in the form of a 2 or multiple bar reversal on the 4 hour or a head and shoulders on the 1 hour.

The great thing about price action setups is that they generally confirm themselves across all time frames and leave very little to the trader’s discretion. Price action signals like any other are stronger on higher time frames and generally will be visually evident on lower time frames as well.

When you trade Forex using price action setups you can more readily attain the necessary objective mindset that is required to be consistently successful as a trader. Having a method that is easily definable and inherently reflects the very nature of the market is great tool for any trader. Waiting for a price action setup to confirm itself via subsequent price movement is the best way to be sure you are on the right side of the trade. Many traders rely on indicators which often cover up the underlying price movement and provide them with a false sense of clarity. Take the indicators off your charts and learn a few good price setups and you will see the Forex market from a whole new perspective. Patiently waiting for your pre-defined price action setup to confirm itself in the flow of price movement is paramount to any Forex trader’s long – term financial success.

By: Nial Fuller

Choosing The Right Trading Strategy For Your Commodity Forecast

admin — Mon, 07 Jun 2010 16:03:15 +0000

The first step to a profitable commodity trade is coming up with an accurate commodity futures forecast. Next is to select the right trading vehicle to turn the forecast into cash. There are countless option and futures strategy combinations to choose from. For a particular market forecast, some vehicles will work and some will not. Do I use options or futures contracts or a combination? Here’s my tips to increase your odds with the overall trade selection process.

Let’s look at some methods.

First let’s make up an UNBIASED two-month time-cycle forecast for each of the twenty-two major commodities. “Unbiased” means we try not to pay attention to the commodity name or media news, but rely only on the time cycle patterns. Also study the major trend, double and triple tops and other considerations. When in doubt, the forecast takes precedence over all other indicators.

The next step is to narrow down the twenty-two forecasts to ones that show promise. A time cycle forecast that shows a strong up-move or down-move gets put in the “possible” pile.

The time cycle forecast should be based on at least four combined individual time cycles that sometimes synchronize to produce big moves. The forecast gives time duration as well as direction. They may derived using spectral analysis and combined with a neural network, if one is so inclined; or a simple pair of dividers estimating lengths will do. The question is how strong the move will be. If all cycles are in synchronization, look for a strong, directional price move. If the cycles are conflicting, then a choppy range is more likely. Knowing when to expect a choppy market is valuable information for option writing strategies when collecting eroding option premiums.

Let’s say our initial screening gives us three market candidates forecast to trend strongly up and three to go sharply down. We now have two categories with six markets. We want to eliminate the markets that are often redundant, like soybeans and soybean meal, or silver and gold, etc.

For the trending candidates, eliminate the markets that are approaching major tops or bottoms or may have problems getting through an obvious barrier. Trending bull or bear markets that look old and tired are also dropped.

We may want to sell high priced option premiums. Take a peek at the option premiums for each candidate to see if they are historically low. If so, eliminate them for option selling.

Finally, if you are left with more than three total candidates, narrow them down again using the raw time-cycle forecast. Remember that the cycles takes precedent over other methods.

We are now down to a few markets. Next, one market at a time, use a piece of option analysis software to search for the best strategies based on the expected market move. Compare these option to option combinations against futures to options combinations for trending markets. For selling options, we will look at option spreads. Generally, spreads are used only for risk reduction, if needed.

For each forecast, there can be many strategies to screen. The computer does all the grunt work. Screen the choices down to a strategy for each forecast that is a compromise between risk, profit and simplicity. Use your market experience and intuition to pick the very best one. In hindsight there is always a best strategy we could have used. Keep this is mind when narrowing down the choices. When finished, we want to have two to three potential trades to work with. We call the selected few, “high probability, low risk trades.”

In the end you will have an optimized entry, exit and vehicle strategy for these selected market forecasts. This is the type of planning you want to do. If the trending trades work out well, you will want to implement other strategies that let you lock in profits while still holding for the big move. With the option selling strategies, you want to be able to make “adjustments” if things start out poorly. If thing go well, take profits and resell the options again if the premiums deflate quickly and leave the next strike or month series attractive. This assumes the time cycle forecast is still predicting a continued favorable move.

Remember there is more to planning a trade than just coming up with a forecast. The market may move as forecast but you can still lose by choosing the wrong trading vehicles. Pick the right vehicles and strategies that will allow you to stay in the market without excessive fear, but still carrying risk. You NEED to take on risk or the market will not pay you for your services. In addition, the vehicle has to move far enough to make a profit without letting the expense of protection eat it up. Protection can come in the form of option premiums, stop loss orders and spread strategies. Matching a forecast to a strategy is an important skill needed to succeed in trading commodities.

One last point. I often see traders making trades “just in case” the market goes up, or “just in case” the market goes down, etc. based on media news and general fears. Unless you have a strong conviction for market direction or lack of it, (a good forecast) just throwing money at good strategies will eat you up in expenses, in the end.

It’s really back to the old tripod. You need three legs to stand. The forecast must be good and have a real reason behind it. Just because the news says so is not enough. Next you need the correct strategy and trading vehicle. Vehicles, risk and survival are part of the vehicle strategy. And finally, you need the faith and confidence to carry out the plan to completion. There is a fine line between stubbornness and sticking to a plan. That’s why we need to know when to bend the rules. Rules need to be bent only when it involves matters of survival. Other matters are usually noise and our own demons attempting to unravel a well thought out program.

You don’t have to be perfect. Just plan and execute your program better than the majority and you’re well on your way.

Good Trading!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

By: Thomas Cathey

Trading Strategy – Give Your Stop Orders Room To "Wiggle"

admin — Fri, 21 May 2010 08:01:03 +0000

A simple stop order is an order to buy or sell stock, once a predetermined price is traded at or through. Buy stop orders are placed above the current price of the stock and sell stop orders are placed below the current price of the stock. Once the stop price is hit the buy or sell action becomes a market order, enabling the trade to be executed at the current market price.

There are as many ways to determine the position of your stop orders as there are traders in the marketplace. Most stop orders are placed according to a specific price, dollar move or percentage move, with 8% being one of the most common.

When placing a stop order it is important that the order be placed close enough to the current price to prevent a loss but far enough away to stay out of the stocks current range. The goal of the stop order is to prevent losses during major market swings, not to keep pulling you out of your trading strategy on simple trading range swings.

A good rule of thumb to remember is to place your sell stop orders below current support levels so that you will have multiple levels of protection in place. When buying, you will want to place your buy stop orders above current resistance levels so that the stop is only activated if the stock is making a strong upward move.

Placing your stop orders will require a certain amount of study of the stocks current trading range. Exactly where to place your stop orders will mostly be a matter of personal choice, based on your current analysis of the stocks trading range.

Stop orders should be an integral part of every trading strategy. When used correctly the sell stop order can be a useful and powerful protection tool when profit is involved. It can also be used to safeguard your positions in the event of a strong price reversal of your position.

By: Jimmy Slagle

Trading Strategy – Knowing What The Insiders’ Are Doing Is An Integral Part of Any Trading Strategy

admin — Tue, 18 May 2010 22:48:31 +0000

When it comes to leading the field of trading knowledge, we must look to the decision makers, the movers and shakers of any company you are looking to trade or invest in. It is common knowledge that directors, officers and high level personnel are the first to know about any positive or negative changes in a companies direction.

While there are restrictions in how an insider may trade their companies stock, insiders are allowed to buy and sell shares of that stock. Insiders’ trading is quite different from “insider trading”. Insiders’ trading is the legal buying and selling of stock of the companies that employ them. On the other hand, “insider trading” is the illegal buying and selling of securities based on information that has not been released to the general public.

When it comes to your trading strategy, there are two situations that can be of significance when the trades of insiders are concerned.

A sudden increase of insider purchases can be an insight into expected earnings or growth potential, expected positive changes in the company’s sector, seasonal expectations or a number of other positive expectations. A good rule of thumb to remember is this: Insiders sell stock for as many reasons as there are reasons but they only buy for one; to make money.

Another important situation to pay attention to is this: If the insiders’ trading has been significant enough to be discussed in the news, it shouts… “pay attention to me”.

The most important clue to look for is “clusters” of insider buying. A cluster of insider buying is when you see three or more insiders buying stock at the same time on the open market. This is a powerful indication that “positive expectations” are on the rise.

If becoming an elite trader, so that you can quickly, easily and intuitively determine what to do when insiders begin to buy their own stock, is something that naturally appeals to you; then we would like to invite you to visit http://www.dartthrowtrader.com and enroll in our free – DartThrowTrader.com weekly newsletter.

By: Jimmy Slagle

Forex Trader Training – 2 Misunderstood Aspects Forex Trading

admin — Tue, 20 Apr 2010 14:58:02 +0000

Many people who try their hand at Forex trading often have misconceptions about the currency market. In this article, I will reveal to you four of the most commonly misunderstood aspects of Forex trading, and what it means to retail traders like you and me.

Misunderstood Aspect #1: There are no commission fees in Forex trading

This is technically true because most Forex brokers don’t take a cut from your winnings. Commissions are fees paid to brokers whenever anyone makes money, and it is usually a percentage of how much you win.

But while there are no such ‘commissions’ paid out to brokers, many people think that this means the brokers don’t charge them anything at all. Actually, the brokers DO charge you a certain fee – it’s just not based on a percentage of your winnings, that’s all.

Instead, most Forex borkers charge a transaction fee known as a ’spread’. Essentially they charge you a small fixed amount whenever you buy a currency pair, based on the size of your trading lot. The spread usually costs you about 2-5 pips, depending on the currency pair you’re looking at. If you’re trading buying one standard lot of the EUR/USD currency pair for example, and the spread is 2 pips, the transaction fee is $20 (1 pip in the EUR/USD = $10).

So now you know that you’re being charged every time you make a trade. How will this affect your trading strategy? Scalpers should all be aware about the exact pip spread their brokers charge because they will enter into numerous trades in each trading day… a 1 pip spread difference can save them as much as $100 every day.

Misunderstood Aspect #2: Anyone can make money at all times of the day

This is misunderstood aspect is mainly due to the fact the currency market operates 24 hours a day. When the market is open at all times, it’s natural to assume that there are people making money every single minute.

However, this is quite far from the truth. Why?

As you should know by now, there is only profit potential when the market is moving. One cannot make money trading in a flat market. You’ll either need an upward or downward market movement to make money.

And if you look at the trading charts, you’ll notice particular periods of each trading day when volatility is relatively low – these are typically the non-U.S. and non-London market trading times when the American and European institutional traders are not active (it’s after-office hours for them).

But that’s not to say that no one can make any money during periods of low volatility; it’s just that the period of time when the most money is made is during the U.S. and London market trading hours when volatility and liquidity is high.

By: Harold Hsu

FX Trading Strategy – To Win it Must Contain These 3 Vital Elements

admin — Tue, 13 Apr 2010 15:27:56 +0000

If you want to win with your FX trading strategy make sure it contains these key elements otherwise you will be doomed and join the 95% of losing traders.

1. It must be Your Strategy!

Don’t fall for the hype that some junk robot will give you success or a guru or mentor there are plenty sold online with huge profits in simulation but they don’t work – no one gives you something for nothing and forex trading is no different.

Even if you have got the forex education from someone else, you must understand it and have confidence in it so you can follow it with discipline – discipline is the key, you must be able to ride out losing periods and wait until you hit a home run.

If you don’t have confidence you will never be able to do this make sure you have it.

2. You Must Understand Your Edge

Your trading edge is the reason you will win when 95% of other traders lose and you must have confidence and understand what it is and it must be based on sound logic.

Many people think they have an FX strategy based on sound logic and do the following and lose.

- They try and predict market prices

- They follow bogus scientific theories

- They trade news stories

- They day trade and try and scalp

- They follow experts

All the above will see you lose if you don’t know why, continue your forex trading education until you do.

Your trading edge is something that is personal to you and can be based on a simple forex trading strategy you can execute with discipline – that’s enough, remember simple systems executed with rigorous discipline work!

3. Play Defence First

When you are trading on leverage you need to trade great defence first and always protect what you have this means rigorous money management rules and money management is much more than placing a stop!

If you don’t keep your losses small you will get wiped out – sounds obvious?

Well most traders don’t heed it and use leverage of 200 or 300:1 on a few hundred bucks, 10 or 20 is enough.

Forex trading can make you a lot of money but if you expect not to have to work your in for a rude awakening.

Do your homework, get confident and make sure you have the discipline to stick with your FX trading strategy and follow it through drawdown periods, to long term success and the rewards if you can do this are huge.

By: Kelly Price

Trading With Good Penny Stock Listing Options

admin — Sun, 11 Apr 2010 14:10:01 +0000

Stock trading can be easy if you equip yourself with the right information. If you’re a beginner in stock trading investment, you can begin by investing your money in online stocks, start by trading in small investments and good penny stock listing options. These are good ways to begin with, as well as gaining experience and creating your own workable trading strategy. For beginners like you, it’s best to rely on a good online stock trading firm to help you start up.

The two tools you will need in order to trade successfully is: a good and reliable online stock trading firm and several very reliable and fast stock trading information portals. Begin by surfing for an online brokerage firm that offers free start-up accounts.

If you go online, you can find several online brokerage sites offer courses on online stock trading. These sites also offer services like small stock options, penny stock listing information, as well as stock news and data reports. Sites like these also offer advice and services on how to start buying and selling online, as well. Choose a site that you like and whose registration process and site navigation are easy to understand and maneuver through. Pick one that not only offers the courses on online stock trading, but also has great turnkey applications and solutions.

Getting the right stock information is vital to learning how to become a good online stock trader. The most common kinds of stock information you can get online (through your online stock trading firm) are updates on your stocks, updates on new shares and penny stock listing options, and other stock market information that you can use in your buying and selling.

Aside from relying solely on information given by these trading sites, you should also do your own research and browse through stock market news sites that cater specifically to the online stock trading community. Check for through online stock news portals, daily streaming stock quote and data and charts, and penny stock listing reports, and other stock updates.

Stock market reports, penny stock listing data, and specific stock options that you may be interested to invest in are just some of the information you can find in these stock market news sites. Be cautious, though: Don’t be taken in by sites that say you don’t need to learn about online stock trading. Online stock trading requires knowledge and experience, even for non-professionals who have been doing it for years. Start with small investments and penny stock listing options that are solid and reliable. Don’t go for the kind that is highly erratic and unreliable.

Starting your online stock trading education with small stock investments and penny stock listing options is a great way to learn how it’s done. These investments are the perfect training grounds for you to develop experience and your own working trading strategy. Eventually, when you move on to trading bigger stock investments, you’ll be able to apply what you’ve learned and find that online stock trading is a sound and reliable way to invest your money.

Remember that the keys to learning about stock trading is starting with small investments and good penny stock listing options, learning how the market works and gaining the tools and valuable experience to be able to buy and sell shares, and lastly (but not the least, by far), getting the vital information that you need to ensure that whatever trading movement that you do, it’s always the best move you can make.

By: Zachary Riff

International Currency Trading – An Opportunity For Wealth For Wealth For All

admin — Tue, 16 Mar 2010 17:29:48 +0000

Could you make money at international currency trading? The answer is yes – but you need to understand a few key points as, it’s a well known fact that 95% of traders fail. So let’s look at the advantages and how to avoid the pitfalls and enjoy currency trading success…

Anyone can trade – but most fail and first you need to learn currency trading the right way and get yourself a solid forex trading education.

First avoid the myths and there are plenty of them, so here are some common ones to avoid.

- Day trading and forex scalping makes money

- Following a forex trading robot with simulated track record will see you win

- You can trade news stories

- You can predict forex prices

- You can earn a regular monthly income with little or no drawdown

All of the above assumptions are wrong so avoid the myths. Forex trading is NOT easy and as the potential for profit is so high, you wouldn’t expect it to be easy. The good news is anyone can build a forex trading strategy for success.

Here are some points to put you in the right direction with your forex trading system

- Keep it simple as simple systems work best and have fewer elements to break.

- Learn the system don’t try and follow anyone else. You need to know what your doing to have confidence

- Base your strategy on forex charts and use the reality of changes in price to execute your trading signals

- Do NOT trade news events, these are discounted immediately and your playing catch up

- De leverage sure you can get 200:1 but 10:1 is plenty for most traders – Over leverage destroys equity quickly as your stop has to be to close

- Base your trading strategy on breakouts to start. We have written on this frequently and it’s a high odds way of trading

- Be patient! Only trade sparingly, the big high odds trades don’t come around often so wait for them.

The big key to winning at international currency trading is having the discipline to execute your plan and this is built on confidence in what you are doing. You can’t follow anyone else – you’re on your own.

With the rise of electronic online trading we have seen a huge rush of naïve and greedy traders enter the market, who think trading is easy and the facts point to the opposite.

For the forex trader, prepared to get the right forex education and work smart with a disciplined mindset the potential is huge.

The world of international currency trading offers you the potential for currency trading success either via a good second income or a life changing income. Sure it’s a challenge – but if you are prepared to work smart, get the right education and adopt the right mindset, you can win.

Are you up for the challenge?

By: Sonia Kristina

Free Forex Trading Strategies – 2 X Trading Systems the Pro’s Use That Have Made Millions in Profits

admin — Mon, 08 Mar 2010 22:24:56 +0000

It always amuses me, when traders buy Forex robots for a hundred dollars or so and thinking they will get rich with them – but none of them work as they have never been traded in real time and are simply back tested simulations. The 2 Free Forex trading strategies we will look here, have made hundreds of millions in real time profits, lets take a look at them in more detail.

The systems we will look at have worked for over 25 years and unlike the popular Forex Robots you see for sale online, these systems are from trading legends not just programmers, these systems work in real time, not just in back tested simulations.

The first free Forex trading strategy we we will look at is “The 4 Week Rule” which was devised by the grandfather of modern trend following Richard Donchian. We have written in detail on this strategy, in other articles but in summary, its a one rule, trend following system which is based on breakout trading. While incredibly simple it works and always remember, the best trading systems are simple, as they have fewer elements to break than complex ones.

If you apply the 4 Week rule correctly, you can make some great long term Forex profits with a system that has stood the test of time.

The next strategy we will look at which you can get for free, comes from Richard Dennis, who incidentally, was also a fan of the 4 Week Rule; His strategy was based on the same logic, trading long term trends via breakouts and it made huge profits. The rules he devised, were used by a group of novice traders to show that anyone, with the right education and system, could win at Forex. Dennis was proved right and in just two years, his group of novices made $200 million real time dollars with it!

The system rules are available free and if you look at the strategy it has all the elements a good strategy has and I personally think, any traders should look at it for the money management rules which are a great example of how to preserve equity. The system is less effective today than when it was first used, as markets have become more volatile but for showing you the basics a good strategy needs to succeed its a great system to look at.

Two simple systems, by true trading legends you can learn from and there both free! Look them up and make them part of your essential Forex trading education and if you learn from them, they will help you enjoy currency trading success.

By: Samuel Leslie Berkovits

Forex Trading – The 3 Key Building Blocks for Huge Forex Profits

admin — Fri, 05 Mar 2010 07:32:04 +0000

Here we are going to look at the 3 key points you must consider if you wish to achieve forex trading success. Fail in any of these areas and you will lose.

1. Get the Right Education

To make money at forex trading you don’t need to work particularly hard – but you do need to get the right knowledge and learn it. Most traders don’t and fall victim to common forex trading myths. Here is a list of them, believe any of them and you are guaranteed to lose.

- You can make money with forex day trading

- You can predict forex prices in advance

- You should buy low and sell high to make money

- You can trade off news stories

- You need a complicated forex trading strategy to win

- You can follow a simulated system from a vendor and make money

- Forex trading is easy

Believe any of the above and you can say goodbye to your equity.

If you want to get the right forex education and knowledge you need to spend some time learning the basics and developing a strategy you understand, because this leads onto the next vital ingredient for currency trading success:

2. Confidence

Most novice forex traders simply think they can make money following someone else or trading news stories. They have no idea how and why the markets move and when they hit a few losses, they have no confidence in what their doing and that’s the end of their forex career and their equity.

Now let’s look at the vital ingredient all traders need to succeed that flows from confidence:

3. Discipline

If you don’t have confidence in what you are doing, then you will never have the discipline to sit through a period of losses and wait for winning trades to return.

One of the biggest myths of forex trading is that you can earn a consistent living and a regular monthly income – its rubbish you can’t!

Even the best traders will spend weeks or months in periods of drawdown and you will to. Sure, you can make huge gains over the longer term – but there not spread evenly across the year.

If you don’t have discipline to take short term periods of drawdown and still keep trading, you don’t have a trading method at all.

If you want to win at forex trading the good news is:

If you work smart, you can learn to trade in just a few weeks.

If you have avoid the myths and get the right knowledge, you will be confident in what you are doing. From this understanding and confidence you will achieve discipline. You need the discipline to stay with your method through short term losses and stay with your system to achieve longer term success.

95% of traders lose and this group simply do not understand that to make big profits, you need to have a simple robust trading system; you have confidence in and the discipline to follow it.

If you understand the above you will be able to put the 3 building blocks together and achieve forex trading success – it really is that simple.

By: Kelly Price